I don’t exactly understand why this particular post made it all the way up the rankings to be the sixth most read post on my blog in 2024, as substantively it isn’t anywhere near as interesting to me as most of the other posts in the top ten, which discuss more novel or esoteric aspects of ERISA or insurance litigation. However, my best guess is that it was popular because it focused on one of the most evergreen, yet often misunderstood, topics in ERISA litigation – the role and impact of arbitrary and capricious review. I have a lot I could and would like to say on that topic, both today and every day, but that would require me to sit down and write for a while, something I have already done once today so as to write this LinkedIn post on the insurance markets in the face of pandemics and wildfires. So instead, without further delay, here is the sixth most popular post on my blog during 2024, “What Does Arbitrary and Capricious Review Really Mean, Anyway?”

Story after story keep telling the same story – that class action litigation against ERISA plan sponsors and fiduciaries is a growth industry. Encore Fiduciary’s Daniel Aronowitz and Karolina Jozwiak have a great, data rich piece out in Planadvisor documenting this fact, and the legal media world is all atwitter about the latest new way to sue a plan fiduciary, which is by accusing him or her of the dastardly deed of considering ESG factors in selecting investments.

I mention this because it is a perfect lead in to my seventh most popular blog post of the year just gone by, which was a plea for plan sponsors and their insurers to invest in reining in the run away costs of this type of litigation. I had fun with writing it, but it was driven, at the end of the day, really by a certain level of frustration with the status quo in the legal and insurance world with these types of cases. And with that lead up, here is the seventh most popular post on my blog in 2024, “A Modest Proposal for Solving (At Least Part of) the ERISA Class Action Litigation Crisis.”

It’s interesting. Blog posts have “legs” (you should get the intentional pun in a minute) for all sorts of reasons, and it can be hard to figure out why in any particular case. With regard to my eighth most popular blog post of 2024, it might have been the great picture of horses racing (there – that’s the “legs” pun) or it might have been the thoughtful discussion of how a judge’s views on summary judgment as a tool and the inherent standards can affect the outcome of a case. Regardless, as I continue with my countdown of my ten most popular blog posts of 2024, here is number eight, “Horse Races, Judges and Summary Judgment: Further Thoughts on Sellers v. Boston College.”

Continuing with my countdown of my top ten most read blog posts of 2024 – as chosen by you, the reader! – leads me today to one of my favorite topics, namely the increasing targeting of small (relatively speaking) ERISA plans by class action firms bringing suits alleging that the plans were too expensive. In my ninth most perused post of last year, I discussed the similarity between these types of suits and the strike suits filed against companies that I defended in a past life as an IP litigator (I used to have more of a general commercial litigation practice, of which I would joke that one half was insurance coverage and bad faith litigation, one half was ERISA litigation and one half was IP litigation) and what we can learn from that comparison. The post was “Why Turning Excessive Fee Class Action Litigation Into More of an Insurer Managed Exposure Will Benefit Both Insurers and Plan Sponsors” and you can find it here. Hope you enjoy it.

When I was growing up back in the seventies, one of the highlights of the end of the year was that the rock stations would all compile lists of the top songs of the year, and then play them all in one long countdown – often without any ads! There was no Spotify yet, or Spotify Wrapped, so this was about the only way you could hear the year’s top songs in review.

Taking my cue from the disc jockeys of that era, I am launching today my countdown of the top 10 read posts of the year on my blog. I confess that some of this is because I spent some time over the holidays learning how to use Google Analytics, and now I want to put that effort to work.

So without further ado, here is number 10, the tenth most read post on my blog in the year just ended: Generative AI, Nuclear Verdicts and Insurance Bad Faith: My Takeaways from DRI’s Insurance Coverage and Practice Symposium.

Like many lawyers with expertise in insurance coverage, I was immediately contacted after the pandemic hit by business owners – often restaurant and bar owners – about seeking business interruption coverage under their insurance policies. My usual conclusion was that you could at least submit a claim and see what happens, but that, unless you had particularly deep pockets and/or large losses, I didn’t suggest bringing suit. My advice was based on two points: first, that recovering insurance benefits under the facts of the losses and the coverage terms was going to be difficult and, second, the statute of limitations would allow them to wait and see how the case law shook out on the issue before making a decision.

Time would show that my advice was pretty good – most jurisdictions and courts have since found there to be no coverage under business interruption coverage (also known as business income insurance, in the same way and for the same reason insurers sell and consumers buy life insurance, not death insurance) for pandemic shutdown related losses. The big insurance story of December, however, was the North Carolina Supreme Court finding to the opposite, and holding that, at least with regard to policies that did not include an express exclusion for losses due to viruses, coverage does exist for such claims.

To me, this is almost an epistemological question or perhaps an etymological one, in the sense of determining what meaning should be assigned to the language used in the general insuring grants of business interruption coverage where, in truth, there was almost certainly never an actual meeting of the minds between insurers and insureds over the scope of that coverage and its application to an event as unexpected and unprecedented as the pandemic and its related shutdowns. Certainly insurers who issued such coverages with an express virus exclusion were anticipating such a risk, even if they could not have anticipated its exact parameters, and insureds or their brokers were on notice at the time of the purchase of the insurance that coverage for virus driven shutdowns was not something they should reasonably expect.

But the story is not necessarily the same with regard to policies that provided business interruption coverage but did not include a virus exclusion. It is probably not fair to assume that an insurer that left such an exclusion out was actively planning out what coverage it intended to sell for a virus driven pandemic, and I highly doubt most insureds ever even read that coverage – yet alone considered that question – at the time the policy was purchased. Most courts and most insurers have simply fallen back on the scope of the insuring grant itself, which doesn’t quite reach the events underlying the pandemic based shutdown and related losses, leading to the absence of coverage. But the language itself isn’t crystal clear in that regard, and there is room to argue over it – even if, in most courts, insurers have prevailed on the question.

This is where, I think, the general rules, standards and principles of contract interpretation – beyond just the usual application of interpretative cliches in coverage disputes such as those favoring insureds where language might be deemed ambiguous – have a role. In contract law, numerous interpretive doctrines, approaches to unclear contractual terms and rules for the use of extrinsic evidence exist that are used to determine the meaning of the contract where the language used by the contracting parties doesn’t sufficiently resolve the question. From both a practical and doctrinal perspective, insurance coverage disputes typically are not decided using the same approach or by use of these same interpretive tools and approaches.

Here, though, adopting and fully applying those same rules is likely the best way to conclude what the scope of the business interruption coverage really is or should be with regard to pandemic related closures, in circumstances where the policy lacks a virus exclusion. Full use of all the tools of contract interpretation, including close study of extrinsic evidence, would be the best way to reach as accurate as possible a conclusion as to whether business interruption coverage should, as a matter of contract interpretation, be extended to pandemic era shutdowns.

So two stories today give me a soapbox to address one aspect of ERISA class action litigation and the push back from plan sponsors and their fiduciary liability insurers against the costs imposed on them by this line of litigation. One story, which to protect the innocent I won’t otherwise identify, involves court approval of a small dollar settlement of a class action excessive fee case that undoubtedly imposed significant defense costs on the defendant or its insurer. The other is this story, from Kantor & Kantor, on a decision out of the Second Circuit that, in the view of the author of the tale, raises the bar on class action plaintiffs – more accurately, on their lawyers – for even bringing and moving forward (presumably eventually towards settlement, which is the normal course of resolution of these types of claims) with an excessive fee class action.

For a long time now, there has been a continuing tension between the many legitimate excessive fee class actions brought against plan sponsors and fiduciaries, on the one hand, and the costs of defending those actions in circumstances where the claims have little merit on the other. My preferred recommendation for balancing out these competing interests has long been that plan sponsors and fiduciary liability insurers uniformly and consistently try these actions to verdict. While perhaps expensive in the short run in terms of the costs of litigation, experience shows that over the long run, this will separate the wheat from the chaff, leading to fewer, but more meritorious, cases being brought. The end result of that process will be continued reimbursement of plan participants who have actually been injured and the continued pressure for better performance that this line of litigation has placed on plan sponsors, without the endless parade of “strike suit” type cases that drain the pockets of insurers and plan sponsors for the benefit of no one other than the lawyers for the class plaintiffs and the lawyers for the defendants. My long standing views on this point, incidentally, have been validated by the results of trials of these types of cases, which have proven that – contrary to the fears of the defense bar – they can be won at trial by defendants, even in front of a jury.

But there is another middle ground too, that is open to plan sponsors and their fiduciary liability insurers, that is likely to be less costly in the short run then paying for an endless parade of trials and still likely to drive down the overall, macro level costs incurred by defendants and insurers as a whole from this form of litigation. This requires combining a thoughtful litigation campaign intended to both raise the barriers to suit and to reduce the costs in those cases that still go forward, with a business decision to start treating class action ERISA litigation like the commoditized type of litigation it has, in fact, become in many instances.

Lets start with the litigation campaign part of the prescription. I know that the phrase itself – “litigation campaign” – can sound nefarious, but it means nothing more than a thoughtful, coordinated approach to a broader problem that can be addressed through the courts (and it is something that has, in fact, been pursued in many contexts and for many reasons for many years). Here, it would require that fiduciary liability insurers and plan sponsors litigate their defense cases in ways intended to have courts use their power to control the cases before them in a way that will control and, where possible eliminate, much of the costs of such cases to defendants and their insurers. We all know that defendants already seek to resolve these types of cases, whenever possible, through motions to dismiss and that some courts and circuits are more open than others to testing the viability of such cases at that stage. But what about after that, if the case continues after a motion to dismiss has been denied in part or in full? There are still numerous avenues open to both defendants and the courts – even after that stage – to control the costs of such cases. For instance, if the denial of the motion to dismiss was based on certain factual issues presented by the complaint and those could be resolved early thereby leading to resolution of the case (or at least to substantially reducing its scope), then the defense should press the court to stagger the case so that targeted discovery and partial summary judgment motions can be pursued on those issues before class discovery, class certification, broad fact discovery and (cost of all costs), expert retention, disclosure and depositions, are undertaken. If this stage doesn’t then end the case outright, there are multiple ways to structure the case from that point forward that could allow for multiple potential off ramps, whether by means of a court ruling on the merits or by settlement, at different times, thus allowing for the costs of the case to be controlled and to only be incurred as, when and to the extent warranted.

That is as much on this particular point as I will say for now, but if anyone wants me to write a white paper detailing this approach in its entirety, I could and will be happy to do so – but that is beyond the scope of this blog post. This is enough, though, for any reader to get my drift. Plan sponsors and their insurers, along with their defense counsel, should consistently seek court intervention and structuring of these cases in this way, rather than continuing with the current default approach, which is to move to dismiss, and then dive right into full scale discovery, concluding only with either settlement or, at the end of the entire mind numbingly expensive process of discovery and expert disclosure, summary judgment practice.

Anyone who has done this as long as I have can visualize the proposed case schedule and discovery controls that defense counsel could propose to the court in this regard at the outset of the case, during the initial scheduling conference typically held by the court early on in a case. Defendants, fiduciary liability insurers and their defense counsel should thoroughly and assertively present such an approach to the court every time in these types of cases. Will every court agree to such an approach? Of course not. Will enough agree that it might, over time, eventually become the new, and less costly, norm for defending such cases? Maybe – and there is only one way to find out.

The second part of my prescription requires that insurers and defendants start accepting that, no matter whether courts raise or lower the bars on these types of cases, they are not going away, and begin asserting their own ability to control the costs of these cases. A good starting point on this is for insurers and defendants to start recognizing the commoditization of these types of cases, along with the opportunity it provides to reduce the costs of defense. There is simply nothing novel about these types of cases at this point and there is nothing so new under the sun in the migration of these types of claims to other potential class liability theories – such as those involving health plans and forfeitures – that there is some particularly sophisticated nuance to those either. They can be litigated just as successfully by litigation boutiques, regional firms and the like who have, either internally or by retention of co-counsel, access to ERISA expertise, as by the largest and most expensive firms in the world. Insurers have plenty of experience at managing the costs of large exposures – and if insurers are serious in their complaints about the costs to them of these types of cases, it is time for them to start doing so here as well, including with regard to the selection of counsel. I have spent enough time in my career around the best of the firms and lawyers servicing the insurance industry to know that the outcome of these cases won’t change, and might be improved, by such an approach.

And it isn’t just about selection of defense counsel in this regard. Insurers have long utilized various tools to oversee defense counsel and legal strategy in insured claims, such as using monitoring counsel with subject matter expertise to help balance strategy and tactics against costs. Insurers may need to start deploying the full panoply of those tools in this context as well, if they haven’t done so yet.

It’s interesting. I have been at DRI’s 2024 Insurance Coverage and Practice Symposium all day, and much of the discussion is either directly about or tangentially related to the impact of artificial intelligence on insurance. To me, the consistent theme that underlies all of the discussion is the ability of AI tools to improve the industry’s ability to understand, interpret, manipulate and manage massive amounts of data (and also the risks of bad faith claims from doing so).

I was thinking about this because of this article, coincidentally also today, in the Guardian which shows that homeowners premium increases in various parts of the United States align consistently with the extent of that particular part of the country’s increased risk of loss from climate related events. Now I am not saying that this is due to AI or its use by the insurance industry – but the relationship between the two almost certainly is not an accident and by definition must be the result of ever more focused and skilled underwriting that is allowing homeowners insurers to link premiums to the specific risks of specific regions of the country, rather than simply spreading risks and premium increases randomly across large swaths of the United States. And those specific regional risks, it goes almost without saying although the article does so, are climate driven.

AI driven or not, this type of sophisticated underwriting is about having and applying a high level understanding of the data – something that AI tools should, eventually, only improve.

This is a great, and I think pretty even handed, article by Bloomberg on litigating LTD claims under ERISA. Although the headline and the central thrust of the article are about obtaining LTD benefits for claims of long Covid, the article really does a nice job of explaining the entire LTD claim process and the inherent litigation issues for any type of claim for LTD benefits.

What I particularly liked was its discussion of the importance of the appeal process during the administrative claim proceeding, prior to an insurer issuing a decision on the claim and before any litigation could be filed over a denial of the benefit. As a matter of law, the entire administrative process in front of the insurer, seeking an award by the insurer of the LTD benefits, must conclude before the claimant can sue to recover the LTD benefits. There are some, very narrow, exceptions to this rule, but they seldom come into play or actually apply (no matter how many times lawyers for claimants argue that the exceptions apply). Furthermore, again as a matter of law and subject to certain limited exceptions, once that claim process in front of the insurer has concluded and the claimant is thus able to file suit seeking an award of benefits, the claimant and the insurer are generally restricted in the court case to the evidence that was submitted to the insurer during the claim process.

As a result, the single most important stage of a claim for LTD benefits isn’t actually the court proceeding, but is instead the administrative claim process before the insurer and the submission at that time of relevant medical evidence, either supporting or negating the claim of disability. The article does a nice job of highlighting that the key to a successful LTD claim is how well the claim is evidenced and documented in front of the insurer during the claim process and before any suit is filed – because by the time the suit is filed, it is too late, in many cases, for any more of that evidence to be put into the record.

There’s an old New Yorker cartoon that shows a grandfatherly man talking to a younger man in a library, and he says to him that “Those who don’t study history are doomed to repeat it [while] those who do study history are doomed to stand by helplessly while everyone else repeats it.” Am I the only one who remembers when “W” wanted to turn our future social security benefits into, essentially, personal defined contribution accounts for Wall Street to manage? Whether you remember it or not, the idea has come back again, like a vampire that hasn’t had the stake fully driven through its heart, only this time in the idea of giving private equity access to managing funds in 401(k) plans. Note that I said 401(k) plans, not pension plans – if pension plan sponsors want to turn their plan assets over to alternative asset managers to invest, knowing that they will have to make up the shortfall if the investment goes south or is so costly that it may as well have gone south, bully for them, as they are both calling the tune and paying the piper for the song.

But there is a whole host of reasons why that isn’t the same story with 401(k) plans, and I will just briefly catalogue them here, off the top of my head and superficially – with the hope that either others will discuss each one in more depth elsewhere or that I may later have the time to return to one or more for an in-depth discussion.

First, 401(k) accounts long ago stopped being some form of supplemental retirement savings account for employees, instead becoming the sole opportunity for retirement income for most (and at best a second rate replacement for pensions, from the point of view of most employees). It is a fiction to pretend that any but the smallest portion of those investors is sophisticated enough not to be an easy mark for speculative investments or even good investments that happen to either pose high risk or impose high fees. The proposal risks a continued downward slide for employee retirement income, from pensions to defined contribution plans to speculative and risky investing for retirement. That is not something that retirement security across the society, which is mediocre at best, needs.

Second, private equity isn’t exactly known for the transparency of its fees, costs and expenses. Recent studies suggest that, even with regard to mutual funds held in 401(k) plans and even after regulatory investment in targeting the problem, vast numbers of 401(k) participants do not know or understand the fees in their plans or the long term impact on their retirement readiness of those fees. This latest idea won’t exactly go far towards alleviating this problem.

And third, the plaintiffs’ bar just went to bed dreaming of holiday treats. They have had to move on from the relatively easy pickings of suing plan sponsors and fiduciaries for excessive fees in their plans to more difficult theories, like plan forfeitures and health plan costs, as fees on mutual fund based plans have come down (often in response to years of class action suits over them). Just wait till the fees and expenses of private equity investments start showing up in defined contribution accounts – plaintiffs’ class action lawyers must be licking their chops at this prospect.