It’s hard to prevent AI from becoming the theme of any end of the week roundup of the news, and that is true here as well to some extent, particularly with regard to the potential risks that AI poses for employers who offer benefit plans. However, I have managed to sneak in some stories about health insurance, including COBRA, this week as well.

  1. Here’s a good article on insurers quietly moving away from covering AI risks in business operations. It’s slightly ironic because insurers are clearly moving towards incorporating AI throughout claims and underwriting operations, but it’s understandable – their own AI based operations are a known risk and one they have control over, whereas insureds’ risks in this regard are much more amorphous, harder to pin down and subject to a great deal of variability with regard to the dollar value of the risk. In any event, the extent of insurability for AI risks is something that businesses adopting AI in their processes need to pay close attention to.
  2. This is a great article on the labor market theory of monopsony. Why am I discussing it here, other than that I like the subject and the article is well-written? Because it is really about the existence of market forces and the extent to which their absence distorts a market, in that case concerning employee compensation. There are a lot of ways to distort a given market, and the decades of class action litigation over retirement plans were originally triggered by a 401(k) marketplace rendered not fully competitive by a lack of transparency and questionable compensation structures and designs. Years of litigation and regulatory action eventually dislodged the worst of that phenomenon. But this isn’t just a nostalgic point. There are currently a range of behaviors preventing the marketplace for health benefits from being fully or even substantially competitive, from the point of view of a given plan sponsor or participant. Regulatory changes targeting this, along with legal challenges to it, are already underway – and you can easily characterize the latest phase in ERISA regulation and litigation as an effort to make this particular market a more open and competitive one.
  3. I like this article discussing the liability risks that are inherent in using AI for making business decisions and in business operations. The discussion in the article of the risks of misrepresentations inherent in using AI to generate statements attributable to the business or documents published by it has particular relevance in the context of ERISA. It’s easy to picture inaccurate summary plan descriptions, fee disclosures or other mandated documents being generated by AI – and it’s also easy to picture the liabilities and lawsuits they could trigger.
  4. AI hallucinations in legal briefs are, in fact, completely avoidable, and by now everyone knows that Sullivan & Cromwell has become the highest profile example of a law firm failing to do so. If any of you missed it, here’s a good story explaining what happened. But the risk of AI hallucinations are hardly limited to court filings. I was quoted in an excellent Bloomberg Law article discussing the fiduciary liability risks for employers, plan sponsors and plan fiduciaries posed by the use of AI, and the risk of hallucinations, in 401(k) plans. The article is behind a paywall, but you can find a summary and a link to it here. Why is it important enough to bring to your attention here? Because if AI begins putting inaccurate investment performance and other financial data into the 401(k) ecosystem, it will be opening up Pandora’s box for employers, plan fiduciaries and employees.
  5. I have said before that no one explains complicated health and welfare benefit issues in plain English better than Brian Gilmore of Newfront, and he has done it again, this time with regard to COBRA subsidies for executives who have been terminated. It’s well written enough that even if you don’t think you have any interest in this topic, you will change your mind by the time you are partway through. With mass layoffs across the senior ranks of major employers seemingly a daily event these days, it’s particularly timely information.

Last week’s Five Favorites for Friday post ran a little heavy, with a focus on five different issues and articles concerning the Department of Labor’s new proposed regulation intended to somehow reduce class action litigation and increase participants’ exposure to alternative investments all at the same time. That seems like a trick worthy of Penn & Teller, or at least of a lawyer version of the duo.

So this week we are going both a little lighter and a little more eclectic, all at the same time, by discussing a wider variety of articles and topics, including the corporate overlord in the Alien movies.

  1. The other week I discussed an article totaling up all of the class action filings in New England in 2025 and which suggested that the concern that there is an excessive boom in ERISA class action litigation might be overstated. Lo and behold, and naturally enough, now comes this Bloomberg Law article documenting that 2025 was so last year, and that there is a verifiable boom in ERISA class action filings in 2026. (Hat tip to my colleague Caroline Fiore for forwarding the article to me and pointing out this finding). What’s most interesting to me is the discussion in the article about the fact that the filings, and what they allege, seem to ebb and flow depending on what areas of ERISA class action claims are succeeding. One observer notes that class action lawyers go where the money is, so to speak, and there are thus more filings in the ERISA space than in others because class action lawyers have noted a higher degree of success in the ERISA area than they can find in other areas of class action litigation. Similarly, the article points out that class action filings related to forfeiture claims are down, presumably because those claims have not fared well in the early going. There’s a lot one could say about this, but for now I will limit myself to this point: if filings decline on losing theories and increase on theories that are successful, doesn’t that undercut the narrative – even if just a little bit – that the boom in ERISA class action filings is due to meritless claims being filed? And that instead the litigation system is working the way it’s supposed to, by allowing meritorious claims to proceed while winnowing out the poor ones?
  2. Not that any of that much matters, because worrying about the ratio of meritorious ERISA class actions to frivolous ones is an artifact of the decade long boom in retirement plan litigation. As I have written many times before, we have now entered the era of class action litigation over health and welfare benefits, where the lack of transparency, high costs and conflicted decision making that plagued retirement plans years ago is only now coming under the bright light shined by the class action bar. This point is discussed nicely in this article. But what I really like about this article is its emphasis on the increased access to data in the AI age, and the fact this is likely to empower the plaintiffs’ class action bar when it comes to these types of cases. That’s just going to add to the perfect litigation storm that is headed directly at employers, plan fiduciaries and brokers when it comes to health plans.
  3. As an armchair economist, I enjoyed this article in Planet Money comparing rapacious employers to the corporation in the Alien movies who convinced employees to face the murderous creature by invoking clawback provisions in their employment contracts. No, really – that’s what the article says happened! In that idea, though, is a representation of one of the great distinctions between employment law and ERISA law (which as any employment lawyer who has tried to litigate an ERISA case will tell you, aren’t actually the same thing), namely that while employment law may run towards being pro-employer in many circumstances, ERISA – particularly once you get away from disability plan litigation, where the standard of review is stacked against employees – gives a lot of tools to employees and their lawyers. Whether it’s the current power of the ERISA plaintiffs’ class action bar, the high standard for fiduciary conduct that is literally written into ERISA itself, anti-cut back rules that limit reduction in benefits, Section 510 – which makes retaliation against participants seeking benefits illegal – or a host of other rules and provisions, ERISA gives employees and their lawyers a lot of firepower. There’s no way that corporation in Alien could have forced the employees in to face the creature by targeting their retirement benefits – that wouldn’t have worked.
  4. One could have predicted this. In last week’s Five Favorites for Friday post, I catalogued a series of complicated issues (and corresponding risks for plan sponsors) inherent in any decision to add alternative investments to 401(k) plans in response to a new Department of Labor initiative in this regard. Bloomberg Law reporter Brett Samuels took the temperature of plan sponsors and fiduciaries on the issue, and found that while financial industry types who are certain to profit from the initiative are very excited about the idea, plan sponsors and their lawyers aren’t so keen on it. Brett spells it out here. This is pretty smart of plan sponsors and their advisors. They face serious risk from this course of conduct and so deciding to be a later adopter, not an early one, of alts may be the safest course. At a minimum, by waiting, they will eventually end up with a better sense of what the litigation environment on this issue turns out to look like, before they ever expose themselves or their plans.
  5. Wow. Just wow. I had multiple very deserving candidates for the number five spot in this week’s post, but they all got trumped (no politics intended, but I have decided to reclaim the use of that word, which is very useful when writing) by the amazing story in Crain’s Detroit Business of the ERISA class action brought against Blue Cross Blue Shield alleging that it profits from its own mistakes as the administrator of self-funded health plans. Now, I have both represented and sued TPAs, including of self-funded health plans, and I don’t think anyone expects they won’t make mistakes when administering complicated plans. But the allegations here are remarkable. Unfortunately, you cannot access the article itself if you are not a subscriber, but you can find an excellent synopsis (as well as a link to the article if you are a subscriber or want to become one) in this LinkedIn post.

It’s déjà vu all over again, as the famous quote goes.

The great thing about being a lawyer long enough is that eventually, everything that is old becomes new again. Early in my career, I was coverage counsel for an insurer who issued policies to various ancillary defendants in the tobacco litigation brought by states across the country. The current state action by the Commonwealth of Massachusetts against Meta alleging Chapter 93A violations is – from at least a meta level (pun unquestionably intended) – in many ways the same case all over again. This time, it is allegations that product design features in the platform resulted in social media addiction and harm to young users, and which, combined with misleading statements by Meta, violated Massachusetts’ consumer protection statute, Chapter 93A.

A new decision from the Supreme Judicial Court greenlights this theory of liability, finding that it is not barred by Section 230, which imposes certain protections on internet providers related to their content. The Court here lays out its view of the proper scope of Section 230 protection, finding that it provides a limited, although broad, scope of immunity, but not one so broad as to insulate an internet provider, such as Meta, from liability for its own actions, including under state product liability law (at least by inference) and under Massachusetts’ consumer protection law. The conclusion, and the future it opens up, is eerily similar to the way decisions in the tobacco litigation, over time, upended the assumption that numerous barriers either practically or legally barred – or at least made fundamentally unworkable – such litigation.

If you know the path trod by the tobacco litigation brought by states decades ago, then you can map out the future path of this litigation. It may not play out exactly the same way as did the tobacco suits, but from here you can see the roads, the offramps and the different routes it could travel.

I am going with a special edition of the Five Favorites post this week, solely covering five stories about the Department of Labor’s new proposed regulation addressing the issue of adding alternative assets, such as private equity and crypto, to the investments offered in 401(k) plans. For each one, I have included my own questions or comments on the aspect of the regulation covered by that particular article.

This is a totally selfish approach to this week’s post in the series and to my coverage of the regulation, in that every day I find an article that interests me about the reg and I keep finding new angles for thinking about it. So rather than write daily on the subject – thus almost certainly boring both myself and any faithful readers within a few days – I am capturing them all in one fell swoop.

  1. Seems to me the proposed regulation literally (metaphorically speaking, anyway) paints a big red target on the backs of any plan fiduciaries who allow alternative investments into their plans. As this Thompson Hine post nicely explains, the regulation lists six points of analysis that fiduciaries should exhaust before adding any particular alt into a plan. But I find it very unlikely that most fiduciaries will be able to exhaustively analyze these issues at the level of expertise required of a fiduciary. For those who can’t, the list of factors reads like a checklist for a class action complaint, which can be written to target any particular aspect of the list that a plan fiduciary did not nail down.
  2. It’s not just me who doubts whether any plan fiduciary will really be able to hit the mark on each of those six factors. This article focuses on the sheer complexity of the task assigned to fiduciaries by the regulation.
  3. This article addresses the fact that the regulation is focused on reducing breach of fiduciary duty class action litigation against 401(k) plans, particularly with regard to any plans that add alternative investments into their menu of investment options. But breach of fiduciary duty litigation is literally written directly into the statute, and the standard of care for a fiduciary is likewise literally written right into the statute, each time without any reference to the limiting factors that the proposed regulation seeks to have applied to such lawsuits. If the standards of judicial interpretation of statutory authority and agency action set out in Loper are real things to be even handedly applied by the courts, it’s impossible to see how regulatory action imposing these particular terms on breach of fiduciary duty litigation under ERISA can withstand court challenge. The regulation almost literally contradicts the words of the statute itself.
  4. Meanwhile, this article by a Morningstar executive points out that “And never say never, but most of these types of investments, especially private equity and private credit, are unlikely to pop up as stand-alone investment options on 401(k) plan menus. Rather, they would probably appear inside target-date funds or managed retirement accounts that are overseen by investment professionals rather than participants themselves.” The problems with this for plan fiduciaries are two fold, at least. First, this buries the risk exposure within an investment product in a manner that is going to make it still harder for plan fiduciaries to ever satisfy the six factors listed in the regulation. Second, this guarantees there will be massive numbers of plan participants with untold dollars of exposure to alts in their retirement accounts without knowing it. What could possibly go wrong? Especially for plan fiduciaries, who are legally charged with acting on their behalf?
  5. It’s certainly a good proposal for the financial industry, as you can tell from the praise for the regulation from that corner of the ring in this article. There’s nothing per se wrong with that – the entire retirement industry operates on a symbiotic relationship among Wall Street, plan participants, employers and the rest. But remember that the definition of fiduciary duty in the statute literally doesn’t say one word about protecting or even considering the interests of those selling investment products, and the breach of fiduciary duty liability provisions place the risks on fiduciaries, not those who sell investments.

Some weeks are an embarrassment of riches. For the author of a running series like this one, this week was one of them. From insurance for AI risks to alts in 401(k) plans, there were enough excellent articles to fill several of these columns. But here are the five I picked this week.

  1. I started out as a paralegal working on the late stages of the never ending dispute over asbestos coverage and then was a junior associate working on environmental coverage disputes when I started practicing. I learned, as many did, that these types of long tail, long running exposures and liabilities continue as insurance coverage disputes for many, many years. Heck, even after the start of the twenty first century, we were still litigating various tributaries from the environmental coverage disputes, including in one of the cases in my own practice, as an example, what type of discharge was sufficient to fall within an absolute pollution exclusion. As late as around 2000 or so, in fact, I was trying a case in Superior Court in Massachusetts concerning to which year’s tower of coverage an environmental loss should be attributed – and that was a good fifteen or so years after I first touched an environmental coverage file. I bring this up because the interesting back story to the recent high profile plaintiffs’ victories against social media companies seeking recovery for social media addiction is that, like tobacco claims, there is an almost infinite number of similar suits in the queue behind them, with likely decades of insurance coverage fights over them still waiting to be fought. This blog post sheds some light on these issues.
  2. I have written multiple LinkedIn posts (see here and here) and a blog post on a new Chapter 93A decision out of the Massachusetts Appeals Court, which I believe advances the ball on three different issues in Chapter 93A law in the Commonwealth. One of the reasons those developments are important is because insurance and insurance bad faith law in the Commonwealth is overwhelmingly controlled by the manner in which obligations, duties and rights under Chapter 93A are interpreted. As I have discussed before, one of the interesting and important aspects of the new decision is the guidance it provides on how misrepresentation comes into play in this context. This point is focused on in this article on the decision in Massachusetts Lawyers Weekly.
  3. In my feeds, including on LinkedIn and in newsfeeds, stories about a boom in ERISA class action litigation continue to proliferate, and everything from pro-defense court rulings to Department of Labor action indicates that there is an ongoing pushback to that dynamic. It was interesting to see that this trendline didn’t spare the federal courts of New England, with twenty ERISA and securities class action filings in 2025, as this article explains. However, of some interest to me as a committed skeptic on the question of whether the boom in ERISA class action cases is really as egregious as is often said, the same study showed that the total number of class action filings in New England in 2025 was 604. Less than 20 ERISA class action filings out of 604 class action filings in a large region spanning multiple states during the course of an entire year may not really represent a gold rush of claim jumpers.
  4. I like this article on the trend towards carriers and corporate defendants retaining appellate counsel, independent of the trial team, to watch over cases while they work their way through the trial court and through trial. But I am also not totally sold on the idea and think it depends on the case and the trial team. If you have an experienced trial lawyer who is also an experienced appellate lawyer, I am not sure how much is gained by adding an appellate lawyer as some type of embedded observer. I have tried at least one case with separate appellate counsel from a specialist practice having been retained by the client to attend the trial – I am not sure that I or the client gained much from it. On the other hand, I have parachuted in as appellate counsel after judgment was entered and where experienced appellate counsel had not been part of the trial team. I can tell you that when I went to write the appeal brief and also when I went to prepare for argument, there were some issues I wished had been addressed at the trial court when the case was pending there, and which might very well have been addressed at that stage if separate appellate counsel had been present at that stage of the proceedings.
  5. So many things I could have chosen for the coveted number five spot in the batting order this week, many of them being very astute and very fast takes on the Department of Labor’s new proposed regulation on alternative assets in 401(k) plans. But that’s too obvious a choice for this slot and, moreover, there is way too much to say about it – I may have to write a separate, special edition of the five favorites solely covering articles, newsletters and blog posts on this issue. Instead, I like this article comparing the development of the AI insurance market to the prior development of the cyber insurance market. I like it for two reasons. First, it takes me back to one of my favorite stories, which is the time that I was giving a presentation on cyber insurance, by video broadcast, to thousands of claims staff at a major carrier, when the tech driving the PowerPoint deck crashed, which for you young ‘uns who don’t know what the work world was like before Zoom and Teams, was about every speaker’s worst nightmare. I solved it by immediately announcing that “Clarence Darrow used to give multi-day closings without a deck, so I can finish this presentation without one,” and then just kept plowing on, like an old-fashioned speech from before the days of tech. To be honest, I had that line in my back pocket, having used it in the past when tech crashed. Second, though, I like the article’s focus on what brokering and underwriting look like behind the scenes. There is some really good information there for anyone who deals with placing coverage or counseling insureds but doesn’t have a front row seat to how the sausage gets made.

There was a tremendous amount of excellent media to read, watch or listen to this past week concerning insurance and ERISA issues. I am hitting five of my favorite ones in today’s post, starting with one from my favorite newspaper.

  1. A couple of weeks ago, writing about the relationship of insurance to shipping through the Strait of Hormuz, I referenced Lloyd’s of London’s history with risk and with shipping, calling it the Indiana Jones, in popular imagination, of maritime risk. And true enough, as this article explains, even now Lloyd’s will insure shipping risks in the Middle East, but at historically high rates. However, of more significance appears to be the lack of appetite of the insureds themselves for the risk, with or without insurance cover. It’s a good reminder that no matter how important insurance is, it’s not supposed to be the tail that wags the dog, but just the tail. (That last comment is a deliberate insurance pun).
  2. There is absolutely no question that the future will (and to some extent the present already does) involve using AI for claims processing. Insurance, including claims handling, is so innately an information and data intensive business that it is inevitable. But as I have written before, AI in claims handling is going to pose litigation and liability risks for insurers, including potential bad faith exposure. Take Massachusetts law, for instance, where settlement offers have to be both reasonable and based on reasonable investigation, at the risk of potentially significant statutory damages. It’s very easy to see how lawsuits could be constructed that AI usage in determining a settlement offer or investigating a claim violated one or both requirements, simply by demonstrating bias, oversight or errors either built into the software and its algorithms or as part of its application to a specific claim. And we are now, as this article shows, seeing the outlines of a discovery regime that will allow discovery into this exact topic.
  3. In early days, as they say, when it comes to the use of Target Date Funds in 401(k) plans, the question of whether their inclusion in plans might be a fiduciary breach was hotly debated at ERISA litigation conferences. I know, because I was there (in the audience, not as a speaker). The debate was notable just as much for the extent of polarization over the question as for the ferocity of the debate. But time went on, Target Date Funds became central to the operation of many 401(k) plans, and most people appeared to forget about the issue. Part of the plaintiffs’ class action bar clearly did not, however. The debate back then was focused on the glide paths of the funds – and the plaintiffs’ class action bar has now filed numerous ERISA breach of fiduciary duty class actions targeting that exact issue, as discussed in this article.
  4. This is an odd but interesting story from the ABA business section on the intersection of AI with ERISA class action litigation. There is a lot to like about it but also some underlying premises that are just plain wrong, in my opinion. The article, on the plus side, delves into the extent to which litigation against plan sponsors is hobbled and restricted to some extent by the lack of transparency in both public filings and investment products related to retirement plans. And there is some truth to this, which has been countered over the years to a significant degree only by the ever increasing knowledge base and sophistication on these issues of the better lawyers in the ERISA class action space. The article’s pitch is that AI tools can attack that problem by developing detailed evaluation of key issues despite this lack of transparency in the industry. And that may very well be right. But on the negative side of the ledger with regard to this article is its fundamental premise that plaintiff friendly precedents are making it ever easier to bring these types of suits, which I wouldn’t agree with for a second. From class action rulings that make it harder to certify a class, to standing decisions that make it harder to get out of the blocks with a case, to benchmarking disputes, the most important recent decisions are running against the plaintiffs’ class action bar right now. Regardless, the article is a good read.
  5. Well, there is thought leadership and then there is thought leadership writ large. I really like Duane Morris’ ERISA Class Action Review 2026, which was just released. I read a lot of the ERISA publications issued by the large class action defense firms and this one is a cut above almost all of them. What I really like about it isn’t just its comprehensive review of the key decisions to date but that it also discusses in depth where this area of litigation is going from here. Don’t miss the summary and chart discussing the largest settlements of 2025 either – you can draw a lot of conclusions and thoughts on settlement and liability issues if you think carefully about that data.

The first case I tried as a first chair was a Chapter 93A case.

The first big money – north of $20 million – case I ever tried as a first chair was a Chapter 93A case.

The most recent case I tried included a Chapter 93A claim.

In between and mixed among them, I have tried patent infringement, contract, pierce the corporate veil, reinsurance, product liability, construction accident, reinsurance and a number of other types of cases.

But there was always a difficulty in drafting proposed conclusions of law at the close of the case that was unique to the Chapter 93A cases and absent from the others. This was due to the fact that many principles of Chapter 93A liability that are generally accepted by courts and Massachusetts lawyers cannot be cited to a particular leading decision. Instead, they often must be supported by analogy or inference, rather than by directly citing to a controlling decision on the issue.

The Massachusetts Appeals Court’s recent decision in Agnitti v. Philip Morris resolves this problem for at least three principles of Chapter 93A law in Massachusetts.

First, it offers a handy cite to a principle that is clearly the law, which is that all of the underlying common law or statutory causes of action, such as in Agnitti for product liability, can fail and you can still recover for violation of Chapter 93A. The case makes for an easy cite on the proposition that a Chapter 93A claim stands on its own and can allow recovery based solely on its violation, regardless of any other cause of action pled in the action or the outcome of such causes of action. Not exactly a novel principle of law, but certainly one that the case makes easy to establish from here on out – which was not necessarily the case before the decision, as evidenced by the erroneous jury instruction given on this point at the trial.

Second, not too long ago, I was defending a Chapter 93A case premised on alleged misrepresentations. Establishing the exact elements necessary for the plaintiff to actually recover under Chapter 93A in that circumstance required stringing together a series of different cites. The Court’s ruling in Agnitti states quite definitively what has to be proven to prevail on such a case.

And finally in this regard, the Court buried in the footnotes a direct and clear statement of causation in the context of a Chapter 93A claim based on misrepresentations, explaining the exact nature of the causal relationship needed to recover. That quote alone will save a lawyer a half page of cites and explanation when discussing causation in Chapter 93A actions in the future.

I found myself feeling very zen and mellow when writing this week’s Five Favorites for Friday post. That’s not always the case, as often the post covers topics that get me quite agitated, such as articles about poorly reasoned court decisions or about unnecessary risks to plan participants. That wasn’t the case this week and I think I know why – because all five articles are basically educational pieces on complex subjects and basically teach something or another to the reader. That’s not something that gets me worked up but instead is something that gives me great pleasure to write about.

So here’s hoping that on a Friday morning, as we wait for March to go out like a lamb, the articles do the same for you.

  1. Lawyers often have aspects of their practice that act as leading indicators for economic conditions, particularly with regard to shifts in the labor market. For me, one of those is when there is a substantial uptick in clients looking for guidance with regard to issues concerning deferred compensation, 409A issues, company solvency and their interrelationship. This article may be the single best comprehensive, one stop shopping review of these issues I have ever come across – and I have read a lot on these issues. It’s a great overview and high level guide to the subject.
  2. Speaking of guides, Brian Gilmore speaks plain English about the complexities of ERISA compliance as well as anyone and better than almost anyone. His newest publication explains wrap plans and wrap summary plan descriptions for ERISA health and welfare benefit programs in, well, plain English.
  3. I have a number of friends and clients in the medical world who are concerned about the role of private equity in the ownership of medical practices. As this article points out, however, there are legitimate economic barriers to the old fashioned model of younger physicians simply buying practices themselves from retiring physicians as an alternative. Anyone can identify a problem and its causes, but the article goes one step further and proposes a solution – medical practices as ESOPs. If, like me, both ESOPs and the role of private equity in the economy are among your interests, it’s a very good read.
  4. With a few notable exceptions, ERISA class action suits alleging the wrongful use of forfeitures by plan fiduciaries have not gone very well for plaintiffs so far. However, the theory hasn’t been tested yet at the appellate level. That is about to change, and with it possibly the future trajectory of these types of cases, as this article discusses.
  5. I hope this last one for this week is not behind a paywall (I try to limit how many articles I include in this weekly post that may not be readily accessible to loyal readers of this feature) because it is legitimately one of the most fascinating articles I have read in awhile. Granted, my personal interests are a little esoteric, in that I am fascinated by both the logistics and complexities of retirement plan administration as well as the ins and outs of cyber risks and liabilities. I have argued both cyber breach and retirement liability cases to appellate benches, though never in the same case. This article, though, reviews the landscape when both issues overlap.

I have written before that plan sponsors should try more ERISA breach of fiduciary duty cases to verdict if they, and their insurers, really want to dissuade class action lawyers from filing ERISA breach of fiduciary duty class action cases with weak liability theories or worse, as simply a strike suit targeted at getting a quick settlement simply because the costs of defending against it could be so high. The thesis was simple – if plaintiffs’ class action lawyers know they are going to have to try these cases, no one is going to bring weak cases on the expectation that someday, one way or the other, a settlement with a sizable attorney fee award will appear.

It’s sort of a Darwinian approach to thinning the herd – the near certainty of having to litigate through trial will drive down filings of class action ERISA cases, leaving behind only the serious cases brought by firms willing to invest in a long fight to prove they are right. With that, the strike suits and cases against small plans and claims based on dubious theories go by the wayside.

As if on cue, shortly after I wrote that argument in a post, Yale defeated a significant and highly publicized ERISA breach of fiduciary duty case at trial, in front of a jury no less.

But the defense bar, plan sponsors and insurers didn’t take that as a sign to press forward to trial on these types of cases. Part of the problem with doing so is the immense cost of discovery that ends up being incurred before trial can ever be reached. Whether for that reason or others, the defense focus over the past few years has instead been on the development of arguments that can be raised at the outset of cases, in an effort to end them before massive discovery costs can be incurred.

Now there’s a renewed front in that approach that may have far bigger consequences in the long run than may initially be apparent to many observers. In my most recent Five Favorites for Friday post, I discussed a Fourth Circuit decision from last week, Trauernicht v. Genworth Financial Inc., in which the Court overturned class certification in an ERISA breach of fiduciary duty case involving target date funds, ruling that the class had to be certified, if at all, as an opt out class. The Court delved in great depth into the reasons why, in its view, a class could not otherwise be certified.

Viewed from the perspective of a defense lawyer, the decision begs defense attorneys in all circuits to test class certification in ERISA breach of fiduciary duty cases and to litigate whether a class is proper. There are many complex issues buried in Trauernicht on the propriety of certification in different circumstances, which I am not going to address here (doing justice to them calls for a law review article, not a blog post), but it is already clear that it would now be malpractice for any defense lawyer to fail to fully evaluate and likely to fight class certification with real vigor in any ERISA breach of fiduciary duty class action.

But if you consider the decision from the perspective of plaintiffs and their counsel in this area of the law, I have some real questions. I have litigated class certification in ERISA cases in the past from both sides of the aisle, and the decision leaves me wondering as to whether the original problem in this case was actually simply poor line drawing with regard to the class by plaintiffs’ counsel, with that mistake eventually snowballing from there into a very pro-defendant opinion by the Fourth Circuit. Regardless of the answer to that question, the very existence of the opinion in Trauernicht at this point means that, on all issues necessary to establish class certification, plaintiffs’ counsel in ERISA cases are going to have to be very careful as to how they pursue certification and are going to have to confront a number of issues that, at a minimum, they didn’t previously have to take on in the same level of depth to obtain certification.

Trauernicht, barring Supreme Court reversal or other circuits rejecting it, is a big win for the defense in these types of cases and will be as significant a barrier to ERISA class action cases as anything else currently being pressed by the defense bar in cases throughout the country. Indeed, as this post goes to press, the latest news is about a District Court judge in the Fourth Circuit reversing a prior order of class certification in light of the Trauernicht ruling.

This week’s Five Favorites for Friday is truly driven by current events, with stories spanning shipping in the Middle East, the most recent ERISA class action decisions, and rising concerns about including alternative asset classes in 401(k) plans.

  1. Courts tend to course correct over time when it comes to class action litigation, with the goal of finding the right balancing point where potentially meritorious claims can proceed but the gate is sufficiently barred against strike suits intended primarily to generate fees for the lawyers. ERISA is having that moment now, as Congress, regulators and the courts try to find a way to reduce the filing of questionable class action claims without choking off valid claims, after fifteen or so years of steady development (both in numbers and in success) of this type of litigation. The latest approach is to require the plaintiffs to plead that an investment option challenged in a complaint is underperforming relative to a reasonable benchmark, and to dismiss the action if the complaint lacks such a comparison. But as this Bloomberg article on one such dismissal reflects, what is and what is not a reasonable benchmark in this circumstance can be very much in the eye of the beholder. And one solution to that problem, again as the article discusses, can be for a court deciding a motion to dismiss to give the putative class multiple opportunities to find and plead a benchmark that the court considers reasonable. Some might say that giving the putative class multiple bites at the apple on this issue defeats the purpose of using motions to dismiss to cost effectively weed out meritless claims. Others, though, including me, might suggest that it is a reasonable way for the court to use motions to dismiss to bar the gate to the courthouse in appropriate circumstances while examining a case sufficiently to avoid barring potentially meritorious claims.
  2. The central theme of a great deal of commentary and judicial decisions in the area of ERISA class actions concerns the need to keep the courthouse doors open to meritorious cases while still limiting the extent to which dubious claims are allowed to proceed into full blown litigation, with the accompanying costs to plan sponsors and their insurers. Even when not said out loud, this premise is never far from the surface. The Department of Labor has been filing amicus briefs that seek to help draw the line between the two types of claims, and is doing it pretty well so far in my opinion. This is a great post discussing those filings.
  3. Speaking of meritorious claims, I remember when defense lawyers in ERISA class actions would sometimes forego fighting over class certification so that they could get on with the real business at hand, which was litigating the merits of the ERISA claims at issue. Now we have a new decision from the Fourth Circuit decertifying a class in a putative ERISA class action and sending the case back to the District Court to start over, based on highly technical but also factual considerations for class certification. Here’s a good story on it. This type of analysis and approach by a court certainly raises another barrier to the prosecution of ERISA class actions, but I am not convinced it gets anyone any closer to culling the wheat from the chaff when it comes to keeping the courthouse doors open for meritorious ERISA class actions but not for others.
  4. Lloyd’s is the Indiana Jones of insurers. They will go anywhere and insure anything, at least in popular imagination. To me and others who follow the industry, they are more accurately understood as an entity that understands risk, the numbers behind them and what to do about it. As I discussed in a blog post way back when, for instance, Lloyd’s started tackling what climate change meant for insuring risks long before anyone really discussed the issue publicly in any depth. For now, publicly, they are insisting they are still insuring shipping in the Middle East, but for how long and at what price? This is a good article on the subject, but one wonders how long any article on this subject will remain current. Still the issue is about as important as there is in the insurance world at this point. Maybe we should just check back when we get to next Friday’s Five Favorites and see where things stand at that point?
  5. I have written extensively on what plan sponsors and fiduciaries should do to protect themselves when it comes to adding alternative asset classes into the 401(k) plans they run, including here and here. Some of the most experienced people in finance are now also sounding the alarm about the risks of allowing them in.