For this week’s Five Favorites for Friday, I have a full stocking of gifts (too early for Xmas allusions? Maybe, but I was in New York for work and saw the Rockefeller Center Tree, which inspired that lede). Let’s get right into opening them up (and yes, I will probably beat that gag to death for the next few Fridays – just so you are prepared).

  1. First off, you will likely have seen the news that a congressman, apparently with no prior known interest in retirement plans, has out of the blue offered up a bill to make it tougher to plead breach of fiduciary duty claims under ERISA, particularly with regard to excessive fee cases. Color me non-plussed. The inevitable tightening up of standards for bringing ERISA class action cases is already under way, by means of strict enforcement of standing requirements to dismiss cases early and increasing judicial skepticism of new class action theories under ERISA. The bill, if it ever becomes law, is likely to be targeted at a problem that has effectively resolved itself, to the extent that the goal is to reduce non-meritorious class action ERISA cases. The question will be whether the bill, as and if finally enacted, throws out the baby with the bathwater, in the sense of barring meritorious class actions claims and not just those that – in my IP days – we used to call strike suits, in other words cases filed just to get a small settlement and a fee for the lawyers. Judicial skepticism and an aggressive use of standing are unlikely to have the effect of also precluding meritorious actions, but it wouldn’t surprise anyone if the bill, as finally enacted, does.
  2. And in that regard, here is a good writeup of the recent dismissal on standing grounds in Lewandowski v. Johnson & Johnson, finding that plaintiffs could not definitively enough show harm from mismanagement of health benefits to support a claim. I don’t know about you, but these types of rulings read to me like courts are moving liability issues up to the motion to dismiss stage that they would have, until recently, left open until after discovery and instead decided later on summary judgment motions. And objectively speaking, if you ignore the costs to defendants and their insurers of litigating class action claims that are plausible but end up foundering at summary judgment, they probably belong at the summary judgement stage for resolution in most cases, rather than being advanced up the rules of civil procedure to be decided instead at the motion to dismiss stage.
  3. $90 million is a lot of money. Even the judge who awarded it as bad faith and Chapter 93A damages against Liberty Mutual because she found unreasonable claims handling and believed the case law to leave her with no discretion in this regard, thought it was a disproportionate award. On the flip side for Liberty Mutual and other insurers who are presumably looking at the ruling in horror, if there was ever a decision perfectly written to allow an appeals court to revisit various aspects of bad faith law in the Commonwealth and rein in some of its most debatable aspects, this is the one. And I don’t mean that in a negative way with regard to the opinion itself – the decision is an excellent analysis and presentation of the totality of a complex area of law and of decades of case law (the judge actually goes so far back that she cites a decision from the first Chapter 93A case I ever tried, back in 1995). Instead, I mean that the Court’s scholarly treatment of the issues presents the perfect trial court decision for testing the appropriate scope of recovery in such cases. I discussed the opinion here.
  4. I have always been quite happy to work out alternative fee agreements with clients, including hybrids, flat fees and contingencies. Clients, however, often prefer hourly billing – and sometimes in my own practice they have been right to stick to it, spending less on cases I have won than they would have ended up paying out as a success kicker or on a pure contingency, for instance, had they elected that route instead. As someone in the insurance industry pointed out to me the other day, not all cases are susceptible to valuation using alternative fees, and sometimes hourly billing is in fact as close as you can get to rough accuracy in pricing in those instances. I liked this opinion piece to this effect, addressing the idea that AI is more likely to supercharge lawyering that is done by the hour than it is to eliminate the billable hour. Not sure the author is right, but time will tell.
  5. Every lawyer I have ever met has used the movie line “I do not think that word means what you think it means” at various times. In the insurance coverage world, we often throw around the terms “tail” and “runoff” somewhat indiscriminately. I was pleased to come across this explanation of the terms in the context of D&O risks and exposures.

About 24 years ago I won a trial on behalf of Liberty Mutual in an insurance bad faith action in which plaintiff’s counsel sought to multiply an underlying multimillion dollar judgment against the insured based on an alleged bad faith failure by the insurer to settle the tort claim. At the time, it represented – as best as I could tell – the first and best effort by a leading Massachusetts plaintiffs’ firm, Keches Law Group, to treble, based on bad faith under Massachusetts General Laws Chapter 93A, an underlying large judgment against an insured defendant. Had I lost, at the time it would have resulted in the largest Chapter 93A judgment against an insurer for bad faith failure to settle a claim in Massachusetts history, as well as established new theories of liability in this regard that would instead not be established until many years later, in a major case by a leading Big Law firm against a different carrier.

I bring this up because the wind brings news now of a $90 million bad faith verdict against Liberty Mutual obtained by the same Keches firm, pursuing the same goal, decades later, of having a trial court treble a large underlying judgment against an insured. Under Massachusetts law, an insurer that violates the claim practices statute in bad faith is subject to an award of damages equal to double or treble the verdict entered originally against the insured – that verdict here was over $26 million, well above the commonly accepted threshold to qualify as a nuclear verdict. The best sources I have found for reading about the verdict are this LinkedIn post and this PR distribution by the Keches firm.

As you can tell from this history, the plaintiffs’ bar in Massachusetts has clearly gotten better over the past quarter century at prosecuting these types of claims. Have insurers and their lawyers gotten better at defending these types of claims over that time period as well? I am not so sure about that. One of the things the plaintiffs’ bar has done a very nice job of over the past couple of decades is deciding which cases to press forward with in the interest of creating new law favorable to claimants on bad faith, as opposed to which ones to simply settle. I am not convinced that insurers and their counsel have successfully matched them in that regard, as many of the decisions that have created poor law for insurers over the years on bad faith in Massachusetts involve cases that, looking closely at their facts, probably should not have been presented by insurers to appellate panels with the power to craft and shape the law in this regard – they likely should have been settled long before that could occur. There are at least two or three that jump out at me in this regard even as I write this, and I suspect other lawyers would have their own list of different cases in this regard.

To be both fair and clear, I should note that much of this is only apparent in hindsight, after the appellate decisions have been issued. And more importantly, the current state of play in this regard is not all (or even mostly) attributable to insurers and their counsel allowing bad cases, with bad facts, to be used by the plaintiffs’ bar and the courts to make bad law for insurers – with the result that a nuclear verdict can now be multiplied into an additional $90 million verdict against the insurer itself. Much of it is instead due to the fact that, in the end, there is no and cannot be perfect claims handling on any claim, if you define perfection in this regard as being devoid of any decisions or omissions that a judge or claimant could later criticize as erroneous and harmful to the claimant in some way. Claims handling is an inherently human activity, involving an endless series of judgment calls made in circumstances of incomplete information, in the context of an adversarial relationship with a claimant who typically has no motivation to be completely open with an insurer on the facts or other issues of a claim.

There’s an argument to be made that we have reached a point where Chapter 93A and Massachusetts bad faith law penalize insurers, to a disproportionate extent, for routine and typical errors in claims handling, treating them too often as representative of subjective bad faith sufficient to justify massive bad faith judgments. It is probably well past time for the pendulum to swing back the other way, towards accepting that mistakes will routinely occur in claims handling and that a series of errors is not enough to justify a large bad faith award, absent evidence sufficient to fairly demonstrate a subjective intent on the part of an insurer to lowball or refuse, for nefarious reasons, to settle. At this point in the history of bad faith and Chapter 93A law in Massachusetts, large bad faith verdicts can be and are granted based on much less than that.

This is not intended to necessarily be a criticism of the decision itself or the Court’s deep analysis of the evidence and thorough consideration of the relevant case law (in fact, the court cites three or four of the decisions from my own cases over the years, and my understanding of the nuance of those cases makes me confident in commenting on the high quality of the Court’s analysis of existing law). It is more intended to suggest that the current state of the case law, which the Court accurately explained and applied, may have swung a little too far in one direction over the years.

Indeed, the Court itself acknowledged that the size of the award it was required under existing law to enter raises questions and concerns about the current state of the law in this regard. And so perhaps, on appeal, this decision may be the right lever for redirecting the course of the case law on these issues.

I wasn’t quite sure what to do about Five Favorites for Friday this week, given that today is an unofficial holiday, Black Friday. I couldn’t move it up a day, as that would require publishing it on an actual national holiday, Thanksgiving.

And I didn’t want to move it up to the middle of the week, to Wednesday, because then it would be Five Favorites for Wednesday, which lacks the alliteration that is central to my interest in writing it! See here.

I was stuck until one of my favorite newsletters, from NPR’s Planet Money, landed in my in-box this week, and showed the way – this week, it used a theme of identifying articles for which its writers were thankful. And once I saw that, I knew how to handle this week’s Five Favorites for Friday post. So here, to give you something to read while waiting in line on Friday at the mall, are five articles or podcasts I am thankful for this week and why.

  1. For the first, I go right to the inspiration for today’s list, NPR’s Planet Money newsletter, and its very first article, which is about an economics paper addressing the correlation between the cost and requirement of having car seats and the number of children in a family. The story points at the extent to which the underlying financial costs of family size directly impact family size. Why is this relevant to the subjects of this blog? Because the question of being able to fund and afford a secure retirement many decades down the road plays much the same role in determining family size and parental preference in that regard, particularly as pensions have vanished and the burden has shifted to the employee to amass the capital needed to fund retirement income at the same time the employee has to incur the long tail costs of raising children. Family size and retirement security are not unrelated, just as child car seat regulations and family size are not unrelated. Those of you who have read my posts about borrowing from the concepts of behavioral economics for use in lawyering, know that I like interesting and not obvious lessons from economics – and I am thankful for coming across this one during the three days running up to the holiday.
  2. I am very thankful for this recent WTW publication explaining the current status of pension risk transfers. I have worked on them and think, in the right circumstances, they have a lot of value and are an appropriate fiduciary action, but in other circumstances and given certain variables, that may not always be the case. There is an awful lot of litigation, potential litigation, transaction volume and potential future systemic financial risk at play in them at this point, however, so having a functional understanding of the transaction and the issues is important. I am thankful for this article as it provides any interested reader with a fairly substantive understanding of the transaction.
  3. But where in the world did pension risk transfers even come from? And what market forces and regulatory changes were necessary to give rise to them? It’s a fascinating question and one that would require a deep historical dive to figure out. And so I am thankful for this great piece by Steve Keating tracing the entire 50 year history leading up to the current state of play on this issue.
  4. Litigation around pension risk transfers, and theories of how or why liability could exist in such a transaction, is robust. The primary concern or argument is whether the loss of ERISA protections once the pensions have been replaced by annuities places the former plan participants at financial risk in a manner that holding a pension under a plan did not. One way of looking at this question is to consider the existence of PBGC protection, and whether it continues after the transaction turning the pensions into annuities. There is a good argument that PBGC protection should remain in force and I am thankful for this excellent paper by Ivins, Phillips and Barker attorneys Kevin O’Brien and Spencer Walters that makes the case as to why.
  5. It’s behind a paywall (which isn’t something I am thankful for, but I happen to be a subscriber) but I am thankful for Bloomberg’s series of articles and a podcast raising the question of whether the role of private equity and insurers in the handling of retirement funds, including in pension risk transfers is safe or instead poses systemic risk. I am thankful for it because, frankly, you should read the whole series and then decide for yourself what you think about it.

Busy, busy week. I don’t know who thought it was a good idea to put Thanksgiving in the fourth quarter but they probably should have given a little more thought to whether a three day week in the middle of the last quarter of the year really makes sense.

Oh well, as I pointed out to opposing counsel during a settlement discussion yesterday, never listen to someone who bills by the hour complain about being too busy.

I could have written full time this week on my blog and on LinkedIn about the interesting insurance and ERISA articles, podcasts, webinars and the like that came across my desk this week. Here’s a look at a few of them.

  1. There’s a lot to like in this blog post by Adam Grossman on HumbleDollar, starting with the hook, which is a $10,000 auction sale of a painting that turned out to be a long lost DaVinci and most recently sold for $450 million. But for my purposes what I really like about it is that the author explains the arguments for putting private equity into retail accounts in 401(k) plans and then debunks those arguments. Most importantly, he explains why he believes there are multiple other retail level investment options available to 401(k) plans that are much better at solving the same investment problems that private equity investments would allegedly solve for plan participants, with the options including “mid- and small-cap funds, value funds and international funds.” He then goes on to essentially cross-examine the arguments for instead using private equity investments to address the investment concerns at issue and, in so doing, raises serious questions about many of those arguments. Now, you can quibble with the conclusions he reaches, but the simple fact of the matter is that a plan fiduciary who allows private equity into a 401(k) plan is at risk of someday having to face those exact same questions about the propriety of choosing private equity investments as an option, only as a deponent at a deposition or in the witness box at a trial. Before signing off on adding private equity investments to a 401(k) plan’s investment menu, plan fiduciaries should make sure they know how they will answer the same challenges to the use of private equity in plans that the author raises – because they are likely to be asked them someday with their own personal liability on the line.
  2. The ERISA class action bar’s attempt to make forfeiture issues under defined contribution plans a thing isn’t going well, and it is certainly not getting any traction. For those of you unfamiliar with the subject, it’s well covered in this Bloomberg article this week, discussing the dismissal by a federal court of an action making those allegations. To me personally, and based on decades of ERISA litigation experience, I think the problem for the plaintiffs in these cases is that they are effectively trying to criminalize a decision that is reasonable, and to do that they are going to need to offer more to courts at the motion to dismiss stage than just arguments over the propriety of the conduct – they are going to have to find some additional fact, document, or clearly self-enriching conduct to point to in their complaints, beyond just the decision by the plan fiduciaries about forfeitures. Only then are they going to routinely get past the motion to dismiss stage of these cases. And by this I mean something a lot more damning than just asserting that the plan sponsor and fiduciary picked the forfeiture approach that is best for them, when they could have picked one which is instead better for plan participants. That alone clearly isn’t cutting it.
  3. This is a bit of a cheat on the rules of the five favorites post, but I write the blog so I make not just the rules, but also its exceptions. I am writing another one of today’s list of five based on the same Bloomberg article that I discussed in the preceding paragraph. That’s because there are two issues raised in that article that I want to discuss, and combining them into one paragraph would result in a single paragraph so long that no one would finish it. In addition to discussing forfeitures, the article discusses the same judge dismissing class action claims in the same case asserting that the fiduciaries allowed overpriced and underperforming funds in the plan. The article explains that the judge found fault with the plaintiffs’ tactic of arguing that various performance measures were sufficient to support the claim and held that this alone did not demonstrate a breach of the duty of prudence, but might instead simply be the result of reasonable, and thus not actionable, decisions by the fiduciary. Courts are showing a lot more skepticism at the motion to dismiss stage with regard to these types of debatable financial and performance comparisons between a platonic investment ideal envisioned by plaintiff’s counsel and the real world performance of the funds held in a plan than they ever did. I have a few theories as to why. First and foremost, years of excessive fee litigation have, in fact, made fiduciary performance in this area better, and courts are responding to it on many levels, including giving fiduciaries the benefit of the doubt where warranted in these types of cases. Second, years of relentless pushback from the defense bar, large plan sponsors and organizations representing both have increased judicial skepticism of both the costs to defendants and the merits of these types of claims. Third, I believe we have reached the lifecycle stage in excessive fee litigation where many of the best cases by the best lawyers have already been brought and concluded, and we are now seeing weaker claims filed by more firms that are just jumping on the bandwagon looking for fees – what in my IP days we would have called patent trolls or copyright trolls. Good excessive fee cases lead to big settlements; poor factual ones lead to dismissal.
  4. I have been having a good bit of fun since the start of the AI hype cycle pointing out the gap between the end of lawyers that the sales pitches have pushed and the reality, but it is probably time for me to stop running with that joke. Beyond the punchlines, I have also written a couple of serious articles on LinkedIn exploring the real impact of AI on lawyering, and I summed up my current substantive thinking on the issue recently in this post. To some extent, my joking about this subject has been empowered by the extent to which so much of the writing on this subject has been either pure hype or extremely shallow, or both. That’s not the case for this piece here, which discusses the use to which AI is being tested and incorporated into workflows by larger firms who are leading the way in this regard. To me, the lesson of the article is that some of the smaller and boutique firms out there are likely whistling past the graveyard when (as I know they are) they tell themselves stories like AI just won’t impact them because of the nature of their practice, or that their level of service or expertise will still be sought out by clients regardless of AI, or that they will be able to actually compete better with bigger firms who have long had a staffing advantage now that the labor saving aspects of AI are here. They are not all whistling past the graveyard – some have the talents, client relationships, and/or pocketbook for incorporating AI that will let them continue to thrive. But for many of the boutique and smaller firms who may be telling themselves those stories, they should read this article and grasp just how thoroughly prepared their larger competitors are to take advantage of AI to perform better work for their clients, and then should ask themselves if they are really going to be able to match their efforts (or are going to put in the work to do so).
  5. Do you ever learn anything on the internet? I do . . . sometimes. AI isn’t making it easier. I recently asked it for information on a Cooper’s Hawk, and it told me all about a bar with that name when I was just looking to confirm the identifying marks of the bird. Bad prompting by me, I guess. So when I do actually learn something that might be of use to those who are interested in the subjects covered by this blog, I like to pass it on. Here’s a great overview of auditing ESOP plans. As many know, I am a big fan of ESOPs on many levels, but as someone who has litigated cases involving them – both on behalf of employees and on behalf of the plan – I firmly believe that their value to employees is directly correlated to how scrupulously they are run. This presentation is a great introduction to the audit and valuation process.

Financial expert turned professional writer Susan Mangiero has a new article out on the issue of adding alternative investments to 401(k) plans. It provides an excellent summary of the issues and is particularly helpful if you are new to the topic – it will get you up to speed quickly.

I make a guest appearance in the article, cautioning advisors to plan sponsors and fiduciaries to step carefully. As the article explains, “Attorney Stephen Rosenberg, an experienced litigator and partner with The Wagner Law Group, reminds advisors [to plans] of their responsibilities to avoid undue risk, stating, ‘Access whatever expertise is necessary to make an informed recommendation to your clients.'”

Sometimes, in some forums, I can sound a little more strident about whether the movement to add alternative investments to plans is safe for plan sponsors and fiduciaries than I do in this article. It isn’t so much that I am interested in being some sort of a Cassandra about the movement to add these asset classes into plans, but more that I am concerned about the complications and risks for those who sponsor such plans and for those who accept the potential liability of serving as fiduciary for such a plan.

To date, despite my raising the question often, no one appears to have proffered a study or data clearly demonstrating that adding alternative assets into plans will increase participant returns without disproportionately increasing the volatility and risk faced by participants as market investors. Particularly in the absence of broadly accepted proof to this effect, plan sponsors and fiduciaries court possible breach of fiduciary duty suits by adding alternative investments to their plans.

For large plans that want to add such assets, my view is more power to them. If they want to do it, go for it. I still think that on the current evidence it’s the wrong move and that they are inviting litigation, particularly because the size of their plans will make them a tempting target for the class action bar. But they are big boys with the insurance, legal teams and deep pockets to invite that brawl into their parlors if so inclined.

But for most other plan sponsors and fiduciaries, they will be putting themselves at risk without necessarily having all the resources at their disposal needed to confront litigation over the question of whether such assets belong in their plans. And for them I still say follow these steps before even deciding to allow alternative assets to be part of the investment menu. Doing so will make them less of a target for roving bands of plaintiffs’ lawyers looking for targets to sue if adding the asset class turns out to be the wrong move, and if sued, will give them the high ground to fight from.

Late Thursday night is one of my favorite times of the week. The house is quiet, the dog is snoozing on my feet, the football game is on the tube, and I have time to write this week’s Five Favorites for Friday post.

So let’s get it started.

  1. A few years back, I first chaired a two week long trial in Massachusetts state court. Right before discharging the jury, the judge thanked the jurors for their service and then noted he also wanted to thank all of the lawyers for a well-tried case, noting in particular that he wanted to thank my second chair – we will give him the pseudonym “Mr. Eric” – because, as the judge said, “we know from the fact that Mr. Eric didn’t say a word in front of the jury for the past two weeks that he was the one who actually did all the work.” And there was some truth to that, and in our next trial together I would let him have the opening (I kept the closing for myself) and a few of the fact witnesses (it was an expert driven case and I wanted the experts). I mention this story because one of the tasks that normally should have fallen to Mr. Eric as the associate on the case and the second chair at trial was drafting the special questions for the jury, but I did those myself. The reason was that I had become very interested in the insights of behavioral economics, and believed it held lessons for courtroom lawyers, including with regard to structuring questions to present to a jury – so I wrote them myself, on the last night of trial before the jury would get the case. Why do I mention this now? Because Planet Money has an excellent retrospective this week on the teachings of behavioral economics, and particularly on the idea that winning an auction with a lot of bidders may mean little more than that you overpaid, since it simply demonstrates that all other actors in the crowd thought the asset wasn’t worth that amount or more. And as with many things these days, that point brought me right back to the risks to plan sponsors and fiduciaries from opening the gates to their 401(k) plans to allow private equity and other alternative assets into the plan’s investments. Are plan sponsors and fiduciaries really supposed to believe that their participants are being offered access to the assets before they are overinflated? Or, as the insights of behavioral finance would suggest, that it is instead because everyone else who already has access to acquiring those assets if they want them has concluded that they are overpriced relative to their risk and return? And if so, then are plan sponsors and fiduciaries being set up for future liability by effectively being little more at this point than the ones who decide for their participants to go ahead and win the auction for them, even though the auction shows they are overpriced? There are many ways to look at adding alternative assets to plans and the impact of doing so on plan fiduciaries – but none of them are or will be good until someone objectively demonstrates that doing so will increase returns to an extent that justifies any increased volatility or risk in participants’ holdings. Until that happens, plan fiduciaries will remain sitting ducks for litigation and should follow the safest possible course of action for protecting themselves against liability for allowing the asset class into a plan, as I discussed here.
  2. Insiders think the same thing, as this article points out.  ‘My honest assessment is it ends badly’ – NYC pensions’ CIO on retail investing.
  3. A consensus about AI in law seems to be forming, now that the hype cycle in which it was supposedly going to eliminate law firms has, unlike the law firms themselves, come to an end. In this Law.com article, Keith Maziarek addresses the point that AI may have a different value proposition in the provision of legal services than the longstanding assumption that it would reduce pricing. If you don’t have access to the article itself, the author does an excellent job of summing up his thesis in this LinkedIn post. He particularly points out that AI’s value may lie more in commodification of the routine parts of legal work and in improving access to the data needed to price more fairy or transparently, including possibly, as I have written elsewhere, by moving away from the crutch of the billable hour and on to more project based pricing models. I am glad to see this consensus forming, but since I have the receipts to prove it, this is basically what I have been saying since the start of the AI hype boom, such as here and here and here, among other places. My take has not been built so much on the specifics of AI itself, but from decades of seeing how technological improvements are deployed in the legal field – and the fact that it has led to larger and more profitable law firms, not to smaller firms providing less expensive product. As I discussed here, there isn’t a nefarious reason for this – it is instead because the technology has allowed for more complicated transactions and more sprawling litigation, which is expensive no matter how much tech you throw at the problem.
  4. When I started working on insurance coverage issues, the world was trying to determine the scope of insurance coverage for asbestos claims and then who should have to pay for Superfund cleanups, corporate polluters or instead their insurers. Now we are onto headlines that, back in those days, we couldn’t have imagined we would ever see, such as this one: “How CGL Policies May Respond To Novel AI Psychosis Claims,” in Law360. For decades, I have been helping clients predict whether new theories of liabilities or types of claims are likely to be covered by existing policy language, or whether new coverage terms needed to be developed to handle them. As you see in this article, that is still the approach, only now it feels like trying to view the 21st Century through the prism of the 1970s.
  5. UBS economists do not like the looks of the labor market. This is your periodic reminder from those of us who litigated ERISA breach of fiduciary duty and other claims during and after the Great Recession that, when job prospects weaken, employees and former employees start to look very carefully and very skeptically at the performance of retirement, 401(k) and other plans. We have already, in my own practice, been seeing the smarter money, which holds deferred comp benefits, looking carefully at those types of plans, as I discussed here.

ERISA litigation goes through phases and waves. It wasn’t that long ago that it seemed I was constantly litigating, in multiple cases, the distinction between so-called ministerial functions – which cannot support fiduciary liability – and fiduciary conduct. Here’s one example. Over time and a number of judicial decisions, an interpretative bulletin issued by the Department of Labor related to this issue was discussed and applied by enough courts that it effectively took on the force of law in some cases and, in others, at least became a shortcut for working through the issue. I always believed that this process by which the bulletin took on a judicial gloss and shine resulted, over time, in courts giving it too much persuasive weight.

In this interview with Bloomberg Law, I discussed the impact in litigation of a new advisory opinion by the Department, related to when an incentive compensation plan used by major financial institutions is or is not subject to ERISA. The article explains that the advisory opinion is on its way to winding through the courts to the Fourth Circuit. If the Fourth Circuit adopts its reasoning or conclusion, the opinion will be well on its way to repeating past history in which certain non-binding statements by the Department eventually take on the imprimatur of the courts and effectively become, at a minimum, highly persuasive authority to other courts addressing the issue.

Post-Loper, however, I don’t see that same process playing out here. If the Fourth Circuit agrees with the advisory opinion, the current state of play with regard to deference to agencies almost guarantees that the Court will present its opinion as its own analysis – and not as being heavily influenced, if at all, by the Department’s published opinion. I could see the advisory opinion being barely referenced in that circumstance, possibly simply dropped in passing into a footnote.

On the other hand, in the new, officially sanctioned post-Loper era of skepticism of agency action (I say officially sanctioned, because in truth, years of attacks on Chevron deference had long ago made it a dicey proposition to walk into court expecting a lack of skepticism over agency action, even though Chevron was still on the books at the time), if the Court finds that the plans are in fact subject to ERISA, which would be contrary to the advisory opinion, I could easily see the Court fully addressing and rejecting the reasoning and conclusion of the advisory opinion, in a manner intended to serve as persuasive authority on the question of its value.

Interesting times we live in, if you have long been involved with administrative regulation and related litigation.

This week, I cheated. I have known since Tuesday that I wasn’t going to have time to either blog or post on LinkedIn this week on even a small portion of the articles, ideas, podcasts and presentations that were crossing my desk and catching my eye. So I started writing this week’s Five Favorites for Friday three days ago, knowing that I would otherwise have way too many candidates for this post that I would have to cull through on Thursday to write this post.

For anyone new to this series, the back story can be found here – but in short, the Five Favorites for Friday post is my opportunity to write relatively briefly on five items from my inbox that I want to, but haven’t yet had the opportunity to, comment on.

So here are this week’s Fab Five:

  1. I am slightly late on this particular article, in that it wasn’t published this week. However, the conceit of this series is that it allows me to discuss things that crossed my literal or figurative desk and caught my eye in the past week, which this one did. Stephen Embry’s article on advanced AI weaponry for plaintiffs’ personal injury lawyers points out that the development could be a game changer for both the plaintiffs’ bar and the defense bar. I have written before, however, on my concern in the ERISA space with regard to what an AI powered plaintiffs’ class action bar suggests for ERISA plan sponsors, fiduciaries and their insurers – namely, the ability of more such shops to litigate more such cases, including against smaller plans that previously wouldn’t have justified the expense of suit, with the same or less investment and staffing. Other than the class action defense bar, more class action ERISA suits is the last thing that anyone on the defense side of the “v”or their insurers need. Whether it’s number of suits, settlement amounts, defense costs, or any other rubric, the trendlines in this area are already worrisome for plan sponsors and their insurers. The continued rollout of AI isn’t going to help.
  2. I really like insurance (as anyone who reads this blog can likely tell) and I love movies. So sue me. I really, however, have long been fascinated by movie stunt performers, ever since I worked as a pizza delivery driver as a teen in a shop run by a stuntman who had moved from Hollywood to the East Coast for a while because of a contentious divorce and custody battle back east. I have said before that I am really enjoying MS Amlin’s series of short films comparing underwriters to established movie stunt performers, and I really enjoyed the latest release.
  3. I am sure you know the old quote from the bank robber Willie Sutton, as to why he robbed banks – “Because that’s where the money is.” Forfeiture litigation, which is based on the theory that it violates ERISA for plan sponsors and fiduciaries to use employer contributions that revert to a plan when employees terminate employment to offset future contributions, is all the rage at the moment. As this article points out, the legal foundation for the claims is, to date, leaky, but there is a massive amount of money at issue. Right now, to me, the explosion in these types of cases represents large damages, still searching for a cause of action.
  4. This is a great story about First Brands, the risks of contagion and private equity. The story is an object lesson in why it is going to be extremely hard for plan fiduciaries to act prudently if they become charged with overseeing private equity and other alternative investment options in their 401(k) plans. My advice to plan fiduciaries confronting this issue is right here, and hasn’t changed since I wrote it.
  5. There was a lot of competition for the coveted fifth and final slot in this week’s Five Favorites for Friday. Among other candidates, I could have easily gone with this podcast on the changes AI will bring to liability standards in medical malpractice litigation, or this article detailing the growth in class action ERISA litigation in 2025, or a host of other worthy contenders. But instead I am going with this article on the status of cyber insurance and related developments in Asia. What I like most about it is that it illustrates the interrelationship between the growth of this line of insurance and real time developments in the world of cyber risk, including government efforts to protect against cyber exposures.

I really like a good theme. I can’t help it – it’s the trial lawyer in me. Frankly, I not only like a good theme in an opening and closing at trial, but in an oral argument on appeal or in an appeal brief. Themes help tremendously with communication, particularly in litigation.

So it won’t surprise you to learn, given the happenstance that this week Friday falls on Halloween, that today’s post in my Five Favorites for Friday series abides by the hackneyed convention of having a Halloween theme. Below are five things in the realm of insurance and ERISA that, as we sit here today, I find scary, at least metaphorically. Less metaphorically, they are, to be fair, all things that I worry about for my clients and that some of my clients do, in fact, find scary.

  1. If I owned or ran a smaller to middle market business, this would be scary. Chubb issued this report on the fact that the growth in cyber losses and claims is in these smaller companies, but at the same time, reports they are less likely than their much larger brethren to carry cyber insurance. It reminds me a little of excessive fee litigation under ERISA, or my days back defending patent strike suites and responding to copyright trolls – smaller companies can often be better targets, while having less resources to defend themselves against claims and to respond to the risks, which is one of the reasons they get targeted. It’s a vicious cycle, actually. Having experience both with litigation in this space and with coverage for these types of claims, I would suggest management of smaller companies focus on addressing coverage for these exposures – if they do, it may be less scary for them by next Halloween.
  2. Of course, nothing is really as scary in the insurance world as climate change. Premium increases, carriers leaving markets, massive natural disaster exposures – it’s just one terrifying horror after another. It’s like the business and insurance equivalent of spending Halloween in Salem, Massachusetts, while being chased by Jason from Friday the 13th. I have written before and extensively about the general business and the insurance risks of climate change, including this post on the question of whether insurance can survive climate change and whether, if not, modern capitalist economies can survive the resulting loss of insurance capacity. Marsh addresses many similar questions, and in particular how sustainability, insurance and business needs interact in this regard, in this excellent, if somewhat depressing, podcast.
  3. I don’t personally find parachute trial lawyer Chad Colton all that scary, although his adversaries in court may feel differently. What I do think is scary though, particularly for insurers, are defense lawyers who make the mistake, as Chad explains in this video, of approaching cross-examination by trying to box the witnesses’ ears. A while ago I tried the bad faith case that arose from an unexpected multimillion dollar judgment awarded by a jury on a case that likely should have been, but was not, won by the defense. Courtroom observers at the time attributed the outcome to the very talented and experienced defense lawyer metaphorically beating up the sympathetic plaintiff as well as his lovely wife on the stand, rather than letting them be and focusing the defense on the razor thin liability theory. In my study over the years as part of my litigation of bad faith claims of nuclear verdicts as well as surprise verdicts, I have found that defense tactics that just increase the existing sympathy for an injured party are a consistent part of the story. So yes, what Chad cautions against is scary, if you are an insurer or corporate defendant. I am not sure it is so scary if you are a plaintiff’s lawyer with a weak liability case but a sympathetic plaintiff, however.
  4. You know what I do think is particularly scary if you are an insured or an insurer? The need and interest of insurers to write exclusions for AI to include in coverages. As this article points out, there is a significant issue of how to word the exclusions to exclude what is meant to be excluded, and no more or less. This isn’t going to be as easy as it sounds. When policy language is well drafted, there is limited dispute later over whether certain types of claims are covered. We saw this, for example, in the business interruption coverage cases arising out of the pandemic, where most denials of coverage were upheld based on language that was well drafted to handle the risk, even though the ability to foresee the scope of the pandemic and the resulting business losses at the time the policies were issued or when the language was drafted was limited. On the other hand, for those old enough to recall it and, if you aren’t, for those who want to read up on the history of it, there were decades of massive coverage litigation concerning exactly what types and extent of asbestos related exposure was precluded by the wording of different exclusions. For me personally, I spent a good amount of time in 1987, as a paralegal fresh out of college, searching periodicals in the Library of Congress seeking extrinsic evidence for use in arguing what meaning should be attributed to certain wording in the exclusions at issue. How underwriters and coverage lawyers define AI and choose language for use in capturing this latest exposure in policies and their exclusions is going to decide whether coverage for AI liabilities ends up over time playing out more like coverage for business interruption after the pandemic, or instead more like coverage for asbestos losses, or perhaps more likely, somewhere in between those two polar extremes.
  5. If I were a plan sponsor or fiduciary, I would definitely find scary the idea of alternative investments, such as private equity and crypto, suddenly appearing in the target date funds or other investment choices in my 401(k) plan. I think that one’s going to work out to be all treat for the financial industry and all tricks for plan fiduciaries, who you can safely predict will be facing years of litigation and potentially significant liabilities – whether covered by insurance or not – from this development. Senators Warren and Sanders have much the same thought, as discussed in their joint letter to the relevant regulators. I have offered advice to plan sponsors on staving off these scary investment products a couple of times, including here and here.

I have litigated, arbitrated and advised on coverage and bad faith disputes from the U.K. to Guam and in every or practically every American jurisdiction in-between. (If you add in reinsurance claims I have worked on, you can add a couple more continents to the list).

Coverage itself, because it’s basically at heart a contract based inquiry, is reasonably consistent – to at least some extent – from one jurisdiction to the next.  But bad faith, when an insurer has to settle and what are the penalties for failing to settle when it was required vary greatly from one state to the next.  And so I am not surprised when I get, as I often do, inquiries from insurers and lawyers located elsewhere concerning exactly what an insurer’s duty is in Massachusetts with regard to the obligation to settle claims.

I thought, as sort of a public service, I would share my sort of “cheat sheet” that I often pass along on the basic outlines of these obligations in Massachusetts. It basically sums up, without cites and in more neutral terms, what I typically describe as the law on these issues in requests for conclusions of law, motions for summary judgment or other court filings.

So with that introduction, here are the key highlights of the duty of an insurer to settle claims in Massachusetts, and the liabilities that can run with breaching it:

• Massachusetts General Laws Chapter 93A, applied in tandem with Chapter 176D (which bars unfair insurance practices) requires insurers to act reasonably with regard to settlement of claims.

• An insurance company commits an unfair claim settlement practice if it “[f]ail[s] to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” Chapter 176D, § 3(9) (f). Someone who is injured by a violation of that provision is entitled to bring an action to recover for the violation under Massachusetts General Laws Chapter 93A, § 9.  If there is a finding in such an action that the insurer failed to effectuate a prompt, fair, and equitable settlement causing injury, the plaintiff is entitled to the greater of actual damages or statutory damages of twenty-five dollars. However, if the judge finds the insurer’s action was willful or knowing, the judge must grant double or treble damages.

• When an insured’s liability becomes reasonably clear, an insurer has a duty to settle a case. 

• An insurer’s duty to settle arises only once liability has become reasonably clear, and the term liability, for these purposes, encompasses both fault and damages. As long as either the insured’s responsibility for the accident at issue or the claimant’s damages remains in dispute, an insurer has no duty to settle or to even make a settlement offer.

• Liability is not reasonably clear where a tort defendant possesses a valid defense; where an insurer has a plausible legal or factual position that there is no covered liability, even one that ultimately turns out to be mistaken or unsuccessful; or where an insurer relies on independent advice from an expert witness suggesting a reasonable prospect of success at trial.  When an insurer sincerely, reasonably and legitimately views the question of liability as a toss of the coin, liability is not reasonably clear. 

• Under these standards, technically, an insurer is not obligated to settle a claim, and cannot be liable under Chapter 93A for failing to settle a claim, unless liability has become reasonably clear. If liability is not reasonably clear, an insurer is not required to settle the case

• Technically, even after liability becomes reasonably clear and a duty to settle arises, the insurer is still allowed to negotiate reasonably and will not violate Chapter 93A if it does so but the case still does not settle.  An insurer’s obligation to exercise good faith does not require it to roll over and play dead vis-a-vis the claimants; nor does the looming of an excess judgment debar an insurer from employing conventional negotiating stratagems in good faith. Massachusetts law recognizes that negotiation is an art, not a science. In practice, however, if the court ruling on a Chapter 93A action believes the insurer’s offers were too low, too slow or otherwise unreasonable in comparison to the demands or the claim itself, a court will likely find a violation of Chapter 93A, if liability had in fact become reasonably clear.

• Generally, damages imposed for a violation of Chapter 93A are actual damages, or either double or treble actual damages if a court determines that the violation was willful or knowing. Where a judgment has been entered against the insured, however, the damages awarded under Chapter 93A can be significantly higher. Under Massachusetts law, if an insurer commits a willful or knowing Chapter 93A violation that finds its roots in an event or a transaction that has given rise to a judgment in favor of a claimant, then the damages for the Chapter 93A violation are calculated by multiplying the amount of that judgment.

• After a verdict has entered against the insured, an insurer must reasonably consider the likelihood of success on appeal in deciding whether to pay the verdict or instead appeal.  The reasonableness of the insurer’s settlement offers at that point must be evaluated in comparison to the strength or weakness of the appeal.  An insurer’s duty to settle a case does not end with the judgment, unless the insurer promptly pays the judgment. When the insurer causes a notice of appeal to be filed, the insurer continues to have a duty to settle what is now the appellate litigation. While the standard under Chapter 176D, § 3(9)(f) still applies after judgment-the insurer must still provide a prompt and fair offer of settlement once liability has become reasonably clear-the existence of the judgment should change the insurer’s evaluation of what constitutes a fair offer and whether liability has become reasonably clear.