Jacklyn Wille of Bloomberg Law, who by now knows more about ERISA litigation than most ERISA litigators, has an interesting article out (you can find it here; subscription may be required), concerning court approval of a “$1.7 million class settlement benefiting participants in an Advance Auto Parts Inc. subsidiary’s retirement plan . . . along with an award of more than $600,000 in attorneys’ fees and expenses.” This is a small settlement amount, considering that the plan, and the affected class, includes 22,000 participants. The case itself appears to relate to allegations of excessive recordkeeping fees. For those of you interested, you can find the court’s order approving the settlement here.

There are two aspects of this settlement and the story that I wanted to comment on. By now, it is a commonplace to have smallish settlements of class action excessive fee cases against plans, but for years such cases were only brought against large plans in pursuit of very large settlements. Back then, a few of us, including me, warned that it was only a matter of time before excessive fee cases went downmarket, so to speak, resulting in the routine filing of suits against small plans or, as here, against larger plans but in pursuit of relatively small settlement amounts and attorney fee awards.

I have a past life as an IP litigator, including patent infringement cases, and these types of excessive fee suits remind me of the heyday of so-called “strike suits” in the IP world, where suits were filed more as part of the chase for settlement dollars than based on the merits of the action. As a result, when advising a client company hit with a cease and desist letter or complaint, or counseling an insurer that covered such a company, it was always necessary to try to determine whether the action had merit, or was instead a smash and grab at settlement dollars. Which way you advised your client, or how you advised the insurer on how to proceed, was very dependent on what conclusion you reached on that issue.

These types of excessive fee cases under ERISA, concerning smaller plans or smallish settlements, raise the same type of issues – any analysis or determination of strategy has to begin with the question of whether the lawsuit involves a meritorious claim, or whether instead the defendant is just a convenient target. Only once you have that determined can a plan sponsor or its insurer really begin to determine a litigation strategy, a litigation budget, a settlement strategy, or even the essential question of whether to direct the case towards trial or instead only towards settlement.

From that point comes the other issue I wanted to discuss and which this settlement illustrates. Many years ago, when insurers – including some of my clients – first began rolling out employment practices liability insurance, otherwise known as EPLI coverage, it was clear to me that employment law and litigation would be transformed by the evolution of employment liability from a business risk into an insurer-managed exposure that would inevitably result from the widespread adoption of EPLI insurance. I wrote about that often on this blog (yes, I have been writing this blog for that long) and it has long since come to pass.

ERISA litigation, and particularly excessive fee class action cases, are moving in the same direction, particularly as smaller cases become the norm. The costs of defending these types of cases are large and, over the years, defense and settlement decisions have been driven more by the interests and views of plan sponsors. I have long maintained, in conversations with insurers, that it is past time for insurers to take more control over these types of cases and to manage these types of cases as insurance exposures, rather than predominately as business risks faced by plan sponsors. The alternative and default approach has long been for the defense and settlement decisions to be driven by plan sponsors, but a move towards greater insurer management of the defense and settlement of these types of cases is long overdue. There are many ways that this change can and should alter the defense of cases, the costs of defense, settlement decisions, and a host of other issues, which is far too much to discuss in this post. Nonetheless, the types of changes that this shift in perspective requires are coming – to the extent they are not already here – and they will both reduce the costs to insurers of these types of claims and, eventually, the costs to plan sponsors of insuring against these types of risks.