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.