I made a prediction some years ago – long before I had a blog on which to note such things – that the rise of employment practices liability insurance (commonly known as EPLI), which covers employment related claims, would eventually transform the market for employment law services, moving it further away from a traditional corporate law firm specialty and closer to an insurance defense type specialty. It was not much of a prediction, and barely required an educated guess, but this article seems to record that this has in fact come to pass.

I turn today from my recent obsession with ERISA preemption and the Wal-Mart case to other arguably unhealthy obsessions, including insurance coverage decisions, contract interpretation and the fine art of drawing a good judge. On Monday, the Massachusetts Appeals Court issued its opinion in American Commercial Finance Corp. v. Seneca Insurance Co.,in which the issue before the court was whether a fire insurance policy covered costs incurred after a fire to protect the premises against any possible subsequent damage (including another fire). As per the court’s opinion, the policy did not contain any express language stating whether or not the policy covered such costs, and any experienced coverage lawyer will tell you that when a court starts off noting that fact or something similar, it is a pretty good bet that the ultimate finding will be that the loss was covered under the policy. Now the absence of policy language expressly precluding coverage of a certain event – of an exclusion actually stating that the policy does not cover a particular event or loss – should not lead inexorably to the conclusion that the event is therefore covered. Reasoning of this nature goes against the general proposition that an insurer cannot and should not be expected to anticipate every possible turn of events and account for them with express limitations on coverage written directly into the policy; if insurers were prophetic enough to be able to do so, as some courts and commentators have pointed out, you would end up with insurance policies that run into the hundreds of pages. That unremarkable idea, however, as anyone who has defended an insurance company against a claim that is not expressly excluded under a policy will tell you, is most often honored only in the breach.
But the Appeals Court judge here did not proceed in such a manner. Instead, as is more proper and far more defensible intellectually, he analyzed the actual language used in the policy related to the insured’s obligation after a fire to use reasonable steps to protect the property from further damage, and concluded that it logically implied an obligation on the part of the insurer to pay for the costs of doing so. Although anytime you argue over words in a contract – any contract, not just an insurance policy – there is room to differ as to what the final conclusion should be as to how to interpret it, the judge’s reasoning in this case is logical and hard to fault. As such, it is what many insurance coverage decisions are not: useful to future parties trying to guide their contracting and their conduct, understandable and defensible.
And this leads to the point about drawing a good judge. The opinion was authored by Judge Doerfer, who for several years before being appointed to the Appeals Court, served as a Superior Court judge, the Superior Court being Massachusetts’ primary and highest level trial department. I can remember litigating complex coverage cases in state court back then, and being pleased to draw Judge Doerfer, who was known to have the intellectual curiosity and scholarly disposition needed to handle such cases. This is in contrast to a case – a true story – in which I appeared in a trial court (I won’t identify it so as to protect both the guilty and the innocent) in a coverage case in which the insured and the insurer filed cross motions for summary judgment on the duty to defend. In that case, as in most cases, the determination of whether there was a duty to defend depended simply on a comparison of the policy to the complaint, with a duty to defend existing if the complaint described a claim that potentially might be covered. There generally either is or is not a duty to defend in that circumstance; it has to be one or the other, and all you have to do to decide is make that comparison, barring peculiarities of a nature absent from that case. Now, since one motion said there is a duty to defend and the other said there isn’t, one of the parties had to be right given this standard, yet somehow this judge found both parties to be wrong, denying both parties’ motions for summary judgment. It ended up being fixed on appeal, but it just goes to show that drawing the right judge right off the bat makes a world of difference, both in the outcome of the case and in the amount of litigation it will require to get to the right outcome.

I was thinking a bit more over the weekend about Retail Industry Leaders Association v. Fielder (and, yes, I know I obviously need a hobby), and Judge Motz’ determination that the Fair Share Act is preempted by ERISA. Although the court’s opinion makes it sound straight forward, the truth is that the outer boundaries of ERISA preemption are actually somewhat amorphous. Here in the First Circuit, by precedent and judicial temperament, preemption is stringently applied, and even coming close to infringing on the operation of employee benefit plans or on ERISA’s remedial scheme will typically be enough to invoke preemption; judges in other circuits are sometimes a little more tolerant, at least up to a certain point, of causes of action or statutes that touch upon those topics.
Now in the case of the Fair Share Act, without bothering to first research Fourth Circuit precedent on preemption, I am of the mind that if it looks like a duck, walks like a duck and quacks like a duck, it is preempted. This is pretty much how Judge Motz saw it.
At the same time, however, if it is this obvious, one has to wonder why the Maryland General Assembly spent so much time and taxpayer treasure debating and enacting this statute. Wasn’t there a lawyer somewhere on staff on some committee or another who should have caught this point? And if the General Assembly is like most state legislatures, one can assume that many of the politicians debating its merits were lawyers, and one would like to think this issue would have at least crossed their minds as something that had to be considered before voting on the Act.
This issue may well have been flagged and considered before enactment; I simply don’t know. But I will be curious to see as this issue progresses up the appellate ladder whether there may be something more here on the question of whether the Act is preempted than is immediately apparent from the court’s opinion. Perhaps when briefs to the Fourth Circuit are filed we will know a little more. And perhaps once I spend a little more time thinking about it, it might pop out at me.

I could not let this go by without commenting on it, coming as it does on the heels of multiple posts on the question of whether to arbitrate coverage disputes. This story, arbitration award and federal lawsuit take the subject a full step – at least – further, into the realm of ERISA and its intersection, somehow, with the Defense of Marriage Act. Better still, it manages to do this while folding in as well a claim that an arbitrator overstepped his authority, requiring that his ruling be vacated.
As the plaintiff describes it on its website, “[t]he Massachusetts Nurses Association (MNA) filed a suit in federal court today seeking to reverse an arbitration award that denied health insurance benefits to the same-sex spouse of a registered nurse employed by Merrimack Valley Hospital in Haverhill, Mass, which is owned by Essent Healthcare of Nashville, Tenn.”
The arbitrator was charged with determining whether this was appropriate under a collective bargaining agreement, but to do so, he felt compelled to determine how the intersection of ERISA and the Defense of Marriage Act impacted that question. Based at least in significant part on his analysis of the interplay of these two statutes, he found against the nurse seeking coverage.
While the interplay of those two statutes may present a somewhat unique circumstance, what followed isn’t; the party aggrieved by the arbitration award filed an action in federal court to set aside the award, on the ground that the arbitrator overstepped his authority by ranging outside of his charge under the collective bargaining agreement. As readers of my prior post on this exact type of challenge know, courts are clearly responsible for analyzing whether or not an arbitrator engaged in such conduct and should set aside a ruling if that was the case. The complaint alleges that the arbitrator’s decision making and the sources for it were expressly limited by the terms of the agreement requiring arbitration, but the arbitrator went outside of those sources to make his decision. If true, this is a textbook example of an arbitrator improperly exceeding his or her authority.

Before it falls off the edge of my desk in the crush of next week’s business, I wanted to pass along an excellent post from David Rossmiller at the insurance coverage law blog on business risk exclusions. I think anyone who has either litigated or counseled parties on claims involving business risk exclusions will recognize the frustration he references: the case law on these exclusions is generally a mess, judges often don’t understand the exclusions, and the analysis presented by courts in opinions applying these exclusions often does little more than further muddy the waters.
David, however, has found a case that doesn’t do that, and I agree. Unfortunately, it is out of the Eastern District of Wisconsin, and the court’s website does not include recent opinions issued by the court, so I can’t give you an easy, and free, link to the decision. It is out on Westlaw, however, and David has the cite.

The United States District Court for the District of Maryland issued its opinion yesterday on the legal challenge to the Fair Share Act, the Maryland statute recently enacted for the purpose of forcing Wal-Mart, and only Wal-Mart, to increase its health care spending for its employees. Major media accounts of the ruling are here, here and here. There is a tremendous amount of grist for the mill in this decision, which ranges logically and fluidly across issues of standing, ERISA preemption, the Tax Injunction Act and the Equal Protection Clause of the United States Constitution.
What jumps out at me today though, on a first reading, is its central ruling, the holding that ERISA preempts the Act. ERISA preemption is typically litigated in the context of a plan or a fiduciary defending itself against an action seeking to impose liability on it beyond that allowed by ERISA; it usually involves attempts by plaintiffs to add liability (and greater damages than could be recovered under ERISA) by means of state statutory and common law causes of action that, while generally available in actions against most types of defendants, are precluded by ERISA preemption from being brought against an ERISA governed entity.
Here, though, what we see is a much rarer creature, the affirmative use of preemption by an ERISA governed entity for the purpose of precluding the application to it of a state law enacted for the express purpose of modifying the operation of a benefit plan. The District Court concluded that because the Act strikes directly at an ERISA plan and its operations, it is preempted by ERISA. Both in the use of the preemption doctrine as a sword here by the plaintiff and in the court’s analysis and application of the doctrine, we end up with something far removed from the tactical litigation use of preemption we find in most reported decisions on the issue, and with something that is instead closer to the pure core and heart of the doctrine and its purpose, which is, as the court framed it, protecting “ERISA’s fundamental purpose of permitting multi-state employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration.”

Apparently I am not the only one with concerns about the arbitration process, which I discussed in a recent post. As this article notes, both the Eleventh Circuit and the Georgia state courts are displaying an overt hostility towards parties who challenge arbitration decisions in court, after the arbitration has concluded. What is unclear from the article, however, is whether the courts are displaying a justified anger against parties who bring meritless challenges to arbitration rulings into court, or are instead displaying a simple prejudice against such challenges. If the former, it is hard to quarrel with the attitude being displayed by the courts, but if it is the latter, it is unwarranted.
The Federal Arbitration Act, which as a general rule will govern arbitration contracts that impact interstate commerce in some manner and which controls most litigation over arbitration decisions in federal courts, provides express grounds on which an arbitration ruling can be challenged and overturned in court. Many states have similar arbitration acts that apply similar rules to arbitrations governed by state law. Judges often display a sort of knee jerk belief that arbitration is semi-sacred and is not to be tampered with, at least not lightly. These arbitration acts, however, require the courts to intervene when the standards for doing so under those acts are met, and in my experience, they are met more often than courts seem to be willing to recognize. For instance, many arbitration clauses impose express rules on the arbitration, and an arbitrator who decides in a manner inconsistent with such rules is, in reality, operating outside of his or her authority. An arbitration decision reached under such circumstances should be set aside. The Federal Arbitration Act and many state arbitration acts require courts to fairly entertain such arguments, and to set aside an arbitration if appropriate to do so. A judicial hostility towards challenges to arbitrations is certainly not consistent with this, but for that matter neither is the benign prejudice against overturning such decisions that judges sometimes appear to manifest.
For an example of a court properly understanding its role in overseeing arbitrations, see this post.

The New York Times provides an excellent report today on the impact of Medicare Part D and the unintended – maybe(?) – result of moving millions of lower income patients from Medicaid to Medicare. The article points out that drug company profits will increase significantly because the patients are moved from Medicaid, which has certain price restrictions, to Part D, which lacks those same restrictions. In the article, A Windfall from Shifts to Medicare, the author sums up:

The windfall, which by some estimates could be $2 billion or more this year, is a result of the transfer of millions of low-income people into the new Medicare Part D drug program that went into effect in January. Under that program, as it turns out, the prices paid by insurers, and eventually the taxpayer, for the medications given to those transferred are likely to be higher than what was paid under the federal-state Medicaid programs for the poor.
About 6.5 million low-income elderly people or younger disabled poor people were automatically transferred into the Part D program for drug coverage. . . .
Drugs tend to be cheaper under the Medicaid programs because the states are the buyers and by law they receive the lowest available prices for drugs.
But in creating the federal Part D program, Congress – in what critics saw as a sop to the drug industry – barred the government from having a negotiating role. Instead, prices are worked out between drug makers and the dozens of large and small Part D drug plans run by commercial insurers.

The article provides a thorough summary of a complex problem. Beyond the problem, though, is a question. Is this an economic distortion flowing from the structure of the industry, of the type discussed in an earlier post on such distortions? Or was the original cheaper structure the distortion?

Updating my post the other day concerning the ramifications, under ERISA and otherwise, of retiree medical benefits and attempts to terminate them, a recent post in BenefitsBlog documents why, for those of us still working today, it may well be a non-issue. Citing a report from Watson Wyatt, BenefitsBlog notes that future retirees will be bearing most and perhaps all of the costs of their medical benefits. The Watson Wyatt report notes, of particular salience:

The trend away from employer-provided retiree health benefits will continue as a result of rising health care costs, growing retiree populations, uncertain business profitability and federal regulations that provide only limited opportunities for funding retiree medical benefits.
The benefits provided to future retirees will be significantly less generous than those current retirees receive today, as employers are cutting back, capping or completely eliminating their retiree health benefits programs. Eight out of 10 employers that still offered retiree medical benefits in 1999 had reduced their retiree medical expense per active employee from the level reported for 1993, according to Watson Wyatt research.
Future retirees will shoulder substantially more – if not all – of the costs of their health care in retirement. Watson Wyatt estimates that the level of employer financial support will drop to less than 10 percent of total retiree medical expense by the year 2031, under plan provisions already adopted by many employers.