The Boston ERISA and Insurance Litigation Blog is intended to provide you, the reader, with timely and useful information concerning current legal developments in two of my litigation specialties – and favorite topics – ERISA and insurance coverage. This blog will generally look first at and cite to the law of the First Circuit and Massachusetts, but will also note significant cases from other jurisdictions as well. My goal for this blog is twofold: first, to inform you about recent and interesting cases in these fields; and, second, to provide you with thoughtful commentary about interesting issues in these fields.
It is my hope that my experience in litigating cases in these two (and other) fields will allow me to put some of the issues framed by recent decisions or discussed in other sources in a useful context, allowing you, the reader, to increase your expertise in these areas. I welcome any reader feedback that will allow me to accomplish this blog’s objectives more effectively or more efficiently, or that will otherwise help me to make this blog useful to you, whatever your level of expertise or interest in these fields. You may contact me at srosenberg@wagnerlawgroup.com.

A terrific paper on the application of ERISA and its fiduciary duty standards to 401(k) plans and to the people who run them is available free right now from the ABA. As employee benefit plans, these retirement plans are within ERISA’s ambit and the companies and individuals who operate them are subject to the fiduciary obligations imposed by ERISA. The paper provides a nice overview of the application of ERISA to these types of employee benefit plans. The fiduciary duties and the manners in which they can be breached that are detailed in the paper carry over to the operations of other employee benefit plans as well, and do not apply only to the operators of 401(k) plans. As a result, it is worthwhile reading for fiduciaries of other types of benefit plans as well.
A nod of thanks to BenefitsBlog for noting the availability of this paper. BenefitsBlog discusses tax and other issues related to benefits that are beyond the ambit of this blog, which focuses more on litigation under ERISA.

There is a neat little ERISA decision just out from the Second Circuit Court of Appeals. In the case of James McDonald et al. v. Pension Plan of the NYSA-ILA Pension Trust Fund, et al., http://www.ca2.uscourts.gov/ decided on Tuesday, the court addressed the question of determining an appropriate fee award under ERISA for a prevailing plaintiff who was represented by a solo practitioner. Noting that the general rule is that “[i]n calculating attorney’s fee awards, district courts use the loadstar method – hours reasonably expended multiplied by a reasonable hourly rate,” the court launched into an interesting discussion of how to determine for these purposes the reasonable hourly rate for a solo practitioner. The court rejected the idea that the rate should automatically be lower based on the status of the attorney as a solo practitioner or that otherwise the size of the attorney’s firm alone is grounds upon which to set the rate; it is, the court noted, a factor that should go into determining the market against which the reasonable fee should be set, but no more than that. Of even more interest, the court rejected the unique act of trying to set the solo attorney’s reasonable hourly fee at what would be an acceptable blended rate in the market, because while larger firms use blended rates to even out the cost to the client across the services of more experienced and less experienced attorneys, this did not actually occur in the case before the court, where the plaintiff was represented by a solo practitioner.

This is fun – what happens if insurance coverage is based on misrepresentations in an application, but the misrepresentations were due to both mistakes by the insurer and oversights by the insured? The general rule, with variations among jurisdictions as to certain specifics, is that coverage is void if obtained based on misrepresentations in an application for an insurance policy. The general rule though, can only be understood intellectually as being based on the assumption that the insured is accountable for the misrepresentations or other errors in the application. The Massachusetts Appeals Court has just found that the misrepresentations do not void coverage after a claim is made under the policy where it was an agent of the insurer who made the mistake, and the insured’s only role was, in essence, justifiably relying on the agent. In Guerrier v. Commerce Insurance Company, No. 05-P-606. (May 25, 2006), the insured simply signed the application in blank, relying on the insurance agent, whom the court found was an agent of the insurer, thus making her actions those of the insurer, to fill out the actual application. The court placed the risk of errors in the application under that circumstance on the insurer, not on the insured. Obviously, the court could have imposed a rule that placed the burden on an insured to make certain that documents submitted in the insured’s name are correct, and it may well turn out that a different set of facts presented to the court in the future might support and result in such a ruling. For instance, it appears that in the case before the court, the facts added up to justifiable reliance by the insured on the agent, thus arguably justifying the insured’s acts of omission. The rule in a future case, might, however, be different if the facts allowed for the persuasive argument that the insured’s reliance on the agent was not justifiable.
Beyond that, the key factual finding here in my view was that the insurance agent was an actual agent of the insurer; it seems to me the ruling would have to be different if the facts showed that the agent was acting on behalf of and as the actual agent of the insured in soliciting quotes from insurers and seeking policies from various carriers.
The case can be found at http://www.masslawyersweekly.com/signup/opinion.cfm?page=ma/opin/coa/1111106.htm.

There is an interesting story out of Massachusetts concerning a $1.9 million settlement entered into by a physician related to allegedly fraudulent medical billing; the article is at http://www.masslawyersweekly.com/ (subscription required for the full article). In fairness and to be accurate, note that the physician denies the charges and has stated that the real problem was confusion on the part of federal officials over how certain unique services should actually be coded. I have no idea who is right, but what interests me is whether there is coverage for it under the doctor’s professional liability policy. Massachusetts has well developed case law, in both the state and federal courts, concerning the limits of professional liability coverage. The case law establishes that such coverage encompasses only claims that require the expertise of the covered professional, and not those that, although part of that professional’s business operations, would be common to both the professional’s practice and any other business. You can review an article I published on this issue here, Download file.
In this, Massachusetts law is consistent with that of most jurisdictions. Where Massachusetts case law departs somewhat from other jurisdictions is in the specificity of its case law; both the state and federal courts have written extensively on this issue, including cases to the effect that billing and similar “back room” operations are not part of professional services for purposes of professional liability coverage (or for that matter, for purposes of professional liability exclusions).
What is interesting about this settlement, however, is the question of whether that would be different in this instance. Pure overbilling, or intentional fraud (I do not know what was the actual cause of the alleged overbilling in this case, and the physician’s position is that this was not the case in this matter) presumably would fall within the province of prior decisions precluding coverage under professional liability insuring agreements for such “back office” operations. But it would seem to me the case may be different if the overbilling allegations stemmed, as the physician asserts, from judgment calls over how to code the procedure for billing purposes, because in that instance the physician’s professional judgment may have been involved. A case can be made under the jurisprudence of this circuit that professional liability coverage should extend to the billing problems if they actually stem from decisions on coding that required the provider’s expertise and professional judgment.
Again, I do not know what actually occurred in this case. Interesting grist for the mill, however, concerning a particular, and oft litigated, insurance coverage issue.

The Massachusetts Supreme Judicial Court reinvigorated, yet at the same time may have narrowed, a key rule governing insurer bad faith claims in this state in its decision this month in City Fuel Corp. vs. National Fire Insurance Company of Hartford, SJC-09623 (May 10, 2006), available here http://www.masslawyersweekly.com/signup/opinion.cfm?page=ma/opin/sup/1007806.htm.
In the Commonwealth, bad faith claims are premised on General Laws Chapter 93A, which bans unfair and deceptive trade practices; in the context of insurance, it grants both claimants and insureds the right to sue insurers for any of a variety of actions by the insurer. One key carve out, an area where an insurer is understood to be left with some discretion to act without fear of being liable for bad faith under the statute, has traditionally been the insurer’s freedom to make coverage determinations, even erroneous ones. So long as the determination was at least reasonable, the insurer cannot be liable for bad faith simply for making an incorrect coverage determination. The Supreme Judicial Court, in City Fuel Corp., reiterated that this rule still applies, and that insurers still have both discretion in this area and the freedom to err. The court stated:

We do, however, affirm the judge’s decision granting summary judgment on the G. L. c. 93A claim to National Fire. That claim fails because the interpretation of the policy’s language is an issue of first impression, and we find that National Fire’s position was reasonable. See Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 763 (1993) (even if coverage found to exist, insurer not liable under G. L. c. 93A if its position was reasonable, particularly where little or no legal precedent exists on the issue).

City Fuel Corp. does raise an interesting question on this point, however. By its focus on the absence of legal precedent that would guide the insurer’s determination, is the court in the process of narrowing that carve out? Is it no longer enough to simply be reasonable to preclude bad faith liability from attaching to an insurer’s erroneous coverage decision? Is the court moving towards imposing additional requirements, such as the absence of legal guidance? Are we moving towards the word reasonable in this context being defined, and having specific elements – such as the absence of legal precedent?
Case law has moved far in the direction of imposing bad faith liability on insurers in this jurisdiction for acts that traditionally have been a normal part of the business of insurance, or at least opening up those acts to microscopic investigation before deciding whether or not the insurer should be free to engage in them without the risk of bad faith exposure. Is this another example?

There is an interesting decision out of the Massachusetts Supreme Judicial Court concerning the application of a policy endorsement and its mirror image exclusion to coverage of an oil leak from an oil delivery truck. The spill occurred while the truck was parked overnight, in between two separate days of delivering oil. The Supreme Judicial Court found that the oil leak fell within the coverage granted by the endorsement for the release of pollutants while being transported by the insured, and not within the exclusion for pollutants released while being stored. Neither the facts themselves nor the finding is particularly noteworthy, other than as a classic example of the traditional approach of Massachusetts courts to the interpretation of insurance policies. The court interpreted the plain language of the endorsement, and found that, particularly in light of the strict construction normally given to exclusionary language in the Commonwealth, the events at issue fit within the coverage grant and not within the language of the exclusion.
What was of more interest to me was the court’s reliance on the reasonable expectations doctrine to buttress its reasoning and conclusion. The court stated:

This interpretation of the indorsement is consistent with what an “objectively reasonable insured, reading the relevant policy language, would expect to be covered.” Hakim v. Massachusetts Insurers’ Insolvency Fund, 424 Mass. 275, 283 (1997), quoting Trustees of Tufts Univ. v. Commercial Union Ins. Co., 415 Mass. 844, 849 (1993). As noted above, City Fuel is in the business of delivering oil to residential customers. In purchasing an indorsement that covers the oil it delivers both while it is “[b]eing transported” and, more broadly, while it is “[o]therwise in the course of transit by” the insured, an objective purchaser in City Fuel’s position would reasonably believe that a release of the oil would be covered from the time the oil is loaded onto its trucks until the time it is delivered to the customer, at least in the ordinary course.

For many years, Massachusetts courts assumed the existence and application of the reasonable insured doctrine in interpreting policies. Regardless of whether and how long it has been recognized in the Commonwealth, of interest to me is the intellectual rationale for this approach to interpretation. Is it legitimate? Is it intellectually defensible?
An insurance policy is a contract, so what warrants deviating from the actual language of it, and basing an interpretation instead on the supposedly reasonable expectations of only one of the parties to the contract? A while back, at a seminar for business and particularly real estate lawyers, I responded to an inquiry from a lawyer who represents real estate developers, and who objected to the idea that the policy was a contract that should be applied as written; his objection was premised on the assertion that what was written in the policy was not always consistent with the insured’s purposes in acquiring the insurance. Now there are many ways to respond to such an argument, not the least of which is that, like any contract, it is the contracting party’s responsibility to insure, pun intended, that the terms as reduced to writing are consistent with the actual agreement reached by the parties.
But the inquiry got me thinking about a more fundamental question. When I was in law school, more years ago than I care to admit to, Ronald Dworkin’s writings on judicial reasoning and interpretation (generally of statutes) were a terrific starting point for much thought and consternation. His key point in one of his books, which one escapes me now, was the idea of the judge as just the next person in the course of reading and understanding the particular statute, or in this case contract, at issue. As extended to a contract, the idea was that the original contracting parties were the initial authors of the contract, but the words themselves in the agreement could not possibly encompass every possible scenario to which they might apply or account for every factual variable. As a result, strict constructionism, so to speak, of the contract is impossible; there is no original intent to the document that will cover all situations. The judge, however, becomes the next author, responsible for making a principled decision as to how to expand the understanding of the contract to make it properly fit the newest events to which the contract is being applied.
At the end of the day, isn’t this how we should understand the reasonable expectations doctrine, as the court inserting itself into the role of being the latest author of the policy – rather than the policy and its meaning having been fixed in stone when the contracting parties entered into it? I am not convinced this is necessarily the right way to interpret policies, and I have some truck with the reasonable expectations doctrine itself (more on that some other time), but isn’t that exactly what the Supreme Judicial Court was doing in this case, and isn’t that exactly what courts are doing when they declare that the reasonable expectations of one party or another dictate that the policy be interpreted today in a particular manner?
The case, incidentally, is City Fuel Corp. Vs. National Fire Insurance Company of Hartford, SJC-09623 (May 10, 2006), available here, http://www.masslawyersweekly.com/signup/opinion.cfm?page=ma/opin/sup/1007806.htm

In a recent posting I discussed the value to insureds of purchasing an endorsement adding advertising injury coverage to their commercial liability policies when they acquire or renew them because it can grant coverage of at least defense costs in some intellectual property cases, at a minimum copyright infringement claims; this is discussed at https://www.bostonerisalaw.com/archives/cat-advertising-injury.html.
It is most valuable to smaller businesses who cannot carry the tens and hundreds of thousands of dollars that it can take to litigate even the most reasonably sized copyright infringement dispute. Bruce MacEwan, on his blog Adam Smith, Esq, http://www.adamsmithesq.com/blog/, wrote a series of postings recently concerning copyright infringement claims being threatened against him by a major media company for information posted on his website. Of interest to me is one in which he describes being advised that

One motivation for doing this is the remark of an IP practitioner and friend who, unsolicited, volunteered the opinion that “There are entire in-house law departments devoted to sending out legally unjustified cease and desist letters.” And the truly bad news is not that dismaying commentary on the paucity of ethics, but his additional observation that far more than half the time, threats work.

http://www.bmacewen.com/blog/archives/2006/05/copyright_law_fair_use_an_1.html#more
We can presume that most of the times that this threat works it is because the recipient cannot afford to defend itself against a copyright infringement lawsuit, or at least the calculus is that the profits from the allegedly – but possibly not – infringing activity is less than the cost of defending against that claim. Being insured against such a claim, and knowing that at a minimum the insurer will provide a defense against the copyright infringement lawsuit that will be filed if the cease and desist letter is not complied with, changes the calculus immeasurably. Suddenly, the only real issue for the recipient is whether it is, in fact, infringing on someone else’s copyright, not whether it is too expensive to litigate the question and find out.
Once again, insurance to the rescue. More importantly, once again, companies and their counsel simply should not overlook the value of paying a little more for add ons, such as advertising injury coverage, that are typically available.

I don’t always understand the thinking of the federal courts with regard to selecting opinions to publish and those not to publish. Certainly, I understand the criteria they seek to apply, but sometimes the end result is curious. The federal district court for Massachusetts recently chose not to publish a summary judgment opinion in the case of Kansky v. Aetna Life Insurance Company and Coca-Cola Enterprises. Obviously, the court’ s prerogative. The opinion, however, is 42 pages long and surveys a range of issues of significance in ERISA benefits litigation, although on many of those points it may not break any new ground. Of some note, though, the court explicitly addressed and distinguished as inapplicable to the case before it a leading published First Circuit decision on preexisting condition limitations, Glista v. Unum Life Insurance Company, 378 F.3d 113(1st Cir. 2004). Glista is regularly cited by plaintiffs challenging plan determinations concerning preexisting condition limitations, and it would certainly be useful for both the bar and courts to have access to a well reasoned opinion, such as the Kansky decision, that explains when Glista is inapplicable.
As this case illustrates there is, in essence, a hidden law of ERISA, one that cannot completely be researched through published decisions. I speak here not only of final rulings that are not published but might at least be available on westlaw or similar services, but also of interlocutory rulings that are unlikely ever to “be published on westlaw,” as brief writers who are violating court rules about citing unpublished decisions like to say.

Judge Woodlock of the United States District Court for the District of Massachusetts has issued a comprehensive 42 page summary judgment opinion concerning a challenge to the denial of benefits under an ERISA governed plan. The opinion, Kansky v. Aetna Life Insurance Company and Coca-Cola Enterprises, available on the court’s website at http://pacer.mad.uscourts.gov/dc/cgi-bin/recentops.pl?filename=woodlock/pdf/kansky%20may%201%202006.pdf, surveys a number of issues, ranging from conflict of interests and their impact on the standard of review to penalties for failing to produce requested plan documents. At its heart, however, is the issue of when a preexisting condition restriction in a plan can be invoked to deny benefits.
Full disclosure and self-congratulatory note: I represented all of the prevailing parties in the case.