Looks like I was not the only one intriqued by the article earlier in the week in the New York Times about companies who stop paying the legal bills of their officers, directors or employees, and the effect it has on the affected individuals. The wired gc talks about it here http://www.wiredgc.com/2006/04/17/corporate-legal-defense-fees-and-cooperation/.
This is one of those issues where your take on it seems to depend on where you sit. As my earlier posting on the subject showed, it illustrated to me the need for officers and directors to be proactive in ensuring that the company’s bylaws and its directors and officers coverage work in tandem to protect them as much as possible from personally incurring substantial legal fees.

What does design, and more particularly the rise of design in modern industrial China, have to do with ERISA and insurance? Little, something and nothing.
A little, because business liability policies often contain advertising injury coverage, which can provide coverage for copyright infringement claims in certain circumstances. You can read my very out of date article on advertising injury coverage – from 1992 – here: Download file. Of note for present purposes, reflecting my lawyerly obsession with footnotes, is footnote one, which details the causes of action covered under advertising injury coverage endorsements.
Something, because one of the areas in which I practice extensively is defending insureds against intellectual property lawsuits in cases where the advertising injury coverage is triggered and the insurer will cover the claim. It is worth noting that this coverage can lead to insurers at least paying for the defense of many types of intellectual property claims, not just copyright infringement actions. I have handled cases in which everything from patent infringement to trade dress infringement actions have been defended by insurers. This comes about because the lawsuits also include a claim for copyright infringement, and the copyright infringement claim triggers the advertising injury coverage, resulting in the insurer having an obligation to defend the insured against the lawsuit. In most jurisdictions an insurer, if it must provide a defense against one count in a lawsuit must also provide a defense against the other counts in the lawsuit (with variations and exceptions not relevant to this discussion, but which can be very important to the particular insured defendant in a particular case). As a result, the other claims made in a copyright infringement lawsuit, such as claims for patent infringement or trademark infringement that are often “bundled” in a lawsuit with a copyright infringement claim, also end up being defended by the insurer. See the following link, which includes an example of a “bundled” case of this nature in which I defended a party charged with patent infringement, trade dress infringement and copyright infringement: http://www.mccormackfirm.com/new.html.
And finally nothing, because the relationship has as much as anything to do with my personal and professional interest in design, and how you protect it. I cannot read an article on architecture, industrial or other design in any setting without immediately thinking about how ownership of it can be protected. There is a fascinating article in today’s New York Times on the rise of, for lack of a better term, a commercial design economy in China, that highlights several designers and architects, and their recent work. The article highlights the interplay between traditional Chinese forms and materials, and the country’s newest designs and designers. http://www.nytimes.com/2006/04/20/garden/20china.html?_r=1&oref=slogin. In reading it, I immediately jump to the questions of what parts of it can be protected, which owners/designers can limit the rights of others to replicate it, and how that can be done. Issues ranging from claiming trade dress protection in the products, to an architect’s copyright in a building design come immediately into play. It fit with a case I am handling, in which the question of the extent of an architect’s ownership of and copyright in his design of a building was at issue. You can find a one paragraph discussion about that case here: http://www.mccormackfirm.com/new.html.

The First Circuit has raised a strong bulwark over the years against challenges to the application of a strict arbitrary and capricious standard of review to cases in which the employee benefit plan at issue granted discretionary authority to the plan or the administrator. The circuit has, if anything, been hostile to attempts by participants to lessen the extensive deference shown to the plan and its administrator in such cases. The most common line of attack has been the argument that the administrator or other decision maker is operating under a conflict of interest, and that the court should not grant the usual degree of deference to the decision as a result. To say that this argument has done little to advance the ball for plan participants in this circuit would probably be an understatement.
The United States District Court for the District of Puerto Rico has just issued a decision that nicely sums up the law in this circuit at this point in time on this issue. As the court framed it:

If a plan administrator or fiduciary is operating under a conflict of interest, “the conflict must be weighed as a factor in determining whether there is an abuse of discretion.” Firestone Tire & Rubber Co., 489 U.S. at 103, 115. “In this Circuit, if a court concludes there is an improper motivation amounting to a conflict of interest the court ‘may cede a diminished degree of deference–or no deference at all–to the administrator’s determinations.” ‘ Wright v. R.R. Donnelley & Sons Co. Group Benefits, 402 F.3d 67, 74 (1st Cir.2005) (quoting Leahy v. Raytheon, 315 F.3d 11, 16 (1st Cir.2002)). “However ‘a conflict of interest must be real. A chimerical, imagined or conjectural conflict will not strip the fiduciary’s determination of the deference that otherwise would be due.” ‘ Id. (quoting Leahy v. Raytheon Co., 315 F.3d 11,16 (1st Cir.2002)). On summary judgment, the burden is on the claimant to show that the benefits decision was improperly motivated. Doyle v. Paul Revere Life Ins. Co., 144 F.3d 181, 184 (1st Cir.1998) (finding that simply pointing out that any award of benefits would come out of the plan administrator’s own pocket was not sufficient to satisfy a claimant’s burden and thus, the traditional arbitrary and capricious standard of review must be applied.)

Participants must prove an actual, substantive conflict that truly affects the ability of the decision maker to act impartially. Generalized complaints that it is in the decision maker’s own pecuniary interest to deny the claim are not sufficient, as this district court pointed out, quoting precedent in this circuit that:

Under the law of this Circuit, the fact that [a fiduciary or] the plan administrator will have to pay the plaintiff’s claim out of its own assets does not change the arbitrary and capricious standard of review.

The case is Olivera v. Bristol Laboratories, 2006 WL 897972 (D.Puerto Rico Apr 05, 2006) (NO. CIV. 03-2195(HL)).

Directors and officers policies generally require an insurer to pay the defense costs incurred by a covered corporate officer when a claim is made against her or him. The insurer in that circumstance does not actually provide a defense, but instead, under the terms of the policies, normally must reimburse either the officer for his defense costs or the company itself, if the company is paying the defense bill. I have written and spoken on this point elsewhere, http://www.mccormackfirm.com/pubs/WhatEveryBusinessLawyer.pdf, and have mentioned that a corporate officer or director’s best proactive plan is to both have such coverage and ensure that the company bylaws require indemnification; this provides directors and officers with two sources to pay the high legal bills that are often incurred in the types of cases brought against them. Although not directly on point, in the New York Times today is an interesting article about the impact of having to fund their own defense on corporate officers and employees who are charged with criminal wrongdoing, http://www.nytimes.com/2006/04/17/business/17legal.html?_r=1&oref=slogin.

My colleague, Carl Pilger, cpilger@millermartin.com, who counsels companies and others on the design, implementation and operation of employee benefit plans at Miller & Martin PLLC, http://www.millermartin.com/, in Atlanta, notes that in settling lawsuits brought by plan participants, one should avoid establishing a pattern of revising a particular plan term or requirement in a particular manner. Doing so may allow for the argument that the plan itself has, in effect, been revised in that manner on that particular point. Instead, as I make sure to do in my own practice when litigating cases on behalf of plans and administrators, the settlement papers should make clear that the particular claim is a unique situation, and no agreement has been reached as to the particular meaning that should be given to the plan term that was the subject of the dispute. Make the settlement a one off, but not a regular event.

When is a demand, or a threat, or another communication from a potential claimant a claim? The answer matters, particularly in corporate insurance programs built upon claims made policies. Normally, courts either apply the specific definition of the term claim contained in the policy at issue or else, in the case of a policy that does not contain such a definition, a general common law rule that the term claim means a demand for something as of right.
Not too long ago, I litigated a case in which an insured received a demand from an aggrieved party, but that demand did not qualify as a claim as defined in the claims made policy in effect at that time; as a result, it did not trigger coverage under that policy because claims made policies are generally only triggered by claims, as defined either by the policy or common law, that are made while they are in force.
The next year, when that demand evolved into the filing of a lawsuit, a different carrier insured the company, under a policy with a different definition of the term claim. The demand made the year before qualified as a claim under the definition of that term in the policy in force that year. The policy in force that year did not cover the lawsuit as a result, because for purposes of that policy, the claim was made before the policy took effect and claims made policies do not cover claims made before they take effect.
Both insurers correctly denied coverage, based on the definition of the term claim in their policies, and the insured, despite having purchased policies that were in effect both when the demand was made and when a subsequent lawsuit arising out of the same events was filed, lacked coverage for the lawsuit. In that particular instance, the insured eventually had to sue, and recover from, its own insurance broker, for having set up a program that would allow such a gap in coverage.
The United States District Court for the Northern District of West Virginia just released a memorandum opinion deftly applying these rules to claims made policies that contained a detailed definition of the term claim. The court, correctly, broke down the specific textual requirements of the definition of claim in the policies, such as the requirement that it be in writing and seek damages, and applied them to the notice that the insured received during the policy period about the events at issue, concluding that certain communications during the policy period did not constitute a claim that would trigger coverage because they did not satisfy those requirements. The case is Cornett Management Company v. Lexington Insurance Company, Fireman’s Fund Insurance Company, Brady Risk Management, Inc. and Hartan Brokerage, Inc., a copy of which is available here: Download file

There is an interesting article concerning the latest developments over the case of Jurinko v. Medical Protective Corp., the largest insurance bad faith verdict in Pennsylvania history, reprinted in Law.com from The Legal Intelligencer, at http://www.law.com/jsp/law/sfb/lawArticleSFB.jsp?id=1144330160389. The article concerns the plaintiffs’ lawyers attempt to make new law that would increase the attorney’s fee award to them as the prevailing plaintiffs in this insurance bad faith case, a case which is nicely summed up in the court’s opinion on post trial motions at http://www.paed.uscourts.gov/documents/opinions/06d0372p.pdf.
The article points out that fee awards are entirely discretionary under Pennsylvania law, and discusses that the plaintiffs’ lawyers are trying to convince the court to vary from the usual application in that jurisdiction of the lodestar method of awarding attorney’s fees.
Such an award would not be discretionary in Massachusetts, where General Laws Chapter 93A, which is the operative statute for bringing a bad faith action against an insurer, mandates such awards to plaintiffs. This is entirely consistent with Massachusetts law in general at this point, which essentially provides a carve out for insurance disputes, in most circumstances, from the typical pay your own way rule with regard to attorney’s fees. Instead, in this state, if the policyholder or the claimant wins a coverage or bad faith dispute, their attorney’s fees typically become the problem of the insurer that ended up on the wrong side of the verdict.

One interesting question in ERISA is the extent to which any particular party who manages or provides services to a plan is required to disclose information to plan participants who contact it concerning the plan, plan benefits or a claim for benefits submitted under the plan. Section 1132(c) of ERISA http://www4.law.cornell.edu/uscode/html/uscode29/usc_sec_29_00001132—-000-.htmlimposes certain obligations of disclosure and allows courts to impose penalties on plan administrators who fail to comply with those obligations.
Courts recognize that not every entity that plays a role in the administration or operation of the plan should be deemed a plan administrator subject to the obligations of that part of ERISA. Courts in a number of jurisdictions have applied what could be called the de facto plan administrator rule to this question, finding that, regardless of whether a party is actually declared the plan administrator in the plan documents, if the party is effectively operating the plan and would have been in a position to resolve such a request, that party should be deemed subject to the obligations of disclosure imposed by this statute. In February, the Eleventh Circuit Court of Appeals affirmed without comment a decision by the Middle District of Georgia, Hamall-Desai v. Fortis Benefits Ins. Co., 370 F.Supp.2d 1283 (N.D.Ga. Dec 17, 2004) (NO. CIV.A. 103CV1529BBM), in which the court applied the de facto plan administrator test; the district court issued a detailed ruling addressing both that issue and a range of benefit issues.
Here in the First Circuit, however, the courts have not accepted the de facto plan administrator approach, and the district courts have consistently limited the obligations of this statutory provision to plan administrators only, regularly distinguishing the only First Circuit decision that suggests a different approach. The most recent to do so was the federal district court for Maine, in 2004, in an unpublished decision, Davis v. Verizon New England Inc., http://www.med.uscourts.gov/opinions/cohen/2004/dmc_05052004_2-04cv07_davis_v_verizon.pdf

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