On the Fid Guru Blog, Euclid Fiduciary’s Daniel Aronowitz has an excellent deep dive on the question of jury trials in breach of fiduciary duty litigation under ERISA, asking the questions of, first, whether they are really coming and, two, if so, is that a good or a bad thing (his take clearly appears to be that it is a bad thing).

We will start here with the eat your vegetables part of this post, or the part where we discuss doctrine and not opinions. Dan does a terrific job with the history of the long-standing barrier to jury trials in ERISA cases, including with the jurisprudential underpinnings. From there, he explains the cracks in the wall, whereby courts are beginning to consider allowing jury trials, specifically addressing the potential liabilities of fiduciaries for excessive fee and similar alleged problems with large benefit plans. Dan’s post is built around the upcoming scheduled trial in the Yale University breach of fiduciary duty class action; as explained at the outset of the post, “barring a last-minute settlement and inevitable scheduling delays, a jury of ordinary citizens from Hartford, Connecticut is going to decide if the Yale University plan fiduciaries committed fiduciary malpractice in choosing the investments and monitoring the fees of its retirement plan.”

But is this a good or a bad thing? Dan clearly comes down on the side that adding jury trials to the ERISA litigation world is not a wise development, an entirely defensible position that should be held by any self-respecting insurance industry executive. And why is that? Well, first, because adding jury trials into the mix will prove expensive for fiduciary liability insurers, and not only for the obvious reasons. Speaking broadly and based solely on my own experience, jury trials are certainly at least marginally more expensive for insurers to fund than are bench trials for a variety of reasons. But the increase in defense costs linked to the rise of jury trials in this context isn’t just a question of the relative cost of conducting a jury trial relative to the cost of bench trials.

Instead, it is driven by the fact that the possibility of jury trials is likely to increase the number of trials and the amount sought in settlement of these types of cases. Throughout all areas of the law, plaintiffs’ lawyers operate on the belief that the availability of a jury is favorable to them, that they have a chance to win regardless of the strength of a particular case so long as they can just get to a jury (in other words, manage not to lose at the motion stage or be forced into a bench trial or an arbitration) and that the settlement value is higher if the defendant or its insurer has to contend with the vagaries of a jury. And frankly, based on thirty years of experience on both sides of the “v,” they are not wrong to think this way.

However, from a merits perspective, it is not entirely clear that jury trials in this context are by definition a bad thing. Juries in this context are not deciding the doctrinal questions that are primarily driving the vagaries in court decisions, but are instead applying those doctrinal decisions to the facts of a given case. That’s the general purpose of a jury, obviously. I don’t tend to accept the premise that juries are too easily driven by passion or misled by clever lawyers, or similar criticisms of their role in deciding cases. Instead, I find that, more often than not, they are roughly comparable to judges in executing the fact finding role. The real question is the need for control on those occasions when jury findings or verdicts are off base because of misapplication by a jury of the law or excessive sympathy for a plaintiff or an underlying dislike of a corporate defendant – but in that instance, the court possesses the necessary tools to address any such distortion driven by the jury system.

As an ERISA litigator, I have long been an advocate of the idea that the best defense against litigation is good compliance – in other words, that the best way to prevent lawsuits and, if sued, to come out whole on the other end is to operate a well-run benefit program and to consistently do so long before the process server shows up. In this regard, one of the central elements of running a compliant 401(k) plan that maximizes the opportunity to prevent or win lawsuits is to establish the prerequisites for compliance with ERISA section 404(c); 404(c) provides some protection against claims for breach of fiduciary duty where the employees have control over how their salary deferrals are invested.

For years, one of the more hotly contested topics in ERISA litigation has been the scope of protection against liability that plan sponsors and fiduciaries can claim for themselves by running 404(c) compliant 401(k) plans. There is certainly some protection earned by doing so, but the scope of that protection is likely less than many plan sponsors would like to have obtained or, possibly, believe they acquired by engaging in that particular act of compliance.

Financial advisor Doug Lutkus, who like me believes that providing more information about investment options to plan participants is often the best course of action for plan sponsors, and I will be discussing these topics in a webinar today. If you would care to join us, you can find the sign up information here.

There is an interesting article in the Guardian on the subject of structural and policy barriers in the United States to the elimination of poverty, which is addressed in a new book by a MacArthur award winning sociologist. I think the New Yorker has a new article out on the same topic, probably based on the same book, but I have been unwilling to use my one free, non-subscriber article access per month on it to find out.

It caught my eye because of something similar I have been thinking more and more about with regard to retirement and other benefits in American work life. A significant part of my practice is freeing up retirement, pension, 401(k), deferred compensation, employer provided group life and other benefits that are due to, but aren’t being paid to, American workers. It’s very gratifying work and, at the risk of sounding like one of those plaintiff-side personal injury lawyer ads that always trumpet the amount of money recovered for the injured over the years, I have recovered multiple millions of dollars for employees and retired employees through this work. What has really jumped out at me about this part of my practice over the years, and become very apparent recently, is the constant undercutting and underdelivering of promised retirement and other benefits to employees. It holds true across all socio-economic classes of employees – there was a day recently where I spent the entire workday on such issues on behalf of everyone from retired senior executives to upper middle managers to a group of rank and file employees. There is, in essence, a structural barrier to the payout of benefits across the board to the American workforce, and it doesn’t matter how high up the employment ladder you look.

Some of this is, consistent with the argument made in the Guardian article, structural and baked into the system. What is deferential review in the context of an ERISA case but a structural barrier against paying out benefits to employees? There are in many cases no reason for an ERISA benefits case to be analyzed as anything other than what it often is at heart, a breach of contract dispute, and yet because it involves employee benefits, a unique standard, unfavorable to employees but favorable to the plan sponsor, applies. Similarly, the use of equitable relief under ERISA to remedy gaps between what a retirement plan actually owes and what was promised, often many years before, to employees, has long been handcuffed by similar barriers to recovery, although recent developments in the case law are moving the standards on this issue in directions that substantially erode this systemic barrier to recovery of benefits.

And still yet more of it arises simply from the complexity of the system and the disjunct between the needs of employers – particularly smaller employers – to locate good outside administrators and the relative paucity of them. This dynamic leads to endless numbers of errors in the system that, barring intervention by a lawyer, often deprive employees of some substantial part of their retirement or other benefits, for a whole host of reasons. I could offer up many examples, but that would requiring turning this short blog post into a treatise.

And some of it, of course, is deliberate. Any lawyer working in this area can bore you to tears with war stories of cases where the withholding of benefits was deliberate and intended to reduce the benefit cost to the employer, or increase the fees of a vendor, or otherwise benefit someone other than the employee.

To me, I tend to think of all of this as a sort of tax on the retirement system, reducing the benefits owed to American employees across the board, for some more than others. My gut feeling is that all of this, combined, represents a 10% to 20% tax across the entire retirement universe, with employees underpaid by that much through some combination of administrative error, doctrinal barrier, and unnecessary cost.

Don’t get me wrong on this – I think, and my experience has been, that most employers and vendors in the retirement and benefit field have good intentions, but the few bad apples, when combined with the inherent barriers to full payment of employees that are baked into the system, complicates and reduces retirement and benefit payouts to the American workforce as a whole, once you look at the question with a really broad lens rather than focusing on a specific case. When you focus on specific cases, you are as (or perhaps more) likely to find a generous and well-run plan as to find one that shortchanges a group of employees – but if you look at the entire, enormous retirement benefit market as a whole in this country, I feel confident you will find that the amount of benefits that gets to employees is significantly reduced by this dynamic.

I spoke earlier in the week at ALM’s Complex Claims and Litigation Forum in Las Vegas, where I was on a panel on “Tackling Market Disruptors – How to Manage Industry Shifts.” I spoke on a subject near and dear to my heart, which is the impact on claims handling of the rise of the nuclear verdict and the problems that ever increasing liability exposures pose for the insurance industry in general. I was joined on the panel by Jacqueline Schafer, a practicing attorney in Washington state and the founder and CEO of the artificial intelligence company, Clearbrief, who addressed the very newsworthy and timely subject of the impact of AI on litigation and insurance trends, as well as Daphine Willingham of State Farm Insurance, who gave a very interesting take on the view, from the claims side, of these trends. (I am also now stealing forevermore her metaphor for the rationale behind resolving problem claims early rather than later, which was that rotten fruit doesn’t get better while sitting on the countertop and instead just gets worse).

I also greatly enjoyed the conference as a whole. I don’t know whether it is the relief of being freed from virtual conferences after all this time, but the past two conferences I have attended – this one and DRI’s Insurance Coverage and Practice Symposium in December (which I wrote about here) – have been a great deal of fun. In fact, the ALM conference is the first conference I have ever attended in Las Vegas where I didn’t lose a small but princely sum in the casino, not because I won but because the conference and the attendees were so interesting I never even sat down at a table in the casino.

It was also the first conference I have attended that entirely avoided the age old problem of manels. There is no question in my mind that, as an attendee sitting in the audience, the range of perspectives and experiences of the members of the panels, which were universally diversified, made for far more interesting presentations than what we typically used to see at these types of conferences, where the same five men from the same five insurance companies said the same five things only in slightly different words. These panels were far more interesting, and my kudos to the organizers for pulling that off so well.

Overall, though, my biggest takeaway was the extent to which the three days of discussions reinforced two beliefs I hold dear about the insurance industry – that it is at the same time both the most static and the most dynamic of industries. Static in that, despite new policy forms and new coverage risks, the issues remain very much the same. For instance, there was an excellent keynote address on insuring the marijuana industry and the issues doing so raises. Although a new area of underwriting, the issues remain very much the same – what type of policy wording needs to be used, what type of data is needed for underwriting, and so on – as has always been the case in insurance. Dynamic, though, in that the range and types of risks keep shifting in ways that force the industry as a whole – from brokers to underwriters to claim departments to litigators – to constantly shift and often play catch up to developments in the greater world; nowhere was this more evident than in the discussion of cyber risks and insurance, presented by a terrific panel.

I was pleased to read this article in Massachusetts Lawyers Weekly, as well as the recent Supreme Judicial Court decision it references. For several years, I have been arguing that in insurance coverage disputes involving sophisticated insureds, Massachusetts courts are moving away from their historic reliance on pro-insured maxims in deciding coverage disputes in favor of a more traditional contract law approach to deciding such disputes. For many lawyers who, like me, have been practicing insurance law in Massachusetts for decades, our experience for many years was that Massachusetts courts considering disputes between insureds and their insurers would frequently fall back on what I call “tie goes to the runner” maxims, such as the rule that ambiguous policy language must be interpreted in favor of the insured, to find in favor of insureds in such disputes. Over the past handful of years, though, it has been clear to me that state appellate decisions were cutting against that approach, in favor of rubrics that favored identifying and then enforcing the apparent contractual intent of the parties, at least when the insured was a sophisticated entity. Unfortunately over the years, there has not been an appellate decision that could serve as a ready and easy touchstone for making that argument, but that now seems to have changed.

As Massachusetts Lawyers Weekly points out in the article, with affirmation from a number of prominent coverage lawyers, a recent state supreme court decision decided a complex coverage action by determining and then enforcing the contracting intent of all the parties – both the insured and the insurer – to decide the scope of coverage, rather than invoking other maxims or rules to reach its decision. The Court declined to find coverage for a risk not addressed in the policy language itself, stating that “[g]iven the express allocation of risk and the sophisticated parties that contracted to allocate this risk, we decline to imply a common-law duty to fill in the gap in coverage.” The Court held that the parties – both the insured and the insurer – were sophisticated entities who negotiated the extent of the risk transfer between them and that there was no basis for the Court to make a reallocation of their decision by reading benefits into the policy that the parties did not expressly include within it. One leading coverage lawyer called the decision “a refreshing recognition of the sanctity of contract.”

To me, the decision is another marker on the journey of Massachusetts insurance coverage law from a regime in which extracontractual rules of policy interpretation (which inevitably favor insureds) control the outcome of disputes to one more in line with traditional rules of contractual interpretation, in which the guiding principle is to try to identify as precisely as possible what the contracting parties actually intended to accomplish by their written agreement.

I enjoyed this article from Middle Market Growth on the intersection of private equity investing and ESOPs. As the article points out, most people think of ESOPs as fully employee owned enterprises, but in fact there are partially employee owned companies where there is room for private equity investments elsewhere in the ownership structure and outside of the part of the company owned by the employees. The article speaks very favorably of these types of scenarios and notes that these types of transactions can greatly benefit the investment itself and the investment target, as well as the employees. I find this proposition wildly noncontroversial. As I have written elsewhere with regard to employee ownership, turning employees into stakeholders is beneficial to the particular company’s employees, to (as the article also points out) the company’s prospects and performance, and, in my view, to society as a whole.

However, one point not noted in the article is the need to ensure that these types of transactions treat the employees fairly and bring matching – and depending on the transaction identical – benefit to the employees as it does to the non-employee owners. I have litigated cases where that was not the case, and this is a quick route to expensive litigation involving the ESOP. For instance, in one of my cases, private equity bought the company through a structure in which both the employee stock holdings and the shares of the company’s other owners were acquired. Although the discrepancy, and the impropriety of it, was not obvious as it was buried within the nature of the transaction and obscured by the timing of different steps of the transaction, the buy out resulted in a higher purchase price being paid to the majority, non-employee owners than was paid to the employees for their share of ownership. This eventually led to litigation intended to rebalance the funds paid to purchase the company so as to eliminate the discrepancy.

It is important to pay attention to these types of details when private equity becomes involved in investing in an ESOP. Unlike a classic private company transaction, complete freedom of movement in designing the terms of a deal doesn’t exist with an ESOP, due to the obligations running to the ESOP itself and the employee owners.

One of the advantages of writing a blog on a particular subject for as long as I have – going on 17 years now – is that you become your own sort of institutional memory, in a way. When I saw this article in Forbes today, discussing barriers that the NFL’s disability system throws up in front of injured players, I immediately remembered writing about this same issue back in 2007, as you can see from this post.

I try to be an evidence-based skeptic and I admit that I cannot tell from the anecdotes used in the Forbes article whether the system is still as broken as it was when Mike Webster, the former Steelers’ great, struggled to obtain benefits decades ago. If it is though, or even if the improvements to the system since then have only been marginal, then it is well past time for a systemic fix.

There is an excellent article in Massachusetts Lawyers Weekly this week by Eric Berkman on a new District Court decision by Judge Woodlock in Massachusetts concerning mental health benefits and the nature of the review provided by an insurer. The decision, K.D. v. Harvard Pilgrim Healthcare, found that the insurer had an insufficient basis for denying out of network benefits to the insured because the insurer failed to directly address and refute the insured’s medical basis for seeking the out of network treatment. To me, the decision reflects a move toward a more searching analysis of the administrative record to determine whether a denial was proper, and away from allowing insurers to deny benefits based on general conclusions as to the overall body of evidence.

I am quoted in the article, explaining what I see as the lessons for both plaintiffs and defendants in the case:

Stephen Rosenberg, an ERISA attorney in Boston, said the decision provides important lessons for attorneys representing ERISA claimants and insurers alike.

For plaintiffs’ attorneys, the case highlights the need to master the evidentiary record and call attention to specific instances when a denial is made without the plan administrator specifically grappling with and rejecting evidence in the record that is contrary to the denial, he said.

And for defendants and their attorneys, Rosenberg said, the case demonstrates the risk of relying on broad arguments that the overall weight of the record supports the denial.

“Instead, [they should] be shifting their focus to proving that … the administrator directly grappled with and then reasonably rejected the arguments and supporting evidence focused on in the administrative process by the claimant and his or her medical providers,” he said.

I attended a large legal conference (DRI’s Insurance Coverage and Practice Symposium) in person last week for the first time since the pandemic, and not only learned a lot, but had a great time (shout out in particular to the kitchen staff at Capital Grill and props to the bartender at the Whitby Bar, among others). In olden days, I would sometimes live tweet from conferences, both to share what I learned in real time and also to lock into my memory what I was learning but I wasn’t inclined to do that at this conference, since if twitter isn’t good enough for Elton John, it’s probably not good enough for my random thoughts on legal issues either. So instead, I captured in real time the same thoughts I would otherwise have tweeted out during the conference, and turned them into this blog post. I haven’t tried this approach to sharing information from a multi-day conference before but let’s see if it works.

Top ten lists are a mainstay at these types of conferences, and Matt Foy of Gordon Rees gave a presentation on the top ten insurance law decisions of the past year. Several were of particular interest, and at the risk of giving short shrift to the depth of Matt’s discussion of the cases (remembering, of course, that in years past my comments on these cases would have each been no more than 140 characters, so the following comments have the depth of “All Quiet on the Western Front” in comparison to what I would have written in the past), I comment on them briefly here.

First, most who practice in this area likely already know that courts have generally rejected claims seeking coverage for Covid related losses by businesses. Matt reviewed some of the most important decisions to this effect to date, and pointed out five recent state Supreme Court rulings to that effect, including in my home state of Massachusetts. He also quantified the extent to which these disputes are running in favor of insurers, with over 80% of such claims against insurers being dismissed. Second, I took particular note of his discussion of new case law concerning whether privacy class actions are covered by policy language covering publication of material that violates a person’s right of privacy. Although it seems like just yesterday, the first article I published was approximately thirty years ago concerning “The Expanding Scope of Advertising Injury Coverage” and addressed similar attempts to expand coverage under these types of coverage grants. The more things change, I guess. . .

Third, Matt highlighted a decision concerning whether claims involving cyber viruses are precluded from coverage by war or hostile act exclusions, which was particularly interesting because these types of exclusions always and only seem to arise under particularly interesting fact patterns. And finally with regard to his list of cases, Matt noted that on limited case law to date, the statutory violation exclusion in policies has not been found to bar coverage of biometric litigation in which the insured is claimed to have violated statutes precluding distribution of biometric data. This one caught my eye because one of the many things I have learned in the past three decades is that the statutory violation exclusion seldom gets applied as broadly as its language would seem to suggest.

I also greatly enjoyed the presentation by Ford Stephens and Alex Henlin about jurisdictional and similar issues in prosecuting declaratory judgment actions in insurance coverage disputes. The biggest takeaway for me, as I shared with Morrison Mahoney’s Larry Slotnick, who had the luck (good or bad, you make the call) of sitting next to me and thus being subjected to my commentary, was the reminder that insurance coverage litigation is a practice area for civil procedure buffs, and that young lawyers should probably be told at the start of their careers that if they didn’t geek out about first year civ pro in law school, this probably isn’t the practice area for them.

I likewise took a lot away from the bad faith presentation on the last morning of the conference by Matt Lavisky of Tampa’s Butler Weihmuller Katz and Aaron Singer of The Hartford. Having spoken at a number of conferences over the years, I can say with confidence that it’s not the easiest thing in the world to entertain a large crowd of lawyers at 9 in the morning on the last day of a conference, but they pulled it off with ease (with a little help from an entertaining mock – at least I hope it was mock – version of a televised lawyer advertisement). I found their presentation a valuable reminder of the extent to which, regardless of jurisdiction, gamesmanship, intended to set up an insurer, is so often central to bad faith litigation, rather than the merits and value of the insured’s claim itself.

Finally, on a more serious note, Kathy Maus and Ilana Olman gave a very informative, if very sobering, presentation on the insurance and settlement issues arising out of the catastrophic Surfside Condominium collapse. I note that they emphasized the point that, because of various aspects of the case, the true cause of the collapse may never be determined. That said, though, their presentation took me back to the several years I spent as an A&E (architects and engineer, not arts and entertainment, which likely would have been a lot more fun) coverage lawyer, and the extent to which so many significant construction loss claims seemed to arise, at root, from a race to the bottom with regard to maximizing profit or reducing regulatory oversight; I certainly have no basis to know whether this was the case with regard to the Surfside collapse, but Kathy and Ilana’s presentation certainly reinforced why vigilance against that dynamic is always important in the construction context.

Albert Feuer, who writes frequently on the technical aspects of ERISA compliance, has published an interesting new article in Bloomberg Tax’s Tax Management Compensation Planning Journal on the latest proposed legislation to alter retirement savings. Albert points out that the changes would help in allowing employees to increase their retirement savings, but would fail to either address the complexity of the system or the extent to which it allows a small percentage of taxpayers to use retirement accounts to shelter massive amounts of wealth far beyond that needed to fund retirement. I am much more sanguine than is Albert about the inequity built into the system reflected in such sheltering, as it seems to me to be of a piece with innumerable aspects of the tax code that favor the already wealthy over those aspiring to someday reach that status. I do, however, share his concern about the complexity of the retirement system, which he believes proposed legislation will not only fail to reduce but will instead actually increase. If I had a dollar for every case I have handled where the underlying cause of the problem was simply the complexity of the system, which in turn gave rise to operational errors that had to be remedied, I could, well, retire.

More important in regards to the points Albert makes in his article, I think, is that the complexity reinforces and in many ways increases the inequities built into the system, by making it harder for smaller employers to provide retirement benefits and for employees, across the board and regardless of the size of their employer, to access and make use of them. For instance, time and again, I see cases where, through inadvertent oversight or simple ignorance, employees foul up the rollover timing or process, losing the ability to maintain their tax deferred retirement status, in circumstances where they simply want to be able to maintain the tax sheltered status of their retirement accounts. Why, in the name of encouraging good retirement outcomes, do we turn this process into a game of gotcha whereby employees can, through negligence or sheer ignorance, lose the tax deferral on their account balances because they fouled up the rollover process or timing, instead of just allowing employees a far greater degree of leeway in this regard than the rules currently do?

Similarly, it is probably only a slight exaggeration to say that there has never been a time where I haven’t had at least one dispute open on my desk involving a small employer trying to remedy operational errors in its retirement plan. It is simply too complex an area for small employers, who are not trying to do anything fancy but instead simply trying to provide industry standard defined contribution plans for their employees. Adding to the level of complexity, as Albert fears new legislation would do, would simply increase this barrier to adoption or operation of retirement plans by smaller employers.

Anyway, if I were to build on Albert’s article, or respond more directly to his thesis, I would suggest he worry less about the inequities and more on the complexity – which I think in and of itself plays a significant role in increasing the inequity in retirement preparedness that he is concerned about (after all, I have never seen someone with a so-called Mega IRA – meaning one vastly exceeding anyone’s retirement needs – who didn’t also have access to enough professional expertise to avoid the traps and risks in the operation of retirement accounts).