I have counseled insurers and represented them in litigation on bad faith claims handling and Chapter 93A cases for pretty much the entire modern era of insurer bad faith law in Massachusetts. My very first trial as a first chair was a Chapter 93A bad faith failure to settle claim against a major insurer (I lost on liability, but whittled damages down to a pittance) and, several years later, I defended the primary carrier in the first lawsuit in Massachusetts asserting the now common theory of post-verdict bad faith, under which a claimant who has obtained a jury verdict then claims the insurer violated Chapter 93A by pursuing an appeal or seeking to negotiate the verdict amount downward rather than simply paying the verdict.

Over the years, I have developed a number of principles, standards and rules for evaluating bad faith claims, counseling insurers on avoiding them in the first place, and litigating them if it comes to that. Someday, I would like to compile them in an article, or a white paper for a client, or a presentation at an insurance conference or DRI conference, but I haven’t found the time or the opportunity yet. However, two very recent decisions from two different federal judges in Massachusetts offer me the opportunity to discuss a couple of those principles. I am going to try to address two or three of them in succession in a series of weekly posts, starting today.

The two cases are both very interesting and very different, not the least of which because in one, the insurer lost and suffered an award of multiple damages and in the other, the insurer prevailed. The contrast between the two offers an excellent teaching moment for discussing how an insurer avoids liability in these types of scenarios and the circumstances in which that is simply not going to be possible. One of the biggest things the two cases, taken together and in light of their different outcomes, demonstrate is the sheer overwhelming importance of the facts. In one, the insurer, by the time the claim process was concluded, simply did not have a good record left to defend against claims of bad faith in investigating and failing to settle the underlying claim, while in the other, the course of conduct between the claimant’s counsel and the insurer during the pendency of the underlying action left the insurer with a solid record for defending such a claim. Therein lies the first and most important point for insurers confronted with Chapter 93A claims related to allegedly bad faith claims handling and settlement decisions, and that is that, in the famous words of that great trial lawyer (and secondarily for these purposes, a United States president), John Adams, facts are stubborn things.

This seems like a simple point, but in the two decisions you see the extent to which the differing fact patterns drove the result – in one, a significant multiple damages award against the insurer and in the other, summary judgment in favor of the insurer. Moreover, there is a subtle point in the handling of bad faith cases buried in this lesson, which is that, while in hindsight it is easy to see the nature of the facts and the risk of bad faith liability they present when written out by the Court in findings of fact after trial or in a summary judgment ruling, that is not always going to be the case during the handling of the underlying claim, which is when the decisions are being made about settlement or claims handling that will either give rise to or alternatively avoid triggering a subsequent Chapter 93A or bad faith lawsuit. It is when those decisions are being made in real time that the rubber hits the road in terms of the eventual outcome of a bad faith claim and in terms of the insurer’s ability to avoid heading down a path that may eventually result in an adverse bad faith verdict. It is crucial at that early stage for an insurer to have counsel, whether inhouse or outside counsel, who not only understands the facts of the case but has sufficient experience with bad faith litigation to be able to see around the proverbial corner, allowing him or her to provide the kind of sound advice during the handling of the underlying claim that will avoid a bad faith suit in the first place, or allow it to be adequately defended if it cannot be avoided and one is eventually instituted. The absence of this expertise and level of guidance is what causes insurers to walk into the type of claims handling and settlement decisions that eventually result in multiple damages awards for bad faith claims handling and settlement decisions.

The decisions are Appleton and Urban. In my next post on this subject and these two decisions, I will discuss the lessons they teach about the risks posed when an insurer paints with too broad a brush.

When I was in college in D.C. lo these many years ago, a friend of mine’s uncle took us out to dinner at the Watergate complex (still the only time I have ever been inside it). He had been a tech guy at HBO in its early days, when he quit on the spot over compensation issues; a week later, they hired him as a consultant and the next thing he knew, he had a thriving tech consulting company in the cable and communications industry. I have never forgotten what he said to me when explaining, decades after the event, why he left HBO – he said “sales gets all the money – and don’t forget it.”

When it comes to selling legal services, I tend to prefer to let the outcomes of my cases and the quality of the work product speak for me, so it is always good when I can rely on someone else to blow my horn, which Super Lawyers is doing today in the release of their 2024 Massachusetts Super Lawyers issue. You can find me in it right here and more on me in it here. Thanks to Super Lawyers for the recognition.

Many of you know that I have been writing about the intersection of the insurance industry and climate change for almost long as this blog has existed. I have long been interested in the economic relationship between the two, as the industry responds to climate losses and, in so doing, forces homeowners and other insureds to proactively and constructively respond to climate change and its inherent property risks. Thanks to the beauty of the LinkedIn algorithm, this excellent, detailed study of the topic came to my attention yesterday. The article – “Rise of the Insurance Apocalypse” in The Lever – points out that the economic interrelationship of climate change and insurance is even more extensive than we often think, pointing out how it affects not just homeowners in risk prone areas but the very question of whether certain types of energy projects can, will or should even be built.

But it also points out something more troubling, which is seldom covered by the articles in most media about the subject, which typically simply discuss insurers retreating from a particular state so as to reduce their losses; namely, the extent to which climate related losses and exposures are threatening the very fabric of the reinsurance system on which much of the modern western economic world rests. Beyond that, it does a terrific job of sketching the history of the industry’s engagement with the problem, tracing it farther back than I have understood it to go, pointing out that “in 1973, Munich Re, one of the world’s major reinsurance firms, noticed a spike in the number of flood damage claims” and noted in a report “’the rising temperature of the Earth’s atmosphere’, due to the ‘rise of the CO2 content of the air, causing a change in the absorption of solar energy.’”

None of this is going away, and this history is worth understanding for anyone interested in the legal, regulatory and political environment that is growing up around the changes in the insurance and reinsurance industries as a result of climate losses.

The relationship between climate change and the insurance industry has been a favorite hobbyhorse of mine for over a decade, since I learned that Lloyd’s was closely studying the potential impact of climate change on insurance rates, profits, underwriting and the like. Good for the industry, I said then in my blog, for taking a proactive approach to a major threat to its business model. Beyond that, as I have written often, as goes insurance losses, insurance prices and the other economic disruptions caused by climate change, so too will go our collective economic, political and social willingness to respond to the crisis.

I wanted to briefly comment on this most recent article on the subject, from the Washington Post, concerning approval in California of increased homeowners’ premiums in exchange for continued or increased underwriting of risks in areas exposed to wildfire and other climate-based risks. It is interesting for at least two reasons that are worth noting. First, for some time now, the story – not just in California, but in other states, particularly Florida, as well – has been about insurers ceasing to write risks in a given state, given the losses due to climate related disasters. Now we are seeing the next and, for the market, hopeful step, which is the realigning of the financial models, including pricing, to allow for private insurance to step back into covering the risks. This is important because otherwise, only two realistic options exist, neither of them good: uninsured homes or state provided coverage.

Second, the story shows a state regulator and an insurer working together to align the increased costs of the exposure with the particular homeowners owning the at risk properties, rather than either the insurer abandoning the entire marketplace as a whole or transferring all of the costs of the risks to other insureds uniformly. While not entirely clear from the article, it appears that the rate increases are tied to the exposure of particular homes or areas, and a different article notes that the “rate hike also includes discounts for homeowners who take steps to reduce wildfire risks on their properties.” We know from the history of rebuilding in flood zones because of the availability of federal flood insurance that an absence of market discipline creates a moral hazard problem and reduces the incentive to act proactively to avoid future climate related losses. Allowing homeowners’ carriers to impose at least some market discipline with regard to the economic costs of climate change can only help drive sensible responses to climate change and sensible efforts to mitigate the harm from it, both economic and otherwise.

Now, that is not the end of the story, but it is close to it with regard to how much should be discussed in a single blog post. Allow me, though, to note that I am aware that allowing targeted premium increases directed to specific homeowners or small areas where property is particularly at risk is in tension with the underlying principle of insurance, which is to broadly share risks to reduce costs for all. I am also aware that it can result in large premium increases being imposed on some homeowners who cannot afford to carry it, because not all properties at increased risk of destruction from climate change are the beach houses of the rich. These are problems, however, with solutions or possible solutions, best discussed another day.

Enjoy Labor Day by the way!

The Washington Post has a fascinating article today on the operation of the NFL’s disability claim system for addressing benefits due for neurological impacts from professional football. Although likely behind a paywall, the article is certainly worth a read. Its point is really that the system, which is the outcome of a negotiated class action settlement, excludes benefits for a large number of former players under circumstances in which that outcome appears questionable.

I began writing on the subject of coverage for CTE and related harms under the NFL’s benefit plans more than a decade ago, when the family of former Pittsburgh Steeler center Mike Webster pursued lengthy and contentious litigation against the NFL over this subject. I have also negotiated class action settlements and had them approved by judges, and recognize that this is not just a difficult dance but, like most settlements, involves a great deal of tradeoffs, compromises and subtle considerations by the parties just to be able to close a deal. I also understand the idea that “everyone’s a critic” and that, to some extent, it is fair for the “man [or woman] in the arena” to be credited for stepping into the coliseum to work out this type of a settlement rather than being subjected, after the fact, to the “slings and arrows of outrageous fortune.”

But with all of those caveats out of the way, I cannot help but think that the class action settlement, at least if the Washington Post article accurately characterizes its operation (and based on other reports I have read over the years, I don’t doubt that it gets it at least generally right), may have created something of a Rube Goldberg type benefit plan applicable to long term health issues arising from concussions and other insults to the brain, resulting in the type of debatable claim outcomes and procedural barriers to recovery depicted in the article. Looking at it objectively, the benefit plan at issue, built out by means of the settlement of the concussion class action filed by ex-players against the NFL, is overcomplicated relative to the typical design of a disability plan or disability pension plan, and it appears that this may be driving the negative outcomes for former players discussed in the article. It seems to me that a traditionally designed benefit plan, with some additional protections for the ex-players built into it, addressed at compensation for these types of claims could have more fairly, quickly and easily processed these types of claims.

This is a quick note on a new Chapter 93A decision by the Massachusetts Appeals Court that I want to highlight for a couple of reasons. Chapter 93A, for those readers from out of state, is Massachusetts’ consumer protection and unfair business practices statute. The statute is a very powerful weapon in the right case, for two reasons. First, it offers a prevailing plaintiff an opportunity to recover multiple damages and attorneys fees. Second, it creates a sort of amorphous cause of action that encompasses a range of conduct that might either not be prosecutable under traditional common law causes of action or that might support only a weak case if prosecuted under traditional common law causes of action. About twenty five years ago, in a condominium defect case that I was defending, I had a judge explain to the parties that he didn’t like the Chapter 93A claim that was included in the complaint because, in his day as a practicing lawyer, you actually had to be able to plead and prove the specific elements of a claim to prevail, whereas Chapter 93A allowed lawyers to prosecute much more amorphous cases. That is still true, to some extent, but development of the case law on Chapter 93A over the past two decades has filled in much of the detail of what a successful Chapter 93A claim has to look like and such claims have far more defined parameters now than they did when I first started litigating Chapter 93A cases.

This latest ruling fits right in with the idea that judicial decisions over the years have cabined the appropriate scope of a Chapter 93A claim. This decision addresses a particular issue that comes up quite often, given the extent to which modern business life routinely crosses state lines: to what extent must the conduct in question occur in Massachusetts for a Chapter 93A claim to satisfy the statutory requirements? The answer, by the way, is pretty substantially, as this case points out.

This is a fun but dry (don’t worry – you will get the joke in a second) decision from the Massachusetts Supreme Judicial Court on whether rainwater that accumulates on a roof constitutes “surface waters” for purposes of an insurance policy. Of more practical value to most lawyers and of more interest to me, however, is the Court’s detailed presentation of the proper way to determine ambiguity in an insurance policy under Massachusetts law. Deciding the issue on a certified question from the First Circuit, the state’s Supreme Court provided a tutorial on when insurance policy language is ambiguous and how to properly analyze that question.

Too often, and for many reasons, insurance coverage disputes don’t get past the insured arguing that the relevant language is ambiguous, and the case eventually resolving, either on summary judgment or in settlement, without that argument being carefully broken down and thought through. But when the question of ambiguity in an insurance policy is carefully analyzed, as it was here, you see that the very issue of determining whether or not ambiguity exists is, in and of itself, a fascinating exercise in linguistics. You also see that the presence or absence of ambiguity in insurance policy language – and indeed in all contracts – is not an entirely subjective question but is instead something that can and should be rationally determined based on existing standards for making that determination.

Jacklyn Wille of Bloomberg Law, who by now knows more about ERISA litigation than most ERISA litigators, has an interesting article out (you can find it here; subscription may be required), concerning court approval of a “$1.7 million class settlement benefiting participants in an Advance Auto Parts Inc. subsidiary’s retirement plan . . . along with an award of more than $600,000 in attorneys’ fees and expenses.” This is a small settlement amount, considering that the plan, and the affected class, includes 22,000 participants. The case itself appears to relate to allegations of excessive recordkeeping fees. For those of you interested, you can find the court’s order approving the settlement here.

There are two aspects of this settlement and the story that I wanted to comment on. By now, it is a commonplace to have smallish settlements of class action excessive fee cases against plans, but for years such cases were only brought against large plans in pursuit of very large settlements. Back then, a few of us, including me, warned that it was only a matter of time before excessive fee cases went downmarket, so to speak, resulting in the routine filing of suits against small plans or, as here, against larger plans but in pursuit of relatively small settlement amounts and attorney fee awards.

I have a past life as an IP litigator, including patent infringement cases, and these types of excessive fee suits remind me of the heyday of so-called “strike suits” in the IP world, where suits were filed more as part of the chase for settlement dollars than based on the merits of the action. As a result, when advising a client company hit with a cease and desist letter or complaint, or counseling an insurer that covered such a company, it was always necessary to try to determine whether the action had merit, or was instead a smash and grab at settlement dollars. Which way you advised your client, or how you advised the insurer on how to proceed, was very dependent on what conclusion you reached on that issue.

These types of excessive fee cases under ERISA, concerning smaller plans or smallish settlements, raise the same type of issues – any analysis or determination of strategy has to begin with the question of whether the lawsuit involves a meritorious claim, or whether instead the defendant is just a convenient target. Only once you have that determined can a plan sponsor or its insurer really begin to determine a litigation strategy, a litigation budget, a settlement strategy, or even the essential question of whether to direct the case towards trial or instead only towards settlement.

From that point comes the other issue I wanted to discuss and which this settlement illustrates. Many years ago, when insurers – including some of my clients – first began rolling out employment practices liability insurance, otherwise known as EPLI coverage, it was clear to me that employment law and litigation would be transformed by the evolution of employment liability from a business risk into an insurer-managed exposure that would inevitably result from the widespread adoption of EPLI insurance. I wrote about that often on this blog (yes, I have been writing this blog for that long) and it has long since come to pass.

ERISA litigation, and particularly excessive fee class action cases, are moving in the same direction, particularly as smaller cases become the norm. The costs of defending these types of cases are large and, over the years, defense and settlement decisions have been driven more by the interests and views of plan sponsors. I have long maintained, in conversations with insurers, that it is past time for insurers to take more control over these types of cases and to manage these types of cases as insurance exposures, rather than predominately as business risks faced by plan sponsors. The alternative and default approach has long been for the defense and settlement decisions to be driven by plan sponsors, but a move towards greater insurer management of the defense and settlement of these types of cases is long overdue. There are many ways that this change can and should alter the defense of cases, the costs of defense, settlement decisions, and a host of other issues, which is far too much to discuss in this post. Nonetheless, the types of changes that this shift in perspective requires are coming – to the extent they are not already here – and they will both reduce the costs to insurers of these types of claims and, eventually, the costs to plan sponsors of insuring against these types of risks.

I suspect that no one understands as well as an ERISA litigator the extent to which the rules governing judicial decision making either determine the outcome of a dispute or, at a minimum, dictate a specific and limited range of potential outcomes as well as establish the respective odds of each. In the context of denial of benefit claims under ERISA, there is simply no question that the determination of the standard of review for the dispute – whether it is discretionary review or instead de novo review – effectively dictates either the outcome of the case or the odds of any of a limited number of potential outcomes occurring. In fact, whether evaluating the strength of a potential case as a plaintiff’s lawyer for a participant or the strength of the defense as counsel to a plan administrator, the standard of review to be applied by the court is the first issue considered.

When the Supreme Court suggests in Loper Bright Enterprises v. Raimondo that it is simply resetting the rules of the road, or in the hackneyed metaphor, establishing the strike zone for calling balls and strikes, by replacing Chevron deference with a different decision making hermeneutic, ERISA litigators know that they are doing a lot more than that, and instead are altering outcomes in future regulatory disputes in predictable ways, simply by changing the rules for judicial decision making.

In the context of ERISA, I generally don’t believe uncertainty is beneficial to participants, plan sponsors or plan fiduciaries, and the increased questioning of the validity of regulatory initiatives that will be ushered in by the new approach to testing regulations doesn’t benefit any of those three groups. As I discussed in Robert Steyer’s article in Pension & Investments titled “The Litigation Floodgates Are Expected To Open. How The Supreme Court’s Chevron Deference Ruling Expands Judges’ Roles” over the long holiday weekend:

Replacing regulators’ expertise in highly technical matters with judges who lack such expertise is “not a recipe for predictability,” said Stephen Rosenberg, a partner with The Wagner Law Group.

“From here out, essentially any complex regulatory action or detailed, complicated body of rules is and will be only tentative, subject to whatever any particular judge believes is appropriate, in terms of whether the statutory language allows for the action or regulation,” Rosenberg said.

I expanded on this view in Robert’s subsequent article, “Defined Contribution Is Rife With Legal And Management Challenges. Post-Chevron, It Could Get Worse,” when I explained:

The Supreme Court’s majority opinion said scrapping the Chevron deference would create more predictability for businesses because they wouldn’t be whipsawed by the changing policies of changing political administrations — an assertion that ERISA attorney Stephen Rosenberg said is misguided.

“The implicit and explicit suggestion that doing away with it will improve the ability of regulated actors to understand their responsibilities and project out what their legal obligations are, seems to me to be wildly inaccurate in the context of entities operating under ERISA,” said Rosenberg, a partner in the Wagner Law Group.

“Predictability, uniformity and consistency are a tremendous boon to the regulated entities that make up the ERISA marketplace,” Rosenberg said.

“That is going to be a lot harder to do if, as is now going to be the case, the meaning or enforceability of a given regulatory initiative is always in doubt and its long-term viability can never be assumed,” he said. “I don’t personally see the unpredictability that will be ushered in by the court’s decision as any type of a boon to any of the players in the ERISA universe.”

There are plenty of regulations and agency action that are poorly conceived, and quite often unlikely to be what Congress actually would have intended if it had, collectively, ever actually formed an opinion (it’s kind of a ridiculous legal fiction to act as though Congress formed some form of “intent” with regard to a particular regulatory approach to the operational details of the legislation it enacts). Either way, though, the uncertainty of this new approach isn’t the best fit for the operational realities of ERISA plans.

One of the more interesting things to me about the demise of Chevron deference in the context of ERISA is it’s impact on the private attorney general aspect of ERISA, where so much of the change in standards for fiduciary conduct is driven not by governmental action, but instead by the class action bar (and the settlements and court rulings that the suits they file trigger). Does decreasing the ability of the Department of Labor to regulate the conduct of ERISA plans and their fiduciaries just increase the already outsized significance in this area of the class action bar? Time will tell, but you can tell by the fact that I ask the question, what I think the answer will likely turn out to be.

This is a fascinating story of risk management and the commodification of ERISA class action litigation. It’s the story of a $2.45 million settlement of a class action concerning the alleged use of outdated mortality tables in a pension plan. For many years, including by me in this blog, ERISA lawyers and commentators have been warning that class action risks and exposures were going to migrate downstream, from large dollar value cases against large plans, to smaller exposures, smaller plans and smaller recoveries. This is a perfect example – the cases that dominated ERISA exposure a decade ago concerning excessive fees, church plan status and the like involved potential recoveries so large they warranted no holds barred litigation on both sides of the aisle. As this settlement shows, however, those days are long since past and most ERISA class action litigation now involves either smaller stakes or routinized, commoditized litigation, similar to other areas of class action and/or commercial litigation. Employers, plan sponsors and plan fiduciaries should keep that in mind, particularly with regard to risk management. They should, for instance, plan for this change in building out their insurance programs. For example, if most cases, even class actions, arising from their retirement plans can now be expected to be of relatively small value, rather than of bet the company valuations, what should their policy limits, deductibles or retentions, and terms concerning control of defense and settlement decisions look like? And to what extent should they save, or instead spend, premium dollars, to get certain terms in this regard? The answers to this are grist for another day.