Well, I suppose nothing could be located more squarely at the intersection of the two topics in this blog’s title than the difference between fiduciary liability insurance (which lets fiduciaries sleep at night) and fiduciary bonds (which protects a plan’s assets, rather than insuring the fiduciaries themselves). Scott Simmonds, who consults, writes and blogs on business insurance issues (and other things) provides this nice overview of this issue, distinguishing among the range of insurance products and bonds that come into play in running an ERISA governed benefit plan:

The Fiduciary Responsibility Liability Insurance Policy is the solution to the ERISA problem [of personal liability of fiduciaries]. Also called a FRIP, the policy provides protection for "wrongful acts" that result in a claim against the administrator of benefit plans. Premiums range from a few hundred dollars to thousands, depending on the size of the employer.

By the way, many people confuse ERISA fiduciary liability with the ERISA bond requirement. The law mandates that employee pension and retirement plans have a bond of 10% of the assets (up to $500,000) to cover loss of the funds through embezzlement. Some fiduciary policies include the fidelity coverage. Most do not.

Some businesses and insurance agents confuse employee benefit liability insurance with the FRIP. Bad call! The FRIP covers errors and omissions in the administration of benefit plans. The employee benefit liability policy covers mistakes but excludes ERISA liabilities.
 

I have written before (such as here, for instance) about the importance of properly structuring insurance programs to protect company officers, and making sure that gaps don’t appear that may leave them exposed to personal liability.  Scott’s commentary targets this exact same point in structuring insurance programs for protecting fiduciaries of ERISA governed plans.

Some bloggers blog their way to greatness, other bloggers have greatness thrust upon them. For some reason, that line popped into my head when Randy Maniloff’s always entertaining article on the top ten insurance coverage decisions of the past year appeared, like manna from heaven, in my in-box yesterday, providing one weary blogger – i.e., me – with a gift wrapped post for this morning. Substantively, there is much to be gleaned from the article and the cases it reviews, on issues ranging from the current state of trigger of coverage problems to an excellent decision on handling duty to defend disputes concerning obviously intentional conduct that has been pled as negligence for purposes of triggering insurance coverage, all written with the author’s trademark good humor and style (something anyone who reads a lot of insurance coverage briefs, opinions, articles and – yes – blogs can attest is not always present in written work in this area of the law). Moreover, the author has tossed in a free extra, a truly comical special section titled “Coverage for Dummies: The Top Ten," which collects ten excellent examples of people doing really dumb things and then demanding that their insurers protect them against the outcome.

And best of all, in what can only have been a transparent attempt by the author to garner a review on this blog, one of his top ten decisions (non-dummy division) is an ERISA case, the Supreme Court’s decision in MetLife v. Glenn. More seriously, its inclusion is almost mandatory in any collection of the most important decisions affecting the insurance industry (which, obviously, underwrites and administers the vast majority of employer provided disability plans), as it is guaranteed to generate more subsequent court rulings than any other insurance related decision of the past year, as the courts of each circuit move, over time, to realign their jurisprudence to accord with Glenn.

I had a whole line of things I was planning to blog on, but events keep overtaking them. Today, that is the story of the Tribune bankruptcy, and its effect, detailed here, on the Tribune ESOP. We have all been watching the booming industry in filing ERISA breach of fiduciary duty cases based on the latest events in the market with, for the most part, some skepticism, as we try to deduce which ones are legitimate and whether some reflect just a piling on in the pursuit of settlements and accompanying legal fees. However, you will recall that, not too long ago and in a very prescient move, a number of participants in the Tribune’s ESOP filed a breach of fiduciary duty suit related to Sam Zell’s use of the ESOP stock in the transaction by which Zell or entities he controlled acquired the Tribune; we now are learning that this apparently deeply flawed transaction (time will tell, but all indications suggest it was deeply flawed right from the get go) placed the ESOP plan participants’ holdings at greater risk than the assets of others involved in funding the transaction, including Zell himself. Targeting the fiduciaries for possibly having allowed the ESOP assets to be used in a more risky way than others were willing to do with their own investments sure smells like a pretty credible theory to me.

At this point, I think we are entering a new era in Massachusetts law concerning insurance coverage, one different than any I have seen before in my decades of litigating such cases in the Commonwealth. In this brave new world, policies are apparently applied as written, and insureds cannot just claim ambiguities or that they had expectations – somehow reasonable despite being contrary to the actual wording of the policy – of coverage somehow different than that actually provided. That, at least, is the moral of Finn v. National Union, decided last week by the Supreme Judicial Court. In essence, the court enforced the plain language of an intellectual property exclusion in the policy, despite attempts by the insured to argue that it did not necessarily encompass some of the factual variation of the particular claim at issue, and the court expressly held as well that the reasonable expectations doctrine is inapplicable because the exclusion unambiguously precluded coverage. The court, interestingly, didn’t even elect to stop there, deciding to also hammer home the point that the plain language of unambiguous policy provisions controls, by pointing out that extrinsic evidence supporting a contrary reading of the policy cannot be considered in the absence of ambiguity; this is contrary to decades of actual practice in the state’s trial courts, where lawyers for policyholders would regularly toss anything and everything possibly pointing towards coverage into their arguments. The novelty of this idea in Massachusetts practice is illustrated by the fact that the court actually had to go back almost 40 years and then another 40 years more to find two Massachusetts cases to cite to that effect, despite how widely accepted and uncontroversial this idea is in other jurisdictions. A new day dawning? Maybe, but it certainly fits with my sense of the development of insurance coverage case law in this state over the past few years.

Well, I think Roy Harmon and I (mostly Roy, actually) just previewed for you what this webinar plans to cover, the ethical and privilege traps involved in providing legal counsel to ERISA governed plans and their administrators. Still – luckily for people like me and Roy who blog on these subjects and for the presenters of the seminar – there is literally always more to be said about these types of topics. That point was made crystal clear by this article here, which details a court ruling waiving the attorney-client privilege as a result of electronic discovery mistakes, just days after I posted – for the upteenth time – on my qualms about the impact of electronic discovery on clients, costs, and litigation, particularly in the data intensive realm of ERISA actions.

On the other hand, here’s a seminar on everything topical in ERISA breach of fiduciary duty litigation, presented by a who’s who’s of practitioners, which, by its description, is covering a lot more ground than can be trod by a few lone bloggers.

This really isn’t an instance of logrolling (or blogrolling, as the case may be), I promise, even though Roy Harmon’s post that I am passing along here refers to me and my electronic discovery post a few times; the subject of Roy’s post got my attention and led me to read it long before I realized the peripheral role I played in it.

Roy provides a very erudite discussion of a particular quirk and issue of some real concern in litigating ERISA cases, which is the scope of the attorney client privilege that exists – or often doesn’t – between a plan’s fiduciaries and its legal counsel, when engaged in a dispute with a plan participant. As Roy details, there often is no privilege in that situation that would prevent disclosure to the plan participant of legal advice obtained by the plan fiduciary. Its an interesting problem, one that arises in everything from determining the contents of an administrative record to be produced in a benefits denial case (i.e., is legal advice received by the plan administrator in deciding to deny benefits privileged or not?) to the extent to which the privilege can be raised in defending a deposition in a breach of fiduciary duty case. Roy’s analogy to multi-level chess with regard to these issues is apt, and illustrative of exactly the type of complicated gamesmanship that keeps litigators interested in the otherwise often dull interstices between trials.

Here is an excellent article on electronic discovery under the federal rules, and efforts to reduce the expense of this process by protecting against inadvertent waiver of privilege. As long time readers know, I have frequently criticized the structure and format of the federal rules, and their application by the courts, concerning electronic discovery, for the extraordinary burden and expense they impose on litigants. Moreover, I have focused on the fact that the major problem is that the scope of relevancy is very broad in discovery, which has not been too big a problem in traditional forms of discovery because the very nature of depositions, producing existing documents held in hard copy form, etc., puts some outside limits on the process and thus, on the expense. Electronic discovery, obviously, doesn’t have the benefit of being limited in this way by such simple physical restrictions of time and space; because the quantity of data that can and is stored is immense – and not as easily confined physically as, say, simply pulling all file folders at a client related to a particular transaction – the broad scope of relevancy, when applied to electronically stored information, can expand discovery obligations exponentially in comparison to traditional forms of discovery. For this reason, I have argued in the past that courts need to leave their past rubric for discovery (which basically consisted of the view that discovery is broad, the parties are expected to work most problems out among themselves, and court intervention is only warranted for outlier type issues) where it belongs, in the past, and create new approaches to dealing with electronic discovery, in which the courts – either pro-actively or in response to motion practice by the parties – attempt to focus electronic discovery in a manner that properly balances the importance of the documents in question with both the benefits of that discovery to the requesting party and the costs of that discovery. I am, sadly, still waiting for this to happen. The reason I like this article is its focus on the fact that electronic discovery is far too expensive, and that the latest attempt to target that problem is at best, a finger in the dyke approach, in that it just isn’t a lasting solution to the bigger problem. Moreover, the article rightly focuses on the construct that rests at the heart of the problem; the incompatibility of the historically broad definition of relevance applied in discovery with the amount of data now available in a technological society.

Litigators who read this blog already understand my obsession with this issue; while trying cases is the joy of the work, discovery – and fights over it – is the heavy lifting that takes up much of a litigator’s time and a client’s money. It’s a particular problem in ERISA cases, where any type of a plan with a significant number of participants is going to create a great deal of electronically stored data, almost none of it of relevance to any particular dispute yet still possibly open to discovery as things currently stand.

Here is a case from a week or so ago that I haven’t had time to post on yet, but which warranted a little more discussion than suited inclusion in Monday’s Thanksgiving Week potpourri post. In his latest ruling in In re Boston Scientific Corporation ERISA Litigation, Judge Tauro of the United States District Court for the District of Massachusetts delves in depth into the question of whether and when putative class representatives satisfy the requirements to represent a class in an ERISA breach of fiduciary duty case involving alleged securities law violations by the defendants. Building on the work of Judge Gertner, of the same bench, in her opinion in Bendaoud, issued two months ago, Judge Tauro analyzes the question of whether the requirements of both ERISA and constitutional standing, including injury in fact by the putative class representatives, are satisfied, finding that the requirements were not satisfied. The case provides a good tutorial on these issues. Beyond that, however, of perhaps even more interest, given the ongoing development of the law with regard to the intersection of securities violations and ERISA, is that the court’s analysis is heavily influenced by certain defenses to standing and injury in fact that are borrowed from securities law. Normally, in most instances, we are seeing ERISA used as a broader forum for attacking these types of violations, as compared to relying on the securities laws to do so, but in this case, doctrines developed as part of securities litigation serve to blunt a related ERISA case.

Well, I am not quite sure what to say, or perhaps more accurately where to start, with regard to this article in the New York Times today on the surprising financial health – at least for now – of the GM pension plan. As the company otherwise founders, the article describes years of responsible, forward thinking stewardship of the pension plan’s funds, including with regard to investments of the plan’s assets. Obviously, as the article points out, with the company itself in grave danger of running out of money, that may not continue for too much longer, but GM’s handling of the pension plan to date is clearly commendable, particularly so in a world in which so many other businesses insist that they cannot possibly carry the risks and expenses of offering a defined benefit plan. But GM’s contrary experience raises more questions than it answers. Is it only a company with a gigantic financial footprint – like a GM – that can handle the long term financial investments and exposure needed to run a defined benefit plan? Or is a well thought out investment strategy and a corporate willingness to actually contribute the money needed to execute it all that is needed, such that other companies – many of whom have abandoned pension plans – could have pulled it off as well, had they been so inclined? Or, finally, does GM’s current predicament and the likelihood that, barring a turnaround of the company’s fortunes, its pension plan will be in trouble as well, show that defined benefit plans are simply impractical at best in modern American economic life, where – as the GM example shows – the length of pension commitments is not concomitant with the likely life span of the company that makes those commitments?

Some of the more prolific bloggers manage to be prolific by posting short notes on various topics of interest written by others, which isn’t my usual style. But over the past week or so I have managed to back up a good stack of things that I have wanted to talk about in detail, but haven’t had the time to comment on. So in the spirit of a Thanksgiving host laying out a big spread, here’s a whole bunch of things at once:

First, here is a good follow up story providing more detail on Wal-Mart’s success in defending itself against excessive fee litigation, a topic I first discussed in this post here. This particular story, in PlanAdvisor, does a nice job of illustrating the point I made in my earlier post, which is that the court, in ruling in favor of Wal-Mart, did not focus on or analyze the propriety of the particular fees themselves, but rather focused on the method used by the fiduciary to select the investment options in question and whether that was prudent. Interestingly, the article describes the Wal-Mart investment menu, and it reads like one you would find in just about any 401(k) plan. Does this suggest that most plans are actually fine on this front? Or might it suggest that fiduciaries as a whole accept fees that are too high, and that perhaps comparing a particular plan’s investment choices, such as Wal-Mart’s, against industry benchmarks is not really the right focus for deciding whether the fees in a particular plan were too high? Just asking.

Second, here’s one court’s answer to an oft asked question: is a plan participant seeking benefits entitled to attorney’s fees for the administrative appeal portion of his claim?

Third, here’s an interesting webinar rounding up the Supreme Court’s treatment of ERISA issues during the 2008 term. The Court’s fascination with ERISA during the past year has been well documented and the biggest item of discussion in ERISA related media, and pretty much everything about those developments has been chronicled on this blog and a million other places. But if you haven’t seen it all enough by now, the webinar may be for you. Interestingly, one of the topics noted in the webinar is the Court’s involvement in a case, still pending and not yet decided, concerning waivers by divorcing spouses of plan benefits. This is the quickly becoming infamous Kennedy case, which to date has caught the eye for two reasons: first, many people have some question as to why the Court took on this case and whether it merited the Court’s involvement, and second, because of the Court’s decision to seek supplemental, post-argument briefing on the very basic issue of the extent to which plan administrators are bound – barring an effective QDRO – to the express written terms of a plan. As a very experienced benefits consultant recently commented to me, the Court is going to upturn an awful lot of apple carts if, intentionally or even (probably by accident) implicitly, they indicate that administrators are not strictly controlled by the actual written terms of the plan instrument. As a result, a case that started out as perhaps the least substantively significant of the ERISA cases taken up by the Court in the past year threatens to become one of the more disruptive to settled practices, in a manner similar to how the Court reopened much settled thinking on fiduciary duty issues by indicating in LaRue that rules long established in the defined benefit context may not hold true for all other situations.

Okay, that clears some of the backlog.