Group life is the redheaded stepchild of employee benefits, often added on by insurers on top of the primary products being sold to plan sponsors and employers, such as disability insurance. There is nothing inherently wrong with that, except that problems tend to crop up in the administration of group life plans and in the payment of claims due to nothing more than the lack of attention that comes with being a relative afterthought. In fact, off the top of my head, I would guestimate that whether advising sponsors on issues related to those plans, defending insurers or plan sponsors against claims involving those benefits or the occasional times I have represented plan participants seeking payment of those benefits, the underlying issue has always been an oversight and nothing more.

When it comes to denied claims for group life insurance benefits, and litigation to overturn denials, typically either the denial was right in the first place, or the cause of the erroneous denial was some form of a “left hand, right hand” problem in the interaction between the employer and plan sponsor, who is managing enrollment and payroll aspects of the benefit, and the insurer, who is overseeing both underwriting of the risk in the first place and decisions over whether a claim is covered.

A few examples from cases where I have represented either the participant, the plan sponsor/employer or the insurer are probably sufficient to make my point. (Note that I have changed the details somewhat, as well as left out any identifying information, to protect all involved, as well avoid any privilege or confidentiality issues). In more than one case, a terminally ill employee left his position with the employer, not realizing that before doing so, he should have converted his group life to an individual policy, and as a result forfeited the coverage. The mistake occurred, almost certainly, because the plan documents did not assign responsibility for advising the employee of that option to anyone in particular, neither the plan sponsor, the insurer nor the plan administrator, and the ball simply got dropped. In a number of other cases, employers had deducted premium dollars from paychecks for the group life benefit, but the necessary medical underwriting was never finished that was needed to trigger the benefit under the insurer’s policy – leading to two questions that are at the heart of all such cases, which is, first, who is responsible for that mistake (the employee, the plan sponsor/employer or the insurer), and second, is the employee’s beneficiary entitled to that life insurance payment if the mistake is chargeable to the plan sponsor/employer and/or the insurer itself.

In my experience, courts have often found for the existence of coverage in these factual scenarios without a clear doctrinal basis for doing so – in at least one such case, the Court essentially ruled that the events at issue had to have constituted a fiduciary breach and therefore the employee’s beneficiary was entitled to the benefit at issue without explaining the conclusion beyond that finding. This was in the early days after the Supreme Court first breathed new life into equitable remedies under ERISA in its decision in Amara, but before subsequent decisions would really give a doctrinal foundation for how those equitable remedies might be used to address that type of a fact pattern, so the Court’s cursory treatment of that issue is both understandable and easily excused.

Since that time, however, it has become more and more clear that such claims can find a comfortable home in the elements of both surcharge and estoppel, depending on how the error came to be in a given case. The Fifth Circuit just added some precedential weight to the argument that these types of “drop the ball” errors in providing group life insurance – in particular where premium dollars for the benefit have been deducted from paychecks but the terms of coverage were never actually fully satisfied – justify an award of the group life benefit to the beneficiary, in its very recent decision in Edwards v. Guardian Life Insurance. Interestingly, though, the Court, as has often been the case in the history of these types of claims, focused on the factual history, rather than on the doctrinal basis under ERISA for requiring payment. That said, though, estoppel, a theory of liability under ERISA generally approved of by the Supreme Court in Amara, or waiver – or both – is the underpinning of the decision.

I wanted to quickly pass along, with a couple of comments, this excellent blog post by Scott Galbreath of Trucker Huss on a recent Ninth Circuit decision on interpreting and applying releases of ERISA claims executed by employees. As the post points out, the Ninth Circuit adopted the tests of other circuits, including the First Circuit, that allow for a broad factual inquiry into whether an employee knowingly intended to waive fiduciary duty or other ERISA claims, and for purposes of understanding the scope of the release that was actually granted.

As a denizen of the First Circuit, from where the Ninth Circuit, in part, borrowed its test, and one who has litigated this issue on multiple occasions in the courts of the First Circuit, I wanted to pass along two things, one congratulatory and the other a tip for the unwary.

First, bravo to the Ninth Circuit for adopting this standard and also for thoroughly explaining how to use it. The intersection of releases with ERISA governed benefits, as well as with a fiduciary’s obligations, is a little backwater corner of ERISA law that, frankly, is ripe for abuse and, even when not, can give rise to a great deal of misunderstanding and confusion in the relationship between plan sponsors and plan participants. This decision – particularly since its guidance is likely to be borrowed in decisions and lawsuits elsewhere – will help with those problems.

Second, and props to the lawyers for the employees who were able to get this issue tackled head on by the Court, lawyers working on cases involving the scope of releases and their relationship to ERISA claims should be aware that – in my experience – these rules are often recognized more in the breach than in the application. Just a word to the wise from one who has litigated this issue more than once in one of the first circuits (pun intended) to really open the door to close examination of the intended scope of ERISA releases.

Years ago, I represented a financial advisor in a dispute with a particular, well-known financial product provider after the advisor concluded that the fees in the annuities offered by that company were both too high and too hidden for him to continue to recommend the product to his clients, and instead recommended that his clients purchase other annuities offered by other companies. I have to say that, even to an ERISA lawyer and financial litigator like me, it was eye opening to closely study the contrast among the fee structures, their complexity, and the lack of transparency about costs and fees among the competing products.

At the same time, particularly after the tariff driven market gyrations over the past few months, I have spoken to more than one individual looking into annuity and lifetime income options for their 401(k) plans. Is it an idea whose time has come? Well, almost certainly. But is it an idea that can be well and easily executed at this point? That’s more debatable.

ERISA lawyer Carol Buckmann has an excellent article on all of the logistical barriers and worries (reasonable and not exaggerated) of liabilities for fiduciaries that stand between current levels of participant interest in lifetime income options and their access to those options. Broadly speaking, she identifies the lack of vendor support for offering annuities, the lack of transparency on fees and costs, and the liability risks to fiduciaries who may be challenged on their selection of vendors or products. She points out that, in many ways, the practical responses to these barriers are the same ones that have always existed with regard to complexity and liability risk in defined contribution plans – namely, that fiduciaries have to do their homework, hire outside expertise, follow a prudent process and make an educated, informed decision. In theory, anyway, this should result in both the best possible annuity options for a plan and protection for fiduciaries from liability for the selection and offering of annuities to plan participants.

The one caution I would offer, though, is that we know from decades of excessive fee litigation involving investment products in 401(k) plans that there is no possible fee level or extent of investigation into fees that can entirely rule out the possibility for a fiduciary of getting sued for breach of fiduciary duty, and I can confidently predict that the same will be true with regard to annuity options added to plans – no matter how well a plan fiduciary handles the process of adding such an option to a plan, the litigation risk will always be present.

The real solution to this for plan fiduciaries is to focus less on the litigation risk and instead on the liability risk. Litigation risk for fiduciaries in running 401(k) plans is real and cannot be avoided – and the only real solution to that is to make sure that this risk is properly and thoughtfully transferred by plans to their insurers, which effectively turns the litigation risk of providing a 401(k) plan into a shared and pooled risk among all plan sponsors.

On the other hand, actual liability exposure – or in other words paying a judgment or a settlement for having added annuity options to a plan– is something a plan fiduciary can control, to a substantial although not complete extent. And the way to do that is to fully follow the best possible practices in selecting and adding such options to plans. Do your homework, hire experts, and make sure you understand the fees and costs of the products you are considering. After all, for a plan fiduciary seeking to avoid incurring fiduciary liability, the best offense in court has always been a good defense built out during the time that the decisions in question were being made.

The common law of ERISA is rife with odd decisions that likely made sense when issued, but, like opening Pandora’s box, led to unintended, unanticipated and arguably wrong rules of law when applied further down the road in additional cases. Heck, there are entire bodies of scholarship arguing that the very existence of a central element of all ERISA litigation and law – arbitrary and capricious review – was a poorly thought-out response to one case that hardened into a defining aspect of the entire ERISA legal regime (see here and here, for example). I have personally long thought, at least until the Supreme Court loosened up the rules for equitable relief under ERISA in Amara, that the entire body of case law on this subject was tying up the courts in knots for no reason other than the fact that the Supreme Court started down the wrong road with equitable relief at the outset, leading to decades of tortured decisions that sought to operate within the confines created by those rules.

Here’s another good one. Exhaustion of administrative remedies is a necessity for litigating denial of benefit claims under ERISA in, to my knowledge, every circuit. But what about if a participant wants to bring a breach of fiduciary duty claim involving stock valuation in an ESOP transaction? Does she first have to exhaust all administrative remedies? Apparently, in the 11th Circuit, she does – much to the chagrin of current members of that Court.

I have to assume there was a reason that the 11th Circuit first created the rule that a participant must exhaust administrative remedies before pursuing a breach of fiduciary duty claim, and it probably seemed like a good idea at the time. But it doesn’t appear to be now, and it isn’t consistent with the body of law from other circuits, and it doesn’t fit with any of the rationales normally provided for the existence of the administrative exhaustion requirement in the first place.

In any event, it’s a great read and a great story, which you can find here. It’s doubly interesting to me because it comes back to one of the most interesting issues to me in ERISA litigation, which is the propriety of stock valuations in private company ESOP transactions. I have litigated this issue and studied such valuations multiple times for other matters, and there is a lot of room for funny business in this area of the law. Given that, somehow it seems fitting that it would also be the soil for a dispute over an odd line of authority concerning administrative exhaustion under ERISA.

Deferred comp plans, or what to an ERISA lawyer is a top hat plan, have become widespread in recent years, used for a variety of purposes, from executive recruitment and retention to simply rewarding important executives at smaller employers who may lack other resources for doing so. But a story from the other day about executives losing the funding – and with it almost certainly the payout – of their deferred compensation agreements as part of the collapse of Steward Health Care is a good time to remind executives that they should not simply smile and say thank you when gifted with a deferred compensation agreement, but should instead carefully and directly look the gift horse in the mouth. Now note that I certainly didn’t say they should reject the benefit – it’s a good one and something far beyond what most people can look forward to receiving in retirement. But executives awarded that benefit need to be aware that it comes with certain risks attached to it, and they should account for those risks in their retirement and other long range financial planning.

As an introduction to this piece, I am writing it in light of this story, which details that senior executives at Steward Health Care have had the rabbi trust, containing millions of dollars originally purposed to fund the deferred compensation payments that were contractually due them, instead attributed to the bankruptcy estate available to payment of all creditors. It is clear from the comments on LinkedIn and elsewhere to this story that many executives, including I suspect some who have been awarded deferred compensation, believe that the funding set aside for deferred compensation payouts is similar to the funds held in 401(k) accounts, and thus inviolable. In the context of deferred compensation plans under ERISA, that is simply not the case, and the risks of not receiving payout over time is something that executives should be aware of.

Now, I don’t happen to think that those risks are high, across the universe of such awards to executives. For the past quarter century or so, I have been representing both companies and executives in litigation and in non-litigation matters involving top hat plans and I freely admit to a selection bias problem. In other words, I typically only see deferred compensation plans when there is a problem (although I sometimes see them prospectively, when executives want an opinion or guidance before participating), and thus most of the top hat cases I handle are ones where one or more of the risks inherent in them has come into fruition. I feel quite confident in saying, though, that most plans don’t end up manifesting one or more of the potential problems that run alongside such plans and sometimes cause them to end up on my desk.

The issue, though, is that executives should not assume, without any foundation or analysis, that their plan will be one of the majority where problems won’t come to exist or that the risks in such plans are only for someone else at some other company. Instead, they should evaluate the likelihood of eventual full payout of the funds promised them under such a plan in the same way they evaluate any other long-term investment, including thinking through their tolerance for, and ability if needed to hedge in their financial planning against, a possible negative outcome.

In my practice, I have come to believe that there are three categories of risk in deferred compensation plans to which executives are exposed, to lesser or greater degrees dependent on the specifics of the companies that employ them and the industries in which they work. The first is what I like to call operational risk, which is essentially exactly what it sounds like: the risk of operating mistakes in administering the top hat plan itself. Sometimes this can consist of legitimate, good faith disagreement over the meaning of the terms of the top hat plan itself, such as in this recent decision out of the Eighth Circuit. Oftentimes, they consist of what I sometimes refer to as the “no good deed goes unpunished” principle for top hat plans. These often involve smaller employers who add a deferred compensation benefit as a retirement package for a very small number of senior executives, but lack the internal expertise to manage the plan nor the relationship with a vendor competent to do so, leading to operational mistakes that end up costing the executive gifted with the retirement package a significant amount of money at the end of the day, typically because of distribution, election or recordkeeping errors.

The second I like to refer to as managerial risk, in that these tend to place a retired executive’s deferred compensation payout at risk because of a deliberate decision by subsequent management to do so, such as a decision to revise the plan or to reinterpret its terms so as to reduce the financial burden of the plan on current management’s books, at the expense of the departed executive. You can see an example of this in one of my cases here, in which the company sought to amend the deferred compensation plan after retirement of the executive affected by the change for the purpose of reducing the payout. Another favorite example of mine from my own practice involved what I continue to this day to be convinced was score settling between former colleagues, with the one remaining a senior executive interpreting the plan as precluding a substantial payout to a retired executive as payback for a past, and long simmering, dispute between them over a long ago transaction.

The third is the risk you see in the Steward Health Care matter, which I would tend to call solvency risk, and is exactly what the name implies: the risk that the company, which generously promised the deferred compensation to the executives during good times, will go out of business in the bad times, taking the money needed to pay out the deferred compensation with it. You don’t actually see this happen that often, but for a number of reasons I think this is likely an increasing risk for executives, and one they should take seriously. Luckily, based on my experience, many of the senior executives granted deferred compensation benefits are well-suited to both access the necessary information to evaluate this risk and to make the evaluation. It is important, in figuring in how much to rely on their deferred compensation payouts for their retirement income, that they do so.

I am returning to an old chestnut on my blog, a section which went dormant to some degree over the years, namely the section on interviews. They take a little time to do well, and podcasts (with their reliance on guests) seemed to have swallowed the field, so I stopped focusing on them. However, both my blog’s analytics and discussions with readers have made clear to me that there is still an appetite for them, and when I stumbled across an excellent first victim – I mean guest – for the reinvigorated interviews section of this blog, I decided to leap back into the fray. I will try to sustain this new effort on this front, so if any of you have candidates who you would like to volunteer for the back and forth Q&A that results in these interview posts, by all means, reach out and offer them up, willingly or not, as volunteers (cue the old schtick, done by everyone from the Three Stooges to Bill Murray, where everyone else steps back in line, leaving one poor sucker as an unwitting “volunteer”).

I have known our next guest, Joe Lorenzo, for many years, probably decades actually, going back to when he was a client. Joe recently retired after over nineteen years at AIG, where he oversaw bad faith litigation against the company. Joe handled cases all over the country, which allowed him to bring a unique and interesting perspective to the mostly Massachusetts based bad faith and coverage cases that I have long litigated. Joe had and has a unique perspective in many ways with regard to bad faith and Chapter 93A litigation in Massachusetts, having been an industry side lawyer during the entirety of the development of what I consider to be the modern era of bad faith law in Massachusetts, which has become highly driven in the past decade or two by the overlap between ever increasing jury verdicts in tort litigation (in other words, the rise of the so-called nuclear verdict) and the right to recover three times a jury verdict by proving bad faith by an insurer.

I have been trying those cases since the 90s, and tried, as a defense lawyer, the first attempt to multiply a large “runaway jury” verdict based on an insurer’s alleged bad faith in appealing the verdict rather than just paying it (I won). In the years following that trial, those types of cases started going south in many ways for the insurance industry, which from my perspective responded by getting much better, more sophisticated and more proactive in handling that risk. Joe had a front row seat on those developments during those years.

My discussion with Joe follows.

Q: Joe, can you tell us about your experience and background, particularly with bad faith litigation, in a way similar to how a lawyer would seek to qualify you as an expert at trial?

A: I have held positions in both the claims and legal departments for major insurers. My early career experience took place in the claims departments of Aetna, Travelers, AIG Technical Services, and Empire Insurance Group where I held positions as claim representative, supervisor, manager, complex claim director, Liability Manager and Vice President. This hands-on experience provided me with invaluable insight into how claims are investigated, evaluated, reserved, and negotiated. During my time in claims I attended law school and obtained a degree and was admitted in New York.

For the last 19 years I worked in the legal department of AIG as Vice President, Supervising Attorney, and Associate General Counsel where I developed extensive bad faith expertise managing and directing extra–contractual litigation and providing advice to the claim department.

Q: What do you think you bring to bad faith litigation as an expert that distinguishes you – your unique value proposition, so to speak?

A: While I was overseeing bad faith litigation, I would often encounter experts who generally fell into two categories: 1. Attorneys who represented defendants or plaintiffs in personal injury actions and 2. Former claim personnel who handled and/or managed claims.

Relative to the attorneys, although they were generally very knowledgeable and typically had tried many personal injury cases, it was often true that they had never handled, supervised, or managed a claim in their careers. While working with and preparing reports for adjusters and in some instances, claim management provides them with some insight into the world of claims, it’s a far cry from having handled claims. These “claim adjacent” experts would frequently face motions to exclude and there was always at least some concern that an individual judge, on an individual case, would strike them pursuant to a challenge.

I would typically favor choosing experts from category 2 who could not be impeached for failing to work in the field where they are alleged to be an expert.

My value proposition is that I not only have extensive claim experience but have also worked in a position where I had to evaluate the conduct of claim handlers to determine if claims were handled reasonably and whether bad faith occurred.

I think an argument can be made that much like a jury in a bad faith case, I have in essence been sitting in judgment of how claims were handled. I can only hope that a jury hearing about this experience might give my opinion more consideration than the typical expert who merely handled claims.

Q: Why become a testifying or consulting expert in bad faith cases?

A: I still enjoy talking about claims and case strategy. In many ways it’s nothing new, just an extension of what I have been doing for the last 19+ years. After having worked for corporations most of my life, the freedom of working as much or a little as I want is extremely attractive.
Being able to decide which cases to get involved in and which cases to pass on is also refreshing.

Q: Can you give us a sense of how many jurisdictions you have handled bad faith matters in over the course of your career?

A: I have been involved in bad faith matters/issues in every jurisdiction in the United States except Alaska. I have also been involved with cases which were filed in Canada, London, and Hong Kong.

Q: Are any particularly difficult for insurers as opposed to others?

A: Although there have been some recent attempts to improve life for insurers, Missouri is still very problematic. Attempting to deny coverage, or even reserve rights is fraught with complications that generally don’t exist elsewhere. Doing either might well result in an insured entering into a consent judgment for an amount of damages many many times the actual value of the case in dispute.

As if the explicitly authorized consent judgments are not bad enough, their evil twin, the
“Laydown trial” is also bad news for insurers. When I first heard the phrase many years ago it seemed like an oxymoron. Isn’t a trial a place where issues are vigorously contested in the closest thing to a gladiator fight that exists in civilized society? If you are squeamish about the sight of blood, don’t worry, because no fatal blows are ever landed in a Laydown trial. In fact, the lawyer representing the insured frequently forgets to contest the plaintiff’s claims, cross-examine liability and damages witnesses, or introduce evidence. Like the consent judgment, this process ends with the insured being liable for an amount that can be millions of dollars in excess of the true value of the case and leave insurers with a factual record that impairs their ability to prevail on their coverage position.

It’s an extremely dangerous place where things can go catastrophically wrong in a hurry.

Q: What about for plaintiffs or insureds?

A: During my tenure with the bad faith group, we had relatively few filings in Connecticut, New York, and Alabama. You can always rely on policyholder counsel to sue you in the jurisdictions where the law is most favorable to their clients. Where they don’t sue you is almost as telling.

Hartford Connecticut was known as the insurance capital of the U.S. for many years and historically the concept that an insurer had to act with an “evil motive” was frequently referenced in bad faith decisions. While adjuster’s conduct is often alleged to be sloppy, lazy, or neglectful in bad faith litigation, evilness is a tougher sell. Although the tide seems to be shifting in the last several years, it’s not a bad place to be a defendant.

New York has a solid body of bad faith and punitive damages law that gives an insurer a fair shot in litigation. Almost as important as the body of law, is the willingness of the judiciary, (particularly the appellate courts), to undertake rigor in their application of the law to carrier conduct. New York jurists and appellate courts have generally been adept at undertaking that examination. The willingness to undertake the rigor can make all the difference in determining whether the conduct rises to the level required to find liability or impose punitive damages.

Lastly, Alabama has perhaps the most interesting extra-contractual cause of action I have come across in my career. This state recognizes the tort of “Outrage” relative to some types of claims.
Generally, to prevail, a plaintiff must be the victim of extreme and outrageous conduct. To support such a finding, it must be established that a defendant’s action was “…heinous and beyond the standards of civilized decency or utterly intolerable in a civilized society …” I remain hopeful that most of us can work our entire careers without running into a claim handling decision that could be described this way.

Q: How do you prefer to work as an expert? In other words, I have had experts who want to exhaustively review every piece of paper in a case, others who prefer to focus on the claim file believing that an insurer should be judged on the information it actually had when it made its decisions, and still others who want to focus on the testimony at trial, among other approaches. Obviously, the approach is controlled to some extent by the jurisdiction and the scope of the required report or disclosure. Do you have a preference in this regard and if so, why?

A: I generally fall into the more information – the better camp. While I agree the claim file is usually the most significant piece of evidence in a bad faith case, I don’t think there is any harm in seeing the entire picture and having a solid understanding about what other parties were claiming, writing, or doing outside of what was recorded in the claim file.

I have seen policyholder attorneys attack experts who “only” reviewed the claim file as biased. The charge being that they only consider the insurers’ narrative of the claim as documented in a file that they control. While there are answers to that charge, I think an insurer may in some instances be better served by an opinion that allows an expert to testify that the insurers conduct was reasonable under the totality of the circumstances presented.

Q: This question is a professional interest of mine, in particular. Over the course of decades, I have found that most insurance experts, and particularly experts on bad faith or other aspects of claims handling, tend to fall into one of two categories. They either were in the insurance industry for a handful of years and then hung out a shingle as an expert and consultant, and have focused on that role for most of their professional careers, or else they spent a 20 or 30 year career in the industry handling significant risks, before becoming an expert witness. I know that I find the former easier to cross at trial and that I probably have a bias towards presenting the latter type as my expert in a case. Any thoughts on this dichotomy? And which category would you put yourself in?

A: I agree with you. In general, my idea of an expert is someone who has a mastery of the subject matter acquired throughout a career of “doing” rather than talking about doing. My preference was to steer clear of people who are experts for a living if at all possible. I particularly don’t like when a witness’s resume reflects more years working as an expert than years in the industry. In bad faith litigation, policyholder lawyers are skilled at making even mundane activities look improper or suspicious. Whoever your witness is, his/her ability to explain why things were done or not done in the handling of the claim is sometimes the best indicator of a witness’ potential success or failure with a jury.

Q: How has the bad faith landscape changed in the last 19+ years and how have those changes impacted claim handling?

A: When I started in the bad faith group, an extra-contractual claim against a carrier was not a very common occurrence. Sure, there were cases based upon coverage denials where the parties were reading the same policy and coming to different conclusions. Those lawsuits usually did contain bad faith counts. However, it seemed that those counts were not frequently the focus of the litigation. There were less than a handful of firms across the country who held themselves out as “Bad Faith” lawyers. More often than not, the coverage or personal injury lawyer in the underlying case stayed on and muddled through the handling of the extra-contractual claim. Today, there are many firms specializing in bad faith. Additionally, the average plaintiff personal injury lawyer is more familiar with bad faith law (or at least able to cite those cases where carriers were found to be in bad faith.)

In today’s environment there is no hesitancy to sue a carrier alleging bad faith or even worse conduct. In addition, it can no longer be assumed that parties asserting these claims merely want to be made whole for their alleged losses. Policyholder firms have become more adept and aggressive in the pursuit of punitive claims. Carriers who don’t take those claims seriously, do so at their own risk.

In addition to increased and more aggressive litigation, another change that I have observed is the attempted injection of the concept of potential bad faith into the claim handling process. In some jurisdictions, I have seen adjusters bombarded with correspondence accusing them of bad faith conduct. The frequency and ferocity of some of these attempts are another obvious change that has occurred. To be clear, I am not referring to “time limit demand” letters which are letters that typically claim that failure to pay a demanded sum, by what is often an arbitrary date, “opens” the insured’s liability limit and subjects the carrier to extra-contractual damages. The proliferation of demand letters is a separate change of significance.

To be clear, not every firm that sends letters asserting bad faith is seeking to monetize the situation to increase the settlement amount in the negligence case. Not every policy limit demand that is sent is a pro forma one. Any such correspondence should be reviewed carefully and responded to thoroughly and promptly. I raise these instances as issues that an adjuster must address if they are handling claims in certain jurisdictions in 2025.

Years ago, an adjuster could focus almost exclusively on evaluating liability, damages and determining whether a personal injury case could be settled or not. Importantly, you could be relatively sure that the attorney on the other end of the phone was interested in doing the same thing. Today, the adjuster’s focus and knowledge must be much broader than a solid understanding of negligence principles. He/she must be able to recognize when potentially problematic situations are developing, in real time, and know how to respond to them.

This is a great story today from Lauren Clason at Bloomberg on litigation over claim denials in which AI was used to process the claims. There is a lot to be said about this issue, and I wish I had more time to write on it today. However, I have a brief due on Friday and no time today for a thousand word post on the issues raised by the use of AI in this context (hmm – perhaps I shouldn’t have spent five hours yesterday writing an article on LinkedIn and then I would have had time to write further on this one right now). I suspect, however, that this will not be anywhere near my last opportunity to write about this subject.

For now, though, I wanted to flag one point that the inevitable use of AI to process claims raises. I can see no legitimate argument against the use of AI claims processing – subject to appropriate testing for accuracy, errors, gender or other biases, etc. – when it comes to purely rules based decisions, in other words when there is nothing more to it than does the submitted claim match or instead violate the written and clear rules of the plan. For instance, where the entire inquiry is to the effect that the plan only covers X medicine after the following three alternative treatments or generics have been tried and certified by the treating physician as ineffective, and the question is whether the claim submission satisfies those plain and unambiguous terms.

But many, many types of claims, in all sorts of contexts, require interpretation of plan terms or even insurance policy terms, and even more require some sort of judgment call as to the relationship between a particular fact pattern and the plan or policy terms at issue. Discretion is not only the better part of valor, but in many instances it is the better part of claims handling as well. An AI rule based system that denies claims where judgment and discretion are needed to make the call raises a host of problems, including whether denials are accurate, whether a state’s claims handling statues and regulations are being complied with in that circumstance (in Massachusetts, for instance, a judgment call made on a claim is defensible in court so long as it is reasonable, which is a characterization of human decision making and possibly not – without sufficient human oversight – of any AI based claim system), and whether a claim denial under an ERISA plan is arbitrary and capricious (it is hard to see how a denial that requires a judgment call on the reading of plan language or the application of unclear facts cannot be arbitrary and capricious if made without human involvement or at least intervention after the decision by an AI process).

I am not a Luddite in any manner and there is certainly a role for AI in aspects of claims processing. But as a be all, end all solution? That is going to need more vetting than I suspect has yet occurred.

I have written extensively on the relationship between insurance and climate change, going back to early comments and work on the subject by Lloyds‘, and continued to address it in the context of insurers withdrawing from markets in the face of climate related losses. I am known for saying that the insurance industry is, in fact and in many ways, environmentalists’ best friend, in that the industry’s economic interest in limiting the damaging impact of climate change aligns with the idealistic goals of many environmentalists. In many ways, the role of the insurance industry in this issue mirrors the extent to which various economic actors have a financial stake in transitioning the economy to a greener future, including wind, solar and other energy producers and investors. I am fond of the saying, which I read elsewhere, that someone once said that Marx was wrong about a lot of things, but he was right that everything is economics. The insurance industry has a huge economic motivation and role to play in the discussion and handling of climate change, and the industry both is and should be doing so.

In my discussions and writing on this topic, I have generally focused on discrete issues, such as the relationship between climate change and homeowner insurers departing from certain markets. It all ties, though, to my general view that at a macro scale, the insurance structure is the bedrock of large scale trade, investment and economic activity throughout the developed world, and that the economic impacts of climate change on the insurance industry threaten that bedrock foundation.

But I am just a lone blogger and a practicing lawyer. In the past week or so, though, a senior official with a major insurer came right out and said the quiet part out loud (as the cliché goes), explaining that climate change was moving to the point where it threatened massive disruption – from a purely economic perspective – to the insurance industry and to insurance coverage, with potentially devastating corollary effects on capitalism as practiced today (if anything, I am understating his warning). As he puts it, climate change’s impact on the insurance industry alone – without accounting for any other effect it may have – is “a systemic risk that threatens the very foundation of the financial sector.” Personally, I don’t much disagree with him, particularly as someone who has followed this issue for years but read his original LinkedIn article and the Guardian’s news coverage of it and decide for yourself.

Ouch, is all I could think to say after reading the First Circuit’s latest decision on ERISA preemption, Cannon v. Blue Cross & Blue Shield of Mass., in which a wrongful death action based on a benefit denial was deemed preempted. This is one of those tough outcomes that ERISA’s broad preemption provision sometimes leads to – a lack of any recovery simply because ERISA has subsumed the field, and despite the fact that ERISA itself presents no avenue for recovery. In the olden days, before equitable relief claims under ERISA were recognized by the Supreme Court, giving some possible avenue for relief in at least some such cases, judges used to refer to these types of cases as presenting “harms without a remedy” (or at least one federal judge did on a couple of cases where I was the defense lawyer and won just by invoking ERISA preemption).

Anyway, it’s a good decision on the reasoning, analysis and scope of preemption under the law of the First Circuit. Preemption remains vigorous here on my home turf and, while I thought the plaintiffs’ lawyers constructed some reasonable arguments around it in this case, it is obvious that still more is needed for a plaintiff in such a case to catapult over the defensive wall constructed by ERISA’s preemption provision.

A recent discussion with a colleague in the insurance industry (who shall remain nameless so as to protect the innocent) caused me to crystalize some of my inchoate thinking on how current problems in ERISA class action litigation, including too many suits, too much defense spending, too much self-protective caution on the part of plan sponsors and many more, parallel my experience decades ago as an IP litigator and coverage lawyer during the heyday of patent troll litigation. Back then, I used to joke that half my practice was IP litigation, half was ERISA litigation and half was insurance coverage counseling and litigation. I eventually stopped making that joke, because nobody ever laughed although sometimes people groaned. It was like the lawyer version of a Dad joke.

But it does illustrate the extent to which, back in the day, I was heavily involved in the patent troll litigation explosion, both as a defense lawyer handling patent and copyright cases (it’s actually amazing to me that in recent years I have still been dealing with what are essentially ransom notes to clients from copyright trolls alleging infringement and seeking payments to go away simply because it would be more expensive to litigate with them), and as an insurance coverage lawyer advising insurers on the scope of their coverage and settlement obligations in response to IP claims (in one notable matter, I arbitrated the applicability of a version of a violation of statute exclusion to a claim for large – as in seven figure – defense bills incurred in a particularly outrageous patent infringement strike suit).

A recent blog post raised the question of whether ERISA requires a specialized court, in much the same way aspects of patent law are subject to a particular specialized court. Discussions around that idea focus in particular on the extent to which different outcomes in ERISA class action cases occur dependent on where suit is filed. There is absolutely no doubt that variation in outcomes on the same facts in all types of ERISA cases, from excessive fee class actions to benefit denials to 502(a)(3) equitable relief claims, occurs across courts and different circuits. In fact, I used to make that point by explaining that ERISA preemption was intended to create a uniform body of federal law governing ERISA issues, but instead it just created a dozen different rules, one for each circuit. That is obviously an overstatement and a joke, but like most good jokes, there is some truth lurking in it.

Yet I am not completely convinced that a specialized court, rather than multiple circuit courts, is the best remedy for this problem, in that the sheer complexity of ERISA and of its application in specific circumstances often requires multiple decisions by multiple courts before a consensus is reached on what the correct rule on a given issue actually should be. So, just spit balling here, but perhaps the best solution is a structure that feeds any conflicting circuit court opinions automatically to a designated and specialized appellate bench above the circuit courts but below the Supreme Court, to maximize the opportunities for such diverse decisions to be synthesized. This alone would increase the uniformity of the body of law governing ERISA, including class action litigation, and reduce the venue shopping and other tactical maneuvers that underpin much of the boom in ERISA class action litigation. Now note that I haven’t looked into whether this is actually possible, and I will leave that to any constitutional law scholars or Federal Courts faculty out there reading this post.

In the patent world, the America Invents Act addressed structural problems in patent prosecution and litigation, including some changes intended to reduce the patent troll problem. Nothing’s ever perfect and it is important, in this area as in many others, not to let the perfect get in the way of the good, but overall the statutory response had a positive impact on excessive patent infringement litigation, at least anecdotally. And again, at least anecdotally, the statute seems to have done a reasonable job of balancing the interests of all concerned – from industries that rely on patents, to patent holders, to those whose patents were actually infringed.

There is probably, likewise, a similar statutory response to excessive class action litigation over ERISA plans that is available, that likewise properly balances the benefits to participants of court access with the risk to plan sponsors of excessive class action litigation. It is important to remember that the central conundrum in addressing the problems caused by excessive class action litigation involving ERISA plans is finding the right balance, the sweet spot if you will, between protecting participants’ ability to seek court redress, including in circumstances that can only be resolved through class action litigation, and avoiding the harms of excessive class action litigation, such as – to borrow from my past life in IP litigation – strike suits intended solely to trigger a settlement payment and lawyers’ fees.