Still on trial, but I did have time this afternoon to read this interesting piece, summarizing a number of interesting appellate decisions over the past year from California courts on a range of insurance coverage issues, running from post-claim underwriting of health insurance to the scope of coverage granted by directors and officers policies. The cases include one that provides an interesting analysis of the scope of the attorney-client privilege in the context of insurance, an issue I have talked about at some length in the past on this blog. You can find the article right here. For those of you interested in the subjects covered by this blog, it is probably a worthwhile read.

I am starting a trial today, so my posting will be sporadic and erratic at best. As I did the last time I was trying a case, I will try to at least find time to pass along new court decisions, publications, or events of significance while I am on trial, even if I don’t comment much on them in the posts; if they warrant it, I will return to the posts later to discuss the issues in more detail.

I am trying to kick the LaRue habit, but couldn’t resist going back to the well one more time (how’s that for mixing my metaphors?). I know from readers of this blog and from talking to other lawyers that people are very interested in LaRue and the Supreme Court’s current interest in ERISA cases – in fact, one lawyer told me that right after LaRue was decided he was at a meeting on an entirely different topic but LaRue is all anyone wanted to talk about that day- so I wanted to pass along this very interesting looking teleconference next month on individual 401(k) suits post-LaRue. The faculty includes Tom Gies, who represented the plan and its sponsor in LaRue, and Karen L. Handorf, an attorney currently in private practice who previously worked for the Office of the Solicitor of Labor, background that may make her ideally suited to comment on one of the biggest mysteries of all raised by LaRue and the Supreme Court’s selection for its docket of two more ERISA cases, namely what’s with the Supreme Court’s sudden fascination with ERISA litigation.

One interesting thing about the LaRue case is the amount of blog commentary it inspired. For me personally, the best aspect of that wasn’t so much what other bloggers had to say about the subject, but more the fact that the discussions brought some blogs to my attention that I had not previously been aware of. I thought I would pass along two of the more interesting ones to you, as they may be of interest to people who come here to read up on the ERISA and retirement benefit issues discussed in this blog.

The first is The Float, published by Interlake Capital Management. The Float is mostly focused on financial news related to 401(k) plans and the like, but is somewhat unique in that it blends discussion of those economic issues – as well as just plain old fashioned business media bashing – with intelligent comments on breaking legal issues affecting such plans, such as the LaRue decision. It’s a lot of fun to read, not the least of which is because you don’t need a Wall Street background to enjoy their financial commentary, just some interest in and experience with the subject.

I’ll pass the second blog along in my next post.

Thought I would pass this along right now, while the article is still available to non-subscribers – I suspect if you read this post tomorrow, you will have to subscribe to get access to the article by then. Either way, here’s an interesting article available on Lawyers USA today on the LaRue decision, and on the broader topic of what impact it will have. I am quoted in it on the issue of whether it will spawn more litigation; to quote the article:

Some see the ruling as spawning multiple lawsuits by individual 401(k) account holders.

"It will open the door to a lot more litigation. I don’t think it will be an avalanche, but plan sponsors are definitely looking at death by a thousand cuts," said Stephen Rosenberg, an attorney with The McCormack Firm in Boston, who blogs on ERISA issues.

This is pretty consistent with what I said in my post last Friday, in which I discussed my views about how much litigation will result from this case. It is hard, as I said then, to quantify, but it is clear that the case paves the way for sponsors to face a steady stream of smaller cases, whereas in the past they really – or at least predominately – only had to worry about whether they were in a position to be targeted for a large dollar value, class wide type suit.

The topic of this article from yesterday’s Boston Globe, concerning behavioral economics and the idea that most people simply get it wrong when making investment choices with regard to retirement if they are left to their own devices, will be familiar to any long time reader of this blog, but it did catch my eye because its suggestion that employees need to be guided towards the right retirement choices echoes George Chimento’s point, which I discussed the other day, that perhaps 401(k) plans should actually be set up to take those choices away from employees and place them in the hands of someone with more knowledge about the subject. It’s a provocative idea, one that runs counter to the general Zeitgeist that we are all now responsible for funding our own retirements rather than passively relying on our employers to provide that as well, but the question of how best to generate appropriate returns for employees invested in such plans is, and should be, more widely discussed, including with regard to how much say individual employees should have in the matter. The Globe article is a nice survey of the theory behind the idea of just how much choice should be granted to employees in that context, and how structuring the choices available to them may affect the outcome for their retirements.

Fair warning, though: you may have to register (its free, but still annoying) to access the Globe article.

I thought I would pass along today this article from Business Insurance in which I am interviewed about LaRue, and its impact on plan sponsors. The point of the article is that the decision opens them up to more potential liability, and they need to be aware of that. I am actually a little bit agnostic as to how much this ruling will increase litigation over these types of cases, given the expense and difficulty of litigating these types of cases if you are a participant. Probably for practical reasons – because I could, and probably did in the interview, go on at length about this topic – the article doesn’t contain all of my comments on this point. The gist of my thoughts on the issue, however, is that, as a practical matter, LaRue lowers the financial bar for suits over problems in 401(k) plans and makes it more likely that smaller company plans may be sued for the types of errors – such as excessive fees, company stock, and the like – that big plans get sued over. This is because these types of claims have predominately been brought so far on a class wide basis by class action plaintiff firms. As a result, only larger sponsors with large possible exposures were really in the cross hairs for these types of defects in 401(k) plans, because that is who the class action bar targets; LaRue, by at least establishing the right of participants to bring suits over these same issues only on their own behalf lowers the bar and provides an avenue for much smaller suits over these types of issues. This puts smaller company plans in the line of fire for suits over these issues, because while they may not have sufficient assets to attract the interest of the class action bar, they still have enough assets to attract lawsuits from their own participants.

One of the common themes of many of my posts, as well as of many of the judicial opinions, concerning fiduciary obligations of companies sponsoring 401(k) plans is the need to bring in outside expertise to manage the plans, particularly for the purpose of insuring that investment selections are appropriate and priced right. As I have discussed both in numerous posts and in a range of articles in which I have been quoted, smaller and mid-sized companies generally lack the expertise to properly handle all of the aspects of 401(k) plans and can best discharge their fiduciary duties – and best protect themselves against litigation – by retaining outside experts to manage a plan. There is an entire industry that exists to service such companies and their plans. Here is a story out of New Hampshire that illustrates this point brilliantly; it concerns a small company that believed it could operate its own 401(k) plan without an outside vendor, and ended up, without any intention to defraud, being pursued by the Department of Labor for $33,000 in employee contributions that were never paid into the plan. By all accounts, the company was not engaged in anything underhanded; it just was wrong in thinking it could handle the logistics itself.

And not to beat the LaRue drum too much, but obviously the establishment in that case of the right of plan participants to sue fiduciaries for mistakes affecting their 401(k) accounts (whatever may be the exact parameters of that right, an issue up for some debate in light of some of the vagaries of the three opinions from the Supreme Court), just drives home the importance of making sure that a 401(k) plan is run absolutely as well as possible.

Can’t do LaRue all the time, every post, although, frankly, the more one thinks about the Supreme Court’s three opinions, the more one can come up with to talk about. I will return to various issues raised by the opinion here and there, as time and interest allows. For now, though, I think I owe some posts that can be attributed to the insurance litigation side of this blog’s title to readers who are interested in that topic, and I have been thinking – when not obsessing over whether individuals can sue for mistakes in their 401(k) plans, that is – about all the legal seminars and publications that have been showing up in my in-box lately anticipating insurance coverage litigation over climate change issues. One of the interesting things about these is that they are showing up in droves now, long before suits seeking to recover for climate change losses have even been pursued. As I have said before on these electronic pages, insurance is the real leading edge indicator for a lot of issues, and one of them is climate change; the insurance industry will be one of the first to be heavily impacted by increased climate related losses, through its coverage of property and liability risks, and will, concomitantly, be one of the first to take concrete business steps in response to global warming. This early media drumbeat over insurance coverage issues related to climate change litigation reflects an eternal truth: that any possible new area of business liability, such as over climate change, will simultaneously spawn a cottage industry in representing businesses against insurers over those new liabilities. On a more substantive note, the particularly interesting thing to me about the seminars I am seeing is that these educational materials present the issue as essentially an extension into the climate change area of the legal developments generated during the last broadly contested, high stakes area of coverage disputes, namely environmental losses related to Superfund and other environmental liabilities. It’s a logical step, if one thinks about it: the environmental coverage disputes revolved primarily around the environmental impacts of the dumping of pollutants, and the new climate change issues will also concern environmental impacts, only in this instance ones that stem from the global warming impacts of certain business practices. The earlier environmental coverage rulings issued primarily in the late eighties and early nineties are thus a natural base on which to analyze the insurance coverage issues raised by climate change liabilities. In a way, it even fits the historical development of insurance coverage law. The environmental coverage litigation really expanded from, and built upon, the mass tort coverage disputes of asbestos, most concretely in the extension of trigger of coverage issues decided in that earlier context into the environmental pollution context; it only makes sense that the same historical evolution would continue into the next “hot” (pun intended) realm of insurance coverage litigation, in this instance by taking coverage decisions related to environmental polluting and rejiggering them to apply to climate change exposures.

There’s a lot out there on the Supreme Court’s ruling in LaRue, and I thought I would pass along today a couple of articles and blog posts that approach the issues raised by the case from a slightly different perspective than simply the technical legal issues raised by the case. Employee benefits lawyer George Chimento discusses the LaRue decision in this client advisory here, with a focus on a particular question, namely, whether in light of the problems posed by LaRue type cases, it makes any sense to sponsor a 401(K) plan that allows participants to pick and choose among investments. He makes a compelling argument that it just may not make any sense to do this, given the liability risks, amply illustrated by the LaRue case, and the investment skills of the average participant. He sums that issue up in this paragraph from his article:

With all this additional liability, is it wise to sponsor self-directed plans, with the extra expenses associated with open-end mutual funds and daily investment switching? Are participants really better off self-managing their retirement assets, doing something they were not educated to do? Perhaps it’s safer, and better for all parties, just to have an "old fashioned" managed fund, without participant direction, and to employ properly certified investment managers who can be delegated fiduciary liability under ERISA. A dividend of LaRue is that it may cause employers to step back and reconsider the current, expensive, and dangerous fad of self-direction.

And Kevin LaCroix, a lawyer/expert insurance intermediary, tackles LaRue in this interesting blog post on his well-regarded D&O Diary blog, in which he focuses on the issues for fiduciary liability insurance raised by the case. One interesting point he makes is that the availability of coverage may be affected by exactly that split between the Justice Roberts’ concurrence and the other two opinions, related to whether or not claims of this nature should actually be prosecuted only as denial of benefits claims, or instead as breach of fiduciary duty claims. Anyone interested in the insurance implications of LaRue should find it a useful and informative post.