In the first and so far last of our series of interviews with people of interest in the insurance and ERISA communities (I will do more at some point, but the interview post turns out to be the most difficult and time consuming to do well, which is probably why most people leave them to professional journalists turned bloggers like Peter Lattman at the WSJLaw blog, who do them really, really well), veteran insurance executive Robert Kingsley discussed the pace of consolidation in the insurance industry. Asked whether he saw that trend continuing, Robert noted that “there is little doubt the pace of consolidation will accelerate” and explained that in an industry, such as insurance, flush with capital, consolidation was inevitable. Robert had more to say on the subject, and you can find it here.

I am reminded of Robert’s comments by this story here in Massachusetts, that Spain’s largest insurer has now offered to pay $2.2 billion for comparatively small Massachusetts insurer Commerce, with the intention of using it as a platform to grow its business in the American market. Commerce was previously known primarily as a Massachusetts company focused on automobile insurance.

One of the interesting aspects about the news coverage of the Commerce acquisition is that the Spanish insurer, Mapfre, already operates in some 40 countries, but has a relatively small footprint in the United States and intends to use the purchase as a primary vehicle to expand its operations here. As Robert pointed out in the interview he did for this blog, insurers are making growth promises to investors that cannot be met by organic growth, which is driving the need to grow through acquisitions; that drive to grow appears to have played a large role in this purchase as well.

Here’s a tasty little tidbit for you insurance coverage junkies out there. Law.com has this interesting article on a ruling as to the number of deductibles that apply to suits alleging lung injuries from the flavoring used in manufacturing microwave popcorn. As the article explains, a New York state appeals court has found that the “supplier of the buttery substance used in microwave popcorn must pay a minimum $50,000 deductible for every worker at a Missouri plant who successfully asserts a claim that the flavoring caused lung problems or other respiratory ailments.” The issue before the court was whether certain policy language in the manufacturer’s insurance policies, which stated that the policies’ deductibles applied per occurrence, meant that one deductible applied to all such claims or instead one deductible applied to each such claim. As the article lays out the court’s reasoning, the court found that the structure of the policy language led naturally to the latter interpretation. Determining the number of claims or occurrences, including for purposes of determining how many deductibles apply, is a common problem in insurance coverage law, one that is oft litigated. The article’s presentation of the court’s reasoning suggests that the court approached this issue in an entirely appropriate manner, as it focused on the actual policy language used to reach its determination.

ERISA litigation, particularly in the area of retirement benefits, is one of those areas of the law that can be particularly complicated because both the governing body of law and the underlying fact pattern to which it is applied can be tremendously complex. Take, for instance, the example of disputes over whether the fiduciaries of a retirement plan erred in selecting investments for the fund. This example, as you have probably guessed, is not chosen at random, but instead because Susan Mangiero has this interesting post here on a particular equity investment strategy involving short selling, and on the question of whether such an investment strategy by a retirement fund would be prudent or instead a breach of fiduciary obligations. The strategy itself is relatively complicated, at least to anyone approaching it from outside the investment world, and so too is the question of how it compares to other investment tools the fund could have selected. Fortunately for those of us who litigate such questions, the rules of evidence allow those questions to be answered in court by the use of experts who actually know these points inside and out and can comment on them in depth. These underlying factual details are ones that must be considered in passing on whether a fiduciary breach has occurred before even getting to the question of how a particular investment strategy fits within the fiduciary obligations imposed by ERISA.

After mastering the details of the investment strategy at issue, one then still has to evaluate whether its use was a breach of fiduciary duty under the law of ERISA. I am quoted in Susan’s post on the fact that this in turn depends heavily not so much on whether the investment strategy itself was sound, but more on whether the approach taken by the fiduciaries to selecting that investment strategy was sound. As Susan discusses in her post, this in turn depends very much on whether the fiduciaries sought sufficient outside expertise on the particular type of investment strategy at issue to allow a third party looking in on the decision making after the fact – such as a judge or a jury – to say that the fiduciaries fully considered the merits of the particular type of investment in question before investing and thus did not breach their fiduciary obligations, even if the investment went south.

What struck me about this duty to investigate, for lack of a better phrasing, is that the obligations of the fiduciaries in this regard in many ways mimic the approach of the ERISA litigator handed a case after the fact involving the particular investment strategy and the question of whether its use was a breach of fiduciary duties: the ERISA litigator at that point brings in independent experts to advise on the appropriateness relative to the market of using that particular investment strategy, and bases a defense to a large extent on testimony from such experts that the investment strategy was sound. The fiduciaries themselves, however, could have effectively deflected claims of breach of fiduciary obligation in selecting the investment strategy in the first place by doing the same thing before ever making the investment; retaining outside experts to render this opinion prior to making the investment provides a strong defense against claims that the fiduciaries breached their obligations by making the investment. Indeed, contemporaneous reliance on outside, independent expertise to evaluate investment strategies is perhaps the best steps a retirement plan can make to head off potential claims of breach of fiduciary duty involving the selection of investments.

In this way, the question for fiduciaries and the plans they serve becomes as much as anything one of pay me now, or pay me later. They can avoid problems by paying for independent advice and investigation before making investments, or they can pay for the same advice later in defending themselves if they are sued. As a litigator, obviously, I am happy to retain experts and resolve the problem after the fact; as a counselor, though, I would always recommend the preemptive approach of obtaining such expertise before selecting a particular investment strategy.

Fiduciary status is the touchstone of the law of ERISA. From that status flows many of the obligations that ERISA can impose on a party, as well as extensive potential liability. For those of you wondering about who is a fiduciary and when for these purposes, Susan Mangiero has found a really fun (well, if you like this stuff, anyway) toy, the Department of Labor’s ERISA Fiduciary Advisor, an on-line tool for identifying whether or not someone has achieved fiduciary status for purposes of ERISA. Kind of like computer gaming for the ERISA set.

Michael Fox, who jots down his thoughts about employment law and other things over on his excellent blog, Jottings by an Employer’s Lawyer, raised an interesting point about electronic discovery in a post the other day when he was commenting on my recent discussion of whether electronic discovery threatens to render arbitration the better forum for resolving complex disputes. Michael pointed out that scalability is a key issue that should be considered when it comes to the appropriateness of ordering electronic discovery, and he raises the question of whether electronic discovery that is appropriate in a multimillion dollar case is equally appropriate in a case worth ten times less.

To ask the question is, in my book, to answer it, and I think that was Michael’s point as well. As the courts proceed to develop a body of jurisprudence governing electronic discovery, it seems clear that scalability is a factor that needs to be taken into account. It only makes sense, given the expense of electronic discovery, that as a case moves downrange in terms of the amount at issue, the obligation of a party seeking electronic discovery to actually document a need for such discovery (beyond basic and easily obtained emails and the like) and to evidence that such discovery is likely to be fruitful increase. I have talked before about my belief that the expense of this type of discovery requires that stricter showings of the need for such discovery be imposed than has traditionally been imposed on parties seeking discovery, and this is a natural concomitant of that idea. It is all part of the same thesis: that electronic discovery cannot be allowed to become the central focus and expense of litigation, must instead be treated as an adjunct to obtaining a just outcome, and as a result should be allowed only when and to the extent it is cost appropriate.

In yesterday’s post on Darren Abernethy’s paper on Fair Share statutes, I ended up riffing on the question of whether the Maryland legislature, by putting before the courts a particularly bad version of such a statute, had distorted the development of the law of ERISA preemption in a manner that would only hurt the cause of those who favor state health insurance mandates. I wondered whether the case law would develop differently if more balanced statutes, like the Massachusetts Health Care Reform Act, were analyzed by courts without the landscape of ERISA preemption having already been filled in by the decision holding the Maryland act to be preempted.

Critics of the Massachusetts act would likely argue that the Massachusetts version is so rife with problems that it is just as well if the legal environment, now that the Fourth Circuit has found the Maryland version of these types of laws to be preempted, is not too welcoming to such acts. That seems like a fair conclusion after reading law professor David Hyman’s piece on the “good, the bad and the ugly” in the Massachusetts statute, in which he pretty much takes the statute to task for being a poorly designed piece of state law. The Workplace Prof passed the article along, and you can find it here.

To the extent that the author’s analysis of the statute is right – that as economics and policy it just doesn’t work – it seems to support two points I have raised before on this blog concerning the Massachusetts act. First, that the questionable elements of the various acts enacted by the states suggest that federal preemption is a good thing, as a bulwark against what may be ill-conceived ideas by state governments when it comes to the topic of health insurance reform. And second, that the problem with these types of acts is that they play at the margins, and neither can nor do address the real cause of the problem of the uninsured, namely the incredible – and ever increasing – costs to employers of subsidizing health insurance in this country. This second point is one that appears to animate Professor Hyman’s piece, as he reflects on the fact that the Massachusetts statute has problems that stem from the particularly high cost of health care in Massachusetts relative to the rest of the country, as well as on the fact that the statute’s mandates are distorted by the high rate of health care inflation.

Here is Darren Abernethy’s law review note on preemption of state fair share acts that mandate that employers provide certain levels of health insurance. His note, which I have discussed before, is very well done, and Darren has generously allowed me to share it here in full. As readers may recall from earlier posts, Darren discusses the fact that the Maryland Fair Share Act, which as he points out in his note targeted Wal-Mart, was found by the Fourth Circuit to be preempted, and Darren proposes ways to create statutes of this type that might avoid preemption. It’s a terrific note, and in particular his history of the preemption jurisprudence is an excellent tutorial on that particular issue, and I myself will be quick to cite it on that point when briefing the issue in the future.

One particular aspect of Darren’s note struck a chord with me, and provoked a somewhat chilling thought. In discussing ways to craft these types of legislation that might avoid the preemption problem, he recommends – in essence – that such legislation be broad based, which is the opposite, in many ways, of the Maryland Fair Share Act, which I have argued before can be seen almost as a punitive statute aimed at only one employer. We all know the old saying that bad facts make bad law (or is it hard cases make bad law?), and the question that arises is whether that is a fair understanding of the Fourth Circuit’s Fielder decision that found Maryland’s Fair Share Act to be preempted. The Maryland statute clearly aimed at only one employer and was drafted to avoid implicating favored large Maryland employers such as Johns Hopkins Hospital, and that aspect of the statute can be seen in the district court and Fourth Circuit rulings as at least influencing, and possibly animating, the holdings by those courts that the statute was preempted. Might things have come out differently in the district court and the Fourth Circuit absent that factor? The statute might still have been found to be preempted, but it seems to me that  those courts may at the least have been more open – even if still finding the act to be preempted – to nudging the law of preemption along in a way more favorable to these types of statutes had the courts been presented with a better and fairer looking attempt to mandate health insurance benefits. In essence, would the development of this area of the law be a little different if the leading court of appeals analysis of such a statute were, for example, of Massachusetts’ somewhat problematic but nonetheless broader health care reform act, than it will be given that the Fielder decision striking down the Maryland act now holds place of pride in that area of the law? Did the Maryland legislature, by putting one of the worst possible versions of such a statute before the courts, prevent the law from moving in a direction that might have helped such statutes avoid preemption?

I have written a fair amount about whether the Massachusetts Health Care Reform Act is preempted by ERISA, but not too much about the practicalities of complying with the act for as long as it remains unchallenged and unpreempted. This despite the fact that I have been asked a lot of questions about compliance by companies trying to understand their obligations under the act and who are trying to structure their operations to abide by it. An excellent website discussing the practicalities of the act and compliance crossed my desk the other day, maintained and made available by the Massachusetts Association of Health Underwriters (geez, there’s an association for everything these days). For those of you interested in the practicalities of the act, its an excellent resource. This link will take you right to it.

On Friday I feel free to deviate from the usual topics of this blog into the topics covered under the digressions category over on the left hand side of the blog. Today being Friday, that’s what I’m going to do, this time returning to an issue I have discussed before, the Supreme Court’s targeting last term of the law governing patent litigation and whether patent reform remains necessary – if it ever was – after the Court’s decisions. SCOTUSBlog has this post about the Michigan Law Review’s on-line companion and its collection of shorter pieces addressing exactly those questions. I have read most of the pieces, and in particular recommend Robert Armitage’s piece on the judiciary’s ability to respond to problems in this field of law without legislative reforms and Professor John Duffy’s piece on the impact of the Court’s treatment of the obviousness standard.

It’s a terrific collection, done just the way legal scholarship should be done to have relevance to the practicing bar and not just to other academics. Short, readable, accessible, and thought provoking. Exactly what I have argued before law reviews and law faculty must provide if they are to influence the development of the law, rather than just the heft of law reviews.

I have talked before on this blog about behavioral economics and choice architecture, which concerns the idea that how we structure retirement savings options will affect whether, and how successfully, people save for retirement. You can find a couple of my earlier posts on this issue here and here. In a provocative post – a phrase I don’t use lightly, as I suspect you, like me, are jaded from too many people in the blogosphere referring to every moderately interesting comment as “provocative”- Workplace Prof points out a potential, but not well-documented, problem with defined contribution plans as a model for retirement, which is that, at least anecdotally, African-Americans do not contribute to such plans at as a high a rate as do white employees. Now, two notes are important right off the bat. First, as the Prof points out, no industry wide study of this issue has ever been conducted, thus raising the question of whether this apparent problem is a real problem, or instead just something that a small sampling suggests exists. Second, even if evidence does bear out the existence of this problem, one should not jump to the conclusion that it means that all African-Americans participate in these plans at a lower rate than do whites. It may well be that, here, race is but a stalking horse for socio-economic status, and that the participation rates flow more directly from economic level than from race; it may well be the case that, in fact, African-Americans contribute at a comparable level as white employees when the comparison is controlled for educational status and/or salary. We just don’t know.

Either way, though, the Prof points out that the solution may be in the automatic enrollment provisions of the Pension Protection Act, which make participation in such plans a default. If this alone were to remedy such a problem, it would be a perfect example of choice architecture solving a problem: the mere structure of the retirement vehicle will have led to higher participation, the result that the authors of the Pension Protection Act presumably wanted to achieve.