I have written before about electronic discovery and the amendments to the federal rules governing that discovery, and my theme has often been that the courts need to develop a jurisprudence concerning electronic discovery that carefully weighs the expense of the discovery versus the need for it before granting extensive (and expensive) electronic discovery. In this article here, DLA Piper partner Browning Marean points out that the expense of electronic discovery can often be so burdensome that it forces settlement without regard to the merits of a case; as he puts it in a very clever turn of phrase, “the possibility of extortion by discovery is too real a prospect.” I have said it before and I will say it again: we are at the opening phases of the development of the law of evidence and discovery in this area, and the courts need to establish a body of precedent governing this type of discovery that prevents electronic discovery from having this effect.

At the same time, I have discussed as well on this blog the consensus that arbitration is a poor forum for most complex cases and is often not an improvement – in terms of costs, efficiency or outcome – over litigation. The electronic discovery amendments to the federal rules may be in the process of changing that. Unburdened by the federal rules themselves or the developing case law concerning electronic discovery, an arbitration panel is free to fashion much narrower electronic discovery and to impose much stricter controls over it than courts are currently tending to impose,
all on the thesis that a large part of an arbitration panel’s job is to effectuate arbitration’s promise of cost effective dispute resolution. As a result, as electronic discovery costs go up in federal court, the comparative cost advantage of arbitration – which has been disappearing over the years – increases, possibly changing the calculus for litigants over whether or not to agree to arbitration.

Well, that is probably overselling this post, but we couldn’t resist the play on the title of the much hyped, much overrated 1989 movie. Regardless, here is an interesting story, out of the soap opera meets 401(k) genre, concerning questions that have arisen over the administration of a prominent law firm’s 401(k) plan as a result of a particularly contentious divorce. At a minimum, it seems to be about just plain bad management of a plan, and at most about something a little worse. Either way, it illustrates the importance of scrupulous and professional management of company benefit plans, something that self-managed smaller plans often struggle to achieve.

Turns out that the key word in the accidental death and dismemberment insurance that many people get through their employers (and which is therefore an ERISA governed benefit) is “accidental.” The United States District Court for the District of Massachusetts has an interesting opinion out that details the applicable standards for determining whether a particular death is accidental for these purposes, and finding that an insured’s death after driving while intoxicated does not qualify. This issue comes up a lot, unfortunately, and I have talked about it before here and here. The newest decision out of Massachusetts on this topic, McGillivray v. Life Insurance Company of North America, is an interesting example of this type of case, and reflects two particular points: first, the continuing influence in this area of the law of the First Circuit’s 1990 decision in Wickman v. Northwestern National Ins. Co., which laid out the standards for determining if a particular death is accidental for these purposes; and second, that the weight of authority is running heavily towards a general rule that deaths arising from automobile accidents in which the employee was intoxicated simply do not constitute accidents for these purposes and are not covered.

In truth, it is fair to say that we have reached the point that (although the courts never come right out and say this) there is, in effect, essentially a rebuttable – and if that, just barely – presumption that an intoxicated employee who dies in a drunk driving accident is not covered under these policies. The standard test, crafted in the Wickman case, that courts apply to determine whether or not a particular death was an accident for these purposes, when applied to the typical facts of these type of cases, simply leads inexorably to a loss of coverage.

I remember being dressed down in a first year law school class on torts for suggesting – apparently contrary to the professor’s belief – that a particular rule of recovery should be shifted so as to sanction the driver who engages in the socially disapproved activity – such as intoxication – in favor of the other driver. Twenty years later, the courts seem to be saying the same thing I said, essentially taking the intoxicated driver out of the range of those who can be covered under accidental death and dismemberment policies.

The case, by the way, is also interesting for a number of other reasons that warrant giving it a quick read, including not least its analysis of whether statistical studies concerning the likely outcome of drunk driving should be considered and, if so, the weight to give them. Beyond that, this is another case that contradicts a particular chestnut held by many, which is the belief that the standard of review applied in ERISA cases is the be all and end all; I don’t hold with this thesis, and believe that the facts of the administrator’s handling of a particular claim are much more likely to dictate the outcome of a case, without regard to which particular standard of review a particular court applies to a case. In a footnote that I particularly enjoyed, the court commented that “In all candor, the Court must note that even if it were to apply a de novo standard rather than an ‘arbitrary and capricious’ standard, the Court, applying the Wickman test, would find that Mr. McGillivray’s death was not the result of an ‘accident.’"

This is actually a kind of fascinating, if someone odd, long term disability benefits case out of the United States District Court for the District of Massachusetts. It involves what otherwise would seem to be a remarkably unnoteworthy issue, namely the right of the plan administrator – an insurer who also administered the plan – to offset from the benefit amount the estimated value of social security benefits that the claimant would have received but for the fact that the claimant never applied for them. Seems pretty straightforward, except the court did not allow the insurer to do so, because the insurer did not provide the claimant with assistance in applying for social security benefits as provided for under the plan’s terms. The court found that the insurer could not simultaneously enforce the social security offset provision while not complying with its own obligations under the plan to assist the claimant in seeking social security, and the court proceeded to find that loss of the right to enforce the offset was an appropriate remedy for this violation of the plan terms. Offsets of this ilk are routine, and while claimants often complain about them and try to avoid them, they are normally enforced without any big uproar. Not so here, where the insurer managed to lose the right to the offset. What is more interesting is the reasoning of the magistrate judge (whose recommendations were affirmed and adopted by the district court), which, despite application of the arbitrary and capricious standard of review – which would normally grant the insurer great discretion in the interpretation of the plan terms in question – found that the insurer’s own interpretation of the relevant plan terms was simply too far removed from any sensible reading of the plan terms to be upheld. In a realm of the law where many critics feel that the simple fact of applying the arbitrary and capricious standard of review is outcome determinative in favor of the administrator (a sentiment I don’t agree with and a thesis frequently disproved by court rulings), this is a relatively unusual event. The case is McCormick v. Metropolitan Life, and you can find it here.

Brian King has an interesting post over at his ERISA Law Blog, concerning my recent suggestion that the Supreme Court was poised to shift the currents of the river that is the law of ERISA. Brian’s take? Ain’t happening, although in truth Brian’s point is a little more subtle than that, and is that the Supreme Court certainly isn’t about to make any big changes in the law of ERISA in a way that will be of great help to claimants. I can’t say I disagree. I do suspect, however, that the Court is about to wade into these issues and begin addressing some of the technical points that are in dispute at the lower courts, in a way that will affect the general contours of the law of ERISA. I think the Court just did that on a more dramatic level with patent law, and is looking at ERISA cases with the same skeptical eye. There are subtle points affecting such topics as 401(k) plans and the application of the arbitrary and capricious standard to certain issues that I think the Court may be about to address. But a wholesale rewriting of precedent in a way that loosens up the whole kit and kaboodle in a manner that makes it dramatically easier to sue plans and administrators? Well, no.

But I will say that, as an aside, one of the great pleasures of blogging is exactly this type of opportunity to consider multiple viewpoints on the same issue in real time (rather than have to wait a few years for a law review to issue a special edition collecting pieces on both sides of an issue).

I have talked, certainly more than once, about the fact that the law governing fiduciary obligations in the realm of retirement plans is evolving, and most recently I commented on how it looks as though the Supreme Court is poised to weigh in on the direction of this evolution in the case law. Some of the evolution of the law in this area, it seems, is being driven simply by numbers. Susan Mangiero, author of the blog Pension Risk Matters, pointed out in a recent interview that we are seeing somewhere around 250 to 300 new lawsuits filed per quarter involving the liabilities of pension fiduciaries, mostly involving private company plans. As numbers of suits go up, simple experience tells us the courts will face new issues, or old issues under new fact patterns, and will issue rulings that advance the ball on what the shape of the law should look like in this area as a result. But the evolution is also driven, I think, by another issue I have commented on before, which is that, with pensions being replaced by 401(k) plans in which the employee bears all the risk, plan participants are motivated by that change to protect themselves against poor practices and oversights by those in charge of their retirement investments. And experts on the subject of pension governance suggest that they have good reason to concern themselves with these issues: Susan Mangiero points out in the same interview that pension governance practices quite simply leave a lot to be desired.

If there has ever been a roadmap to the evolution of a particular body of law, its right here in this scenario: more suits plus questionable practices by the targets of the suits.

We previously mentioned William and Mary law student Darren Abernethy’s upcoming law review note presenting ideas on how to enact so-called fair share legislation – which attempts to obligate employers to provide certain levels of health insurance coverage – without running afoul of ERISA preemption. His note is now out, and those of you who, like me, don’t subscribe to the William and Mary Law Review, can access it right here. Here’s his abstract on what the note argues: 

This Note examines Maryland’s preempted statute and the United States District Court case that granted its opponents declaratory relief. After reviewing the Fair Share Act, the federal ERISA statute, and the significant changes in Supreme Court jurisprudence towards ERISA preemption in the past decade, this Note will offer new approaches through which states can modify the analytical framework outlined by the Fair Share Act to achieve improvements in the state-financing of Medicaid through large private employers. The goal of this Note is to analyze ways to fit future "fair share" legislation within the non-preempted confines of ERISA.

The proposed modifications include: (1) rewriting "fair share" laws as unequivocal, non-regulatory Medicaid taxes from which compliant employers may become exempt; (2) dulling the sharp edge of the FSA’s punitive texture through decreasing the 100% shortfall tax to 35-50%; (3) expanding the options that employers have as "outlets" for meeting the 8% health expenditure benchmark, such as through an increase in non-medical fringe benefits, thus giving the statute a less coercive feel; (4) a "total package" benefits approach analogous to unpreempted ERISA prevailing wage cases; and (5) a state-initiated higher minimum wage for very large employers, with an incentivized exemption provision stating that an employer can revert back to the state or federal government’s general minimum wage if the employer spends a certain percentage of payroll wages on employee health insurance.

Conventional wisdom holds that the Supreme Court set out last term to change the direction of patent law, and did so. Are they out to do the same thing now with the law of ERISA? I think so. They already have LaRue up on their plate, a case I have said will result in a reversal of the circuit court and an expansion of plan participants’ ability to avoid some of the procedural hurdles to filing suit, and on Monday SCOTUSBLOG reported that: 

Among 85 pages of orders [issued by the Supreme Court] on pending cases, the Court asked the U.S. Solicitor General for the federal government’s views on four cases [including]:
06-1398, AT&T Pension Benefit Plan v. Call, an ERISA benefits case involving a split in the Circuit Courts over the question of deference to a benefit plan administrator’s interpretation of the plan.
06-1458, Geddes v. United Staffing Alliance, another ERISA case involving a conflict among federal Circuit Courts over the standard for judging denials of medical benefits by plan administrators.

Workplace Prof, reporting on these same developments, gives a little more detail about the two cases, describing the AT&T case as involving “whether an employer is entitled to deference for its determination that the actuarial assumptions it used to calculate lump-sum distributions were not considered accrued benefits” and the Geddes case as concerning “whether a nondiscretionary standard of review applies in an ERISA action when the benefit plan administrator delegates its discretionary authority to someone who is not a fiduciary.” As the Prof points out, the Court’s request to the Solicitor General’s office for input does not necessarily mean the Court will take the cases, but certainly raises the possibility that it will; at a minimum, it reflects the interest of at least some segment of the Court in how the law governing ERISA is evolving.

Regular readers of this blog and ERISA practitioners know that there has been a fair amount of discontent at the district court and circuit court levels when it comes to the issue of standards of review and the discretion granted to administrators, including a decision out of the Ninth Circuit that I described awhile back as looking as though it had been written for the express purpose of bringing conflict among the circuits over some of these issues to the direct attention of the Supreme Court. The Court may be about ready to start delving into these issues and concerns.

A loyal blog reader wrote in recently noting a glaring omission of this blog, notably the absence of a subcategory heading over on the left hand side of the blog collecting case law and comments on excess insurance issues. I have added the menu option over there, so readers can find excess cases easily. And to get the ball rolling, I have relocated one of my favorite insurance related blog posts from the past few months, discussing the obligations – or lack thereof- of excess carriers to follow the settlement decisions of underlying primary carriers, over to that new category heading. You can find it there now.

But as a grand opening special, I also thought I would note today this decision out of the United States District Court for the District of Rhode Island discussing a range of issues involving both primary and excess coverage for that golden oldie of insurance coverage law, environmental clean up. The issue that was most interesting to me in the opinion, as it has the most transferability to other types of cases, has to do with when an excess carrier’s defense obligations kick in. The case presented the old chestnut of when an excess carrier, whose policy technically does not attach – or come into play – on a loss until the policies underneath it have been exhausted, begins to have a defense obligation with regard to the claim at issue. The court acknowledged the general rule, relied upon by the excess insurer to try to avoid a defense obligation, that the excess carrier cannot have an obligation to contribute to the defense until the loss exceeds the primary coverage. However, the court manipulated that principle to tack a current defense obligation onto the excess carrier even though the primary policy underneath it had not yet been exhausted by finding that the excess carrier’s defense obligation was triggered without regard to whether or not the underlying primary policy had already paid out its full policy in defense costs, so long as the insured’s incurred defense costs already exceeded the amount of the primary policy. Its an interesting result to me, because the biggest issue, in my book, when it comes to excess policies is the tricky interchange of how and when obligations move out of the primary policy and onto the excess carrier. This case is a neat example of that.

The case is Emhart v. Home Insurance, and you can find it here.

I have talked before – probably too much – on this blog about patents, patent reform, and the fact that the courts are in the process, as far as I am concerned, of reigning in what some see as abuse in the patent system and in patent infringement litigation against large technology and other companies. Of particular note, I have written before about the particular question of whether ERISA strategies should be subject to patent, and, as I discussed in a BNA article on the subject, I don’t run with those who think business method patents should be pushed that far. The Wall Street Journal law blog has an interesting post today that touches on all of this, in particular on a new appellate decision concerning business method patents that may well drive the final nail in the coffin on the idea of patenting ERISA strategies. As that blog puts it: “Legal experts say the court’s ruling . . .may make it more difficult to obtain and enforce business-method patents, which are granted for abstract processes rather than specific devices. . . .The decision suggests that business-method patents will now be considered invalid unless the invention has a practical application and can be linked to a particular technology, such as a computer. The court said that ‘mental processes—or processes of human thinking—standing alone aren’t patentable even if they have practical application.’" Seems to me that ERISA strategies fall exactly within that category of unpatentable mental processes. In fact, frankly, if you read the opinion itself, it is pretty doggone clear that ERISA strategy patents, as distinct from patents involving computer processes for managing ERISA claims for example, should never have been granted, and won’t be in the future.