Ever mystified by what goes on inside that black box with the colorful flat screen on top that sits on your desk at work? Me too, and when I am I check in with my colleague Robert Plotkin, a patent prosecutor who specializes in computer patents. Robert is a fine source of expertise on patent law and computer technology, and I thought I would pass along this link to his patent tip for August 07, which discusses changes at the Patent and Trademark Office concerning continuation applications. As Robert points out in his publication, the rule change will alter patent applications in a manner that may increase their expense, but do not go into effect until November, creating a short window that patent applicants should try to exploit before the effective date of these changes. And as Robert doesn’t point out in his note on the subject, but did mention to me – given that I litigate patent infringement actions but don’t prosecute patents – the shakeout from the rule change is likely to affect litigation over patents as well, as we move down the road and past the implementation date of these changes.

And aside from my professional interest in patent litigation, how does this relate back to the primary subject matters of this blog?  Well, we might point out that business strategy patenting has caused ERISA law to crash head long into patent law, as discussed in this BNA article that I am quoted in.

There’s an entertaining little story today in the Boston Globe on the question of whether, in the next few weeks, the California legislature and the Governor will roll out a state plan to reform health insurance by adding fees and other obligations to the employer provided health care system with the intent of providing universal health insurance, similar in some ways to what Massachusetts has done. I have talked frequently here about Massachusetts’ plan, which is in its earliest stages of implementation, with some concomitant glitches. Readers of this blog know I am highly skeptical of the ability of states to fashion these types of plans without running afoul of ERISA preemption, and, without knowing the details of the California plan, I am pretty skeptical they can pull it off either. In a nice little juxtaposition, for those of you who are interested in the question of how ERISA preemption impacts these types of attempts by states to change the health insurance paradigm, Sharon Reece out of the University of Maryland Law School has a very timely paper that is just out addressing the barrier posed by ERISA preemption to these types of state laws. The paper itself is available here, and the post from Richard Bales at Workplace Prof that brought it to my attention a few weeks back is here.

I wanted to return for a moment to a decision from the Massachusetts Supreme Judicial Court from earlier this month, Allmerica Financial Corporation v. Certain Underwriters at Lloyds’ London, in which the court held that an excess carrier that had issued a follow form policy to an insured was not bound by or required to follow the settlement decisions of the insured’s primary carrier, to whose policy the excess carrier’s policy followed form. For those of you who may not be familiar with follow form policies, they are excess policies that incorporate – or borrow or "follow form" to – the same terms and exclusions as are contained in the primary policy issued to the mutual insured of both the excess carrier and the primary carrier. There’s nothing very surprising in this holding, and anyone knowledgeable about the practices of the insurance industry since the time of, oh, say the end of the civil war, would know that excess carriers who have issued following form policies do not abdicate to the primary insurer the right to decide whether to spend the excess carrier’s money as part of a settlement. So nothing too surprising in the court’s opinion, to that extent.

But what might be surprising to some or interesting to others is the fact that, while the law may well be that excess carriers are not bound by the settlement decisions of underlying primary carriers, they may well be exposed to significant bad faith liability, in particular under Massachusetts’ unfair trade practices statute, if they refuse to join in on such a settlement. As a general rule in Massachusetts, by statute insurers are obligated to agree to a reasonable settlement of a claim and, by statute, can be hit with multiple damage awards if they fail to do so. Now, think about it, and play out the scenario in which the primary carrier elects to settle, even if the amount will exceed the limits of the primary policy and require some payment by the excess carrier. Presumably, the primary carrier is doing so because settlement on those terms is reasonable. Well then, what about the excess carrier? If it refuses to go along, has it committed a breach of the obligation to reach a reasonable settlement by refusing to participate in the settlement reached by the primary carrier, which was premised on the participation of the excess carrier in the settlement?

There are a lot of ins and outs to this, and I would have to write a full blown law review article here to address them all. But for now, my point is only this. It is one thing for the state’s highest court to say that an excess carrier is not obligated by the terms of a follow form policy to join in a settlement reached by the primary carrier, but it is an entirely different question whether other sources of legal obligation, such as the state’s unfair trade practices act, impose an obligation to the contrary. I would argue that they don’t and shouldn’t, but outside of the digital confines of this blog, I certainly don’t get the last word on this subject.

It should be noted, however, that the Supreme Judicial Court did nod at this issue in its opinion, and in so doing suggested both that excess carriers have a great deal of leeway in deciding whether to settle a case where the loss will be in excess of the primary policy’s limits and that it should not be easy to show that an excess carrier committed bad faith by declining to participate in an arguably reasonable settlement to which the primary carrier was willing to commit. The Court, in a footnote, explained that the question of the excess carrier’s bad faith obligations was not at issue, but cited Hartford Casualty Insurance Company v. New Hampshire Insurance Company, a 1994 decision, as reflecting current Massachusetts law on the duty an excess carrier “owes to its insured not to act negligently in refusing to settle a case.” Indeed, the Court then went one step further and, in a different footnote, expressly declared that the Court’s conclusion in Allmerica with regard to the follow form obligations of excess carriers with regard to settlements “should not be construed to limit the settlement responsibilities of insurers articulated in” Hartford Casualty.

The Hartford Casualty case set forth a very high standard for imposing bad faith liability on a carrier that fails to settle a case, finding that there is only a bad faith failure to settle if no reasonable insurer at all would have failed to settle the case on the terms presented to it. That’s a pretty high standard. I would argue, given the Supreme Judicial Court’s deliberate citation of that case in two footnotes in a case, Allmerica, that didn’t require the Court to even address issues of bad faith failure to settle, that the Court was reinforcing that bad faith failure to settle claims can only be maintained against excess carriers – even ones that issued follow form policies and even where the primary carrier wants to settle – if the very high bar set forth in the 1994 Hartford Casualty case is met.

I wanted to take a moment over the next couple of posts to return to a couple of cases from earlier this month that are worth a look and a comment, but that I haven’t had a chance to talk about yet. One of them is a decision by Judge Lindsay of the United States District Court for the District of Massachusetts from the beginning of the month, Dickerson v. Prudential Insurance Company, in which the court considered the question of whether plan documents actually conferred discretionary authority on the administrator of an ERISA governed long term disability plan; as most of you already know, if it did not, then the court had to decide a dispute over benefits under that plan de novo, while if it did, the court was to decide the dispute by applying a deferential standard of review.

Now, we see many cases finding that discretionary authority is conferred and that deferential review applies, but cases finding the opposite are actually not quite as common. This is usually because the plan in question in a case either clearly grants discretion, or doesn’t do so at all. As a result, it is comparatively infrequent that a court has to address in any depth whether or not particular plan language grants discretion. Into this relative void steps the Dickerson decision, which is an interesting example of a case finding that the particular language used in a plan did not clearly confer discretionary authority. I liked Judge Lindsay’s description of the applicable standard, which was that: 

Courts have recognized that "there are no magic words determining the scope of judicial review of decisions to deny benefits." Brigham, 371 F.3d at 81 (quoting Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000)). Until insurance plans include language that "could leave no doubt about the administrator’s discretion . . . we must in fairness carefully consider existing language that falls short of that ideal." Id.

"[T]he critical question is notice: participants must be able to tell from the plan’s language whether the plan is one that reserves discretion for the administrator." Diaz v. Prudential Ins. Co. of Am., 424 F.3d 635, 637 (7th Cir. 2005). Language that merely requires a determination of eligibility by the administrator and proof of the applicant’s claim "does not give the employee adequate notice that the plan administrator is to make a judgment largely insulated from judicial review by reason of being discretionary." Herzberger, 205 F.3d at 332. Cf. Diaz, 424 F.3d at 639 (for Plan language to confer discretion on the administrator, it must "communicate the idea that the administrator not only had broad-ranging authority to assess compliance with pre-existing criteria, but also has the power to interpret the rules, to implement the rules, and even to change them entirely.").

The Court concluded that the particular language in the plan at issue in Dickerson gave the administrator the “ the power to make the determination” but imposed a list of specific conditions on the exercise of that power. As a result, the judge held that “[b]ecause the Plan language” suggests that "the plan administrator is to make a judgment within the confines of pre-set standards [and does not have] the latitude to shape the application, interpretation, and content of the rules in each case . . . the language [was] insufficient to trigger deferential review by the court.”

I think every blog should have an official charity or good cause, and this one’s is the Anne B. Kingsley Ovarian Cancer Foundation. Not only is it a truly good cause, but it also falls under this blog’s bailiwick, given that the Foundation’s founder is long-time insurance industry executive Robert Kingsley. The Foundation is currently running a fundraiser structured around a cookbook called Recipes Recollections Research, a collection of recipes from friends of the Foundation. Food and eventually a cure, who could ask for more? The Foundation’s website is here, and information on purchasing the cookbook to help support their work is here.

I wanted to pass this along while the electronic brochure was still (fairly) hot off the metaphorical presses and cooling off in my in-box. Here’s the information for West Legalworks’ 20th Annual ERISA Litigation Conference, held in, well, probably the three best places you could pick: Florida in February, and California and New York City in the fall.

On a more analytical note, what really jumped out at me is the conference’s focus this year on what the marketing materials describe as “ the continuing lessons from the post-Enron wave of litigation over employer stock investments in 401(k) and ESOP plans and . . . the current wave of decisions addressing whether former employees who withdrew their plan balances before bringing suit have standing,” as well as on the “impact of procedural violations of the claims and appeal regulations [and] [t]he recent crop of preemption cases,” all topics that have been discussed extensively over the past year here on this blog.

Here’s a dog bites man story: the joint defense privilege exists in Massachusetts. For those of you who are unfamiliar with the topic, the joint defense privilege allows parties on the same side of the dispute in a multiparty litigation to share information amongst themselves and their various attorneys without waiving the attorney client privilege. Normally, the privilege only attaches to information kept in confidence by a party and its attorney, and if they disclose it to anyone else, the privilege is lost (or waived, as the litigators say). However, the joint defense privilege allows parties who have a shared interest in litigating against yet another party to disclose information to each other without waiving the privilege. The Massachusetts Supreme Judicial Court has now officially recognized this principle, but what makes it a little bit of a dog bites man story is that Massachusetts lawyers and trial court judges have been acting for decades as though the joint defense privilege exists. The Supreme Judicial Court acknowledged this in its opinion, stating: 

Although this court has not had occasion to consider the common interest doctrine or any of its components, there is no doubt that attorneys and their clients have relied on its implicit existence. It is evident from cases such as Commonwealth v. Beneficial Fin. Co., 360 Mass. 188 (1971), the longest criminal trial in the history of the Commonwealth, that joint defense arrangements have been used in criminal trials in Massachusetts for a substantial period of time. Indeed, in The Society of Jesus of New England v. Commonwealth, 441 Mass. 662, 666 (2004), we noted without comment that the defendants in that criminal case had entered into a "Joint Defense Agreement." The principle, at least in the litigation context, is incorporated into Proposed Mass. R. Evid. 502 (b) (3). The parties have brought to our attention numerous well-reasoned decisions of judges in the Superior Court recognizing the validity of the joint defense privilege in civil cases.

It is not surprising, by the way, that the issue came up, and was finally decided by the Supreme Judicial Court, in an insurance related case; insurance disputes routinely involve multiple parties, from primary carriers to excess carriers to insurance agents to third party administrators, and on and on. It is very difficult for all of the parties on one side or the other of the case to align their positions and litigate effectively without sharing privileged information.

Here’s a curious case out of the First Circuit yesterday that is, and isn’t, about ERISA, but hints at how the First Circuit would handle a particular issue of some importance with regard to ERISA’s protection of retirement benefits. I have talked in the past about a decision out of the Ninth Circuit a few months back, United States v. Novak, in which the court held that the criminal restitution requirements imposed by the federal Mandatory Victims Restitution Act (“MVRA”) trumped the anti-alienation provisions of ERISA. Here’s my earlier post on that case, and here’s a post on an article in the National Law Journal in which I am quoted on the Novak case. In United States v. Hyde, decided yesterday, the First Circuit suggests its agreement with Novak, strongly indicating that in this circuit retirement benefits can be attached to fulfill criminal restitution orders entered in accordance with the MVRA. Discussing whether the bankruptcy code or homestead exemptions under Massachusetts law prevented attachment by the government of certain proceeds, the First Circuit concluded in no uncertain terms that the “MVRA’s language is unambiguous [and its] provisions apply ‘[n]otwithstanding any other Federal law.’" The Court relied heavily on the Novak decision as support, noting that Novak held that the “MVRA provisions supersede the non-alienation provisions of ERISA.”

Here’s an interesting case out of the First Circuit this week concerning an attempt to use an equitable estoppel theory to force a plan to pay supplemental life insurance benefits even though the former employee covered by the plan had not submitted the necessary health forms to qualify for that coverage. The case, Todisco v. Verizon Communications, involved a situation in which the now deceased employee was supposedly told that he could sign up for the additional life insurance benefits without submitting the necessary health information. The plan administrator refused to pay those benefits after his death because his failure to submit that information precluded such coverage under the terms of the plan.

After much wrangling at the district court (“wrangling” in this context being a euphemism for substantial motion practice), what remained was the plaintiff’s theory that she could recover the benefits on an estoppel theory based on the allegedly misleading statements made to the deceased at the time he elected the benefits. The First Circuit held that the theory failed as a matter of law, however. The Court analyzed the issue under both possible statutory causes of action available to the plaintiff, namely Section 502(a)(1)(B), which “empowers a ‘participant or beneficiary’ to bring suit ‘to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan,’ and Section 502(a)(3), which “allows a ‘participant, beneficiary, or fiduciary’ to sue ‘(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (I) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan."

The First Circuit held, however, that the plaintiff’s equitable estoppel claim had no home under either statutory section. It found that even though in common parlance equitable estoppel is understood to be an equitable remedy, it did not constitute equitable relief for purposes of ERISA under applicable Supreme Court precedent; for ERISA purposes, equitable relief has a very narrow and specific meaning, and the plaintiff’s attempt to recover compensatory damages only under an estoppel theory did not fit that meaning. The plaintiff’s claim was therefore not actionable as a matter of law under Section 502(a)(3). At the same time, however, the First Circuit found that the relief was not viable as a claim for damages – namely the denied benefits – under Section 502(a)(1)(B), because that section only allows recovery of benefits due under the terms of the plan, and the plaintiff’s estoppel theory did not allege that the benefits were due under the actual terms of the plan, but that they were instead due under the terms of the plan as misrepresented to the deceased at the time he sought to obtain the coverage. The Court found that this claim did not fit the express requirements of the statutory provision in question, which limits recovery to benefits when the actual terms of the plan require them to be paid.

On the first Monday morning in August I expect things to lighten up with lots of people on vacation and the like, so I scheduled a breakfast meeting this morning right in the middle of one of Massachusetts’ most congested highways (well, not really in the middle of the highway, more like at a restaurant off an exit off of one of the most congested highways), on the theory traffic would be lighter than usual. It wasn’t. But I still think August should be a lighter month, so today’s blog posting is musical. Here is a link to the song “Pension Tension Blues,” courtesy of Pension Governance. What is “Pension Tension Blues”? Pension Governance describes it thusly: 

Inspired by those who bring attention to serious issues through humor, Dr. Susan M. Mangiero, [Pension Governance] president and founder, and Mr. Steve Zelin, the Singing CPA have co-created a (hopefully) memorable ballad about the state of affairs in pension land. Mangiero adds "Pension Governance, LLC is committed to helping fiduciaries do a better job of identifying, measuring and managing financial risk. We hope the song is a friendly reminder of the hard work ahead."