Wow, here is a great insurance coverage story out of the Massachusetts Lawyers Weekly, concerning a state trial court decision over the impact of a particular clause in a life insurance policy. The case involved a life insurance policy containing a clause under which the policy only became effective if the insured was in good health at the time of issuance. The life insurer had a medical exam conducted on the applicant for the coverage, and found him to be healthy enough for the policy to be issued. Two weeks later, however, he was found by his own physicians to have a terminal disease. The life insurer sought to deny the claim, after his death, for the life insurance proceeds on the ground that the good health requirement was not met.

The state trial court, probably rightly so, ruled against the insurer, restricting the good health clause to limiting coverage if the insured knew or should have known that he was not in good health, and rejected the insurer’s argument that the clause instead applies on an objective level and precludes coverage if the insured was not in good health at the time of issuance, without regard to what the insured or anyone else actually knew at that time. The court’s choice seems to me to be a reasonable and fair result. But what is really interesting about it is that in doing so, the trial court rejected 85 year old precedent to the contrary, finding that it was outdated and that changing the rule to instead apply in the manner selected by the trial court better conformed to the reasonable expectations of the insured.

I have talked before in this blog about the reasonable expectations doctrine, and about the idea that it can be understood as a tool for the court to look at an insurance contract and give it the most realistic and sensible interpretation for the parties given that the parties themselves at the time of contracting are limited in their ability to anticipate the future events over which they are contracting and have only a finite capacity for capturing all possible contingencies in the policy language. This case represents a perfect example of that use of the doctrine, particularly so given the extraordinary rarity of the fact pattern at issue. Really, what reasonable insured or insurer – particularly after the insurer had arranged for a pre-coverage medical examination of the applicant – would have anticipated this exact fact pattern? And for that matter, what applicant would buy coverage, after being examined and having his medical records reviewed by the insurer prior to coverage being approved, if the coverage would vanish if, contrary to the knowledge of both the insurer and the insured, he was thereafter found to be terminally ill?

I am kind of fond of this recent disability benefits case out of the United States District Court for the District of Maine for one particular reason, namely its discussion of functional fiduciaries, and thought I would pass it along as a result. Confronted with the question of whether Metropolitan Life, the administrator, was a fiduciary or possessed fiduciary authority with regard to benefit determinations, the court explained that although Metropolitan Life was not the Plan Administrator or a "named fiduciary" within the meaning of ERISA, the plan language clearly gave it authority that would render it a fiduciary. While there is nothing particularly out of the usual or fascinating about that finding, I liked the court’s further citation of the First Circuit’s recognition of the doctrine of functional fiduciaries as further support for its finding. The court noted that: 

The First Circuit has recognized that ERISA’s fiduciary duty provisions extend to "functional fiduciaries–persons who act as fiduciaries (though not explicitly denominated as such) by performing at least one of the several enumerated functions with respect to a plan." Beddall v. State Street Bank and Trust Co., 137 F.3d 12, 18 (1st Cir. 1998). "The key determinant of whether a person qualifies as a functional fiduciary is whether that person exercises discretionary authority in respect to, or meaningful control over, an ERISA plan, its administration, or its assets." Id.

In the disability benefits field, where many of the insurers and administrators are highly experienced, plan documents are usually clear as to who is playing what fiduciary role and who has discretionary authority, but in other cases, such as smaller self-managed plans or involving smaller third party administrators, the controlling plan documents often do not address the role of every person or service provider involved in the operation of the plan. In those cases, the functional fiduciary analysis can be quite handy in understanding the role of the players involved in the administration of the plan, and the possible liabilities of each as well.

Here’s a nice follow up ruling in the case of Curran v Camden National, a particularly interesting ERISA case that I discussed here. In this newest ruling, the United States District Court for the District of Maine denied the motion of the defendant – which had earlier successfully moved to dismiss the complaint against it – for an award of attorney’s fees under ERISA. The Court first stated the governing standard in the First Circuit on this issue, which is that: 

in an ERISA case, a prevailing plaintiff does not, merely by prevailing, create a presumption that he or she is entitled to a fee-shifting award [and there is no] creation of a presumption in favor of prevailing defendants. Rather . . . in the context of ERISA cases, the Court is to apply a five-factor analysis to determine the appropriateness of an award of attorney’s fees to the prevailing party: (1) the degree of culpability or bad faith attributable to the losing party; (2) the depth of the losing party’s pocket, i.e., his or her capacity to pay an award; (3) the extent (if at all) to which such an award would deter other persons acting under similar circumstances; (4) the benefit (if any) that the successful suit confers on plan participants or beneficiaries generally; and (5) the relative merit of the parties’ positions.

The Court then went step by step through each factor, explaining how none warranted an award of attorney’s fees, despite the fact that the defendant had prevailed on a motion to dismiss – which is always a pretty good showing of a potentially severe absence of merit in the plaintiff’s claims. The Court explained that prevailing on such a motion alone cannot be enough to support an award of attorney’s fees, because if it was, it would discourage parties from proceeding with what may well be meritorious claims out of fear of being hit with an award of attorney’s fees if they are wrong in their analysis of the merits. The take home from the opinion in this case can only be that the standard for obtaining such an award, at least as a prevailing defendant, is pretty high, and if I were defending against a claim for attorney’s fees under ERISA, this is the case I would open my brief with.

I like this article here about a judge’s extensive evidentiary analysis of the admissibility of electronically generated data, in particular the fact that the judge found that certain types of computer generated data are not subject in any manner, shape or form to the rule against hearsay. As the article sums up the judge’s point: 

Perhaps the more important — and interesting — aspect of [U.S. Magistrate Judge] Grimm’s opinion is his conclusion that information he describes as "electronically generated" is completely outside the hearsay rule. The hearsay rule is among the best known and important of the gate-keeping rules to screen evidence before it reaches the jury. Under the hearsay rule, a statement made outside of court may not be offered into evidence for its truth unless the statement falls within one or more specific exceptions (for example, when the statements are contained in business records, made by employees or agents, or made against the speaker’s interests). Hearsay evidence is excluded at trial because there is no opportunity to cross-examine its creator to determine how reliable the evidence is. By electronically generated information, Grimm means information a computer creates itself. Electronically generated information can take a variety of forms. Grimm cites as an example the report a fax machine prints whenever a fax is sent. Another example (but which he does not cite) is "metadata." Metadata is information "created" by the computer that records (often without the user’s knowledge and often without the user ever seeing it) what has happened to a particular document, such as who created the document, when it was created, who viewed it and who changed it.

A neat analysis of some of the ever evolving issues arising from the expansion of discovery into computer data, but I can’t say I really buy it. Even though the data and/or the information printed out is not directly inputted by a person, the computer system itself obviously didn’t create and store these types of information on its own or create it from some artificial intelligence of its own. The information is there, and stored and formatted in a particular manner, only because of software and other input placed there by humans for the purpose of having the system create, store and generate the data in a particular manner. As such, the information discussed by Judge Grimm is at root the creation, by extension, of the individuals who did that, rendering the computer generated information a statement of some human or another. The information is therefore more accurately thought of as the out of court statements of an individual, and should only be admissible if an applicable exception to the hearsay rule applies – most likely, as a business record of the party in control of the computer network that generated the data or that created the stored information.

In any event, beyond this one quibble over the application of the hearsay rule to certain forms of computer generated data, the judge’s full opinion on these issues, in the case of Lorraine v. Markel American Insurance Company, is actually terrific and I recommend it to anyone interested in electronic discovery and the rules of evidence. Indeed, it is really a terrific treatise not just on admissibility of electronically stored data, but on the federal rules of evidence themselves. And as I have mentioned before in other posts on the subject of electronic discovery, the evolving law on these types of issues is central to both ERISA and insurance litigation, the primary subject matters of this blog, due to the fact that the administration of ERISA plans and insurance claims are almost always computer based.

If it seems like I have been digressing a lot these past couple of weeks off of the primary topics of this blog and into other areas that interest me – such as the billable hour system – or that I practice in, like intellectual property litigation, it is because the courts of the First Circuit have been fairly quiet with regard to ERISA issues since the First Circuit issued its opinion in this case a few weeks back in which I represented the prevailing parties. Things change quickly in the forest, though, and the courts in this circuit have begun speaking again on ERISA issues. The United States District Court for the District of Puerto Rico has now provided this nice, handy summary of why an individual plan participant whose benefits have been terminated must bring solely a claim for benefits, and cannot press forward with an alternative theory for breach of fiduciary duty. In the words of the court: 

ERISA recognizes two avenues through which a plan participant may maintain a breach of fiduciary duty claim: (1) a Section 502(a)(2) claim to obtain plan-wide relief, see 29 U.S.C. § 1132(a)(2); and (2) an individual suit under Section 502(a)(3) to obtain equitable relief, see 29 U.S.C. § 1132(a)(3). Cintron [the plaintiff] does not seek plan-wide relief. Consequently, ERISA authorizes her breach of fiduciary duty claim only if she seeks "appropriate equitable relief." 29 U.S.C. § 1132(a)(3); Varity Corp. v. Howe, 516 U.S. 489, 512, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996); Watson v. Deaconess Waltham Hosp., 298 F.3d 102, 109-10 (1st Cir. 2002); Larocca v. Borden, Inc., 276 F.3d 22, 27-28 (1st Cir. 2002). The Supreme Court of the United States has described Section 502(a)(3) as a "safety net" that provides appropriate equitable relief for injuries that Section 502 does not elsewhere adequately remedy. Varity, 516 U.S. at 512. Section 502(a)(3), therefore, does not authorize an individualized claim where the plaintiff’s injury finds adequate relief in another part of ERISA’s statutory scheme. Id. at 512, 515; see also Watson, 298 F.3d at 112-13; Larocca, 276 F.3d at 27-28; Turner v. Fallon Cmty. Health Plan, 127 F.3d 196, 200 (1st Cir. 1997). Following Varity, "federal courts have uniformly concluded that, if a plaintiff can pursue benefits under the plan pursuant to Section [502(a)(1)(B)], there is an adequate remedy under the plan which bars any further remedy under Section [502(a)(3)]." Larocca, 276 F.3d at 28.

Section 502(a)(1)(B) provides Cintron the opportunity to obtain redress for the injury she alleges to have suffered–a wrongful termination of her benefits. If the defendants wrongfully stopped paying her benefits, Section 502(a)(1)(B) provides an avenue through which she may recover benefits due. She may not seek relief for the same injury under Section 502(a)(3). . . .Thus, she may not maintain a claim for breach of fiduciary duty under Section 502(a)(3).

As some of you know from other posts, I like to collect handy summaries like this to insert into future briefs in appropriate spots, and I pass this one along to anyone who may want to do likewise. The case is Cintron-Serrano v. Bristol-Myers Squibb P.R., Inc.

Here’s an article on Law.com today, out of the Recorder, on whether San Francisco’s version of a pay or play law mandating certain health care payments by businesses in the interest of bringing about the holy grail of universal health care coverage can survive ERISA preemption. The article points out, similar to what I discussed here, that federal courts have struck down similar laws in New York and Maryland. Based on the description of the San Francisco act in the article, I can’t say it sounds sufficiently different from the laws struck down in those cases that I would give it much chance of surviving a preemption challenge, with one caveat, that the Ninth Circuit, as it recently did with regard to the standard of review of benefit denial cases under ERISA, may be willing to shift the parameters of the law in this area. If it does, you will see the issue before the Supreme Court, as it is likely to create a direct conflict with the Fourth Circuit’s findings in Fielder, and on an issue – state regulation of employer provided health benefits – that is at play in more and more states every day.

There’s a nice interview today on the Massachusetts Lawyers Weekly website with the general counsel of Boston’s Beth Israel Deaconess Medical Center, Patricia McGovern. While the story is interesting enough in and of itself on the subject of the structure of a major hospital law department, I took particular note of Ms. McGovern’s comment that the hospital will be impacted by the Massachusetts Health Care Reform Act because of its expected effect on the state’s subsidized care pool. I have generally focused on that statute from the point of view of its impact on the business community and in particular on multi-state employers, and this was an excellent reminder that the statute is of concern to other affected parties for reasons unique to them.

I’m really veering off topic here on today’s post, although I have in the past managed to post about the billable hour system and link it to the question of how policyholders should pay their lawyers in insurance coverage disputes. Today, though, I won’t even rely on that fig leaf, preferring instead to just pass along an excellent article on an issue that both every lawyer and every client who reads this blog has given at least some thought to – the inherent problems of the billable hour. I have talked before on occasion about issues related to the billable hour, such as in this post, and this is a very common subject of discussion for legal bloggers – to the point where one even has a law firm whose business model rests primarily on its abolishment. Scott Turow, who has been the most successful of an entire generation of lawyer/fiction writers at combining practicing law at a high level with writing at the same level (I’m not going to debate here the literary values of John Grisham’s novels in comparison, but will note only that he gave up practicing for all intents and purposes when the book sales took off) has this excellent piece in the ABA Journal about the billable hour and his discomfort with it.

One thing I liked in particular about it was that, despite laying out – as all critics of the system do – his criticisms of the billable hour system, he notes that marketplace forces place some checks on its possible abuse. To me this goes directly to an important point that I think, as a regular reader of critical analyses of client billing, gets overlooked in many articles complaining about the billable hour: namely, that clients are more interested in whether they receive value for their dollar than they are in the particularities of how they are billed, whether by the hour or in an alternative method. Like all of us, they want to pay the right price for the right services, something pointed out in the anecdotes in this companion piece right here from the same issue of the ABA Journal. There’s nothing inherent in the billable hour model that prevents that, and that, combined with the fact that most lawyers do actually manage to bring about fair pricing despite the use of that billing system, is, more than any other reason, why it is still here with us.

Want to learn more about insurance bad faith litigation? Well, you could retain me, but if you want something more off the rack, here is a nice looking seminar, with a well credentialed faculty, on the subject. Of course, for local readers, it is important to note that the seminar looks to provide a general overview, as most seminars do, concerning overall principles related to insurance bad faith litigation. Here in Massachusetts, the issues would be a little different and have their own peculiar twists and turns, because we are one of the few jurisdictions with a unique bad faith statute actually granting a bad faith cause of action to policyholders and injured parties; litigating a bad faith case here requires a deep understanding of years of court rulings applying that statute.

Roy Harmon over at his excellent Health Plan Law blog has the story of the decision last week by the United States District Court for the Eastern District of New York in Retail Industry Leaders Association v. Suffolk County, in which the court ruled that the Suffolk County Fair Share for Health Care Act (basically yet another local initiative directed at forcing Wal-Mart to provide greater health care coverage for its employees) is preempted by ERISA. The court’s opinion makes much of the fact that any attempt by a multi-state employer to comply with the statute would require the employer to create a different and separate administrative structure for that lone jurisdiction covered by the act, and that ERISA preemption applies as a result. The court’s approach drives home two points that I have commented on earlier in other posts on this blog.

First, with each local or state ordinance that is struck down as preempted, despite the attempt of each locality to insist that its statute is so fair or unintrusive that it should be left standing and it is alright if an employer has to do something different just with respect to that particular jurisdiction, it becomes apparent- or should, anyway, to anyone thinking through the issue – that, whatever the intentions of proponents of state laws altering health insurance on a state wide level, problems with the availability of health care and health insurance simply cannot be solved currently by a balkanized, state by state approach. Only addressing the problem at the federal level can possibly succeed; any other approach will result in employers facing the type of multiple and diverse administrative regimes that was rejected by the court in this most recent decision and that can only result in preemption.

Second, this decision points out that those who do not think that Massachusetts’ Health Care Reform Act is probably preempted are likely just whistling past the graveyard. Massachusetts’ statute is a fairly written and broadly applicable statute, and not the type of statute, like the one found preempted by the Eastern District of New York in this most recent preemption decision, that is simply a punitive statute, masquerading as a piece of broad based health care reform, directed at essentially one employer or one small class of employers (think big box retailers). Nonetheless, the exact same structural burdens and case law analyzed in the Eastern District’s decision likewise lead to the exact same conclusion – that ERISA preempts the act – when applied to the Massachusetts Health Care Reform Act. In truth, all you really need to do is globally replace the references in the Eastern District’s decision to the Suffolk County act with references to the Massachusetts statute, and you have the future ruling finding that the Massachusetts act is preempted.