There are some who believe that insurance policies are by definition ambiguous – mostly lawyers who solely represent policyholders for a living – and others, on occasion including judges, who sometimes seem to believe that unless a policy specifically excludes something, than it is either ambiguous and provides coverage or simply provides coverage because the policy didn’t come out and say it does not. None of this is correct. Instead, the question of what policies cover should turn on the specific language of the policy in question and the rules of policy interpretation that apply in the specific jurisdiction in question.

The First Circuit applied this proper approach correctly here in this case, Prostkoff v. Paul Revere Life Insurance Company, where the parties disputed whether the plaintiff was entitled to cost of living increases in his disability benefits after the age of 65. The court correctly concluded that the policy language was not ambiguous and that the policy should not be construed to grant such coverage.

There isn’t much law talked about in this case, so I am not sure of its value to practioners, outside of the unlikely event that someone, somewhere, is presented with the exact same dispute over the availability of cost of living adjustments to disability payments after the age of 65. At a minimum, it’s a case that may be worth citing simply as an exemplar of the right approach to interpreting and understanding policy language that may not be perfectly clear on its face.

No one is quicker to post about decisions out of the First Circuit than Appellate Law & Practice, who quickly had this post up on Friday about the First Circuit’s opinion issued that day in a long term disability benefits case where the plan and the administrator prevailed at the District Court, and then again before the First Circuit.  I represented the prevailing parties before both the District Court and the First Circuit in that one.

Appellate Law & Practice focused in its post on some of the issues addressed by the First Circuit that apply across the board to other types of litigation, and not so much on the issues specific to ERISA that were addressed by the First Circuit in its opinion.  There are some points about that opinion that are specific to ERISA cases, and should be of interest to those who practice in this area.  Sometime in the next couple of days, I will return to the opinion and discuss those issues, from the perspective of the lawyer – me – who briefed and argued them.  For now, here is the opinion itself.

We are in another one of those stretches where the courts of this circuit issue a fair number of ERISA related decisions in a short time span. I always think that, when this happens, it simply points out how ubiquitous are ERISA governed employee benefits. Appellate Law & Practice has the story of one of those cases, a ruling out of the First Circuit concerning the narrow question of when, during the course of litigation, the interest clock switches from prejudgment time to postjudgement time. In that case, the conclusion was that “a finding of liability alone without a corresponding determination on damages does not suffice to start the clock on postjudgement interest,” and thus to end the clock on prejudgment interest.

The case is Radford Trust v. First Unum Life Insurance.

Judge Tauro of the United States District Court for the District of Massachusetts issued an interesting opinion this week as to the power, if any, of the Massachusetts Commission Against Discrimination to continue to investigate whether an employer, in this instance Partners Healthcare Systems – which operates major teaching hospitals, among other operations – violates state anti-discrimination laws by granting employee benefits to the unmarried partners of employees only in cases of same sex partners and not in cases involving heterosexual unmarried partners. As the court described the facts, Partners Healthcare “offers its employees a variety of health and welfare plans, which it alleges to be regulated by ERISA. Under these plans, [Partners Healthcare] offers employee benefits to unmarried same-sex domestic partners of its employees, but not to unmarried heterosexual domestic partners. . . . [An] employee of [Partners Healthcare] who has a heterosexual domestic partner, filed a charge of discrimination.”

At issue in the court’s opinion was whether the federal court should enter an order barring the state agency from investigating or taking other action against Partners Healthcare for the alleged discrimination on the ground that such state action would be precluded by ERISA preemption; the agency responded that the doctrine of Younger abstention – one of those doctrines that most of us never come across again once we have finished our law school exams – actually precludes the court from intervening with the agency’s investigation, regardless of the possibility of ERISA preemption.

Where did the court come out? It concluded that, in this circuit anyway, abstention is not appropriate where there is a facially conclusive case of preemption under ERISA, and that to the extent the agency is investigating ERISA governed plans offered by Partners Healthcare, the agency is barred from taking action; at the same time, however, the agency was free to proceed with regard to any benefits provided by Partners Healthcare that allegedly discriminate in the manner charged by the complainant where those benefits are not provided under an ERISA governed plan.

Although I admit I have little knowledge of the underlying employee benefit plans at issue, I doubt the ruling leaves much, if any, of the employee benefits offered by Partners Healthcare open to the state agency’s jurisdiction.

The case is Partners Healthcare System v. Sullivan, available right here.

There is a very interesting and entertaining article – if you like law, food, restaurants, intellectual property, or any combination of them – in the New York Times this morning, about a seafood restaurant suing a newer, competing restaurant for, basically, replicating – allegedly, as the two restaurants don’t look all that much alike to me in the limited pictures that ran with the article – the older restaurant’s menu and look.

Although the article pitches the issue and the lawsuit as new, I actually participated in litigation of the exact same case, for all intents and purposes, some fifteen or so years ago, involving two Boston area seafood restaurants, and whether the newer one had committed trade dress infringement. The end result? The newer one was really, right down to the style of its menu and pretty much everything else you can think of, cloning the older restaurant, and I know from personal experience that the public was actually confused about whether the new restaurant was affiliated with the older one, because prior to the lawsuit I had always assumed they were affiliated. The newer restaurant settled by agreeing to a number of changes that would clearly differentiate the two restaurants, and both restaurants remain thriving, expanding businesses almost two decades later, an amazing thing given the short shelf life of most restaurants.

And beyond the curiosity factor of the case described in the article, we can actually bring this story back around to the title subjects of this blog, by noting that, in that case years ago, the newer restaurant later litigated with its insurer whether there was insurance coverage for that lawsuit and its costs of retrofitting the restaurant to distinguish it from the other restaurant as part of the settlement. The restaurant lost the suit, not because the policy did not cover it, but because the restaurant defended and settled the case brought against it by the older restaurant before even notifying its insurer about the loss. Under the state of the law in this jurisdiction at that time, the restaurant was found to have forfeited coverage under its policy because its actions breached the notice and no voluntary payments clauses of the policy to the prejudice of the insurer (the outcome of that coverage litigation might arguably be different today under current law in Massachusetts, or at a minimum, the restaurant would have stronger arguments for coverage today despite these facts then it did then). And why did the restaurant delay? Because it didn’t know there might be coverage under its policy for the claim, or just assumed there would not be, illustrating the first rule of being a policyholder: always, always notify your insurer whenever a claim arises, and let the insurer figure out whether or not there is coverage for the claim rather than making your own guess.

There is an article in Business Insurance magazine this week, the June 25th issue, on the Supreme Court accepting review of the LaRue decision, in which I am quoted. The article is here – subscription required – and if you read it, you will note that it ends on my comment that I expect the Supreme Court to overturn the Fourth Circuit. A short article intended really just as a little news blurb on the subject for the benefit of the magazine’s business management oriented readership, the reporter did not have the space to go into why I think the Court will overturn the lower court decision, but I, obviously, have the space to do so here. So to the extent anyone is interested in the question, here’s my thinking.

First, I don’t really expect the Court to do much, if anything, with the question of the scope of equitable remedies issue. If anything, given the language of the statute, despite the fact that many people want the Court to expand individual remedies and available damages under ERISA – including, I have found in my litigation practice, many District Court judges who are displeased with the limitations of the statute but nonetheless consider themselves duty bound to enforce its restrictions on recovery – the Court has probably read the range of equitable relief that can be pursued in as broad and pro-plaintiff a manner as the language allows, with its test of whether the relief sought would be equitable or not way back in the days of the divided bench. There simply isn’t much more you can do with the statute’s restriction of recovery in certain circumstances to equitable relief unless you are simply going to ignore the actual language of the statute and rewrite it by judicial fiat, which this Court certainly isn’t going to do and arguably, the thinking of Ronald Dworkin and his heirs aside, no court should do.

In a way, this issue is a perfect parallel to a long running and common problem in the insurance coverage field, in which there was an oft litigated dispute over whether insurance policies, because they only cover claims for damages, cover lawsuits seeking equitable relief, the issue being that the policies only cover damages and equitable relief is something different than damages. In both insurance coverage and ERISA cases – such as LaRue – the simple fact of the matter is that equitable relief does mean something particular, something that is different than a claim for damages, and the question is what is the impact of that difference.

Second, with regard to the more fundamental question of whether the individual plan participant could recover just for losses to his account in the plan, yes, I do think the Court will overrule the Fourth Circuit and find that such an individual plan participant can bring such an action. I can never recall whether the saying is that the Court follows the election returns, or is that the Court doesn’t follow the election returns, so I looked it up, and in fact the saying is that they follow the returns, although every author who writes this then adds qualifiers to the comment, such as in this piece here. Either way, the kind of relief sought by the plaintiff in the LaRue case, to be able to enforce his investment instructions in his own retirement savings account, clearly fits with the current Zeitgeist and, more interestingly, is of a piece – and a natural fit with – the changes to retirement savings plans put into place by the Pension Protection Act. Beyond that, the statutory language that is at issue in this part of the case is completely open to either the interpretation selected by the Fourth Circuit, or that sought by the plaintiff, and thus the Court can realign this part of ERISA without doing any violence to the statutory language. Combine these things, and I get a reversal.

Well now, we talked recently about how plaintiffs’ lawyers chasing fiduciaries appear likely to help drive changes in how fiduciaries of pension and defined contribution plans operate. Are we going to see the same with alternative energy companies and how businesses operate with regard to climate change issues? I have talked before about how climate change, in my view, will be successfully addressed if profits and losses – and those include liability exposures – drive companies to reduce greenhouse gas emissions and otherwise reduce their impact on the environment; as I wrote previously, the problems can be addressed if we create a business environment in which the winners are those who target these problems, and the losers are those who do not.

This article here, from the Dallas Morning News, and this blog post on it from the WSJ Law Blog point out that the lawyers are lining up to both sue and defend companies over climate change liabilities and exposures. Liability exposures are the kinds of costs of doing business that companies can be expected to want to avoid, and thus the rise of this area of the bar may well be a harbinger – much like the proverbial canary in a coal mine – of a further impetus on the part of the manufacturing and energy industries to reduce their contribution to global warming. Beyond that, the story told in that article and blog post emphasize a point I made in my earlier post on alternative energy issues and the insurance industry – that this is a liability issue, and as such, is by definition a serious threat and risk to the insurance industry, one that it needs to anticipate and account for in advance, rather than be gobsmacked after the fact like it was by long tail environmental and asbestos exposures.

I wrote, it seems to me, an awful lot over the last couple of weeks on the question of the fiduciary obligations of plan sponsors and others with regard to the investment selections made by pension funds and the investment choices offered in 401(k) plans. Susan Mangiero has a lot more to say about this in her series of posts – here, here, here and (most recently) here – on the due diligence obligations of fiduciaries when investing plan assets.

One particular issue that constantly comes up in this area is the belief of many employers and plan sponsors that they have satisfied any obligations they may have and have immunized themselves, for all intents and purposes, from liability for breach of fiduciary duty, by hiring an outside company to administer the plan and make investment decisions. Whenever I speak to people who offer investment and other assistance to plan fiduciaries, their need to disabuse fiduciaries, and particularly plan sponsors, of this belief is a constant topic of discussion. Quoting Rick Slavin, an attorney and former regulator, Susan nails down in three sentences why this is not the case:  

In his overview of case precedent and enforcement actions, Slavin offered that sloppy, obtuse or incomplete paperwork is usually the beginning of trouble. He reiterated that the use of outside parties does not absolve plan sponsors of their fiduciary duties. Oversight obligations remain.

You know, the simple fact of the matter is that, in all the areas I have litigated cases in over the years, plan sponsors have the easiest ability to preemptively and pro-actively position themselves to defeat an action against them – due diligence, due diligence and more due diligence throughout the life of the pension fund or defined contribution plan will come as close to serving as a silver bullet to protect plan sponsors as exists anywhere in the world of litigation. But plan sponsors who forget that they still have to engage in due diligence in the form of oversight and instead elect to rely simply on the fact that they retained an outside manager effectively forfeit this safe harbor.

My email inbox is often inundated with seminar pitches, book offers, and informational material, much of which, even if it looks valuable, I could never get to unless I decide to give up the practice of law and just read all this stuff full time. Fortunately, though, I can cut through the junk pretty quick and spot the diamond in it within minutes of sitting down at my desk in the morning (or, more often than not, while remotely surfing my inbox in the middle of the night).

And here is one such diamond, a really terrific paper on the rapidly evolving nature of the fiduciary standards affecting plan sponsors of defined contribution – most commonly 401(k) – plans and the steps they should be taking as a result. The paper, authored by Laurence Cranch and Daniel Notto of AllianceBernstein, is Evolving Fiduciary Standards for Defined Contribution Plan Sponsors – The Impact of New Thinking About Employee Participation and Investment Selection, and you can find it here.

In short, the authors argue, correctly I believe, that we are not only in an era of rapid change in the standards of care expected of fiduciaries, driven to a large extent by advances in knowledge in the area of retirement investing and the transition from pensions to defined contribution plans, but also in a time of vastly increased litigation threats to such fiduciaries. Perhaps the most interesting part of the paper concerns using the tools provided by the Pension Protection Act, in conjunction with the investment selection thinking that underlies the statute and its enabling regulations, to simultaneously demonstrate prudence on the part of the fiduciary and decrease the likelihood of litigation.

Just a terrific paper, and well worth the time to read it.

You know, the term martial arts is really just an umbrella for a whole range of more particular styles of physical combat, and the diversity is actually kind of fascinating. What does this have to do with anything? Well, I was reminded of this by this post from the Adjunct Law Prof on a ruling by the Virginia state supreme court concerning the grounds on which one can challenge an arbitration ruling when the arbitration is governed by the Virginia state arbitration act. Litigation is much like martial arts, in the sense that we subsume within that phrase a lot of areas that actually have their own specific quirks, and for which experience in one area may not necessarily transfer to success in another. Commercial arbitration, as the Adjunct Law Prof’s post reflects, is one such area. States have their own arbitration acts, unique to their states, and the federal system has its federal arbitration act, which is what most people talk of when discussing the law of arbitration. But the outcome of an arbitration can vary depending, as that post shows, on which particular arbitration act governs an arbitration. The Adjunct Law Prof’s post explains that the outcome in Virginia under that state’s arbitration act would be different under both New York law and in the federal system.

And thus among the black arts of arbitrating cases is knowing when, and how, to maneuver around various state arbitration acts and the federal arbitration act, and knowing how to get the best act for your case to be applicable. And subtleties like that are why it is important to hire a lawyer skilled and experienced with arbitration, rather than to just assume that litigation is litigation, and that a different set of skills is not necessary for the subset of litigation known as commercial arbitration.