SCOTUSBLOG is the NY Times, or maybe – given its focus on one particular field – the Wall Street Journal, of the legal blog world. With the backing of a major international law firm, it brings tremendous resources to its in-depth coverage of all things goings on at the Supreme Court. Cripes, the blog even has its own reporter, to supplement the work of the actual bloggers.

And of course that’s also why I read it, because you know you are not going to miss anything of importance to your own practice area that happens at the Supreme Court. And here, of interest, is their post on the United States Solicitor General’s brief recommending that the Supreme Court hear an appeal from the Fourth Circuit’s decision in LaRue v. DeWolff, Boberg & Associates, which presents the question of whether an individual participant in a 401(k) plan can sue to recover losses from errors by fiduciaries that affected only his or her account in the plan, rather than the accounts of all or most participants in the plan. In dispute is the question of whether it qualifies, first, as a loss to the plan, such that the participant can sue for breach of fiduciary duty, and/or second as equitable relief as the Supreme Court has interpreted that phrase for purposes of ERISA, such that the participant can recover on a separate equitable relief theory.

One thing’s for sure. If the Supreme Court puts its imprimatur on this theory, and makes clear that individual plan participants can sue for their own individual losses in their defined contribution accounts, there will be a whole range of new potential plaintiffs out there, and I am sure plenty of lawyers ready and willing to represent them. At the same time, to be fair, in a world of Enrons and the like, maybe there should be.

The Workplace Prof reads SCOTUSBLOG too, and here’s the prof’s take on these events.

I wanted to pass on to you a case out of the United States District Court for the Northern District of Ohio that was issued about the time I was trying a patent infringement case last month, and which I wasn’t able to comment on then as a result. With a little more time now, however, I wanted to go back to it and mention it here, because, despite being out of Ohio, it applies Massachusetts law on the duty to defend under insurance policies and on the rules for interpreting insurance policies. The court provides a terrific, and easily quoted, summation of the rules in this state on those issues: 

Under Massachusetts law, as in most jurisdictions, "the question of the initial duty of a liability insurer to defend third-party actions against the insured is decided by matching the third-party complaint with the policy provisions . . ." Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. 316, 318, 458 N.E.2d 338 (1984). The duty to defend arises if, in comparing the policy terms with the third-party complaint, "the allegations of the complaint are ‘reasonably susceptible’ of an interpretation that they state or adumbrate a claim covered by the policy terms . . . Otherwise stated, the process is one of envisaging what kinds of losses may be proved as lying within the range of the allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy." Id. (quoting Vappi & Co., Inc. v. Aetna Cas. & Sur. Co., 348 Mass. 427, 431, 204 N.E.2d 273 (1965)) (citations omitted); see also Simplex Techs., Inc. v. Liberty Mut. Ins. Co., 429 Mass. 196, 197-98, 706 N.E.2d 1135 (1999) (quoting same). The insured bears the initial burden of proving that a claim falls within the grant of coverage. See Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 321, 568 N.E.2d 631 (1991).

"It is well settled in [Massachusetts] that a liability insurer owes a broad duty to defend its insured against any claims that create a potential for liability." Simplex, 429 Mass. at 199 (quoting Doe v. Liberty Mut. Ins. Co., 423 Mass. 366, 368, 667 N.E.2d 1149 (1996)) (emphasis supplied by Simplex court). The cause of action stated in the complaint need only give rise to a possibility of recovery, "there need not be a probability of recovery." Id. (citation omitted) (emphasis added). Indeed, a duty to defend may arise "even if the claim is baseless." Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997) (applying Massachusetts law); see also Sterilite, 17 Mass. App. Ct. at 324 ("the insurer stands in breach of its duty even if the third party fails in the end to support any such claim of liability by adequate proof."). In addition, "[t]hat some, or even many, of the underlying claims may fall outside the coverage does not excuse [the insurer] from its duty to defend the actions." Simplex, 429 Mass. at 199 (quoting Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass. App. Ct. 318, 322, 568 N.E.2d 631 (1991)).

Massachusetts courts have explained that, "when construing the language of an insurance policy, it is appropriate ‘to consider [whether] an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Nashua Corp. v. First State Ins. Co., 420 Mass. 196, 200, 648 N.E.2d 1272 (1995) (quoting Hazen Paper Co. v. U.S. Fidelity & Guar. Co., 407 Mass. 689, 700, 555 N.E.2d 576 (1990). Further, "an insured is entitled to the most favorable interpretation of the policy language when there is more than one rational interpretation of the policy language, or where the policy language is ambiguous." Id.; see also Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 12, 545 N.E.2d 1156 (1989) ("Where the language permits more than one rational interpretation, that most favorable to the insured is to be taken.").

The case is Royal Insurance Company v. Boston Beer Company, 2007 U.S. Dist. LEXIS 25513 (D. Ohio 2007). The decision comes out of a court that, unfortunately, does not make all of its opinions available for free on line, something that all courts frankly should do, and so I cannot provide a link to the opinion.

Third party administrators and claims adjustment companies play a significant role in my practice because they often administer ERISA governed plans and adjust claims under insurance policies on behalf of insurers.  As a result, I have long been interested in how they are run, staffed, marketed and the like.  For those of you who may share an interest in this subject, this interview with the general counsel of Crawford and Company provides some insight into the operations of these types of companies.

I just read that commercial arbitration isn’t a panacea. Hmm, where have I seen that before? Oh, I know, I wrote it here, and here, and here. Anyway, if you want to read it all again, how arbitration poses special risks and problems that may well outweigh its benefits, here’s the latest to that effect.

I don’t know how many people with an interest in ERISA litigation share my interest as well in patent and other intellectual property litigation, although I know from experience that I am not the only lawyer who practices in both areas. Either way, for anyone who has been following the issue of the Supreme Court’s recent decision in KSR on the standards for proving that an invention was too obvious to be patented, this article here is as good an overview of the topic as I have come across. Its everything you need to know in a readable nutshell, which is not an easy trick when you are starting out with a complex subject that is founded on decades of jurisprudence on a particular issue.

And to tie the discussion back in more closely to the ostensible subject matter of this blog, here is Suzanne Wynn’s recent post pointing out the possibility of patenting particular approaches to solving ERISA problems; for those of you, who like me, might find the possibility of this occurring troubling, the new rules on proving obviousness might go far to precluding the patenting of such solutions to common problems in the ERISA field.

The First Circuit issued an opinion in the case of Morales-Alejandro v. Medical Card System on Wednesday. The case, which involved a challenge to a denial of long term disability benefits, is noteworthy for two aspects. The first is that the case reaffirms this circuit’s reluctance to allow discovery beyond production of the administrative record in denial of benefits cases prosecuted under ERISA. The court pointed out that, in this circuit anyway, “ERISA cases are generally decided on the administrative record without discovery, and some very good reason is needed to overcome the presumption that the record on review is limited to the record before the administrator."

The second issue of note is that the court addressed the role of summary plan descriptions in ERISA plans and related litigation, and described the role they should play in a litigated dispute over benefits. In particular, the court declared:  

ERISA imposes an important requirement on plan administrators and insurers to communicate accurately with plan participants and beneficiaries. See Bard, 471 F.3d at 244-45. Part of the communication requirement is that the SPD provide certain information "written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." 29 U.S.C. § 1022(a). Section 1022(b) specifies the information to be included in the summary. When the terms, language, or provisions of the SPD conflict with the plan, the language that the claimant reasonably relied on in making and proving his claim will govern the claim process. Bard, 471 F.3d at 245. The burden is on the claimant to show reasonable reliance and resulting prejudice. Id.

 

I have written before about the question of whether we are creating a more litigious environment by switching employees from defined benefit plans to defined contribution plans, and we all generally know that companies are overwhelmingly shifting employees from the former to the latter. Those of you in the retirement industry certainly already are aware of studies actually documenting that change and establishing that, in fact and not just anecdotally, pensions are going by the wayside and 401(k) plans are replacing them across the board. For the rest of us, Suzanne Wynn has this study, from Watson Wyatt, documenting that this change has, in fact, occurred over the past twenty years.

I received a pitch for an interesting seminar on the interrelationship of the federal rules governing expert discovery, the retention of experts in litigation, and the work product doctrine. The issue addressed by the seminar has to do with the fact that expert discovery under the federal rules at this point is very broad, and can result in disclosure to the opposing side of what would otherwise be privileged communications and documents detailing the strategies and thoughts of the attorney retaining the expert. This problem flows from changes to the federal rules governing discovery that make discoverable the documents and information considered by the expert in reaching an opinion in the case.

A significant body of case law, most of it at the federal district court level, now stands for the proposition that all information provided to such an expert is fair game for discovery, even if, absent disclosure to the expert, it would have been protected from discovery as privileged. The majority of the courts that have considered the issue have concluded that the current version of the federal expert discovery rule requires that any material that is reviewed by an expert witness must be disclosed, whether or not it would otherwise be protected from disclosure to an adversary by the work product doctrine or the attorney -client privilege. See Zheng v. Liberty Apparel Co., 2004 U.S. Dist. LEXIS 15026 (S.D.N.Y. Aug. 3, 2004). It has been held that the applicable federal rule requires the “disclosure of all information, whether privileged or not, that a testifying expert generates, reviews, reflects upon, reads, and/or uses in connection with the formulation of his opinions, even if the testifying expert ultimately rejects the information.” Synthes Spine Co., L.P. v. Walden, 232 F.R.D. 460, 464 (E.D. Pa. Dec. 21, 2005). This includes disclosing notes created by an expert witness in the capacity of an expert witness, even if the notes contain information that would have otherwise fallen under the protection of the attorney-client privilege or the work product doctrine. Id. at 464-65 (reasoning that notes authored by expert could contain information that bears on the credibility of the expert, his report, and his trial testimony).

The law in the First Circuit, where this blog has its metaphorical home, is consistent with this rule. In fact, courts in this circuit were out ahead of the curve on this issue. Years before the bulk of authority on this issue was decided, the federal district court for Massachusetts issued its ruling in Suskind v. Home Depot Corp., 2001 U.S. Dist. LEXIS 1349 (D. Mass. January 2, 2001), which holds to this effect and has been repeatedly cited by other courts as an example of the majority rule that requires disclosure of materials considered or created by an expert.

The scope of the obligation to disclose is broad. Information supplied to or reviewed by an expert, in connection with his opinion, is discoverable regardless of whether the expert actually relied upon the information in preparing his expert report. In re Pioneer Hi-Bred Int’l, Inc., 238 F. 3d 1370 (Fed. Cir. 2001). Even more importantly for purposes of the subject of this post, documents considered by a party’s expert are discoverable even if they were supplied to the expert by a party’s attorney. Suskind, 2001 U.S. Dist. LEXIS 1349 (D. Mass. January 2, 2001) (holding that attorney-work product materials considered by an expert are discoverable).

The end result of all of this, and the problem addressed by the seminar, is that it can become difficult to work with an expert, and to inform the expert, without exposing confidential material and information, including quite possibly the entire theory of the case, to discovery. While a relevant problem in all areas of federal litigation, and one that a good lawyer needs to work around in handling experts, this issue is particularly significant in insurance bad faith litigation, one of the topics of this blog.  This is because in that area, much more so than others, the theories of the case and the issues to be addressed with an expert are much more amorphous (imaginative rather than fact based, some defense lawyers would say) than they are in other types of cases, making it much harder to discuss an expert’s likely opinion without first disclosing the theory of the case to the expert.

There are ways around this problem, and the simple fact of the matter is that it is the job of a good litigator to know how to do it. Perhaps even more so, it is the job of a good litigator to know how to exploit errors in this regard that an adversary may make, which may open up an otherwise foreclosed area of discovery.

This is an interesting paper, that comes to us via Workplace Prof, and which provokes further thought on the issue of the litigation boom involving 401(k) plans. The paper finds that pension plans outperform mutual funds, and attributes that differential to costs buried within mutual funds, as well as to the size of pension funds, which allows them to negotiate better deals on cost and related issues than would otherwise be the case. If you think about it, exactly that type of action is likewise what is expected of the fiduciaries of 401(k) plans, that they will assert themselves so as to avoid performance being affected by unreasonable fees or by other asset management decisions (such as overloading with company stock). One can think of lawsuits by participants against company 401(k) plans as being, at heart, driven by the failure of plans and their fiduciaries to live up to that high standard. Lawsuits involving excessive fees paid by 401(k) plans are in essence claims for failing to do what this article shows pension plans routinely doing: protecting participants against excessive costs impacting the plans’ returns.