Interesting collection of articles across the mainstream business press today for those interested in the subjects covered by this blog. Two interesting pieces – one factual, one commentary – on the rickety condition of state and municipal pensions, and their impact on the fiscal health of states and local governments. Still more interesting, at least to me, is this article from the New York Times on how Vermont is the new Bermuda, only sans golf courses, and the new Cayman Islands, only sans beaches, at least when it comes to domiciling captive insurers.

If I have said it once on this blog, in seminars and in meetings, I have said it a thousand times: always look to your insurance coverage when sued, even if you don’t think the lawsuit fits within the coverages you or your company purchased, and when necessary, such as if the dollar amounts at issue are significant, hire coverage counsel to look into that question and to press for coverage. There are various ways in which policies can be triggered, often providing at least coverage of defense costs for claims that do not seem to fall within the express language of a policy. In seminars, when I start talking about examples of coverage being found for patent infringement actions, despite the absence of any policy expressly granting coverage of such claims, that is when the pens start scribbling furiously in the audience. And that is just one example of the type of claims that experienced coverage counsel may be able to force into the scope of a policy, even a policy that may never have been written to cover that type of claim. Now I am not saying that all of those types of claims should be covered, but, given the vagaries of policy language and the manner in which courts interpret them, they sometimes are, regardless of whether or not they should be, and it is the job of a policyholder’s coverage counsel to try to find coverage where none was intended (and the job of the insurer’s coverage counsel to prevent that). This article makes the same point, discussing how marshaling corporate insurance policies when threatened with significant litigation should be a first step in defending the company.

Day 3 of my discussion of the First Circuit’s recent ruling concerning structural conflicts of interest and their impact on claims for benefits under ERISA: Workplace Prof blog has his take, and quotes from others, here, and one of my favorite, quirkier, law blogs, Appellate Law & Practice, has its take here.

One of the things lawyers learn early in their careers is that the time it takes to research a particular issue can be reduced dramatically by finding a good published decision out of one of the better federal courts on the issue; such an opinion will often include an excellent synopsis, at a minimum, of the key case law on the issue. In essence, the opinion offers up the outstanding work product, already concluded on the issue in question, of high quality law clerks. Wednesday’s decision in the Denmark case in the First Circuit, which I discussed in yesterday’s post, is a perfect example of this phenomenon, as it provides, in a four paragraph section of the lead opinion, a summary of the law in each circuit on the effect on benefit cases of so-called structural conflicts of interest. As the opinion states: 

The circuits have adopted varying approaches to the issue of whether the structural conflict that arises when an insurer both reviews and pays claims justifies less deferential review. In addition to this court, the Seventh and Second Circuits have held that a structural conflict alone is insufficient to alter the standard of review. Instead, these circuits require an actual showing that the conflict of interest affected the benefits decision before there will be any alteration in the standard of review. See Rud v. Liberty Life Assurance Co., 438 F.3d 772, 776-77 (7th Cir. 2006) (holding that a structural conflict of interest, without more, does not affect the standard of review); Sullivan v. LTV Aerospace & Def. Co., 82 F.3d 1251, 1255-56 (2d Cir. 1996) (holding that a claimant must show that a conflict of interest affected the benefits decision, but if such showing is made, de novo review applies).

However, seven other circuits have held that a structural conflict warrants alteration to the standard of review, although six of these circuits apply less deferential review within the arbitrary and capricious framework. Of these six circuits, all except one have adopted a "sliding scale" approach to the standard of review, in which the court applies less deferential review to the extent that a conflict of interest exists. See, e.g., Fought v. Unum Life Ins. Co. of Am., 379 F.3d 997, 1004 (10th Cir. 2004) (per curiam) (explaining that "the court must decrease the level of deference given to the conflicted administrator’s decision in proportion to the seriousness of the conflict" (internal citation and quotation omitted)); Pinto, 214 F.3d at 379 (expressly adopting a "sliding scale method, intensifying the degree of scrutiny to match the degree of the conflict"); Vega v. Nat’l Life Ins. Servs., Inc., 188 F.3d 287, 297 (5th Cir. 1999) (en banc) (explaining that "[t]he greater the evidence of conflict on the part of the administrator, the less deferential our abuse of discretion standard will be"); Woo v. Deluxe Corp., 144 F.3d 1157, 1161-62 & n.2 (8th Cir. 1998) (explicitly adopting the sliding scale approach while noting that "not every funding conflict of interest per se warrants heightened review"); Doe v. Group Hosp. & Med. Servs., 3 F.3d 80, 87 (4th Cir. 1993) (applying less deference "to the degree necessary to neutralize any untoward influence resulting from the conflict"). The Ninth Circuit employs a "substantially similar" approach, but with a "conscious rejection of the ‘sliding scale’ metaphor" on the ground that "[a] straightforward abuse of discretion analysis allows a court to tailor its review to all the circumstances before it." Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 967-68 (9th Cir. 2006)(en banc).

The Eleventh Circuit uses a different framework. It first determines, under de novo review, whether the decision was wrong; if it was, and if an inherent conflict of interest exists, "the burden shifts to the claims administrator to prove that its interpretation of the plan is not tainted by self-interest." HCA Health Servs., Inc. v. Employers Health Ins. Co., 240 F.3d 982, 993-94 (11th Cir. 2001). The claims administrator may then meet this burden "by showing that its wrong but reasonable interpretation of the plan benefits the class of participants and beneficiaries." Id. at 994-95.

Finally, the D.C. Circuit has not yet established a standard of review in cases involving a structural conflict of interest. See Wagener v. SBC Pension Benefit Plan-Non Bargained Program, 366 U.S. App. D.C. 1, 407 F.3d 395, 402 (D.C. Cir. 2005) (finding that the result would be the same under either arbitrary and capricious or de novo review).

Interesting decision out of the First Circuit yesterday, in the case of Denmark v. Liberty Life Assurance Company, that focused on the proper standard of review to apply in cases in which the administrator both decides the claim for benefits and is also the party that will have to pay the benefits if the claim is upheld. I have addressed in other posts this Circuit’s approach to that issue, and my belief that, although some other circuits take a different approach, the approach taken by this Circuit is the correct one. I discussed that here, here and here. The Denmark appeal generated a separate opinion from each of the judges on the panel, with two judges believing that it is time for the Circuit to reconsider, en banc, its approach to this issue. The third judge emphasized his belief, much like mine, that the Circuit’s current approach is time proven and battle tested, and should not be overturned lightly; he also points out that, given the split among the circuits over this issue, it would make sense not to change course on this issue unless and until the Supreme Court resolves the split.

I criticized the New York Times a couple weeks back about an article on the NFL’s pension and disability plans, basically because the article was animated by an underlying ignorance of recent legal events concerning those plans. It may, perhaps, have been too much to expect that the reporter would have a full understanding of the subtle interplay of the legal and factual history involving that plan, as it played out in the case of former Steeler Mike Webster and his family’s attempt to obtain the benefits to which he had been entitled. Indeed, I recently received a nice note from the wife of a retired player noting that she was just happy to see the Times mention anything about the problem of retired players and long term damage inflicted on them by the sport.

But fairness – along with a couple of points about the article that are germane to the subject matter of this blog – compels me to point out that a prominently placed article in yesterday’s Times, about the claims processing and claim denials of certain companies providing long term care insurance to the elderly, embodies what that paper can do better than almost anyone else, which is put in the person power and intellect to evaluate, and then report on, issues involving massive amounts of information. For those with any interest in long term care insurance, or who may be forced to select a company to buy such coverage from, the article is excellent reading.

Moreover, there are two particular “take aways,” as they say, that jump out at me from the article, and which apply not just to long term care insurance but to all insurance purchasing decisions, from personal policies up to corporate liability policies. First, the article distinguishes the high rate of complaints against certain insurers from the much lower rate of complaints lodged against other insurers. In this area of insurance as well as every other, all companies are not alike. In seminars and in meetings with business lawyers and their clients, I tell people all the time that you need to decide among competing quotes on more than just price, and instead have to make an informed decision about the nature and quality of each of the insurers competing for your business. There is almost always room to quibble over the exact scope of coverage or an exclusion when a claim is made, and some insurers, almost by their DNA, will give the insured the benefit of the doubt on those issues in deciding whether to cover the claim; other companies may well not. This is something that always needs to be factored in when selecting a carrier, rather than just accepting the cheapest quote for the same limits of coverage. The insured needs to have advisors, whether insurance brokers or experienced insurance coverage lawyers, who can inform the insured about those kinds of differences among the insurers offering to underwrite the risk before a decision is made as to which carrier to sign up with. An ounce of prevention being better than years of insurance coverage litigation later, so to speak.

And the second point is on the same theme. The article references as well that the carriers with, according to the article, shall we say debatable claims practices, had undercut the market in their pricing to build up market share, only to later discover that their premium dollars could never cover their claims exposure. In any field of insurance, you can almost always find some carrier or another underpricing the competition in an effort to build market share. While that lower price may be a short term benefit for the insured, there can be longer term costs to taking advantage of that price reduction and joining that particular carrier. The most obvious ones are that the carrier may well change – in fact will probably have to change – its pricing down the road, forcing insureds to either go looking in the market again for a new carrier or accept a large premium hike, one that may well eliminate whatever pricing benefit the insured received the first time around. The carrier may also, having underpriced, have little appetite for covering claims where coverage is in dispute, possibly leading to claim denials that might not happen with a market rate carrier. And finally, in an example I’ve seen frequently enough to be wary of, the underpricing can lead to such limited ability to withstand a large hit that a few significant claims drives the carrier to simply abandon that product line, throwing the insured into the marketplace, looking for coverage from carriers it had previously rejected in favor of the underpricing competitor.

I have written before, including here and here, about the elements that must exist for a particular employment benefit to fall under ERISA and be deemed part of an ERISA governed employee welfare benefit plan. The requirements that must be met can become problematic with small employers, where compensation and benefit packages are often assembled on an ad hoc basis, often vary greatly from one employee to the other, and frequently are not well documented, as I discussed here.

Workplace Prof had another perfect example of this the other day, which the Prof discussed in this post, involving a pension benefit allegedly promised by a small employer that was, in fact, never established by the employer. The Prof points out something that all employees of smaller employers should do, which is make sure to take a gander at the employee benefit documents to make sure they really exist in the expected form; you don’t want to be trying after a particular employee benefit is denied to prove that the elements of an ERISA governed plan existed, and then find out the employer never actually funded the benefit or created any supporting paperwork at all.

I guess this is me and the media week here at the blog. There is an excellent story in the National Law Journal this week on the Novak decision out of the Ninth Circuit, which I talked about here, in which the court allowed attachment of ERISA governed retirement benefits as part of criminal restitution. I am interviewed in the article, which, unfortunately, is only available online to subscribers, so I cannot provide a link here to the actual article, and my fear of the copyright laws dissuades me from uploading the whole article here for you to read.

I think, though, that the fair use exception to the copyright act allows me to quote myself from the article, in which I mention that the ruling in Novak is kind of draconian, and in particular that “it almost goes to the level of 19th century debtor’s prison issues: do we bankrupt the spouse of a white collar criminal?” Beyond that, I am quoted in the article on the decision’s ramifications for future cases, and I note that there are issues raised in the court’s decision that will need to be resolved in future cases. I also point out, as do others quoted in the article, that it is important, going forward, to try to separate out pension benefits from the restitution amounts when negotiating resolution of criminal charges.

I have discussed before electronic discovery and the corresponding amendments to the Federal Rules of Civil Procedure, and in particular the need to consider costs of the required discovery relative to the benefits to the requesting party. Personally, I am of the opinion that the scope of the rule changes combined with the massive changes in document creation and retention that computer technology has wrought requires a change in the collective mindsets of litigants and the courts when it comes to discovery. I think few will disagree that the modern history of discovery has been driven by a presumption that all documents that might be relevant ought to be produced, with no real corresponding emphasis on whether or not any particular set of documents really are sufficiently probative to justify production. I am of the opinion that electronic data and the costs of producing them have changed that, and that courts now need to move away from their presumption that a party should be required to broadly produce documents so long as the requesting party can make a rational explanation as to why they may be relevant, and to a fact based analysis of whether the requesting party’s justifications for the production warrant imposing the costs of large scale electronic production on the other party. In essence, it seems to me that courts should expect testimonial evidence, such as affidavits, establishing the relevance and importance of the electronic data being sought, before ordering production of electronic data, in cases in which a party resisting discovery has raised documented problems of cost in producing the electronic data.

Given the short judicial history of this issue at this point in time, I am always glad to find evidence that I am not alone in thinking this. This article lays out exactly the cost problem created by the electronic discovery rules, and suggests that an analysis of costs needs to play a central role in the development of how these rules are applied.

Well, I don’t know. Did I hit on something that was already percolating in the zeitgeist a few weeks ago when I addressed the increasing irrelevancy of law reviews in a post, or does someone at the New York Times read my blog? You will recall that, after having, as David Rossmiller pointed out, eaten my Wheaties before sitting down after breakfast to fire salvos at the law review/law school industrial complex, I had pointed out that law reviews have simply made themselves irrelevant to the practicing bar and the judiciary.

Echoing the themes of my earlier post, The Times today declares in a piece entitled “When Rendering Decisions, Judges Are Finding Law Reviews Irrelevant” (which you have to become an online subscriber to get access to) that “articles in law reviews have become more obscure in recent decades and the legal academy has become much less influential.”

I am pretty sure that’s what I just said, in my not too long ago post on the subject.

The Wall Street Journal Law Blog chimes in on the topic today as well, declaring that “Judges Are Ignoring Law Review Articles” and commenting on the Times article.

I don’t know, but maybe everybody who managed to get through law school pretty much knows this little secret about the overwhelming majority of law review articles, that they really add no value to the legal community and are written simply because they are the coin of the realm for advancing law careers. Frankly, the last time I can remember coming across a law review article that was relevant to the judiciary’s and the bar’s development of a particular cutting edge point of law was twenty something years ago, when a Columbia law student published an influential note on the subject of the essential facilities doctrine in antitrust law. To my recollection – this was something I last worked on in the 1980s – the article was regularly cited by courts presented with that then novel theory as authority summing up what the elements of a cause of action under that theory are if in fact the theory is even operative. In all the years since, I can’t recall a law review article that played a central part in the development of any particular line of jurisprudence. And if law review articles are not playing a central role in that development, then should we really be cutting down trees to publish them?