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?

I don’t want to turn this blog into a soapbox, and as someone who really likes newspapers, I also don’t want to join the Greek chorus of self-appointed media watchdogs that seems to make up much of the blogosphere. Some things, however, such as this article in the New York Times, call out for a skeptical and critical reaction. The article explains how the NFL has now created a program to provide some funding for long term, home or facility, care for former pro players who “have various forms of dementia,” even though the NFL insists that football injuries to the brain – multiple concussion syndrome, anyone, for those of you who follow the sport? – are not the cause. The article seems to credit the NFL for providing this help to former players – help that, despite the vast wealth of the league, is capped at $88,000 a year – and praises the idea that this problem is being resolved through this program rather than by litigation, i.e. by former players suing the NFL. Astoundingly, the article describes the program as addressing an unmet need because, and I quote the Times here on this, “former players who have dementia do not qualify for the N.F.L.’s disability insurance program, because neither the league nor the union consider their conditions football-related, a stance that has been cast in doubt by several scientific studies.”

And yet, as I discussed in this post several months ago, the family of the late Pittsburgh Steelers center Mike Webster litigated that exact issue for years, finally defeating the NFL, the players association and the plan before the Fourth Circuit court of appeals, to recover benefits under the league’s ERISA governed pension and disability system for exactly this type of injury. The Fourth Circuit’s opinion, in fact, was a pretty powerful condemnation of the roadblocks that had been tossed in Webster and the estate’s path in their attempt to obtain the benefits.

Which brings me to a couple of points that should be kept in mind in reading the Times article and considering the value of the NFL’s new program that the article praises. First, I suspect that the pension plan/disability plan system that the Webster family targeted provides far greater benefits than does this separate plan discussed in the article. If so, the idea that former players should pursue help under that program, rather than through the pension plan, is a disservice to retired players. Second, again if I am right about the greater benefits available under the pension/disability plan, then one has to wonder whether the separate NFL plan discussed in this article, although commendable for providing some help to aging players, actually serves as something of a Trojan horse (not a perfect analogy, I know) that, intentionally or otherwise, draws retired players away from seeking the larger payouts of the pension/disability system and instead to this plan. And third, given that a leading federal court of appeals with a significant track record in ERISA cases has already found that the NFL’s pension and disability plan actually does cover brain injuries of this type, the article is simply off-base in stating that dementia falls outside of the plan.

The article notes the relevance of this issue to some high profile recent players, such as Ted Johnson of the Patriots, 34, whose doctors”said he was exhibiting the depression and memory lapses associated with oncoming Alzheimer’s.” Those players should, notwithstanding this article, first be looking to the NFL’s pension and disability plans, particularly in light of the Fourth Circuit’s ruling in the Webster case, for compensation and care, before settling for the limited assistance provided by this alternative plan.

And finally, this whole matter brings me back to an issue I have talked about in the past, about questionable decision making by courts concerning what decisions to publish and what ones not to publish in the ERISA context. The Fourth Circuit’s decision in the Webster case, to my recollection, was not marked for publication (you can locate it, however, at my earlier post on that case). Yet, really, the scope of NFL plan benefits for this type of mental injury had never been resolved before, and it remains, as this article in the Times reflects, not well understood, making this an opinion that probably should have been published, and should not have been part of what I have called in the past “the hidden law of ERISA.”

Ten, twenty years ago, insurance coverage litigation was predominately about broad issues and big ticket items, about the extent of insurance coverage across decades of policies for long term environmental pollution or for tens of thousands of asbestos related bodily injury claims. The actual coverage issues themselves tended to be of a big picture nature – such as whether years of dumping of pollutants was an accident for purposes of insurance policies, for instance – and were frequently not heavily focused on very narrow and highly technical aspects of policy language. Insurance coverage litigation today is, in contrast, much narrower in its focus, much more technical (see my post here, for example, about the years I once spent litigating the effect on coverage of the absence of the letter “s” from a particular provision in an insurance policy); it’s not necessarily better or worse than the whole forest picture cases of the past, just different.

A perfect example is in this (very good) article on the subject of whether disgorgement or restitution constitutes loss covered by directors and officers insurance. As the article explains, the issue revolves around the question of whether any particular recovery from directors and officers should fall within a policy’s specific definition of loss – these types of policies typically cover “loss” as defined in the policy, rather than damages, as is typically covered under liability policies – and on whether the exact recovery from the directors and officers in the particular claim at issue fits that definition.

For insurance coverage lawyers, it’s the kind of thing that is fun to fight over, but it is definitely the type of dispute where you are really focusing on a particular tree in the forest, and not (to happily and intentionally mix my metaphors) on a bigger picture. It is also the type of issue that shows why directors and officers insurance is often its own little planet when it comes to evaluating insurance coverage, because this particular issue is driven by the fact that the structure of and coverage under directors and officers policies focuses on the defined term loss. Business liability coverages, in contrast, do not center coverage on this concept, and instead are built around coverage for damages, and the question of whether disgorgement or restitution can constitute damages for purposes of such policies is quite different than the question of whether or not they constitute loss for purposes of directors and officers policies.

There is an interesting interrelationship between the two primary subjects of this blog, ERISA litigation and insurance coverage, and one that I had not really thought much about until Rick Shoff, who works with Mike Pratico over at CapTrust Financial Advisors, raised it in a conversation recently. As I have mentioned in the past, Mike and his colleagues at CapTrust serve as fiduciary advisors to retirement plans and their sponsors, and he and Rick commented to me about the issue of errors and omissions insurance and the necessary amount of coverage for fiduciary advisors.

Two points came out of our conversation that I thought I would pass along. First, what is the appropriate amount of coverage for a fiduciary advisor under its E&O insurance? What should the relationship be between the limits selected and the amount of assets in the plans that the advisor works with? Obviously, the limits can’t match the asset amounts, as any good advisor is likely advising on plans with assets far higher than the amount the advisor could purchase in E&O insurance, at least not without paying every penny the advisor earns over to the insurance company as premiums (and even then, I doubt limits that high could be obtained). It also would not be necessary, since an advisor’s potential exposure to a lawsuit undoubtedly would never equal the total amount of the assets in a particular plan, but instead would equal only some portion of it that was supposedly affected by an error by the advisor. My own take is that the proper policy limit is somewhere around the amount that would make a plaintiff in a hypothetical claim consider settlement within the policy limits, without trying to obtain an excess verdict that the advisor itself would have to pay.

The second issue that popped up is the range of actors out there who are involved in providing advice to retirement plans, participants and the like. It may well be that not all such companies and consultants, even if they have professional liability or general liability insurance coverage, are actually covered for claims arising out of their role in providing such advice. Many policies, unless they are specifically underwritten to cover a professional engaged in ERISA related activities, contain exclusions for ERISA related claims that would preclude coverage of claims involving ERISA governed plans. As a result, a plan sponsor cannot assume that all advisors to a plan actually have coverage for claims arising out of their activities, and the sponsor must instead actually examine their advisors’ insurance coverage to know whether or not this is the case.

The district courts in the First Circuit have been so busy issuing ERISA related decisions recently that it has become difficult to find time to post on other things that I also want to talk about. That said, however, the District Court for the District of Maine just issued a remarkable opinion that I both wanted to comment on and to be sure to spotlight. The case is Curran v. Camden National Bank, and it involved the question of whether the defendant bank owed hundreds of thousands of dollars to a multi-employer health care trust upon its withdrawal from the group. There are a few things that are really note worthy about the ruling. First of all, the decision is a nicely crafted survey of the law in this circuit as it currently stands on a number of topics, in particular: the extent to which, after Sereboff, equitable relief is available under ERISA in this circuit; the proper analysis of preemption; and the determination of fiduciary status for purposes of a claim for breach of fiduciary duty.

One could pick the court’s analysis of any of these three issues to focus on, and have plenty to write about, but today I will comment in particular on the court’s discussion of the viability of claims for equitable relief in this circuit after Sereboff, particularly since the court points out that the First Circuit itself has not yet found reason to interpret and apply Sereboff, other than to cite the case for the proposition that “what forms of relief are considered equitable is a matter in dispute.” On this issue, the district court began by providing a handy blueprint for analyzing claims for equitable relief in this circuit, and whether they can proceed without running afoul of Supreme Court precedent. Addressing “29 U.S.C. § 1132(a)(3), which provides [that a] civil action may be brought by a participant, beneficiary, or fiduciary (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 court stated:

 

By its terms, however, section 1132(a)(3) authorizes only "those categories of relief that were typically available in equity." Sereboff v. Mid Atl. Med. Servs., U.S. , 126 S. Ct. 1869 (2006) (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993) (emphasis in original)). If the plaintiffs seek legal as opposed to equitable relief, "their suit is not authorized by § [1132(a)(3)]." Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 218 (2002).

The First Circuit has set forth a two-step inquiry to evaluate a cause of action under § 1132(a)(3): "1) is the proposed relief equitable, and 2) if so, is it appropriate?" LaRocca v. Borden, Inc., 276 F.3d 22, 27-28 (1st Cir. 2002). With respect to the first prong, under ERISA, "’equitable relief’ includes ‘those categories of relief that were typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages).’" Id. at 28 (quoting Mertens, 508 U.S. at 256). Turning to the second step, the purpose of § 1132(a)(3) is to serve as a "safety net, offering appropriate equitable relief for injuries caused by violations that § [1132] does not elsewhere adequately remedy." Id. (quoting Varity Corp. v. Howe, 516 U.S. 489, 512 (1996)).

This is a very handy formulation that one can borrow to begin the section of any brief submitted in this circuit arguing over whether or not a particular claim can proceed under this section of ERISA. The court then went on, however, to provide far more analysis and guidance on this issue, explaining how a proper analysis of Sereboff and subsequent history from other circuits established that the plaintiffs were seeking a legal remedy dressed in the clothing of equitable relief, and that the claim therefore could not proceed under this statutory section.

Second of all, the bank’s lawyers did a terrific job here, drawing the court across a diverse range of ERISA issues and convincing the court that none of the plaintiffs’ claims were viable in light of the statute and case law interpreting it. I tip my hat to the bank’s lawyers for a terrific win.