No doubt at least some of you have noticed my fixation on the attorney-client privilege, and where its borders should be drawn when a party’s counsel plays a central role in the events that may or may not trigger insurance coverage or show bad faith. I have the same sort of cartographer’s obsession with mapping where those borders should be when the administrator of an ERISA governed plan makes a benefit determination based on the investigation and legal conclusions of counsel. What happens to the privilege, for instance, if a company’s in-house counsel interprets the plan’s terms and applies them to the facts, thereafter recommending to the plan administrator what decision to render on a claim? And what happens if the plan administrator then adopts that recommendation as its determination? One can picture the same scenario involving reliance on outside counsel to do the same work.

Well, as this well-developed post from the Health Plan Law blog discusses, the plan administrator can delegate in this manner to counsel, and adopt counsel’s findings, at least as a general statement. But what effect would doing so have on the attorney-client privilege that would otherwise normally attach to communications between counsel and a client? Health Plan Law has this to say on that topic:

The question is this: while a plan may consistent with exercise of fiduciary discretion delegate duties as to claim investigation to legal counsel, is there a concomitant sacrifice in scope of privileged communications?
A fundamental legal principle states that the attorney-client privilege may be waived expressly or by implication. Implied waivers are consistently construed narrowly.See, In re Lott, 424 F.3d 446, 452 (6th Cir.2005). On the other hand, “an attorney-client communication is placed at issue when the party makes an assertion that in fairness requires examination of protected communications.” Clevenger v. Dillard’s Department Stores, Inc. Slip Copy, 2007 WL 27978 (S.D.Ohio 2007) (Dillard’s defendants impliedly waived the privilege for communications with legal counsel related to plan termination). The concern raised here is succinctly stated as follows: ‘the attorney-client privilege cannot at once be used as a shield and a sword.’ United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir.1991)
And then again, to what extent does privilege apply in fiduciary matters in any event? In this connection consider the following regarding the “fiduciary exception”:
Most courts, including the Seventh Circuit, have recognized the existence of a fiduciary exception to the attorney-client privilege. In J.H. Chapman Group, Ltd. v. Chapman, No. 95 C 7716, 1996 WL 238863 (N.D.Ill. May 2, 1998), for example, the court explained that “[t]he fiduciary duty exception ‘is based on the notion that a communication between an attorney and a client is not privileged from those to whom the client owes a fiduciary duty.”See also Bland v. Fiatallis North America, Inc., 401 F.3d 779, 787 (7th Cir.2005) (recognizing fiduciary exception in the ERISA context).

On more of a concrete and less abstract level, you can think about this in terms of the administrative record; there are exceptions, but in most circumstances and in most courts, the administrative record would make up the universe of evidence that the court can consider in ruling on a challenge to an administrator’s determination of a particular claim.  Generally speaking, the administrative record is to contain the information relied upon or considered by the administrator in making that determination.  But what about attorney advice received by the administrator and relied upon by it?  The scope of the attorney-client privilege can impact whether or not that advice should be part of the administrative record.

Just a brief note today on something interesting that caught my eye concerning a topic, top hat plans, that we have discussed a fair amount recently. Here is a nice detailed technical discussion of top hat plans from the BNA Pension and Benefits Blog. The discussion is centered around the Alexander case out of the federal district court that I talked about here, and on which the post’s author apparently served as a non-testifying expert.

Now here’s a curious little article from the New York Times on the question of whether mutual fund companies, including in their retirement calculators, deliberately overestimate the amount that people must save and invest to be able to afford to retire. The article notes that a number of respected economists find this to be the case, and the article notes that the mutual fund companies themselves obviously have much to gain if employees believe they must increase their retirement savings. As the article bluntly puts it, “financial firms have a pointed interest in persuading people to save much more than they need because the companies earn fees on managing that money.” Specifically – although without analyzing the data behind these conclusions, one can’t be sure whether these numbers fall into the old saw that the three types of lies are lies, damn lies and statistics – one of the economists claims that “Fidelity’s online calculators typically set the target of assets needed to cover spending in retirement 36.4 percent too high. Vanguard’s was 53.1 percent too high. A calculator offered by TIAA-CREF, one of the largest managers of retirement savings, was 78 [percent] higher.”

The article engenders a couple of thoughts. For one, would 401(k) fee and other breach of fiduciary litigation related to retirement savings be quite as wide spread if the working/retirement saving public believed they were saving enough already for retirement, rather than having been taught that they are behind the eight ball in accumulating enough money for retirement? This raises something of a behavioral question, or maybe a chicken and the egg question. Would people care enough to sue over these types of issues if they thought they were safely prepared for retirement, and to what extent does the fear that they are not drive decisions regarding litigation? Or are these suits really driven by the imagination of plaintiffs’ lawyers, and thus it really wouldn’t make any difference at all what the actual world view is of employees as a whole with regard to whether they are on track for a secure retirement or should instead be very, very afraid of what the future will bring?

And finally, would it be a breach of fiduciary duty if plan administrators overstated the amount that employees should save for retirement when they educate employees? And if it was, what would the damages be, particularly if the oversavings produced significant investment gains for the plan participant?

This post from Legal Sanity, in which the writer talks about the importance of mutually beneficial business relationships, defined as those in which each side essentially is watching out for the other even more than for itself, caught my attention, although not, I am sure, for the reason the writer intended, who wrote it with an eye toward the subject of business development for lawyers.

It instead registered with me because I have been looking these days for a neutral umpire for an insurance coverage arbitration before the American Arbitration Association, an issue complicated by the fact that, almost like combatants in a civil war, coverage lawyers are almost always predominately in one camp or the other, either generally representing insurers or instead generally representing insureds. This dynamic can make it very difficult to find an experienced insurance coverage lawyer to serve as an arbitrator who is not seen by one side or the other as excessively aligned with the interests of one or the other of these frequently warring camps.

But if, as the Legal Sanity post suggests, the best business relationships are mutually beneficial rather than adversarial, is the insurance regime really best served by a sort of wary, arms length cold war relationship between insureds and insurers? Don’t both, at the end of the day, really have the same fundamental primary goal, namely the lowest amounts of loss possible under insurance programs? And couldn’t an approach aimed at the two sides working together more, rather than more often than not just crossing swords in litigation after the fact, go far toward reducing both insurers’ losses and insureds’ corresponding premiums?

I will give a concrete example. Many commercial insurance programs mandate arbitration of disputes as one of the terms of the policy. But what if they mandated mediation as a first step in any dispute over a denial of coverage, with both sides expected to bring to the mediation the same level of legal representation, preparation and analysis as they would bring to a court proceeding? Isn’t it possible it could end up with better outcomes for both sides, at less expense and with the possible result of a more trusting long term relationship between businesses and insurers, parties who, after all, have been in a closely entangled business relationship for decades and will continue to be so for as far forward as the eye can see?

I have been meaning to return to this point for the last several days, but the crush of business has kept me from it. I discussed in a recent post a case that I think has the potential to be very influential on the subject of proving or disproving top hat status, involving surgeons and top hat plans that were created to deal with caps on compensation at the hospital. The focus of this blog is on the law on ERISA and insurance issues, naturally enough as I am a lawyer and the blog is, after all, called the ERISA and Insurance Litigation blog. But sometimes the technical aspects of a particular type of benefit plan could use more discussion than one can often find in the case law, and it can be helpful to place them in the context of the benefits field as a whole. Maybe no one does that better than Jerry Kalish, who at the end of last week had this terrific post providing further details on the nature of top hat plans.

One of the more unwieldy of legal fictions is the so-called tripartite relationship among the insured, the insurer, and the defense counsel defending the insured against the claim. Duties run every which way in the relationship, and this beast is at its most cantankerous when one gets into the question of how the attorney client privilege fits in. In particular, if the insured and the insurer end up in a coverage dispute, the question of who has access to the communications between the insured and the defense counsel – just the insured, or also the insurer – quickly becomes a bone of contention.

I have talked before about the difficulty presented by this issue, and how it impacts insurance coverage and bad faith litigation. How exactly is an insurer to get at all the evidence of what happened in the underlying case, or at all of the facts that might shed light on whether or not the loss, in truth, is within the scope of coverage, if much of the evidence on that is laid out in the communications of the party who was actually on the scene – the lawyer litigating the case? A quick example highlights the problem. Suppose, for example, the issue presented is whether a settlement entered into by the insured was actually for losses within the scope of the coverage rather than just having been styled in that manner to try to place the loss within the coverage, and was actually paid for uncovered parts of the lawsuit. What more telling evidence could there be than the information communicated, orally and in writing, to the insured from the defense lawyer negotiating the settlement? After all, she is giving the advice on the settlement and structuring its terms – so if there is a question of whether the settlement is actually covered, shouldn’t that evidence both be admissible and discoverable?

Would seem so, but that isn’t necessarily the law. Which leads me to the real point of today’s post, which is to recommend Marc Mayerson’s review of the case law on this question.

One of the things that makes practicing in and blogging about ERISA interesting is the fact that the subject area is never static. Other areas of the law can literally evolve at a near glacial pace (see, for example, this post here, involving the law of malicious prosecution and a change, for the first time in the modern era, to one of the elements of the tort), but not ERISA. And so there is always something new to talk about in a blog, and some new interesting development to keep track of for purposes of cases I am litigating.

Which brings me to today’s ERISA news you can use, courtesy of the estimable Russ Runkel and his LawMemo, Inc., who reports that the Supreme Court will be addressing the question of the scope of fiduciary duties, if any, that attach to the decision to terminate benefit plans. The Supreme Court is taking up a Ninth Circuit decision, in which, borrowing liberally from Russ, a company went into bankruptcy, after which the administrator of its 18 defined benefit pension plans decided to terminate the plans by purchasing annuities, rather than merge the plans with a different existing plan.

To quote Russ, the Ninth Circuit held that: “The decision to terminate the plan was a business decision not subject to ERISA fiduciary obligations[;] the implementation of the decision was discretionary in nature and subject to ERISA fiduciary obligations[; and the administrator] breached its fiduciary duty by failing to adequately investigate” the alternative plan of merging the terminated plan with another plan.

You can find a little bit more information on the appeal to the Supreme Court, along with links to the petition and related filings with the Supreme Court on this case, here at SCOTUSBLOG.

One of the most interesting and potentially influential of the ERISA decisions rendered by the courts in the First Circuit during the holiday season that just closed is Eben Alexander v Brigham and Women’s Physician Organization, in which the court issued its findings, after a trial, on whether two particular deferred compensation plans for highly compensated surgeons qualified as top hat plans which are exempt from certain restrictions and controls imposed by ERISA. The plaintiff, a neurosurgeon, had his balance in the plans reduced to account for certain practice expenses, as allowed under the terms of the two plans, but which could only be appropriate if the plans were top hat plans; otherwise, the reductions would violate ERISA. After a trial, the court explained in detail why the evidence added up to a finding that the plans were top hat plans, thus defeating the plaintiff’s claims. What is particularly noteworthy, and which puts the case in position to influence other courts’ decisions concerning top hat plans in the future, is the court’s detailed analysis of the case law and statutory provisions governing the issue and of how that law should be applied to the type of detailed fact finding relied upon by the court.

And as an added bonus, if you are of any sort of a voyeur, the case has the added benefit of opening up a window into just how much money is earned by so called “highly compensated” (for purposes of analyzing whether or not a plan is a top hat plan) surgeons at prominent Boston medical institutions.

It is likely that if you are interested in the subject of this blog you already know that the Fourth Circuit has now affirmed the District Court decision striking down Maryland’s Fair Share Act.  Workplace prof has a nice post summing up the issue here, and major media accounts can be found here and here.  Workplace prof poses the question of whether this is a decision on its way to the Supreme Court, and expresses some skepticism on that point.  I am skeptical as well, but for a different reason, namely that the decision is essentially a preemption case, and there is nothing really novel going on in that area, either in general or in this particular decision, that would make me think it is obvious grist for the Supreme Court mill.  Rather, the case is in essence a routine application of the law of preemption, only to a politically and socially – rather than legally – charged set of facts.

Here is an excellent article, by way of workplace prof, on the fees charged in 401(k) plans, their impact on performance, and the difficulty of even learning about them. We have talked before about how challenges to excessive fees charged to 401(k) plans is the new growth stock in ERISA litigation, and many people are always skeptical, often with good reason, when the plaintiffs’ bar moves into a new area and starts pressing a particular theory of liability against numerous companies and in many different jurisdictions. Yet articles like this one make clear that the underlying issue, of whether fees are appropriate and how they are arrived at, is a legitimate one with serious implications for the financial well being of the average investor, and for the retirement they can expect to afford. And at the same time, to the extent that excessive fees are a problem or the growth in this type of litigation is worrisome, it is clear that proper management by fiduciaries can eliminate both the problem of excessive fees and the potential liability of fiduciaries for allowing excessive fees.