Preemption is a tough defense to get around, particularly in the First Circuit, where it is taken quite seriously and numerous decisions expressly declare particular state law causes of action to be preempted by ERISA. One clever response to this problem, at least when the facts will allow the argument, is to try to sidestep any fight over preemption itself by arguing that the benefit at issue was not even provided by an employee welfare benefit plan and that as a result, ERISA does not apply and state law claims over the denial of the benefits are actionable. There is more room to maneuver on such an argument than in a battle over preemption, because the test recognized in the First Circuit for determining whether a benefit was in fact provided by an employee welfare benefit plan is mutlipronged, fact based, and, on at least some elements of the test, rather amorphous. At the same time, however, it doesn’t take much for an employee benefit to qualify as an ERISA governed employee welfare benefit plan, at least in this circuit.
The test is laid out and then explored in great detail in a recent decision, James O’Leary v. Provident Life and Accident Insurance Co., by Judge Saylor of the United States District Court here in Massachusetts. The court explained that “an employee welfare benefit plan has five elements: (1) a plan, fund, or program (2) established or maintained (3) by an employer or by an employee organization, or by both, (4) for the purpose of providing. . . disability. . . benefits (5) to participants or their beneficiaries,” and that these are factual inquiries. In many instances involving larger employers, the application of these factors and the conclusion that should be reached are transparent from the outset; even without looking closely at the factors, there is little room to doubt that, for example, a large company’s disability benefits plan for its employees satisfies these elements and is an ERISA governed plan.
What made the application of these factors interesting in the case before the court was the particular dynamic generated by the fact that it was a small employer and many of the facts at issue with regard to the employment benefit in question were unique to that one employee who was denied the benefits in question and was filing suit. This fact pattern took the case out of the realm of if it “looks like a duck and walks like a duck, its an employee welfare benefit plan,” and placed it instead in the realm of coverages that might just be personal to the employee rather than part of an ERISA governed plan. It wasn’t, the court eventually concluded, but the analysis in reaching that point is informative.

Well, for those of you readers who work inside of the industry, instead of for it or agin’ it, I guess we can put this in the category of news you can use (I guess good news if you are in management, bad news if you aren’t). The Ninth Circuit has concluded, reversing the District Court, that numerous claims adjusters – employed or previously employed at the insurance company Farmers Group – are exempt employees who are not entitled under federal law to overtime compensation. The case is here.
Personally, I don’t know quite what to say about this. At a minimum, no matter what Dickie Scruggs wants people to think, many of the claims adjusters I deal with put in a lot of hours and work quite hard, probably beyond what others would do for the same amount of pay. On the other hand, I know enough about wage and labor laws to know that alone doesn’t get you overtime pay.

I added a new category today, Insurance Coverage Trials, as a place to collect useful tips, ideas and articles on trying insurance coverage cases that might be useful to readers of this blog who either try such cases or hire (and thereafter manage) lawyers who try such cases. What prompted this idea was a long and very comprehensive pretrial conference in a patent infringement action I am litigating, during which I got to thinking about trial graphics and other fancy doodads and geegaws to submit to the jury; this in turn reminded me of Marc Mayerson’s terrific, near scholarly recent piece about designing and admitting into evidence trial graphics in insurance coverage litigation. Marc talks in detail about best practices in designing these types of trial aids, and about the rules for getting them before the jury. What I like best though, I think, is that his post is really focused on design issues, and about what types of graphics best communicate information to a jury.
Readers of other posts of mine, like this one here, know I have a layperson’s interest in design (the very thing which got me interested in intellectual property litigation and rights in the first place), so it is fun for me to see a lawyer address from a somewhat different direction, namely that of graphic design, a subject – trial graphics and exhibits – that litigators normally don’t consider from that perspective.

I wanted to pass along today a fascinating law review article by one of the better ERISA scholars, Susan Stabile, on the retirement benefit system. In the article, “Is It Time to Admit the Failure of an Employer-Based Pension System,” to be published in the Lewis & Clark Law Review, Professor Stabile raises the question of whether, given recent developments concerning pensions and 401(k) plans, it is time to give up on the current system for funding employee retirement and instead create a new paradigm for it. She starts from the premise that incremental changes to the system are not sufficient to achieve retirement security, which is interesting to me because, at a minimum, it is fair to say that the stock drop and other ERISA and pension benefit litigation chronicled on this blog, and the judicial responses to them, really are exactly that – incremental changes to how 401(k) plans and pension benefits are governed and provided. She proposes that a much more radical response to the problem of providing Americans with retirement security is needed, such as the provision of a government pension for everyone or mandatory employer pensions with more stringent regulation than currently exists.
These are obviously radical departures from what currently exists, and from the ERISA governed system I discuss regularly in this blog, which is why the article is particularly interesting. But as a side benefit to those of you who are interested in the ERISA issues regularly chronicled here, Professor Stabile provides a nice presentation of the impact of ERISA’s fiduciary duty and other obligations on the problem addressed in her article.

Here is the story of the $50 million payday that the fired chief executive of MassMutual Financial Group has been awarded in an arbitration. There are a lot of lessons here, and maybe the first one is that in some instances it may just be better to be wrongly fired than rightly employed. Of course he was making over $11 million a year when he was fired, a fact apparently justified by the company’s growth cited in the article.
But beyond that, the better lesson may be that it is simply not wise to just insert arbitration agreements willy nilly into employment contracts and other agreements. As the article points out, the award only came to light because the arbitration award is being appealed to the courts. As the article also rightly – and correctly – points out, the grounds on which a court can overturn that award are pretty narrow, a point I have discussed before. In comparison, of course, if a trial court had imposed that award, at least one, and perhaps two, levels of appellate review would remain before courts possessing broad powers to overturn the award.
I have often said that companies that want to be able to assert their full panoply of legal rights should avoid arbitration like the plague, and I am betting that MassMutual, stuck with a huge arbitration verdict against it and a limited ability to overturn it, recognizes that now. This is particularly interesting because it reflects in a way on something I discussed the other day, that statistics indicate that the most sophisticated companies are avoiding inserting arbitration clauses in their contracts, and this MassMutual result suggests the wisdom of that.

I should probably take a page from my elders at this blogging business, and create a blogroll on the links section on my blog listing the blogs I read regularly and that are good resources on issues addressed by this blog. For now though, I continue with my Logrolling entries to record that information. And with that in mind, I wanted to note that Susan Mangiero, at her blog Pension Risk Matters, has a terrific synthesis of recent posts and other work, including mine, on the question of unreasonably high 401(k) fees and the possibility that they can support a breach of fiduciary duty claim under ERISA. Beyond that, I am a regular reader of Susan’s work, which covers issues involving pension management and governance, and can recommend it to others who may have an interest in the subject.

Although we treat insurance coverage cases as contract disputes, I am not altogether convinced that the law of contracts really is the animating principle behind insurance coverage decisions. Certainly, at the very least, one can’t take a gander at a standard contracts hornbook (that is lawyer talk for a book that provides a readers digest type summary of an entire legal subject) and really have any idea from it how to resolve an insurance coverage dispute. At a minimum, it is certainly the case that only by adding quasi-contractual principles – such as the reasonable expectations doctrine – to the traditional rules of contract law that the contract law regime can be seen as explaining the outcome of insurance coverage cases.
Whatever the case may be on that front, one of my favorite blogs, covering decisions out of the First Circuit, has the story of a recent decision from the First Circuit that applies the old law school contracts class chestnut of mutual mistake to an insurance coverage dispute. The post and the case are interesting reading, for those of us who like either contract law or insurance coverage, or worse yet, like me, both.

In addition to litigating ERISA and insurance coverage cases, I have maintained a pretty active intellectual property litigation practice for a number of years. Routinely, when I meet with business people to discuss intellectual property problems, the subject of the expense of protecting intellectual property rights and how to control legal costs in doing so comes up. This is especially the case when I talk with entrepreneurs and people at small start ups who feel that the intellectual property at the heart of their business plans has been misappropriated by someone else – often a more established competitor – but don’t think they can afford to do anything about it given the high hourly rates often charged by lawyers.
Now I have written before about better ways to fund insurance coverage litigation than simply paying counsel by the hour, and when it comes to protecting intellectual property, I tell these people the same thing, that they should not let the billable hour model frighten them off from protecting their intellectual property and vindicating their rights. There are, or should be if the lawyers they are talking to are willing to put a little skin of their own in the game, other ways to pay counsel, that are more economically feasible for businesses that don’t already have the deepest pockets in the world, but hope to some day, than paying lawyers by the hour to prosecute a patent or copyright infringement action.
And this article here presents those options quite nicely, although in more words than I use when I discuss the same topics with business folk.

I have written before about my view that arbitration is not necessarily preferable to litigation, and that, in my experience, litigation can be the better forum for resolving disputes. I know this runs contrary to the usual platitudinous bon mots frequently tossed off about the wonders of arbitration, but hard earned experience tends to discredit flowery sentiments of that ilk. As I discussed here and here, I am skeptical that arbitration is the better dispute resolution method for many cases or is in the best interest of all parties to a contract, including an insurance contract.
It turns out that many sophisticated commercial actors hold the same thought, and don’t freely give up the courtroom, with all of its attendant protections (many of which are absent from arbitrations), as the forum for resolving their commercial disputes. Two law professors have analyzed this question statistically, and document this fact here, in this newly published scholarship. To the extent that there is such a thing as the wisdom of the crowd, this article seems to show that my gut sense about arbitrations, borne out of years of resolving disputes in a variety of forums, is on the money.

I spoke awhile back on the phenomenon of lawyers suing insurance companies just because that is where the money is. As a long time coverage and bad faith litigator, it has always been clear to me that there is at least some of that going on (which is not to suggest that no such lawsuits have merit, as clearly many do). Turns out that what empirical data there is, such as the numbers discussed here and here showing the disproportionate degree to which insurance companies are involved in litigation, are consistent with my gut sense on this point.