When I was first starting out as a lawyer, stuck with research assignments that required figuring out all aspects of a particular state’s law on a particular issue, I always liked to begin by looking for a federal district court decision on the subject, because the federal court decisions had a tendency to include a comprehensive summary of all the law in the state in question on the issue in dispute. This saved the work of reviewing multiple state court decisions, each of which tended to address only one narrow part of the overall issue without discussing other state court decisions that addressed other aspects of the issue. I have always attributed this, by the way, to the federal courts’ greater access to law clerks, who could be counted on to turn opinions into minor treatises.
Anyway, here is a perfect example of this phenomenon, only here on an issue that matters to this blog: namely, when can an insured obtain recovery of attorneys fees under Massachusetts law from an insurer in a lawsuit over coverage. Massachusetts state court decisions establish that coverage litigation is an exception, at least here, to the American rule, and that in Massachusetts, it is loser pays, at least if the insurer is the loser in the case.
But the Massachusetts state court decisions to this effect are spread across several cases and could arguably be limited to their facts, unless you synthesize them and push their reasoning one step further. The federal district court in Massachusetts has taken this last step for us, reviewing the Massachusetts state court decisions on this issue and concluding that they add up to an insured being entitled to recover the attorneys fees it incurs in establishing either a duty to defend or a duty to indemnify on the part of the insurer, without limitation to whether the policy in question provides first party or instead third party coverage.

I guess one could say that I have taken issue with some recent legal scholarship concerning the standard of review that should apply to judicial review of benefit denials, such as in this post and in this one. Perhaps part of that is that at the end of the day, I think standard of review is a litigation issue, and one that is best understood in the context of the day to day progression of benefit litigation; I am not sure it is well considered outside of that context and from outside of the courtroom.
But that is not to say that there aren’t many, many ERISA issues that are far more complicated than that one, and which could certainly benefit from a deeper and more thorough analysis than that which the litigation prism can provide. The Spring issue of the John Marshall Law Review is a benefits symposium, with a series of papers on exactly those issues that are on the front burner and can use a thorough review, such as, in particular, pension and stock issues in the aftermath of the stock manipulation scandals (which I have talked about here, for instance), and the shaky status of retiree medical benefits (talked about here and again here).
I know I will be reading the whole thing, and I will likely toss out on this blog highlights and comments about the articles over the next few months, so once again, if you have better uses of your time than reading law review articles, you can just skip reading this law review issue as well and just check back here later.

We have talked a lot about the different standards of review that courts should apply when reviewing an administrator’s decision concerning a claim for benefits under ERISA. But what about if the administrator never applied any review at all before the dispute ended up in the courts? Courts differ on whether this should change the standard of review, with many finding that, under those circumstances, a reviewing court should apply a de novo standard of review even if the plan reserved discretion to the administrator (something which would normally mean that the more deferential arbitrary and capricious standard of review should apply).
The First Circuit has not passed on this issue, but the federal district court here has just come out with its conclusion: it means nothing more than that the entire matter is remanded back to the administrator to actually perform the required review. You can find the case here.

Well, I just got lucky. Vain as I am I went looking for my name on other blogs, and came right to David Rossmiller’s latest post (I’m just kidding – I read his blog regularly), which in turn led me to a new blog he is reading out of Britain on reinsurance named ReRisk. And why did I get lucky, besides just the fact that it was instantly clear that ReRisk is a fun read? Because of this. I have talked in other posts about my preference for facts, for hard verifiable numbers, when analyzing arguments and problems, and I have a particular preference for this with regard to insurance pricing and availability issues, since much of the public discussion on that topic tends to be primarily posturing and not about a rational discussion of the economics of the matter (see this post here, for instance).
At the same time, both on this blog and elsewhere, there has been plenty of discussion about insurers repricing or not offering homeowners insurance in coastal areas based on hurricane prediction models, including some articles pointing out that the pricing changes are because hurricanes are becoming a bigger threat or were at least previously undervalued as a threat (see this post here, for instance). And yet I don’t ever recall seeing much real data showing or instead disproving that statement. Until here, in ReRisk’s post from a couple weeks back. I am not sure his chart answers the question of whether insurers are right that the threat is increasing (although quite clearly, even if the hurricanes themselves aren’t increasing, the ever increasing construction on the coasts makes a modern hurricane far more risky fiscally than were hurricanes in the past), but it is certainly very entertaining food for thought on these issues.

This is neat. Here’s a nice little story right smack at the confluence of this blog’s topics, ERISA litigation and insurance coverage problems. The story describes a new insurance product being released by Travelers providing investment advisors and similar entities with expanded coverage for the risks associated with providing investment services; the policy will cover claims for things such as breaches of fiduciary duties owed to pension plan participants.
As discussed frequently on this blog and elsewhere, ERISA claims alleging the types of conduct that it appears this product is intended to encompass – claims often seeking many million of dollars -have become a regular part of the landscape in the past couple of years. It looks like this is exactly the kind of insurance product that these types of claims call for. Granted, I haven’t seen the policy itself. Still, the article points towards one of the more interesting things about the insurance industry, which is its capacity to adapt to changes in the litigation environment and to provide revised or even entirely new forms of coverage to account for those changes.

Well, this is interesting. Here is a forthcoming law review article from Ed Zelinsky of Cardozo on the Maryland Fair Share Act, Wal-Mart and preemption, issues I talked about here and here. As the abstract shows, the professor concludes that a federal district court correctly held that Maryland’s statute targeting Wal-Mart’s health insurance program was preempted. I like this article, maybe because, in far more pages and after far more study, he reaches the same conclusion that I reached in a short period of time and by means of only a few relatively short posts (see this one for instance). To be fair though, there is also a lot more contained in his article than could be captured in the context of a blog, all of which simply reflects that each of these forums for discussing legal issues has it own strengths and weaknesses.
And if it seems like I am on a bit of a law review article kick these days, its because the Workplace Prof Blog, to which I subscribe, dumps links to the latest relevant law review articles into my email on a daily basis.

Where do I get my information and how do I stay up to date? From sources like BNA’s new pension and benefits blog, hosted right now by Nell Hennessy, who has the experience to really discuss pension issues. She has a nice post up right now listing blogs, including this one, that cover ERISA, pension and benefit issues, and it is a nice handy cheat sheet of sources of information on the topics covered by this blog. I haven’t read all of the blogs Nell noted, but I have read many of them, and they are the cream of the blogging crop on these issues.
Oh, and by the way, I am dimly aware that some use the term blogrolling to refer to bloggers talking about other bloggers. I do, however, prefer the more classic American political term logrolling, with all of its historical connotations.

Allright, here’s another law review article, this time out of the Oklahoma Law Review by way of Workplace Prof, complaining about the standards of review currently applied by the courts to ERISA benefit denial cases. Although I haven’t yet read it – I just finished Langbein’s on the same topic, and I’m not ready to delve into another article on the same subject just yet -the article proceeds as follows:

Part II below provides background analysis of the ERISA standard of review controversy. This Part illustrates the continuing failure of the circuit courts to produce a consistent and just claims process in employee benefit cases where courts defer to self-interested plan administrators. The analysis begins with Firestone and its pronouncement that trust law should guide review of challenged benefit claim denials.
Next, Part II argues that the lower courts have struggled to tease a clear message from Firestone’s “opaque” standard of review analysis. In particular, this Part explores the Tenth Circuit Court of Appeals’s attempt in Fought to cure this wounded process, and we describe the unfortunate failure of the Tenth Circuit to discover a trust law-based antidote to Firestone.
Finally, Part III of this comment works within the parameters of Firestone to re-introduce the historic trust law-based solution to the problem of self- dealing fiduciaries: the no-further-inquiry rule. Here the article capitalizes on prolific trust law and ERISA scholar Professor John H. Langbein’s recent examination of the no-further-inquiry rule. Professor Langbein’s analysis is adapted to support a thesis that he did not reach, by applying his discussion of the no-further-inquiry rule to ERISA benefit cases. This Part describes how the summary adjudicative process, invented by contemporary ERISA courts under the guise of deferential review, mimics the archaic circumstances existing in courts of equity that spawned the no-further-inquiry rule.
Finally, Part IV concludes that ERISA courts should apply the no-further-inquiry rule to irrebuttably counter the mischief that courts have historically presumed attach to the actions of self-dealing fiduciaries. Ultimately, by application of the no-further-inquiry rule in ERISA benefit claims, courts can, and should, return federal Article III trial judges to their role as neutral, de novo referees in plan participant claims for benefits due under ERISA.

There is an assumption, as one can see from this, in the academic literature that self-interested fiduciaries are up to no good, can’t be trusted, and won’t be caught by the current standards of review applied by the courts. Poppycock I said, in essence, here. But this emphasis on an academic and hypothetical level as to whether the applicable standards of review are appropriate raises an interesting real world question: namely, how often would court decisions reached in cases decided under the arbitrary and capricious standard (a level of review that law school faculty appear to uniformly find fault with when applied by a conflicted decision maker) be different if the court had instead applied the de novo standard of review (which the academy seems to uniformly prefer)? I wouldn’t mind seeing an article that took fifty denied benefit cases and presented the findings of such a review. With courts applying an ever more searching scope of review when applying the arbitrary and capricious standard of review than they may have done in the past, I don’t see that high a percentage of cases, either in my own practice or in the reported decisions, that would end up with a different result under one standard of review than under the other. The litigation over the case, including the extent of discovery and the expense, might change, but I am skeptical whether the outcome would be different if you changed the standard of review.

I am a little bit of a skeptic – I don’t think it has devolved yet to cynicism – when it comes to insurance bad faith litigation. Done right, a state law system of bad faith rules and rights can establish appropriate boundaries for all three sides of the insurance triangle – the insurer, the insured and the claimant. Done wrong, however, it tends to be little more than a system for imposing additional obligations and expenses on insurers beyond any that were bargained for or paid for by insureds.
Beyond that, the whole subject of bad faith litigation, including whether it is appropriate and the rules that should govern it, tends to become one of public relations and political posturing, rather than of rational legal and economic thought. This article demonstrates that exact dynamic in the context of a dispute in West Virginia over the elimination of third party bad faith claims against insurers, after years in which such claims were actionable. What jumps out at me is the assertion that a particular amount – 77 million dollars in premium reductions – of savings to the public can be attributed to the elimination of the bad faith cause of action.
Now it is beyond my skills as an amateur economist, but it seems to be that there must be enough data pre and post the ban on such claims to actually measure, at least roughly, the economic effect of banning, as opposed to allowing, such bad faith claims against insurers. It would make an interesting test case as to the economic impact, pro or con, of insurance bad faith litigation, and might be a good starting point for more empirically based and rational discussions as to whether other states should allow, or instead ban, such causes of action. This would be a nice substitute for the current state of the debate in most states over whether bad faith litigation should be allowed, which tends to consist of little more than entirely predictable and unverifiable public posturing of the type reflected in the article on the effect in West Virginia of banning such causes of action.

I have spent some time recently reading a draft version of Yale Professor John Langbein’s article, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials under ERISA. For those of you who have more socially redeeming hobbies (like mowing the lawn, watching paint dry, pretty much just about anything I suspect) than reading law review articles, the good professor essentially argues that the Unum Provident problem, referenced here, shows that the current regime under which ERISA benefit claims are litigated is one giant failure and that the Supreme Courts needs to alter the jurisprudence governing denied benefit claims. For those who would like more detail on what the article has to say in full, without having to spend the time reading the article in its entirety, the abstract of the article is here.
I have a few initial thoughts in response to the article, some of which perhaps I will flesh out in greater detail in future posts if time allows. Here they are, however, in a nut shell.
One, the good professor makes the case that Unum Provident’s conduct in handling claims and the questionable conduct uncovered in investigations into its conduct show that the governing legal regime needs to be changed. Not really. To avoid the obvious fact that Unum Provident may simply be an outlier, which has already been caught by the system currently in place, Professor Langbein has to create a straw company, asserting that Unum Provident was caught, but only because it was clumsy and the regime should be fixed to protect against other companies acting the same way, only with more subtlety. I don’t see any evidence that other companies are doing this, or that, if so, they are so good at what they are doing they won’t be caught in the same way that Unum Provident was nabbed. Indeed, the professor points out that Unum Provident was partly caught by a long run of federal court decisions in which judges found Unum Provident’s claims decisions to be highly questionable under the standards of review currently in force; a different insurer trying the same thing is going to run into the same problem. Hiding from shadows is what I would call it, changing an entire legal structure on the theory that somewhere, there might be someone doing something wrong, but we don’t know about it.
Second, on a micro level, the truth is that unscrupulous claims handling of the kind described in the article is caught in litigation in the federal courts, and thus the improper rejection of a particular claimant’s benefit claim can be and is resolved successfully under the current system and standards of review. In fact, if anything, we see courts providing an ever more skeptical review of administrators’ decisions even under the arbitrary and capricious standard of review as it currently exists than we ever have, for the exact reason, I believe, of making sure no administrator is trying to hide improperly motivated decision making behind the cloak of judicial deference that is owed to an administrator who is acting with discretionary authority.
Third, on a macro level, litigation is an awfully blunt instrument for modifying long term corporate behavior, and I am skeptical that changing the standards of review that apply to denied benefit claims will have such an effect. It may well be that the combination of the current standards of review, which do contain effective protections of the rights of individual claimants, with a vigorous state level regulatory apparatus is the correct way to proceed. This combination did, after all, successfully handle the Unum Provident problem.
Fourth, I am not convinced that the Unum Provident problem really shows, as the article wants it to, a problem with courts relying on market place forces to provide some protection against biased and self-serving decision making by administrator/insurers. Courts assume that in the long run, such companies will be hurt by such conduct when competing for business in the marketplace, and that this will have a deterrent effect. Critics of this thinking like to point to Unum Provident and its size in the market to prove otherwise. But I am not sure it proves anything of the sort. As the professor points out, Unum Provident is the product of a series of mergers and acquisitions, and one has to ask whether a company that stands accused of the type of misconduct that Unum Provident is charged with could have grown so large organically. Unum Provident may well show that the problem/hole in the system is in the mergers and acquisition regime, not in the benefit review regime.
Finally, a quick note of thanks to Workplace Prof Blog and Benefits Blog, without whom I would never have noticed the professor’s paper, since I generally don’t spend time surfing faculty websites (their blogs, yes, but not their websites). You can find a link to the the actual paper, by the way, here.