An article in the New York Times yesterday on men who simply won’t go back to work caught my eye because at times expressly and at other times by implication, it delves into the potent mix of cultural and behavioral forces that seem to impact what we offhandedly refer to as “work ethic.” The behavioral and cultural issues noted in the article circle back to an interesting point in litigation involving ERISA governed long term disability plans, which is that – so long as certain legal requirements are met – the plans and their administrators have a great deal of discretion in deciding whether or not someone is disabled or should, instead, be expected to return to work in some capacity or another. In real world terms, in the course of litigation, this grant of discretion provides plans and administrators with a certain amount of power over plan beneficiaries with regard to the question of whether the beneficiary is truly disabled or instead belongs at work.
The general ins and outs of the discretion granted to administrators in that circumstance, I won’t discuss in much detail here. For present purposes, it is sufficient to note that when an ERISA governed disability plan grants the administrator discretion in interpreting and applying the plan’s terms, the administrator has a great deal of latitude in its decision making, generally subject only to the requirement that the decision be reasonable (with the case law providing further detail as to what reasonable means in that context). This issue is delved into in more detail here. Although lawyers for claimants often object to this line of thinking, this grant of discretion is usually considered to be acceptable on the thesis that it fits with Congress’ intention to encourage employers, by making it relatively easy to provide them and by limiting employers’ exposure to liability, to provide such benefits.
But the New York Times article points to another possible – and real world – justification for granting such discretion to plans and their administrators, and for granting them great leeway in determining whether a claimant is sufficiently employable to be expected to work rather than collect long term disability benefits. Discussing disability benefits under social security, the article points out:

The ailments that qualify them are usually real, like back pain, heart trouble or mental illness. But in some cases, the illnesses are not so serious that they would prevent people from working if a well-paying job with benefits were an option.
The disability program, in turn, is an obstacle to working again. Taking a job holds the risk of demonstrating that one can earn a living and is thus no longer entitled to the monthly payments. But staying out of work has consequences. Skills deteriorate, along with the desire for a paying job and the habits that it requires.
“The longer you stay on disability benefits,” said Martin H. Gerry, deputy commissioner for disability and income security at the Social Security Administration, “the longer you’re out of the work force, the less likely you are to go back to work.”

Now I have no basis to know whether these statements are correct, or whether there is independent research to support – or for that matter to discredit – these points. If true, however, they may suggest an independent justification – possibly intended but more likely simply fortuitous – for granting such authority to plans and their administrators, namely that it may counterbalance a disabled employee’s own tendency to prefer the safe harbor of disability benefits to the riskier and harder course of returning to work.

While I have been focused on the interior life, if you will, of the decision in Retail Industry Leaders Association v. Fielder – its reasoning, whether it was correctly decided – others have been focused more on the impact of the decision outside the state of Maryland. Jerry Kalish of the Retirement Plan Blog has been covering the question of whether it impacts a Chicago ordinance intended to raise benefit and wage levels, and the California Labor & Employment Law Blog points out the impact of the decision on “proposed California legislation [that is] very similar to Maryland’s overturned law” and which requires a similar minimum amount of benefit expenditures. Meanwhile, Pensions & Benefits Weblog takes a still broader view, noting that “many other states [have] comparable legislation under consideration [and that] [t]his is but an early battle in a very very long war ahead.”

With too much on my plate at the beginning of the week, I told David Rossmiller that I was not going to borrow from his terrific post early this week on the thought process needed to provide advice on coverage issues. As the week has gone by, however, I find myself regularly returning to it. Moreover, I think some of my coverage obsessed readers, friends, clients and colleagues would appreciate it as much as I did, so I changed my mind. At the heart of the post, David talks about the thought process that one must apply when counseling clients on coverage:

This brings to mind something that separates the practice of insurance coverage law from some other kinds of legal practice. I mention this because last night I was reading a blog written by a so-called trial lawyer that frankly made my jaw drop, because it purported to analyze case law but was so lacking in objectivity and fairness as to be disgusting. (I’m not going to mention who this is because it was so evidently written in a bid for any kind of attention, negative or positive, that recognizing these efforts by name would merely reinforce the delusions at their root). Coverage lawyers can have their own views on the world, but when they start wading chest deep in serious analysis of cases and insurance policy language, in my view they have to strive for maximum objectivity and suppress emotion and bias in favor of an intellectual sorting process similar to playing chess. If they don’t remain objective and allow bias to influence their thinking, it is too easy to make a mistake and then gain a new bias: defending your own previous substandard analysis.

I think David has captured perfectly one of the hardest things for those of us who move back and forth between litigating different types of cases and rendering coverage advice, namely the need for advocacy in the former role and strict objectivity in the latter.

I made a prediction some years ago – long before I had a blog on which to note such things – that the rise of employment practices liability insurance (commonly known as EPLI), which covers employment related claims, would eventually transform the market for employment law services, moving it further away from a traditional corporate law firm specialty and closer to an insurance defense type specialty. It was not much of a prediction, and barely required an educated guess, but this article seems to record that this has in fact come to pass.

I turn today from my recent obsession with ERISA preemption and the Wal-Mart case to other arguably unhealthy obsessions, including insurance coverage decisions, contract interpretation and the fine art of drawing a good judge. On Monday, the Massachusetts Appeals Court issued its opinion in American Commercial Finance Corp. v. Seneca Insurance Co.,in which the issue before the court was whether a fire insurance policy covered costs incurred after a fire to protect the premises against any possible subsequent damage (including another fire). As per the court’s opinion, the policy did not contain any express language stating whether or not the policy covered such costs, and any experienced coverage lawyer will tell you that when a court starts off noting that fact or something similar, it is a pretty good bet that the ultimate finding will be that the loss was covered under the policy. Now the absence of policy language expressly precluding coverage of a certain event – of an exclusion actually stating that the policy does not cover a particular event or loss – should not lead inexorably to the conclusion that the event is therefore covered. Reasoning of this nature goes against the general proposition that an insurer cannot and should not be expected to anticipate every possible turn of events and account for them with express limitations on coverage written directly into the policy; if insurers were prophetic enough to be able to do so, as some courts and commentators have pointed out, you would end up with insurance policies that run into the hundreds of pages. That unremarkable idea, however, as anyone who has defended an insurance company against a claim that is not expressly excluded under a policy will tell you, is most often honored only in the breach.
But the Appeals Court judge here did not proceed in such a manner. Instead, as is more proper and far more defensible intellectually, he analyzed the actual language used in the policy related to the insured’s obligation after a fire to use reasonable steps to protect the property from further damage, and concluded that it logically implied an obligation on the part of the insurer to pay for the costs of doing so. Although anytime you argue over words in a contract – any contract, not just an insurance policy – there is room to differ as to what the final conclusion should be as to how to interpret it, the judge’s reasoning in this case is logical and hard to fault. As such, it is what many insurance coverage decisions are not: useful to future parties trying to guide their contracting and their conduct, understandable and defensible.
And this leads to the point about drawing a good judge. The opinion was authored by Judge Doerfer, who for several years before being appointed to the Appeals Court, served as a Superior Court judge, the Superior Court being Massachusetts’ primary and highest level trial department. I can remember litigating complex coverage cases in state court back then, and being pleased to draw Judge Doerfer, who was known to have the intellectual curiosity and scholarly disposition needed to handle such cases. This is in contrast to a case – a true story – in which I appeared in a trial court (I won’t identify it so as to protect both the guilty and the innocent) in a coverage case in which the insured and the insurer filed cross motions for summary judgment on the duty to defend. In that case, as in most cases, the determination of whether there was a duty to defend depended simply on a comparison of the policy to the complaint, with a duty to defend existing if the complaint described a claim that potentially might be covered. There generally either is or is not a duty to defend in that circumstance; it has to be one or the other, and all you have to do to decide is make that comparison, barring peculiarities of a nature absent from that case. Now, since one motion said there is a duty to defend and the other said there isn’t, one of the parties had to be right given this standard, yet somehow this judge found both parties to be wrong, denying both parties’ motions for summary judgment. It ended up being fixed on appeal, but it just goes to show that drawing the right judge right off the bat makes a world of difference, both in the outcome of the case and in the amount of litigation it will require to get to the right outcome.

I was thinking a bit more over the weekend about Retail Industry Leaders Association v. Fielder (and, yes, I know I obviously need a hobby), and Judge Motz’ determination that the Fair Share Act is preempted by ERISA. Although the court’s opinion makes it sound straight forward, the truth is that the outer boundaries of ERISA preemption are actually somewhat amorphous. Here in the First Circuit, by precedent and judicial temperament, preemption is stringently applied, and even coming close to infringing on the operation of employee benefit plans or on ERISA’s remedial scheme will typically be enough to invoke preemption; judges in other circuits are sometimes a little more tolerant, at least up to a certain point, of causes of action or statutes that touch upon those topics.
Now in the case of the Fair Share Act, without bothering to first research Fourth Circuit precedent on preemption, I am of the mind that if it looks like a duck, walks like a duck and quacks like a duck, it is preempted. This is pretty much how Judge Motz saw it.
At the same time, however, if it is this obvious, one has to wonder why the Maryland General Assembly spent so much time and taxpayer treasure debating and enacting this statute. Wasn’t there a lawyer somewhere on staff on some committee or another who should have caught this point? And if the General Assembly is like most state legislatures, one can assume that many of the politicians debating its merits were lawyers, and one would like to think this issue would have at least crossed their minds as something that had to be considered before voting on the Act.
This issue may well have been flagged and considered before enactment; I simply don’t know. But I will be curious to see as this issue progresses up the appellate ladder whether there may be something more here on the question of whether the Act is preempted than is immediately apparent from the court’s opinion. Perhaps when briefs to the Fourth Circuit are filed we will know a little more. And perhaps once I spend a little more time thinking about it, it might pop out at me.

I could not let this go by without commenting on it, coming as it does on the heels of multiple posts on the question of whether to arbitrate coverage disputes. This story, arbitration award and federal lawsuit take the subject a full step – at least – further, into the realm of ERISA and its intersection, somehow, with the Defense of Marriage Act. Better still, it manages to do this while folding in as well a claim that an arbitrator overstepped his authority, requiring that his ruling be vacated.
As the plaintiff describes it on its website, “[t]he Massachusetts Nurses Association (MNA) filed a suit in federal court today seeking to reverse an arbitration award that denied health insurance benefits to the same-sex spouse of a registered nurse employed by Merrimack Valley Hospital in Haverhill, Mass, which is owned by Essent Healthcare of Nashville, Tenn.”
The arbitrator was charged with determining whether this was appropriate under a collective bargaining agreement, but to do so, he felt compelled to determine how the intersection of ERISA and the Defense of Marriage Act impacted that question. Based at least in significant part on his analysis of the interplay of these two statutes, he found against the nurse seeking coverage.
While the interplay of those two statutes may present a somewhat unique circumstance, what followed isn’t; the party aggrieved by the arbitration award filed an action in federal court to set aside the award, on the ground that the arbitrator overstepped his authority by ranging outside of his charge under the collective bargaining agreement. As readers of my prior post on this exact type of challenge know, courts are clearly responsible for analyzing whether or not an arbitrator engaged in such conduct and should set aside a ruling if that was the case. The complaint alleges that the arbitrator’s decision making and the sources for it were expressly limited by the terms of the agreement requiring arbitration, but the arbitrator went outside of those sources to make his decision. If true, this is a textbook example of an arbitrator improperly exceeding his or her authority.

Before it falls off the edge of my desk in the crush of next week’s business, I wanted to pass along an excellent post from David Rossmiller at the insurance coverage law blog on business risk exclusions. I think anyone who has either litigated or counseled parties on claims involving business risk exclusions will recognize the frustration he references: the case law on these exclusions is generally a mess, judges often don’t understand the exclusions, and the analysis presented by courts in opinions applying these exclusions often does little more than further muddy the waters.
David, however, has found a case that doesn’t do that, and I agree. Unfortunately, it is out of the Eastern District of Wisconsin, and the court’s website does not include recent opinions issued by the court, so I can’t give you an easy, and free, link to the decision. It is out on Westlaw, however, and David has the cite.

The United States District Court for the District of Maryland issued its opinion yesterday on the legal challenge to the Fair Share Act, the Maryland statute recently enacted for the purpose of forcing Wal-Mart, and only Wal-Mart, to increase its health care spending for its employees. Major media accounts of the ruling are here, here and here. There is a tremendous amount of grist for the mill in this decision, which ranges logically and fluidly across issues of standing, ERISA preemption, the Tax Injunction Act and the Equal Protection Clause of the United States Constitution.
What jumps out at me today though, on a first reading, is its central ruling, the holding that ERISA preempts the Act. ERISA preemption is typically litigated in the context of a plan or a fiduciary defending itself against an action seeking to impose liability on it beyond that allowed by ERISA; it usually involves attempts by plaintiffs to add liability (and greater damages than could be recovered under ERISA) by means of state statutory and common law causes of action that, while generally available in actions against most types of defendants, are precluded by ERISA preemption from being brought against an ERISA governed entity.
Here, though, what we see is a much rarer creature, the affirmative use of preemption by an ERISA governed entity for the purpose of precluding the application to it of a state law enacted for the express purpose of modifying the operation of a benefit plan. The District Court concluded that because the Act strikes directly at an ERISA plan and its operations, it is preempted by ERISA. Both in the use of the preemption doctrine as a sword here by the plaintiff and in the court’s analysis and application of the doctrine, we end up with something far removed from the tactical litigation use of preemption we find in most reported decisions on the issue, and with something that is instead closer to the pure core and heart of the doctrine and its purpose, which is, as the court framed it, protecting “ERISA’s fundamental purpose of permitting multi-state employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration.”