Nice informative story out of the National Law Journal on the so-called stock-drop suits, which allege breaches of fiduciary duty under ERISA by trustees charged with managing company 401(k) plans. The lawsuits in question were “filed on behalf of employees who lost money in their 401(k) and other retirement plans because of the declining price of their employer’s stock.” In those cases, the “[p]laintiffs allege that companies and trustees they hire to manage their retirement plans had a fiduciary duty to shift employee investments out of their stock after learning of an impending decline in the share price.” The law may be turning against such theories. As the article summarizes:

The so-called “stock-drop” suits, which were filed under the Employee Retirement Income Security Act of 1974, or ERISA, were brought alongside hundreds of shareholder class actions following the demise of Enron Corp.
In the past year, several rulings — coupled with an action by the U.S. Department of Labor — have put limits on the liability of directed trustees, who are hired by an employer to manage employee retirement plans.

The article does allow, however, that plaintiffs’ lawyers will respond by shifting their targets, and possibly their theories, rather than abandon this line of litigation.

David Rossmiller, one of the pioneers, along with Marc Mayerson, of insurance coverage blogging, has kind words to say about the Boston ERISA and Insurance Litigation Blog here and again here. I can, in turn, commend David’s Insurance Coverage Law Blog to those of you who, like me, are always looking for more to read on the law of insurance and insurance coverage. Every week David has at least two or three posts that I could happily borrow from/riff about on this blog, and only a little self-discipline prevents me from relying so heavily on his work.
Beyond that, a quick survey of David’s posts always uncovers something that lawyers who practice in this area can borrow to use in their own cases. I can ensure you, for instance, that it won’t be long before one of my briefs accuses an adversary of mounting the “Big Rock Candy Mountain” defense.

This being – roughly – the start of a new month, I engaged in my usual habit of reviewing any ERISA decisions issued in the past month by the courts in the First Circuit, just to make sure I didn’t miss anything while busy with the usual run of business. As it turns out, on July 20th, the United States District Court for the District of Rhode Island issued its opinion in Holm v. Liberty Mutual Life Assurance Co. and Bank of America , a case in which an employee who had resigned from a company without first seeking disability benefits thereafter sought them later. In many ways, this is a traditional denial of benefits decision in this circuit, with the court finding that the plan granted the administrator sufficient discretion to invoke the arbitrary and capricious standard of review and then finding that under that standard the administrator’s denial of benefits must be upheld since there was sufficient evidence in the record to support the decision. The court does offer some good language, and a good synopsis of the circuit’s most popular decisions, on these points, and, frankly, you can tell on one read of the opinion that the outcome should have been the same regardless of the level of review applied by the court.
What makes the decision more interesting than most, however, is that the case presented the somewhat unique situation of the defendants raising the question of whether the benefit was even provided under an ERISA governed plan, and the court provides a nice summary of the law in this circuit for making that determination. As per the court (I have left out the cites):

ERISA provides a broad definition for employee benefit plans, and this definition has been divided by the First Circuit into “five essential constituents:”
(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 medical, surgical, hospital care, sickness, accident, disability, death, unemployment or vacation benefits … (5) to participants or their beneficiaries. . . . In determining whether a specific plan is an ERISA plan, the First Circuit reviews the extent of the employer’s role in administering the benefits. Those obligations are the touchstone of the determination: if they require an ongoing administrative scheme that is subject to mismanagement, then they will more likely constitute an ERISA plan; but if the benefit obligations are merely a one-shot, take-it-or-leave-it incentive, they are less likely to be covered. Particularly germane to assessing an employer’s obligations is the amount of discretion wielded in implementing them.

The court had little trouble concluding that the benefit plan in question was “clearly an employee benefit plan as defined by the ERISA statute” in light of the actual facts of the matter.

I have talked before about the depressing topic of the termination of retirement benefits, and the role of ERISA in that scenario. As almost no one failed to notice, the Senate just passed the Pension Protection Act of 2006, which makes “significant changes to practically every retirement plan,” as Jerry Kalish notes. I am fond of the detail on this statute provided by Jerry, and also here by B. Janell Grenier, who quickly recognized that “[t]he 907-page Pension Protection Act of 2006 passed last week by Congress is sure to keep benefits lawyers busy for years to come.” I highly recommend both blogs for details on the statute.
And as if to provide a nice counterpoint on the question of whether the statute is needed, the New York Times reminds us yet again today of the precariousness of pensions and the entire pension system, in this timely and darkly entertaining article. Of course, there is another way, separate from relying on new legislation and other legal remedies, to protect oneself against the loss of pension benefits in retirement, as these people clearly know.

Some of you may have noted, given what I had to say here and again here, my view that the law of insurance coverage is not as well developed or at least not as consistent in the case law as it should be. At the end of the day, it is just policy language and facts, and it shouldn’t be so difficult for the case law to reflect a consistent approach to insurance policy issues. Admittedly, such a project is complicated by the reality that the facts and the policy language differ from case to case, and the truth is that the slightest change in either variable can affect the outcome. I once spent years litigating a case that at the end of the day, turned on the distinction between the word damage and the word damages; I came to think of it as the Sesame Street case, with the case eventually focusing on the “letter of the day,” and that one letter “s” becoming outcome determinative.
Additional insured clauses are a perfect example of this problem. Generally speaking, additional insured clauses simply serve the purpose of adding a third party, who would otherwise be a stranger to the relationship between the insured and its insurer, to a policy as an insured. Anyone who practices in, or anywhere near, the fields of insurance coverage, construction, architecture, professional liability or real estate, as well as a host of others, is familiar with these clauses, and has probably noted as well the variability in the policy language often used in such clauses. In truth, what should be the simple act of adding a party to a policy as an additional insured in this manner is often rife with unexpected difficulties if and when a claim against that additional party arises, due to even slight variations in the language used in those clauses and disputed questions of fact concerning the events that gave rise to the claim against the additional insured.
What brings this to mind today are several recent discussions of issues involving additional insured clauses, and which make clear that how they should apply to any given set of facts simply is not, and probably never will be, completely settled. InHouse Blog has the story of a new development in California law on this topic, Marc Mayerson has a similar story about a New York state decision addressing the additional insured problem, and the policyholder lawyers at Anderson Kill have this to say about the choice of law complications caused by such clauses.

Readers of this prior post know that I had some questions as to whether the Maryland legislature engaged in the necessary amount of due diligence before enacting the Fair Share Act. There is certainly much to be said, though, for the very fact of state legislatures attempting to resolve difficult problems, such as the availability of health benefits.
McGlinchey Stafford, through its Hurricane Law Blog, provides another fine example of a state legislature trying to solve a difficult problem, one that is particularly interesting for those of us with an interest in the insurance industry and its role in the recovery of states affected by Hurricane Katrina. While much media coverage has centered in recent weeks on the Hurricane Katrina coverage litigation that has been ongoing in federal court in Mississippi, and which is now primed for a ruling by the court (thanks to David Rossmiller for the link), the Louisiana state legislature has continued with legislative activities directed at an orderly clean up and recovery, this time by extending the time for affected policyholders to file property damage claims. Recognizing that the dispersion of residents after the flooding may have made it difficult for residents to assess their losses and timely file insurance claims, the state legislature “extended the period within which Hurricane Katrina insurance claims must be filed by one year — until August 30, 2007.” The legislature also instructed the state to promptly file a declaratory judgment action to establish the constitutionality of this change. The complaint (“petition” in Louisiana legal lingo) is interesting reading, both for its description of the new change in the law and of the need for it. A hearing on the petition is set for August 21.

It seems like everyone is weighing in on the question of billable hours and alternative fee arrangements these days. My colleague and occasional lunch companion – and forceful proselytizer for abandoning the billable hour – Chris Marston weighed in on his blog the other day on the evils of the billable hour and his belief that alternative fee arrangements are better for both the client and the law firm representing the client. Chris’ post caused Arnie Herz to tag Chris’ firm as “cutting edge” and provoked a thoughtful commentary from Carolyn Elefant on who should bear the risk of mistakes made in establishing a non-billable hour pricing arrangement.
Chris’ comments lay a nice foundation for considering a particular question that has often puzzled me, namely whether a policyholder should ever pay coverage lawyers by the billable hour, given certain fee shifting rules available to policyholders – but not to insurers – and a particular structural aspect of coverage litigation. Under Massachusetts law, a policyholder who prevails on a coverage case against an insurer can generally recover his attorney fees from the insurer, in one of those remarkable and relatively rare exceptions to the American rule (under which all parties are generally responsible for their own legal fees and costs). In addition, Massachusetts’ bad faith statute – Chapter 93A – under which claims for insurance bad faith are prosecuted, presents still another avenue for recovering fees from an insurer. Beyond that, when a policyholder sues its insurer after a loss, the amount that is being sought from the insurer is usually either already a sum certain (the amount of the loss already being known) or can be readily guesstimated. Still beyond this, an experienced insurance coverage litigator ought to be able to make a fair guess – known in other businesses, such as home remodeling, as an estimate – from past experience as to how much time will have to be put into such a case to prevail on behalf of the client.
Given these avenues for fee shifting to the insurer if the policyholder prevails, the ability to craft a contingency arrangement based on the known value of the loss and the resulting likely amount of recovery, and the knowledge base of the experienced practitioner, there seems little reason why someone suing an insurance company should ever have to pay by the hour. One would think that a policyholder could expect a fee arrangement calculated on the basis of the likely recovery, and structured around the likelihood of recovering fees at the end of the day from the insurer if the lawyer was right to recommend challenging the insurer’s coverage determination in the first place.
If you take this little thought experiment a step further, such a paradigmatic shift in how policyholders compensate their coverage lawyers would likely benefit not only policyholders, but insurers and the court system as well. The simple fact of the matter is that insurers are not always wrong on their coverage determinations, no matter what many policyholder lawyers may think. In fact, given the amount of coverage decisions they make on a given day, the relatively few that are challenged in court, and the even fewer that are ever overturned by a court, it is fair to say that insurers are right far more often than they are wrong. You can almost prove this point by a faux mathematical equation: number of coverage decisions by the insurance industry in a year, minus the number reversed by a court in a year, leaves behind a whole lot of coverage determinations that are simply correct.
If insureds compensated their coverage lawyers not by the billable hour, but instead by the fee shifting and/or contingency bonus they would receive if successful, one could expect semi-frivolous lawsuits against insurers, and even those of at best debatable merit, to be brought far less often than they are currently. It would only make sense that if an insured’s lawyer was paid to be right about whether to challenge a coverage determination in court, rather than being paid simply for challenging the coverage determination – rightly or wrongly – in court, policyholders would almost certainly receive from their attorneys the type of objective analysis of coverage that is needed to properly determine whether a coverage determination is right or wrong, before a decision to sue an insurer is made; it would now be in the best interest of both the insured and the insured’s lawyer not to file lawsuits against insurers on which they are unlikely to prevail. This would be a nice change, both for the burdens on the courts and the costs to insurers of simply being in business, from the current environment in which it is fair to say that some, but certainly not all, lawyers sue insurance companies simply because, to borrow from the bank robber Willie Sutton, that is where the money is.

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.