ERISA Litigation: Current Issues And Important Tools For In-House Counsel

Editor: Please describe your professional backgrounds.

Goldberg: I have been with Jorden Burt for 15 years and chair its ERISA Practice Team. Prior to that, I served as senior lawyer for group retirement operations at Aetna Life & Casualty and subsequently as Aetna's senior lawyer for securities law, ERISA, M&A, antitrust and general corporate matters.

Pflepsen: I started with a predecessor firm to Jorden Burt in 1979 and now chair the firm's Class Action Practice Team. Throughout my career I have devoted my attention to litigation almost exclusively. In my first few years, I focused on employment law, insurance and contract litigation. Soon I found myself working extensively on ERISA disputes. Most of the ERISA litigation I have worked on in this past decade has involved class action claims, specifically, sales practices and the administration of products offered by insurance and financial institutions.

Editor: Tell us about the ERISA practice group at Jorden Burt.

Goldberg: Our law firm primarily services financial institutions and is organized with a number of practice teams that cover the main substantive areas for our clients. The ERISA practice team is responsible for a large amount of ERISA litigation as well as counseling clients on ERISA matters in connection with retirement, health and other forms of employee benefit plans. Because the majority of our clients are life insurance companies, we counsel them with respect to the application of ERISA to the development, marketing and administration of their products for employee benefit plans.

Pflepsen: In the past five years, there has been an explosion in class action litigation based on ERISA. The plaintiff's class action bar saw ERISA as an opportunity for greater attorney's fees. As a result, the claims we are seeing run the gamut of ERISA claims. For instance, we are seeing aggressive lawsuits claiming that a benefit claim issue is common to all benefits policies that a financial or insurance institution has issued to all its plan sponsor clients, not just to the employer of the plaintiff plan participant. This has increased the exposure for these companies exponentially.

Editor: With Jim Jorden, the firm's managing partner, you both authored the Handbook on ERISA Litigation, Third Edition, which has just been published. Tell us about the Handbook.

Goldberg: At the time we wrote the first edition of the book there was no comparable treatise on ERISA litigation. The primary intent of the book was to assist all types of litigators, ranging from those with no experience dealing with ERISA claims to those who have substantial experience in the field.

The book has turned out to be helpful to nonlitigators involved with the administration of employee benefit plans and/or the development of products for such plans, because it alerts them to potential issues that need to be taken into account to avoid litigation or ERISA enforcement actions that potentially can involve draconian penalties.

Pflepsen: When the book was first issued. there were other treatises on ERISA, but they were written primarily by and for tax professionals. We felt there was a gap we could fill by offering litigators a comprehensive volume that would allow them to navigate this complex area of the law. In fact, numerous courts have also relied on the book, which is cited in dozens of cases, both at the trial and appellate level.

Editor: What are the implications of the Sereboff case with regard to reimbursement of a plan fiduciary for benefits paid to an employee from funds recovered by the employee from a tortfeasor?

Goldberg: Sereboff is extremely helpful to plans and insurers who are trying to enforce subrogation provisions. In a unanimous decision of the U.S. Supreme Court written by Justice Roberts, the Court in Sereboff determined that subrogation provisions could be enforced where the money recovered by a participant or beneficiary from a third party was still in the possession of the participant or beneficiary, or where the relief being sought was the enforcement of an equitable lien against the funds the participant received.

This is an area where proactive counsel can take steps to avoid challenges to their claims. The Handbook provides detailed treatment of these cases and walks counsel through the process of developing the right subrogation clause.

Pflepsen: It is very important that the plan contain the appropriate substantive provisions - the reimbursement provision or the subrogation provision - in order to avoid a number of problematic issues.

Goldberg: The federal courts are now considering these issues. For example, they are looking at whether they should adopt the "make-whole" doctrine under ERISA, which, in the absence of appropriate plan language negating such result, precludes any recovery by a plan/insurer until the plan participant or beneficiary is "made whole" for its losses. Not all circuit courts have adopted that doctrine for ERISA plans. One feature of the Handbook is that we have all the relevant cases cited and you can figure out whether you have to worry about the "make-whole" doctrine. If your jurisdiction includes this doctrine, you can use the Handbook to develop language to negate it.

We won a precedent-setting case a few years ago in the Eleventh Circuit. The plan in that case had a cooperation provision indicating that, in negotiating any settlement or distinguishing between pain and suffering expenses and medical expenses, the participant had to cooperate with the insurer. We convinced the court that the cooperation provision was violated because the insurer was not included in settlement discussions. The violation of that provision trumped the application of the "make-whole" doctrine in that case.

Editor: Why is it important for the plan document to grant discretionary authority to the entity making claims decisions on behalf of a plan?

Goldberg: Ever since the landmark Supreme Court case Firestone v. Bruch, the Supreme Court has recognized two different standards of review for adjudicating insurer or plan administrator decisions in connection with a denial of benefits. Where plans do not contain language granting to the party with the ultimate authority to resolve claims the discretion to interpret the terms of the plan, the courts will use a de novo standard of review. Under that standard, the court bases its adjudication on whether or not the claims decision was objectively correct. On the other hand, where plans do grant discretion to plan administrators to interpret the terms of the plan, the courts will use an abuse of discretion standard which generally is easier to satisfy. Under an abuse of discretion standard, the relevant issue for the court is whether the claim administrator's decision was reasonable as distinguished from objectively correct. The Handbook takes readers through the various plan provisions that have and have not worked in each of the circuits to trigger application of an abuse of discretion standard.

Pflepsen: This is an area where there continues to be an apparent disconnect between some employee benefit plan counselors who assist employers in implementing their benefit plans and the litigation that has occurred. Almost every circuit has developed case law on what language is sufficient to grant the plan fiduciary the benefit of the more deferential standard of review. However, when looking at the cases, it is still remarkable how many plans have not incorporated clear language granting discretion to the plan fiduciary.

Goldberg: When applying the abuse of discretion doctrine, courts generally will look at whether there is a conflict of interest on the part of the claims administrator. The various circuits have taken different positions on when such conflicts exist and how they should affect application of the abuse of discretion standard.

We have a chart in the Handbook showing where each circuit stands on how the various jurisdictions address the effect of a conflict of interest. This is one of the issues that I believe will end up before the Supreme Court in the next five years. The split is so clear that it is hard to believe that the Supreme Court will not resolve it.

Editor: What are the consequences of failure to provide participants with requested documents within the required 30 days? What about failures to supply plan participants with information they requested or supplying them with incorrect information?

Pflepsen: There is some worry that plan participants will use a failure to provide requested plan documents to argue that there was not only a violation of the reporting requirements of ERISA, but also that they are entitled to the benefits they claim. Most courts have taken the position that this sort of breach would subject the plan administrator to statutory penalties, but that it does not automatically grant the plaintiffs the benefits they are seeking.

Plan sponsors also need to consider the information they provide their employees when they are in the process of considering changes to their employee benefit plans, particularly where greater benefits or incentives may be offered to remaining employees at a later time. Employers generally do not have a duty to volunteer information, but they cannot lie to or affirmatively mislead participants. So there is an issue presented whenever a participant asks a pointed question about incentive programs or the security of benefits.

Goldberg: We are seeing more litigation where plan sponsors have changed their reasons for denying a claim. Courts have been very concerned about that. A change of response can be seen as evidence that you were abusing your discretion.

Editor: The Handbook is quite comprehensive. How can corporate counsel keep up to date on more recent developments?

Goldberg: We send alerts to our clients and include new cases and ERISA developments regularly on our website. We also have a newsletter for clients and friends of the firm. For instance, the recent wave of "revenue sharing" ERISA class action suits has been given considerable coverage in our newsletters and client alerts. We also expect to have detailed coverage of new ERISA developments in the next update to the Handbook which will be available to subscribers at the end of December 2007.

The Handbook on ERISA Litigation, Third Edition, authored by James F. Jorden, Waldemar J. Pflepsen, Jr. and Stephen H. Goldberg, is published by Aspen Publishers / Wolters Kluwer Law & Business, and may be purchased by calling 1-800-638-8437 or visiting

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