In Krase v. Life Ins.Co. of North America, 11 C 7659, 2013 U.S.Dist.LEXIS 100302 (N.D.Ill. July 18, 2013), Judge John Grady upheld DeBofsky, Sherman & Casciari’s challenge to an insurer’s assertion of attorney-client privilege over emails generated by an in-house attorney during the course of administering an appeal of the denial of a life insurance claim. The insurer refused to produce the documents, citing attorney-client privilege, while the plaintiff countered by asserting the fiduciary exception to the privilege. The court ruled for the plaintiff.

The court defined the exception by reference to an appellate ruling: “Under that exception, a fiduciary of an ERISA plan ‘must make available to the beneficiary, upon request, any communications with an attorney that are intended to assist in the administration of the plan.'” Bland v. Fiatallis N. Amer. Inc., 401 F.3d 779, 787 (7th Cir. 2005). The court further observed, though, that “[t]he exception does not apply to ‘[d]ecisions relating to the plan’s amendment or termination,” which are “not fiduciary decisions.'” Id. at 788.

Although the court had previously dismissed the plaintiff’s claim for breach of fiduciary duty, the court ruled that the dismissal was due to the availability of adequate relief pursuant to 29 U.S.C. § 1132(a)(1)(B); and the court explicitly found the plaintiff could still pursue the same theory that the insurer failed to inform the plaintiff of information necessary to adequately protect her rights. Thus, the court determined that the fiduciary exception was available so long as the plaintiff met the prerequisite requirements. The court then found that those requirements were all met. First, the court ruled that the insurer was an ERISA fiduciary since it was a party with discretion to grant or deny benefits (citing Wachtel v. Health Net, Inc., 482 F.3d 225, 229-30 (3d Cir. 2007) (holding that an insurance company was an ERISA fiduciary because it had “discretion to determine claims covered by its policies”) (citing Aetna Health Inc. v. Davila, 542 U.S. 200, 220 (2004)); see also Stephan v. Unum Life Ins. Co. of Amer., 697 F.3d 917, 932 (9th Cir. 2012) (similar)(Stephan was also a case litigated by DeBofsky, Sherman & Casciari attorneys).

LINA’s assertion that it was not a fiduciary was undermined by the language of the policy which states that the “Plan Administrator” (presumably the employer, Oce’) “has appointed [LINA] as the named fiduciary for deciding claims for benefits under the Plan, and for deciding any appeals of denied claims.” (Policy Number FLX 0961910, attached as Ex. A to Compl., at 40.)

The plaintiff was also found to have met the second prerequisite of showing the legal advice concerned plan administration. The court noted the documents were reviewed in camera and that they involved plan administration since the advise related to Krase’s “appeal letter.” The court found the memos involved “questions of plan administration — is Krase entitled to coverage, and who decides? — not plan ‘adoption, modification, or termination.’ Wachtel, 482 F.3d at 233; see also Bland, 401 F.3d at 788.

Finally, the court found the fiduciary exception applies to insurers acting as ERISA fiduciaries. Although the Wachtel case concluded that insurers of benefits provided under ERISA employee benefit plans are not subject to the fiduciary exception, that case was an outlier since the overwhelming majority of courts have rejected that decision – Stephan v. Unum Life Ins. Co. of Amer., 697 F.3d 917 (9th Cir. 2012)(noting “Every district court that has considered the question since . . . has rejected Wachtel’s approach and held that the fiduciary exemption does apply to insurance companies.”); Smith v. Jefferson Pilot Financial Ins. Co., 245 F.R.D. 45, 49-53 (D. Mass. 2007); Klein v. Northwestern Mut. Life Ins. Co., 806 F.Supp.2d 1120, 1130 (S.D. Cal. 2011).

For further information, contact Mark DeBofsky ([email protected])

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