:: Fiduciary Exception To Attorney Client Privilege Explained

Krase has moved to compel LINA to produce four documents that LINA has withheld on grounds of attorney-client privilege, arguing that the documents fall within the “fiduciary exception” to the privilege.

“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 exception does not apply to “[d]ecisions relating to the plan’s amendment or termination,” which are “not fiduciary decisions.” Id. at 788.

Krase v. Life Ins. Co. of N. Am., 2013 U.S. Dist. LEXIS 100302 (N.D. Ill. July 18, 2013)

The attorney-client privilege does not apply without limitation in ERISA cases.   As a general rule, the attorney-client privilege does not apply when an attorney advises a plan fiduciary about the administration of an employee benefit plan.  On the other hand, the attorney-client privilege does apply when an attorney advises a plan fiduciary regarding issues that do not involve actual administration of the plan.

This recent district court opinion addresses a dispute over whether the fiduciary exception applies to insurers.

In this case, the plaintiff (the insured’s estate administrator) asserted claims for death benefits under a group life insurance policy.  At this state of the proceedings, the claims were based upon  § 1132(a)(1)(B).  The primary case rested on claims that the insurer (the employer had settled) owed a duty to disclose conversion rights to the decedent.

For our present purposes, the more important issue turned on whether the insurer could withhold certain documents based upon claims of attorney client privilege.

Krase has moved to compel LINA to produce four documents that LINA has withheld on grounds of attorney-client privilege, arguing that the documents fall within the “fiduciary exception” to the privilege.

“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 exception does not apply to “[d]ecisions relating to the plan’s amendment or termination,” which are “not fiduciary decisions.” Id. at 788.

Split of Authority

The court noted a split of authority about whether the fiduciary exception applies when an insurance company, acting as an ERISA fiduciary, asserts the attorney-client privilege.

LINA relied on the Third Circuit’s decision in Wachtel v. Health Net, Inc., 482 F.3d 225 (3d Cir. 2007), which held that the fiduciary exception does not apply to insurers.  The plaintiff relied on the Ninth Circuit’s decision in Stephan v. Unum Life Ins. Co. of Amer., 697 F.3d 917 (9th Cir. 2012), which rejected Wachtel.

The “Better View”

The district court observed that the Wachtel court relied heavily on the fact that insurers pay benefits from their own assets, and not from assets held in trust for beneficiaries.   Nevertheless, “all ERISA fiduciaries are subject to the same disclosure obligations.”  Furthermore, “all ERISA fiduciaries must “discharge [their] duties with respect to a plan solely in the interest of the participants and beneficiaries.” (citing, 29 U.S.C.A. § 1104.)

Thus, in the view of the court, the “substantive duties that are most relevant to the fiduciary-exception apply equally to insurance companies and other ERISA fiduciaries.”

We think that this weighs more heavily in the balance than an insurance company’s control over its own assets. Cf. Varity, 516 U.S. at 497 (“[W]e believe that the law of trusts often will inform, but will not necessarily determine the outcome of, an effort to interpret ERISA’s fiduciary duties.”).

The Discovery Dispute

Of course, the proper course of resolving privilege issues involves in camera review of a privilege log.  In the case at bar, the court concluded that the documents must be produced, stating:

We have reviewed in camera the documents that LINA has withheld and conclude that they relate to plan administration. LINA argues that “the majority of the advice concerns LINA’s relationship with Océ [the employer] as opposed to Plaintiffs’ claim for benefits.” We disagree.

Nearly all of the advice provided by LINA’s in-house counsel relates specifically to Krase’s “Appeal Letter.” (See Email from M. Grimes to B. Miller et al., dated Aug. 3, 2011, ¶¶ 1, 4-9.) The letter does discuss Océ, but those statements are also couched in terms of Krase’s claim: LINA’s attorney disputed Océ’s interpretation of the plan and its authority to “self-adjudicate” Krase’s claim. (See id. at ¶¶ 2-3.) These are 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.

Note:  The court rejected the insurer’s claim that it was not a fiduciary, noting that it was the “Named Fiduciary” in the policy.

Other important cases – Note also, Smith v. Jefferson Pilot Financial Ins. Co., 245 F.R.D. 45, 49-53 (D. Mass. 2007) (analyzing and disputing each step of the Wachtel court’s analysis) and Klein v. Northwestern Mut. Life Ins. Co., 806 F.Supp.2d 1120, 1130 (S.D. Cal. 2011) (“[T]here is no reason to assume that Congress intended to exempt insurance companies from the disclosure obligations of ERISA simply because it exempted them from the requirement to hold plan assets in trust.”).

Stage of Proceedings –  The plaintiff argued that  the advice was not provided with a view towards eventual litigation.  The court comments on this argument in a footnote:

 LINA effectively concedes the point. See Lewis v. UNUM Corp. Severance Plan, 203 F.R.D. 615, 620 (D. Kan. 2001) (“Because denying benefits to a beneficiary is as much a part of the administration of a plan as conferring benefits to a beneficiary, the prospect of post-decisional litigation against the plan is an insufficient basis for gainsaying the fiduciary exception to the attorney-client privilege.”); Geissal v. Moore Medical Corp., 192 F.R.D. 620, 625 (E.D. Mo. 2000) (similar).