Following Up on Wachtel's Fiduciary Exception to the Attorney Client Privilege
Back in April I blogged about the Third Circuit’s decision in Wachtel v. Health Net, Inc., 482 F.3d 225 (3rd Cir. 2007). In Wachtel the court decided that insurers of ERISA plans were not subject to the fiduciary exception for the attorney client privilege. The upshot of Wachtel is an exception to an exception: insurers of ERISA plans in the Third Circuit do not have to turn over communications that are covered by the attorney client privilege but that ordinarily would be subject to disclosure because they are a fiduciary to a trust.
The only court I have seen address this issue since Wachtel is a case out of the U.S. District Court of Massachusetts from earlier this month, Smith v. Jefferson Pilot Financial Ins. Co. I've placed a copy of the decision in the website library here. In Smith, Magistrate Judge Judith Gail Dein rejected the analysis of the Third Circuit based both on her reading of the requirements of ERISA and the precedent of the U.S. Court of Appeals for the First Circuit.
In Smith, there was no question that the insurer was acting as an ERISA fiduciary of a disability benefits plan sponsored by Smith’s employer. Smith requested copies of documents reflecting pre-litigation communications between Jefferson Pilot, the insurer, and its in-house attorneys about Smith’s claim. After a thorough discussion of the nature of the attorney client privilege and the fiduciary exception to that privilege, the court digs into Wachtel. Judge Dein reviews the analysis of the Third Circuit and then explains how and why she parts company.
First, the court rejects the idea that Congress intended insurers to be treated differently from other ERISA fiduciaries with regard to the information the insurer/fiduciary is required to disclose to claimants upon request and as part of ERISA’s claims procedure requirements. The terms of the statute, 29 U.S.C. §1133, and the regulation underlying it, 29 C.F.R. §2560.503-1, are clear and absolute: claimants have the unqualified right to obtain from the ERISA fiduciary all documents, records and other information relevant to the claim. Together with the broad definition of “relevant” in the regulation, the court ruled there is no room for not disclosing the information sought by the claimant.
The court also rejected Wachtel’s rationale that because insurers have multiple duties to both ERISA claimants and other parties, such as the employer of the claimant or other insureds in other plans, ERISA’s strict fiduciary duties of disclosure should not apply to insurers. Again, relying on the express language of the statute, 29 U.S.C. §1104(a)(1), the court ruled that it could make no allowance for insurers to be treated differently than other ERISA fiduciaries. The statute required the insurer’s complete loyalty to the specific claimant who was asserting the right to benefits.
There are some other interesting comments in the Smith case. As a follow up to Wachtel, it is definitely worth a look.