Earlier this week the U.S. Court of Appeals for the Third Circuit
issued an important decision, Wachtel v. Health Net, Inc
., ___ F.3d ___ (3rd Cir. 2007), 2007 U.S. App. LEXIS 7561, dealing with the fiduciary exception to the attorney-client privilege in ERISA cases. My friend Roy Harmon over at Health Plan Law
has a thorough discussion of the case which you can find here
Here’s the nickel version of the case. Generally, the discussions that exist between a lawyer and her client are privileged. They are shielded from discovery because courts recognize that clients and their attorneys must feel secure in knowing they can communicate in confidence. But one of the well-recognized exceptions to this attorney-client privilege is when the discussions are between an attorney and a fiduciary of a trust about the trust operations. In that situation, courts have ruled that the true clients are the trust beneficiaries and they have the right to obtain through discovery the content of the attorney-client communications.
This “fiduciary exception” to the attorney-client privilege has been extended to communications between ERISA fiduciaries and their attorneys in a number of cases. However, in Wachtel
, the fiduciary in question was a health insurer. The Third Circuit ruled that the fiduciary exception did not apply in that situation for a number of reasons. But the overarching theme of the decision is that insurers are not pure fiduciaries of pure trusts. They are, first and foremost, insurance companies that operate as insurance companies always have: with an eye toward their own shareholders and with significant structural conflicts of interest as they deal with their insureds.
Roy Harmon concludes his comments about Wachtel by noting: “from the plaintiff’s perpective, the decision supplies another example of that odd asymmetry that is typical of ERISA jurisprudence - an insurance company obtains the protections of the common law of trusts in freedom from review of its claims decisions (assuming discretionary language in the plan), but avoids application of the fiduciary exception in its communications with counsel.” For my part, you can substitute the words “grand ripoff” for Roy’s “odd asymmetry” language.
Truly, this case provides yet another reason to believe that courts have uniformly erred since Firestone Tire & Rubber v. Bruch
, 489 U.S. 101 (1989), in extending the deferential standard of review established for pure trusts to fully insured health and disability plans under ERISA. In doing this, the federal judiciary has gutted insurance law developed by the states over the last hundred years and have left consumers with less protection than they had before ERISA was passed: something that Justice O’Connor in Bruch
specifically stated should not be allowed to occur.
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