New York Law Review

Tag: ERISA

  • Federal Insurance Co. v. International Business Machines Corp., 18 N.Y.3d 642 (2012): ERISA Coverage Limited to Fiduciary Actions

    Federal Insurance Co. v. International Business Machines Corp., 18 N.Y.3d 642 (2012)

    Insurance policies covering ERISA violations apply only when the insured party is acting in its capacity as an ERISA fiduciary, not as a plan settlor.

    Summary

    Federal Insurance Company sought a declaratory judgment that its excess insurance policy with IBM did not cover IBM’s settlement payments for attorney fees in a class action alleging ERISA violations. The New York Court of Appeals held that the policy, which covered breaches of fiduciary duties imposed by ERISA, did not apply because IBM’s actions in amending its benefit plans were taken as a plan settlor, not as an ERISA fiduciary. The Court emphasized the importance of interpreting insurance contracts based on the reasonable expectations of the average insured, finding the policy language unambiguous in its limitation of coverage to actions taken in a fiduciary capacity.

    Facts

    IBM amended its employee benefit plans in 1995 and 1999, leading to a class-action lawsuit (Cooper v. IBM Personal Pension Plan) alleging age discrimination in violation of ERISA. The Cooper action was settled, and IBM sought reimbursement from Federal Insurance Company under an excess insurance policy, arguing that the underlying Zurich policy limits had been exhausted. Federal then sued, seeking a declaration that its policy didn’t cover the attorney’s fees paid by IBM in settling the Cooper case.

    Procedural History

    The Supreme Court initially denied Federal’s motion for summary judgment and granted IBM’s. The Appellate Division reversed, granting summary judgment to Federal. IBM appealed to the New York Court of Appeals.

    Issue(s)

    Whether the insurance policy’s coverage for “any breach of the responsibilities, obligations or duties by an Insured which are imposed upon a fiduciary of a Benefit Program by [ERISA]” extends to actions taken by IBM as a plan settlor, rather than as an ERISA fiduciary.

    Holding

    No, because the policy language unambiguously limits coverage to breaches of fiduciary duties under ERISA, and IBM’s actions in amending the benefit plans were performed in its capacity as a plan settlor, not as a fiduciary.

    Court’s Reasoning

    The Court emphasized that insurance contracts must be interpreted by affording a fair meaning to the language employed, leaving no provision without force and effect. If the language is unambiguous, it must be applied as written. The Court determined that the average insured would reasonably interpret the policy to cover only acts undertaken in the capacity of an ERISA fiduciary. Quoting Lockheed Corp. v. Spink, the court reiterated that plan sponsors who alter the terms of a plan do not fall into the category of fiduciaries. IBM’s argument that the term “fiduciary” should be given its plain, ordinary meaning (broader than the ERISA definition) was rejected as a strained interpretation. The Court reasoned that adopting IBM’s interpretation could lead to an unreasonably broad scope of coverage, potentially encompassing almost any lawsuit. The Court also addressed IBM’s contention that the policy’s definition of “Wrongful Act” would be redundant if both prongs had different meanings, clarifying that the second prong extends coverage to claims arising solely from an insured’s position as a fiduciary, even absent a breach of duty. The court stated, “The policy language is clear that coverage requires that the insured be acting in its capacity as an ERISA fiduciary in committing the alleged ERISA violation.” The Court also dismissed the relevance of Federal revising its policy language in 2002, finding that the Zurich policy was sufficiently clear on its face and declining to speculate about the revision’s impact on the analysis.

  • Council of the City of New York v. Bloomberg, 6 N.Y.3d 380 (2006): Municipal Laws and Preemption by State and Federal Law

    Council of the City of New York v. Bloomberg, 6 N.Y.3d 380 (2006)

    A municipal law is preempted by state and federal statutes when it conflicts with the state’s general laws or regulates areas governed by federal law, such as the Employee Retirement Income Security Act (ERISA).

    Summary

    This case concerns New York City’s Equal Benefits Law, which required city agencies to contract only with firms providing equal benefits to employees’ domestic partners and spouses. The Mayor refused to enforce the law, arguing it was preempted by state and federal law. The City Council brought an Article 78 proceeding to compel enforcement. The Court of Appeals held that the Equal Benefits Law was preempted by both the General Municipal Law § 103 (competitive bidding requirements) and ERISA (governing employee benefit plans), thus affirming the dismissal of the Council’s petition.

    Facts

    In 2004, the New York City Council enacted the Equal Benefits Law, mandating that city agencies contracting for $100,000 or more annually must only engage with entities that provide equal employment benefits to employees’ domestic partners and spouses. The law defined “domestic partners” by reference to registration with the city or with the contractor and broadly defined “employment benefits.” Shortly before the law’s effective date, the Mayor initiated a declaratory judgment action, contending the law was preempted by the General Municipal Law, the City Charter, and ERISA, and that it curtailed the Mayor’s powers without a referendum.

    Procedural History

    The Mayor initially sought a temporary restraining order, which was not granted. He then stated he would comply with state procurement laws and the City Charter, effectively refusing to implement the Equal Benefits Law. The City Council then commenced an Article 78 proceeding seeking mandamus to compel the Mayor to enforce the law. The Supreme Court granted the Council’s petition. The Appellate Division reversed, holding the law preempted by both the General Municipal Law and ERISA. The Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    1. Whether the validity of a legislative enactment can be challenged in an Article 78 proceeding seeking to compel its enforcement.

    2. Whether New York City’s Equal Benefits Law is preempted by New York General Municipal Law § 103.

    3. Whether the Equal Benefits Law is preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA).

    Holding

    1. No, because an officer against whom mandamus is sought may defend on the ground that the legislation is invalid.

    2. Yes, because the Equal Benefits Law conflicts with the competitive bidding requirements of General Municipal Law § 103 by excluding otherwise responsible bidders who do not provide equal benefits.

    3. Yes, because the Equal Benefits Law regulates the content of employee benefit plans, which is preempted by ERISA, except for benefits outside ERISA’s scope.

    Court’s Reasoning

    The Court reasoned that an Article 78 proceeding does not prevent a respondent from arguing that the law sought to be enforced is invalid, as mandamus relief requires a “clear legal right.” The Court relied on Associated Builders & Contractors v. City of Rochester, holding that the Equal Benefits Law undermined the protection of the public fisc by restricting the pool of potential bidders for city contracts. The court acknowledged that the Council asserted the law would have a minimal economic impact but stated, “the competitive bidding statute does not become inapplicable when the sums saved by complying with it are immaterial.” The court distinguished New York State Chapter, Inc., Associated Gen. Contrs. of Am. v. New York State Thruway Auth. by noting that in that case, the project labor agreement (PLA) at issue had a potential cost-saving element not present in the Equal Benefits Law. The court found the law was an attempt to enact a social policy, which cannot trump the competitive bidding statute. Regarding ERISA preemption, the court relied on Shaw v. Delta Air Lines, Inc., which held that states cannot regulate the content of ERISA plans. The court rejected the City Council’s “market participant” argument, distinguishing Boston Harbor, by stating that New York City was “setting policy,” not merely acting as a property owner seeking efficient contract performance. Therefore, the Equal Benefits Law was found to be preempted, except for benefits that fell outside of ERISA’s purview.

  • McCoy v. Feinman, 99 N.Y.2d 295 (2002): Accrual of Legal Malpractice Claims Regarding QDROs

    McCoy v. Feinman, 99 N.Y.2d 295 (2002)

    A legal malpractice claim related to a qualified domestic relations order (QDRO) accrues when the divorce judgment is entered if the stipulation of settlement and judgment fail to secure the benefits the plaintiff later claims were negligently omitted.

    Summary

    In a legal malpractice action, the New York Court of Appeals addressed the statute of limitations when a former wife sued her divorce attorney for failing to secure preretirement death benefits in a QDRO. The court held that the malpractice claim accrued when the divorce judgment was entered because the stipulation of settlement, incorporated into the judgment, did not provide for the survivor benefits she sought. Because the lawsuit was filed more than three years after the judgment, the action was time-barred. The court emphasized that a QDRO cannot create rights not expressed in the original settlement agreement.

    Facts

    Plaintiff hired Defendant law firm to represent her in a divorce. During settlement negotiations, the parties stipulated to divide the husband’s pension pursuant to the formula in Majauskas v. Majauskas, which addresses the equitable distribution of pension benefits. The stipulation and subsequent divorce judgment, entered June 14, 1988, did not mention preretirement death benefits. The Defendant never prepared a QDRO. The husband remarried and died before retiring in September 1994. Plaintiff, unaware a QDRO was never filed, contacted Defendant, seeking preretirement death benefits. The plan administrator denied her claim due to the lack of a QDRO naming her as the surviving spouse. Defendant closed Plaintiff’s file on January 9, 1996.

    Procedural History

    Plaintiff filed a legal malpractice claim on June 12, 1996, alleging negligence in failing to secure preretirement death benefits. The Supreme Court dismissed the claim as time-barred. The Appellate Division affirmed, holding that the claim accrued no later than the entry of the divorce judgment. The Court of Appeals affirmed.

    Issue(s)

    1. Whether the legal malpractice claim accrued when the divorce judgment was entered, despite the attorney’s failure to obtain a QDRO.

    2. Whether the continuous representation doctrine tolled the statute of limitations until the Defendant closed Plaintiff’s file.

    Holding

    1. Yes, because the actionable injury occurred when the divorce judgment was entered since the stipulation of settlement, incorporated into the judgment, did not secure the preretirement death benefits, regardless of the failure to obtain a QDRO.

    2. No, because the continuous representation doctrine only applies when there is a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim, which was not present here.

    Court’s Reasoning

    The Court of Appeals held that the legal malpractice claim was time-barred because it was filed more than three years after the divorce judgment was entered. The court reasoned that the cause of action accrued when all facts necessary to the cause of action occurred and an injured party can obtain relief in court. The Court emphasized that stipulations are binding contracts and should be construed as such. Because the stipulation of settlement, incorporated into the divorce judgment, did not provide for preretirement death benefits, the Plaintiff’s injury occurred when the judgment was entered, regardless of the failure to obtain a QDRO. The court noted that a QDRO can only convey rights stipulated as a basis for the judgment and cannot create new rights. The court stated, “A proper QDRO obtained pursuant to a stipulation of settlement can convey only those rights to which the parties stipulated as a basis for the judgment. An alternative result would undermine litigants’ freedom of contract by allowing QDROs to create new rights — or litigants to generate new claims— unexpressed in the settlement stipulation.” The court rejected the argument that the continuous representation doctrine tolled the statute of limitations, holding that there was no mutual understanding of the need for further representation on the specific matter of securing preretirement death benefits. The representation in a subsequent Family Court action was unrelated. Allowing a continuing omission (failure to file a QDRO) to indefinitely toll the statute of limitations would undermine the policies of fairness and finality underlying statutes of limitations, demanding “a precise accrual date.”

  • Curtiss-Wright Flight Systems, Inc. v. Bresson, 88 N.Y.2d 514 (1996): Declining Certification Due to Rarity and Federal-State Law Interplay

    Curtiss-Wright Flight Systems, Inc. v. Bresson, 88 N.Y.2d 514 (1996)

    A state’s highest court may decline to answer a certified question from a federal court when the issue is unlikely to recur, the parties provide limited assistance, and the issue involves unsettled interplay between federal and state law.

    Summary

    In this case, the New York Court of Appeals declined to answer a certified question from the Second Circuit regarding ERISA benefits distribution to a second spouse in a void marriage. The court exercised its discretion under section 500.17 of the Rules of the Court of Appeals. The court reasoned that the issue’s likely rarity, the pro se status of one defendant, the other defendant’s non-submission of a brief, the stakeholder status of the plaintiffs, and the unsettled interplay between federal and state law made it inappropriate for the court to answer the certified question. The court believed these factors would limit the assistance it could receive in deciding an issue with potentially broad precedential significance.

    Facts

    The United States Court of Appeals for the Second Circuit certified a question to the New York Court of Appeals. The case involved a dispute over death benefits under the Employee Retirement Income Security Act (ERISA). The specific question concerned the rights of a second spouse whose marriage was void due to a prior, undissolved marriage of the deceased. The second marriage was the result of a formal ceremony, undertaken in good faith, and continued until the spouse’s death.

    Procedural History

    The Second Circuit certified the question to the New York Court of Appeals pursuant to section 500.17 of the Rules of the Court of Appeals (22 NYCRR 500.17) after hearing the case at the appellate level. The New York Court of Appeals then considered whether to accept the certified question.

    Issue(s)

    Whether the New York Court of Appeals should accept a certified question from the Second Circuit regarding the distribution of ERISA benefits to a second spouse whose marriage was void due to a prior, undissolved marriage.

    Holding

    No, because the issue’s likely rarity, the limited assistance from the parties involved, and the unsettled interplay between federal and state law made it more appropriate for resolution in the first instance by the Federal courts.

    Court’s Reasoning

    The court declined to accept the certified question based on several factors. First, the court agreed with the Second Circuit’s assessment of the likely rarity of the issue. Second, the court noted that the defendant-appellant appeared pro se, the defendant-respondent had not submitted a brief, and the plaintiffs-respondents were mere stakeholders. This meant that the court could expect only limited assistance from the parties in deciding the issue, which may have precedential significance beyond the ERISA context. Finally, the court emphasized the unsettled interplay between federal and state law in interpreting issues of statutory construction under ERISA. The court concluded that this issue may be more appropriately resolved by the Federal courts in the first instance. The court stated, “the interplay between Federal and State law in interpreting issues of statutory construction under ERISA is as yet not fully settled. This issue may thus be more appropriate for resolution in the first instance by the Federal courts.”

  • Lipton v. Consolidated Mutual Insurance Company, 71 N.Y.2d 420 (1988): Establishing Non-Terminable Retiree Benefits

    Lipton v. Consolidated Mutual Insurance Company, 71 N.Y.2d 420 (1988)

    An employer can contractually agree to provide retirees with non-terminable post-employment welfare benefits, even if ERISA’s vesting requirements do not apply; the key inquiry is whether the employer intended to create such a right, as determined by the plan documents and relevant extrinsic evidence if the documents are ambiguous.

    Summary

    Retired employees of Consolidated Mutual Insurance Company (CMIC) sued after the NY Superintendent of Insurance, acting as liquidator of CMIC, terminated their retiree life, medical, and health insurance benefits. The retirees claimed these benefits were intended to be lifetime and non-terminable. The New York Court of Appeals reversed the lower court’s decision, holding that the plan documents were ambiguous regarding CMIC’s right to terminate the benefits. Because of this ambiguity, extrinsic evidence, such as letters and memos promising lifetime benefits, was admissible and sufficient to prove CMIC intended to provide non-terminable benefits. The court emphasized that the liquidator’s authority was limited by the contractual arrangements CMIC had made with its retirees.

    Facts

    Approximately 165 retired CMIC employees received continuation group term life, medical, and health insurance coverage upon retirement.

    In May 1979, the New York State Superintendent of Insurance, as liquidator of CMIC, terminated all of CMIC’s contracts, including the retirees’ benefits.

    The retirees claimed they had been promised lifetime benefits that could not be terminated.

    The primary document at issue was CMIC’s Employee Guidebook, which described the benefits. A “reservation of rights” clause, typed in smaller print on the inside back cover, stated that “many of the plans and benefits described herein… are subject to modification or termination… at the considered discretion of the Board of Directors.” The Guidebook did not specify which plans were terminable.

    Procedural History

    A State Supreme Court Referee found the Superintendent had the authority to withdraw the benefits.

    Supreme Court confirmed the Referee’s findings and ruled against the retirees.

    The Appellate Division affirmed, holding that CMIC adequately reserved its right to terminate the plans.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether CMIC unambiguously reserved the right to terminate life, health, and medical benefits provided to its retired employees, thereby allowing the Superintendent of Insurance, as liquidator, to terminate those benefits.

    Holding

    No, because the Employee Guidebook and other plan documents, when read together, do not unambiguously reserve to CMIC the right to terminate the retired employees’ benefits; therefore, the lower courts erred in ruling for the Superintendent.

    Court’s Reasoning

    The court found the “reservation of rights” clause ambiguous. It did not specify which of the “many” plans and benefits described in the Guidebook were subject to termination. The court noted that the clause was printed on the inside back cover in smaller print, further contributing to the ambiguity.

    Because of the ambiguity, the court held that extrinsic evidence was admissible to determine CMIC’s intent. The retirees presented letters and memoranda from CMIC stating that benefits would be available “for the rest of [the retiree’s] life” and that retirees were “100% vested.” The court found these representations persuasive evidence that CMIC intended to provide non-terminable benefits.

    The court distinguished this case from others where the employer had expressly and unambiguously reserved the right to terminate benefits. The court stated: “Inasmuch as the Employee Guidebook and other plan documents, when read together, do not supply an unambiguous answer to the ‘simple [issue] of contract interpretation’—whether CMIC intended to provide nonterminable life, health and medical benefits to its retired employees—resort to extrinsic evidence is appropriate and necessary.”

    The court also noted that the termination language in the group life insurance policy and certificate added more confusion than clarity. The court emphasized that CMIC was in the best position to write clearly and unambiguously in the first place, and should suffer the consequences of failing to do so.

  • In re Liquidation of Consolidated Mutual Insurance, 77 N.Y.2d 144 (1990): Establishing Non-Terminable Retiree Benefits

    77 N.Y.2d 144 (1990)

    Employers can contract to provide nonterminable postemployment welfare benefits to retirees irrespective of ERISA’s vesting protection, but retirees bear the burden of proving an employer’s intent to create such rights, primarily through benefit plan documents.

    Summary

    A class of retired Consolidated Mutual Insurance Company (CMIC) employees sought restoration of life, medical, and health insurance benefits terminated by the Superintendent of Insurance during CMIC’s liquidation. The retirees claimed these benefits were intended as lifetime rights. The Court of Appeals reversed the lower court’s decision, holding that the primary plan document, CMIC’s Employee Guidebook, contained ambiguous language regarding the right to terminate benefits. This ambiguity allowed for the consideration of extrinsic evidence, which supported the retirees’ claim that CMIC intended to provide nonterminable benefits.

    Facts

    CMIC provided group term life, medical, and health insurance coverage to its retirees. The Employee Guidebook outlined these benefits. In 1979, the New York State Superintendent of Insurance, as liquidator of CMIC, terminated these benefits. The Guidebook contained a “reservation of rights” clause on the inside back cover, stating that many plans were subject to modification or termination at the discretion of the Board of Directors. However, the clause did not specify which plans were terminable. Retirees presented letters and memoranda indicating that their benefits would remain unchanged for life.

    Procedural History

    The retirees initially sought restoration of benefits in federal court (Levy v. Lewis, 635 F.2d 960 (2d Cir)). A State Supreme Court Referee found that the Superintendent had the authority to withdraw the benefits based on the Guidebook’s language. Supreme Court confirmed the Referee’s report against the retirees. The Appellate Division affirmed, finding the reservation of rights clause sufficient to apprise claimants of CMIC’s right to terminate the plans. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether CMIC’s Employee Guidebook and other plan documents unambiguously demonstrate CMIC’s intent to provide nonterminable life, health, and medical benefits to its retired employees; and therefore, whether the liquidator-Superintendent had the authority to terminate those benefits.

    Holding

    No, because the Employee Guidebook and related documents contained ambiguous language regarding the right to terminate benefits, making resort to extrinsic evidence appropriate, and that evidence supported the retirees’ claim of nonterminable benefits.

    Court’s Reasoning

    The Court of Appeals emphasized that while ERISA’s vesting requirements did not automatically apply to these welfare benefit plans, employers could still contractually agree to provide nonterminable benefits. The court focused on interpreting the intent of CMIC based on the plan documents. The court found the “reservation of rights” clause to be ambiguous because it did not specify which plans were subject to termination, stating, “The employees and we, as a Court, are left to speculate which of the `many’ plans and benefits described in the Guidebook are terminable. The ambiguity is self-evident.” Because of this ambiguity, the court allowed for the consideration of extrinsic evidence, such as letters and memoranda from CMIC stating that benefits would last for the retiree’s life. These representations, combined with the ambiguous plan documents, satisfied the retirees’ burden of proving CMIC’s intent to provide nonterminable benefits. The court distinguished the case from others where the right to terminate benefits was expressly and unambiguously reserved. The court stated, “Inasmuch as the Employee Guidebook and other plan documents, when read together, do not supply an unambiguous answer… resort to extrinsic evidence is appropriate and necessary.” The dissenting opinion argued that the plan documents, including the reservation of rights clause, clearly reserved CMIC’s right to terminate the plans and that the court improperly resorted to extrinsic evidence. The dissent cited cases where employers had expressly reserved the right to terminate benefits, and argued that the extrinsic evidence was itself ambiguous and should not have been considered.