In Stephan v. Unum Life Ins. Co. of Am., 697 F.3d 917 (9th Cir. 2012), the Ninth Circuit Court of Appeals held that the "fiduciary exception" applies to attorney-client communications made prior to a decision on a claim. The "fiduciary exception" generally precludes an ERISA fiduciary from asserting the attorney-client privilege against plan beneficiaries on matters of plan administration. This decision, which resolved an issue of first impression in the Ninth Circuit, will require both in-house and outside counsel to carefully consider the scope of discussions with clients during the administration of ERISA claims.
Plaintiff was a participant in a long-term disability plan (the "Plan") insured by Unum Life Insurance Company ("Unum"). Unum determined to pay benefits to plaintiff based on permanent disability arising from a spinal injury, but plaintiff disputed Unum’s calculation of his pre-disability earnings, which did not include his annual bonus. Plaintiff sought the production of communications between Unum’s claims analyst and its in-house counsel regarding the claim and the determination of pre-disability earnings. Plaintiff argued the "fiduciary exception" permitted discovery of the otherwise privileged communications, on the grounds Unum is a Plan fiduciary.
The trial court concluded the fiduciary exception applied to fully-insured plans like the one at issue in this case, but held the communications at issue were protected by the privilege and that the fiduciary exception did not apply. The Ninth Circuit disagreed, holding the fiduciary exception applies to insurers acting as plan fiduciaries to the same extent the exception applies to other fiduciaries.
The court provided two rationales for applying the exception. First, the exception derives from an ERISA trustee’s duty to disclose to plan beneficiaries all information regarding plan administration and, therefore, the privilege is subordinated to the fiduciary’s disclosure obligation. Second, because an ERISA fiduciary is a representative for the beneficiaries of the trust which it is administering, the plan beneficiary is the "real client," and, therefore, the fiduciary "exception" is not an exception. Rather, the privilege is maintained with "a different understanding of the identity of the client." Based on these rationales, the court found no basis for distinguishing ERISA trustees from insurers that act as ERISA fiduciaries, and held the duty of an ERISA fiduciary to disclose all information regarding plan administration applies equally to such insurers.
Unum also asserted the documents did not fall within the exception because they were created after an adversarial relationship had begun. The Court rejected this argument on the grounds the communications at issue related to benefit calculations, which concerns "plan administration," and were not prepared in anticipation of litigation.