In an unpublished opinion, a New Jersey intermediate appellate court has held that amounts impliedly owed under ERISA were excluded by a provision in a fiduciary liability policy barring coverage for benefits due under an employee benefit plan. BOC Group, Inc. v. Federal Ins. Co., 2007 WL 2162437 (N.J. Super. Ct. App. Div. July 30, 2007). Having found the exclusion clear and unambiguous, the court held that discovery into the exclusion's drafting history was appropriately limited.
An employee benefit plan group was insured under a fiduciary liability plan for errors and omissions in administering the plan. The policy excluded from the definition of "Loss" amounts "which constitute benefits due . . . under the terms of a Benefit Program." The policyholder was sued in a class action for allegedly violating ERISA in calculating the amounts of certain distributions. Although the underlying ERISA violation was somewhat technical, the class action plaintiffs alleged that the insured's repeated practice of offering certain benefits created an unconditional promise to continue to provide such benefits under the applicable treasury regulations, despite express conditions in the plan. Thus, the underlying plaintiffs alleged that the policyholder improperly calculated the present value of plan participants' accounts when making lump sum distributions. The insurer denied coverage on the grounds that the claim and the settlement constituted benefits due under an employee benefit plan.
The court of appeals held that the policy excluded the coverage for settlement of the suit. The policyholder argued that the exclusion did not apply since the amounts sought were not expressly required by ERISA or the language of the plan. The court held, however, that underlying plaintiffs sought "benefits due under the Plan even though the claimed benefit was not within the express terms of the Plan" since "ERISA can imply a claim which would otherwise not fall within the express terms of the plan." Thus, "regardless of whether the plan itself expressly entitled the claimants to the benefits they sought, the treasury regulation provided that, under the circumstances asserted by the . . . claimants, such benefits 'will be treated as provided under the terms of the plan.'" Therefore, regardless of the legal mechanism, once the relief sought by the underlying claimants constituted "benefits under the plan," the exclusion applied.
The court also concluded that the exclusion barred counsel fees and prejudgment interest. According to the court, the total settlement amount constituted benefits due and was therefore properly excluded. The counsel fees were excluded because they were paid out of the settlement fund pursuant to the common fund doctrine. The court excluded amounts attributable to prejudgment interest for the same reason.
Finally, having found the exclusion unambiguous, the court held that the trial court appropriately limited discovery into the exclusion's drafting history. The policyholder argued that the discovery limitations were improper under Nav-Its, Inc. v. Selective Ins. Co., 183 N.J. 110 (2005), which allowed discovery into the history of a pollution exclusion. The court concluded, however, that Nav-Its does not "require an examination of the development of each exclusionary clause."