It provides a great reminder to in-house counsel addressing employee benefit claims that their communications with their benefits personnel regarding employee benefits claims may not be protected by the attorney-client privilege. Keep in mind that both counsel and benefits managers often wear fiduciary and non-fiduciary hats when addressing benefits plans issues and it is not always clear which hat they are wearing when. Therefore, to avoid potential spill over of this fiduciary exception to their other areas of responsibility, in house – and outside – counsel would be best advised to: (1) separate as best as possible their advice regarding fiduciary and non-fiduciary (e.g. plan sponsor, settlor, and employment) issues, so that privileged and non-privileged advice is not communicated at the same time and (2) be explicit in written communications as to the non-fiduciary purpose of legal advice being provided regarding non-fiduciary issues.

“Document everything” is often a best practice, but when you are an ERISA plan fiduciary communicating with your attorney, you may need to throw that thinking out the door. In Solis v. Food Employers Labor Relations Association the Fourth Circuit joined the Second, Fifth, Seventh, and Ninth Circuits in holding that the attorney-client privilege does not apply as to trust beneficiaries regarding communications between an ERISA plan fiduciary and an attorney when such communications relate to plan administration. The U.S. Supreme Court also recently discussed the fiduciary exception and its rationale in the context of ERISA matters in a recent non-ERISA decision, United States v. Jicarilla Apache Nation.

Courts have relied on one of two rationales in justifying this fiduciary exception to the attorney-client privilege. Some courts have concluded that the exclusive benefit rule supersedes the fiduciary’s right to assert attorney-client privilege. Applying something of a balancing test, these courts have found that trustees’ fiduciary duty to furnish trust-related information to the beneficiaries outweighs their interest in the attorney-client privilege.

Other courts have reasoned that plan beneficiaries are the true “clients.” ERISA fiduciaries, on the other hand, are merely representatives of these beneficiaries. Because ERISA fiduciaries are not the actual clients, they do not enjoy the attorney-client privilege.

While a number of courts have embraced this fiduciary exception, most courts have recognized that the exception is not without its limits. For example, courts have found that the fiduciary exception does not apply to communications regarding non-fiduciary matters such as adopting, amending, or terminating an ERISA plan (i.e., communications regarding settlor functions) (see In re Long Island Lighting Co., 129 F.3d 268 (2d Cir. 1997)). Courts have also found that the fiduciary exception does not apply to a fiduciary’s communications with his attorney regarding the fiduciary’s personal defense in an action for breach of fiduciary duty (see United States v. Mett, 178 F.3d 1058, 1064 (9th Cir. 1999)).

In the context of ERISA litigation over a denied claim for severance benefits, one court distinguished between the application of the exception to communications made before a final claim determination versus communications made after a final determination (see Carr v. Anheuser-Busch Companies, Inc., No. 4:10-CV-1729 (E.D. Mo. June 3, 2011)). The Court found that the fiduciary exception applied to emails generated before the final claim determination because these communications related directly to how the plan administrator should interpret and conduct the appeal procedure rather than to future litigation strategy, the merits of the claim, or potential liability. Conversely, the Court found that the exception did not apply to emails generated after the final decision because, at that point, the interests of the claimant had become sufficiently adverse to the interests of the plan administrator.

While there are some limits to the fiduciary exception to the attorney-client privilege, the implications of this exception are significant. As illustrated in the Carr case, this issue often arises in the context of claims for benefits. The ERISA claims regulations might require plan administrators to provide certain communications to the participant. Further, if litigation follows, these communications might be part of the administrative record to be reviewed by the court, and/or the privilege may not apply. The purpose of the attorney-client privilege is to allow full and frank communication between client and attorney. The unfortunate result of the fiduciary exception to attorney-client privilege is that the typical best practice “document everything” might need to be thrown out the window in some situations. Plan administrators who are trying to do their jobs properly, without unnecessarily putting themselves at risk, need to carefully consider forms of communication and persons involved in addressing administration challenges. It may be best to wait to put anything in writing or email until after you consult one-on-one with your attorney and decide on a course of action.

Remember, sometimes a phone call is better than an email or a letter.