How To Settle An ERISA Breach Of Fiduciary Duty Case And Sleep At Night: A Checklist For Plan Trustees To Consider

Plan trustees often look to settle ERISA fiduciary breach claims brought against them as a way to put the past behind them. Assuming there is enough fiduciary liability insurance coverage available to pay the proposed settlement sum, the trustees may be prepared to put aside their desire to vindicate themselves for a challenged course of conduct, avoid the risks of a horrific outcome that exceeds insurance coverage limits—potentially causing them to use personal assets to satisfy a judgment against them—and move on. Unfortunately, however, ERISA is structured in a manner that creates obstacles to achieving the goal of "complete peace."

First, ERISA accords standing to bring fiduciary breach claims to multiple parties, not all of which may have participated in the lawsuit being settled. A settlement of the claims alleged may not extinguish the rights of the other parties with standing to sue, thereby leaving the settling trustees subject to additional liability exposure.

Second, courts in some jurisdictions have taken a rather expansive view of the right of parties defending ERISA fiduciary breach claims and other claims brought on behalf of plans to file third-party claims against other parties who contributed to the losses suffered by the plans. As a result, even after settling the claims brought directly against them, trustees may face exposure from third-party claims.

Notwithstanding these obstacles, there are a number of litigation strategies that trustees can pursue in order to potentially reduce or eliminate these risks of continued exposure following a settlement. Although the effectiveness of these strategies will vary, depending on the circumstances presented, trustees are well-served by considering each of them with their attorneys, before determining whether, and under what conditions, they wish to enter into a settlement.

Barring Future Claims By Non-Settling Parties with Standing to Bring Direct Claims against the Settling Trustees

Under ERISA's statutory scheme, there are three categories of plaintiffs who have standing to sue plan trustees for breach of fiduciary duty: (i) the U.S. Department of Labor (DOL); (ii) participants and beneficiaries of the plan; and (iii) co-fiduciaries of the plan. See 29 U.S.C. § 1132(a)(2); ERISA § 502(a)(2). Rare is the case when trustees are settling a lawsuit in which all three categories are the plaintiffs. As a result, before agreeing to settle claims brought against them, the trustees should consider their potential exposure to "copy-cat" claims brought by other parties who to date have not sued them.

In some instances, the trustees can gain comfort from a potential statute of limitations defense. Absent allegations of fraud or concealment, which will extend the limitations period, ERISA...