Commissions Are ‘Wages’ Under the New Jersey Wage Payment Law, New Jersey Supreme Court Rules
On March 17, 2025, the Supreme Court of New Jersey held that “commissions” must be considered “wages” under the New Jersey Wage Payment Law (WPL) and cannot be excluded as “supplementary incentives” because they are tied to the “labor or services” of employees.
Quick Hits
New Jersey Supreme Court Ruling on Commissions as Wages: On March 17, 2025, the Supreme Court of New Jersey ruled that commissions must be considered “wages” under the New Jersey Wage Payment Law (WPL) and cannot be excluded as “supplementary incentives” since they are tied to the labor or services of employees.
Case Background and Court’s Decision: In Musker v. Suuchi, Inc., the court determined that commissions earned by a sales representative for selling PPE during the COVID-19 pandemic were “wages” under the WPL, and rejected the argument that these commissions were “supplementary incentives” because they were tied to her labor or services.
Implications for Employers: The ruling clarifies that commissions are always considered “wages” under the WPL, regardless of whether they are for new or temporary products.
Background
In Musker v. Suuchi, Inc. the plaintiff, Rosalyn Musker, a sales representative, earned a salary plus commissions pursuant to an individualized sales commission plan (SCP) to sell software subscriptions. In March 2020, Suuchi, Inc., began to also sell personal protective equipment (PPE) because of the rise of COVID-19. Musker ultimately completed PPE sales that generated approximately $35 million in gross revenue for Suuchi. The parties disagreed regarding the amount of commissions owed to Musker pursuant to the SCP for her PPE sales and further disagreed as to whether such payment constituted “wages” or “supplementary incentives” under the WPL.
Musker then filed suit against Suuchi claiming it violated the WPL by withholding from her payment of commissions for her PPE sales. Suuchi, on the other hand, argued that Musker’s WPL claim should be dismissed because the commissions for the PPE sales in this instance would be considered “supplementary incentives” and not “wages” under the WPL. Specifically, Suuchi argued that because PPE was a new product and not its primary business, Musker’s commissions for her PPE sales should be considered “supplementary incentives” under the WPL.
Both the Superior Court of New Jersey and the New Jersey Appellate Division denied Musker’s WPL claim, concluding that because her sale of PPE went “above and beyond her sales performance, and the [PPE] commissions are calculated independently of her regular wage,” such commissions did not constitute “wages” under the WPL.
The Supreme Court of New Jersey disagreed and held that Musker’s commissions for the sale of PPE could not be excluded from the definition of “wages” as a “supplementary incentive.”
Commissions Are Wages and Cannot be Excluded as Supplementary Incentives
The supreme court pointed out that the WPL defines the term “wages” as “the direct monetary compensation for labor or services rendered by an employee, where the amount is determined on a time, task, piece, or commission basis excluding any form of supplementary incentives and bonuses which are calculated independently of regular wages and paid in addition thereto.” (Emphases in the original.) Unfortunately, however, the WPL does not define what constitutes a “supplementary incentive.”
In reviewing the WPL’s definition of “wages,” the Supreme Court of New Jersey concluded that a “supplementary incentive” is compensation that “motivates employees to do something above and beyond their ‘labor or services.’” The court opined that the “primary question addressing whether compensation is a ‘supplementary incentive’ is not whether the compensation only has the capacity to [incentivize work or provide services], but rather whether the compensation incentives employees to do something beyond their ‘labor or services.’”
In so concluding, the court clarified that a “commission” can never be a “supplementary incentive” because “supplementary incentives,” unlike “commissions,” are not payment for employees’ labor or services. To illustrate this point, the court provided several examples of “supplementary incentives” which it determined are not tied to employee’s “labor or services” and therefore would not constitute “wages” under the WPL, including: working out of a particular office location, meeting a certain attendance benchmark, or referring prospective employees to open positions.
Accordingly, the court held that Musker’s commissions from her PPE sales were not “supplementary incentives” because those sales necessarily resulted from her “labor or services.” Accordingly, the court held that those commissions would be considered “wages” under the WPL. Further, the court rejected Suuchi’s argument that because PPE was a new product for the company and it only temporarily sold such product, the sale of PPE therefore fell outside the regular “labor or services” an employee provides. Rather, as a result of the COVID-19 pandemic, selling PPE became part of Musker’s job and thus, commissions for selling PPE became owed to her as “wages” pursuant to the WPL.
Key Takeaways
The Supreme Court of New Jersey has clarified that commissions can never be “supplementary incentives” and excluded from the definition of “wages” under the WPL. Commissions are “wages” pursuant to the WPL, regardless of whether they are based on sales of new products or products temporarily marketed by their employers. Commissions are tied to employees’ “labor or services” and, as a result, are not “supplementary incentives.” Furthermore, the penalties under the WPL include liquidated damages of up to 200 percent of the wages recovered, as well as attorneys’ fees for successful claimants. Employers may want to keep in mind that all commissions are owed to employees to ensure compliance with the WPL to avoid exposure to significant financial penalties.
Missouri’s Paid Sick Leave and Minimum Wage Increase: Legislature, Court Challenges Continue
On Nov. 5, 2024, Missouri voters approved Proposition A, which included a new statewide paid sick leave law and an increase to the minimum wage. The paid sick leave requirement is set to go into effect on May 1, 2025, while the $13.75 per hour minimum wage took effect on Jan. 1, 2025.
On March 13, 2025, the Missouri House of Representatives passed a bill (HB 567) that, if enacted, would repeal the paid sick leave requirement and delay the minimum wage increase. However, if passed by the Senate and signed by the governor in its current form, the bill would not become effective until Aug. 28, 2025, after the paid sick leave requirement is set to take effect on May 1, 2025. The bill has now been read twice in the Senate, and a public hearing is set for March 26, 2025.
On March 12, 2025, the Missouri Supreme Court heard oral argument on the constitutionality of Proposition A.
Opponents of the law, mostly business groups, argue that:
The fiscal note summary to the ballot initiative did not include the costs to state and private businesses or some local governments
The summary statement failed to notify voters of certain elements of the paid sick leave law
It included two different subject matters (paid sick leave and a minimum wage increase) in violation of the Missouri Constitution.
Proponents of the law dispute that Proposition A was misleading or violated Missouri’s Constitution. They argue that overturning the law would be denying the will of the Missouri voters who voted to approve Proposition A.
The Court’s questions focused on whether it has original jurisdiction to rule on the legal challenges or whether the trial courts were the proper venue to hear the matter. A decision should be forthcoming.
Barring extraordinary relief by the Missouri legislature or the Missouri Supreme Court, employers are required to provide written notice to their employees about the paid sick time by April 15. Employers should proceed as if the paid sick leave law will take effect on May 1, 2025, and they are able to provide the required notices by April 15.
Breaking Down the New No Surprises Act FAQs Post-TMA III
On January 14, 2025, the US Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the Departments), along with the Office of Personnel Management (OPM), jointly issued Part 69 of a series of frequently asked questions (FAQs) designed to help stakeholders understand and adhere to the federal No Surprises Act (NSA). This installment of the FAQs discusses how health plans and issuers should calculate the qualifying payment amount (QPA) and provides updates to disclosure and patient cost-sharing requirements following rulings by the US District Court for the Eastern District of Texas and the US Court of Appeals for the Fifth Circuit in Texas Medical Association, et al. v. United States Department of Health and Human Services, et al. (together, the TMA III decisions).
In Depth
BACKGROUND: THE LONG HISTORY OF THE NSA
The NSA was enacted under the first Trump administration as part of the Consolidated Appropriations Act, 2021 (Public Law No: 116-260). The Departments and OPM jointly implemented provisions of the NSA through the issuance of two interim final rules (IFRs) in July 2021 and October 2021.
The NSA prohibits out-of-network (OON) providers from balance billing patients for certain services furnished at an OON facility (in the case of emergency services) or in-network facility (in the case of non-emergency services provided by OON providers). The NSA protects patients from receiving these “surprise” bills, effectively limiting patient responsibility for some services to no more than the patients’ in-network cost-sharing amounts. (The NSA includes separate considerations related to air ambulance providers, which we do not address in this article.)
Per the NSA and as further implemented in the October 2021 IFR, plans and issuers are required to determine whether claims for items or services submitted by an OON provider or facility and subject to the NSA are covered under the plan or coverage and must send an initial payment or notice of denial of payment to the OON provider or facility no later than 30 calendar days after the provider or facility submitted the claim to the plan or issuer.
To the extent the claim is covered, the NSA also sets forth a methodology by which plans or issuers must calculate the OON rate for OON providers or facilities that rendered items or services subject to the NSA. Plans and issuers must pay the provider or facility an amount determined by an applicable All-Payer Model Agreement, and if none exists, an amount determined by applicable state law. If state law does not set forth a mechanism by which the OON rate should be determined, the plan or issuer may negotiate the rate with the provider or facility through an “open negotiation” process, which lasts 30 days.
If the parties are unable to agree to an OON rate by the expiration of the open negotiation period, either party may initiate a dispute under the federal independent dispute resolution (IDR) process established by the NSA. The IDR process involves several steps:
The disputing parties must agree on and select a third-party entity (referred to as a certified IDR entity) to oversee the process.
Each party must then submit payment offers to the IDR entity.
The IDR entity evaluates the payment offers and determines each party’s payment responsibility. The NSA requires that the IDR entity consider, among other factors, the QPA, defined as the median of the contracted rates that a plan or issuer recognizes for the same or similar service by a provider in the same or similar specialty in the same geographic area as the service at issue.
Once the IDR entity makes a payment determination, the plan or issuer must make the payment to the OON provider or facility within 30 calendar days.
In August 2022, the Departments issued final rules implementing provisions regarding certain disclosure requirements for plans and issuers (discussed further below) and modifying certain requirements pertaining to how IDR entities can take into account the QPA in determining the OON rate through the IDR process.
In theory, the IDR process is straightforward. However, the NSA and the IDR process, including the significance of the QPA in determining the OON rate, have been the subject of consistent litigation and operational issues, suggesting that in practice, providers and health plans continue to encounter implementation challenges.
HISTORY OF TMA LITIGATION
A string of litigation continues to shape the NSA and the related IDR process, which originated with a suit filed by the Texas Medical Association (TMA) against HHS in October 2021. In Texas Medical Association v. United States Department of Health and Human Services, et al. (TMA I), the district court vacated the Departments’ IFR requiring IDR entities to use a rebuttable presumption in favor of the QPA. The court held that the presumption conflicted with the NSA’s plain meaning, which lists a set of factors for consideration when determining the appropriate OON rate, only one of which is the QPA.
After the TMA I decision, the Departments issued the August 2022 final rules, which specified elements that IDR entities must consider in resolving OON payment disputes, including the extent to which the QPA should be taken into account. The August 2022 rules required that IDR entities:
First consider the QPA for the same or similar service.
Limit factors to information provided by the disputing party.
Document non-QPA factors relied upon in making a payment determination.
However, TMA challenged this rule in Texas Medical Association v. United States Department of Health and Human Services, et al. (TMA II), which the Fifth Circuit eventually vacated in TMA III. The Fifth Circuit stated that the Departments exceeded their authority by instructing IDR entities to prioritize one factor over others.
In August 2023, the district court issued a decision in TMA III, overturning key parts of the method set forth by the Departments to calculate the QPA. Following this ruling, the Departments have exercised their discretion in enforcing how QPAs are calculated, leading to uncertainty for plans and issuers as well as providers and facilities. The federal government appealed part of this decision, and on October 30, 2024, the Fifth Circuit issued a ruling on the TMA III case, partially reversing the district court’s decision, while upholding other parts.
The district court’s TMA III opinion found that the Departments’ methodology for calculating the QPA did not comply with the NSA. This noncompliance was due to:
The inclusion of “ghost rates” (i.e., contacted rates for services not actually provided by the contracting provider during the contract period).
The exclusion of risk-based incentive payments.
The allowance for self-insured plans administered by a third-party administrator to use other plans administered by the third-party administrator to calculate QPAs.
The district court also found that rules related to the timing and deadline for payment of OON claims subject to the NSA did not comply with the statute, because they started the 30-day payment clock on the date the plan or issuer received sufficient information to determine whether the submitted claim was a “clean claim,” rather than the date the provider or facility transmitted a “claim.”
Reversing the district court’s decision in part, the Fifth Circuit held that single-case arrangements will no longer be included in QPA calculations. The Fifth Circuit also reversed the district court’s decision that non-fee payments, such as quality bonuses and other incentives, must be included in QPA calculations. Regarding the timing of OON payments subject to the NSA, the Fifth Circuit affirmed the district court’s decision that starting the 30-day payment clock upon receipt of a “clean claim” conflicts with the text of the NSA. As decided by the district court, the 30-day prompt payment clock for NSA-eligible claims will begin on the date the provider transmits the bill, not when the plan or issuer receives the information necessary to determine whether the claim is a “clean claim.”
Regarding the QPA calculation, the Fifth Circuit reversed the district court’s decision to exclude from QPA calculations any contracts for items or services that contracting providers did not actually furnish under said contract during the designated plan year. Contracted rates can now be included in QPA calculations regardless of whether the provider actually furnished those services. However, the Fifth Circuit reiterated the statutory requirement that QPAs be calculated using contracts for the “same or similar item or service that is provided in the same or similar specialty.” This implies that “ghost rates” (e.g., anesthesia rates included in a primary care physician’s contract) must be excluded from QPA calculations.[1]
Following the TMA III decisions, the Departments stated on the Centers for Medicare and Medicaid Services’ NSA webpage in October 2024 that they were reviewing the Fifth Circuit’s decision and intended to “issue further enforcement guidance in the near future.”
NEW GUIDANCE ISSUED FOR QPA CALCULATIONS POST-TMA III DECISIONS
In the wake of the TMA III decisions, the Departments issued the FAQs addressing implementation of certain provisions of the NSA and responding to questions from stakeholders. Under the FAQs, the Departments and OPM will require health plans and issuers to calculate QPAs using a “good faith, reasonable interpretation of the applicable statutes and regulations that remain in effect following the decisions of both the Fifth Circuit and the district court in TMA III (the 2024 methodology)” once the Fifth Circuit issues its final order. Under Federal Rule of Appellate Procedure 41, a court of appeals’ mandate usually issues seven days after the deadline for rehearing petitions, unless a petition is filed. In this case, the Fifth Circuit withheld the mandate after the plaintiffs in TMA III filed a petition for rehearing en banc. Until the mandate is issued, the district court’s judgment continues to bind the Departments.
The Departments and OPM acknowledged the challenges of recalculating QPAs because of the Fifth Circuit’s decision and recognized the time and resources required for this task. Therefore, the Departments opted to prolong the existing period of “enforcement discretion” for any health plan or issuer that calculates a QPA using either the 2021 methodology (based on the IFRs and guidance issued in July 2021) or the 2023 methodology (based on the statutes and regulations that remained in effect after the district court’s decision in TMA III). Both methodologies can be used for items and services furnished before August 1, 2025, as long as they are based on a good faith, reasonable interpretation.
Once the mandate is issued, the Departments and OPM will also use their discretion to enforce the NSA for any health plan, issuer, or party involved in a payment dispute that uses a QPA calculated with the 2023 methodology for services provided before August 1, 2025. This enforcement discretion applies to patient cost-sharing, required disclosures with initial payments or notices of denials, and submissions under the IDR process. Similarly, HHS will exercise enforcement discretion for providers and facilities that bill patients based on a QPA calculated with the 2021 or 2023 methodology for services provided before August 1, 2025. Thus, the FAQs clarify that the enforcement discretion extends to providers in addition to health plans.
The FAQs encourage states, which primarily enforce the NSA, to adopt a similar approach, including that states will be considered compliant if they follow this approach. The Departments and OPM will reassess whether additional enforcement relief time is needed as health plans and issuers work to comply with the applicable laws and regulations following the TMA III decisions.
The new FAQs essentially preserve the existing circumstances, as the enforcement discretion has been operative since fall 2023 after the district court’s TMA III decision. Alongside the enforcement guidance, the Departments and OPM offer further clarifications regarding the existing QPA disclosure requirements and patient cost-sharing obligations.
DISCLOSURE REQUIREMENTS
In line with previous guidance, which remains unaffected by the TMA III decisions, health plans and issuers must continue to disclose information about the QPA. The QPA is used to determine the “recognized amount” for cost-sharing under the NSA. This recognized amount is calculated using the All-Payer Model Agreement, specified state law, or the lesser of the billed charge or QPA. A health plan or issuer may certify that a QPA was determined in compliance with applicable rules by using a good faith, reasonable interpretation of the statutes and regulations that remain in effect following the TMA III decisions.
The FAQs address questions regarding the 30-day notice and IDR process discussed earlier, and how the timing is affected when a plan sends the initial payment or denial notice electronically but provides the required disclosures in paper form. This can result in the provider receiving the payment or denial notice earlier than the disclosures. The Departments and OPM clarify that a plan must transmit the required disclosures on or near the date that it sends the initial payment or notice of denial of payment, and must ensure that both the initial payment or notice of denial of payment and the required disclosures are sent no later than 30 calendar days after the plan receives the information necessary to decide a claim for payment for the services billed by the provider.
The Departments and OPM also state in the FAQs that they recognize that sometimes providers and facilities receive required disclosures days after receiving the initial payment or denial notice. Since the 30-business-day period to start open negotiation begins when the payment or denial notice is received, this delay can shorten the time available to review the disclosures. If the disclosures are sent in paper form and arrive later than the electronic payment or denial notice, the 30-business-day period to start negotiations will be considered to begin once both the payment or denial notice and the disclosures are received. Providers can still choose to start negotiations after receiving the payment or denial notice but before receiving the disclosures.
PATIENT COST-SHARING
The Departments and OPM reiterate in the FAQs that patient cost-sharing rules under the NSA and the July 2021 IFR for OON emergency services and certain non-emergency services are based on the “recognized amount.” According to the Departments and OPM, some health plans have been found to increase cost-sharing amounts after an IDR payment determination, which is not allowed. Once an IDR entity makes a payment determination, plans cannot recalculate or increase the cost-sharing amount if it exceeds the permitted amount. The rules ensure that disputes between providers and payers do not affect the cost-sharing amount for individuals. Nonparticipating providers cannot bill individuals more than the allowed cost-sharing amount. Any payment owed to nonparticipating providers after an IDR determination must be paid in full without reducing the amount based on prohibited cost-sharing increases.
CONCLUSION/KEY TAKEAWAYS
As stated earlier, Part 69 of the FAQs extends the status quo of enforcement discretion around the calculation of the QPA. Any new regulations related to the QPA calculation will need to be drafted under the Trump administration, although the timing for issuing such regulations is unclear. If the Trump administration decides to draft new QPA regulations, it could make additional changes to the QPA methodology beyond those that have been the subject of litigation. While the courts have provided direction on what is permissible under the NSA and what aspects of previous regulations can and cannot stand, the rulings do not prevent the Trump administration from making other permissible regulatory changes as it deems appropriate, especially as stakeholders have challenged implementation of the law under the previous administration.
Beyond issuing this new set of regulations, the Trump administration also may need to deal with open operational questions and issues, including proposed regulations from the Biden administration that have yet to be finalized and whole provisions of the NSA that are yet to be implemented.[2] All of this means that, if it chooses to act, the Trump administration could decide to make its own imprint on the current NSA operations and policy.
What Every Multinational Company Needs to Know About … Criminal Enforcement of Trade, Import, and Tariff Rules: A Growing Risk for Businesses
In less than 100 days, the Trump administration has implemented a dizzying array of new tariffs, significantly increasing costs and complexity for U.S. importers. The administration is keenly aware that companies operating in this high-tariff environment may attempt creative, or even fraudulent, strategies to minimize tariff payments. Consequently, enforcement agencies have been directed to closely monitor and vigorously prosecute efforts at improper tariff engineering and duty evasion.
Historically, U.S. Customs and Border Protection (CBP) has relied heavily on its administrative remedies to enforce the customs and tariff laws. The Department of Justice (DOJ), however, has been steadily escalating enforcement intensity, notably through the False Claims Act (FCA), leveraging its treble damages and civil penalties to pursue false statements about imports. For a more detailed explanation of how the FCA has been used in this area, please see our recent blog post, “What Every Multinational Company Should Know About … The Rising Risk of Customs False Claims Act Actions in the Trump Administration.”
DOJ also has demonstrated a growing willingness to pursue criminal charges against companies and individuals involved in customs fraud schemes such as the purposeful misclassification of goods, falsifying country-of-origin declarations, and intentionally shipping goods through low-tariff countries. Importers of goods into the U.S. should expect criminal enforcement to accelerate in the coming months and years.
Potential Criminal Charges for Violating Customs Rules
DOJ has several available charging options in pursuing criminal cases against companies and individuals who violate customs rules by making false statements about customs requirements such as classification, country of origin, valuation, assists, and free trade preferences. Commonly used federal criminal statutes that could apply to tariff underpayments include:
Smuggling (18 U.S.C. § 545), which criminalizes knowingly and willfully importing merchandise into the U.S., contrary to law (e.g., misclassification or mislabeling to evade duties), and is typically used when importers intentionally misrepresent goods’ classification or origin to avoid or lower tariffs, often proven through seized documents or intercepted communications. This provision already has been applied in United States v. Esquijerosa, where an importer was charged with routing Chinese-origin goods through third countries to avoid tariffs, resulting in a December 6, 2024, guilty plea under the general conspiracy statute.
False Claims (18 U.S.C. § 287), which criminalizes knowingly making false, fictitious, or fraudulent claims to federal authorities and is used where importers knowingly provide false documentation or declarations to CBP concerning country-of-origin, valuation, related parties, or classification while paying improperly low customs or anti-dumping duties.
False Statements (18 U.S.C. § 1001), which criminalizes knowingly making materially false, fictitious, or fraudulent statements or representations to federal authorities and is frequently applied where importers intentionally provide false documentation or declarations to CBP concerning country-of-origin, valuation, related parties, or classification.
Wire Fraud (18 U.S.C. §§ 1343 & 1349), which criminalizes schemes to defraud involving interstate or foreign wire communications (such as emails or wire transfers) and can be applied to customs violations due to the prevalent use of electronic communications and financial transfers in import transactions, providing prosecutors leverage in complex schemes.
International Emergency Economic Powers Act (IEEPA) (50 U.S.C. § 1701), which criminalizes the willful evasion or violation of regulations issued under national emergency declarations concerning international commerce and could apply where importers deliberately evade tariffs or restrictions enacted under presidential authority during declared emergencies, such as recent trade actions involving China.
Conspiracy (18 U.S.C. § 371), which criminalizes any agreement between two or more persons to commit any of the above crimes.
Examples of Past Customs-Related Criminal Cases Brought by DOJ
Criminal prosecutions based on violations of customs rules do not require DOJ to break new ground. Here are a few significant criminal trade cases:
Plywood Tariff Evasion Case (2024): A Florida couple was charged under the Lacey Act and received 57-month prison sentences for evading approximately $42.4 million in customs duties. They fraudulently declared Chinese plywood as originating from Malaysia or Sri Lanka, avoiding anti-dumping duties exceeding 200%.[1]
Stargate Apparel (2019): DOJ filed criminal and civil charges against the CEO of a children’s apparel company, Stargate Apparel, Inc. The CEO was charged with participating in a years-long scheme to defraud CBP by submitting invoices that falsely understated the true value of the goods imported by his company into the United States.[2]
Food Importation Fraud (2013): Several individuals and two food processing companies were criminally charged for illegally importing a Chinese-origin food product by intentionally mis-declaring its origin and classification as Vietnamese. Through complex transshipment methods, the defendants sought to evade over $180 million in anti-dumping duties.
Fentanyl Precursors (2025): Indian chemical firms Raxuter Chemicals and Athos Chemicals faced criminal charges for smuggling precursor chemicals used in fentanyl production into the U.S. and Mexico, employing extensive false declarations to evade detection.[3]
How Customs Violations or Underpayments Come to DOJ’s Attention
Customs violations can come to DOJ’s attention through several channels:
CBP Referrals: CBP’s Automated Commercial Environment (ACE) uses sophisticated algorithms capable of identifying anomalies, suspicious patterns, or misrepresentations in import data. Fraudulent conduct will result in a referral by CBP to DOJ — similar to Health and Human Services’ very successful data mining tools, which have led to numerous civil and criminal fraud cases.
Voluntary Disclosures: Although CBP encourages self-reporting, prior voluntary disclosures can expose intentional misconduct, triggering criminal investigations.
Whistleblower Reports: Claims filed by employees or competitors under the FCA or reports submitted via CBP’s e-Allegations Program or the Enforce and Protect Act (EAPA) portal often reveal duty evasion schemes, prompting DOJ intervention. Several plaintiff-side FCA law firms are touting their experience in customs and trade cases, and we anticipate referral activity in this space to increase.
Navigating Increased Enforcement and Mitigating Risk
Criminal enforcement of CBP regulations presents significant risk for companies that serve as importers of record, who are responsible under CBP regulations for ensuring the complete and accurate submission of import data. In this new trade environment, there will be an increasing emphasis by CBP to detect importers attempting to make end-runs around higher tariffs, particularly from China.
Risk mitigation involves a thorough review of the company’s ACE data to assess the company’s importing patterns, focusing particularly on imports targeted for increased tariffs by the Trump administration. Companies also should evaluate the current state of their customs compliance to confirm consistent and robust procedures for classification, origin determination, valuation, and recordkeeping, to ensure that reasonable care in being used in import operations, and should consider preparing “reasonable care” memoranda to memorialize their treatment of how they are handling tariff-related obligations. Finally, importers should establish post-entry checks and reviews to ensure that they can correct any entry-related information submitted to Customs before it becomes final at liquidation. This is especially important in the context of a high-tariff environment, where potential penalties for underpayment of tariffs are vastly greater. Foley’s international trade team has developed a six-step tariff risk management plan, accessible here: “Managing Import and Tariff Risks During a Trade War.”
[1] U.S. Department of Justice (DOJ), Florida Conspirators Sentenced to Nearly Five Years in Prison Each for Evading Over $42 million in Duties when Illegally Importing and Selling Plywood, (Feb. 15, 2024), https://www.justice.gov/usao-sdfl/pr/florida-conspirators-sentenced-nearly-five-years-prison-each-evading-over-42-million
[2] U.S. Department of Justice (DOJ), Manhattan U.S. Attorney Announces Criminal And Civil Charges Against CEO Of Clothing Company For Million-Dollar Customs Fraud (June 6, 2019), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-and-civil-charges-against-ceo-clothing-company.
[3] U.S. Department of Justice (DOJ), Two Indian Chemical Companies and a Senior Executive Indicted for Distributing Fentanyl Precursor Chemicals (Jan. 6, 2025), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-criminal-and-civil-charges-against-ceo-clothing-company; see also Associated Press, 2 Indian Companies Charged with Smuggling Chemicals Used in Making Fentanyl (Jan. 6, 2025), https://apnews.com/article/indian-chemical-companies-charged-fentanyl-opioid-smuggling-d2cfbc05f0742953e35a05cd0c889dc3
Post-Transition Compensation/Buyout for Founding Law Firm Partners
Set Reasonable Expectations
Founder-owned law firms face unique challenges when it comes to transition planning. Ensuring a seamless handover to successor partners while maintaining profitability and morale is critical. This guide outlines practical strategies for managing founder partner buyouts and succession planning.
Challenges in Compensation Systems
Most small—to mid-sized firms compensate based on originations and profits. If both the founder and successor lawyer simultaneously receive credit in the compensation system, this can create financial difficulties. Recognizing these challenges early can help mitigate potential conflicts.
Practicalities of Buyouts
Buyouts are more practical between the retiring senior partner (seller) and the successor partners (buyers). Non-successor partners may resist contributing to a buyout that does not directly benefit them. Furthermore, a buyout may not be feasible depending on the firm’s profitability.
Transitioning the Founder’s Business
The founder’s business might not transfer successfully, and other partners may believe that the founding partner was already compensated while working and is not entitled to post-retirement pay. Junior partners who have worked on the senior partner’s clients might feel they deserve to inherit the relationships.
Alignment of Partner Timelines
The timelines of the remaining partners may not align with the potential benefits of buying out a founding partner. Recognizing these concerns is crucial, and founders should avoid overreaching. Sensible buyouts can help ensure that the firm’s top attorneys are not motivated to start a new firm to avoid paying senior partners a disproportionate share of current profits.
Assessing Retirement as an Independent Transaction
We advise clients to assess each retirement as an independent transaction. To perform this evaluation, the following tools are necessary:
Client profitability of the transitioning partner’s book of business
Capacity Analysis post-transition
Worklife timeline for the retiring partner
Worklife timeline for the remaining partner(s)
Origination ceding schedule
Pro-forma profitability of the transitioning book for three years
Compensation pro forma for the retiring partner and the successor partners
Objective and Process-Oriented Approach
Adopting an objective, process-oriented approach when determining a buyout price and structure minimizes the emotional aspects of negotiation. Firms equipped with the requisite data to conduct these analyses can establish expectations early in the process and create a framework for future buyouts.
Transition Modeling
To manage expectations effectively, we recommend initiating transition modeling two years before the start of any transition. We prefer a three-year buyout period with a declining payment schedule based on profitability measures before buyout costs.
Transition Compensation Elements
The key elements in setting transition compensation include an objective, process-oriented approach, early expectation-setting, and a consistent model.
Conclusion
Effective transition planning is essential for founder-owned law firms to ensure smooth succession and maintain firm stability. By recognizing potential challenges, adopting an objective approach, and initiating early planning, firms can navigate transitions successfully and safeguard their legacy.
Australian Federal Budget 2025-2026–Key Tax Measures and Instant Insights
The Australian Federal Government has just released its budget for 2025-26. The K&L Gates tax team outlines the key announced tax measures and our instant insights into what they mean for you in practice.
In summary, with an upcoming Australian federal election, the budget is light on substantive tax changes (other than personal income tax cuts), and largely defers measures to raise further revenue or amend the tax system until after the election. Whilst there will be some relief that there have not been further targeted tax measures (e.g. on multinationals), there is also likely to be disappointment that there has been no attempt at tax reform or addressing the large number of outstanding matters requiring clarification.
Key Announced Tax Measure
K&L Gates Instant Insights
Personal Income Tax Cuts From 1 July 2026
The Government has announced reductions in the first tax rate from 16% to 15% from 1 July 2026 and from 15% to 14% from 1 July 2027.
The Government has also increased the income threshold for where the 2% Medicare levy applies.
These will no doubt be welcome for individuals, and will likely form a key part of the Government’s campaign for re-election.
These changes have been largely targeted at low to middle income earners, although the tax cuts will apply to all taxpayers. Given the higher rates of inflation and wage growth, this essentially returns some (but not all) of the higher income tax take from “bracket creep” to taxpayers.
There is no relief however for businesses, small or large.
Managed Investment Trust (MIT) “Clarifications”
The Government is proposing to legislate to allow foreign widely held pension funds and sovereign funds to get access to the reduced MIT withholding tax rates on eligible income for “captive” MITs (i.e. where they are the sole actual or beneficial member of the MIT).
This is intended to “complement” the Australian Taxation Office’s (ATO’s) Taxpayer Alert TA 2025 / 1 which focused on restructuring to access MIT benefits and using structures to implement captive MITs.
This is a pre-announced, welcome change that confirms existing industry practice, and addresses a difference between the rules to qualify as a MIT and the rules to apply reduced withholding tax.
However, it was only necessary due to the ripple of serious concerns started by TA 2025/1 and focusing on “captive MITs” without sufficient clarity on the ATO’s concerns.
It remains clear that the ATO has a focus on foreign collective investment vehicles (i.e. funds) accessing MIT withholding concessions where they are the sole ultimate owner (even though they may themselves by widely held).
No Changes to Address Taxation of “Digital” Assets–Handball to the ATO
The Government has confirmed it will not legislate any amendments to the taxation laws to deal with the array of digital assets, such as “decentralised finance” (DeFi), gaming finance (GameFi) and non-fungible tokens (NFTs).
It also (in a fairly luke-warm way) endorsed the principles developed by the Board of Taxation (BoT) to guide taxation of digital assets, whilst also indicating that further ATO guidance will be available to address uncertainty.
Whilst the lack of a specific tax regime for digital assets is consistent with the BoT’s recommendations, the tepid endorsement of the BoT’s policy framework for digital assets provides little guidance on how the ATO is to develop further tax guidance to address the taxation of these novel assets, leaving the ATO to largely continue to act as policy formulator and implementor as well as revenue collector.
Based on the existing guidance, it is unlikely this will result in much relief for digital asset providers, platforms or investors.
No Further Guidance on Corporate Tax Residency
The Government has provided no update on the changes (promised back in Federal Budget 2020/21) on clarifying corporate residency laws, particularly following hardening of ATO guidance on corporate residency.
This means the ATO’s views in TR 2018/5 and PCG 2018/9 continue to be applied (notwithstanding the Government’s previously stated intent to address some of the challenges associated with those rules).
Foreign entities with Australian directors etc continue to face heightened risks of the ATO trying to allege Australian tax residency.
Announced but Unenacted Measures
The budget largely provides no clarity on a number of previously announced but unenacted measures, including:
Changes to increase scope of foreign resident CGT withholding tax – other than that this has been delayed until after legislation is enacted;
Clean building MIT rates for data centres and warehouses has been delayed until after legislation is enacted;
Small business instant asset write-off extension to 30 June 2025;
Part IVA amendments to deal with withholding tax;
CGT rollovers and response to the BoT’s review;
Additional taxation of superannuation balances over AU$3 million, including whether this incorporates unrealised gains; and
Changes to Division 7A (i.e. removal of distributable surplus requirement).
The list of announced but unenacted tax measures continues to grow and provides real uncertainty for the tax system and all taxpayers. Whilst there are some positive amendments, including deferring the commencement of the unreleased changes to foreign resident capital gains withholding, it largely leaves these matters unresolved.
Some of the measures, such as taxation of superannuation balances, are clearly baked into the budget revenue forecasts, and so although the Government has not succeeded in getting legislation passed, the intent remains to do so (pending its re-election).
The Government also appears to be in wait and see mode as to what the ultimate outcome is in the Bendel litigation to determine next steps on Division 7A.
However, there has been little or no clarity provided on most measures, and so taxpayers continue to face uncertainty. Whether we see some measures proceed will ultimately depend on the outcome of the election.
Continued Focus on Tax Integrity by the ATO
The Government has provided further funding to the ATO to address tax integrity and target tax avoidance arrangements, particularly focused on multinationals.
The Government has also provided additional funding to the ATO to address non-payment of superannuation contributions and amounts PAYG withheld on account of tax.
This will see the ATO continue to target key concerns – based on our experiences, in recent years this has involved multinationals, foreign investors (including private equity funds) and intellectual property arrangements.
The continued focus on entities using the PAYG withholding and superannuation contribution regimes as a source of funding is unsurprising, and we have seen dramatically increased ATO activity in this space. This has led to increased insolvencies in small to medium businesses.
Federal Contractor Minimum Wage Executive Order Revoked
On March 14, 2025, President Donald Trump issued an executive order rescinding several policies from the previous administration, including Executive Order 14026, which had increased the minimum wage for federal contractors.
Background on Executive Order 14026
Signed on April 27, 2021, by then-President Joe Biden, Executive Order 14026 mandated that federal contractors pay a minimum wage of $15 per hour. This policy aimed to improve the livelihoods of workers on federal contracts and was set to adjust annually with inflation. By January 1, 2025, the minimum wage under this order had risen to $17.75 per hour.
Implications of the Rescission
The revocation of Executive Order 14026 means that federal contractors are no longer required to adhere to the previously mandated minimum wage rates. Instead, they will revert to using wage determinations provided under existing laws such as the Service Contract Act and the Davis-Bacon Act. This change could lead to variations in wages across different federal contracts, depending on the specific stipulations of each agreement.
Conclusion
The rescission of Executive Order 14026 marks a significant shift in federal labor policy, reflecting the current administration’s priorities. As this policy change unfolds, its full impact on the federal contracting landscape and the workforce involved remains to be seen.
Understanding Partial Redemptions for Startup Founders
Being a startup founder is hard. Among other things, startup founders face long hours, resource constraints, intense pressure, and the need for constant adaptation and resilience in the face of uncertainty. Founders face all these tasks while also being severely underpaid, adding to the list of trials one of the more challenging: personal financial pressure.
As a result of such financial pressure, and the frightening uncertainty of success, it is not unusual for founders to consider a partial redemption or liquidity event in which they sell a portion of their shares to the company or directly to an investor, typically as part of a proposed financing round. Such a redemption provides cash to the founder in exchange for a reduced level of ownership and risk in the company. A partial redemption may be accomplished through a cash purchase directly from the company or by using a portion of the proceeds from a financing round. A partial redemption can be a strategic move with both advantages and potential drawbacks. Understanding the nuances of this transaction is crucial for founders and investors alike.
Why Consider Partial Redemption?
Several factors might drive a company to pursue a partial redemption of the founder’s shares:
Liquidity: Founders may seek to cash out a portion of their equity for personal or financial reasons.
Tax Planning: Partial redemption can offer tax advantages, especially when structured carefully.
Corporate Governance: Reducing the concentration of ownership can improve corporate governance and decision-making.
Employee Incentive Plans: Repurchased shares can be used to fund employee stock option plans or other incentive programs.
Key Considerations:
Before embarking on a partial redemption, several factors must be carefully evaluated:
Valuation: Accurately valuing the company’s shares is essential for determining a fair redemption price. The company should review the current 409A valuation and consider the potential impact the partial redemption will have on future 409A valuations.
Tax Implications: The tax consequences for both the company and the founder can vary significantly based on factors such as the founder’s holding period, the redemption structure and the company’s tax status. In general, a shareholder may exclude 100% of gain from the redemption of Qualified Small Business Stock (QSBS) for federal income tax purposes if certain issuance date and holding period requirements are met. However, a founder’s redemption may be disqualified from QSBS tax treatment.
Corporate Structure: The company’s legal structure and governing documents may impose limitations or restrictions on share redemptions.
Financial Impact: Repurchasing shares can reduce the company’s cash reserves and potentially affect its financial performance.
Shareholder Agreement/Investment Documents: Existing shareholder agreements or investment documents may contain provisions related to share transfers, redemptions, rights of first refusal, right of co-sale or tag-along rights. The partial redemption may trigger rights for existing shareholders who may wish to participate in the sale.
Potential Drawbacks:
While partial redemption can offer benefits, it also carries potential risks:
Dilution of Ownership: If the redemption is not carefully structured, it can lead to dilution of ownership for existing shareholders.
Company’s QSBS: Impact on Qualified Small Business Stock (QSBS) for existing shares as well as future purchases.
Market Perception: A significant share repurchase can sometimes be interpreted negatively by the market.
Loss of Talent: Founders may feel less motivated or committed to the company after a partial redemption.
The decision to redeem a founder’s shares is complex. Early exits and partial redemptions can provide liquidity and diversification for founders while allowing them to maintain some ownership in the company. However, it is important to consider the potential risks, structuring options and tax implications before the company and founder engage in such a redemption.
Government Lease Terminations Under DOGE—Impacts, Rights, and Remedies
Go-To Guide:
The Trump administration and DOGE have terminated nearly 100 leases including 1.4 million square feet in Washington, D.C.
If it exercises its rights to terminate during “Soft Terms,” the GSA could save up to $1.87 billion annually by 2028.
Government Lease Reductions and Market Impact
The Department of Government Efficiency (DOGE) and the Trump administration have been working to reduce federal office space and are seeking to terminate a large percentage of the approximately 7,500 General Services Administration (GSA) leases throughout the United States to reduce excess office space and associated costs. As of March 5, 2025, DOGE’s website lists 748 lease terminations among all federal agencies.
GSA manages a significant portion of existing federal leases and currently oversees 149 million square feet of office space throughout the United States, paying approximately $5.2 billion annually in rent to private landlords. DOGE’s primary focus thus far is on leases falling under GSA’s responsibility, but other federal agencies such as the Department of Veterans Affairs (VA) also hold a considerable number of leases that may be subject to future scrutiny.
The National Capital Region (Washington, D.C., and the close-in Maryland and Northern Virginia suburbs) has been particularly impacted by these efforts, with 11 leases that total 1.4 million square feet already terminated. Despite improvements in the office leasing market, declines may be in store for other localities with a federal government presence.
Government Lease Termination Provisions
Government leases typically limit the government’s ability to terminate before the natural expiration of the lease term. Unlike most government contracts, government leases usually lack a Termination for Convenience clause and are frequently divided into two distinct terms, a beginning “Firm Term” and a subsequent “Soft Term” (e.g., 15 years “Firm” followed by five years “Soft”). During the Firm Term, the government is prohibited from unilaterally terminating a lease unless the lessor is in material default and will not or cannot cure. If the government unilaterally terminates a lease during the Firm Term, the boards of contract appeals and courts, under well-settled case law, routinely require the government to pay all the remaining rent due to the lessor for the balance of the Firm Term as damages for such termination.
During the subsequent Soft Term, however, the government has broader termination rights, provided proper notice is given. These rights are set forth in GSA’s standard lease provision (with similar provisions in other government agency leases like the VA’s):
The Government may terminate this Lease, in whole or in parts, at any time effective after the Firm Term of this Lease, by providing not less than XX days’ prior written notice to the Lessor. The effective date of the termination shall be the day following the expiration of the required notice period or the termination date set forth in the notice, whichever is later. No rental shall accrue after the effective date of termination.
As a result of this structure, Soft Term leases face a greater risk of imminent termination. This year, GSA has the right to terminate 21.2 million square feet of leased space across more than 1,000 properties. By 2028, this termination right will expand to encompass 53.1 million square feet, or 35.5% of its leased space, spanning 2,532 properties.
Termination generally means that all remaining rent obligations of the government are ended. However, if the lessor still has incurred but unpaid or not fully amortized costs such as for tenant improvement work, the lessor should be able to submit a termination settlement proposal to the government seeking those costs plus a reasonable profit. Moreover, a relatively rare form of GSA lease permits the government to terminate only the services portion or operating cost rent; even if the termination is for default, the lessor will continue to receive the “base rent” for the balance of the lease term. This is known as a “credit” lease and the terms will readily identify it as such.
How Lessors and Lessees Are Adjusting
In light of potential lease terminations under the DOGE mandate, lessors should closely examine their GSA and other government agency lease portfolios, particularly focusing on leases nearing expiration, those about to enter into a Soft Term, or those with early termination options under particular lease amendments or supplemental lease agreements. Lessors should work to avoid possible defaults in lease performance and other instances of non-compliance with lease terms and conditions that may enable GSA to pursue a termination for cause. Some lessors are exploring early termination agreements and ensuring government assets are removed on time to avoid issues related to holdovers or rent claims. Furthermore, lessors should be aware of provisions in their loan agreements that require notice to lenders or other actions required upon receipt of any notice of non-renewal or termination of a lease.
Improper terminations may lead to litigation under the Contract Disputes Act (CDA), which creates a remedial scheme for resolving contract-based claims against the government. The CDA also provides an avenue for lessors to protect their rights if the government relinquishes and exits leased property without a specific termination right.
Meanwhile, government leasing agencies are evaluating their current and future office space needs in light of the changing requirements. Relocation planning and exploring alternative office spaces could play a key role in minimizing operational disruptions. Given the DOGE mandate, the agencies may also explore adjustments to lease terms or buyouts as options to maintain flexibility and manage potential costs.
Additional Author: Olivia Bellini
Safety Basics X: Unpacking the Process of Effective Workplace Safety Self-Audits [Podcast]
In this installment of Ogletree Deakins’ Safety Basics podcast series, John Surma (shareholder, Houston) is joined by Robert Rodriguez (shareholder, Sacramento) to discuss the important process of workplace safety audits, specifically focusing on voluntary self-audits. In their discussion, Robert (who is co-chair of Ogletree’s Workplace Violence Prevention Practice Group) and John emphasize the value and benefits of these audits, such as the ability to identify potential hazards, ensure compliance, and enhance safety culture. They also address key considerations for maintaining confidentiality and privilege throughout the audit process.
Layoffs at the Dept. of Education May Impact Office for Civil Rights Enforcement
On the evening of March 11, 2025, civil servants at the U.S. Department of Education’s offices in Washington, D.C. and throughout the country began receiving reduction in force notices. The Department announced that affected staff are expected to be put on administrative leave starting March 21, 2025 and their last day will be June 9, 2025.
While the Department has reiterated the importance of colleges and universities complying with federal antidiscrimination laws, including Title VI, through recent Dear Colleague Letters, Q&As, and enforcement actions in recent weeks – one of the offices most heavily impacted by Tuesday’s workforce reduction was the Department’s Office for Civil Rights (OCR).
OCR is tasked with enforcing the following federal civil rights laws at colleges and universities that receive federal financial assistance (as well as public elementary and secondary schools):
Title VI of the Civil Rights Act of 1964, which prohibits discrimination based on race, color, and national origin;
Title IX of the Education Amendments of 1972, which prohibits discrimination based on sex;
Section 504 of Rehabilitation Act of 1973, which prohibits discrimination based on disability;
Title II of the Americans with Disabilities Act, which prohibits discrimination based on disability by public entities; and
The Age Discrimination Act of 1975, which prohibits age discrimination.
OCR enforces these laws through directed investigations and compliance reviews, but mostly by responding to and investigating complaints of discrimination filed by anyone who believes that a college or university has discriminated against someone based on race, color, national origin, sex, disability, or age.
By Wednesday, March 12, 2025, it was reported and confirmed by the Department of Education that the Department’s reduction in force materially impacted seven of OCR’s 12 regional offices. As a result, OCR regional offices in Boston, New York, Philadelphia, Chicago, Cleveland, Dallas, and San Francisco may be closed. These regions investigate complaints against colleges and universities (and public elementary and secondary schools) in 25 states and 2 U.S. territories.
The impact is already being felt. Staff in the affected regional offices can receive emails, but can no longer respond to emails, make phone calls, or conduct video conference. Staff are expected to start administrative leave on or around March 21, 2025, and are supposed to have transferred their case loads to other career civil servants or political appointees by then.
On Thursday, March 13, 2025, Attorneys General from 20 states and the District of Columbia filed a lawsuit in federal court challenging the staff terminations at the Department of Education and requesting injunctive relief. In State of New York, et al. v. McMahon, et al., 1:25-cv-10601 (D. Mass), among other claims, the states allege that the reduction in force will hobble the Department’s ability to perform it statutorily-mandated functions, including enforcing federal civil rights laws.
Given that OCR announced one day before the reduction in force the importance of its Title VI antisemitism enforcement actions against 60 colleges and universities, key questions for colleges and universities in the affected regions are:
Who do we contact about pending cases?
Will scheduled meetings, interview, and on-site investigations go on as planned?
Where do we send in the college’s data response, if one is due?
Will a pending case still be processed by OCR and what process will OCR use?
The last question is one that higher education and civil rights attorneys have been watching carefully. Colleges and universities are used to relying on OCR’s Case Processing Manual (last updated February 19, 2025) to understand their rights and resolution options at the Office for Civil Rights. But what if OCR or the Department of Education is closed? Will responsibilities be transferred to the Department of Justice? Will individual states pick up oversight if one of their state laws apply? Or will complainants take their concerns not to a federal or state agency, but to a court?
Litigation Minute: Emerging Contaminants: Minimizing and Insuring Litigation Risk
WHAT YOU NEED TO KNOW IN A MINUTE OR LESS
As the scientific and regulatory landscape surrounding various emerging contaminants shifts, so too do the options that companies can consider taking to minimize and insure against the risk of emerging-contaminant litigation.
The second edition in this three-part series explores considerations for companies to minimize that risk and provides consideration for potential insurance coverage for claims arising from alleged exposure to emerging contaminants.
In a minute or less, here is what you need to know about minimizing and insuring emerging-contaminant litigation risk.
Minimizing Litigation Risk
As we discussed in our first edition of this series, regulation of emerging contaminants often drives emerging-contaminant litigation. For example, in emerging-contaminant litigation that alleges an airborne exposure pathway, plaintiffs’ complaints often prominently feature information from the US Environmental Protection Agency’s (EPA’s) National Air Toxics Assessment (NATA) screening tool and its predecessor, the Air Toxics Screening Assessment (AirToxScreen). AirToxScreen, and NATA before it, is a public mapping tool that can be queried by location, specific air emissions, and specific facilities to identify census tracts with potentially elevated cancer risks associated with various air emissions. Despite these tools’ many limitations, their simplicity and the information they provide have served as a foundation for many civil tort claims.
The takeaway: Since NATA and AirToxScreen use the EPA’s National Emission Inventory (NEI) as a starting point, companies with facilities that have emissions tied into NEI should carefully consider the implications of their reported emissions. For example, in some situations for some companies, it could be appropriate to consider whether to examine reported emissions and control technologies to determine whether adjustments can be made to reduce reported emissions to better reflect reality on a going-forward basis. In addition, requests for emerging contaminants sampling and reporting by regulatory agencies may be made publicly available.
Regulatory compliance is not always an absolute defense in tort litigation, but in most situations, compliance with existing regulations will be relevant to whether a company facing emerging-contaminant litigation met the applicable standard of care. Companies should examine applicable regulations against established compliance efforts and, as appropriate and applicable to any given company, consider whether it may be appropriate to closer examine compliance programs for continued improvements or audit established protocols to substantiate safety.
Insurance Coverage Considerations
Policyholders facing potential liability for claims arising out of alleged exposure to emerging contaminants should consider whether they have insurance coverage for such claims.
Commercial general liability insurance policies typically provide defense and indemnity coverage for claims alleging “bodily injury” or “property damage” arising out of an accident or occurrence during the policy period. While some insurers are now introducing exclusions for certain emerging contaminants (and most policies today have pollution exclusions), the underlying claim(s) may trigger coverage under occurrence-based policies issued years or decades earlier, depending on the alleged date of first exposure to the contaminant and the alleged injury process.
These older insurance policies are less likely to have exclusions relevant to emerging contaminants, and policies issued before 1986 are more likely to have a pollution exclusion with an important exception for “sudden and accidental” injuries, or no exclusions at all. In addition, some courts have ruled that pollution exclusions do not apply to product-related exposures or permitted releases of certain emerging contaminants.
In deciding whether there is potential insurance coverage for claims alleging exposure to emerging contaminants, policyholders should also consider whether they have potential coverage for such claims under insurance policies issued to predecessor companies. If insurance records are lost or incomplete, counsel can often coordinate an investigation, potentially with the assistance of an insurance archaeologist, and may be able to locate and potentially reconstruct historical insurance policies or programs.
The takeaway: Do not overlook the possibility of insurance coverage for potential liability regarding claims arising out of alleged emerging contaminant exposure. To maximize access to potential coverage, policyholders should act promptly to provide notice under all potentially responsive policies in the event of emerging-contaminant claims. Our experienced Insurance Recovery and Counseling lawyers can help guide policyholders through this process.
Our final edition will touch on considerations for companies defending litigation involving emerging contaminants. For more insight, visit our Emerging Contaminants webpage.