Insurance Reinsurance & Surety – Page 2

ISO Approves New Litigation Funding Disclosure Condition Endorsement

Third-party funding of high-stakes litigation can often make the difference between litigating the case or walking away. The financial arrangement often makes good sense, with investors helping to facilitate the pursuit of bona fide claims that might otherwise be forgone in exchange for a piece of the recovery. Insurance coverage disputes fit this model well, since those claims typically involve an insured who has already suffered some financial or other hardship and an insurance company with deep resources that refuses to pay the claim. It should come as little surprise, therefore, that the Insurance Services Office (ISO), an advisory and rating organization for the property/casualty insurance industry, recently approved a new endorsement that requires disclosure of third-party litigation funding agreements. The approval comes as courts and state legislatures step up demands for transparency in funding to curtail influence that funders may have over litigation strategy.
The Endorsement
The endorsement, drafted as a modification of multiple lines of commercial liability insurance, including CGL, operates to add a new condition to the policy. The endorsement provides, in pertinent part:
A. The following is added to the Conditions section:
Litigation Funding Mutual Disclosure
If we and an insured do not agree whether or to what extent a claim or “suit” is covered by this Policy, either party may make a written demand for mutual disclosure of any “third-party litigation funding agreement(s)” regarding that claim or “suit”.
When this demand is made, each party must disclose in writing within 30 days whether they or their attorney(s) have executed any “third-party litigation funding agreement(s)”. If a party or their attorney(s) have executed any “third-party
litigation funding agreement(s)”, the written disclosure must include:
a. A copy of such “third-party litigation funding agreement(s)”;
b. The names of each person or organization who has entered into such “third-party litigation funding agreement(s)”;
c. Whether such person or organization is required to approve of or be consulted on litigation or settlement decisions, and if so, the nature of the terms and conditions relating to that approval or consultation; and A brief description of the financial interest of any person or organization who provided such funding.
Each party must provide to the other party a copy of any update of their written disclosure within 30 days of:
a. Any change in the above information in Paragraphs through d.; or
b. When the parties or their attorney(s) have executed any “third-party litigation funding agreement(s)” after the initial demand.
The endorsement also goes on to add a definition of “Third-party litigation funding agreement” that broadly includes any agreement to provide litigation funding to a party or its attorneys.
Thus, in sum, the endorsement makes it a condition of coverage that the insured disclose all funding agreements that pertain to the subject claim or lawsuit upon request by the insurer, even where the funding agreement belongs to counsel.
The Potential Problems
1. Condition of Coverage.
Rather than add the disclosure requirement as a post-loss duty that the insurer might invoke in certain cases, the disclosure is added as a condition to coverage, meaning that a failure to satisfy that condition could jeopardize coverage under the policy without regard to a particular claim. It likewise potentially affords the insurer a remedy of policy rescission, which carries much more severe penalty than ordinary breach.
2. Unilateral, Not Mutual.
The endorsement purports to require a mutual disclosure that can be invoked by a request from either the insurer or the policyholder. To call the disclosure mutual is facially deceptive. Insurers do not use litigation funding, and certainly not on any regular basis. Thus, it is highly unlikely that an insurer is ever going to have a litigation funding agreement to disclose. And why would it? The insurer has deep resources, so there is no reason for an insurer to require financial backing and no reason to share a substantial portion of any recovery with a litigation funder. Second, in terms of recovery, in almost all instances where an insurer is litigating with its insured, the insurer holds the money that the insured is fighting to recover. The litigation funding model therefore would not work since there would not be a recovery from which the funder could recoup its investment, much less a multiplier on its deployed capital.
3. Potential Overbreadth and Conflicts.
The endorsement also is grossly overbroad. The endorsement calls for the disclosure of “any” funding agreement that concerns the claim or suit. Such broad wording would include both the underlying litigation and any subsequent related coverage litigation. However, although the endorsement purports to encompass the underlying litigation that has led to coverage, there would never be a need for funding in connection with that litigation since it is upon the insurer to defend consistent with its reservation of rights that is a prerequisite to any disclosure.
Additionally, the disclosure obligation extends beyond the policyholder and its insurers to include policyholder counsel. This is problematic on multiple levels. In almost all instances, counsel are not a party to the insurance policy and, thus, never agreed to be contractually bound by the terms and conditions of coverage. Yet a failure to abide could jeopardize coverage for its client. This presents a conflict of interest between the policyholder and its attorneys where the attorneys are unwilling or unable to disclose their counsel-side or portfolio-level funding. It likewise puts counsel in a Catch-22, where no matter what counsel chooses to do, it will either violate the condition to coverage or violate its own agreement to keep its funding agreement confidential.
4. Discovery Implications.
The endorsement may also have discovery implications. For example, courts in Delaware and New Jersey permit further discovery about funders only if the requesting party demonstrates good cause or shows the funder has authority over litigation decisions. In jurisdictions with similar rules, required disclosures may expedite expanded discovery as insurers can be expected to want to fully understand the financial backing of its adversary in any significant litigation. Conversely, in jurisdictions that do not ordinarily permit funder discovery, the new funder disclosure endorsement could open the door to funder discovery since the funding agreements will become part of the evidentiary record upon a disclosure demand under the policy.
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At bottom, as litigation funding continues to evolve, policy endorsements mandating the disclosure of litigation funding agreements stand to play a critical and potentially disruptive role in coverage litigation by, among other things, potentially forcing a conflict between the policyholder and its coverage counsel where the law firm has engaged in a counsel-side funding agreement that it was not required to disclose to its client.

Litigation, Insurance, and Business Losses- The Many Costs of Hiring Bad Drivers

For many businesses—whether delivering goods, transporting equipment, or simply sending employees on the road—hiring safe, reliable drivers is essential. But what happens when a business puts someone behind the wheel who has a less-than-perfect driving record? The risks go far beyond the occasional fender bender repair bill. Under North Carolina law, a careless hiring decision can expose a business to lawsuits, higher insurance costs (or loss of insurance altogether), reputational harm, and in some cases, long-term financial instability.
So Sue Me
In North Carolina, a business can be held liable under the legal doctrine of negligent entrustment if it allows an employee to drive a company vehicle when the business knew—or should have known—that the driver was unfit or unsafe.
For example, if an employer hires a driver with multiple speeding tickets, a prior DWI, or a suspended license, and that driver causes a serious accident while on the job, the injured party may not only sue the driver but also the employer. The claimant would argue that the business negligently entrusted a vehicle to someone who posed a foreseeable risk of harm.
Courts in North Carolina look at whether the employer had actual knowledge (or should reasonably have had knowledge) of the driver’s poor record. In practice, this means companies are expected to screen drivers thoroughly before handing over the keys. Ignoring red flags can be legally—and financially—devastating.
In addition to negligent entrustment, North Carolina businesses can be liable for their drivers’ actions under other legal doctrines. For instance, an injured party may assert that the business is liable for negligent hiring, retention, or supervision of the at-fault driver. Further, the negligence of the at-fault driver typically can be imputed to the business based on the doctrine of agency, making the business liable for any harm caused.
Jeopardizing Your Safety Net
Insurance is supposed to be the safety net when accidents happen, but a poor driver history within a company can compromise both coverage availability and affordability.

Higher Premiums: Insurance carriers review the driving records of employees who will operate company vehicles. A pattern of accidents, citations, or DUIs among employees can cause premiums to skyrocket.
Coverage Limitations: Some insurers may decline to cover certain drivers altogether, requiring businesses to restructure their operations or assign duties away from risky employees.
Non-Renewal or Denial: In severe cases, a business could be denied coverage or dropped altogether if its drivers are deemed too risky to insure. Without proper commercial auto insurance, the company is left financially exposed.
Direct Financial Responsibility: In the case of serious personal injuries or death, a business could be liable for monetary damages above the limits of their insurance, should the damages exceed the available insurance coverage.

Word on the Street
Beyond lawsuits and insurance premiums, businesses may suffer reputational harm, lost contracts, or reduced client trust if they become known for unsafe driving practices. In industries like logistics, transportation, delivery, or construction, for example, safety records are not just internal metrics—they are often reviewed and scrutinized by potential clients, government regulators, and, in some cases, even the general public.
Practical Steps to Reduce Exposure:

Screen driving records before and during employment
Establish clear standards for acceptable driving histories and reporting
Provide ongoing safety training and monitoring
Work with insurance professionals routinely to ensure proper coverage

Bottom Line
Hiring decisions matter. A driver’s record is not just a personal liability—it can become your company’s liability. Handing the keys to a driver with a checkered record is more than just a gamble—it can amount to negligent entrustment and expose a business to lawsuits and crushing insurance problems. Prudent hiring practices, setting strong standards, rigorous monitoring, and proactive insurance planning are not optional; they are essential for any business that relies on (or simply allows) employees to get behind the wheel. When it comes to protecting your business, the safest road forward is the one paved with informed risk management decisions.

Captive Insurers, Take Note: Jurisdiction Isn’t Just About Where You’re Based

Captive insurers are formed with careful attention to domicile to select for favorable tax, regulatory, and operational climate. But as a recent decision reminds us, jurisdictional exposure doesn’t end with the state or country of incorporation. Captive insurers, like any other entity, can find themselves subject to litigation in jurisdictions where their conduct has an effect. Understanding this reach is essential to managing risk from an insurance and corporate governance perspective.
Captive Insurance Overview
Unlike the typical insured-insurer relationship, a captive insurer is wholly owned and controlled by the insured. Captive insurance is a form of self-insurance outside of the commercial insurance market where the insured establishes a licensed insurance company to insure their own risks. There are several types of captive insurers, including those established by a single company, multiple companies (usually within the same industry), or a trade or professional association. In each case, the insured party or parties put their own capital at risk, usually through premiums, and claims are handled under the terms set by the captive insurer.
Captive insurers often are formed where the commercial insurance market is prohibitively expensive, unavailable, or not fit for the insured’s needs. Other benefits may include reduced costs, tailored coverage, and tax advantages.
When establishing a captive insurer, where to incorporate is often a prime consideration for regulatory and tax reasons, as well as legal exposure and personal jurisdiction. Regarding the latter two considerations, insureds should be aware that legal exposure and personal jurisdiction are not limited to a captive insurer’s place of incorporation. A recent case, Mayer v. Goldner, No. 2024CVS1258 (N.C. Bus. Ct. Oct. 2, 2025), illustrates this point.
The Mayer v. Goldner Decision
This case centers on a shareholder dispute involving Sherbrooke Corporate Ltd., a captive insurer operating in North Carolina. Minority shareholders sued the majority shareholder. The majority shareholder and Sherbrooke responded with counterclaims and third-party claims, notably against Grand Hook Agency, LLC. The third-party complaint alleged that while serving as Sherbrooke’s officers, minority shareholders formed Grand Hook to compete with Sherbrooke. Among other acts, they allegedly defamed Sherbrooke to the North Carolina Department of Insurance, damaging Sherbrooke’s reputation in its home state.
Grand Hook moved to dismiss for lack of personal jurisdiction, arguing it had no physical presence or business dealings in North Carolina. The court, however, found that specific jurisdiction existed because Grand Hook—through its agents—allegedly engaged in intentional tortious conduct directed at North Carolina, knowing the harm would be felt there. The court emphasized that physical presence is not required for personal jurisdiction when a defendant’s actions are purposefully directed at the forum state. Accordingly, the court denied Grand Hook’s motion to dismiss, holding that exercising jurisdiction would not offend due process under the circumstances.
Key Takeaway
Forming a captive insurer involves many strategic decisions, one of which is where the captive insurer may be subject to jurisdiction. While where the captive insurer is headquartered and incorporated are factors in this jurisdictional analysis, it doesn’t end there. As illustrated by Mayer, the captive insurer’s after-formation conduct can subject it to jurisdiction in other forums. While jurisdictional planning shouldn’t eclipse a captive’s core purpose to manage and insure risk, it should remain an active part of risk management itself.

Ohio Enacts Mini-WARN Act- What Employers Need to Know

On September 29, 2025, Ohio joined 13 other states with its adoption of a “mini-WARN” Act (“Ohio WARN”), which will supplement federal WARN notice requirements for employers anticipating mass layoff events.
Enacted at Ohio Revised Code Section 4113.31, Ohio WARN largely tracks federal WARN standards, however, there are notable differences from federal WARN of which Ohio employers should be aware. In addition, the Ohio WARN statutory language contains a few key ambiguities that may complicate employer compliance with the law until these points are addressed in either a statutory amendment, regulations, or official guidance.
Coverage
Ohio WARN incorporates by reference federal WARN’s definition of “employer,” which in general covers employers who employ at least 100 “full time” employees, excluding “part-time” employees, (each term as uniquely defined in the statute); or alternatively, 100 or more employees (including “part-time”) employees who, in the aggregate, work at least 4,000 hours per week.
However, in a different section of the statute, Ohio WARN then appears to articulate a definition of “employer” that does not align with the federal definition by stating that notice is only required if an employer “employs one hundred or more employees who in the aggregate work at least four thousand hours a week.” This seems to define a covered employer only as one whose 100 employees work the minimum aggregate weekly amount and does not appear to account for the federal WARN’s distinction between “full-time” and “part-time” employees.
Moreover, federal WARN’s calculation of 4,000-aggregate hours excludes any overtime hours worked. In contrast, Ohio WARN does not clearly address whether overtime hours worked are included in this determination, although the introductory statement of this section of the statute provides that the determination is to be made “[i]n accordance with 29 U.S.C 2101(a)(1)(B),” which could be read to suggest that the federal exclusion of overtime hours is applicable. We hope that the state will clarify these ambiguities.
Notice Definitions
Both federal and Ohio WARN require covered employers to provide 60-days’ advance notice in the case of a “mass layoff” or “plant closing,” but the federal and state laws differ slightly in the content requirements of a WARN notice and who must receive such a notice.
As with the definition of “employer,” Ohio WARN explicitly incorporates the federal WARN definitions of “mass layoff” and “plant closing.” Under federal WARN, a “plant closing” occurs when a single workplace is closed permanently or temporarily, and the shutdown results in an employment loss of at least 50 employees during any 30-day period. Under federal WARN, a “mass layoff” occurs when the employer terminates, at a single workplace over any 30-day period, (i) at least 33% of active, full-time employees, and (ii) at least 50 full-time employees. The “33%” requirement does not apply if at least 500 full time employees are affected. In addition, federal WARN has an alternate 90-day aggregation period for employment losses that occur in two or more grouping where neither grouping reaches the trigger threshold on its own and where the groupings are not the result of “the result of separate and distinct actions and causes.”
However, here too, Ohio WARN confusingly seems to require notice in circumstances that do not align with the federal “mass layoff” or “plant closing” definitions by stating that notice is only required if “[t]he employer lays off fifty or more employees at a single site of employment during any thirty-day period.” This statutory provision does not refer to or appear to incorporate the federal WARN “mass layoff” requirement that one-third (33%) of the “full-time” employees employed at the worksite experience a loss of employment. Nor does Ohio WARN appear to incorporate federal WARN’s alternate 90-day aggregation provision, which applies to both “mass layoffs” and “plant closings.” It is not clear if this provision of Ohio WARN (Section 4113.31(C)) is intended to limit or otherwise revise the statute’s explicit incorporation of federal WARN’s definition of “mass layoffs” and “plant closings.” Further statutory amendments, regulations, or official guidance may clarify this ambiguity.
Additional Notice Requirements
Under federal WARN, employers must notify union representatives (if applicable), individual affected employees who are not represented by a union, the state dislocated worker unit, and the “unit of local government” where the affected work site is located.
Ohio WARN tracks these requirements, but it also broadens the notice requirements. Significantly, notices to union representatives and non-represented employees must include a “detailed statement” that explains the reason for the mass layoff or plant closing.
In addition, Ohio WARN notices to non-unionized, individual employees must include:

Information on how to access unemployment insurance benefits and other assistance programs; and
Information on any available services for affected employees (e.g., job placement services, retraining programs, counseling, etc.).

Notices to the Director of Job and Family Services and elected local officials must provide, in addition to federal requirements:

A description of any taken or planned mitigation measures (e.g., efforts to secure alternative employment, training for affected employees); and
A copy of the notice provided to affected employees and/or their representatives.

In addition to the chief elected official of the municipality where the plant closing or mass layoff is to occur, Ohio WARN, like federal WARN, requires notice be sent to the chief elected official of the county where the plant closing or mass layoff is to occur.
Ohio WARN does incorporate by reference federal WARN’s “exceptions” where the 60-day notice period may be shortened or waived, such as “unforeseeable business circumstances,” “faltering company,” and natural disaster provisions.
Penalties
Ohio WARN Act incorporates the same penalties for non-compliance as federal WARN. Aggrieved employees may seek back pay and employee benefits for each day that the employer was in violation. However, Ohio WARN does not appear to incorporate the civil penalty provisions available to be paid to the state, or address whether state governmental entities may sue employers for non-compliance.

CMS Releases CY 2026 Physician Fee Schedule Final Rule

On October 31, 2025, the Centers for Medicare & Medicaid Services (CMS) released the Calendar Year (CY) 2026 Medicare Physician Fee Schedule (PFS) final rule, which includes policies related to Medicare physician payment and the Quality Payment Program. These policies will take effect January 1, 2026, unless otherwise noted. Despite significant stakeholder comments, CMS largely finalized its policies as proposed, with modest adjustments to key payment reforms.
Key takeaways from the CY 2026 PFS final rule

Conversion factors (CFs): The final CY 2026 physician CFs are $33.5675 for clinicians who are qualifying participants (QPs) in advanced alternative payment models (APMs), and $33.4009 for other clinicians, representing an increase of 3.77% and 3.26%, respectively, from the final CY 2025 CF.
Efficiency adjustment: CMS finalized a 2.5% efficiency adjustment for all codes except those specifically excluded, which include time-based codes, services on the telehealth list, and maternity care codes with an MMM global period. In a notable change from the proposed rule, CMS also exempted new services from the adjustment.
Indirect practice expense (PE) reallocation: CMS reduced the amount of indirect PE allocated per work relative value unit (RVU) for facility services to 50% of the amount allocated for non-facility services. Maternity services with an MMM global period are exempt.
Skin substitutes: CMS finalized a major payment policy change for skin substitutes, unpackaging payment for the products and paying for them separately based on a flat fee as incident-to supplies.
Medicare Diabetes Prevention Program (MDPP): CMS established policies to expand participation in the MDPP, most notably by allowing MDPP suppliers to deliver MDPP services online through December 31, 2029.
Ambulatory Specialty Model (ASM): CMS moved forward with its proposal to launch a new mandatory five-year APM for heart failure and low back pain.
Merit-based Incentive Payment Program (MIPS): CMS finalized policies to stabilize the program, most notably by maintaining the 75-point performance threshold required to avoid a penalty and receive a positive payment adjustment through the 2028 performance period. CMS also finalized policies that support its goal of fully transitioning to MIPS Value Pathways.
Medicare Shared Savings Program (MSSP): CMS finalized changes projected to reduce Medicare spending by $20 million through 2035 and encourage broader participation.

Kristen O’Brien and Rachel Stauffer contributed to this article

When Federal Contracts Meet Insurance Coverage – Part 1

The Federal Acquisition Regulation (FAR) is a comprehensive set of regulations governing federal procurement — prescribing how agencies acquire goods and services and how contractors compete for, win, and perform government contracts. This encyclopedia of federal procurement addresses everything from debriefing rights to small business subcontracting requirements to how agencies should evaluate proposals. It also speaks directly to insurance and risk allocation. This series of blog posts will examine several common FAR clauses addressing insurance and risk allocation and will explain their significance from both a government contracts and an insurance coverage perspective.
The FAR & Its Insurance Provisions
The FAR contains both explanatory guidance and model contract clauses. The guidance on insurance is found in Part 28.3, and the model contract clauses related to insurance are found in Part 52.228. Agencies must follow the guidance of Part 28.3 and, where directed to do so, insert appropriate contract clauses from Part 52.228 into solicitations (and the resulting contracts).
Reading the text of the guidance and the contract clauses is essential. Some of the clauses impose mandatory requirements, using language such as “shall” and “must,” whereas other clauses merely incorporate permissive language, stating that an agency “may” institute certain insurance requirements. For example, FAR 28.307-2 states that the agency “must require” certain liability insurance coverage, while FAR 28.306(a) states that “in special circumstances agencies may specify” certain insurance requirements.
The FAR Council is undertaking a comprehensive redesign of the FAR (for more information, see our post explaining this project). As part of this process, the FAR Council has published model deviation text for various FAR parts, and agencies are issuing class deviations indicating their implementation of that model deviation text. Importantly, Part 28 is being retained with only minor changes made for plain language clarity.
What’s Next?
Over the next few weeks, this series will continue with posts examining three key areas of insurance that may be required by your government contract: automotive liability, liabilities for workers, and liabilities to third persons.

Automobile Liability — FAR 52.228-8 & 52.228-10: Federal contracts involving vehicles often include auto-related insurance requirements. These clauses generally identify the party responsible for injuries or property damage connected to vehicle use and ensure that contractors maintain adequate insurance to cover their share of that responsibility. In some cases — such as higher-risk transportation work — the contracting officer may require higher limits than state minimums to reflect the nature of the operations. Understanding these clauses helps contractors evaluate risk, structure insurance programs, and price work appropriately.
Liabilities for Workers — FAR 52.228-3 (Defense Base Act and Related Requirements): When contract performance involves employees working domestically or overseas, the government may require specific protections for workplace injuries. For example, the Defense Base Act applies to certain overseas projects and establishes a mandatory workers’ compensation framework with standardized benefits. These requirements ensure injured workers receive prompt support while preventing unexpected liability disputes. Contractors must be attentive to the scope of these obligations, particularly when work crosses state or national boundaries.
Liability to Third Persons — FAR 52.228-7: Some federal contracts address allocation of responsibility for claims brought by third parties (for bodily injury, property damage, etc.) that arise from contract performance. This clause outlines the kinds of losses the contractor is expected to cover and the circumstances under which the government may pay for or reimburse certain costs. It is designed to allocate risk fairly while ensuring claims are managed efficiently and without disrupting performance.

Together, these provisions govern major categories of operational risk. The subsequent posts in this series will take a closer look at when these clauses apply, how they affect real-world exposure, and what contractors should consider when reviewing solicitations and structuring their insurance programs. As a contractor, understanding how to map the FAR clauses in a solicitation to specific coverages, review exclusions and endorsements, and coordinate early with both government contracts and insurance coverage counsel will best position you to meet your obligations without assuming unintended exposure.
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IRS Issues Roth Catch-Up Contribution Rules for Highly Paid Participants

On September 16, 2025, the Internal Revenue Service (IRS) released a final regulation providing guidance on how plan sponsors should implement a requirement under the SECURE 2.0 Act for catch-up contributions in retirement plans. For plan participants whose Federal Insurance Contributions Act (FICA) wages for the prior year exceed $145,000 (adjusted for cost-of-living in future years), the law requires that catch-up contributions be made to a plan on a Roth basis only—no pre-tax option is available. This requirement applies to 401(k) plans, 401(a) plans, 403(b) plans, and 457(b) plans.
Quick Hits

Employees who earned more than $145,000 for the prior taxable year will be able to make catch-up contributions as Roth contributions, but not as pre-tax contributions.
The new rules will apply to contributions in taxable years beginning after December 31, 2025, but will require strict compliance beginning January 1, 2027.

Individuals who participate in their employer’s retirement plan are limited in the amount of salary that they can defer into the plan each year. However, participants aged fifty and older can make an annual catch-up contribution over and above the regular limit. The maximum annual catch-up contribution for 2025 is $7,500. Historically, participants could choose whether to make both regular deferral contributions and catch-up contributions on a pre-tax basis or a Roth basis, if their plan offered Roth contributions.
However, some highly paid participants are now limited to making catch-up contributions only on a Roth basis. Specifically, if an employee’s prior‑year Social Security wages exceed $145,000, any catch‑up contributions for the current year must be designated as Roth contributions. This new requirement raised a number of questions from employers, plan administrators, payroll providers, and recordkeepers about how to coordinate the determination of who is subject to the Roth catch‑up rules, whether plans would be required to allow participants to make Roth contributions, and how to designate catch-up contributions as Roth for affected participants.
The new regulations confirm that plans should determine impacted participants by looking at each participant’s prior year Social Security earnings as reflected in Box 3 on Form W-2. Participants whose earnings exceed $145,000 (or the COLA limit of $150,000, if applicable) in 2025 will be subject to the Roth catch-up requirement for plan years beginning in 2026. Employees who did not have Social Security earnings from the employer during the prior year will not be subject to the Roth catch-up requirement.
Also, the regulations provide clarification as to who is considered an employer for this purpose. While the proposed regulations had indicated that affected participants should be identified by reference to a single entity, regardless of whether that entity was a member of a controlled group or affiliated service group, the final regulations provide permissive aggregation options. Specifically, an employer may choose to treat all related organizations as a single employer if the organizations all use a common paymaster or if the organizations are all within a controlled group or an affiliated service group. This is welcome news for many employers with complex corporate structures.
Plans may accomplish the required Roth treatment by deeming the affected catch-up contributions to be Roth contributions. Plans without a Roth feature are not required to add one and may instead bar highly paid participants from making catch-up contributions. For these plans, a nondiscrimination safe harbor is available if highly compensated employees have any compensation, including net earnings from self-employment, that exceeds the $145,000 (or applicable Box 3 Social Security limit) and are prohibited from making catch-up contributions.
Two plan‑level correction methods are available to plans when an error results in pre‑tax catch‑up contributions that should have been Roth: a Form W‑2 correction (before W‑2 filing) and an in‑plan Roth rollover (with 1099‑R reporting). Contributions less than $250 are subject to a de minimis exception.
While the new regulations apply for contributions in taxable years beginning after December 31, 2026, with later applicability for collectively bargained and governmental plans, plans must begin treating catch-up contributions of highly paid participants as Roth contributions in 2026.
Next Steps
Employers may wish to coordinate with third-party vendors and amend plan documents and online systems to:

ensure that payroll and administrative programming can identify and properly treat affected catch-up contributions as Roth;
amend the plan document to include Roth catch‑up provisions;
implement processes to stop deemed Roth contributions within a reasonable time after a participant becomes no longer subject to the Roth requirement;
if no Roth feature is offered in the plan, amend the plan to provide that highly paid participants and those without Social Security wages (e.g., self-employed) are not permitted to make catch-up contributions;
update enrollment materials and annual notices to explain Roth catch‑up contributions and how to make a different election or opt out;
in notices to participants, clarify tax reporting, in‑plan Roth rollover corrections, and five‑year Roth holding period impacts; and
train HR, call centers, and client service teams on scenarios involving Box 3 vs. Box 5 wages, permissive aggregation, and wage attribution during a merger or acquisition period.

This article was co-authored by Leah J. Shepherd.

McDermott+ Check-Up – October 31, 2025

THIS WEEK’S DOSE

Government shutdown reaches one month. Congress did not make progress this week toward reopening the government, as concerns continued to mount regarding pay for federal workers and the November 1, 2025, depletion of Supplemental Nutrition Assistance Program funds and start of the Affordable Care Act (ACA) Marketplace open enrollment period.
Senate Finance Committee holds hearing to consider HHS inspector general nominee. The Senate Finance Committee heard from US Department of Health and Human Services (HHS) inspector general nominee Thomas Bell.
Senate HELP Committee examines biotechnology. The committee discussed how to keep the United States at the forefront of biotechnology innovation for patients’ benefit.
HHS leadership unveils biosimilar development reform plans to lower drug pricing. The announcement focused on steps the US Food and Drug Administration will take to accelerate competition to lower drug prices.
CMS employees return. Staff returned to work on the Medicare and ACA Marketplace open enrollment periods, the pending calendar year payment rules, and applications for the Rural Health Transformation Program, which are due November 5, 2025.
CMS releases information on 2026 Marketplace plans and prices. With the open enrollment period beginning November 1, 2025, the Centers for Medicare & Medicaid Services (CMS) released a fact sheet on plan choices and affordability for enrollees in the federal Marketplace.
Education Department releases final PSLF rule on employer eligibility. The rule addresses employer eligibility for the Public Service Loan Forgiveness (PSLF) Program by excluding employers that engage in a “substantial illegal purpose.”
HRSA announces approvals of 340B rebate pilot programs. The Health Resources and Services Administration’s (HRSA) Office of Pharmacy Affairs (OPA) approved 340B rebate models applicable to eight drug manufacturers, effective January 1, 2026.

CONGRESS

Government shutdown reaches one month. While the House remained in recess this week, the Senate was in session, although no tangible progress was made to end the government shutdown, which is in its 31st day at the time of this writing. Conversations this week largely focused on targeted relief for the impacts of the shutdown, including piecemeal legislative efforts to prevent a lapse in Supplemental Nutrition Assistance Program (SNAP) funding and to pay federal employees. Senate Majority Leader Thune (R-SD) showed uncharacteristic anger on the Senate floor when Senate Democrats tried to pursue a vote to ensure SNAP funding continues beyond November 1, 2025.
Twenty-five attorneys general, all from Democratic states, filed suit this week against the US Department of Agriculture, asserting that the decision to suspend SNAP benefits is not legal and that the department is required to make payments to those who meet the program requirements. A ruling in this case is expected shortly.
As the shutdown drags on and federal workers continue to go without pay, the American Federation of Government Employees (a union representing more than 800,000 government workers that is typically aligned with Democrats) called for the shutdown to end, urging senators to pass the “clean” continuing resolution (CR) that the House approved in September. At the time of this writing, congressional Democrats remain committed to the position they’ve held since the beginning of the shutdown: that congressional Republicans must work with them to address rising healthcare costs before they’ll vote to reopen the government. This position has largely centered around the December 31, 2025, expiration of the enhanced advanced premium tax credits (APTCs) for ACA Marketplace plans. The Marketplace open enrollment period begins this weekend, which means that customers will be able to see their actual premium increases for 2026 if Congress fails to act to extend the enhanced APTCs. President Trump also returned to the White House after a long Asia trip. He immediately called for the Senate to “go nuclear,” which means to change the Senate rules so that appropriations bills can pass with a simple majority vote. That would enable Republicans to pass their clean CR without any Democratic votes. However, it would also be a significant change to Senate rules that most Republican Senators have opposed because it would be turned back on them when Democrats are again in the majority. How this new push plays with efforts to bring an end to the shutdown will be closely watched in the coming days.
Senate Finance Committee holds hearing on HHS inspector general nominee. This week, the Senate Finance Committee considered several presidential nominations, including Thomas Bell as inspector general of HHS. During the hearing, committee Republicans expressed support for Bell’s qualifications and emphasized the importance of oversight in areas such as Medicare Advantage, Medicaid fraud, nursing home paperwork reduction, assisted suicide funding, and abortion clinic investigations. Committee Democrats focused their questions on the potential politicization of the role, asking Bell whether he would uphold the law and maintain independence in his oversight responsibilities.
The Senate Health, Education, Labor, and Pensions (HELP) Committee was scheduled to hear from US surgeon general nominee Casey Means this week, but the hearing was postponed because she went into labor. Means’ brother, Calley Means, who had been serving as a special government employee and health adviser to HHS Secretary Kennedy, saw his term expire earlier this month and is no longer a government employee.
Senate HELP Committee examines biotechnology. During the hearing, members from both parties expressed concerns about the United States losing its global leadership in biotechnology. Republican members stated that US Food and Drug Administration (FDA) review processes should be improved to ensure a faster pathway for innovative treatments to reach the market. While Democratic members acknowledged the importance of biotechnology advancements, they focused their statements on healthcare affordability, raising concerns regarding the high rates of uninsured Americans and the impact on access to innovative treatments.
ADMINISTRATION

HHS leadership unveils biosimilar development reform plans to lower drug pricing. In a press conference, FDA Commissioner Makary, joined by HHS Secretary Kennedy and CMS Administrator Oz, announced new draft guidance that proposes to reduce the amount of clinical testing necessary for biosimilars to be eligible for market entry as a more affordable option for patients. The draft guidance would eliminate the requirement for comparative studies associated with biosimilar market approval, known as interchangeability studies, cutting the five-to-eight-year timeframe in half and helping to accelerate competition to lower drug prices. This move follows bipartisan legislation, S.1954/H.R.5526, which would make permanent the same policies that FDA is proposing in their draft guidance. In addition to making it easier for biosimilars to gain FDA authorization, eliminating the interchangeability studies requirement would make it easier for pharmacists to substitute biosimilars for their biologic reference products, as they can for generic drugs.
The Trump administration likely will soon announce the negotiated prices for the next round of Medicare drug price negotiation. There are 15 selected drugs, including popular GLP-1 drugs such as Ozempic, and the negotiated prices will be effective January 1, 2027.
CMS employees return. Last week, CMS announced that it would use funding from user fees charged to academic researchers to bring back all staff, specifically to address increased needs during the Medicare and Marketplace open enrollment periods, along with the final calendar year payment rules that are pending. CMS announced that the funding would last for up to eight weeks, if necessary. This week, CMS indicated that staff would also review and process applications for the Rural Health Transformation (RHT) Program, which are due November 5, 2025. The RHT Program is a five-year, $50 billion program authorized by the One Big Beautiful Bill Act (OBBBA) that will award funds to states to invest in rural health. It does not appear that CMS is returning to normal operations, however, as most external meetings are still being declined.
CMS releases information on 2026 Marketplace plans and prices. A CMS fact sheet outlines the following information for enrollees in the federal Marketplace ahead of the open enrollment period, which begins on November 1, 2025:

Premium affordability. Tax credits are projected to cover about 91% of the lowest-cost plan premium, and the average post-credit premium is projected at $50 per month. Although this reflects a $13 increase from 2025, the average premium remains lower than it was in 2020. Nearly 60% of eligible re-enrollees will have access to a plan in their chosen category costing $50 or less after tax credits.
Issuer participation. There are 183 qualified health plan (QHP) issuers on the federally run Marketplace, Healthcare.gov, and 19 out of the 30 states that use Healthcare.gov have reported offering as many or more QHP issuers in 2026 as in 2025. In 2026, the average enrollee will have six to seven QHP issuers to choose from; 95% will have access to three or more, and less than 1% will be limited to a single issuer.
Health savings account (HSA) eligibility. As passed in the OBBBA, in 2026, all bronze and catastrophic Marketplace plans become HSA-eligible, expanding access to HSA plans for about 1.6 million additional HealthCare.gov consumers.

Earlier this week, Senate Democrats sent a letter to CMS expressing concern that the window-shopping feature, which traditionally has gone live by the last week in October, had not yet been launched. The next day, that feature was enabled on Healthcare.gov. Consumers can visit the website today, in advance of the official start of open enrollment, to see the premium prices and plan options that will be available if enhanced APTCs are not extended.
In contrast to the statistics released by the Trump administration, Democrats in Congress are noting that many people who purchase their coverage through the ACA Marketplace and depend on the enhanced APTCs will see significant price increases. The governor of New Jersey highlighted this week that consumers who purchase coverage through New Jersey’s ACA Marketplace are expected to pay nearly 175% more in their premiums.
Education Department releases final PSLF rule on employer eligibility. The US Department of Education released a final rule addressing employer eligibility for the PSLF program by excluding employers that engage in a “substantial illegal purpose.” The PSLF program provides loan forgiveness to student borrowers who work for qualifying government and nonprofit organization employers, helping to attract workers (including healthcare workers) to qualifying employers. After a borrower makes 120 monthly payments, the remaining balance of their eligible federal student loans is forgiven, tax-free.
The final rule amends the definition of a PSLF “qualifying employer” to exclude organizations that “engage in activities such that they have a substantial illegal purpose.” These activities are defined largely on administration priorities, as outlined previously in executive orders:

Aiding and abetting violations of federal immigration laws.
Supporting terrorism or engaging in violence for the purpose of obstructing or influencing federal government policy.
Engaging in the chemical and surgical castration or mutilation of children under the age of 19 (which includes the use of puberty blockers, sex hormones, and surgical procedures) in violation of federal or state law.
Engaging in the trafficking of children to states for purposes of emancipation from their lawful parents in violation of federal or state law.
Engaging in a pattern of aiding and abetting illegal discrimination.
Engaging in a pattern of violating state laws.

The regulations become effective July 1, 2026. The Department of Education also released a fact sheet and press release on the final rule.
HRSA announces approvals of 340B rebate pilot programs. On October 30, HRSA announced it approved eight drug manufacturer plans to participate in 340B Rebate Model Pilot Program, which will begin January 1, 2026. This program will test a rebate model (rather than the direct discount which is how the program has always operated) on a select group of drugs. Consistent with the August Federal Register Notice announcing the 340B Rebate Model Pilot Program, the approved rebate models will apply to nine of the 10 drugs selected for the Inflation Reduction Act negotiated drug prices for Medicare Part D, effective January 1, 2026.
Under a rebate model, a covered entity would pay for the drug at a higher price upfront and then later receive a post-purchase rebate that reflects the difference between the higher initial price and the 340B price. A summary of the individual manufacturer plans will be published on HRSA’s website prior to implementation. Additionally, manufacturers are required to communicate details of their plans directly to covered entities no later than 60 days prior to implementation of their respective plans.
QUICK HITS

CBO analyzes shutdown’s economic impact. The Congressional Budget Office (CBO) report outlines the economic impacts of three scenarios: an end to the shutdown on October 29, November 12, or November 26. CBO found that the government shutdown will delay federal spending and temporarily weaken economic growth, and, depending on its length, will reduce real gross domestic product in the fourth quarter of 2025 with only part of the lost output recovered once the shutdown ends.
Senate HELP Committee Chair Cassidy expands cybersecurity investigation. In a letter to a large application security company, Chairman Cassidy (R-LA) requested information by November 12, 2025, on the company’s recent cyberattack. The HELP Committee’s press statement emphasized its commitment to broadening investigations into cybersecurity challenges and evaluating current initiatives aimed at addressing such incidents to protect consumers, including healthcare providers.
OIG finds deficiencies in CMS’s Special Focus Facility Program for nursing homes. The HHS Office of Inspector General (OIG) report outlines three categories of needed improvement for CMS’s Special Focus Facility Program for Nursing Homes: staffing, ownership, and states’ quality improvement efforts. The report recommends that CMS impose more nonfinancial enforcement remedies to encourage sustained compliance, incorporate nursing home ownership information into the program, and assess the effectiveness of enhanced enforcement actions.

NEXT WEEK’S DIAGNOSIS

The Senate will be in session next week, while the House is currently scheduled to continue its recess, subject to a 48-hour callback from Speaker Johnson (R-LA). With the SNAP deadline and the start date of the Marketplace open enrollment period falling this weekend, we will be watching for any movement toward ending the government shutdown, which will surpass the longest shutdown on record (35 days in 2018 – 2019) if it goes beyond November 4, 2025. The Senate Aging Committee is scheduled to hold a hearing on the Older Americans Act, and CMS likely will be working to release several final payment rules, including those for physicians, hospitals, and dialysis facilities.

This Week in 340B: October 14 – 20, 2025

Find this week’s updates on 340B litigation to help you stay in the know on how 340B cases are developing across the country. Each week we comb through the dockets of more than 50 340B cases to provide you with a quick summary of relevant updates from the prior week in this industry-shaping body of litigation. Get more details on these 340B cases and all other material 340B cases pending in federal and state courts with the 340B Litigation Tracker.
Issues at Stake: Contract Pharmacy; Rebate Models; Other

In one case brought by a drug manufacturer challenging a North Dakota state law governing contract pharmacy arrangements, the plaintiff filed a motion for summary judgment.
In one case brought by a drug manufacturer challenging a Tennessee state law governing contract pharmacy arrangements, the defendant filed a response to the plaintiff’s notice of supplemental authority, and in another similar case, a group of amici filed an amicus brief in support of defendant’s motion to dismiss.
In [three] consolidated appealed cases related to rebate models, the plaintiff-appellants filed an unopposed motion to unseal a portion of the administrative record.
In one case brought by a trade association for drug manufacturers challenging a Colorado state law governing contract pharmacy arrangements, the plaintiff filed a brief in opposition to the defendants’ motion to dismiss.
In one case brought by a drug manufacturer challenging a Hawaii state law governing contract pharmacy arrangements, the defendant filed a memorandum in opposition to the plaintiff’s motion for preliminary injunction and the plaintiff filed a memorandum in opposition to the defendant’s motion to dismiss.
In one case brought by a covered entity against the government, the plaintiff filed a motion for summary judgement.
In one case by a drug manufacturer challenging an Arkansas state law governing contract pharmacy arrangements, the defendant filed a memorandum in support of its cross-motion for summary judgment and a response to the drug manufacturer’s motion for summary judgment.
In one case by a trade association of drug manufacturers challenging a Maine state law governing contract pharmacy arrangements, the defendants filed an opposition to the plaintiff’s motion for preliminary injunction.
In one case by a trade association of drug manufacturers challenging a Rhode Island state law governing contract pharmacy arrangements, the plaintiff filed a response to the Court’s Order to Show Cause and the defendants filed a reply in opposition to the plaintiff’s response.
In one case by a health center alleging that the defendants conspired to restrict access to 340B drug discounts, a petition for rehearing was denied.
In a case challenging a South Dakota state bill, the defendant filed a reply brief in support of its motion to dismiss.

This Week in 340B: October 21 – 27, 2025

In one case brought by a drug manufacturer challenging a Tennessee state law governing contract pharmacy arrangements, the plaintiff filed a brief in opposition to defendant’s motion to dismiss.
In one case brought by a drug manufacturer challenging a Colorado state law governing contract pharmacy arrangements, the plaintiff filed a brief in opposition to the defendants’ motion to dismiss.
In one case by a trade association of drug manufacturers challenging a Maine state law governing contract pharmacy arrangements, an Amici brief was filed in support of defendants’ opposition to plaintiff’s motion for preliminary injunction.
In one case by a covered entity against an insurance company alleging breach of contract, the insurance company filed an answer to the covered entity’s complaint.

New York State Court Holds that Policy Limits Not Reduced by Self-Insured Retention

A self-insured retention is a dollar amount specified in the insurance policy that an insured must pay toward a claim before insurance coverage begins to apply to pay for remaining covered amounts. While ordinarily straightforward, insurers may sometimes argue otherwise. In a recent summary judgment ruling in The Archdiocese of New York, et al. v. Century Indem. Company, et al., No. 652825/2023 (N.Y. Sup. Ct. Sept. 8, 2025), based on the plain language of the insurance policies, a New York state trial court rejected an insurer attempt to treat a self-insured retention as reducing the amount covered under the policies.
Background
The Archdiocese of New York and its associated policyholders purchased general and excess liability insurance policies from the defendant insurers between 1956 and 2003. New York enacted the Child Victims Act and Adult Survivors Act in 2019 and 2022, respectively, which provided a revival period to civil lawsuits that otherwise would have been time barred. After these statutes were enacted, approximately 1,700 lawsuits were filed against the Archdiocese alleging sexual abuse by the clergy and employees, during the periods the defendant insurers’ policies were in effect. In the insurance coverage lawsuit, the Archdiocese and certain insurers sought declaratory judgments concerning the scope of coverage under the policies for the claims.
In its motion for summary judgment, the Archdiocese argued that under one of the policies at issue, the insurer was required to pay the full policy limits of $200,000 per covered occurrence, in excess of a $100,000 per occurrence retention, with the retention not reducing the policy limits. The insurer argued in response that the $100,000 per occurrence retention reduced the policy limits, and thus the insurer was responsible for paying only up to $100,000 per occurrence.
Summary Judgment Ruling
The insurance policies included several sublimits depending on the type of loss, and the parties agreed that the applicable sublimit for the alleged conduct was $200,000 per occurrence. Relying on the well-settled principle that insurance polices should be interpreted to give effect to the intention of the parties as shown by the policy language, the court granted summary judgment for the Archdiocese. The court found that the plain language of the policies provide that sublimits are not reduced by the self-insured retention. This finding was based on the following:

Other courts have interpreted a self-insured retention as the amount an insured pays before insurance begins to apply, rather than a deductible reducing the coverage amount.
The policies use the phrase “excess over $100,000” when discussing the policy limits, which is consistent with the common application of a self-insured retention.
Interpreting sublimits as inclusive of the self-insured retention would render excess coverage non-existent for several categories of losses listed in the policies, because the sublimit was less than $100,000, which would be inconsistent with an insured’s expectations.
The policies were clear and unambiguous; thus, the court could not rely on extrinsic evidence.

Key Takeaway
This case underscores the importance of reviewing policy terms when obtaining insurance and presenting claims. Distinctions as a self-insured retention or a deductible can have a significant effect on available coverage. If the policies here had provided for a $100,000 deductible rather than self-insured retention, coverage for the claims may have been significantly reduced. In addition to thoroughly understanding the policy terms at inception, policyholders must remain vigilant when claims arise. Even where the terms are clear, insurers may take unsupportable positions in an effort to limit coverage.

New Allegations Trigger Insurance Coverage Despite “Prior Knowledge” and “Prior and Pending Litigation” Exclusions

A recent coverage decision by the Delaware Superior Court in Motive Technologies, Inc. v. Associated Industries Insurance Company shows that examining the full timeline of allegations in a lawsuit can defeat policy exclusions barring coverage for litigation arising out of past events.
Underlying the coverage dispute was a lawsuit between two companies in the business of fleet management technology, Samsara, Inc., and Motive Technologies, Inc. Samsara accused Motive Technologies of intellectual property theft and commissioning false studies to disparage Samsara’s services.
Motive Technologies procured primary and excess cyber liability policies that included “Media Wrongful Acts” coverage applicable to some of Samsara’s claims. However, these policies also incorporated exclusions for “Prior Claims and Knowledge” as well as “Prior and Pending Litigation,” which barred coverage for claims arising from known circumstances and demands made before an August 12, 2023, “Continuity Date.” Because Samsara’s complaint allegations included events described in demand letters sent to Motive Technologies before the “Continuity Date,” the primary and excess liability insurers denied coverage based on these exclusions. But critically for Motive Technologies’ insurance claim, Samsara’s suit also included new allegations, not mentioned in its prior demand letters, regarding a 2023 study comparing certain safety features of the companies’ products.
The inclusion of new allegations required the insurers to defend Motive Technologies. Under New York law applicable to the policies, the insurers had a duty to defend Motive Technologies against Samsara’s suit unless the suit’s allegations were “solely and entirely” within the scope of an exclusion. Because the allegations concerning the new study did not fall within the scope of the exclusions, the insurers were obliged to fund Motive Technologies’ defense. This case highlights the importance for policyholders of considering all of the allegations in a lawsuit with particular attention to the alleged timing and casting a critical eye on insurers’ efforts to lump the full scope of claims within the confines of an exclusion.
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