Effective Risk Management for Nursing Facilities: Insurance Insights on Retaliation Claims
This is the first in a series of articles addressing critical issues in risk management and insurance for skilled nursing facilities.
Owners and operators of skilled nursing facilities know that a claim or lawsuit against their facility is not a matter of if, but when. Procuring the proper insurance is critical to effectively managing and mitigating these risks. A professional liability insurance policy should provide coverage for the facility and its directors, administrators, and employees from claims of negligent care.
Unfortunately, merely purchasing a professional liability policy without further scrutiny can leave a facility uninsured for certain claims. These policies incorporate exclusions and conditions that insurers could cite to attempt to limit coverage, particularly for claims that allege intentional injury to a patient resident. For example, an injured patient could allege that her injury was not the result of mere negligence, but instead resulted from retaliation by the facility or the facility’s employee in response to a prior complaint. These retaliation claims pose an increased risk to a facility and its insurance coverage, regardless of whether they are alleged as an intentional tort under a state’s common law or as a violation of a state’s anti-retaliation statute.
In states where retaliation is specifically barred by statute, state laws can create additional liability and damages exposure for claims brought by residents who file formal complaints or bring regulatory actions against nursing facilities alleging retaliation. Earlier this year, for example, the Illinois Legislature passed a new anti-retaliation statute for nursing facilities, House Bill 2474, that broadens the scope of anti-retaliation protections. The Illinois bill, which has passed both houses and been sent to the governor’s office for signature, does not require a formal complaint, but can be triggered by a resident taking more informal action, such as making a request to the facility related to the resident’s care. In addition to potential liability for consequential damages, Illinois HB 2474 also makes nursing facilities liable to the plaintiff for attorneys’ fees and additional damages “in an amount equal to the average monthly billing rate for Medicaid recipients in the facility.” The damage provisions of Illinois HB 2474 differentiate it from other broad anti-retaliation statutes. For example, Minnesota expanded its Patients’ Bill of Rights in 2020 to protect nursing facility residents from retaliation for a host of actions, including advocating “for necessary or improved care or services” (M.S.A. § 144.6512). However, Minnesota’s statute does not provide for a private cause of action for residents to sue the facility.
Even if a state’s anti-retaliation statute does not specify additional damages or provide a private cause of action, retaliation claims brought as common law torts can nevertheless pose the risk of enhanced damages based on the facility’s perceived culpability – a risk not found in ordinary negligence actions.
Retaliation claims are a significant and thorny example of circumstances where allegations of negligent and intentional conduct can intertwine. Unless a statute identifies certain acts that constitute retaliation per se, the patient must necessarily prove an intent to retaliate – retaliation cannot be the result of mere negligence. But ordinary negligence and intentional retaliation could manifest in factually identical ways – with intent being the only distinguishing factor. For example, a resident allegedly injured in a fall while being helped out of bed by a facility employee could assert negligence. But if that same resident had complained to management about the quality of their care prior to the fall, the resident could also allege retaliation, asserting that they were allowed to fall in retaliation for the complaint.
Insurers could seize on retaliation allegations to deny coverage under several exclusions, including exclusions for expected and intended conduct and for willful violations of laws or regulations. Depending on the scope of the policy exclusions, insurers could assert that otherwise insured negligence claims are excluded retaliation claims.
To maximize the potential coverage for claims of retaliation or other intentional conduct bolted on to ordinary negligence claims, insureds should understand that the expected and intended exclusion does not exclude claims that an insured acted intentionally; the insurer must also prove that the insured intended to cause the alleged harm. Unfortunately, a retaliation claim arguably alleges that intent to cause harm if the actions can be attributed to the insured entity or individual.
Insureds can take four steps to mitigate anticipated insurer defenses to coverage for retaliation claims:
First, insureds should seek language limiting the intentional conduct exclusion. The best limiting language would require a final adjudication of intentional conduct at trial (and after exhaustion of all appeals). Insurers could not invoke this exclusion in cases settled before trial.
Second, insureds should confirm that any exclusions based on alleged willful statutory violations do not inadvertently encompass statutory retaliation claims.
Third, because insurers may attempt to allocate liability among the negligence and retaliation claims to reduce their obligations for a settlement prior to trial, insureds should insist on favorable allocation provisions that do not leave the allocation to insurers’ discretion but instead require reasonable allocation based on an objective assessment of the claim.
Finally, insureds should insist on policy provisions requiring the insurer to defend (or preferably pay the defense of) all asserted claims – including arguably excluded claims – as long as at least one claim potentially falls within coverage.
These four steps will provide insureds with additional insurance protection against statutory retaliation claims by limiting the defenses that insurers could otherwise assert in response to these claims. And as always, policyholders should scrutinize their professional liability insurance policies during renewal to maximize the coverage available to them. Many coverage enhancements do not impact premium – but they do require insureds’ diligence and awareness of coverage quagmires before binding insurance, as this discussion of retaliation claims shows.
Listen to this post
FDIC Aims to Eliminate Reputational Risk from Supervision
On March 24, acting FDIC Chairman Travis Hill informed Congress that the agency is preparing to eliminate the use of “reputation risk” as a basis for supervisory criticism. In a letter to Rep. Dan Meuser (R-Pa.), Hill explained that the FDIC has completed a review of its regulations, guidance, and examination procedures to identify and remove references to reputational concerns in its supervisory framework.
Hill stated that the FDIC will propose a rule that ensures bank examiners do not issue supervisory findings based solely on reputational factors, which have faced criticism from lawmakers who argue the concept has been used to discourage banking relationships with lawful but politically sensitive industries.
The FDIC is also reevaluating its oversight of digital asset activities. According to Hill, the agency intends to replace a 2022 policy requiring FDIC-supervised institutions to notify the agency and obtain supervisory feedback before engaging in crypto-related activities. The new approach will aim to provide a clearer framework for banks to engage in blockchain and digital asset operations, so long as they maintain sound risk management practices. Hill noted that the FDIC is coordinating with the Treasury Department and other federal bodies to develop this updated framework.
Putting It Into Practice: This initiative closely mirrors the OCC’s recent decision to eliminate reputational risk as a factor in bank supervision (previously discussed here). Both agencies appear to be responding to criticism that reputational concerns have been used to discourage banking relationships with lawful but disfavored industries. Banks should prepare for changes in examination procedures and evaluate how these developments may impact their compliance strategies.
Listen to this post
Commercial Insurance Offerings to Mitigate Fire-Related Risks
Businesses and people around the world are reeling from the aftermath of shutting down Heathrow Airport in London—one of the world’s busiest travel hubs—due to a fire at a nearby electrical sub-station. Early projections of the economic fallout and related travel disruptions are staggering. The fire at the sub-station not only disrupted travel plans for passengers, but also interrupted countless businesses that rely on the airport, such as airlines, logistics and freight companies, and retailers. Fortunately, these businesses may be able to mitigate their losses through their commercial property policies and policies covering supply chain disruptions. We discuss some of the insurance offerings that may respond to fire-related losses (as well as other losses from other perils) and ways to maximize coverage.
Property Coverage—Covering Physical and Economic Losses From Fire Damage to Your Property
Physical damage to a business’s property imposes costs to repair or replace the damaged property and can disrupt the business resulting in economic losses. Fortunately, many commercial property policies provide “all risks” coverage, meaning any cause of physical loss or damage—fire, wind, hail, etc.—is covered unless it is otherwise excluded. In addition, many commercial property policies also cover the loss of profits resulting from disruption to the business caused by the covered peril. In the case of the electrical fire at the sub-station, the policyholder may be covered for the cost of repairing the damaged property and the profit that would have been earned if the fire did not occur.
Contingent Business Interruption (CBI) Coverage—Covering Economic Losses Resulting From Fire Damage to Someone Else’s Property
Even if a business’s property is not physically damaged, it may be able to recover economic losses resulting from disruptions to another business on which it depended. This type of coverage is commonly known as contingent business interruption coverage, and it is triggered when physical loss or damage to another business causes a disruption to the policyholder’s business resulting in economic loss. Issues may arise, however, concerning which third-party businesses qualify as suppliers or customers on which the policyholder is dependent; this issue often turns on whether the impacted business had a “direct” relationship with the insured business and the specific policy language. Businesses reliant on Heathrow Airport to fulfill their business obligations may have a claim if they experienced a loss due to, for example, delivery delays, order cancellations or the need to arrange for other ways to transport cargo.
Extra Expense Coverage—Covering the Added Costs Incurred as a Result of the Fire Damage to Your or Someone Else’s Property
Many commercial property policies also cover the “extra expenses” a policyholder incurs after it sustains a direct physical loss or damage, or when it sustains a covered contingent business interruption loss. “Extra expenses” are those added expenses that the policyholder incurred as a result of the covered event. For example, extra expenses can include the added costs to receive goods for sale or replacement goods, as well as increased transportation, labor and logistical costs. In the case of the fire at the electrical sub-station that shutdown Heathrow Airport, extra expense coverage could pay for temporary relocation, and costs associated with alternative logistical arrangements like the rerouting of goods.
Supply Chain Coverage
When a business that serves as an element in a supply chain experiences a disruption, the result is usually delays and the need to reassess logistics and operations that rely on the impacted business for deliveries, transactions and just-in-time inventory. While there is no “standard” form for “supply chain insurance,” this insurance is available as an “all risks”-type coverage. Besides covering disruptions caused by property damage to a supplier or a dependent property, supply chain insurance can be customized to cover losses caused by a wide range of events, including production issues (e.g., supplier assembly line malfunctions). For example, supply chain insurance may respond to events like natural disasters and regulatory changes that disrupt a business’s operations.
Tips to Maximize Insurance if Loss Occurs
Ensure You Have Proper Limits: Policyholders should review their commercial insurance policies to make sure, for instance, that all structures (including new ones) are covered, the amount of coverage provided has kept pace with the increasing costs to rebuild property in the area, and the available policy limits can cover the value of the inventory currently at hand. Policyholders should also consider identifying the third-party businesses on which their businesses depend so they can avoid an after-the-fact dispute over whether a business qualifies. Policyholders should also leverage brokers and other business partners to ensure that their coverage aligns with industry standards.
Consult Outside Coverage Counsel: Policyholders should engage coverage counsel that can help analyze insurance terminology, and provide specialized guidance and assistance on improving policies’ terms and conditions to maximize coverage if a loss occurs. Increased limits are helpful only if the underlying coverage terms are strong and there are no problematic exclusions to allow the policyholder to access the full limits.
Document All Aspects of the Loss: Policyholders should keep records on the losses suffered, including documenting all physical damage, the amounts paid to prevent further damage or to remedy existing damage, and the amounts lost because of the disruption of business activities, including lost income.
Document All Claim-Related Communications: Policyholders should also keep a record on all claim-related conversations and communications with insurers and other parties involved in handling the insurance claim. This can be helpful, for example, if litigation is necessary.
Mitigate the Losses: Policyholders should consider taking all reasonable efforts to mitigate the property and business losses following a loss as such efforts can be a condition to coverage. Policyholders should also keep track of and document all those mitigation efforts.
Be on Time: Insurance policies generally place a time limit on filing claims. Indeed, insurers commonly cite late notice of a claim as the basis for denying a claim. Policyholders should thus submit insurance claims within the time periods identified by their policies and pay particular attention to other policy deadlines, such as the time to submit proof of loss and suit limitations provisions.
Takeaway
Events like fires at major hubs of global travel and trade can cause significant physical loss or damage, lost profits, extra expenses and supply-chain disruptions. Commercial policyholders operating such businesses must ensure they are able to protect against these events and resultant losses. Policyholders should carefully review their existing insurance policies to determine which coverages exist, and whether additional or modified terms are warranted if a loss occurs. Each line of coverage should be carefully analyzed and, if needed, modified before a fire-related claim arises.
Oregon Court of Appeals Issues Three Different Defense Opinions
Oregon’s Court of Appeals was busy issuing three different defense opinions on March 19, 2025. Circuit court errs by awarding attorneys’ fees based on a contingency fee.The first was Griffith v. Property and Casualty Ins. Co. of Hartford, where a homeowner submitted a fire loss and alleged the insurer did not pay the benefits owed quickly enough. The insureds filed a complaint, the insurer answered, and then a global settlement occurred. The insureds then filed a motion for summary judgment seeking prejudgment interest per ORS 82.010 as well as attorneys’ fees per ORS 742.061(1). They also sought costs as a prevailing party. The circuit court denied interest because no judgment had been entered and costs because there was no prevailing party, but granted $221,179.27 in attorneys’ fees. Both sides appealed. The insureds’ appeal about prejudgment interest was rejected for procedural reasons. The circuit court order on costs was affirmed because there was no prevailing party. Griffith is noteworthy only for its ruling about attorneys’ fees. The insurer did not dispute that ORS 742.061(1) applied or that the insureds were entitled to attorneys’ fees. It disputed only how the circuit court calculated the amount of the award. The circuit court determined that amount was a percentage of the insureds’ recovery. The Court of Appeals held that this was error.
When an award of attorneys’ fees is permitted, ORS 20.075 provides factors to determine the amount to award. Its factors generally align with the lodestar method. Although a percentage of the recovery might be appropriate in some circumstances, Griffith concluded the “lodestar method is the prevailing method for determining the reasonableness of a fee award in cases, such as this, involving a statutory fee-shifting award, even when, as here, the insured has retained counsel on a contingency-fee basis.” Further, the award “must be reasonable; a windfall award of attorney fees is to be avoided.” The Court of Appeals concluded using a percentage of the recovery was inappropriate in this instance. This is because coverage was never disputed, and the claim was immediately accepted. By the time the complaint was filed, the insurer had made several payments and was still adjusting the loss. There was minimal litigation and the delay paying the full claim “was caused by circumstances outside of the parties’ control.” The Court of Appeals ultimately concluded that the insureds had not met their burden to demonstrate the fees they sought were reasonable. The case was remanded to redetermine the fees owed.
No really, the recreational use statute applies to a city park.In Laxer v. City of Portland, the plaintiff entered Mount Tabor Park to “walk its trails” but tripped and fell due to a hole in the pavement. The plaintiff sued the City, but the circuit court granted the City’s motion to dismiss based on Oregon’s recreational use statute, ORS 105.682. The plaintiff appealed. Among other arguments, the plaintiff argued the paved road in the park was like a public sidewalk and thus exempt from ORS 105.682. The Court of Appeals concluded that while there are limits to ORS 105.682, “generally available land connected with recreation” is still typically protected. Since Mount Tabor Park is clearly connected with recreation, the dismissal was affirmed.
Defense verdict affirmed in slip-and-fall case.In Fisk v. Fred Meyer Stores, Inc., where a customer slipped “on a three-foot by five-foot laminated plastic sign, which had fallen from its stand onto the public walkway.” The sign belonged to the store and was placed there by store employees. The case was tried and produced a defense verdict.
On appeal, the customer conceded there was no evidence to prove the store (1) placed the sign on the ground, (2) knew the sign was on the ground and did not use reasonable diligence to remove it, or (3) the sign had been on the ground for enough time that the store should have discovered it. The customer instead argued the circuit court erred by not giving a res ipsa loquitur instruction. Although Oregon case law has concluded res ipsa loquitur does not apply to slip and falls, the customer argued this was not a slip and fall because an object caused the fall.
Fisk affirmed the circuit court’s refusal to give the res ipsa loquitur instruction. The customer’s attempted legal distinction was meaningless. “We agree with defendant that because plaintiff slipped on an object on the ground, plaintiff’s claim is correctly characterized as a slip-and-fall claim.”
IMC ORDERED TO REPLY TO NATIONAL CONSUMER’S LEAGUE: Eleventh Circuit Appears to Be Proceeding with Caution in Challenge to FCC One-to-One Ruling
Day by day it seems the odds of the one-to-one rule being brought back from the dead steadily increase– even if the ruling is still VERY much dead for the time being.
With the additional scrutiny afforded by 28 AGs suddenly joining with the NCLC to “close the lead generation loophole” the pressure on the court is ramping up.
In the latest development, just minutes ago the court directed IMC to respond to an effort by several additional parties– including the NCL–to join the case.
IMC already responded to an effort by NCLC–that extra C matters!–but now they have to respond regarding the new parties as well.
The order reads:
Respondents are hereby DIRECTED to respond to the motion to intervene filed by the National Consumers League, Mark Schwanbeck, Micah Mobley, Christopher K. McNally, and Chuck Osborne. The response is due on Friday, April 4, 2025.
The order was entered by the clerk of the court “by direction”–meaning the judges wanted to hear more.
Very interesting.
We’ll keep an eye on it.
The Trump Administration Proposes Changes to Regulations Governing Insurance Subject to the Affordable Care Act
In its first major attempt to reform the Affordability Care Act (“ACA”), the Trump Administration issued a proposed rule on March 10, 2025 (“Proposed Rule”) amending regulations governing insurance coverages subject to the ACA.[1] Public comments on the Proposed Rule will be accepted for consideration until April 11, 2025.
In conjunction with the Proposed Rule, the Centers for Medicare & Medicaid Services (“CMS”) issued a statement explaining that the proposed regulations include “critical and necessary steps to protect people from being enrolled in Marketplace coverage without their knowledge or consent, promote stable and affordable health insurance markets, and ensure taxpayer dollars fund financial assistance only for the people the ACA set out to support.” To support its position, CMS cited a report from the Paragon Health Institute suggesting “4 to 5 million people were improperly enrolled in subsidized ACA coverage in 2024, costing federal taxpayers up to $20 billion.” The impact analysis that accompanies the Proposed Rule shows that the Proposed Rule will reduce enrollment in the ACA plans, reduce the number of people who access premium tax credits and cost-sharing reductions that make coverage more affordable, and limit benefits available to individuals including, specifically, coverage for services related to a sex-trait modification as an essential health benefit.
As summarized below, the Proposed Rule contains a variety of key changes to the regulations governing health insurance subject to the ACA that will impact those seeking to obtain health coverage through state and federal insurance marketplaces (the “Marketplace”). In this regard, the Proposed Rule does the following
Allows insurers to deny coverage to individuals who have past-due premium from prior coverage, allowing insurers to consider past due premium amounts as owed as the initial premium for new coverage.
Excludes persons who are Deferred Action for Childhood Arrivals (“DACA”) from eligibility to enroll in a health insurance plans offered on the Marketplace or access premium tax credits and cost-sharing reductions.
Requires CMS to apply a “preponderance of the evidence” standard before terminating an agent for cause as to their agreement with CMS to solicit and sell Marketplace coverage.
Eliminates the ability of an individual to certify to their income when applying for premium tax credits and cost-sharing reductions, instead requiring income determinations be reconciled with tax filing or other information potentially creating coverage delays and administrative barriers. In addition, if an individual does not file a Federal income tax return for two years, the individual will not be eligible for premium tax credits and cost-sharing reductions.
Institutes income eligibility verifications for premium tax credits and cost-sharing reductions and charges people auto-reenrolled into zero-premium plans a small monthly payment until they confirm their eligibility information.
Adjusts the automatic enrollment hierarchy for individuals.
Shortens the annual open enrollment period from the current period, November 15 to January 15, reducing it by one month, to November 15 to December 15.
Removes the monthly special enrollment period (“SEP”) for qualified individuals who become eligible for premium tax credits and cost-sharing reductions because their projected household income falls to or below 150% of the federal poverty level, which means that these individuals will have to wait before they can access premium tax credits and cost sharing reductions.
Changes de minimis thresholds for the actuarial value for plans subject to essential health benefits (“EHB”) requirements and for income-based cost-sharing reduction plan variations.
Updates the annual premium adjustment percentage methodology to establish a premium growth measure that according to the Proposed Rule reflects premium growth in all affected markets, increasing the cost of coverage.
Prohibiting insurance companies subject to ACA requirements from providing coverage for services related to a sex-trait modification as an essential health benefit.
These changes will not take effect immediately, as the Proposed Rule now faces a public comment period that stays open until April 11, 2025. After receipt of public comments, CMS may revise the Proposed Rule before issuing it in final form. If instituted, these changes could have significant impacts on the approximately 24 million Americans who enrolled in coverage in the ACA Marketplace for 2025 and who plan to enroll in coming years. Most importantly, consumers will have less time to enroll and need to present additional documentation to demonstrate eligibility for premium tax credits and cost-sharing reductions creating administrative barriers to enrolling in coverage. In addition, automatically re-enrolled consumers will be charged a small monthly fee until they confirm their eligibility information. Significantly, individuals who are brought to the country from abroad as children and are DACA status will be prohibited in enrolling in Marketplace coverage. And finally, the Proposed Rule prohibit insurers from covering gender-affirming care as essential health benefits.
[1] Patient Protection and Affordable Care Act; Marketplace Integrity and Affordability, CMS-9884-P, 90 Fed. Reg. 12942 et seq. (the “Proposed Rule”).
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.
Who Owns the Policy vs. Who Owns the Proceeds? The Distinction Matters During Bankruptcy
One of the most important assets of a debtor’s estate in bankruptcy often is insurance purchased by the debtor before bankruptcy arises, to protect the company’s business, assets, and leaders. Insurance assets can be particularly key when the debtor’s estate faces liabilities from mass-tort suits and claims, securities and other claims relating to management of the entity before bankruptcy. However, questions often arise about who is entitled to the insurance. Is the debtor (and its trustee) entitled to recover and use the insurance? Or, under the terms of the relevant insurance policy, or policies, are others entitled to payments owed by the insurance?
In addressing these issues, bankruptcy courts often have distinguished between ownership of the policy itself and, under the terms of the policy, the insureds who are entitled to the benefit of the “insurance proceeds.” This issue typically arises with regard to liability insurance and can arise with regard to a variety of types of liability coverages, including commercial general liability (CGL) and directors and officers (D&O) liability coverage. First-party insurance, in contrast, applies to protect assets and exposures of the company, putting it outside of the reach of this issue of ownership of insurance-policy proceeds.
Thus, during bankruptcy, litigation may arise about who owns the insurance policy and who owns, or is entitled to payment of, the policy’s “proceeds.” Determining whether the proceeds from a liability insurance policy often turns on interpretation of policy provisions which, when analyzed, are relevant to resolution of this issue and, thus, present classic insurance-coverage issues. D&O policies typically purchased by companies often present challenging questions because they provide different types of coverage to different entities and individuals. A primary purpose of D&O insurance, of course, is to protect individual directors and officers of the company and other individual insureds, and the existence of such insurance helps ensure that qualified people are willing to serve on company boards and as officers (and, depending on who the D&O policy defines “insured,” as employees) of the company. Resolution of this issue depends on the nature of the liability faced and by whom, as well as numerous insurance factors, like the type of insurance and the policy language at issue.
Who Owns the Policy?
The bankruptcy estate is broadly defined to include “all legal or equitable interests of the debtor in property as of the commencement of the case.”[1] Courts generally consider a debtor’s insurance policy as part of the estate. However, owning the policy as an asset does not automatically determine who receives the proceeds. The key question typically addressed by bankruptcy courts is “whether the debtor would have a right to receive and keep those proceeds when the insurer paid on a claim.”[2] If “the debtor has no legally cognizable claim to the insurance proceeds, [then] those proceeds are not part of the estate.”[3] This inquiry often depends on the nature of the policy and the specific provisions governing the parties’ interests in the payment of policy proceeds. Ultimately, whether the policy proceeds are considered part of the bankruptcy estate depends on the type of policy and who was intended under the insurance policy to benefit from it. Consequently, most courts distinguish between the insurance policies themselves and the proceeds from those policies.
Who Owns the Proceeds?
Whether insurance policy proceeds are considered property of the debtor’s estate depends on who is entitled to the proceeds when the insurer pays the claim. Generally, insurance proceeds paid directly to a debtor are deemed property of the estate. Examples of these “first party” coverages include collision, life, and fire policies where the debtor is the beneficiary. If the proceeds from these policies are payable to the debtor rather than a third party, they are recognized as property of the estate.[4] Conversely, policy proceeds are not considered property of the debtor’s estate when they are not payable to the debtor.[5]
Who Owns D&O Policy Proceeds?
The question often arises in the context of D&O insurance, which is designed to protect individual directors, officers, and other individual insureds; and, under many policies, the debtor company itself against securities claims, fiduciary breach claims, and other similar claims. Indeed, D&O insurance provides its most important protection during bankruptcy, as the debtor company’s ability to indemnify individual insureds may be impaired due to financial constraints or prohibited by bankruptcy law.
D&O insurance policies typically offer three types of coverage:
Side A: Covers losses arising from claims against individual directors and officers that is not indemnified by the company, either by reason of insolvency or because the company is not permitted to indemnify.
Side B: Reimburses the company indemnification paid on behalf of individual directors and officers arising from claims against those individuals.
Side C: Provides direct coverage to the company for securities claims and sometimes some other kinds of claims.
Generally, D&O policy proceeds are not considered property of the debtor’s estate if they benefit only the directors, officers, and individual insureds (e.g., Side A coverage only). Courts have also found that, because the debtor did not have a “direct interest” in Side A or Side B coverage proceeds, those proceeds were not property of the estate.[6]
Other courts have determined that Side B proceeds can be considered property of the debtor if the coverage limits have been or could be depleted by indemnification requests, potentially leaving the company without coverage for future indemnification demands. These courts have found that Side B insurance proceeds were property of the estate.[7] However, if the covered indemnification “has not occurred, is hypothetical, or speculative,” courts may find that the policy proceeds are not property of the estate.[8]
With respect to Side C coverage, courts have found that policy proceeds from entity coverage are property of the estate.[9] This is not surprising because the debtor can easily be said to have an interest in the proceeds as an insured under the policy. Other courts have taken a broader view, asserting that a bankruptcy estate includes any assets that enhance the value of the Estate. Thus, as long as the policy includes Side B or Side C coverage, the policy proceeds meet the “fundamental test” because the bankruptcy estate is worth more with the insurance policy than without it.[10]
Trustees Can’t Settle Company’s Lawsuit Against Former CEO
One recent decision from the U.S. Court of Appeals for the Fourth Circuit, In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025), shows how disputes about ownership and control of D&O insurance claims can play out in practice. Levine involved a “tale of two bankruptcies and two adversary actions,” where the Fourth Circuit ruled that the separate bankruptcy trustees for a debtor company and its former CEO could not settle the company’s fraud claims against the CEO using insurance proceeds from a D&O policy purchased by the company before bankruptcy.[11] In affirming dismissal of an adversary declaratory action addressing this issue on jurisdictional grounds, the Fourth Circuit offered insightful commentary on the purpose and intent of D&O liability policies and their treatment in bankruptcy proceedings.
First, the company’s purchase of the D&O policy did not grant the company “first-party” status or standing to sue. The policy was “activated,” the Fourth Circuit concluded, because the company sued the CEO. In that scenario, only the CEO was considered an insured under the policy, not the company.
Second, the trustee sought to recover defense costs in the adversary proceeding against the CEO for fraud. The trustee tried to leverage the “wasting” policy—namely, that defense costs were eroding the policy’s available limits—to support his standing argument. The court ruled that the trustee’s “fear” was not enough.
Third, while the insurance policy itself could be considered an asset of the estate, according to the Fourth Circuit, courts “routinely” find that, when a D&O policy provides direct coverage to the directors and officers (as was the case here), the policy proceeds are not considered property of the debtor company’s estate.
Ultimately, the court emphasized that the purpose of D&O coverage is to protect individuals, like the CEO, from incurring liability as directors and officers of the debtor and to ensure that potential losses incurred as a result of their service in such capacities remain separate from their personal finances. Consequently, courts “regularly” recognize that the benefits provided to these individuals by D&O policies “cannot be stripped from them by a bankruptcy trustee.” As a result, the trustee had no claim to the right of consent to settlement under the policy.
Conclusion
The Fourth Circuit’s decision underscores the importance of Side A coverage to protect directors, officers, and individual insureds when an insolvent company is unable or unwilling to indemnify them for the defense costs and potential liability they face due to their service to the company.
In case of bankruptcy, Side A D&O coverage may be the only protection standing between an individual director or officer and personal exposure. For that reason, preserving scarce insurance limits for the benefit of individual insureds is paramount. This can be accomplished in a number of ways. The simplest perhaps is just buying more insurance in the form of higher limits in the company’s existing “Side ABC” policy covering both the company and its directors and officers. Another pathway is to purchase “dedicated” Side A-only limits, which can be used exclusively to protect individuals when the company is unable or unwilling to indemnify them or advance their legal fees and costs.
Side A-only limits are often provided automatically or with payment of additional premium in existing D&O policy forms, but often times they are better secured in entirely separate, standalone policies. Those standalone policies often provide other benefits, like fewer exclusions, more coverage, and better terms no available under traditional Side ABC forms. Working closely with experienced risk professionals, including insurance brokers, consultants, and outside coverage counsel can help companies place, renew, and modify insurance programs with an eye towards providing effective protection for insured executives that responds as expected at the point of claim. While insurance considerations are important during bankruptcy proceedings, the best time to start ensuring the effectiveness of insurance protection is long before insolvency arises.
[1] 11 U.S.C. § 541(a).
[2] Houston v. Edgeworth (In re Edgeworth ), 993 F.2d 51, 55 (5th Cir. 1993).
[3] Id. at 56.
[4] In re Endoscopy Ctr. of S. Nevada, LLC, 451 B.R. 527, 544 (Bankr. D. Nev. 2011).
[5] In re Allied Digital Techs., Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[6] See, e.g., In re Youngstown Osteopathic Hosp. Ass’n, 271 B.R. 544, 548-550 (Bankr. N.D. Ohio 2002).
[7] In re Leslie Fay Cos., Inc., 207 B.R. 764, 785 (Bankr. S.D.N.Y. 1997).
[8] In re Allied Digital Techs. Corp., 306 B.R. 505, 512 (Bankr. D. Del. 2004).
[9] In re Sacred Heart Hosp. of Norristown, 182 B.R. 413, 420 (Bankr. E.D. Pa. 1995).
[10] Circle K Corp. v. Marks (In re Circle K Corp.), 121 B.R. 257 (Bankr. D. Ariz. 1990).
[11] In re Levine, No. 23-1349, 2025 WL 610303 (4th Cir. Feb. 26, 2025).
The Ninth Circuit Confirms That Liability Insurers Are Entitled to Corroborating Medical Documentation Before Settling a Third-Party Bodily Injury Claim
Liability insurers often receive policy limit demands from third-party claimants that allege serious injuries without corroborating medical records or bills. Since the enactment of California Civil Procedure Code section 999 et seq. in 2023, these demands are typically made by “unrepresented” claimants who are actually receiving guidance from attorneys behind the scenes.
When insurers ask the claimants for corroborating medical documentation – or medical authorizations and sufficient time to use them – their requests are often ignored. Nevertheless, after the demands expire, the insurers are confronted with accusations that they acted in “bad faith” by failing to accept the uncorroborated demands.
In McGranahan v. GEICO Indemnity Company, GEICO was sued for bad faith based on these very circumstances. GEICO’s summary judgment victory in that case was recently affirmed by the Ninth Circuit, which held that GEICO acted reasonably – as a matter of law – when it declined to settle for its policy limit before receiving corroborating medical records and bills. McGranahan v. GEICO Indem. Co., 2025 WL 869306 (9th Cir. Mar. 20, 2025).
In McGranahan, GEICO’s insured was involved in an accident with a motorcyclist (McGranahan). During its investigation, GEICO spoke with McGranahan’s girlfriend, who claimed that McGranahan had suffered serious injuries and had been hospitalized for several weeks. GEICO asked the girlfriend for medical bills or records so that it could evaluate McGranahan’s claim. GEICO also requested that McGranahan sign and return a medical authorization so that GEICO could order the necessary medical documentation. Despite multiple follow-up requests, neither McGranahan nor his girlfriend provided GEICO with any medical records or bills, or a signed medical authorization.
Instead, after consulting with an attorney, McGranahan sent GEICO a handwritten letter demanding that GEICO pay him its $100,000 policy limit. In his demand letter, McGranahan claimed, among other things, that he suffered “significant injuries” and had “over a million dollars” in medical bills.
GEICO responded by again asking McGranahan to provide corroborating medical documentation, which GEICO explained was “essential” to evaluate the claim. GEICO also asked for an extension to respond to the demand. After McGranahan ignored those requests, GEICO advised him that it could neither accept nor reject his demand until it had adequate supporting documentation. GEICO also continued to send follow-up requests for medical documentation, which continued to go unanswered.
It was not until after McGranahan filed suit against GEICO’s insured that GEICO was first able to obtain corroborating medical documentation via formal discovery in the lawsuit. GEICO then offered McGranahan the policy limit, which he rejected based on his contention that the policy was “open” because GEICO had acted in bad faith by not accepting his prior policy limit demand.
After reaching an agreement to resolve that lawsuit for a stipulated judgment in the amount of $1.5 million, McGranahan obtained an assignment of the insured’s rights and sued GEICO for bad faith failure to settle. Judge Aenlle-Rocha of the Central District of California granted summary judgment in favor of GEICO finding, as a matter of law, that GEICO did not act in bad faith. McGranahan v. GEICO Indem. Co., 714 F. Supp. 3d 1187 (C.D. Cal. 2024). In particular, the court concluded that it was reasonable for GEICO to seek corroborating medical documentation before settling McGranahan’s claim, and that GEICO made reasonable efforts to obtain that information. Id. at 1196-97.
On March 20, 2025, the Ninth Circuit affirmed. McGranahan v. GEICO Indem. Co., 2025 WL 869306 (9th Cir. Mar. 20, 2025). In doing so, the Court made several significant rulings, including:
“An insurance company is entitled to receive medical records and bills to aid it in evaluating a settlement offer”; and
GEICO’s multiple requests for McGranahan’s medical bills/records or a signed medical authorization constituted a reasonable and adequate investigation (rejecting McGranahan’s argument that GEICO was required to send someone to meet with him or his girlfriend in person).
The Ninth Circuit’s ruling in McGranahan is consistent with its prior published decision in Du v. Allstate Ins. Co., 697 F.3d 753, 759 (9th Cir. 2012), where it also recognized that an insurer is not required to accept bodily injury claims that are uncorroborated by medical documentation. Both of these decisions affirm the common-sense principle that liability insurers are entitled to corroborating medical documentation when evaluating a third-party bodily injury claim before their settlement duties are triggered.
Rulings like this will help liability insurers defend themselves in bad faith lawsuits arising out of claims involving purportedly “unrepresented” claimants who submit policy limit demands without supporting medical documentation – a scenario that has become more commonplace after the enactment of California Civil Procedure Code section 999, et seq.
Virginia Moves to Regulate High-Risk AI with New Compliance Mandates
On February 20, the Virginia General Assembly passed the High-Risk Artificial Intelligence Developer and Deployer Act. If signed into law, Virginia would become the second state, after Colorado, to enact comprehensive regulation of “high-risk” artificial intelligence systems used in critical consumer-facing contexts, such as employment, lending, housing, and insurance.
The bill aims to mitigate algorithmic discrimination and establishes obligations for both developers and deployers of high-risk AI systems.
Scope of Coverage. The Act applies to entities that develop or deploy high-risk AI systems used to make, or that are a “substantial factor” in making, consequential decisions affecting consumers. Covered contexts include education enrollment or opportunity, employment, healthcare services, housing, insurance, legal services, financial or lending services, and decisions involving parole, probation, or pretrial release.
Risk Management Requirements. AI deployers must implement risk mitigation programs, conduct impact assessments, and provide consumers with clear disclosures and explanation rights.
Developer Obligations. Developers must exercise “reasonable care” to protect against known or foreseeable risks of algorithmic discrimination and provide deployers with key system usage and limitation details.
Transparency and Accountability. Both developers and deployers must maintain records sufficient to demonstrate compliance. Developers must also publish a summary of the types of high-risk AI systems they have developed and the safeguards in place to manage risks of algorithmic discrimination.
Enforcement. The Act authorizes the Attorney General to enforce its provisions and seek civil penalties of up to $7,500 per violation.
Safe Harbor. The Act includes a safe harbor from enforcement for entities that adopt and implement a nationally or internationally recognized risk management framework that reasonably addresses the law’s requirements.
So how does this compare to Colorado’s law? Virginia defines “high-risk” more narrowly—limiting coverage to systems that are a “substantial factor” in making a consequential decision, whereas the Colorado law applies to systems that serve as a “substantial” or “sole” factor. Colorado’s law also includes more prescriptive requirements around bias testing and impact assessment content, and provide broader exemptions for small businesses.
Putting It Into Practice: If enacted, the Virginia AI law will add to the growing patchwork of state-level AI regulations. In 2024, at least 45 states introduced AI-related bills, with 31 states enacting legislation or adopting resolutions. States such as California, Connecticut, and Texas have already enacted AI-related statutes . Given this trend, it is anticipated that additional states will introduce and enact comprehensive AI regulations in the near future.
Ninth Circuit Clarifies Amount in Controversy Requirement in Declaratory Judgment Actions Between Insurers and Their Insureds
Plaintiff’s counsel often employ a range of strategic tactics to defeat diversity jurisdiction because they view federal court as an unfavorable forum. One such tactic is to challenge the amount in controversy—a key requirement for diversity jurisdiction. However, the Ninth Circuit’s recent decision in Farmers Direct Property & Casualty Ins. Co. v. Perez, — F.4th —, 2025 WL 716337 (9th Cir. March 6, 2025), makes it difficult to challenge the amount in controversy in declaratory judgment actions filed in federal court involving an insurer’s duty to defend and/or indemnify. In Perez, the Ninth Circuit held that in determining the amount in controversy, district courts may consider (i) the insurer’s potential excess liability and (ii) defense fees and costs that the insurer might incur in the underlying action.
Perez arose out of a January 2017 auto accident between Montez and Perez, who was insured by Farmers Direct. Montez, made a policy limit demand, conditioned on an affidavit from Perez that he did not have any other insurance. Farmers Direct offered to pay its $25,000 policy limit but explained that it was unable to reach Perez to obtain an affidavit.
Montez did not accept the policy limit and filed a personal injury lawsuit against Perez in state court. Farmers Direct provided a defense, but Perez would not communicate with defense counsel and was uncooperative in his own defense. Eventually, judgment was entered against Perez for more than $11 million.
Before the state court judgment was entered, Farmers Direct filed a declaratory judgment action against Perez in federal court, seeking a declaration that it had no duty to defend and indemnify Perez because he had breached the policy’s cooperation clause. When Perez did not respond to the complaint, the district court entered a default judgment against him and found that Farmers Direct had no continuing duty to defend and no duty to indemnify Perez.
Montez intervened in the federal action to set aside the default judgment, arguing that given the face amount of the policy, the amount in controversy requirement was not satisfied. The district court agreed, found it did not have subject matter jurisdiction, and vacated the judgment.
Farmers Direct appealed, and the Ninth Circuit reversed. The court concluded that the amount in controversy was not limited to the policy’s $25,000 limit. Rather, in determining the amount in controversy, the district court was required to take into account (i) Montez’s contention that Farmers Direct should be liable for the excess amount of the underlying personal injury judgment and (ii) Farmers Direct’s ongoing defense costs in the underlying tort action. Because there was a legal possibility that Farmers Direct could be liable for these amounts, each of which exceeded $75,000, the panel held that the district court erred in vacating the default judgment and remanded the matter for further proceedings.
Full-Court Coverage for Risks Associated With Major Sporting Events
NCAA March Madness tournaments are among the most anticipated and exciting events in American sports, drawing millions of viewers and generating significant economic activity. But the massive popularity of the tournaments comes with risks that can affect participants, venues, sponsors, and fans. From injuries to property damage and event-related cancellations, this post explores the potential risks and the insurance products available to mitigate the risks associated with major sporting events, concerts, or festivals.
Common Risks
Injury Risks: March Madness, as a high-stakes basketball tournament, inherently involves physical risks for players. Injuries to athletes, whether from collisions, falls, or overexertion, can have serious consequences for the individuals involved and the tournament’s operations.
Liability Claims: Like the athletes, fans and spectators attending the tournament may face also accidents or injuries while at the venue. Additionally, third-party vendors providing services or merchandise at the event could face liability claims if their products or services result in harm.
Event Cancellations or Delays: Unexpected events, such as natural disasters, power outages, or public health emergencies, can cause cancellations or delays in the tournament. These disruptions may lead to financial losses for event organizers, sponsors, and other stakeholders.
Property Damage: The venues hosting the tournament, including arenas and surrounding areas, face potential risks of property damage above and beyond those experienced in their normal operations. Whether from crowd surges, accidents, or other unforeseen incidents, the costs of repairs or compensation can be significant.
Insurance Coverage Options
Several insurance products can manage the risks associated with March Madness and similar events.
Sports Accident Insurance: Under NCAA rules, athletes must have a basic health and accident plan. Coverage can be provided through the school, a parent or guardian’s policy, or the student-athletes’ own policy. The NCAA also provides an insurance program that covers student-athletes who are catastrophically injured while participating in a covered intercollegiate athletic activity. Schools or athletes can purchase more comprehensive programs designed specifically for athletes that also cover potential loss of income if the athlete is unable to play. Sports accident coverage is essential for protecting players during high-risk events, such as NCAA basketball tournaments, and protecting current and future earnings.
General Liability Insurance: General liability insurance covers claims related to injuries or accidents occurring on the premises. For example, general liability insurance may cover injuries to spectators caused by falling objects or slip and falls. Event organizers, sponsors, and venue owners rely on this coverage to protect against legal and medical costs.
Event Cancellation Insurance: Event cancellation insurance helps cover financial losses resulting from event cancellations or delays due to unforeseen circumstances, such as natural disasters or other emergencies. This coverage is particularly important for organizers and sponsors, as it protects their investment against the risk of event cancellation due to circumstances beyond their control. Depending on the specific policy, event cancellation insurance may also cover enforced reduced attendance at the insured event, which covers loss the insured incurs due to unforeseeable circumstances that result in attendance falling below budgeted expectations. For example, if a severe weather event forces a game relocation or results in a reduced crowd due to travel restrictions, event cancellation insurance may compensate organizers for lost revenue.
Property Insurance: Property insurance covers any damage that occurs to the event venue or other associated facilities. It can cover physical damage to the building, as well as the equipment, signage, and other property used during the event. For example, property insurance may cover damage to signs, light poles, or windows caused by students celebrating a tournament win.
Conclusion
While March Madness is thrilling, the risks associated with the tournament are significant, requiring careful planning and protection. Insurance coverage tailored to the unique needs of a major sporting or music event can help mitigate these risks, ensuring that participants, organizers, and fans are protected. By understanding and securing appropriate insurance products, all those involved in the tournament can focus on what really matters—celebrating the excitement of the game.