Coverage Cutoffs in M&A Transactions- Five Things to Know About D&O Insurance “Tail” Coverage
Because modern directors and officers (D&O) liability policies are written on a “claims made” basis, coverage is determined based on when the claim for wrongful acts is first made against an insured. If a company does not have a D&O policy in place, it risks being uninsured for claims made during a gap in claims-made coverage. D&O policies also contain “change in control” provisions limiting coverage for wrongful acts occurring after there is a change in ownership. So, what happens when a company is acquired, merges with another company, or sells its assets such that the selling entity no longer is a going company that maintains a D&O policy?
The approach taken in many transactions is securing “runoff” and “tail” coverages, which extend a policy’s coverage period beyond the date of the transaction and allows insureds to recover for claims alleging pre-transaction wrongdoing. However, from a practical standpoint, placing and pursuing coverage under tail policies can be fraught with peril. This article presents an overview of five common coverage issues to consider when runoff provisions are at play.
1. Negotiate Favorable Policy Provisions (and Then Follow Them).
D&O policies are not all created equal. Quite the opposite, as terms are heavily negotiable and customizable. This variety carries over to D&O policy runoff and tail coverage. For instance, many standard forms do not include guaranteed tail coverage with pre-negotiated term and pricing options. Leaving these critical coverage negotiations to chance can lead to real problems, especially when a company is insolvent or in bankruptcy where cash flow is paramount and large insurance premiums can exacerbate existing financial strain. Negotiating terms in advance can introduce certainty and predictability in the midst of complex transactions and ownership changes.
Policies may also impose varying degrees of requirements to select and effectuate tail coverage. For example, policies can require prompt notice of changes in management control, sometimes accompanied by additional underwriting requirements to secure coverage.
Understanding precisely when and how those provisions operate in practice can minimize conflict based on technicalities in the policy.
To help facilitate seamless insurance continuity in future transactions, policyholders should assess their D&O coverage placements and renewals with an eye towards future M&A activity and how runoff and tail provisions would be treated in those transactions.
2. Understand What Constitutes a Change in Control.
One basic but often overlooked question about tail coverage is when it even may be implicated. Companies and executives may have their own assumptions about when D&O policies will continue in force or require tail coverage, which may not match what the policy actually says. For example, some may assume that simply filing for bankruptcy automatically triggers a change in control. Or conversely, some may assume that a company’s emergence from bankruptcy does not trigger runoff provisions in the absence of a more traditional acquisition or merger. Neither assumption may be true, and the policy will always control.
These kinds of misunderstandings can then lead to the failure to timely elect tail coverage, missed notice deadlines, and similar missteps that insurers can use to deny or limit coverage. Missing these nuances in policy language can leave policyholders exposed to D&O claims without a coverage safety net. Working closely with risk professionals, like brokers and outside coverage counsel, can help navigate these issues and avoid transactional-related gaps in coverage.
3. Be Wary of Straddle Claims.
A company can seemingly do everything right—place robust D&O coverage, monitor forthcoming changes in control, timely elect tail coverage, and submit a post-transaction claim for coverage alleging pre-transaction wrongdoing ostensibly covered by the tail policy. But then comes a surprise denial. Some of the biggest offenders that can seemingly negate tail coverage altogether are exclusions aimed at so-called “straddle” claims. Straddle claims allege misconduct both before and after the effective date of tail coverage.
Coverage grants in tail policies are tailored to respond only to claims alleging pre-closing wrongful acts. But some insurers go a step further in adding exclusions to policies that bar coverage for any claim based upon, arising out of, directly or indirectly resulting from, or in any way involving a wrongful act allegedly committed on or after the runoff date. These provisions eliminate coverage entirely—even for portions of the claim tied exclusively to pre-runoff wrongdoing—based on the presence of a single post-runoff wrongful act. That can lead to finger-pointing between insurers, especially where a surviving entity purchased a going-forward D&O policy that has a similarly broad exclusion barring coverage for any claim involving any pre-closing wrongful acts.
To avert contentious coverage battles, policyholders should closely scrutinize tail policies to eliminate or narrowly tailor these kinds of exclusions. Clarifying how policies address straddle claims can ensure that they do not fall through uncovered cracks because of conduct timing. Buyers and sellers should have an understanding of the pre-closing and post-closing insurance regimes that will be in place around a transaction in order to avoid any potential denials of straddle claims.
4. Reckoning with Reduced Limits and Coverages.
Policyholders purchasing tail coverage may also assume that all coverage terms remain intact. In addition to new exclusions, however, tail policies may also be accompanied by reduced limits. This can be especially important to monitor because the tail coverage in place as of the runoff date is finite and needs to respond to all claims throughout the entirety of the runoff period, which often lasts six years.
Tail endorsements for management liability policies may also include only certain coverages, most commonly D&O, and omit other coverages, like employment practices liability. Assessing the full suite of available tail and extended reporting periods can ensure there are no unexpected gaps in coverage for post-closing claims. For example, a selling company would likely want broad coverage, while a buyer who has agreed to pay for some, or all, of a tail policy may argue that including atypical tail endorsements were not contemplated when an insurance cost-sharing arrangement was agreed to. Both sides of a transaction should endeavor to be as precise as possible when allocating costs and specifying expected tail policy terms to avoid disputes and ensure appropriate coverage throughout the transaction.
5. Consider Coverage for the Wind Down.
Tail coverage is especially important in bankruptcy as debtors seek to have plans confirmed and questions arise about protecting against historical or future liabilities. One overlooked aspect can be in liquidations requiring plan administrators or other individuals, like chief restructuring officers (CROs), to stay on after a plan is confirmed to wind down operations. Under most tail policies, D&O coverage terminates at the time of plan confirmation, even if exposure to claims challenging the orderly liquidation or winding down of the company does not cease. To address that, policyholders can secure “wind down” coverage to fill that gap and extend protection during wind-down phases to key administrators, CROs, and anyone else facing potential exposure for post-confirmation conduct.
* * *
Runoff and tail coverage should protect companies and directors and officers against claims for legacy liabilities, but pitfalls abound. Remaining proactive to negotiate favorable terms and understanding and adhering to key policy provisions can help ensure continuity of coverage and avoid uninsured exposures and surprise denials after closing.
Drafting Effective Insurance Coverage Letters: Best Practices for Insurers
A carefully drafted coverage letter remains one of the most effective tools of an insurer. This article provides insurers and claims professionals with a guide to drafting clear, compliant, and defensible coverage letters. This starts when the carrier receives notice of the claim and includes complying with regulatory requirements, employing effective communication strategies with the insured, and ensuring that the proper documentation is maintained. Additionally, we will explore the essential elements of a coverage letter, and the role an effective letter plays in helping insurers protect their interests while maintaining a cooperative relationship with the policyholder throughout the claims process.
Laying a Foundation: The Initial Handling of the ClaimA well-crafted coverage letter is not created in isolation; it is the product of a careful, compliant, and well-documented claims process. Accordingly, before fingers touch keys, several critical issues must be addressed to ensure the coverage letter is both accurate and effective. Understanding and adhering to regulatory requirements, maintaining clear and effective communication with all parties involved, and keeping meticulous records are all essential steps that lay the groundwork for a defensible and persuasive coverage letter. These practices not only ensure compliance with legal and industry standards but also help to build trust, reduce disputes, and protect the insurer’s interests throughout the life of a claim.
Regulatory Requirements & Timely Claims HandlingOne of the most critical steps is understanding and complying with the regulatory requirements that govern claims handling in each jurisdiction. Every state imposes specific, time-sensitive obligations on insurers that can vary significantly depending on the type of policy and the location of the claim. These rules are intended to keep policyholders informed and prevent unnecessary delays.
For example, California has some of the strictest regulations in the country. Under the California Fair Claims Settlement Practices Regulations, insurers must acknowledge receipt of a claim within 15 days, provide necessary claim forms or instructions within the same timeframe, make a coverage determination within 40 days after receiving all required documentation, and send written updates every 30 days if the investigation is ongoing.
In New York, property insurers are required to accept or deny a claim within 15 business days after receiving a complete proof of loss. For most other claims, the required processing timeframe is generally less defined. However, an insurer still has a duty to promptly acknowledge and respond to any claim. Regardless, given that there are usually litigation deadlines looming, an adjuster typically must make an initial coverage determination quickly.
Failure to meet these regulatory benchmarks can have serious consequences. Not only does it undermine the insurer’s credibility and relationship with the policyholder, but it can lead to allegations of unfair claims practices, regulatory penalties, and even bad faith litigation. Accordingly, for insurers, strict adherence to these requirements is essential.
Communication with the Insured & Their RepresentativesOnce the claim is opened, the insurer’s first strategic priority is clear, consistent communication with the insured or its representative. The sophistication level on the other side of the conversation varies widely, and understanding the nature of the insured’s representation is critical to managing the claim effectively.
In some cases, the insurer will interact directly with an employee of the insured company, such as someone from the general counsel’s office or a risk manager who is well versed in insurance matters. These individuals may have a strong understanding of policy language and claims processes, which can streamline communication but may lead to more rigorous challenges to the insurer’s coverage position.
Other insureds may rely on an insurance broker to act as their representative. The expertise of brokers can vary significantly. Some brokers, particularly those affiliated with major firms, possess a deep knowledge of insurance products and the claims process. They may actively advocate for the insured, including challenging coverage positions. Conversely, some brokers may have limited experience with complex claims or litigation, and may simply act as intermediaries without adding significant value to the process.
In more contentious or high-stakes claims, the insured may retain outside coverage counsel. These attorneys are often brought in when there is a dispute over coverage or when the insured anticipates a complex negotiation. When coverage counsel is involved, communications may become more formal and adversarial. The insurer should consider engaging its own coverage counsel to ensure that its interests are fully protected and that all legal requirements are met.
It is increasingly common, particularly in the context of first-party property claims, for insureds to engage public adjusters – independent professionals who assist policyholders in preparing and negotiating claims, typically working for a percentage of any recovery. While they can help insureds navigate the claims process, public adjusters may not always have a deep understanding of the specific policy at issue or the underlying facts, which can sometimes complicate or slow down the process.
Regardless of who represents the insured, the guiding principle remains the same: the adjuster’s correspondence must be prompt, accurate, and transparent as to what information is needed and why. Effective communication not only helps to build trust and cooperation but also ensures that the insurer’s position is clearly documented in the event of a dispute. When sensitive or privileged materials are requested, offering a well-crafted confidentiality agreement can facilitate cooperation and help avoid later discovery disputes.
If, despite these efforts, the insured remains reluctant to provide necessary information, the insurer may need to issue a formal “cooperation letter” invoking the policy’s cooperation clause. However, this step should be reserved for situations where less formal efforts have failed, as it can escalate tensions and potentially lead to further disputes.
Documentation & RecordkeepingThroughout the investigation, meticulous documentation is paramount. Every aspect of the claim file – from coverage letters and emails to claim notes and attachments – serves as a critical record of the insurer’s actions and decisions. These documents should always be saved in a static format, such as PDF, to ensure that the record is preserved exactly as it was sent or received. It is equally important to retain transmission confirmations, such as email receipts or certified mail tracking, to demonstrate that correspondence was properly delivered.
Best practices dictate that adjusters should be diligent in organizing and maintaining the claim file. This includes not only saving all relevant documents but also understanding how the document management system stores, indexes, and exports files. Inadequate organization or missing records can severely undermine the insurer’s position in the event of coverage litigation, as courts and opposing counsel will scrutinize the claim file for evidence of the insurer’s conduct and decision-making process.
Claim notes are especially significant, and should be detailed, contemporaneous, and objective, capturing every material conversation, decision point, and rationale. Courts frequently treat claim notes as a road map to the carrier’s state of mind, and they are often introduced as key evidence in coverage disputes. Robust claim notes can demonstrate that the insurer acted promptly, considered all relevant information, and communicated clearly with the insured. Vague or incomplete notes could be perceived a lack of diligence or even bad faith.
Emails and informal correspondence also play a vital role. Adjusters should be mindful that any communication with the insured, broker, or counsel may be reviewed in litigation. Everyone involved in handling a claim also should be mindful and careful about internally sent emails within the insurer organization, as these too may ultimately be revealed in coverage litigation. All emails and their attachments should be saved to the claim file, even if the attachments are stored elsewhere. Again, consistency and transparency in documentation not only protect the insurer’s interests but also help build a defensible narrative if the claim is ever challenged.
Ultimately, thorough and organized documentation is essential for demonstrating regulatory compliance, supporting coverage determinations, and defending against allegations of bad faith. Adjusters should approach documentation with the understanding that if it is not in the claim file, it may be presumed not to have happened. By following these best practices, insurers can ensure that their claim files tell a clear and compelling story of diligence, fairness, and professionalism.
Drafting the Coverage Letter: What to IncludeOnly after these preparatory measures are complete should the insurer finalize its formal coverage letter, which serves two distinct purposes: it communicates the insurer’s current position regarding the claim in a clear and persuasive manner, and it preserves all available defenses by explicitly reserving rights. The effectiveness of the coverage letter can significantly influence the insured’s response and may reduce the likelihood of future disputes or litigation if the reasoning is thorough and well supported.
In this regard, the ultimate purpose of a coverage letter is to convince the insured that the insurer’s coverage position is correct. If an insured disagrees with the insurer’s position, there may be litigation. That outcome is significantly less likely if the coverage letter is done correctly. Clarity and accuracy are, therefore, important. The letter should avoid ambiguous language and should be tailored to the specific facts and policy provisions at issue.
Additionally, no matter how detailed a coverage letter is, it is not enough to simply state the insurer’s position. A well-drafted coverage letter also serves as a record of the insurer’s diligence and fairness, which can be invaluable if the claim later becomes the subject of litigation. Accordingly, the coverage letter should show that the insurer fully considered all relevant facts, examined all relevant policy provisions, and gave at least as much consideration to the insured’s rights as it did to its own (i.e., acted in “good faith”).
The coverage letter also must demonstrate compliance with all applicable insurance laws or regulations, including those concerning, among other things, the timeliness of the response, the appointment of counsel, and certain information that must be furnished to the insured.
Concise OpeningBecause many insureds read little beyond the opening paragraphs, it is essential for the coverage letter to begin with a concise and definitive statement of the insurer’s position. This opening should clearly indicate whether the insurer is accepting the defense subject to a reservation of rights, denying coverage, or offering coverage with specific limitations. For example, the letter might state: “We are providing a defense for this claim subject to a full reservation of rights under the policy,” or “Based on the information currently available, coverage is unavailable for this claim pursuant to the following policy exclusions.”
Immediately following the summary of the coverage position, the letter should include an express reservation of all rights afforded by the policy and applicable law. This reservation should be comprehensive, covering not only the right to deny coverage but also the right to recoup defense costs if permitted by law, and the right to assert additional defenses as new information becomes available. The insurer also should note that its position is based on the facts currently known and invite the insured to provide any additional information that may impact coverage.
Factual SummaryThe narrative then turns to the relevant facts. In this section, the insurer should provide a clear and comprehensive summary of all information that has been considered in reaching the coverage determination. It is essential to demonstrate that the insurer has evaluated both favorable and unfavorable facts, and that the decision is based on a balanced and thorough investigation rather than selective fact-picking.
A well-drafted coverage letter will typically begin by outlining the underlying allegations, including the nature of the claim, the parties involved, and the specific events that gave rise to the loss or dispute. The timing of the claim should be addressed, noting when the incident occurred, when it was reported, and any relevant deadlines or notice provisions under the policy. The insured’s role in the events should be described, clarifying whether the insured was acting within the scope of their duties or capacity as defined by the policy.
In addition to the allegations and timeline, the insurer should discuss any extrinsic evidence that may impact coverage, such as witness statements, expert reports, or documents provided by the insured. This may include information that supports coverage as well as facts that may limit or exclude coverage. By presenting a complete picture, the insurer demonstrates good faith and regulatory compliance. Depending on the jurisdiction, extrinsic facts may be considered only for finding coverage, or in some circumstances may be considered for denying coverage as well.
Best practices also include inviting the insured to review the insurer’s understanding of the facts and to provide any additional information or corrections. This not only helps ensure accuracy but also shifts some responsibility to the insured to clarify any misunderstandings. For example, the coverage letter may state: “If you believe any of the facts as summarized herein are incomplete or inaccurate, please notify us in writing and provide any supporting documentation you wish us to consider.”
Policy AnalysisNext comes the policy analysis, which should demonstrate the insurer’s diligence and transparency in evaluating the claim. The analysis should begin with a clear outline of the policy, including the policy period; the specific coverage parts that may apply; the applicable limits of liability, retentions, or deductibles; and any pertinent definitions that shape the scope of coverage. Providing this context helps the insured understand the framework within which the claim is being evaluated.
The letter should then walk the insured through each relevant insuring agreement, explaining in detail how the facts of the claim do or do not trigger coverage. This includes identifying who qualifies as an insured, whether the alleged conduct constitutes a covered event or wrongful act, and whether the timing of the claim falls within the policy period or any applicable reporting window, or may involve a retroactive date. The analysis should be thorough and reference the specific policy language, making clear connections between the facts and the terms of the contract.
If coverage is limited or precluded by an exclusion or condition, the insurer must quote the operative policy language verbatim, apply the relevant facts, and explain the reasoning in clear, accessible language. For example, if a professional services exclusion is being relied on to deny indemnity, the letter should set out who performed the service, the nature and timing of the service, and how these facts bring the claim within the scope of the exclusion. Where appropriate, the analysis also may reference any relevant case law or regulatory requirements that inform the interpretation of the policy provision.It is also important to address any other policy provisions that may impact coverage, even if they are not ultimately determinative. This might include conditions precedent to coverage, sub-limits, or endorsements that modify the standard terms. By discussing these provisions, the insurer demonstrates a comprehensive and good faith review of the policy and avoids any suggestion of waiver should new facts arise later. The insurer also may preserve the right to later rely on these policy provisions.
Defense & Settlement ProvisionsWhen the duty to defend arises, the insurer should provide a clear and detailed explanation of how the defense will be managed. This includes specifying the process for selecting defense counsel, whether the insurer will appoint counsel from its panel or allow the insured to select their own attorney. The coverage letter should outline any requirements for compliance with the insurer’s litigation guidelines, including expectations for reporting, case management, and communication throughout the defense.
It is also important to address rate parameters and billing protocols. The insurer may want to address the rates it is willing to pay for defense counsel and clarify any limitations, such as caps on hourly rates or requirements for prior approval of certain expenses. The insurer also should clarify its rights regarding settlement authority. This includes specifying when the insured must obtain the insurer’s consent before agreeing to any settlement. Clear communication of these terms helps prevent misunderstandings and ensures that both parties are aligned throughout the litigation.
Where independent counsel is required, such as when a conflict of interest exists between the insurer and the insured, the coverage letter should address the conditions under which the insurer will consent to independent counsel. Consent may be conditioned on the counsel’s agreement to reasonable rates, adherence to the insurer’s billing guidelines, and compliance with any other requirements set forth in the policy or by statute. The insurer also should reference any applicable statutory provisions, such as California Civil Code section 2860, which governs the selection and payment of independent counsel.
Closing the Coverage LetterFinally, the coverage letter’s closing paragraphs should reiterate the blanket reservation of rights, making clear that the insurer is not waiving any policy defenses or legal arguments by issuing the letter or by taking any action. The reservation should be comprehensive, often using language such as: “The insurer continues to reserve all rights, privileges, and defenses under the policy, at law, and in equity, to deny or limit coverage on any of the previously stated or other bases. No action taken by the insurer should be deemed a waiver of or estoppel of its rights under the policy or otherwise.” Including such a statement helps protect the insurer from inadvertently waiving defenses that may become relevant as the claim develops.
The letter also should expressly invite the insured to submit any additional information, documentation, or clarification that could impact the coverage determination. This invitation demonstrates the insurer’s willingness to consider all relevant facts and ensures that the insured has an opportunity to correct any misunderstandings or provide evidence that may have been overlooked. For example, the letter might state: “If you believe there are additional facts or documents that may affect our coverage position, please provide them to us as soon as possible for further consideration.”
In addition, the insurer might want to reiterate that its position is based on the facts currently known and that the coverage determination may be amended or supplemented if new information comes to light. This arguably preserves the insurer’s ability to adjust its position as the investigation continues or as litigation progresses.
The Importance of a Well-Executed Coverage LetterA well-executed coverage letter does more than memorialize a decision; it creates a defensible record of diligence, fairness, and regulatory compliance. Such a letter demonstrates that the insurer has thoroughly investigated the claim, considered all relevant facts, and applied the policy language in good faith. Conversely, an ambiguous, incomplete, or poorly timed coverage letter may expose the insurer to allegations of bad faith, regulatory penalties, or even estoppel from asserting valid policy defenses.
For complex or high-exposure matters, involving experienced coverage counsel at the outset is often the most cost-effective way to ensure the letter meets legal requirements, addresses jurisdiction-specific nuances, and positions the insurer to navigate any future dispute from solid ground. Coverage counsel can provide valuable insight into evolving legal standards, which may vary significantly across jurisdictions, help anticipate potential challenges, and ensure that the letter is comprehensive and persuasive. In addition, insurers can work with outside counsel to implement ongoing training and process improvement for claims professionals.
Ultimately, it can be very difficult to draft an effective coverage letter. Many good adjusters can get it wrong in a way that negatively impacts the claim and the carrier’s position if there is coverage litigation. However, by mastering the interplay of regulatory obligations, an effective communication strategy, meticulous documentation, and rigorous policy analysis, carriers can transform the seemingly routine task of drafting coverage letters into a powerful risk-management tool.
Are Lessors Risk-Only Endorsements Effective in Florida?
This article addresses the purpose and effectiveness of a Lessors Risk-Only Endorsement (LRO), which is designed to shift coverage from a commercial premises owner to its commercial tenants.
Standard LRO LanguageA typical LRO provides as follows:
LESSORS RISK-ONLY ENDORSEMENTThis Endorsement Changes the Policy. Please Read It Carefully.This endorsement modifies insurance under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PARTFor any Lessors Risk-Only classifications on this policy, coverage is written and priced on the basis that your “tenant(s)” carry liability insurance to protect you as well as them.
Within the lease agreement between you and the “tenant(s)” there must be a requirement that the “tenant(s)” carry Commercial General Liability insurance that provides:
(a) Limits greater than or equal to your limits on this policy, and
(b) Names you as an Additional Insured on their policy.
Parking Lot(s) or other land or premises owned by you and leased to “tenant(s)” must be included in such “tenant(s)” insurance.
Failure to comply with this/these term(s) and/or condition(s) shall render coverage under this policy null and void.
“Tenant(s)” is defined as Commercial tenant(s) only and does not apply to residential tenant(s).
This language imposes the following requirements in order to trigger coverage under the policy: (1) the leases between the insured and its tenants must require that the tenants name the insured as an additional insured on their policies, (2) the tenants’ policies must have limits greater than or equal to the insured’s limits, and (3) the tenants must actually purchase insurance that names the additional insured on their policies.
Under Florida law, an insurer may deny coverage where an insured “breaches policy provisions under which, but for the breach, coverage would otherwise exist.”1 Such policy provisions are known as conditions precedent and conditions subsequent.
A condition precedent is one that is to be performed before the contract becomes effective.2 The requirement to timely notify an insurer of a claim is generally held to be a condition precedent. A condition subsequent is a condition that provides “that a policy shall become void or its operation defeated or suspended, or the insurer relieved wholly or partially from liability upon the happening of some event, or the doing or omission to do some act. …”3 The requirement to cooperate in the insurer’s investigation of a claim is generally held to be a condition subsequent.4
Applying this Florida framework, the requirements in the LRO should be considered conditions precedent to trigger coverage. Thus, where the conditions precedent in the LRO are not met, the policy’s commercial general liability coverage should not be triggered. This, however, raises the question of whether the LRO applies where there is no tenancy.
TenancyUnder Florida law, commercial tenancies are governed by Florida Statutes, Chapter 83, Part I, and commercial relations are governed by Florida Statutes, Chapter 680, section 83.01, which address commercial tenancies as follows:
Fla. Stat. § 83.01 Unwritten lease tenancy at will; duration.Any lease of lands and tenements, or either, made shall be deemed and held to be a tenancy at will unless it shall be in writing signed by the lessor. Such tenancy shall be from year to year, or quarter to quarter, or month to month, or week to week, to be determined by the periods at which the rent is payable. If the rent is payable weekly, then the tenancy shall be from week to week; if payable monthly, then from month to month; if payable quarterly, then from quarter to quarter; if payable yearly, then from year to year.
Pursuant to section 680.1031(1)(q), the term “lessor” means “a person who transfers the right to possession and use of goods under a lease.”
Considering these statutory provisions in conjunction with one another, a commercial tenancy exists only where there is a lease (written or at will) that transfers the right of possession of the property from the owner to the occupant in exchange for the payment of rent. Therefore, to establish the existence of a tenancy, the threshold issue is whether there is an agreement between the owner and the entity in possession of a commercial space under which the entity in possession pays rent for the right to possess the space. If there is no exchange of rent, then there is no tenancy. Thus, in situations where there is no agreement between the insured and the occupant that the insured is to receive payment of rent in exchange for possession of the insured premises, the entity in possession of the space may not qualify as a tenant. To the extent no tenancy exists, the LRO may not apply to that occupant.
Priority of CoverageIf the LRO cannot be enforced against an occupant of the insured premises, but can be enforced against a tenant, the next question is whether the LRO actually shifts coverage to the tenant. Under Florida law, priority of coverage is dependent on analysis of the “Other insurance” provisions in all competing policies.5
“There are three types of other insurance clauses6:
Pro rata or proportionate recovery clauses. A “pro rata other insurance” clause is described as “a provision to the effect that in the event of other insurance, the loss shall be borne pro-rata dependent upon monetary limits of coverage.”7
Excess insurance clauses. An “excess other insurance” clause is described as “a provision that the policy shall be excess over any other valid and collectible insurance applicable to the liability” at issue.8
Escape or no liability clauses. An “escape other insurance clause” is “a provision that if there is other valid and collectible insurance the policy shall not apply[.]”9
Under Florida law, “where two or more policies that apparently cover the same loss both contain excess ‘other insurance’ provisions, the clauses are deemed ‘mutually repugnant’”10 and therefore cancel each other out and such that both policies are each “liable for a pro rata share in accordance with their policy limits.”11 In other words, even assuming compliance with the LRO, where the policy on which the insured premises owner has been included as an additional insured contains an excess clause and the insured premises owner’s policy also contains an excess clause, the two clauses may cancel each other out such that each insurer has a duty to defend the insured on a pro rata share. Consequently, the LRO may not actually serve its purpose of fully shifting the risk to the tenant and its insurer. Insurers should be mindful of these risks when operating in Florida._______________________________________________________________________________________________
1 “Coverage Defenses” and the Claims Administration Statute, 1 LNPG: New Appleman Florida Insurance Law §8.24.
2 State Farm Mut. Auto. Ins. Co. v. Curran, 135 So. 3d 1071, 1078 (Fla. 2014) (quoting 31 FLA. JUR.2D INSURANCE § 2686 (2013)).
3 United States Aviation Great Lakes, Inc. v. Sunray Airline, Inc., 543 So. 2d 1309, FN 5 (Fla. 5th DCA 1989).
4 State Farm Mut. Auto. Ins. Co. v. Curran, 135 So. 3d 1071, 1078 (Fla. 2014) (quoting 31 FLA. JUR.2D INSURANCE § 2686 (2013)).
5 Privilege Underwriters Reciprocal Exch. V. Hanove Ins. Grp., 304 F. Supp. 3d 1300 (S.D. Fla. 2018).
6 Am. Cas. Co. of Reading, Pa. v. Health Care Indem., Inc., 613 F.Supp.2d 1310, 1318 (M.D. Fla. 2009) (citing Sentry Ins. Co. v. Aetna Ins. Co., 450 So. 2d 1233, 1236 (Fla. 2d DCA 1984)).
7 Auto-Owners Ins. Co. v. Palm Beach County, 157 So. 2d 820, 822 (Fla. 2d DCA 1963).
8 Id.
9 Id.
10 Keenan Hopkins Schmidt & Stowell Contractors, Inc. v. Cont’l Cas. Co., 653 F. Supp. 2d 1255, 1263 (M.D. Fla. 2009).
11 Rockhill Ins. Co. v. Northfield Ins. Co., 297 F.Supp.3d 1279 (M.D. Fla. 2017) (citing Keenan, 653 F.Supp.2d at 1263) (internal citations omitted) (“By contrast, where each policy contains an excess ‘other insurance’ clause, so that giving each policy’s clause effect would leave the insured without primary insurance, the clauses are deemed to cancel each other out, and the insurers are required to cover the loss on a pro rata basis.”)
Germany Increases Social Security Contribution and Compulsory Insurance Ceilings Effective January 1, 2026
The calculation parameters for social insurance are updated annually and adjusted to income trends. Effective January 1, 2026, the Social Security Calculation Parameters Regulation 2026, as approved by the Federal Cabinet on October 8, 2025, will come into force. Due to the positive income development over the past year, the contribution assessment ceilings will increase more significantly than in previous years.
Quick Hits
In 2026, Germany’s Social Security Calculation Parameters Regulation will come into force, raising the compulsory insurance threshold to €77,400 annually.
The contribution assessment ceiling for statutory health and long-term care insurance will increase to €69,750 per year, reflecting positive income trends.
The contribution assessment ceiling in the general statutory pension insurance scheme will rise to €101,400 annually, continuing the uniformity between the new and old federal states.
1. Compulsory Insurance Limit in Statutory Health Insurance
The annual income ceiling for statutory health insurance, also known as the compulsory insurance limit, will rise to €77,400 (2025: €73,800) per year or €6,450 (2025: €6,150) per month. The compulsory insurance limit is decisive for whether employees can opt for private health insurance.
2. Contribution Assessment Ceiling in Statutory Health and Long-Term Care Insurance
The contribution assessment ceiling for statutory health and long-term care insurance will rise to €69,750 (2025: €66,150) per year or €5,812.50 (2025: €5,512.50) per month. This ceiling sets the maximum income level that is subject to insurance contributions. Income exceeding this limit is not subject to contributions.
3. Contribution Assessment Ceiling in Pension Insurance
The contribution assessment ceiling for the general statutory pension insurance will uniformly be raised to €101,400 per year or €8,450 per month. This ceiling determines the maximum income considered for calculating pension insurance contributions. Income above this limit is also exempt from contributions.
Key Takeaways
The annual adjustment of social insurance calculation parameters in line with income trends is essential for the financing of social security systems. However, the increase in the contribution assessment ceilings will result in a greater financial burden for both employers and high-earning employees.
Pauline von Stechow contributed to this article
State Insurance Department Statements Scrutinize MA and MedSupp Unfair Trade Practices
Practices related to enrollment in Medicare Advantage plans continue to draw scrutiny from government regulators. Over the last few weeks, and simultaneous with Medicare’s Annual Open Enrollment Period, six states issued statements regarding recent Medicare Advantage and MedSupp (or “Medigap”) carrier actions related to enrollment and marketing accessibility.
Specifically, regulators from state insurance departments in the states of Delaware, Idaho, Montana, New Hampshire, North Dakota and Oklahoma, have indicated that the following acts, if taken by MA and MedSupp carriers, are considered unfair and deceptive under state law:
Removing the enrollment application from [the insurance carrier’s] website,
Encouraging producers to avoid selling their products, or
Changing or discontinuing producer compensation during the year.
Only Oklahoma applied its interpretation beyond the Medicare context, to apply to carriers offering any health insurance plans in the state.
Idaho’s Director of the Department of Insurance has issued cease and desist letters to two carriers regarding behavior found in violation of the stated policies.
There has been extensive recent press coverage of Medicare Advantage plans pulling back on or terminating compensation payments to agents and brokers on certain but not all plans in an effort to dissuade enrollment in those plans. Though the Centers for Medicare & Medicaid Services (“CMS”) has made no recent statements regarding these practices, it has previously emphasized in December 2024 that with respect to MA and Part D compensation it
“only determines what the maximum fair market value (FMV) is for initial and renewal enrollments, and [that] MA organizations and Part D sponsors determine payment schedules through their contracts, provided they stay at or below FMV. So, a plan may set a range (for example, $0 to max FMV) and they may adjust their compensation within that range, including $0.”[1]
CMS further noted that state regulators have “primary oversight and enforcement of Medigap coverage, including sales and commissions,”[2] so therefore, the issuance of these recent notices are well within the states’ authority.
Historically, although MA organizations may not deny enrollment to eligible individuals[3], unless granted a rare enrollment cap by CMS,[4] and must make publicly available certain information about its plan offerings[5], CMS has not required MA organizations to actively market all available plans. Moreover, CMS does not appear to prohibit plan sponsors from making changes to agent/broker compensation during the plan year, as long as the compensation remains within the range disclosed to CMS.[6]
The state issuances referenced herein assert that they will closely and actively monitor carriers’ practices and compliance and take enforcement action as warranted under applicable law. Depending on the jurisdiction and/or enforcement action, violations could result in administrative penalties, fines, and/or suspension or revocation of licenses. There may also be indirect consequences of state enforcement action; namely, damaged relationships with the applicable state department of insurance and its regulators (e.g., especially for carriers who offer insurance plans outside of MA and MedSupp) and broader inquiries into other enforcement areas related to Medicare Advantage (including from federal legislators).
In addition to the six states referenced herein, there is indication that other states’ regulators may follow with similar announcements. Whether this will have a significant impact on MA organizations’ behaviors remains to be seen. Medicare law preempts state efforts to regulate Medicare Advantage, other than with respect to licensure and solvency.[7] But, regardless of whether state efforts to regulate MA organizations’ interactions with agents/brokers fall within or outside of this preempted space, CMS rarely challenges state regulatory efforts that run close to or cross that line. Therefore, MA carriers, and broker-agents (and, potentially, contracting vendors where applicable) are encouraged to review their compensation policies, marketing practices, and enrollment procedures to ensure full compliance with the MA enrollment process and state insurance requirements.
EBG is monitoring this closely and will follow with further developments.
Endnotes
[1] CMS Center for Medicare: NAIC Q&A AND FOLLOW-UPS (Dec. 17, 2024).
[2] Id.
[3] 42 C.F.R § 422.60(a).
[4] See 42 C.F.R. § 422.60(b).
[5] Plan sponsors must make available upon request and on their website descriptions of their plan offerings, including with respect to service area, benefits, access, emergency coverage, supplemental benefits, prior authorization and review rules, grievance and appeals procedures, quality improvement programs, disenrollment rights and responsibilities, and catastrophic caps and single deductible. 42 C.F.R. § 422.111(c)(1), (h)(2).
[6] See Ibid. at note 2.
[7] 42 C.F.R. § 422.402.
This Week in 340B: November 11 – 17, 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.
Issues at Stake: Contract Pharmacy; Other
In three cases brought by drug manufacturers challenging an Oklahoma state law governing contract pharmacy arrangements, defendants filed a notice of appeal.
In one case brought by a drug manufacturer challenging a Colorado state law governing contract pharmacy arrangements, defendants filed a motion to dismiss.
In two consolidated cases brought by drug manufacturers challenging a Nebraska state law governing contract pharmacy arrangements, plaintiffs filed a motion for preliminary injunction and a brief in support thereof.
In two cases brought by drug manufacturers challenging a Utah state law governing contract pharmacy arrangements, plaintiffs filed responses to the defendants’ notices of supplemental authority.
In one case by a trade association of drug manufacturers challenging a Rhode Island state law governing contract pharmacy arrangements, plaintiff filed a reply in support of its motion for preliminary injunction.
In one case brought by a drug manufacturer challenging a North Dakota state law governing contract pharmacy arrangements, defendants filed a cross motion for summary judgment.
In one case brought by a drug manufacturer challenging a North Dakota state law governing contract pharmacy arrangements, defendants filed a motion for judgment on the pleadings.
In one case by a drug manufacturer challenging an Arkansas state law governing contract pharmacy arrangements, the drug manufacturer filed response to the defendant’s notice of supplemental authority.
In one case by a covered entity against an insurance company alleging breach of contract, the covered entity filed an answer to the insurance company’s counterclaims.
Sydney Merritt Martinez contributed to this article
Navigating Business Insurance
Protecting What Matters Most
Running a business means balancing risk and opportunity. Whether you operate a manufacturing plant, a professional services firm, or a small retail store, your livelihood depends on how well you protect yourself from the unexpected. The right policies turn unknowns into manageable risks and provide the financial and legal tools to survive the inevitable surprises. From employee injuries to product recalls and even defamation claims, the right insurance coverage can mean the difference between a setback and a shutdown.
Understanding Coverage Options
As Gary Kirshenbaum of Alera Group, puts it, “Insurance isn’t about avoiding risk; it’s about planning for when things go wrong.”
Risk, or liability exposure, stems not only from negligence, but also from contracts, regulatory obligations, and even online activity. For business owners, insurance serves as both a shield and a safety net; it is a way to transfer risk that would otherwise threaten financial stability.
The idea of ‘risk transfer’ is central to every insurance policy. Businesses must assess which risks to avoid, which to mitigate, and which to insure. Too often, companies purchase coverage reactively, after an incident exposes a gap. The smarter approach is proactive planning, guided by professionals who understand how policies interact.
General Liability
General liability (GL) insurance is often the first policy any business buys, and for good reason. GL insurance is often seen as the cornerstone of any risk management plan because it provides legal defense and settlement protection for the most common and most expensive claims.
GL insurance covers claims from third parties alleging bodily injury, property damage, or personal injury that occur in the normal course of business. That includes the classic ‘slip and fall’ on business premises, damage to a client’s property, or even reputational harm from an advertising error. A comprehensive GL policy can also cover certain types of reputational harm, like libel, slander, or copyright infringement, under its ‘advertising injury’ provisions. But exclusions matter: “General liability is the foundation, but it’s not the roof; it won’t keep you out of every storm,” cautions Dan Rossen of Origin Specialty Underwriters. Professional negligence, product defects, or automobile-related losses typically fall outside general liability and require other policies.
Umbrella and Excess Liability
Umbrella and excess liability coverage extend protection beyond the limits of your existing policies. As Lee Burke of Burke, Bogart & Brownell explains: “Umbrella and excess policies are cousins in the same family. They are related but not identical. Umbrella coverage can drop down where others stop, while excess coverage simply extends what’s already there.”
If a lawsuit exhausts your general liability or auto policy, umbrella insurance steps in to cover the rest. It can also fill certain gaps, such as libel or false arrest, that other policies exclude. For many businesses, it’s the final line of defense between a major judgment and financial ruin. Determining how much umbrella coverage to carry depends on your total asset value, risk profile, and the limits of your base policies. For example, a construction company with heavy equipment exposure may need far higher limits than a small consulting firm.
Product Liability and Product Recall
If your business designs, manufactures, or sells products, product liability insurance is essential. It covers claims related to defective designs, manufacturing errors, and inadequate warnings, each of which can trigger strict liability regardless of negligence. A single defective item can create significant exposure, particularly if your products reach consumers nationwide.
Product recall coverage, on the other hand, helps pay the costs of retrieving, repairing, or replacing defective products already in circulation. For companies in food production, manufacturing, or retail distribution, this type of policy can be the difference between an expensive recall and a bankruptcy-level event.
Commercial Auto
If your company owns or operates vehicles for business use, commercial auto insurance is mandatory in nearly every state. It covers bodily injury, property damage, and legal expenses from accidents involving company vehicles. Without this coverage, a single collision could result in devastating out-of-pocket costs and legal liability.
Many businesses overlook hired and non-owned auto insurance (HNOA), which protects the company when employees use personal vehicles for work. Even a quick trip to the post office or a client meeting in an employee’s car can create liability for the business if an accident occurs.
Workers’ Compensation
Workers’ Compensation insurance provides medical care, wage replacement, and disability benefits to employees injured on the job. Most states require it, but rules vary widely. The policy protects both employer and employee; workers get guaranteed benefits without proving fault, and employers gain immunity from most lawsuits. In essence, it’s the social contract of workplace safety.
Proper recordkeeping and transparent reporting can lower premiums over time, especially when paired with strong safety programs and return-to-work initiatives. It can also save businesses money. According to Jonathan Mayotte of Thornton Powell, misclassifying employees or failing to track claims accurately can cost thousands in overpayments after a workers’ comp audit.
Intellectual Property and Cyber Risk
Today’s businesses hold as much value in data and intellectual property as in physical assets. However, traditional policies often exclude losses from data breaches, intellectual property (IP) theft, or cyberattacks, all of which can be catastrophic. Intellectual property and cyber risks now rank among the top threats to businesses of all sizes, often carrying six- or seven-figure exposure.
Intellectual property insurance protects a company’s rights in patents, trademarks, copyrights, and trade secrets. It can fund legal defense against infringement claims, or even pay the costs of enforcing your own IP rights against competitors. Policies may cover attorney fees, settlements, and damages awards. For technology firms and manufacturers, this coverage can prevent a single infringement dispute from becoming an existential threat.
Cyber liability insurance fills another major gap. It covers losses from data breaches, ransomware attacks, and system outages. A robust policy can include forensic investigation, data restoration, regulatory defense, and even crisis-management or public-relations support. Many carriers now offer specialized coverage for business email compromise and network interruption, both of which are growing sources of claims.
Combining IP and cyber protection ensures that a company’s most valuable and most vulnerable assets are as well-insured as its physical property.
Building a Smart Insurance Strategy
No single policy can handle every risk. Effective insurance strategies are built through collaboration between brokers, lawyers, and accountants. A practical approach includes reviewing coverage limits annually, understanding exclusions, coordinating policies to avoid overlaps, and notifying your broker of operational changes such as new products, vehicles, or facilities. These small steps can make the difference between seamless coverage and an expensive denial of claim. A well-structured insurance portfolio is one of the few business investments guaranteed to pay off when it matters most. For business owners, that peace of mind allows focus where it belongs: growing the company and serving customers.
This article was originally published on November 18, 2025, here.
Medical Debt in Credit Reports: What Employers Need to Know Amid Legal Shifts
With health care costs rising, recent legal developments have altered how medical debt shows up on credit reports that employers conduct on job applicants and employees. Employers may want to stay abreast of the changing legal landscape and exercise caution in how they use information about medical debt in making employment decisions.
Quick Hits
Fifteen states have laws prohibiting medical debt on credit reports.
A new interpretive rule from the Consumer Financial Protection Bureau maintains that state law restrictions on the reporting of certain information, including medical debt, are preempted by the federal Fair Credit Reporting Act.
Even with this new development, employers may want to exercise caution when considering whether to factor medical debt in making employment decisions.
Applying background check policies uniformly can help to prevent discrimination claims.
Most businesses in the financial services industry are required by federal law to conduct credit checks before hiring an employee. Likewise, it’s common for insurance companies, law firms, real estate companies, law enforcement agencies, government contractors, and other employers to complete a credit check before hiring someone into certain sensitive positions. The purpose of these credit checks is two-fold: (1) to ensure that individuals in financially sensitive positions have good “financial hygiene” and (2) to mitigate legal risk and prevent embezzlement, theft, extortion, the sale of confidential and trade secret information, and other financial crimes.
In 2022, the three major credit bureaus in the United States voluntarily agreed to exclude medical debt from credit reports if the debt is less than $500, is less than one year delinquent, or is already paid.
If an employer obtains an applicant’s consent to run a credit check, it may see medical debt over $500 that has been sent to collections. The credit report may list the amount owed, the collection agency, and the creditor, such as a hospital. The report should not reveal information about the type of treatment or diagnoses.
Evolving Legal Landscape
Fifteen states have banned medical debt on credit reports. One main reason the states have given for enacting those laws is that patients in a medical emergency usually don’t have any choice about when, where, or how they take on a significant medical expense, unlike consumers who decide to buy items like expensive furniture or jewelry.
On March 17, 2024, a final rule from the Consumer Financial Protection Bureau (CFPB) took effect, prohibiting credit bureaus from including medical debt on credit reports and credit scores sent to lenders. However, on July 11, 2025, the U.S. District Court for the Eastern District of Texas vacated that rule. The court also concluded that state laws with similar provisions were preempted by the federal Fair Credit Reporting Act (FCRA). Similarly, on October 28, 2025, the CFPB issued an interpretive rule stating that the FCRA preempts state laws that seek to regulate the presence of medical debt on credit reports.
Next Steps
Employers that conduct credit checks may want to do so only with the consent of the subject of the credit check. Employers also may want to limit the use of credit information to situations where the checks (1) do not discriminate against applicants or employees, (2) help to accurately identify reliable and responsible employees, and (3) are job-related and consistent with business necessity. To avoid discrimination lawsuits, employers may wish to apply background check policies consistently with all applicants and employees.
Although the CFPB’s new interpretative rule will result in an increase of medical debt information in credit checks, employers may want to avoid using this information when making employment decisions, given that it generally does not provide much insight into an applicant’s or employee’s financial hygiene or the risk of future wrongdoing.
The use of medical debt information may have additional implications. Women have higher rates of carrying medical debt, compared to men, according to the CFPB. Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on sex. The Americans with Disabilities Act (ADA), Pregnant Workers Fairness Act (PWFA), and Genetic Information Nondiscrimination Act (GINA) bar employers from discriminating against job applicants and employees based on their disability, pregnancy, or genetic makeup. Asking about medical diagnoses or disabilities in job interviews is generally unlawful, unless it is related to the ability to perform essential job functions.
Employers may wish to train hiring managers to comply with state and federal laws regarding the use of credit information in employment decisions.
Medicare Launches Prior Authorization Pilot for Select Services in Six States: What Hospitals Need to Know
Medicare is launching a significant new prior authorization initiative under the CMS Innovation Center’s Wasteful and Inappropriate Service Reduction (WISeR) model. Beginning January 2026, select items and services furnished to Traditional Medicare beneficiaries in six states will be subject to either prior authorization or pre-payment medical review. While prior authorization is familiar in the commercial market (and often criticized for creating access and administrative burdens) this is a notable expansion for Original Medicare. Hospitals operating in the affected states should prepare now to mitigate operational risk, protect cash flow, and ensure compliant, timely access to care.
Program Scope and Effective Dates
The WISeR model applies only to Original Medicare (not Medicare Advantage) and will run from January 1, 2026 through December 31, 2031. CMS and participating Medicare Administrative Contractors (MACs) will begin accepting prior authorization requests on January 5, 2026 for services rendered on or after January 15, 2026. The model is limited to six states, each paired with a WISeR participant (a technology-enabled medical review entity) working alongside the MAC:
New Jersey (JL/Novitas)
Ohio (J15/CGS)
Oklahoma and Texas (JH/Novitas)
Arizona and Washington (JF/Noridian)
The program applies at select sites of service, including hospital outpatient departments (TOB 13X), ambulatory surgery centers (POS 24), physician offices (POS 11), and the home (POS 12).
Services Initially Included
The WISeR model targets services with existing Medicare coverage criteria that are typically elective and high-value and/or at risk for misuse. The current list includes:
Percutaneous image-guided lumbar decompression (PILD) for lumbar spinal stenosis (coverage with evidence development trials only)
Arthroscopic lavage/debridement for osteoarthritic knee
Induced lesions of the nerve tract (initial focus on trigeminal neurolysis)
Vagus nerve stimulation (for epilepsy and specified treatment-resistant depression under coverage with evidence development)
Phrenic nerve stimulation
Electrical nerve stimulators (initial focus on spinal cord stimulators for permanent implantation; no overlap with existing OPD prior authorization for CPT 63650)
Incontinence control devices (focus on mechanical/hydraulic devices for stress urinary incontinence)
Sacral nerve stimulation for urinary incontinence (permanent implantation)
Penile prostheses for erectile dysfunction
Percutaneous vertebral augmentation for vertebral compression fractures
Epidural steroid injections for pain management
Cervical fusion (focus on CPT 22554 and 22585; no overlap with existing OPD prior authorization for 22551/22552)
Hypoglossal nerve stimulation for obstructive sleep apnea
Application of bioengineered skin substitutes/CTPs for specified lower-extremity chronic non-healing wounds
Deep brain stimulation is expressly delayed at program start. CMS may update the list over time; changes will be communicated to providers.
Two Compliance Pathways: Prior Authorization or Pre-Payment Review
Hospitals and physicians in affected states have two options for each included service:
Submit a prior authorization request in advance to receive a provisional affirmation or non-affirmation. Typical determinations are issued within three days (two days if expedited due to risk to life/health). A Unique Tracking Number (UTN) accompanies each decision and must be included on claims. Provisional affirmations are valid for 120 days. Non-affirmations come with specific deficiency feedback, and resubmissions are unlimited; peer-to-peer clinical review is available on resubmission.
Furnish the service without prior authorization and proceed to claim submission. The claim will be automatically suspended for pre-payment medical review. The reviewer will request records; the provider has 45 days to respond. A determination is generally issued to the MAC within three days of receiving complete documentation.
CMS emphasizes that WISeR does not change Medicare benefit, coverage, coding, or payment rules; determinations are made strictly against the relevant NCDs/LCDs and standard documentation requirements.
Key Operational Mechanics Affecting Hospitals
Hospitals should expect new front-end and mid-revenue cycle steps, even when using existing workflows with their MACs:
Requests may be submitted directly to the WISeR participant or to the MAC for routing. Electronic submission (fax, esMD, portals) is strongly encouraged.
For OPD or ASC services, the UTN must be included on the facility claim when prior authorization was obtained. Absent a UTN, OPD/ASC claims for included services will be suspended for medical review.
Associated services and items (e.g., anesthesia, implanted devices, physician services, facility fees) will be denied if the primary service is non-affirmed or denied. Conversely, they will be approved when the primary service is affirmed or approved on review.
ABN protocols apply. If non-affirmed for lack of medical necessity, providers should issue ABNs before proceeding, append the GA modifier, and follow standard ABN rules.
Appeals rights are preserved for claim denials. Non-affirmed prior authorization decisions themselves are not appealable, but providers may resubmit requests indefinitely prior to claim submission.
CMS is also exploring an exemption process in 2026 for high-performing providers who consistently demonstrate compliance; details will follow.
Strategic Implications for Hospitals
Although couched as a model test, WISeR introduces a meaningful utilization management layer into Original Medicare for targeted services. For hospitals, the immediate implications include:
Access and scheduling: Without an affirmed prior authorization, services may face delays or later denials via pre-payment review. Clinically urgent cases should be triaged for expedited review.
Revenue cycle risk: Missing UTNs, incomplete documentation, or misalignment with NCD/LCD criteria can drive denials and slow cash. Associated services are at risk if the primary service is non-affirmed/denied.
Physician alignment: Many included services are physician-driven. Consistency in clinical documentation and indication selection will be critical to avoid non-affirmations.
Site-of-service coordination: OPD and ASC teams need tight coordination with employed and affiliated physicians on prior authorization status and UTN transmission to ensure clean claims.
Data and technology: Hospitals will need the ability to rapidly assemble and transmit documentation that maps directly to the coverage criteria for each included service.
Prior Authorization in Context
The commercial market’s prior authorization practices have long drawn criticism from providers and patients for administrative burden and perceived barriers to care. CMS positions WISeR as a more targeted approach: limited geographies, clearly defined services with established coverage criteria, rapid review timelines, unlimited resubmissions with peer-to-peer options, and no change to underlying benefit rules. Nevertheless, the operational realities are similar to commercial prior authorization, and hospitals should expect increased front-end work to avoid downstream denials.
Practical Readiness Steps for Hospital Leaders
Hospitals in the six WISeR states should move quickly to operationalize a sustainable process, balancing clinical access and revenue integrity:
Map service lines and volumes. Identify where your hospital furnishes included services, who orders them, and typical sites of service. Flag high-volume DRGs/CPTs and physician groups most impacted.
Stand up a WISeR intake and tracking process. Decide when you will seek prior authorization versus proceed to pre-payment review. Prioritize prior authorization for elective/high-dollar services and for cases at higher denial risk. Implement UTN capture and claim-crossover controls in your OPD/ASC billing workflows.
Align clinical documentation to NCD/LCD criteria. Build concise checklists, order sets, and templated documentation keyed to each service’s required elements, including trial requirements (e.g., neurostimulators) and evidence thresholds (e.g., % improvement rules, imaging recency, failed conservative therapy).
Train clinicians and schedulers. Ensure ordering physicians and proceduralists understand indications, trial prerequisites, and documentation standards. Educate scheduling and pre-access teams on when to require an affirmed prior authorization before slotting a case.
Integrate with physician practices. For employed and affiliated groups, clarify who submits requests, who holds clinical documentation, and how UTNs flow to hospital billing. Use shared portals/esMD where feasible to shorten cycle times.
Prepare for expedited cases and ABNs. Define criteria and workflows for expedited requests. Refresh ABN policies and staff training for non-affirmed medical necessity determinations.
Monitor outcomes and iterate. Track turn-around times, affirmation rates, reasons for non-affirmation, medical review denials, and associated-service denials. Use peer-to-peer reviews strategically on resubmission. Adjust documentation playbooks as patterns emerge.
Explore exemption opportunities. As CMS finalizes exemption criteria, evaluate your performance metrics and internal controls to qualify and maintain exempt status if available.
Bottom Line
WISeR represents a material shift for Original Medicare in six states, layering prior authorization and pre-payment review onto targeted, elective services with well-defined coverage rules. Hospitals that quickly operationalize front-end screening, physician documentation alignment, and clean claim workflows (particularly UTN handling and associated-service dependencies) will minimize care delays and payment friction, while preserving patient access and compliance with Medicare requirements.
Further contributions to this article by Vinal Patel
Comma Drama: How Tiny Punctuation Choices Can Swing Entire Coverage Battles
Insurance coverage disputes often rise or fall on sweeping questions — trigger theories, allocation frameworks, priority of coverage. But sometimes the battle comes down to something dramatically smaller: a comma. Or, as two recent cases reveal, the lack of a comma. Both Garlock v. Jordan, 260 N.E.3d 42 (Ohio Ct. App. 2025), and Accelerant Specialty Insurance Co. v. Big Apple Designers, Inc., 2025 U.S. Dist. LEXIS 150584 (E.D.N.Y. 2025), show how punctuation can tip the scales during a coverage fight.
In Garlock, an Ohio appellate court sorted through a dog-bite exclusion stitched together with a long list of breeds and a dangling modifier. In Big Apple, the Eastern District of New York parsed an insurance application question where grammar opened the door to multiple, materially different interpretations.
The two cases reached different outcomes, but both offer a vivid reminder: When punctuation creates ambiguity, interpretive canons step in.
Garlock v. Jordan: A Dog-Bite Exclusion with a Grammar Problem
Garlock v. Jordan arose out of a bite by a partial-breed Rottweiler at the insured’s property. The homeowners policy excluded injuries “caused by full or partial breed Dobermans, German Shepherds, Pit Bulls, Chows, Akitas and Rottweilers or any other dog or dogs, regardless of breed, that have been involved in past human biting incident.”
Coverage turned on the reach of the trailing modifier “that have been involved in past human biting incident.” Because the sentence lacked a comma before that clause, the structure generated two grammatically viable interpretations.
The insured argued that — because there was no comma — the modifier “that have been involved in a human biting incident” applied to the entire list, meaning that even Rottweilers were excluded only if they had a prior biting incident.
The insurer argued that the modifier applied only to “any other dog or dogs.” That reading relied on the “last antecedent rule” — a canon of construction applying a trailing modifier only to the word or phrase immediately before it, unless a comma signals broader application. Under that approach, the six named breeds were always excluded, regardless of bite history, and only “any other dog or dogs” required a history of biting.
The court sided with the insurer’s interpretation. Although both readings were grammatically possible, the court decided only the insurer’s reading was reasonable. The insureds’ reading rendered the lengthy list of named breeds pointless. If all dogs required a prior bite incident, there would be no need to single out certain breeds.
Accelerant Specialty Ins. Co. v. Big Apple Designers, Inc.: A Missing Comma Lets a Modifier Run Wild
The punctuation dispute in Big Apple concerned not a policy but an insurance application, where New York law demands strict construction against insurers.
Question 8 on the application asked whether: “any applicant [has] been indicted for or convicted of any degree of the crime of fraud, bribery, arson or any other arson-related crime in connection with this or any other property.”
Big Apple answered “No.” But the answer was not obviously correct. Five months before completing the application, Big Apple and several of its principals had been indicted for insurance fraud, conspiracy, and falsifying business records after allegedly underreporting payroll by paying workers in cash. The company therefore had been indicted for fraud.
The question, then, was whether the fraud indictment was one Big Apple was required to disclose. Big Apple argued that the final modifying phrase — “in connection with this or any other property” — applied to all the listed crimes (fraud, bribery, arson, and arson-related offenses). In its view, the question only required disclosure of fraud related to property, and its payroll-reporting fraud was not property related. In support of this interpretation, Big Apple cited the “series qualifier” canon, which holds that, where a sentence contains a parallel list followed by a modifier, the modifier ordinarily applies to the entire list. Under this approach, the property qualifier would apply to all four crimes — fraud, bribery, arson, and arson-related crime.
Accelerant, the insurer, cited the last-antecedent rule cited in Garlock and argued that the property qualifier applied only to the last term (“arson-related crime”), meaning fraud or bribery of any kind had to be disclosed, and Big Apple’s failure to do so was a material misrepresentation.
The court sided with Big Apple and found the insured’s reading more reasonable. It noted that the list was structurally parallel, supporting the application of the series-qualifier canon, and emphasized that, under New York law, any ambiguity in an application question must be resolved in the insured’s favor. The court held that a reasonable applicant could interpret the modifier as applying to all four crimes. Thus, Big Apple won the punctuation dispute (though it would go on to ultimately lose the case on separate, non-punctuation-related grounds).
Conclusion: A Comma Can Be the Most Expensive Mark on the Page
Garlock and Big Apple arrive at different outcomes but share a common lesson: Punctuation and syntax can meaningfully reshape coverage. In Garlock, the court’s desire to avoid redundancy defeated the ambiguity identified by the insured. In Big Apple, ambiguity carried the day, and the insured won the grammar fight outright, even though it ultimately lost the case on a separate issue related to the same application question.
When exclusions, application questions, or policy conditions are drafted without linguistic precision, courts must rely on grammatical canons — rules that often favor policyholders when more than one reasonable reading exists. And as these cases show, sometimes the smallest mark on the page can carry the largest consequences.
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McDermott+ Check-Up- November 14, 2025
THIS WEEK’S DOSE
Government shutdown ends. President Trump signed the bill to reopen the government and reinstate expired health extenders on November 12, 2025.
FDA adjusts hormone replacement therapy warning labels. The US Food and Drug Administration (FDA) will remove certain black box warnings from certain hormone replacement therapy treatments.
CONGRESS
Government shutdown ends. The record-setting 43-day shutdown ended when eight Senate Democrats – Sens. Cortez Masto (D-NV), Durbin (D-IL), Fetterman (D-PA), Hassan (D-NH), Kaine (D-VA), King (I-ME), Rosen (D-NV), and Shaheen (D-NH) – agreed to vote with Republicans, providing the 60 votes necessary to pass the bill on November 10, 2025. The bill then moved to the House, where six Democrats crossed party lines to support the continuing resolution (CR), which passed the House the evening of November 12, 2025, by a vote of 222 – 209. President Trump signed the bill into law the same evening, reopening the government.
The bill’s Congressional Budget Office (CBO) score can be found here. Key elements of the agreement include:
Enactment of three full-year appropriations bills for fiscal year (FY) 2026 – Military Construction and Veterans Affairs; Agriculture, Rural Development, and FDA; and Legislative Branch. The Agriculture bill fully funds the Supplemental Nutrition Assistance Program (SNAP) through the remainder of FY 2026, which means that the threat of another lapse in food assistance will not be on the table at the end of January 2026, when the new CR expires.
Funding for a new stopgap CR through January 30, 2026. Congress will continue working to enact additional appropriations bills before that deadline. One of the outstanding appropriations bills is the Labor, Health and Human Services (HHS), Education, and Related Agencies bill. Senate appropriators are aiming to have another “minibus” (a grouping of several appropriations bills) ready for consideration by the full Senate as soon as next week, and are forecasting that the Labor-HHS bill will be part of that package.
A health extenders package that retroactively restores policies that expired once the government shut down on October 1, 2025. These programs include Medicare telehealth flexibilities, funding for community health centers, prevention of Medicare disproportionate share hospital cuts, the Medicare-dependent hospital program, and the low-volume hospital payment adjustment. They are restored in a retroactive manner from October 1, 2025, through January 30, 2026.
A provision addressing Medicare statutory Pay-As-You-Go Act of 2010 requirements. By wiping the slate clean in this package, Congress prevented the $491 billion in Medicare cuts that CBO forecast following passage of the One Big Beautiful Bill Act.
Provision of back pay for furloughed federal employees and reversal of the reductions in force the administration implemented during the shutdown.
Missing from the package are provisions to address the Affordable Care Act’s enhanced advanced premium tax credits (APTCs), which will expire on December 31, 2025, without congressional action. Republicans’ refusal to include an extension of these enhanced tax credits was the key reason Democrats opposed the earlier CR when the government shut down on October 1, 2025. Democrats in Congress and the party base have expressed significant anger that a small group of Senate Democrats crossed party lines to support the CR and reopen the government without the APTC provision included.
As part of the agreement, Senate Majority Leader John Thune (R-SD) committed to a Senate vote in December on an APTC extension bill of Democrats’ choosing. Negotiations are ongoing to see if enough Republicans will agree on a compromise package that could get 60 votes in the Senate. Speaker Johnson (R-LA) has not committed to any action in the House at this time.
ADMINISTRATION
FDA adjusts hormone replacement therapy warning labels. At an HHS event on women’s health, the FDA announced that drug manufacturers will remove certain black box warnings on certain hormone replacement therapy treatments prescribed to address menopause symptoms. Warnings referencing risks of cardiovascular disease, breast cancer, and probable dementia will be removed, while warnings for endometrial cancer for systemic estrogen-alone products will remain. FDA Commissioner Makary also wrote a JAMA Viewpoint article about the updated labeling, noting that underlying adverse event information will continue to appear in the package insert.
QUICK HITS
DEA appears poised to extend telemedicine prescribing flexibilities. The Office of Management and Budget received a US Drug Enforcement Administration (DEA) final rule that may provide another temporary extension of telemedicine flexibilities for prescription of controlled medications. If the administration does not act, these flexibilities will expire on December 31, 2025.
ACIP schedules December meeting. The Advisory Committee on Immunization Practices (ACIP) agenda includes discussions and possibly votes on vaccine safety, the childhood and adolescent immunization schedule, and hepatitis B vaccines.
FDA introduces new approval pathway. In a New England Journal of Medicine article, FDA Commissioner Makary introduced the “plausible mechanism pathway,” which is designed to streamline approval for manufacturers of highly individualized therapies, such as gene-editing, for diseases with well-understood biologic causes.
CMS holds Connectathon. The Centers for Medicare & Medicaid Services (CMS) invited signers of the Health Tech Ecosystem interoperability pledge to attend a closed all-day event in Washington, DC, for networking and discussions about advancing the ecosystem.
HHS officials attend MAHA Summit. The private event had many high-level attendees, including HHS Secretary Kennedy, CMS Administrator Oz, National Institutes of Health Director Bhattacharya, FDA Commissioner Makary, and Vice President Vance, whose remarks were televised.
NEXT WEEK’S DIAGNOSIS
Both chambers of Congress will be in session next week for the first time since the beginning of the shutdown, and hearings will be in full swing:
The Senate Finance Committee will hold a hearing on the rising cost of healthcare.
The House Ways and Means Subcommittee on Health will hold a hearing on chronic disease prevention and treatment.
The Senate Health, Education, Labor, and Pensions Committee will hold a hearing on the Organ Procurement and Transplantation Network.
The Senate Aging Committee will hold a hearing on domestic production of medicines.
The Senate Homeland Security and Governmental Affairs Committee will hold a hearing on the nomination of Thomas Bell to be HHS inspector general, and the Senate Finance Committee will hold a vote on his nomination.
CBO Director Swagel will testify at an oversight hearing of the House Budget Committee.
The House Energy and Commerce Subcommittee on Oversight and Investigations will hold a hearing on artificial intelligence chatbots.
The Senate may also take up its next appropriations package, potentially including the Labor-HHS bill. We also await the publication of outstanding calendar year 2026 Medicare payment rules.
Tips for Employers to Stay Compliant with Privacy Protections Under HIPAA, ADA, and 42 CFR Part 2
When an employee requests a reasonable accommodation for a health condition, it may be confusing for employers to parse out the various privacy protections embedded in the Health Insurance Portability and Accountability Act (HIPAA), the Americans with Disabilities Act (ADA), and 42 CFR Part 2 (Part 2), a federal regulation restricting the disclosure of substance use disorder records. This article will explain the legal obligations under the three standards and how they intersect in this tricky area of compliance.
Quick Hits
The ADA, HIPAA, and the 42 CFR Part 2 regulation seek to protect patients’ private medical information with different requirements for healthcare providers and employers.
When employers receive a request for a reasonable accommodation, they can request a doctor’s letter or limited medical records for which there is a business need for the information. Non-healthcare employers typically are not subject to HIPAA and Part 2 for their employment functions.
HIPAA prohibits unauthorized use or disclosure of protected health information, unless the use or disclosure meets an exception, such as for treatment, payment, or operations. HIPAA applies to all medical information transmitted by covered entities and their business associates, including information about mental illness and substance use disorders. In general, hospitals, health plans, pharmacies, and other healthcare providers are subject to HIPAA privacy obligations.
Employers with self-insured, or self-funded, health plans are typically responsible for their plan’s HIPAA requirements. However, because an employer is generally not a covered entity under HIPAA for employment functions, those HIPAA prohibitions do not apply to an employer when the employer is addressing leave and accommodation requests.
Instead, employment laws like the ADA impose limits on the scope of medical inquiries and exams that an employer can require when addressing leave and accommodation requests. Specifically, an employer is limited to only seeking medical information for which there is a business need, such as to confirm the ADA applies or to confirm the scope of any restrictions for the employee that may support the need for a working accommodation or for a leave of absence.
The ADA prohibits employment discrimination and retaliation based on a person’s disability. Under the ADA, a substance use disorder can be a covered disability if it involves a legal substance, such as alcohol or opioids.
Part 2 prohibits the unauthorized use or disclosure of substance use disorder records pertaining to alcohol, illegal drugs, and legal drugs, except nicotine and caffeine. The regulation covers information created by substance use disorder programs, treatment facilities, hospitals, and employee assistance programs (EAPs). HIPAA and Part 2 do not prevent individuals from accessing or requesting their own medical records.
Requesting Medical Documentation for Accommodations
Under the ADA, an employer may request medical documentation only if:
the employee has requested a reasonable accommodation,
the disability or the need for accommodation is not obvious or already known to the employer, and
the information requested is job-related and consistent with business necessity.
The employer’s request for documentation must be limited to validation that the employee has a disability as defined by the ADA and an explanation of how the disability limits a major life activity or job function. This may include details about the nature, severity, and expected duration of the impairment, and confirmation of how the requested accommodation can help the employee perform essential job functions.
It is unlawful for employers to require information about specific diagnoses or information that exceeds the medical information actually needed to meet the business needs. Any medical information an employer obtains for a disability accommodation must be kept confidential, which means only appropriate limited information should be shared internally with those who have a business need to know. For example, a manager of the employee requesting an accommodation may have a business need to know the scope and duration of the employee’s restrictions to be able to determine any reasonable accommodation that could be provided to assist the employee in effectively performing job duties. The medical information also must be kept separate from the employee’s personnel file.
Although employers may obtain a medical authorization from an employee so that the employer can directly obtain the limited medical information needed as part of the ADA accommodation process, many employers will simply provide a healthcare questionnaire form to the employee with instructions to return the completed form from the treating healthcare provider. When the employee is seeking his or her own medical information from the treating provider, there is no need for an employer to obtain a medical authorization from the employee. Regardless of the approach taken by the employer, the employer may want to use a questionnaire form as part of the ADA accommodation process to ensure only the limited medical information needed is actually requested and obtained.
Employers often document an employee’s authorization prior to requesting records from a healthcare provider. Likewise, healthcare providers may want to confirm that the employee has actually authorized the disclosure of personal health information to the employer.
Repeated and overly broad medical inquiries, efforts to obtain medical data unrelated to the job, or a failure to keep personal health information confidential could land an employer with a lawsuit alleging discrimination, harassment, or a violation of the ADA’s limitation on medical inquiries and exams.
EAPs and Wellness Programs
EAPs are typically handled by third-party administrators that give employers aggregated and anonymized data. An employer that inadvertently gains access to personally identifiable EAP datamay want to exercise caution to avoid treating disabled employees differently, including employees with mental illnesses or substance use disorders.
The ADA stipulates that participation in employer-sponsored wellness programs must be voluntary, rather than a condition of employment. For example, health risk assessments, nutrition programs, fitness classes, exercise trackers, and smoking-cessation programs are often built into employer wellness programs. Health data obtained through such workplace wellness programs must be kept confidential.
Employers With Part 2 Information
Though uncommon, under certain circumstances, an employer may receive health information subject to Part 2’s requirements. When a medical provider releases such information, it must do so pursuant to a patient’s authorization consistent with Part 2, and an employer is generally obligated to limit the use or sharing of the information protected by Part 2 to the purposes outlined by the patient’s authorization. Regardless, the employer may want to be mindful of the restrictions set by the ADA and limit disclosure internally to only those with a business need to know the limited information that needs to be disclosed for employment purposes.
Employers that obtain health information from a provider related to substance use disorders may want to take extra care to seek the underlying authorization that allowed the release of the information by the provider.
Next Steps
Understanding and complying with the privacy provisions in HIPAA, the ADA, Part 2, and state laws can reduce legal risk for employers. Therefore, employers may wish to train managers on the their internal procedures so that they take proper steps to ensure accommodation requests, drug tests, and workplace wellness programs are properly handled in a manner compliant with state and federal laws. They may wish to highlight that mental illnesses and substance use disorders can qualify as covered disabilities under the ADA, depending on the severity and nature of the impairment.