Appraisal of Amount of Loss is a Predicate to Article III, Injury-In-Fact Standing for a Suit Alleging Wrongful Withholding of Policy Benefits
50 Exchange Terrace LLC suffered losses from frozen burst pipes that caused water damage to its property and tendered a claim to its insurer, Mount Vernon Specialty Insurance Company. The parties disputed the cost of repairs (i.e., the amount of the loss) and Mount Vernon demanded appraisal to resolve the dispute. Rather than proceeding with appraisal, 50 Exchange filed suit in California state court, asserting that Mount Vernon had wrongfully withheld policy benefits pending the appraisal. Mount Vernon removed the case to federal court based on diversity jurisdiction. The federal district court then dismissed the suit for lack of ripeness and Article III standing.
The Ninth Circuit affirmed, reasoning that 50 Exchange had not sustained any actionable injury pending resolution of the amount of loss dispute through appraisal. That is because the extent of 50 Exchange’s loss could not be determined in court until the parties had completed appraisal. Until then, “[a]ny alleged injury before appraisal is too speculative to create an actionable claim.” 2025 WL 666363 at *2.
The Ninth Circuit did “not break new ground here.” Recognizing several non-precedential decisions of the Court and district court orders requiring appraisal before allowing an insured to sue for the wrongful delay or withholding of policy benefits, the Ninth Circuit explained:
We have chosen to issue this decision as a precedential opinion in the hope of deterring or at least short-circuiting other similarly premature cases where the agreed insurance appraisal process has not yet been completed.
2025 WL 666363 at *2.
BIGGER THAN YOU THINK?: Why New TCPA Revocation Rule May Wreak Havoc on Lead Generators And Buyers After All
As we creep closer at our petty pace, day to day, toward April 11, 2025 lead generators need to be paying close attention to one of the major potential impacts of the new FCC TCPA revocation order.
While enterprise is much more concerned with the “scope” provisions of the new rule crushing their ability to make informational outreach to their customers, lead generators need to be considering these provisions through the lens of ceasing continued marketing after a brand has received a revocation request.
This is a particularly big issue when a brand is buying both data and transfers.
Example.
Major insurance company buys both data leads and transfers from large lead generator.
When a consumer texts “stop” in response to an outreach by the insurance company the company is unlikely to notify the generator of the stop. Yet when the lead generator continues to send messages carrying offers for that insurance company those messages may be viewed as having been made “on behalf” of the insurance company– hence the stop should have been heeded and continued outreach by the lead generator would be illegal.
While a feedback loop between the insurance company and the lead generator in this scenario could avoid this problem–i.e. the insurance company is notifying the lead supplier of the revocations in real time– it is unclear whether that is legal since the CFR bans the sharing of revocation information with third-parties (which is why the R.E.A.C.H. standards have always included a notification that “stop” requests will be shared between buyers of the lead.) So this is a real sticky wicket.
And the problem is even bigger in the context of a lead buyer who is buying data from one source and buying transfers from other sources.
There when a lead buyer receives a “stop” notification it will need to notify not just the lead source–indeed, if the source is not making outbound calls for transfer purposes the data lead supplier need not to be informed at all– but other lead suppliers who may be calling that same consumer on the same or different data.
Suddenly the wisdom of the R.E.A.C.H. model of a hub and spoke approach to lead gen revocation looks very compelling indeed.
Regardless, one thing is crystal clear– brands buying leads and companies generating those leads need to come up with a game plan for April 11, 2025.
FDIC Withdraws Proposed Rule on Brokered Deposits
On March 3, the FDIC announced the withdrawal of its proposed rule on brokered deposits, citing concerns regarding potential disruptions to the financial sector. This move follows significant pushback from industry stakeholders who argued that the proposed changes could have unintended consequences for liquidity management and market stability.
The proposed rule sought to alter the classification and regulatory treatment of brokered deposits by broadening the definition and imposing stricter reporting and supervisory requirements. It aimed to clarify which deposit arrangements qualified as brokered deposits and thus could have resulted in more deposits being subject to restrictions under the FDIC’s capital and liquidity rules. Industry participants also raised concerns that the changes could disrupt long-standing banking relationships, reduce funding access, and create additional disruptive compliance burdens.
The FDIC argued that brokered deposits pose risks to financial stability, particularly during times of market stress, contending that the proposed changes would help to mitigate potential overreliance on such funding sources. In its statement, the FDIC indicated that for any future regulatory action it takes related to brokered deposits, it will pursue such initiatives through new proposals or issuances that comply with the Administrative Procedure Act.
Putting It Into Practice: The withdrawal of the brokered deposits rule aligns with Acting Chairman Travis Hill’s stated commitment to streamlining the FDIC’s supervisory approach (previously discussed here). Given Hill’s focus on reducing regulatory burdens, financial institutions should expect further shifts in the FDIC’s approach to oversight.
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Related or Not Related? Delaware Supreme Court Weighs in on What Constitutes a “Related” Claim
Highlights
The Delaware Supreme Court took a broad view of relatedness, holding that an SEC investigation and later class action were “related claims” despite that they involved different claimants, asserted different legal theories, and sought different relief
The decision reaffirmed the “meaningful linkage” test, stating that claims are “related” if they involve “common underlying wrongful acts”
The content and level of detail in the insured’s notice of claim or circumstances can be an important factor in determining whether claims are related
The Delaware Supreme Court recently handed down an insurance coverage decision addressing a question that has significant practical importance for both insurers and policyholders: What makes a wrongful act “related to” a prior wrongful act? The answer to this question can dictate under which policy period a claim is covered—or even whether it is covered at all.
The insured in In Re Alexion Pharmaceuticals, Inc. had two D&O coverage towers with substantially similar insurers: Tower 1, providing $85 million in coverage from June 2014 to June 2015, and Tower 2, providing $105 million in coverage from June 2015 to June 2017.
In March 2015, the Securities and Exchange Commission (SEC) issued a formal investigation order against Alexion regarding several potential violations of federal securities law, including inaccurate annual reports, failure to maintain adequate books and records, failure to maintain an adequate system of internal accounting controls, and bribing foreign officials and political parties. In May 2015, as part of that investigation, the SEC served Alexion with a subpoena and document preservation demand. Alexion tendered notice of the subpoena to its Tower 1 insurers, describing the focus of the document requests and observing that the subpoena could lead to other government investigations or “private litigations.”
Importantly, the primary insurer acknowledged Alexion’s notice as a “notice of circumstances” rather than a “notice of claim” and explicitly stated that no claim had yet been made against Alexion.
That observation lasted until December 2016, when Alexion stockholders filed a class action securities suit alleging that the company’s sales, marketing, and lobbying tactics violated Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5. Alexion noticed the class action to Tower 2, and the primary insurer initially accepted coverage. But the primary insurer later reassigned the claim to Tower 1 because the class action “arose from the circumstances and anticipated Wrongful Acts reported during the 2014-2015 Policy Period, as well as many of the same Wrongful Acts and Interrelated Wrongful Acts.”
After Alexion settled with the SEC (for $21.5 million) and the class action plaintiffs (for $125 million), it demanded that the Tower 2 insurers cover the class action settlement up to the $105 million total policy limits. When they refused, Alexion sued for breach of contract. The trial court granted partial summary judgment for Alexion, agreeing that the SEC subpoena and the class action were insufficiently connected and that the class action should be covered under Tower 2.
The insurers appealed, arguing that the trial court applied the wrong standard; instead of evaluating the two matters for “meaningful linkage,” it should have asked whether the Securities Class Action arose from “any Wrongful Act, fact, or circumstance” covered in Alexion’s 2015 Notice. The insurers further argued that the 2015 Notice was a “notice of circumstances” rather than a claim, and pointed out that it expressly noted the potential for future civil claims arising out of the same issues.
The Delaware Supreme Court agreed with the insurers and reversed.
It first looked to the policies’ notice provision, which states that if the insureds “first become aware of facts or circumstances which may reasonably give rise to a future Claim covered under this Policy, and if the Insureds give written notice to the Insurer” during the policy period, then any “Claim which arises out of such Wrongful Act shall be deemed to have been first made at the time such written notice was received by the Insurer.” The Court found that this provision was not ambiguous and benefits insureds by allowing them to “lock in existing insurance for later related claims even though the facts and circumstances have yet to occur or might be somewhat different.”
Likewise, the limit of liability provision states that “[a]ll Claims arising out of the same Wrongful Act and all Interrelated Wrongful Acts . . . shall be deemed to be one Claim . . . first made on the date the earliest such Claims is first made,” which the Court read to mean that “all Claims arising out of a properly noticed Wrongful Act or Interrelated Wrongful Act are treated as a single Claim made on the earliest date the insurer received the insured’s written notice.”
The policies did not define the “arises/arising out of” phrases in these and other policy provisions, so the Court interpreted them “as requiring some ‘meaningful linkage between the two conditions imposed in the contract.’” In other words, “if the Securities Class Action is meaningfully linked to any Wrongful Act, including any Interrelated Wrongful Act, disclosed by Alexion in the 2015 Notice, the Securities Class Action is covered by Tower 1.”
The Court concluded there was such a “meaningful link”: both the 2015 Notice and the Securities Class Action “involve the same underlying wrongful act – Alexion’s improper sales tactics worldwide, including its grantmaking efforts in Brazil and elsewhere.” The lower court’s first mistake, the Court stated, had been its treatment of the 2015 Notice as a notice of claim, rather than a notice of circumstances. That error had led to another: the trial court narrowly focused on the wrongful acts alleged in the SEC subpoena, rather than considering all of the wrongful acts disclosed in the notice of circumstances.
The 2015 Notice disclosed the SEC’s investigation as well as the subpoena and described the potential consequences of that investigation, including possible “private litigations.” Because both the SEC investigation and the class action arose from Alexion’s grantmaking activity and foreign business practices—the same underlying acts—it did not matter that they involved different claimants, asserted different legal theories, and sought different relief: “It is the common underlying wrongful acts that control.”
Takeaways
Insurers use “arises/arising out of” language in many policies and contexts, so the Alexion decision will likely have implications beyond the D&O space in matters involving other types of claims-made policies such as environmental liability, professional liability, malpractice, and employment practices liability. It will be particularly relevant in industries that tend to attract both governmental enforcement actions and civil litigation—banking and investment, manufacturing, and transportation.
And although the decision may not have been favorable for Alexion itself, it may prove to be helpful to policyholders in the long run in certain instances. In many circumstances, as the Alexion Court observed, a policyholder may choose to give notice of circumstances before an issue has risen to the level of a claim in order to “lock in” favorable coverage. Insureds may find, notably, that the content of that notice could be critical: this might include questions of whether the notice includes enough information to satisfy the notice requirement, without providing so much detail that it invites the insurer to try to escape coverage by carving off the resulting claim off as “unrelated.”
On the flip side, an overly broad notice of circumstances could give the insurer an opening to shoehorn unrelated claims in with the noticed circumstances to take advantage of a lower or exhausted policy limit.
Year in Review: Top Insurance Cases of 2024
Still feeling the love from Valentine’s Day, this 2024 Year in Review highlights the most swoon-worthy coverage decisions of 2024 and offers a glimpse of the future of insurance coverage litigation in 2025 and beyond.
In 2024, D&O coverage and core insurance law principles were the true heartthrobs of the year, while rulings on environmental, social, and governance (ESG) issues showed that insurance disputes can arise in any situation. But the real cupid’s arrow? Policy interpretation—still the key to unlocking these cases. As we reflect on the year, this edition of our Year in Review highlights the most love-worthy coverage decisions of 2024 and examines the evolving landscape of insurance coverage litigation heading into 2025.
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BACK TO BASICS: Court Dismisses Plaintiff’s TCPA Case Against Liberty Bankers On the Simplest Possible Grounds–But Its Lawyers Missed it
For anyone who wonders why it is so important to hire attorneys that know the TCPA inside and out, here is another fun example.
In Gutman v. Liberty Bankers Insurance, 2025 WL 615128 (D. N.J. Feb. 26, 2025) a court dismissed a TCPA suit after conducting its own review of the complaint and determining it was insufficient on obvious grounds.
Interestingly, however, the Defendant’s own lawyers had missed the key issues and moved to dismiss on unrelated– and irrelevant–grounds.
In other words, Defendant should have lost because it challenged the wrong issues. But the Court viewed the flaws in the case as so obvious that it could not in good conscious allow the case to proceed.
Holy moly.
In analyzing the motion the Court said the following: “As an initial matter, neither party meaningfully addresses whether the Complaint meets the elements required to plead either claim under the TCPA.”
I mean, that’s just nuts. The entire concept of a 12(b)(6) is to challenge the elements of a claim are not pleaded.
But the Court did the analysis for Liberty Bankers and determined:
The regulated technology claim fails because no allegations existed that an ATDS was used; and
The DNC claim fails because plaintiff did not allege residential usage of his phone or that he received more than one solicitation in a 12 month period.
Anyone that practices TCPA defense would have spotted those issues immediately.
But per the Court’s order the Defendant simply missed those issues and focused on the “failure” to specifically allege the dates and times of phone calls– which is never going to win as a motion to dismiss ground.
Eesh.
But either way Defendant walked away with the W and TCPAWorld walks away with a reminder– don’t expect the court to bail you out.
California Governor’s Executive Order on Disaster Unemployment Assistance for Child Care Providers in Los Angeles
On February 11, 2025, Governor Gavin Newsom issued an executive order to support childcare providers impacted by the recent wildfires in Los Angeles. This order ensures that those affected are aware of their eligibility for Disaster Unemployment Assistance (DUA) and receive the necessary support to apply.
In addition to supporting individual workers, the EDD offers several disaster-related services to employers affected by emergencies. These services are designed to provide financial relief and support business continuity during challenging times.
Employers directly impacted by a disaster can request up to a two-month extension to file their state payroll reports and deposit payroll taxes without penalty or interest.
The EDD collaborates with Local Assistance Centers and Disaster Recovery Centers established by the California Governor’s Office of Emergency Services (Cal OES) or federal authorities to provide comprehensive support to affected businesses.
Employers can also access information about Disability Insurance (DI) and Paid Family Leave (PFL) benefits for their eligible workers, ensuring that employees who are unable to work due to disaster-related reasons receive the necessary financial support.
Preserving and Maximizing Defense Coverage Through Final Adjudication
Last week, the Ninth Circuit affirmed fraud convictions for Theranos’ former CEO, Elizabeth Holmes, and former COO, Ramesh Balwani, upholding an order finding both defendants personally liable for $452 million in restitution to various Theranos investors. While it remains to be seen whether the embattled executives will pursue further appeals to the US Supreme Court, the years of litigation and appeals following Theranos’s untimely demise in 2018 highlight the importance of directors and officers having robust “final adjudication” language in conduct exclusions found in all D&O liability policies.
Modern D&O policies contain exclusions for fraudulent or criminal acts. But those exclusions usually cannot apply until a “final adjudication” establishes that the alleged fraudulent or criminal conduct actually occurred. The result is that individuals defending against alleged fraud get the benefit of a defense funded by the D&O policy unless and until the fraud is finally proven. And even where fraud is finally adjudicated, the onus is placed on the insurer to try to recover those costs from the policyholder, which is easier said than done when an entity is insolvent or a beleaguered individual endured years of litigation and appeals. In both cases, the insured may be unable to repay thousands if not millions of dollars in advanced legal fees and expenses if dragged into a new lawsuit by the D&O insurer.
The importance of securing timely and robust defense coverage cannot be overstated. In the case of Theranos, some investors have alleged that the company maintained at least $30 million in D&O coverage. Yet Elizabeth Holmes’ defense alone reportedly cost in excess of $30 million.
When reviewing your D&O policy with an eye towards maximizing executive protection and defense coverage, consider these key issues:
What is a “final adjudication”? Negotiate triggers in conduct exclusions to be as narrow as possible. If the policy requires a final adjudication, how is that defined? Some policies specify complete exhaustion of all appeals, while others may trigger at earlier stages. Does the exclusion contemplate adjudications in the underlying action only or in other actions, like those initiated by the insurer to determine coverage under the policy? Are defense expenses expressly carved out from the exclusion? Slight variations can materially impact whether coverage is preserved.
What are the insurer’s advancement obligations? A narrow conduct exclusion is only effective if the policyholder can receive the benefits of full and efficient reimbursement of ongoing defense costs in litigation prior to any final adjudication. At a minimum, the policy should make clear that the insurer has a duty to advance defense costs until it is determined that the previously advanced defense costs are not insured.
But how quickly must those payments be made? And what happens if there is a dispute where the insurer is claiming that uncovered parties, claims, or matters allow for limited defense reimbursement under the policy’s “allocation” provision? Following the flow of money from the insurer to the individual (and perhaps back again in a repayment situation) will ensure there are no reimbursement snafus in the midst of contentious litigation that distracts from the underlying defense.
How to ensure protection for “innocent” insureds? If one bad actor commits fraud and loses coverage, it should not impact coverage for other individual defendants. Pay close attention to “severability” provisions. Does the policy provide full or limited severability? When, if at all, can wrongful acts committed by one insured by imputed to other insureds who were not involved in the wrongdoing? How does the policy treat other misrepresentations, like those in applications?
How to protect executives when the company cannot? Under most D&O policies, the company has access to the same set of limits that otherwise would be available to protect individual insureds. If the company can indemnify and advance legal fees for its executives, those shared limits are usually not problematic. But when the company is insolvent and in bankruptcy, as was the case with Theranos, the D&O policy is the only source of protection preventing executives from personal exposure.
The solution is purchasing dedicated “Side A” coverage that sets aside separate limits that are available exclusively for the benefit of directors and officers when the company is unable or unwilling to provide indemnification. Some D&O policy forms provide built-in dedicated Side A-only limits, but many times they are purchased through standalone policies. Structuring a D&O program with adequate Side A coverage can ensure executives have an insurance backstop to defend, settle, and pay claims when they need it most.
For corporate executives, these small but important aspects of defense coverage under D&O policies can be the difference between executives being fully protected in protracted litigation and being left uninsured and subject to personal exposure.
Alabama Eyes Portable Benefits for Freelancers and Gig Workers
Certain states have considered enacting legislation facilitating the creation of portable benefit accounts for independent contractors, including gig economy workers. These accounts attach to the individual worker rather than a specific employer, allowing them to pay for various expenses such as health benefits, income replacement insurance, life insurance, and retirement benefits. Alabama may join Utah as one of the first states with portable benefits by way of Senate Bill (SB) 86, which was introduced on February 4, 2025, by Alabama Senator Arthur Orr (R).
Quick Hits
Alabama Senator Arthur Orr introduced a bill on February 4, 2025, to create portable benefit accounts for independent contractors.
The bill proposes that independent contractors open portable benefit accounts managed by providers, with contributions from hiring parties being optional and incentivized through state tax deductions.
If passed, the new law will take effect on October 1, 2025.
Under Alabama’s proposed Portable Benefits Act, an independent contractor must first open a portable benefit account. A “portable benefit account provider,” such as an investment management firm, and/or a technology provider or program manager that offers services through a bank or investment management firm, would administer the plan.
The “hiring party,” defined as “[a] person or entity who hires or enters into a contract for the performance of work with an independent contractor,” could contribute to the independent contractor’s portable benefit account in two ways:
From its own funds, or
Withholding a percentage of the independent contractor’s compensation, if the independent contractor agrees to such withholding in a signed agreement.
According to the bill, any contributions made by the hiring party to the portable benefit account “shall not be used as a criterion for determining a worker’s employment classification.”
Under SB 86, contributions to the portable benefit account are not mandatory. The legislation provides incentives in the form of Alabama state tax deductions. Specifically, the bill states that a hiring party that uses its own funds to contribute to a portable benefit account may deduct 100 percent of that amount as a business expense on its yearly Alabama tax return. SB 86 further provides that independent contractors may deduct “100 percent of the amount contributed by a hiring party as a form of compensation to a portable benefit account,” as well as 100 percent of the amount contributed by the worker, as an adjustment to income on the individual’s Alabama state income tax return.
If passed, the proposed “Portable Benefits Act” would take effect on October 1, 2025.
FDIC Withdraws Support for Colorado’s Opt-Out Law Before Tenth Circuit
On February 26, the FDIC withdrew its amicus brief in the 10th Circuit Court of Appeals challenging Colorado’s 2023 opt-out law which aimed to restricting higher-cost online lending. The FDIC’s decision follows a shift in the agency’s leadership and marks a departure from the previous administration’s position supporting Colorado’s interpretation of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA).
Colorado’s opt-out law invokes a provision of DIDMCA that allows states to exclude themselves from the federal interest rate exportation framework, which enables banks to lend nationally at rates permitted by their home states. The law seeks to apply Colorado’s interest rate caps—some as low as 15%—to all loans made to Colorado residents, including those issued by out-of-state banks in partnership with fintech firms.
A coalition of industry groups challenged the law, arguing that Colorado is overstepping its authority by attempting to regulate lending that occurs outside the state. In June 2024, a federal district court sided with the industry groups, ruling that a loan is made where the lender performs its loan-making functions rather than where the borrower is located. The court issued a preliminary injunction preventing Colorado from enforcing the law against out-of-state lenders.
The FDIC initially supported Colorado’s position, arguing in its amicus brief that, for purposes of DIDMCA’s opt-out provision, a loan can be considered “made” where the borrower is located. However, citing a recent change in administration, the agency withdrew its brief before the Tenth Circuit could hear oral arguments in Colorado’s appeal.
Putting It Into Practice: The withdrawal follows the FDIC’s transition to Republican-led leadership under Acting Chairman Travis Hill, who has signaled a more favorable stance toward bank-fintech partnerships (previously discussed here). With oral arguments set for March 18, a ruling upholding Colorado’s law could inspire similar state restrictions, while a decision favoring industry plaintiffs would reaffirm federal rate exportation rules under the DIDMCA.
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Bankers Bond Insurance: Key Coverage Issues for Financial Institutions to Consider
Bankers blanket bond insurance—also referred to as bankers bonds, fidelity bonds, or financial institution bonds—provides financial institutions with protection against direct financial loss sustained as a result of criminal activity. Bankers bonds often cover:
losses caused through dishonesty of employees;
losses arising out of counterfeit currency;
loss in transit, including theft or physical destruction of property during transportation;
losses caused by computer systems fraud;
losses caused by unauthorized signatures; and
losses caused by forged checks.
Bankers bonds have several unique features different from many other insurance types because they protect against losses incurred as a direct result of fraudulent or criminal activities from within the company. While most bankers bonds are already tailored to protect companies operating within the financial sector, they are a highly customizable risk management solution. Depending on the jurisdiction, financial institutions may be required to purchase a bankers bond to operate.
While coverage depends on the specific facts, policy language and circumstances giving rise to the loss, bankers bond claims present a number of recurring issues that can result in coverage disputes. Below are several key issues to consider:
Discovery and Notice. Unlike other coverages, which may turn on when an accident occurred or whether a claim was first made, bankers bonds typically apply based on whether the loss was first “discovered” during the policy period. Because discovery triggers coverage, the timing of when the company first becomes aware of a covered loss can become a contested issue if, for example, the insurer contends it occurred before the inception of the bond or if notice was not given in a timely manner.
The meaning of “discovery” is often defined in the bond, and small changes can impact whether or not a loss is covered. Whose knowledge is relevant for the purpose of discovery? What standard measures whether those individuals should assume a particular loss is covered? Does the bond distinguish between knowledge gained by facts versus receipt of actual or potential claims? The way bankers bonds address these and many other questions can often decide whether a loss is covered.
Endorsements, Riders and Policy Customization. Bankers bonds are as varied as the financial institutions that buy them. That means that bonds are not one-size-fits-all and can be heavily negotiated to provide greater and different coverages than what may be available “off the rack.” These modifications are often accomplished through endorsements (or “riders”) modifying or expanding coverage.
Banks can secure riders for a variety of different risks—reward payments, debit cards, safe deposit boxes, transit cash letters, unauthorized signatures, warranty statements, automated teller machines, audit and examination expenses, check kiting and email transfer fraud, just to name a few. Riders can even allow banks to recover “claim expenses,” including legal fees, incurred in preparing and submitting covered claims for loss under the bond. Even the riders themselves are negotiable and can be modified.
Causation. Many bankers bonds require that the policyholder show that a loss “resulted directly from” dishonest, criminal or malicious conduct. While this kind of causation language is common, disputes nevertheless arise over whether the offending conduct and loss are close enough in the timeline of events to fit within the bond’s insuring agreement. For example, an insurer may contest whether a virus that infected the bank’s computers is close enough in time or sequence to resulting loss to constitute covered computer systems fraud. In cases of employee dishonesty and fraud, financial institutions should be mindful of the bond’s direct causation requirement.
Exclusions. Insuring agreements covering dishonest acts by employees often include significant carve outs that limit otherwise broad coverage for things like loans and trading losses. Those carve outs also can have important carve backs that preserve coverage if certain conditions are met. For example, most bonds will exclude losses resulting from loans, unless the dishonest employee was in collusion with parties to the loan transaction and received some kind of improper financial benefit. But some bonds place monetary thresholds on the financial benefit required to preserve coverage or presume the requisite benefits were obtained under certain circumstances. Paying close attention to carve outs and exceptions and, if needed, negotiating broader coverage can strengthen critical protections against fidelity claims involving employees.
Actual Loss. An important threshold question in any bankers bond claim is whether a loss actually occurred. Despite the repeated use of “loss,” many bankers bonds do not define the word, leaving it to courts to do so in the event of a dispute. One common theme in those disputes is whether the entity suffered an actual—rather than a theoretical—loss. In Cincinnati Insurance Co. v. Star Financial Bank, for example, the Seventh Circuit defined “loss” as an “actual present loss, as distinguished from a theoretical or bookkeeping loss.” 35 F.3d 1186, 1191 (7th Cir. 1994). Policyholders should be prepared to show an identifiable “loss” was suffered.
Cyber-Related Events. Given the proliferation of cybersecurity incidents and related exposures across all industries, including finance, bankers bonds have increasingly offered expanded coverage for cyber-related losses. In some instances, coverage between a cyber policy and a crime policy, like a bankers bond, may overlap.
But bankers bonds can provide critical coverage for a financial institution’s direct financial loss arising from a host of cyber incidents. Bonds can extend coverage to include perils such as extortion (including cyber-related extortion and ransomware) and erroneous transfer, social engineering fraud, computer fraud and similar cyber risks. Financial institutions should coordinate coverage between all policies, including bankers bonds and cyber policies, to ensure adequate protection from cyber risks and avoid gaps in coverage.
This non-exhaustive list highlights several common issues of focus to negotiate robust coverage for a range of risks under bankers bonds. The best time to assess those risks is before discovery of a loss or receipt of a claim. Financial institutions should be proactive in their pursuit of insurance and mindful of these key coverage issues relating to bonds. Retaining experienced coverage counsel, insurance brokers and other risk professionals during bond placement (and renewal) and early in the claims process can help maximize recoveries.
Medicare Payment Model Trends and Economic Drivers – Awaiting Direction from Trump Administration
The Medicare program continues to face long term financial pressures associated with inflationary effects on health care costs and the growing wave of aging baby boomers. The Medicare Trust Fund, which is often viewed as a foil for health care affordability, has long faced a proverbial financing question. The fund covers Medicare Part A services, including inpatient hospital services and hospice care and skilled nursing services following a hospital stay. Projected solvency risks of the fund improved with the passage of the Affordable Care Act of 2010 (ACA), which, among other things, reduced Medicare payments to Medicare Advantage Organizations and implemented medical loss ratios. However, the fund faced acute short term solvency risks between 2018 to 2023. The fund is currently expected to be depleted in 2036.[1]
Under that economic drop back, the past two decades have seen incredible growth in value-based care reimbursement arrangements, including the rapid growth of the Medicare Shared Savings Program (MSSP) following passage of the ACA, the development of the Center for Medicare and Medicaid Innovation (CMMI) under the Centers for Medicare & Medicaid Services (CMS), and development of narrower alternative payment models (APMs) tested by the CMMI in subsequent years (such as the soon-to-be expiring Accountable Care Organization Realizing Equity, Access, and Community Health (ACO REACH) Model and the latest episode-based payment model Transforming Episode Accountability Model (TEAM)). Those payment models have improved quality and efficiency of care, while reducing overall cost to the Medicare program.
Indeed, on the heels of those early economic successes, CMS under the Biden Administration set a goal that by 2030 all Medicare fee-for-service beneficiaries with Medicare Parts A and Part B and a vast majority of Medicaid beneficiaries will be in an accountable care relationship for quality and total cost of care.[2] That transition is expected to generate large savings which could shore up the Fund. CMS reported 2.1BN in net savings under the Medicare Shared Savings Program in 2023.[3] Further, Medicare Advantage enrollment is shifting in this direction – as of September 2024, 50.5% of people enrolled in Medicare were participating in a Part C Medicare Advantage Program, up from 39% in 2019.[4]
The payment models package several features and innovations, but generally seek to support the “quadruple aim” – a modification of the “triple aim”, which was highly publicized during the passage of the ACA, to address provider satisfaction. One recent evolution from that policy underpinning is the expansion of population health initiatives to address health inequities.
In recent years, CMS has elevated awareness of the health inequities as a way to address systemic health disparities found in underserviced communities with shared characteristics (e.g., disability or race). Drawing on a substantial body of evidence, CMS has linked health equity with those health disparities in underserved communities which are impacted by preventable health conditions more frequently or severely than individuals outside of those communities. Beginning in 2023, CMS offered health equity adjustments under the Medicare Shared Savings Program to encourage providers to serve and improve care for underserved populations or dually eligible beneficiaries.[5] Beginning in 2025, CMMI offered accountable care organizations (ACOs) participating in the ACO REACH Model a benchmark adjustment for health equity tied to socioeconomic data for specific regions.
Relatedly, CMS has increasingly been recognizing the importance of providing coverage for non-medical aspects of health care services to reduce health inequities. CMS has encouraged providers to address social determinants of health (SDOH) and the specific health-related social needs (HRSN) that impact individuals to promote better health outcomes. For example, from its outset, CMMI’s Enhancing Oncology Model actively incorporated SDOH by requiring participants to screen for HRSNs, report patient demographic data (e.g., race, ethnicity, language, gender identify), and develop plans to implement evidence-based strategies to address health equity gaps in assigned patient populations.
While Dr. Mehmet Oz, the current nominee to lead CMS, is a staunch advocate of Medicare Advantage, it is unclear how the new Trump Administration will view and react to these trends as it retakes the helm at CMS. However, we would expect CMS to consider the economic back drop under which these trends evolved and the resulting data showing that total expenditures for the Medicare Program can be reduced without sacrificing coverage or quality. The payment models – whether the MSSP and CMMI-initiated APMs – are implemented by CMS under contractual arrangements with private insurers, ACOs and health care providers and frequently operate on calendar year periods. Accordingly, we anticipate meaningful changes will be delayed to 2026, giving stakeholders time to prepare.
[1] 2024 Annual Report, Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (May 6, 2024) at https://www.cms.gov/oact/tr/2024 (also noting that the assets of the fund were $208.8 billion at the start of 2024, which was only expected to cover 50% of the anticipated spend in 2024, failing the trustee’s recommended minimum of 100%).
[2] Chiquita Brooks-LaSure and Daniel Tsai, A Strategic Vision for Medicaid and the Children’s Health Insurance Program (CHIP), Health Affairs (November 16, 2021) at https://www.healthaffairs.org/content/forefront/strategic-vision-medicaid-and-children-s-health-insurance-program-chip.
[3] Press Release: Medicare Shared Savings Program Continues to Deliver Meaningful Savings and High-Quality Health Care, Centers for Medicare & Medicaid Services (Oct. 29, 2024) at https://www.cms.gov/newsroom/press-releases/medicare-shared-savings-program-continues-deliver-meaningful-savings-and-high-quality-health-care (lasted accessed Feb. 8, 2025).
[4] 2024 Annual Report, of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (May 6, 2024) at https://www.cms.gov/oact/tr/2024; Medicare Advantage 2020 Spotlight: First Look, Kaiser Family Foundation (October 2019) at https://files.kff.org/attachment/Data-Note-Medicare-Advantage-2020-Spotlight-First-Look.
[5] Press Release: Medicare Shared Savings Program Saves Medicare More Than $1.6 Billion in 2021 and Continues to Deliver High-quality Care, Health and Human Services (Aug. 30, 2022) at https://www.hhs.gov/about/news/2022/08/30/medicare-shared-savings-program-saves-medicare-more-than-1-6-billion-in-2021-and-continues-to-deliver-high-quality-care.html.