Replacement Cost Insurance Coverage in Turbulent Times
After the wildfires in Los Angeles, extreme weather events throughout the United States, and recently enacted tariffs, it seemed like a good time to revisit the calculation of replacement cost under policies insuring against loss or damage to property. The concept of replacement cost — sometimes referred to as “new for old” — seems simple, but issues often arise over the calculation and various policy terms and conditions. So, let’s dig in.
What Is Replacement Cost Coverage?
Replacement cost coverage is the most common type of insurance found in first-party property insurance policies, including standard business property policies and builder’s risk policies (for property in the course of construction). It usually applies to both “building” coverage and to business personal property (BPP) coverage, with some exceptions. It is referred to as “new for old” because it pays to replace lost or damaged property with new property of the same type.
Insurance companies frequently argue that because they cover only loss or damage to covered property, policyholders must prove that a particular item of covered property was damaged before the insurance company has an obligation to repair or replace it. Insurance policies, however, rarely are specific on this point. In Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., 932 F.3d 1035, 1040 (7th Cir. 2019), for example, the court held that “the unit of covered property to consider under the policy (each panel of siding vs. each side vs. the buildings as a whole) is ambiguous.” Thus, the court construed the policy in favor of the policyholder under the well-settled rule that ambiguous language in an insurance policy must be construed in favor of coverage and strictly against the insurance company.
The Windridge court also examined the so-called “matching” issue that often arises with partial damage. Specifically, where new materials will not match the existing undamaged materials, does the insurer have an obligation to pay for changes in the undamaged portions of a building so that the new and old will match? The court noted that the case law is “mixed” in answering this question. The court followed the case law holding that the insurer must account for matching, noting that “buildings with mismatched siding are not a post-storm outcome that the insured was required to accept under this replacement-cost policy.” Id. at 1041.
What Is “Like Kind and Quality”?
“New for old” is usually not difficult when property is a total loss, but it becomes a challenge when property is only damaged or partly destroyed. It can often be difficult, if not impossible, to replace only part of a damaged structure. Issues like tying the new into the old, matching the new and the old, material and technology changes, and code requirements for new versus old often arise.
Most policies require replacement of lost or damaged property with property of “like kind and quality,” or similar words. The standard ISO form uses the phrases “comparable material and quality…used for the same purpose.” These words usually are not further defined.
As discussed above, several courts and/or state statutes provide that replacement materials must match the undamaged portions of the property to qualify as like kind or comparable. For other issues, whether replacement materials are “comparable” often involves expert testimony. In Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423 (Tex. 2004), for example, the court held that “comparable” does not mean “identical” and affirmed the trial court’s ruling finding coverage for a different type of roof based on expert testimony that the replacement roof was comparable, even though it was different from the damaged roof and cost more to replace.
What if Building Codes Have Changed?
The standard ISO replacement cost form states that the “cost of building repairs or replacement does not include the increased cost attributable to enforcement of or compliance with any ordinance or law regulating the construction, use or repair of any property.” However, some coverage is available for “Increased Cost of Construction,” which includes coverage for the increased cost necessary to comply with the minimum costs of complying with building codes or ordinances, subject to certain conditions. This additional coverage also is sometimes referred to as “Ordinance or Law” coverage. It is limited to certain amounts in the standard ISO form ($10,000 or 5% of the applicable limit), but additional coverage can be purchased.
How Is My Value Determined?
At a high level, replacement cost valuation is straightforward — it is cost to repair or replace the lost or damaged property with comparable property. The standard ISO form limits recovery to the maximum of “the amount actually spent that is necessary to repair or replace the lost or damaged property.” But the total replacement cost can be affected by the issues discussed above (e.g., matching or whether the replacement property is “comparable”), as well as a host of other issues.
The number of factors that can affect replacement cost vary based on the type and age of construction, materials, geography, and macroeconomic events like weather, tariffs and the labor market. These factors affect things like:
The availability of replacement materials
The cost of replacement materials
Alternatives to the damaged property
Lead times for materials
Labor rates and intensity of different repair options
Market or aesthetic changes
The schedule for repairs or replacement
Most insurance companies and their experts use software programs to calculate replacement costs. These programs contain regularly updated labor and materials costs by geographical regions. In calculating replacement cost estimates, they also consider additional costs, such as overhead, profit, permitting, and other costs that may be included in a general contractor’s “general conditions.”
While these programs are the insurance industry’s standard for calculating replacement cost, they are the map and not the territory. Nothing in the policy requires the use of estimates to calculate replacement cost, and recovery ultimately is based on the actual costs of repairs or replacement, subject to the policy’s terms and conditions, such as those discussed above.
Contractors and builders generally do not use the same programs that insurance companies use — they base their cost estimates on sub-contractor bids and their general knowledge about the costs and time involved in a potential job. In tight labor markets or times of rapidly rising or fluctuating prices, the replacement cost estimates in an insurance company’s software program may not reflect the events on the ground.
The numbers in the estimating software used by insurance companies also necessarily reflect figures among a range of possible costs a policyholder might receive from a contractor in an estimate for actual repair or replacement work. The costs of the most available or desirable contractor may be higher than the cost reflected in an insurance company’s insurance program. In addition, the accuracy of an estimate will only be as good as the information entered into the program. If the details of the loss are entered incorrectly, or if the scope changes as additional work becomes necessary or additional damage is uncovered during demolition, the estimate will need to be corrected or updated.
Policyholders should not accept software driven estimates as final costs, but as useful tools for receiving early partial payments on a claim and for setting a general framework for replacement costs. Policyholders should not settle claims until after they fully understand the scope of their loss and the actual costs they will incur in repairing or replacing damaged or destroyed property.
Do I Get Replacement Cost if I Don’t Rebuild or Rebuild Something Different?
Many policy forms state that the insurer will pay only the “actual cash value” or “ACV” of property damage until after repairs are made. Some courts have held that this condition may be waived by an insurer’s handling of a claim. In Rockford Mut. Ins. Co. v. Pirtle, 911 N.E.2d 60 (Ind. Ct. App. 2009), for example, the court held that this condition was waived where the insurer waited six months and until after foreclosure proceedings were initiated to offer an ACV payment.
Most insurers define ACV as replacement cost less depreciation, and some policies define the term in this way. But many policies do not define ACV. In the absence of a policy definition of ACV, or where the policy language allows, many states use the “broad evidence rule” for calculating ACV. This rule is a “flexible rule” that permits consideration of “any relevant factor” in determining ACV. Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349, 356 (Ind. 1982).
Some policies allow recovery of replacement cost where the policyholder rebuilds at another location, or even if the policyholder rebuilds something different from the damaged or destroyed property. Other policies go so far as to allow a replacement cost recovery where the policyholder does not rebuild, if the proceeds are used elsewhere in the policyholder’s business. These provisions often also require that the proceeds are used on unplanned expenses. In these situations, disputes center on the “hypothetical” replacement cost of repairing or rebuilding with like kind or comparable property, given that no actual costs are incurred for that work.
Who Decides What I Get?
There are three ways disputes over replacement cost may be decided. If the dispute involves a question of what the insurance policy language means, then the issue is usually decided by a court. But courts only decide what the law mandates or what the insurance policy language means. Juries typically decide factual disputes or issues that turn on experts’ credibility.
In the case of disputes over the amount of replacement cost, property insurance policies usually contain a third remedy, called appraisal. The appraisal process involves each side choosing an appraiser and those appraisers choosing an umpire. The appraisers and the umpire then evaluate the differences in replacement cost calculations and the umpire’s agreement with one of the party’s appraisers is binding. Appraisals too can be fraught with issues, which is discussed in a prior article linked here.
Conclusion
Disputes over replacement cost raise legal and factual issues in normal times, but they present enhanced challenges when costs, climate, and market forces are changing and uncertain. Policyholders should navigate those challenges thoughtfully to ensure they obtain the benefits they paid for under their property insurance policies.
New Maryland Laws—Delay to Paid Family and Medical Leave, Expanded Military Protections, and Parental Leave Clarification
The Maryland General Assembly’s 2025 legislative session ended at 11:59 p.m. on Monday, April 7. Unlike previous years’ editions, this session ended up being a relatively positive one for employers.
Although many concerning bills were proposed (e.g., increased minimum wage, an increased salary level for overtime exemptions, expansion of the Workplace Fraud Act to include all employers, harassment reporting and training requirements, etc.), there were only three employment-related bills that passed: another delay to the forthcoming paid family and medical leave insurance (FAMLI) program, an expansion of protections for military service members and their families, and a clarification of the definition of “employer” under Maryland’s Parental Leave Act.
Quick Hits
The Maryland General Assembly passed legislation delaying the implementation of the paid family and medical leave insurance (FAMLI) program, with contributions starting on January 1, 2027, and benefits beginning by January 3, 2028.
The Employment and Insurance Equality for Service Members Act would expand employment protections to include all uniformed services and reserve components, effective October 1, 2025.
Legislation amending the Parental Leave Act to clarify that employers covered by the federal Family and Medical Leave Act are excluded from the definition of “employer,” effective October 1, 2025, passed the General Assembly.
Maryland Governor Wes Moore is not expected to veto the bills.
All of these bills have been sent to Governor Wes Moore, and he can sign them into law, veto them, or allow them to become law without his signature. Vetoes are not expected on any of these bills, however.
FAMLI Program—Revisions, House Bill (HB) 102
As most employers in Maryland know, in 2022, the General Assembly passed a law, over then-Governor Larry Hogan’s veto, that set up a paid family and medical leave insurance program (FAMLI). The program will apply to all employers with employees in Maryland. It will provide eligible employees with twelve weeks of paid family and medical leave, with the possibility of an additional twelve weeks of paid parental leave (for a possible total of twenty-four weeks of paid leave). We discussed the detailed requirements of the law in our article, Maryland’s FAMLI Program, Part I: An Overview of the Law.
This $2 billion program will be administered by the state and funded by contributions from employers and employees. Contributions were originally set to begin October 1, 2023, with benefits starting January 1, 2025. The Maryland Department of Labor (MDOL) was directed to issue regulations to implement the provisions of the law.
Setting up the FAMLI program has been challenging, and the General Assembly passed legislation to delay implementation, first in 2023, then again in 2024, and yet again this year. Under the most recent delay, contributions from employers and employees to fund the program will begin January 1, 2027, and benefits will begin at some point thereafter, but no later than (and most likely) January 3, 2028.
Other important dates were also changed. The initial contribution rate will now be set by the secretary of labor on or before May 1, 2026. Thereafter, the secretary will set the rate by November 1 each year, to take effect on the following January 1.
The legislation also proposes a new definition: “Anchor Date,” meaning the earlier of when an application for benefits is complete or when FAMLI leave begins. The wage rate for the employee will then be based on the highest of the previous four calendar quarters immediately preceding the anchor date.
Finally, the legislation also provides for a possible annual increase in the weekly benefit amount tied to the Consumer Price Index.
One additional note: The MDOL has engaged in an extensive regulatory process over the past several years, and it finally released proposed regulations in parts last fall and earlier this year. We reviewed the proposed regulations in our articles, “Maryland’s FAMLI Program, Part II: The Proposed Regulations” and “Maryland’s FAMLI Program, Part III: Claims and Dispute Resolution Proposed Regulations.” However, those regulations have now been removed from their website in light of the implementation delay. It is unclear what the MDOL is planning to do with the proposed regulations.
Once signed by the governor or approved without his signature, the law will take effect on June 1, 2025.
Employment and Insurance Equality for Service Members Act, HB 895/Senate Bill (SB) 279
Among other things, this legislation expands employment protections for military members from just the U.S. Armed Forces and National Guard and Reserve to include all uniformed services and reserve components. This means that, in addition to the Army, Navy, Air Force, Marine Corps, Space Force, and Coast Guard, the employment protections under Maryland law now also apply to the National Oceanic and Atmospheric Administration and the Public Health Service.
The affected employment protections under Maryland law are the following:
Permissible hiring preferences for eligible veterans (meaning one who received an honorable discharge or certificate of satisfactory completion of uniformed service), as well as the spouse of an eligible veteran who has a service-connected disability, the surviving spouse of a deceased eligible veteran, and the spouse of a full-time active member of the uniformed services.
Leave on the day that the employee’s spouse, (step)parent, (step)child, or sibling is leaving for, or returning from, active duty outside the United States as a member of the uniformed services. Notably, employees are only eligible for this leave right if they have a year of service with the employer and have worked 1,250 hours in the twelve-month period prior to the leave.
Once FAMLI finally takes effect, employees will (eventually) be able to receive FAMLI leave for certain family military leave reasons: to care for an injured or ill member of the uniformed services who is next of kin, or for certain qualifying exigency reasons related to the active duty of a member of the uniformed services.
When enacted, this law will take effect on October 1, 2025.
Parental Leave Act—Definition of ‘Employer,’ SB 785
Under the Parental Leave Act, employers with fifteen to forty-nine employees in Maryland must provide up to six weeks of unpaid leave for purposes of childbirth, adoption, or foster care placement. In order to be eligible for this leave, the employee must have been employed with the employer for at least twelve months and have worked at least 1,250 hours in the twelve-month period looking back from the date that leave is requested. This legislation clarifies that the definition of “employer” does not include those who are covered by the federal Family and Medical Leave Act (which applies to employers with fifty or more employees anywhere) in the current year.
This amendment will take effect on October 1, 2025.
Don’t Give Up on CGL Coverage for ITC Proceedings Alleging Trade Dress Infringement
Lawsuits alleging trade dress infringement in advertising sometimes involve concurrent proceedings before the International Trade Commission (ITC). While these lawsuits typically are covered under commercial general liability (CGL) policies, insurers often take the opposite view of the associated ITC proceedings—which, unlike trade dress infringement lawsuits, seek exclusion orders instead of damages. Should you accept insurers’ position on this issue?
Not in our view. In taking the position that ITC proceedings are not covered because they do not seek damages, insurers miss the point.
Not in our view. In taking the position that ITC proceedings are not covered because they do not seek damages, insurers miss the point.
Defense costs incurred by policyholders while both a lawsuit and ITC proceedings are pending should be covered under the CGL policies as recoverable defense costs given the the ITC proceeding’s preclusive effect on the associated trade dress litigation.
When a federal court trade dress infringement suit is brought concurrently with an ITC proceeding that features identical issues of trade dress validity, scope and infringement, the defense of those issues are effectively litigated only once. See 28 U.S.C. § 1659(a). 28 U.S.C. § 1659 (“Section 1659”) states in pertinent part:
(a) STAY.—In a civil action involving parties that are also parties to a proceeding before the United States International Trade Commission under section 337 of the Tariff Act of 1930, at the request of a party to the civil action that is also a respondent in the proceeding before the Commission, the District Court shall stay, until the determination of the Commission becomes final, proceedings in the civil action with respect to any claim that involves the same issues involved in the proceeding before the Commission….
(b) USE OF COMMISSION RECORD.—Notwithstanding section 337(n)(1) of the Tariff Act of 1930, after dissolution of a stay under subsection (a), the record of the proceeding before the United States International Trade Commission shall be transmitted to the district court and shall be admissible in the civil action…Section 1659 thus allows the accused infringer to defend both the federal action and the ITC proceeding by adjudicating the issue one time and having that determination be binding in both matters. See In re Princo Corp., 478 F.3d 1345, 1355 (Fed. Cir. 2007) (“The purpose of §1659 is to prevent separate proceedings on the same issues occurring at the same time. The legislative history states that § 1659 was [enacted]… ‘to address the possibility that infringement proceedings may be brought against imported goods in two forums at the same time.’ H.R. Rep. No. 103-826(I), at 141 (1994), reprinted in 1994 U.S.C.C.A.N. 3773, 3913.”).
Following a final determination by the ITC, the entire record of the ITC proceeding is transmitted to the district court to use to resolve the underlying claims for damages. See In re Princo Corp., 478 F.3d at 1355 (“The legislative history explains that ‘use of the Commission record could expedite proceedings and provide useful information to the court.’ H.R. Rep. No. 103-826(1), at 142, reprinted in 1994 U.S.C.C.A.N. at 3914. The Commission record will be most helpful to the district court if it is a complete record of the Commission proceedings including all remand proceedings.”).
Furthermore, in non-patent cases like trade dress infringement proceedings, the ITC’s findings and determinations are given preclusive effect—binding the parties in both the federal action and the ITC proceeding. See, e.g., Mahindra & Mahindra Ltd. v. FCA US LLC, 503 F. Supp. 3d 542, 548-55 (E.D. Mich. 2020) (“Mahindra”) (recognizing that ITC proceedings have a preclusive effect on trade dress claims and granting dueling summary judgment motions based solely on the ITC’s findings and determinations). The preclusive effect is not only binding, but also reflects Congressional intent to have certain claims for damages defended only once, even though proceedings are pending in the court and the ITC. See id. at 549-50; see also McCarthy on Trademarks and Unfair Competition § 29.55 (5th Ed. 2023) (“Res judicata from an [ITC] decision may be created so as to bar relitigation of the same claim or issue in a [parallel] federal court case. An [ITC] finding that complainant had no valid trademark was held to be res judicata and precluded the losing complainant from [continuing to pursue] an identical [claim] in district court rather than appealing the ITC decision to the Federal Circuit.”) (citations omitted).
While no reported California case has addressed the issue, existing California case law supports the proposition that recoverable defense costs include costs incurred after the tender of defense, but before the conclusion of the suit, and which relate to “reasonable and necessary effort[s] to avoid or at least minimize liability.” Aerojet–General Corp. v. Transport Indemnity Co., 17 Cal.4th 38, 61 (1997).
In Aerojet, the California Supreme Court evaluated whether the insurers’ duties to defend required them to pay environmental investigation expenses imposed by an administrative order outside of the context of the covered litigation. Id. at 70. The California Supreme Court determined that “the insured’s site investigation expenses constitute defense costs that the insurer must incur in fulfilling its duty to defend” under the following conditions: (1) the site investigation must be conducted within the temporal limits of the insurer’s duty to defend, i.e., between tender of the defense and conclusion of the action; (2) the site investigation must amount to a reasonable and necessary effort to avoid or at least minimize liability; and (3) the site investigation expenses must be reasonable and necessary for that purpose. Id. at 60-61.
As in Aerojet, defense costs incurred by policyholders while both trade dress litigation and associated ITC proceedings are pending potentially meet all three of these requirements. Specifically, the binding nature of the ITC’s findings and determinations on the validity and scope of any claimed trade dress means that defending these claims before ITC directly benefits the defense in the concurrent court proceedings—making the costs of the ITC defense necessary to “avoid or minimize liability” in the court proceedings.
Accordingly, policyholders should consider pursuing coverage for ITC proceedings alleging trade dress infringement.
Seller Considerations When Negotiating a Letter of Intent
Negotiating and signing a Letter of Intent (LOI) is a key inflection point in the process of selling your business. Buyers and sellers both want the LOI to ensure a base level of understanding on certain key terms such as price, the structure of the deal, exclusivity, and confidentiality. However, sellers generally want, and should push for, additional details before agreeing to exclusively negotiate with a potential buyer. Below are some of the key items that sellers should ensure they have a full understanding of:
1. Strategic vs. Financial Buyer. Sellers should understand who the proposed acquirer is and what their motivations are for the potential acquisition. Generally speaking, a strategic buyer will focus on synergies between the businesses, gaining a competitive advantage, and/or expanding into new markets. Additionally, strategic buyers will usually offer a higher price than a financial buyer and will likely offer a deal where the purchase price is paid in cash and/or stock of the buyer. Financial buyers, on the other hand, will be more focused on the company’s financial metrics and are more likely to offer a deal that requires financing, includes an earnout, and requires the sellers to roll over a portion of their equity, offering the sellers a proverbial second bite at the apple in a subsequent sale.
2. Indemnity & Representations and Warranties Insurance. The LOI should detail the proposed terms for indemnification of the buyer by the sellers and if Representations and Warranties Insurance (RWI) will be used or not. The indemnification provisions should detail the time period in which claims can be made against the sellers, what the cap on the seller’s liability will be, what escrows will be required, what the deductible or tipping basket will be, and if any of the seller’s representations will be considered fundamental representations (which generally have a longer period of survival when claims can be made and are not subject to the general cap or deductible/tipping basket, meaning the sellers will be liable for the first dollar of any loss and usually have a higher cap on their potential liability with respect to such representations). The use of RWI typically greatly improves the seller’s indemnification package and reduces the amount of negotiation on the scope and substance of the seller representations given in the ultimate purchase agreement. For instance, RWI usually results in a much lower amount of exposure for the sellers (which generally equals one-half of the retention under the RWI policy or up to 0.5% of the total purchase price which is placed in a seller indemnity escrow).
3. Purchase Price Adjustments. In US M&A the standard is for businesses to be purchased on a cash-free, debt-free basis and delivered with a normalized level of working capital. It is common for LOIs to simply leave it there; however, sellers should evaluate if it is favorable to have a bespoke calculation of working capital (i.e. specifically including or excluding certain items) and/or separate credits or adjustments to the purchase price for other items such as tax assets. Additionally, sellers should evaluate if a working capital collar (i.e. a band surrounding the working capital target where no adjustment up or down is made) is appropriate to avoid nickel and diming in the ultimate working capital adjustment. Addressing these points at the LOI stage is more likely to yield a positive result for the sellers as the buyer is more likely to make concessions at this point in order to secure the deal and get the sellers to sign the LOI and agree to exclusivity.
4. Earnout Considerations. Generally speaking, sellers should resist the inclusion of an earnout and instead negotiate for additional upfront consideration as the inclusion of an earnout will greatly increase the costs of negotiating the deal and the likelihood of post-closing litigation. With that said, in some instances earnouts are a necessary tool to bridge valuation gaps and are often used by financial buyers to reduce the amount of cash needed to close the deal. In these instances, sellers should focus on negotiating clearly defined and objective earnout targets and robust protective covenants on how the buyer will operate the business post-closing. Failing to do so at this stage will likely result in targets that are easily manipulated and covenants that offer very little, if any, protection.
a) Target Type. Sellers should push for objective, easily measured metrics such as net sales, revenue, obtaining regulatory clearances or approvals and if possible avoid targets based upon EBITDA, complying with an integration plan or product development milestones tied to the buyer’s determination of a commercially viable product. To the extent an earnout is based on EBITDA, the parties should negotiate the definition of EBITDA tailored to the business being sold.
b) Protective Covenants. In negotiating an earnout, sellers should be mindful that the buyer will control the business following the closing and will strongly resist any restrictions on its ability to operate its new business in a way that it sees fit. As such, it is incumbent on the sellers to push for covenants that protect their interests in the earnout payments. These covenants can include requiring the buyer to operate the business to maximize the earnout payments (or use commercially reasonable efforts to do so), barring the buyer from diverting sales to affiliated companies, and provide for acceleration in the event the buyer sells the company. Additionally, the sellers should push for bespoke covenants that are tailored to the seller’s business and the metrics the earnout is tied to. For example, is a certain level of marketing or R&D spend necessary to achieve the earnout or is maintaining certain distribution and/or supply relationships necessary?
5. Rollover Considerations. It is very common for financial buyers to require the selling shareholders to roll over a portion (usually between 10 to 40%) of their proceeds in connection with the transaction. This serves two primary purposes, first, it reduces the amount of cash the buyer needs to come up with at the closing to fund the purchase price and second, it incentivizes the selling shareholders to continue supporting the business after the closing as they will be looking at another exit in 3 to 7 years at hopefully an increased valuation. In evaluating a rollover, sellers should understand if their business will be the platform business or an add-on to an existing business of the buyer. The sellers should also ensure they are comfortable with the following deal points of their investment in the buyer:
a) Type of Equity. Sellers should push for the equity they are rolling into to be treated pari passu with the equity held by the buyer. While some aggressive buyers may resist this and in some cases require such equity to be subject to vesting, at the end of the day the seller’s consideration (in the form of the rollover) is just as good as the buyer’s cash and should be treated the same and not be subject to forfeiture; however, the rolling sellers can expect their rollover equity to be subject to repurchase by the buyer in the event the rolling sellers are terminated for cause or breach restrictive covenants.
b) Minority Protections. While the scope of the protective covenants a rollover seller can obtain will largely be influenced by the size of their rollover and if they are a platform acquisition or an add-on to an existing portfolio company, at a minimum sellers should push for a bar on affiliate transactions, standard information rights, preemptive rights and tag along rights on the buyer’s ability to exit the platform.
c) Sources and Uses. It is important for sellers to understand how the buyer is financing the proposed acquisition and the size of the buyer’s transaction expenses (which necessarily increase the buyer’s equity check). This is especially true when the sellers are expecting to roll into a certain percentage of equity at the closing.
d) Management Fees. In choosing to go forward with a deal with a financial buyer that includes a rollover, sellers should understand what fees the buyer will charge the company after the closing and how that will impact their potential return on their rollover investment. While not every financial buyer charges fees to their portfolio companies, some do and in the aggregate these fees can be substantial. Examples of the types of fees charged can include, monitoring fees, transaction fees, management fees, and refinancing fees.
6. Exclusivity & Binding Provisions. As we mentioned above, the LOI should ensure a base level of understanding between the buyer and the sellers. It is not meant to lay out every aspect of the transaction and generally should be nonbinding. With that said, it is common for a few provisions of the LOI to be binding on the parties. These usually include what law will govern any disputes, what venue any dispute will be heard in, the confidentiality provision, and the exclusivity provision. In terms of exclusivity, sellers should generally be willing to agree to a certain period of time where it will only negotiate with the buyer (typically ranging from 30 to 45 days). Buyers will often try to build in automatic extensions to that exclusivity period to avoid having to obtain extensions while negotiating the definitive agreements. If the sellers agree to this, they should limit it to one automatic extension. This is because the sellers’ ultimate leverage in any negotiation is that the buyer may lose the deal and having the sellers tied up under exclusivity lessens the sellers’ negotiating position.
HUD Updates FHA Loan Residency Requirements: Citizenship or Permanent Residency Now Required
The U.S. Department of Housing and Urban Development (HUD) has issued Mortgagee Letter 2025-09, which updates the residency requirements for borrowers seeking Federal Housing Authority (FHA) insured financing. These changes take effect on May 25, 2025, and require that the borrower be a U.S. citizen or a lawful permanent resident to qualify for FHA-insured mortgages.
Under the new rules, non-permanent residents no longer qualify, while lawful permanent residents must provide acceptable documentation, such as U.S. Citizenship and Immigration (USCIS) records, as part of the loan application to prove their lawful status. A social security card alone is not enough to prove immigration or work status. The streamlined refinance procedures also reflect these changes by removing references to non-permanent resident status, which means borrowers who want to refinance their FHA loans must meet the same requirements.
Overall, this shift by HUD may reduce the number of borrowers who can secure FHA loans in areas with substantial non-permanent resident populations, and it may influence both demand and supply in local real estate markets.
Alaska Supreme Court Rules That “Total Pollution Exclusion” in Homeowners Insurance Policy Does Not Bar Coverage for Carbon Monoxide Poisoning
For decades, homeowners and other insurance policies have included broad pollution exclusions, often referred to as a “total pollution exclusion.” In a recent decision in Wheeler v. Garrison Prop. & Cas. Ins., No. S-18849 (Alaska Feb. 28, 2025), the Alaska Supreme Court held that a “total pollution exclusion” in a homeowners insurance policy did not apply to exclude coverage for injury arising out of exposure to carbon monoxide emitted by an improperly installed home appliance. Examining the breadth of the exclusion and applying the generally held principle that exclusions are to be construed narrowly, the court thus fulfilled the policyholder’s reasonable expectation of coverage for injuries resulting from the carbon monoxide exposure.
Background
A 17-year-old minor rented a cabin in Alaska and, during his tenancy, was found dead in the cabin’s bathtub. An autopsy and investigation by the deputy fire marshal determined that the tenant died of acute carbon monoxide poisoning caused by an improperly vented propane water heater installed in the same bathroom. Testing showed that the bathroom had accumulated high levels of carbon monoxide when the water heater was running.
The cabin owners’ homeowners insurance policy included a total pollution exclusion. The exclusion sought to bar coverage for, among other things, bodily injury or property damage “[a]rising out of the actual, alleged, or threatened discharge, dispersal, release, escape, seepage or migration of ‘pollutants’ however caused and whenever occurring.” The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”
The cabin owners submitted a claim to their homeowners insurer, which denied coverage under the pollution exclusion. The insurer contended that any losses connected with the tenant’s death were excluded because carbon monoxide is a pollutant subject to the pollution exclusion. In denying coverage, the insurer declined to defend the cabin owners against a lawsuit brought by the tenant’s estate.
The owners signed a confession of judgment, which admitted that they negligently caused the tenant’s death. They also confessed to liability of $1,540,000 and assigned their right to seek coverage under the homeowners insurance policy from the insurer. The tenant’s estate then pursued recovery from the cabin owners’ insurer by filing suit in federal court.
The district court entered summary judgment for the insurer, holding that the tenant’s death was not covered under the cabin owners’ insurance policy. In support, the federal district court concluded that the Alaska Supreme Court’s prior decision in Whittier Properties, Inc. v. Alaska Nat. Ins. Co., 185 P.3d 84 (Alaska 2008), suggested that Alaska’s high court would interpret the pollution exclusion literally and conclude that the exclusion was unambiguous, precluding coverage. The district court further ruled that the owners could not have reasonably expected coverage for their tenant’s death because carbon monoxide fell within the definition of pollutant which was excluded under the plain language of the pollution exclusion.
The tenant’s estate appealed to the Ninth Circuit, which certified to the Alaska Supreme Court the question of how the pollution exclusion should be interpreted. The Alaska Supreme Court answered that question in its recent decision.
The Alaska Supreme Court Decision
The Alaska Supreme Court framed the certified question as follows: “Does the pollution exclusion in [the cabin owners’] insurance policy bar coverage for injury arising out of exposure to carbon monoxide by an improperly installed home appliance?” For several reasons, the court determined that a policyholder would reasonably expect coverage for carbon monoxide poisoning under the cabin owners’ policy and, therefore, the exclusion did not bar coverage for the submitted claim.
The court first distinguished the Whittier case on several grounds. That dispute, which involved gasoline leaking from a gas station into surrounding groundwater and soil, presented no ambiguity that gasoline was a pollutant under the insurance policy, and included evidence that the insured knew the policy did not cover damages arising from leaking gas tanks. In answering the certified question, the Alaska Supreme Court declined to simply follow the holding in Whittier and instead examined whether the cabin owners’ insurance policy created a reasonable expectation of coverage for the losses related to the carbon monoxide leak.
In performing that analysis, the court concluded that the pollution exclusion could reasonably be interpreted to cover liability from carbon monoxide poisoning from a water heater. The operative terms of the pollution exclusion—namely, “discharge, dispersal, release, escape, seepage, and migration”—are environmental terms of art relating to a pollutant passing from a container to the environment rather than the result of combustion such as was true in this claim with regard to carbon monoxide. Moreover, the subsections of the exclusion referencing “testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of ‘pollutants,’” the court reasoned, further supported the policyholder’s reasonable expectation that the reach of the exclusion was limited to environmental pollution.
Finally, the court pointed to two other exclusions in the cabin owners’ insurance policy suggesting that the pollution exclusion did not apply to the type of carbon monoxide poisoning that led to the tenant’s death. Those exclusions applied to liability arising from exposure to lead paint or other lead-based products and exposure to asbestos. Although those exposures fell within the policy’s literal definition of pollutants, as well as the operative terms of the pollution exclusion regarding “discharge, dispersal, release, escape, seepage, and migration,” the insurer included those two additional exclusions, a point that helped confirm the true intent behind the exclusion. Accordingly, the specific exclusions for certain household pollutants, the court reasoned, supported a narrower interpretation of the pollution exclusion that it did not bar coverage for exposure to all toxic substances commonly found within a home.
Key Takeaways
Given the prevalence of pollution-related claims, there are several takeaways from the Alaska Supreme Court’s decision for policyholders to consider in navigating pollution exclusions in homeowners and many other insurance policies:
Facts and Policy Language Matter: No matter how broad an exclusion may appear on its face, whether an exclusion applies depends on a number of factors, including the specific policy language and the specific facts giving rise to the claim, not to mention the particular state’s law governing interpretation of the claim under the policy. In addition to the reasoning by the court here, a review of the “drafting history” of pollution exclusions shows that insurers, in seeking regulatory approval, testified that the exclusions were intended to preclude coverage for “true industrial pollution” and “would never be” applied to preclude claims like this one.
Consider Reasonable Expectations of Coverage: Even when the language of an exclusion, even a broadly worded total pollution exclusion, may appear unambiguous on its face, courts in many states may still consider the reasonable expectations of an insured to determine whether a policy exclusion applies. Not all jurisdictions place equal weight on the so-called “reasonable expectations” doctrine, so disputes over choice of law or venue may impact the relevance of the policyholder’s reasonable expectations.
Consider All Relevant Policy Language: Policy exclusions should not be interpreted in isolation. Rather, policies are read as a whole to interpret provisions in a manner where no language is interpreted in a way that renders other provisions superfluous or illusory. This is especially true when the dispute involves exclusions, as those provisions are construed narrowly and in favor of coverage.
Case-Specific Inquiry: Whether an exclusion bars coverage under an insurance policy ordinarily requires a case-specific inquiry, and prior decisions on the same or similar policy language are not always dispositive.
Modern Piracy: Insurance Coverage Options for Cargo Theft and Related Losses
Theft in the cargo industry has skyrocketed in recent years. In the first half of 2024, cargo thefts rose 49 percent and the average loss per shipment by 83 percent. Given these dramatic spikes in cargo theft, policyholders whose operations rely on the safe transportation and trade of cargo should take steps to mitigate against the potential losses of a cargo-theft event. We discuss below the insurance coverage options available to policyholders that can help protect against the risks and losses associated with cargo-related theft if such a loss occurs.
The Spike in Cargo Theft
Certain types of cargo thefts have skyrocketed; between 2022 and 2024, strategic theft (theft by trickery or deception) increased 1455 percent. Similarly, between the last quarters of 2021 and 2022, double brokering rose 400 percent. Other types of theft include forging or altering documents, impersonating legitimate shippers, and simple theft (physically stealing items or shipments).
The causes of this peak vary. The nearly tenfold increase in the cost to move containers between the U.S. and China and worldwide inflation has made shipping that much more expensive. Cost-cutting measures in response to higher costs have eroded the relationships between industry players—notably, many shipments are moved by posting on a load board rather than through a trusted shipping company or professional intermediary—and normalized transacting with strangers. At the same time, thieves have become more familiar with technology and obtained access to powerful tools such as AI to fool industry players.
The Impacted Players
The owners of the stolen cargo are not the only players impacted when cargo is stolen. Any number of parties in the supply chain may suffer losses if a shipment is stolen. Manufacturers and retailers lose property. Shippers lose goodwill and reputation among their clients and may be liable to those clients for the property loss. Recently, brokers have lost, too, as other parties in the chain allege that broker negligence in managing shipments allowed thieves to submit bids, double broker, or reroute shipments.
Insurance Offerings to Protect Against Cargo-Related Theft and Related Losses
Wherever your organization is located in the supply chain, insurance can help offset losses from theft. While traditional forms of insurance may be helpful, insurers have responded to the increased needs of the transportation industry by creating a number of specialized products targeting specific risks.
Cargo Insurance. Cargo insurance—a form of property insurance sometimes called “all risk” because it covers all perils except those specifically excluded—is typically obtained by shippers and protects goods in transit. It is often broken up into ocean marine (transit over the ocean) and inland marine (transit over land). Some insurers offer insurance products further tailored to the type of party, risk, or goods being shipped, allowing shippers who handle high-value loads to obtain additional peace of mind. Brokers may consider contingent cargo loss insurance, which helps protect brokers when the shipper’s cargo insurance policy does not cover a loss and the manufacturer turns to the broker to pay.
When obtaining a cargo insurance policy, it is important to review the conditions of coverage and exclusions. Cargo policies may require the policyholder to implement certain security measures to protect the shipment or pack the shipment in a certain way (which could result in delayed payment or litigation while the facts are investigated). They may also exclude some shipments, notably high-value goods or goods that thieves often target.
Liability Insurance. A staple of any good risk management program, liability insurance covers defense (attorneys’ fees) and indemnity (damages) costs in a lawsuit to recover the costs of a shipment. Shippers should consider general liability insurance, which covers losses from damage to a third party’s property as well as defense costs in the lawsuit. Brokers may obtain a comprehensive policy that bundles general liability insurance with other types of coverages, such as contingent cargo and errors and omissions (“E&O,” which covers defense and indemnity costs from the broker’s alleged negligence in brokering the shipment—for example, if double brokering occurs).
Cyber Insurance. All parties in the supply chain should consider obtaining cyber insurance. As noted above, thieves are increasingly technologically savvy, using AI and other digital tools to impersonate shippers and brokers. Cyber insurance may cover costs incurred when thieves access credentials or digital information and then use that information to scam third parties. It may also cover costs to expel intruders from company computer systems or pay to recover data ransomed by thieves. Cyber policies are often custom and negotiated on a policyholder-by-policyholder basis, so companies should carefully review their offers of coverage and potential exclusions before buying a policy.
Conclusion
Events like cargo-theft—which are on the rise—can cause significant lost profits, extra expenses, and supply-chain disruptions. Commercial policyholders whose operations involve cargo should ensure they can protect against these events and resultant losses. Policyholders should carefully review their existing insurance policies to determine which coverages exist, and whether additional or modified terms are warranted in the event of a cargo-related loss.
Basic but Important Considerations for Corporations—Both For-Profit and Non-Profit: Understanding Director and Officer Liability Insurance
Insurance commonly referred to in the insurance industry as “directors and officers” or “D&O” insurance is insurance that is payable to directors and officers of a corporation, or to the corporation itself, as indemnification for losses or the advancement of defense costs in the event the corporation suffers a loss as a result of legal action brought for alleged wrongful acts by the corporation’s directors and/or officers that were taken in their capacity as directors and/or officers.
Depending on the scope of the policy, the policy may also provide coverage for members of corporate committees or defined classes of volunteers.
Who Needs D&O Insurance Anyway
Corporations do! Whether for-profit or non-profit, corporations act through their boards of directors and officers, whose decisions are subject to scrutiny and second-guessing by the corporation’s stockholders. As a result, the corporation’s directors and officers become targets of lawsuits brought by the corporation’s stockholders. Understanding this practical reality, a critical and recommended step that any corporation can take in an effort to protect its board members and officers, and in doing so, itself, is to obtain D&O insurance.
Non-profit corporations occasionally question whether they need D&O coverage given the additional protections provided by Chapter 55A. However, the additional protection afforded to non-profit officers and directors does not shield them from defending against D&O claims. D&O coverage offers great value to non-profits.
Purchasing Power
Both the North Carolina Business Corporation Act, which can be found in Chapter 55 of the North Carolina General Statutes, and the North Carolina Nonprofit Corporation Act, which can be found in Chapter 55A of the North Carolina General Statutes, specifically authorize—but does not require—for-profit and non-profit corporations, respectively, to purchase insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation (and in the case of a non-profit corporation, also a committee member) to protect against liability asserted against, or incurred by, the individual in the individual’s official capacity or arising from his/her status as a representative of the corporation.
Considerations to Bear in Mind When Shopping for D&O Insurance
Corporations in the market for D&O insurance do themselves a service by being mindful that not all insurance policies are created equal, and not all policies cover every type of risk or need. Typically, the broader the coverage, the better protection the policy will afford the corporation’s directors and officers. However, carefully considering all options available and discussing the businesses’ needs and nuances with the corporation’s insurance broker are important steps for the corporation to take when obtaining D&O (and any other type of) insurance.
While not an exhaustive list, the following are important questions to ask when shopping for D&O insurance:
Does the policy’s definition of “insured” extend beyond the actual directors and officers (i.e., does it include, where applicable, committee members and desired classes of volunteers)?
Does the definition of “insured” protect past as well as present D&Os?
Does the policy provide a defense to claims and lawsuits (as opposed to just reimbursing for a judgment if one is eventually entered)? Even a successful defense can result in large attorney and court costs.
Does the policy cover against defamation (i.e., libel and slander) claims?
Does the policy provide a defense against claims seeking non-monetary remedies?
A non-monetary, or non-pecuniary, claim is one in which the plaintiff is not seeking money but instead asks the court for a declaration that the director or officer has acted wrongly (i.e., a suit for not fulfilling their mission or challenging an unpopular decision of the directors or an officer).
Does the policy cover derivative lawsuits?
A derivative action is a lawsuit brought by the corporation’s stockholders “in the name” of the corporation.
Does the policy defend against a claim or lawsuit for failure to maintain or obtain insurance?
Does the policy provide coverage for decisions directors/officers make in accepting or rejecting contracts?
Does the policy provide coverage for an investigation of a claim not yet in suit?
A shareholder accuses the director/officer of misconduct and demands an investigation, prior to filing a lawsuit.
Does the insurer provide the nonprofit corporation with risk management advice/training?
D&O Coverage as an Endorsed v. Standalone Insurance Policy
For many corporations, insurance premiums represent a significant annual cost of doing business. The list of typical policies/coverage types carried is not short and tends to grow rather than shrink, with many businesses carrying commercial general liability, commercial property, commercial auto, worker’s compensation, and employer’s practices liability coverages. In recent years, additional coverages have increasingly become more prevalent as typical coverages to see in place, such as crime, fidelity, and cyber insurance.
With the growing expense insurance premiums often represent for businesses, it is not uncommon for companies to source ways to lessen their insurance expense burden. Some do so by adding additional coverages as endorsements (i.e., provisions that add to, remove from, or otherwise alter a policy’s original scope of coverage) to their existing liability or businessowners’ policies as opposed to procuring a standalone D&O policy.
A downside of an endorsed policy is that too many claims against an endorsed policy can cause the premiums of the liability/property casualty coverage to increase, and sometimes dramatically, or can impact the policy’s renewal. There are other potential downsides to endorsed policies as well, to discuss with the corporation’s broker, like how aggregate limits can come into play when there is more than one claim or more than one insured involved in a claim under the same policy in a policy period.
While a standalone policy could be more expensive than an endorsed policy, standalone policies often provide better coverage, which can save money in the long run.
Characteristics of D&O Insurance to Keep in Mind
D&O insurance has several characteristics worth keeping in mind, as the application of these characteristics can have a significant impact on whether, and/or to what extent, there is coverage for a given claim/suit that has been brought and tendered to the D&O carrier for coverage. While not exclusive to D&O policies, these features tend to either not appear or to be less common in a number of the coverages that many businesses may be accustomed to interacting with to a higher degree of frequency, like their commercial general liability and commercial property coverages, for example. This article highlights but two of these characteristics.
First, D&O policies are typically either “claims-made” or “claims-made and reported” policies, meaning to trigger coverage the claim has to have been made during the policy period (claims-made) or both made and reported during the policy period (claims-made and reported). If these timing requirements, which are strictly interpreted and enforced, are not satisfied, there will be no coverage.
Second, D&O policies are generally “eroding limits” policies, meaning amounts spent on defending a covered claim/lawsuit reduce the policy’s available limit. For example, if the policy has a $1,000,000.00 limit applicable to the claim/suit, and $250,000.00 is spent on legal fees and expenses defending the case, the most the D&O insurer would ever be responsible to pay out under the policy would be $750,000.00 for indemnity, and that assumes there is full indemnity coverage. Of course, any applicable deductible/retention would need to be satisfied by the insured. Eroding limits can be a significant issue with the rising costs associated with litigating claims, and where multiple insureds may need to be defended by different sets of attorneys, should there be potential conflicts of interest that require engaging more than one set of legal counsel under the policy to defend those insureds.
One final note regarding D&O policies is that an insured generally has more freedom to select their counsel than under other types of coverage where the insurer assigns the matter to panel counsel without input from the insured.
Conclusion
Having proper D&O insurance coverage in place is an important risk management tool that corporations should secure and seek to tailor to meet their needs.
Auto Insurer Settles With New York AG Over Insurance Application Platform Security Issues
The New York Attorney General recently entered into an assurance of discontinuance with Root Insurance Company following a 2021 data incident. According to the AG, the threat actors obtained people’s drivers’ license numbers by exploiting a website error on its car insurance application portal. Namely, upon entering a publicly available name and address, the site would generate a prefilled PDF that included that person’s drivers’ license number, which numbers were pulled from third-party databases. Threat actors used an automated bot to exploit this vulnerability, and gathered drivers’ license numbers of 44,449 New Yorkers (more than half of the total 72,852 people impacted). The threat actors then used many of these people’s information to file fake unemployment claims with New York, which according to the AG, was the goal of the attack.
According to the AG, the company was not aware of the design feature issue. Instead, the situation was discovered when company personnel noticed unusual application activity. Upon discovery, the company took measures to address the issue, including using CAPTCHA to ensure the application was made by a human, and masking the license numbers. The AG nevertheless brought this case, claiming that the incident occurred because the company did not have appropriate risk assessment measures in place to identify the design error. It also should have, according to the AG, used measures like masking sensitive data and detecting and deterring automated traffic. These failures, it alleged, constituted a violation of the state’s data security law, which requires that companies develop, implement and maintain “reasonable safeguards” to protect covered information. This information includes names and drivers’ license numbers.
Similar to past settlements, the AG required that the company implement of additional security measures (see, for example, our posts about settlements with a social media app last month, ENT in December 2024, a biotech company in mid-2024, and Herff Jones in 2022). Included in these are developing and maintaining a written information security program, designating a chief information security officer to oversee the program, engaging in network monitoring and employing multi-factor authentication, and maintaining compliance records for six years that the attorney general can access. The company has also agreed, among other things, to develop a data inventory, have a written process to ensure secure software development processes, to monitor network activity, and to promptly investigate suspicious activity. The company has also agreed to pay $975,000.
Putting it Into Practice: This settlement outlines expectations from the New York attorney general of the proactive measures companies it believes companies should have in place if handling sensitive personal information. As companies launch new platforms, or revamp existing ones, this is a reminder to think not only about platforms where they collect personal information directly from individuals, but also where that information might be gathered from third party sources.
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FDIC Updates Crypto Guidance, Removes Pre-Approval Requirement for Banks
On March 28, the FDIC issued updated guidance clarifying the process for FDIC-supervised institutions to engage in crypto-related activities. The guidance rescinds and replaces prior instructions issued in 2022 and makes clear that banks no longer need to seek prior FDIC approval before participating in permissible crypto activities.
Under the revised policy, institutions may pursue crypto activities that are legally permissible and conducted in a safe and sound manner. The guidance also emphasizes the need for robust risk management and compliance with applicable laws and regulations. Covered crypto activities include, but are not limited to:
Acting as custodians of crypto assets;
Maintaining stablecoin reserves on behalf of issuers;
Issuing crypto and other digital assets;
Acting as market makers, or as exchange or redemption agents for transactions involving crypto assets;
Participating in blockchain-based settlement or payment systems or performing node functions; and
Engaging in related activities such as acting as a finder or providing lending services.
The FDIC emphasized that institutions must consider risks related to market volatility, cybersecurity, liquidity, consumer protection, and anti-money laundering compliance. The agency also indicated it will issue further guidance and work with other banking regulators to replace interagency statements issued in early 2023 addressing crypto-asset risks and liquidity vulnerabilities.
Putting It Into Practice: By removing the prior notice requirement, the FDIC has signaled a more open approach to regulated banks engaging in digital asset activities. The move follows similar developments from other federal regulators with respect to crypto oversight (previously discussed here, here, and here). As federal regulators continue to move toward the integration of digital assets into the banking system and traditional financial services, banks should carefully monitor these developments as they unfold.
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Productively Pursuing and Maximizing Insurance Claims
Maximizing insurance claims starts with locating and notifying all potentially responsive coverages when facing a loss or claim. This article offers a 101 about what types of maritime-, transportation-, and shipping-related events insurance may cover and how to go about productively pursuing an insurance recovery when disaster strikes—even if your insurance company says “no.”
Two Overarching Types of Insurance
Without getting too far into the weeds of the many different types of insurance coverage available to policyholders, think about them as falling into one of these two broad buckets: (1) first-party insurance coverage, and (2) third-party insurance coverage.
First-party insurance describes coverages that respond to a policyholder’s losses, which do not involve any claim asserted against the policyholder (e.g., you, your business, your employer). First-party property policies such as marine property insurance and bumbershoot property insurance, for example, typically insure against loss of, or damage to, the policyholder’s property (e.g., structures, terminals (including piers, breasting dolphins, storage tanks, etc.), electronic equipment), as well as coverage for lost business revenue. These first-party property policies frequently are “all risk” policies, meaning they cover the policyholder’s losses unless caused by an expressly excluded peril that the insurer can prove (e.g., ordinary wear and tear). Property policies often include business interruption coverage and coverage for inventory or goods lost or damaged in transit. Other types of first-party policies relevant to the maritime industry include:
Inland Marine Insurance that protects movable business property for policyholders that aren’t on the seas, including trucking and construction companies, property developers, and contractors, for example;
Marine Hull and Machinery Insurance that protects from physical damage to ships, vessels, and their machinery on the water, at the dock, and under construction for most sizes of commercial vessels including tugs, barges, dredges, and passenger vessels;
Marine Cargo Insurance that protects goods while in transit, across various modes of transportation, and while in storage; and
Political Risk Insurance that protects against losses caused by “political” events in a foreign country.
Third-party insurance coverage sometimes is called liability insurance. That’s because it includes policies that provide insurance for the policyholder’s liability to third parties alleging damages. Perhaps the most well-known form of third-party insurance for policyholders in the maritime industry is maritime general liability insurance (and excess bumbershoot liability insurance), which provides broad coverage for allegations asserted against the policyholder for bodily injury, property damage, and product and completed operation for marine risks. Other types of potentially relevant third-party policies include:
Cargo Owner’s Liability Insurance to protect against the risks for property damage, bodily injury to third parties, and as a result of pollution from a cargo event in ocean transit;
Shipowners’ Liability (“SOL”) Insurance for a shipowner’s exposure arising from an alleged breach of a contract of carriage and certain liabilities that fall outside of the Protection and Indemnity (“P&I”) Club’s standard P&I rules;
Directors and Officers (“D&O”) Insurance that protects companies and their corporate officers and directors against claims alleging wrongful acts and may cover legal fees for responding to subpoenas and search warrants; and
Pollution Liability Insurance to supplement or bolster pollution coverage that may exist in other marine liability (and property) insurance; some policyholders have standalone pollution liability insurance to broadly cover allegations of property damage from an actual or threatened pollution incident (spill) including fines, penalties, criminal defense, and more.
A single event can implicate several types of coverage found in multiple different insurance policies. For example, a vessel colliding with a terminal may involve loss to:
the terminal’s structures and equipment covered by a marine property insurance policy;
the terminal owner’s profits covered by business interruption insurance (and other time element coverages);
claims by third parties (adjacent property owners or the government, for example) alleging property damage from pollutants released from the vessel or terminal’s structures that are covered by marine general liability insurance and pollution liability insurance;
claims by shareholders alleging malfeasance in allowing the collision to happen (depending on which entity was responsible for the tugs, for example) that are covered by D&O insurance; and
this does not begin to untangle the myriad insurance implications when analyzing claims against the vessel and potential subrogation claims.
It’s important to look for responsive coverage from a company’s entire insurance portfolio when facing a loss or claim.
Three Things to Keep in Mind When Pursuing Insurance
Many policyholders don’t productively or efficiently pursue all of the insurance that is provided by their insurance policies. Here are three considerations when filing claims:
Be prompt. One of the most important first steps in pursuing insurance is to make sure that notice of a loss, claim, or occurrence is prompt and otherwise meets the requirements of the insurance policy.
Be thorough. It is important to look at all potentially responsive coverages that may be located in several different insurance policies with varying notice provisions. The general rule is that notices should be given under all possible policies that might be triggered—regardless of type, year, or layer. The old adage “better safe than sorry” never rings more true than when it comes to a company giving notice to its insurers.
Be diligent. As already stressed, the notice provisions in insurance policies also may specify how, and in what form, notice should be given. The policies typically identify to whom notice should be addressed, and request a statement regarding all the particulars of the underlying claims.
After a loss or claim has occurred, the policyholder should present its claim to the insurer in a way that will maximize coverage. Many legal issues, such as trigger of coverage, number of occurrences, and allocation, can significantly affect the existence or amount of an insurance recovery. Moreover, certain causes of loss or liability may be excluded from coverage, while others are not. These are complex issues that vary by state law and require a high level of legal sophistication to be understood and applied to the facts of a particular case.
The insurer may respond to its policyholder’s notice letter with a request for information. Such requests may seek to have the policyholder characterize its claim in a way that will limit coverage. Before the policyholder engages in any such communications with its insurance company, the policyholder should know what legal issues are likely to arise, and how best to describe its claim to maximize coverage.
It’s important to get the little things right from the beginning to avoid being blindsided and enhance the likelihood of succeeding at the finish line.
Banking Agencies Begin Publishing Updated Crypto Guidance
On March 28, the Federal Deposit Insurance Corporation (FDIC) rescinded Biden administration guidance1 related to state-chartered banks’ participation in “crypto-related activities” and published a new interpretation of the scope of permissible crypto activity for the insured depository institutions for which it is the primary regulator (the Crypto Letter).2 As discussed below, while similar to guidance issued by the Office of the Comptroller of the Currency (OCC) on March 7 with respect to national banks and federal savings banks,3 the Crypto Letter reflects a seismic shift in the scope of enumerated crypto-related activities permitted to state-chartered banks across the United States, assuming that such activities are performed in a manner that is otherwise consistent with bank regulation.
The Crypto Letter
Notably, the Crypto Letter defines “crypto-related activities” to include “acting as crypto-asset custodians; maintaining stablecoin reserves; issuing crypto and other digital assets; acting as market makers or exchange or redemption agents; participating in blockchain- and distributed ledger-based settlement or payment systems, including performing node functions; as well as related activities such as finder activities and lending.” Some of these powers are consistent with what the banking industry believed likely to be newly permitted by the Trump administration, such as acting as a cryptoasset custodian.
Custodial powers have long been permitted to insured depository institutions that satisfy certain statutory and procedural requirements. Other powers enumerated in the definition, however, such as issuing crypto and other digital assets, represent a breadth of authority that had not been widely anticipated in the banking industry given that such activities provide the potential for FDIC-supervised institutions to publicly offer payment mechanisms that could, potentially, compete with the US dollar. For example, if Bank of X issues a hypothetical “X coin” that can be used at merchants much like a credit or debit card (whether in an open-loop or closed-loop environment), such coin will function as a medium of exchange that could either be fully backed by US dollars (i.e., a payment stablecoin), or potentially backed by other assets, introducing a new form of privately issued currency into the payment ecosystem.
It is worth noting that Congress is currently considering several bills on payment stablecoins. These bills would create regulatory pathways for banks to issue payment stablecoins under appropriate regulatory oversight.
However, the Crypto Letter further provides that traditional concepts underpinning bank supervision continue to apply to a bank that pursues participation in a crypto-related activity: namely, such activities must be performed in a manner that is consistent with safety and soundness principles as well as applicable laws and regulations. While the Crypto Letter is clear that prior approval from the FDIC is not required to engage in a crypto-related activity, before undertaking such activities, the insured depository institution must consider the existing risk rubric that governs all bank activities, including, but not limited to, “market and liquidity risk; operational and cybersecurity risks; consumer protection requirements; and anti-money laundering requirements.”
Finally, the Crypto Letter notes that new interagency guidance related to crypto activities by insured depository institutions will be forthcoming from the federal banking regulators with respect to prior guidance issued by the Biden administration. This is consistent with action taken by the OCC in its publication of the OCC Crypto Letter that rescinded prior OCC guidance with respect to crypto activity and affirmed that national banks and federal savings banks may engage in cryptoasset custody, distributed ledger and stablecoin activities.
What This Means
While the Crypto Letter reflects a policy to permit broad participation in the crypto market by FDIC-supervised banks, there is no expectation that such banks will immediately enter the market with crypto-related products and services. Rather, policies, procedures and testing methodologies must be created to reflect safe and sound banking principles. Clearly, certain activities that “mirror” products currently offered by insured depository institutions, such as the custodying of crypto assets, will be the first activities retail and commercial customers are likely to see, given that the pivot to offering this type of additional fiduciary activity will not present significant operational and procedural hurdles assuming an institution currently offers such services. Lending against the value of a customer’s crypto likely falls within the same analytical framework: banks have long loaned against the value of assets, including assets whose values fluctuate in the market.
Other enumerated activities, however, will require a longer “lead time” before they are brought to the market. In particular, building a blockchain-based payment system will require significant investment and effort given the multiple layers between consumer/customer, merchant, and payment system. For example, in order for a consumer to use crypto held at Bank X to buy coffee in the morning from the merchant in the office lobby, Bank X must build the technical infrastructure to connect its banking systems with blockchain networks. This infrastructure will need to allow the consumer to initiate payments, enable the bank to verify balances and process transfers and ensure that such crypto can be moved from the customer’s account held at Bank X to the merchant’s account held at Bank Y.
1 The Biden administration guidance requiring prior FDIC notification before engaging in crypto-related activities was set forth at FDIC FIL-16-2022.
2 FDIC Clarifies Process for Banks to Engage in Crypto-Related Activities, March 28, 2025, available at https://www.fdic.gov/news/financial-institution-letters/2025/fdic-clarifies-process-banks-engage-crypto-related?source=govdelivery&utm_medium=email&utm_source=govdelivery
3 OCC Letter Addressing Certain Crypto-Asset Activities, March 7, 2025, available at https://www.occ.treas.gov/topics/charters-and-licensing/interpretations-and-actions/2025/int1183.pdf (the “OCC Crypto Letter”).