Telehealth in Limbo: Government Shutdown Cuts Off Medicare Flexibilities
Key Takeaways
Medicare telehealth flexibilities put in place as a result of the COVID-19 Public Health Emergency (PHE) expired on September 30, 2025, reverting telehealth policy to pre-pandemic coverage criteria.
CMS directed Medicare Administrative Contractors (MACs) to hold claims for 10 days, presumably to allow Congress time to pass legislation extending PHE related telehealth coverage flexibilities.
Until Congress acts, Medicare telehealth claims are at risk and may be denied under current, more restrictive coverage criteria.
What Telehealth Claims are at Risk for Non-Coverage?
As of Oct. 1, 2025, all Medicare telehealth services will need to meet statutory coverage criteria that existed prior to the PHE. For most providers, this means that Medicare telehealth services must be furnished as follows:
Originating Site Geographic Limitations: Patients must be located in a rural area, including Health Professional Shortage Areas (HPSA), outside of a Metropolitan Statistical Area (MSA) or in a telehealth demonstration project area.
Originating Site Limitations: Most telehealth services will have to be provided at a designated originating site, like a physician office or hospital. Patient homes will no longer qualify as a telehealth site, unless an exception applies (e.g., end-stage renal disease, mobile stroke units and behavioral health).
Provider Distant Site Locations: Federally Qualified Health Centers (FQHC) and Rural Health Clinics (RHCs) will no longer qualify as a distant site location for telehealth services.
Eligible Provider Limitations: Physical therapists, occupational therapists, speech language pathologists and audiologists will no longer be eligible to furnish Medicare-covered telehealth services.
Mental Health: Certain mental health services furnished via telehealth will require an in-person visit within six months of initiating telehealth and annually thereafter.
Action Items for Providers:
With key Medicare telehealth flexibilities now expired and legislative action still pending, here are five proactive steps health care providers can take to minimize disruptions:
Review and adjust telehealth and billing practices. Assess telehealth services to ensure compliance with pre-pandemic Medicare statutes, including reviewing eligible providers, covered services, geographic limitations and originating site requirements.
Consider issuing patients an “Advanced Beneficiary Notice” (ABN) prior to the next telehealth visit. If Medicare denies claims due to non-compliance with the statutory requirements after the 10-day hold, the ABN will allow providers to seek compensation from patients directly.
Plan for claims delays and potential denials. With CMS directing a 10-day claims hold and uncertainty around legislative inaction, providers should anticipate delays in reimbursement and have processes in place to monitor, track and follow-up on affected claims.
Monitor congressional action for flexibility extensions. Stay updated on congressional actions regarding the extension or permanent establishment of telehealth flexibilities. Extension of telehealth flexibilities is unlikely until Congress agrees on terms for funding the government.
Evaluate in-person visit options. Evaluate possible options for in-person visits where statutory requirements cannot be met.
This Week in 340B: September 23 – 29, 2025
Issues at Stake: Contract Pharmacy; HRSA Audit Process; Other
In two cases challenging a state law governing contract pharmacy arrangements in Nebraska, the defendant filed a supplemental reply to plaintiff’s response in opposition to defendant’s motion to dismiss.
In a case challenging a state law governing contract pharmacy arrangements in Missouri, amici filed a supplemental brief in support of defendants’ motion to dismiss, defendants filed a reply memorandum in support of defendants’ motion to dismiss, and proposed intervenors filed reply suggestions in support of proposed intervenors’ motion to intervene.
In three cases challenging a state law governing contract pharmacy arrangements in Maine, one plaintiff filed a motion for preliminary injunction and in two cases, the court denied each plaintiff’s motion for preliminary injunction and each plaintiff appealed the decision.
In one case challenging a state law governing contract pharmacy arrangements in Colorado, the defendant filed a motion to dismiss.
In one case challenging a state law governing contract pharmacy arrangements in Rhode Island, the plaintiff filed a reply in support of its motion for preliminary injunction.
In one case challenging a state law governing contract pharmacy arrangements in Oklahoma, the plaintiff filed an opposition to defendant’s motion for judgment on the pleadings.
In two cases challenging a state law governing contract pharmacy arrangements in Utah, the defendants filed notices of supplemental authority.
In one case challenging a state law governing contract pharmacy arrangements in Utah, the plaintiff filed a response to the defendants’ notice of supplemental authority.
In four cases challenging the HRSA audit process, the parties voluntarily dismissed the case.
In one case by a covered entity against an insurance company alleging breach of contract, the insurance company filed a reply brief in further support of their motion to dismiss.
In one case by a covered entity against an insurance company alleging breach of contract, the insurance company filed an answer to the covered entity’s complaint.
Understanding Truck Accidents in Michigan
A crash involving a large commercial truck and a smaller vehicle can have serious, life-changing consequences. In Michigan, truck accidents can be complex, with multiple parties involved, unique rules, and the no-fault insurance system. Below is what you need to know if you or a loved one is involved in this type of accident.
Common Causes of Truck Accidents
Commercial trucks include vehicles that transport goods, pull trailers, or even carry passengers. Due to their size and weight, the damage can be far more severe when crashes occur. Injuries are often serious, ranging from brain and spinal cord damage to emotional trauma or even death.
Many accidents happen because of driver or company negligence, such as:
Fatigue or driving too many hours
Overloaded or improperly secured cargo
Poor maintenance or defective parts
Speeding, distraction, or reckless driving
Tire blowouts or parts flying off the truck
Who Can Be Held Responsible
If you are hit by a truck, the truck driver can be held accountable if the evidence shows they were negligent, careless, or broke traffic laws.
Trucking companies are typically liable as well for poor training, unsafe schedules, or failing to maintain their vehicles. Under Michigan law, a trucking company can be held responsible for the negligence of its drivers.
In some crashes, the owner of the trailer can also be sued. Since multiple parties may share responsibility, a detailed investigation is crucial.
Michigan’s No-Fault Insurance Benefits
Michigan’s no-fault insurance system provides certain benefits to anyone injured in a car or truck accident, regardless of who was at fault. These benefits include coverage for medical bills, lost wages, assistance with household chores, gas mileage for doctor appointments, attendant care, and even home or vehicle modifications if needed.
What To Do After a Truck Accident
Taking the right steps following a truck accident can protect your health and your claim:
Seek medical care immediately.
Call 911 and report the accident to law enforcement.
Take photos of the scene, gather contact information from any eyewitnesses, and exchange information with the other driver.
Keep all records, bills, and paperwork.
Notify your insurance company of the accident.
Speak with an experienced truck accident lawyer before talking with the trucking company’s insurance. A lawyer can investigate the crash and gather evidence to help prove who is at fault.
In Michigan, you generally have three years from the date of the accident to file a lawsuit, so acting quickly is important.
Conclusion
Truck accidents can be overwhelming, and navigating the legal process may feel even more daunting. Any type of truck accident can have long-lasting effects on your life. Speaking with an attorney can help you understand your rights and guide you through the legal process.
If you or a loved one has been injured in a truck accident in Michigan, contact us today for a free consultation to review your options.
Published Decision Rejects Brandt Fee Claim In “Bad Faith” Suit Seeking Payment of Judgment in Excess of Policy Limits
In Brandt v. Superior Court, 37 Cal.3d 813, 817 (1985), the California Supreme Court recognized an insured’s right to seek recovery of attorneys’ fees incurred to compel the payment of policy benefits unreasonably withheld by the insurer. As the Court explained, the recovery of Brandt fees is predicated on proof of two elements: (1) the insurer’s tortious or unreasonable withholding of policy benefits owed to the insured; and (2) reasonable attorneys’ fees incurred by the insured to compel the payment of the benefits due under the insurance policy.
Whether a policyholder can recover Brandt fees in cases alleging the insurer unreasonably failed to accept a policy limit demand resulting in entry of an excess of policy limits judgment against the insured – so-called “bad faith failure-to-settle claims” – has been a hotly contested issue for decades. Plaintiffs have argued that even if the insurer paid its policy limits in partial satisfaction of the excess judgment, the plaintiff can still claim Brandt fees for efforts to obtain payment of the judgment above the policy limit. Insurers, on the other hand, have argued that once an insurer has indemnified up to its policy limits, any entitlement to Brandt fees is cut off. Despite the frequency with which this issue has arisen, no published decision in California directly addressed it. Until now.
In Allstate Northbrook Indemnity Company v. Tran, — F.Supp.3d –, 2025 WL 2610048 (E.D. Cal. Sept. 10, 2025), the District Court directly addressed the issue and ruled in favor of the insurer. There, Allstate declined a $250,000 policy limit demand following a car accident caused by its insured. Thereafter, the third-party claimant proceeded to trial and obtained a judgment against the insured for $3.8 million. Allstate paid its policy limit in partial satisfaction of the judgment.
Anticipating a “bad faith failure-to-settle” claim, Allstate brought a declaratory relief action against the insured and the third-party claimant, seeking a determination that it did not breach the duty to settle and had no obligation to pay the excess amount of the judgment. The insured and third-party claimant responded with a counterclaim seeking to recover the entire judgment. They also claimed a right to Brandt fees, arguing that “policy benefits” include nonmonetary benefits such as protection from an excess judgment. Thus, they argued, where an insurer refuses to settle for the policy limit, amounts owed under the policy include the amount of a resulting judgment above the policy limit.
Allstate moved for judgment on the pleadings as to the Brandt fee claim, and the District Court granted the motion. The District Court relied on “clear binding authority” limiting the recovery of Brandt fees to those fees incurred to obtain policy benefits and establishing that “attorney fees expended to obtain damages exceeding the policy limit or to recover other types of damages are not recoverable as Brandt fees.” Pursuant to this authority, the court held, a bad faith claim seeking recovery of the amount of an excess judgment does not seek to recover “policy benefits” and therefore does not support a Brandt fee claim.
The District Court’s published decision brings clarity to an issue in dispute between policyholders and insurers. It helps to solidify that a Brandt fee recovery must be tethered to the recovery of policy benefits, and does not include efforts to recover other damages such as the amount of a judgment in excess of policy limits.
Uber’s Third-Party Insurance Requirements Under Nevada Law: A Thorough Examination
The arrival of transportation network companies (TNCs) like Uber revolutionized the face of personal transport, even in Nevada. Uber, in contrast to the conventional taxi operators and hire carriers, operates a new kind of business model where independent contractors (drivers) and passengers are brought together through an online platform. This innovation, as much as it is set to revolutionize the business, needs a certain regulatory control in a bid to offer public safety, financial sobriety, and justice.
In Nevada, Uber’s third-party insurance requirements are primarily governed by Nevada Revised Statutes (NRS) Chapter 706A, and supplemented by additional provisions in NRS Chapter 706 (Motor Carriers) and NRS Chapter 690B (Insurance). Uber’s mandated insurance under Nevada law is discussed herein against the backdrop of requirements for taxi operators and common carriers and uninsured/underinsured motorist (UM/UIM) coverage.
Uber as a Transportation Network Company Under Nevada Law
According to NRS 706A.050, a TNC is “an entity that uses a digital network or software application service to connect a passenger to a driver…who can provide transportation services.” Under Nevada law, TNCs are not common carriers, unlike traditional common carriers or taxicab operators, which affects their insurance coverage. This classification is reflective of the business model for Uber, where drivers use their own vehicles and are independent contractors, rather than employees, a distinction from the tightly regulated taxi industry.
NRS 706A does not require Uber to seek a certificate of public convenience and necessity, which the common carriers are required to seek under NRS 706.386. Uber is also not subject to the same regulatory requirements that taxi businesses are through NRS 706.8827. Instead, Nevada law places unique insurance requirements on TNCs as a means of balancing innovation and public interest through offering financial responsibility at various points in their business.
Uber’s Third-Party Insurance Requirements Under NRS 690B.470
NRS 690B.470 is the primary statute setting Nevada insurance requirements for Uber, mandating TNCs to maintain continuous insurance coverage during the period in which a driver is logged into the TNC’s network and available to pick up passengers or otherwise provide transportation services. The statute splits Uber’s business into two material phases, each phase with its own insurance requirements:
Phase 1: Logged In but Not Providing Transportation ServicesAs long as an Uber driver is logged into the company’s app and is ready to pick up a ride request but has not yet taken one, NRS 690B.470(1)(b) mandates Uber to maintain liability insurance of at least $50,000 for each person for bodily injury or death, $100,000 per accident for bodily injury or death, and $25,000 for property damage. This coverage is contingent liability, bridging the gap between the driver’s own automobile insurance coverage where such is lacking or insufficient.
Phases 2 and 3: Providing Transportation ServicesAfter a driver has accepted a ride request (Phase 2) or is in the process of driving a passenger to a destination (Phase 3), NRS 690B.470(1)(a) requires Uber to provide much more coverage: at least $1,500,000 of bodily injury, death, or damage to property per occurrence. This provides strong protection to drivers, motorists, and pedestrians who might be injured by the conduct of an Uber driver while in transit.
Uber accomplishes this through possessing an insurance business policy. As per Uber’s official insurance documents, the company provides $50,000/$100,000/$25,000 of liability coverage during Phase 1 and $1,000,000 of liability coverage during Phases 2 and 3, with additional coverage to satisfy Nevada’s $1.5 million requirement. Importantly, Uber’s policy is primary during these time periods, meaning it is given priority over the driver’s personal policy, minimizing any gaps in coverage that would leave victims uncompensated.
Comparison to Common Carrier Insurance Requirements Under NRS Chapter 706
Common carriers, as defined in NRS 706.036, are entities that provide passenger or property transport services for hire, either on fixed routes or on demand. This includes services such as buses but excludes TNCs like Uber, which operate differently. NRS 706.291 mandates that common carriers maintain liability insurance as prescribed by the Nevada Transportation Authority (NTA), which, in conjunction with the Department of Motor Vehicles (DMV), sets specific limits and coverage types through regulation.
While the particular minimums of coverage may fluctuate according to NTA guidelines, common carriers generally have higher minimum requirements than TNCs during off-peak hours, based on their considerable public service function. For instance, public carriers are mandated to maintain ongoing coverage with their certificate of public convenience and necessity, which is more than the $50,000/$100,000/$25,000 requirements Uber will have during Phase 1. However, where there is active transportation (like Uber’s Phases 2 and 3), $1.5 million coverage in NRS 690B.470 equates to TNCs with common carrier levels of coverage, with the same protection afforded to passengers.
Taxi Operators’ Insurance Requirements Under NRS Chapter 706
Nevada taxicab operators, as “taxicab motor carriers” under NRS 706.126, are governed by a more traditional regime. They are subject to the licensure and insurance regime of the Nevada Taxicab Authority, particularly in those counties with a population over 700,000, such as Clark County (Las Vegas). Cab drivers are required under NRS 706.8828 to have liability insurance with a minimum coverage limit set by the Taxicab Authority. Those limits are normally higher than for private drivers, and cab companies usually have policies with a minimum limit of $100,000 or more per incident.
Compared to Uber, cab companies are obligated to maintain continuous coverage under their certificate of public convenience and necessity, so their insurance obligations are higher off-peak. Yet, Uber’s demand for $1.5 million protection while in service surpasses the standard taxi insurance protection while transporting, highlighting the rideshare culture’s focus on ensuring safety while transporting passengers.
Uninsured/Underinsured Motorist (UM/UIM) Coverage: Requirements and Implications
UM/UIM coverage insures a driver if he or she is physically harmed by an uninsured motorist or by a motorist with inadequate insurance to cover damages. Nevada UM/UIM coverage is governed by NRS 690B.020 and NRS 687B.145, which partially overlap with the insurance mandates for TNCs, common carriers, and taxi operators.
General UM/UIM RequirementsUnder NRS 690B.020, insurers are required to offer UM/UIM coverage to all policyholders at limits identical to their bodily injury liability coverage. Insurers are required to extend this coverage to the policy limit in fault crashes when this coverage is rejected.
UM/UIM for Uber Drivers and PassengersAlthough Uber no longer offers UM/UIM coverage for TNC driving, the company formerly provided $1 million of UM/UIM coverage. Since Nevada law doesn’t mandate this coverage for TNCs, Uber’s policy only covers liability coverage, with UM/UIM protection being the responsibility of the driver’s or passenger’s personal insurance. This gap leaves Uber drivers and passengers vulnerable, making it essential to consult with rideshare accident lawyers for protection and recovery options, particularly in a state with such a high rate of uninsured drivers.
UM/UIM for Common Carriers and Taxi OperatorsCommon carriers and taxi companies are not generally required to provide UM/UIM coverage under NRS 706.291 or NRS 706.8828, but it is generally included in their commercial policies. This provides greater protection for the passengers compared to Uber, where the liability remains with the driver or passenger themselves.
Practical Implications and Gaps in Coverage
Nevada’s multi-layer insurance system for Uber is a good balance of innovation and public protection. While Uber’s $1.5 million coverage when on duty is more than that of the average taxi company, the lack of mandatory UM/UIM coverage creates an enormous gap, especially with Nevada’s high percentage of uninsured drivers (an Insurance Research Council 2023 report estimates 10-12% of Nevadans are uninsured). The gap is also further aggravated by coverage in circumstances other than TNC use under personal insurance, whereby the Uber driver is exposed in Phase 1 if the personal insurer does not provide coverage.
Conclusion
Uber’s Nevada law requirement for third-party insurance offers very broad coverage during active service with a minimum $50,000/$100,000/$25,000 liability limit for Phases 1 and $1.5 million for Phases 2 and 3. The absence of mandatory UM/UIM coverage is a significant deficiency compared to the coverage offered by taxi companies and common carriers. Drivers and riders for Uber also need to purchase additional UM/UIM policies, particularly with regard to Nevada’s high number of uninsured motorists on the road.
Endnotes:
Nevada Revised Statutes, Chapter 706A, Section 706A.050 (defining TNCs).↩
Nevada Revised Statutes, Chapter 690B, Section 690B.470 (TNC insurance requirements).↩
Nevada Revised Statutes, Chapter 706, Section 706.036 (defining common carriers).↩
Nevada Revised Statutes, Chapter 706, Section 706.291 (common carrier insurance).↩
Nevada Revised Statutes, Chapter 706, Section 706.8828 (taxi operator insurance).↩
Nevada Revised Statutes, Chapter 690B, Section 690B.020 (UM/UIM offer requirement).↩
Nevada Revised Statutes, Chapter 687B, Section 687B.145 (stacking provisions).↩
Nevada Revised Statutes, Chapter 485, Section 485.185 (minimum liability limits).↩
Uber, “Insurance,” https://www.uber.com/drive/insurance/ (accessed April 7, 2025).↩
Insurance Broker List Not Protected as Trade Secret After Employee’s Unrestricted Sharing
The plaintiff, John Snyder, worked for a life insurance company from December 2006 to August 2016. On February 19, 2015, while at the company, Snyder exported a nationwide customer list of more than 40,000 insurance broker names from the company’s client-relationship-management software into an Excel file (the Insurance Company Broker List). On the same day he exported the spreadsheet, Snyder emailed it from his work email to his personal Hotmail account; the company later terminated Snyder in August 2016. In August 2018, Snyder joined Beam Technologies, Inc. as Regional Director of Broker Success. Snyder and Beam signed a Relocation Agreement for Snyder to move from Arizona to Colorado. Snyder alleged that Beam promised to pay him “off the books” for spreadsheets to induce him to work for Beam and to disclose the Insurance Company Broker List. Using the Insurance Company Broker List as a template, Snyder created three state-specific Excel spreadsheets for Texas, Utah, and Colorado. Synder intended each state list to go only to employees targeting that state, but he inadvertently included the entire Insurance Company Broker List as a separate tab in each spreadsheet. He then emailed these files to three groups of Beam employees, totaling 10 recipients. After realizing the national list had been sent, Snyder did not attempt to claw the files back, did not notify recipients of a mistake, and did not add confidentiality labels. He told Beam’s CEO that he had purposefully shared the national Insurance Company Broker List and never told Beam the inclusion was accidental. Beam terminated Snyder in November 2018. Case Information Snyder v. Beam Techs., Inc., 147 F.4th 1246 (10th Cir. 2025) Plaintiff: John SnyderDefendant: Beam Technologies, Inc.Judge: Judges Scott M. Matheson, Jr.; Robert E. Bacharach; Richard E. N. Federico Claims and Motion to Dismiss Snyder sued Beam for trade secret misappropriation under the Defend Trade Secrets Act (DTSA) and the Colorado Uniform Trade Secrets Act (CUTSA), as well as several state law claims targeting Beam’s actions leading up to and during his employment. Beam moved for summary judgment on his DTSA and CUTSA claims arguing the following.
Snyder failed to present sufficient evidence that he owned the Insurance Company Broker List.
Snyder failed to present sufficient evidence that he took reasonable measures or efforts to safeguard the Insurance Company Broker List.
Beam did not misappropriate the Insurance Company Broker List from Snyder; rather, Snyder voluntarily emailed it to several Beam employees.
The district court granted that motion based on Beam’s first argument. Outcome The 10th Circuit affirmed the summary judgment but on different grounds. As to the ownership issue, the court skirted it because who can bring a trade secrets lawsuit is a major distinction between the DTSA and the CUTSA. The DTSA allows an “owner” to bring a claim, whereas the CUTSA allows a “complainant” to bring one. “Complainant” is not defined in the statute. The district court’s order appeared to contradict 10th Circuit case law that permits those who possess the trade secret to bring a CUTSA claim. Though it declined to address the ownership issue, the 10th Circuit affirmed the dismissal on Beam’s second argument. The evidence showed that Snyder did not take reasonable measures to maintain secrecy:
Snyder did not mark any spreadsheet as confidential or as a trade secret.
Snyder did not password-protect the documents, did not limit access within Beam, did not require confidentiality agreements, and did not notify recipients of any restrictions.
Snyder saved copies on his personal computer, a USB drive, and his password-protected Beam laptop, but the documents themselves were not protected.
The court further found that Snyder openly shared the lists with multiple employees without any restrictions or notice, failed to protect the documents, and did not attempt to mitigate the disclosure after the fact. The court concluded that these actions were insufficient to meet the standard of reasonable efforts required to maintain trade secret protection under both federal and Colorado law. Thus, the court affirmed the lower court on this basis.
Additional Authors: John M. Hindley and Nicole Curtis Martinez
SEC Issues Policy Statement Clarifying its Position on Mandatory Arbitration Provisions
On September 17, 2025, the SEC approved a Policy Statement clarifying the Commission’s views on issuers whose registration documents mandate arbitration of federal securities claims. The announcement, which effectively condones the inclusion of arbitral clauses in registration documents, marks a significant policy shift at the SEC, giving public companies flexibility to limit the costs associated with securities litigation.
The Debate Over Whether Issuers Can Require Arbitration of Federal Securities Claims
Investors have certain private rights of action under the federal securities laws, including the ability to sue securities issuers and corporate insiders for alleged misstatements made in connection with the purchase or sale of securities. Historically, most disputes have taken the form of class actions commenced in either state or federal court. In recent years, though, practitioners have debated what role, if any, arbitration should have in resolving claims arising under the federal securities laws. The debate is a heated one. While proponents note arbitration’s ability to significantly reduce the costs associated with class actions, opponents have raised concerns about its potential to limit shareholders’ ability to form a class and exercise rights of appeal. Practitioners have also raised the possibility that mandatory arbitration clauses may violate “anti-waiver” provisions of Section 14 of the Securities Act of 1933 (“Securities Act”) and Section 29(a) of the Securities Exchange Act of 1934 (“Exchange Act”), which generally provide that any provision designed to limit or eliminate an investor protection under the respective Acts is unenforceable.
Rather than offer definitive answers, the SEC and the federal courts have, for years, perpetuated the debate. While the Supreme Court issued decisions underscoring the strong federal policy in favor of arbitration, the SEC effectively prohibited IPOs for companies whose organizational documents contained mandatory arbitration clauses.
The SEC’s Policy Statement Provides a Measure of Clarity for Issuers
The SEC’s September 17, 2025 Policy Statement marks a potential turning point by clarifying that mandatory arbitration provisions will not impact Staff determinations about whether to accelerate the effective date of a registration statement.
By way of background, Section 8(a) of the Securities Act provides that a registration statement automatically becomes effective 20 calendar days after filing. Securities Act Rule 473(a) permits an issuer to include a “delaying amendment” to extend the effective date to 20 calendar days after it complies with Rule 473(b), or for an indefinite period ending when the Commission grants the issuer’s request to accelerate the effective date. In most registered offerings, issuers include an indefinite delaying amendment and, in addition, a request to accelerate effectiveness under Rule 461 of the Securities Act. The Staff may, in turn, accelerate the effective date of a registration statement if it meets certain criteria under Section 8(a) and Rule 461. The SEC’s revised stance means that the Staff’s focus during its review of acceleration requests will be on the adequacy of the surrounding disclosures and not on the inclusion of a mandatory arbitration clause.
Although this policy change impacts companies looking to IPO, a range of other public companies may also benefit from the SEC’s revised position. As the SEC made clear, its position also applies to Securities Act registration statements for other securities offerings, as well as to decisions to declare effective Exchange Act registration statements or to qualify offering statements for Regulation A offerings. It will also extend to public companies that decide to amend their corporate charter or bylaws after their IPO.
SEC Chairman Paul Atkins described the Policy Statement as part of a broader initiative to “eliminat[e] compliance requirements that yield no meaningful investor protections, minimiz[e] regulatory uncertainty, and reduc[e] legal complexities throughout the SEC’s rulebook.” Commissioner Hester Peirce lauded the move, citing potential advantages for issuers who, armed with the knowledge that “the SEC will not put its thumb on the scale” when it comes to the inclusion of arbitration provisions, can make “value-maximizing” decisions when they go to market.
Commissioner Caroline Crenshaw, however, criticized the SEC’s action as “stack[ing] the deck against investors.” Among other things, she noted that mandatory arbitration clauses could create barriers for shareholders lacking the resources to pursue arbitration on an individual, as opposed to collective, basis. Commissioner Crenshaw also cautioned that a shift to arbitrating federal securities claims could result in under-policing of the markets and, in addition, lead to unpredictable outcomes.
Implications for Public Companies: Clarity is Not Certainty
Although the SEC’s Policy Statement opens the aperture for mandatory arbitration provisions, questions remain about their enforceability. The Policy Statement is not a pronouncement by the SEC that “arbitration provisions are appropriate or optimal for issuers or investors.” Nor does it preempt state laws prohibiting such clauses. Indeed, as the Policy Statement makes clear, it is not “within the Commission’s purview to conclude whether any particular issuer-investor mandatory arbitration provision is enforceable for purposes of the [Federal Arbitration Act],” reinforcing the risk that such provisions could face legal challenges.
Accordingly, issuers weighing the adoption of a mandatory arbitration provision—whether in connection with a securities offering or in a post-IPO amendment—may wish to consider the following:
The availability of arbitral provisions under state law. Certain states and non-U.S. jurisdictions restrict the availability of mandatory arbitration provisions. Delaware law, for example, mandates that forum selection provisions in Delaware charters and bylaws provide an opportunity to adjudicate claims in a Delaware court. Other states, including Nevada and Texas, have yet to take a definitive stance on the enforceability of mandatory arbitration provisions. Accordingly, companies contemplating the inclusion of mandatory arbitration provisions should analyze to what extent applicable state laws restrict their usage.
The advantages and disadvantages of arbitration. Even when they are available under applicable state law, mandatory arbitration provisions come with potential advantages and disadvantages that may impact their utility. Arbitration may, on the one hand, limit litigation expenses, minimize management distraction, and reduce insurance premiums. But it comes with certain risks, including the potential for reactive litigation and negative investor sentiment. Arbitration also limits, or, in some cases, eliminates, substantive and procedural features of the court system that issuers may find favorable, including the possibility of dismissing meritless claims at the pleading stage, the opportunity to appeal unfavorable decisions, and the ability to resolve claims from multiple plaintiffs in a single proceeding.
The potential legal challenges stemming from post-IPO adoption of mandatory arbitration clauses. Companies considering amendments to their charter or bylaws must grapple with additional considerations. Chief among these is the risk that stockholders may bring breach of fiduciary duty claims if they perceive such amendments as providing a personal benefit to officers and directors—in the form of reduced liability exposure—at stockholders’ expense. To best position themselves to defend against such claims, companies should undertake a thorough, documented, and well-reasoned analysis of the potential advantages and disadvantages of any proposed changes.
Investor sentiment. The foregoing considerations may play a significant role in whether key stakeholders, including institutional investors, will invest in companies with mandatory arbitration clauses. Guidance issued by proxy advisory firms ISS and Glass Lewis may be instructive in this regard. While it is premature to predict what positions they will take, both firms disfavor fee-shifting bylaws, a potential hallmark of arbitration. Regardless, neither firm has outright opposed forum selection provisions. ISS, for example, generally supports federal forum selection provisions for Securities Act claims, whereas Glass Lewis, which takes a “negative” view of federal forum provisions, has limited its support to specific situations.
Insights from insurance brokers and carriers. Given the pivotal role they play in securities class action defense, insurance carriers and brokers may have the broadest visibility into the advantages and disadvantages of arbitrating federal securities claims. It is therefore important to partner with these industry professionals to understand the potential implications of such clauses on insurance premiums and litigation risk.
Companies that decide to include mandatory arbitration provisions in their organizational documents should carefully consider how they are structured and disclosed to investors.
Drafting considerations. Securities litigation presents unique considerations that may play a role in the drafting process. Companies should consider, for example, pre-selecting arbitration institutions that will allow issuers to move to dismiss and file other pre-trial dispositive motions—rights that are not necessarily available through every arbitration institution. The choice of arbitral institution may also have a bearing on the availability of consolidation or coordination, the desirability of which will depend on the issuer’s objectives. Finally, to minimize the risk of multi-forum disputes, companies should be thoughtful about whether the provision also provides coverage for company-indemnified defendants, including directors, officers, and underwriters.
Adequacy of disclosure. Other drafting considerations relate to the manner in which mandatory arbitration provisions are disclosed to investors. Going forward, the Staff will likely be attuned to ensuring that a company’s disclosure explains how mandatory arbitration provisions operate, how they may impact stockholders, and any residual legal questions regarding their enforceability.
Concluding Thoughts on the Potential Paradigm Shift
Although the SEC’s Policy Statement could shift the paradigm for litigating federal securities class actions, it remains to be seen to what extent it will catalyze change. Even though the SEC concluded that its stance is consistent with Supreme Court precedent, the Commission’s view is not dispositive, particularly after the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), eliminating Chevron deference to agency interpretations of the statutes they administer. Securities litigants are likely to exploit Loper in efforts to challenge the legality of the SEC’s position and, by extension, the enforceability of mandatory arbitration clauses. Ultimately, while the future of mandatory arbitration for federal securities claims remains uncertain, the SEC’s evolving stance signals a shift in the regulatory landscape that could reshape how private securities disputes are litigated and resolved.
Enforceability of “Knock-for-Knock” Indemnity in U.S. Offshore Wind
Despite recent setbacks, a number of U.S. offshore wind projects remain on the books and on track. A recurring issue with these projects concerns what contractual indemnity scheme should apply. For offshore oil and gas projects in the United States and internationally, and for offshore wind projects outside the United States, the parties almost uniformly utilize some iteration of a “knock-for-knock” indemnity scheme, whereby each party picks up the full tab for any personal injuries, illnesses, or deaths of its employees and for any damage to or loss of its property, regardless of the cause or the fault of any party. Each party is also responsible for the people and property of their respective “group,” including underlying subcontractors, who should also have the same knock-for-knock indemnity obligations.
The knock-for-knock indemnity scheme is efficient and effective, particularly if it includes no carve-outs and is applied uniformly across all of the contracts for parties that have personnel and/or property involved in the project. This setup provides the parties with more certainty of their liability exposure and avoids duplicative insurance coverage. In most cases, each party with personnel or property involved in the project will also be required to have insurance coverage that names the counterparty and its “group” as an additional insured and waives the underwriters’ rights to pursue subrogation against them.
However, even in the U.S. offshore oil and gas industry, there have been some hiccups in adopting knock-for-knock indemnity. For example, Texas and Louisiana each adopted regulations to ensure equitable division of liability exposure with contractual indemnity provisions in offshore projects, limiting where knock-for-knock can be used. Also, some jurisdictions find indemnity for an indemnitee’s gross negligence or willful misconduct to be void, as against public policy, or to require specific notice to the indemnitor.
A carve-out for gross negligence and willful misconduct in the knock-for-knock provisions complicates issues, particularly in personal injury causes of action in the United States. Unlike many other jurisdictions in the world, it is not at all uncommon in the United States for a personal injury plaintiff to name every entity potentially involved in an accident and to allege that the defendant’s gross negligence and willful misconduct contributed to his/her injury. In such a case, there is no certainty as to whether the employer’s indemnity obligation will stand, and all parties must engage counsel and participate in defending against the claims. Nonetheless, even with these carve-outs, knock-for-knock indemnity remains common in the U.S. offshore oil and gas industry and is quite effective at limiting risk, particularly for property damage.
All of the U.S. offshore wind projects currently in active development are located along the middle or northern East Coast. Several states on the East Coast, including New Jersey, New York, and Virginia, have regulations that effectively bar contractual indemnity for an indemnitee’s own negligence. Thus, knock-for-knock is essentially unavailable where those states’ laws are or may be applicable to the project operations onshore and on the outer-continental shelf. For vessel charter parties, on the other hand, where the U.S. general maritime law applies, knock-for-knock indemnity is, for the most-part, enforceable. However, a physical structure built on the outer-continental shelf is effectively deemed to be an “island” of the adjacent state, with federal law adopting the law of the adjacent state to apply to any casualty on or impacting that structure. Thus, when a vessel is positioned next to an offshore installation on the outer-continental shelf, people and property can readily cross between the application of maritime law and state law, further complicating the enforceability of contractual indemnity obligations.
This has become a conundrum for developers and contractors alike, and a variety of strategies have been considered, including:
Simply adopting negligence-based indemnity obligations for all.
Adopting knock-for-knock indemnity provisions with respect to maritime contracts (perhaps carving out gross negligence and willful misconduct) and negligence-based indemnity obligations for non-maritime contracts.
Contractual choice-of-law provisions calling for the application of the U.S. general maritime law or an alternate state law for the indemnity provisions. For example, although the law of New York state may generally apply to a contract, the indemnity provisions will be governed by the general maritime laws of the United States or the laws of the State of Texas, where the general maritime law is inapplicable. There is some question whether a court in New York, in this example, would enforce this sort of choice-of-law provision if the contract is not deemed to be “maritime in nature” and there is no obvious connection to Texas.
Adopting negligence-based indemnity provisions but then seeking to accomplish essentially the same thing as knock-for-knock via insurance provisions, i.e., naming and waiving a counterparty’s group. This is more effective for property loss or damage than for personal injury or death.
As the U.S. offshore wind industry develops, we expect U.S.-based contracting parties, as well as the relevant courts and state legislatures, will become more familiar with contractual issues, and hopefully a more uniform method of contracting for liability will emerge for construction on the U.S. outer-continental shelf. In the meantime, attorneys and insurance brokers will remain busy…trying to determine whether these terms are enforceable.
New UK Arbitration Act 2025: Potential Impact on Insurance Contracts
Arbitration World E-magazine, the aim of the new Act is to supplement the existing framework, enshrined in the Arbitration Act 1996, by making various changes intended to ensure that the United Kingdom continues to be a leading destination for domestic and international commercial arbitrations. In the insurance context, there are important changes likely to impact policyholders involved in insurance coverage disputes arbitrated in England, Wales or Northern Ireland.
Why does it matter?
Many insurance policies provide for disputes between insureds and insurers, including in relation to the scope, applicability and quantum of the insurance cover, to be resolved by London-seated arbitration. This includes policies providing cover for risks arising in other jurisdictions. In practice, arbitration clauses are often found in standard form policy wordings but the precise terms vary from policy to policy, including (i) whether the arbitration is administered by an arbitral institution or is non-administered (ad hoc), (ii) the process for tribunal formation, and (iii) the law governing the policy.
At the pre-contract stage, arbitration clauses are often given little attention, which can lead to inadequate, inconsistent or even conflicting dispute resolution clauses, within the same policy or within the layers of the insurance programme. Policyholders need to ensure that procedural ambiguities and inconsistencies are avoided because, if a coverage dispute arises, this will inevitably add to the time and cost of the resolution process.
What are the key changes introduced by the Act?
In the insurance context, the following changes to the arbitration process are of particular importance and justify policyholders reviewing their policy wordings:
Law Governing the Arbitration Agreement
The Act has introduced a new rule regarding the law applicable to the arbitration agreement (i.e., the law governing the validity, scope and meaning of the arbitration clause itself). In particular, absent express agreement of the parties, the law of the arbitration agreement will be the law of the seat of the arbitration. This represents a departure from a key Supreme Court decision (Enka v Chubb [2020] UKSC 28) (previously reported by us) which had decided that an arbitration agreement will usually be governed by the substantive law of the contract. In practice, it may still be beneficial to expressly agree what law applies to the arbitration agreement, particularly if the substantive law governing the policy differs from the designated seat of arbitration (e.g., it is not uncommon for insurance policies to provide for London-seated arbitration but with the application of a different substantive governing law, such as New York Law–as under so-called ‘Bermuda Form’ cover).
The Arbitrator’s Duty of Disclosure
Building upon the Supreme Court’s decision in Halliburton v Chubb (in which K&L Gates represented the policyholder), the Act codifies and clarifies the arbitrator’s duty of disclosure. An arbitrator is under a continuing duty to disclose any “relevant circumstances” of which the arbitrator is or ought reasonably to be aware, and which “might reasonably give rise to justifiable doubts as to the individual’s impartiality in relation to the proceedings, or potential proceedings, concerned.” This duty of disclosure can be particularly important in the insurance context where insurers, in particular, tend to make repeat appointments of arbitrators drawn from a limited pool (often termed “frequent flyers”) because of their insurance expertise. Policyholders need to pay careful attention to arbitrator disclosures, recognising that some arbitrators may have determined (or be in the process of determining) similar coverage disputes involving the same issues, and even the same insurers.
Introduction of Power to Make Awards on a Summary Basis
The Act gives arbitrator(s) the power to make an award on a summary basis in relation to a claim (or defence) or a particular issue, without a full arbitration hearing, if it considers that a party has no real prospect of success. Before making an award on the summary basis, the tribunal must give the parties a reasonable opportunity to make representations. In the insurance context, an application for a summary award may be appropriate for certain issues, such as policy construction or interpretation, where the case advanced is considered to be without merit.
Practical considerations
Arbitration has long been favoured for certain classes of insurance, including marine, construction and ‘Bermuda Form’ cover purchased for catastrophic risks in North America. In recent years, arbitration has increasingly replaced English court litigation in other insurance contexts, including Professional Liability and D&O. In practice, there are pros and cons to this development, and policyholders need to consider what process is best suited to their requirements. For example, one benefit of arbitration is enhanced confidentiality, which may be important to policyholders where the subject matter of the claim is sensitive, or where reputational issues arise. When arbitration is chosen, the arbitration clause needs careful review, both for consistency with other clauses within the policy (and wider insurance programme) and to avoid ambiguity over the proposed forum, the procedure to be followed and the relevant laws to be applied. The Act gives policyholders a good opportunity to revisit these issues with their insurers.
Zombie PAGA Notices: Why Employers Are Seeing ‘New’ Letters Tied to Old Claims
Employers across California are receiving alerts about “new” Private Attorneys General Act (PAGA) notice letters that appear to restart old claims—sometimes years after those matters were filed or even settled. The surprise often comes from the California Department of Industrial Relations (DIR) website, where recently uploaded documents look fresh but actually trace back to prior PAGA filings.
Quick Hits
Employers in California are receiving alerts about “new” PAGA notice letters that appear to restart old claims, often years after the original filings or settlements.
The confusion arises from the California Department of Industrial Relations website, where recently uploaded documents titled “redacted” link back to older PAGA notices, leading employers to mistakenly believe a new claim has been filed.
Misinterpreting these reposted notices can trigger unnecessary internal responses or insurance notifications, so employers may want to verify document history and cross-check prior case activity to determine the true status of a claim.
Employers have seen notices uploaded in September 2025 with document titles that include the word “redacted.” The “new” upload links back to the original PAGA notice letter—often five or more years old—which does not include “redacted” in its document title.
The appearance of a new posting has led some employers to believe a new PAGA claim has been filed when it is, in fact, a public posting of an older notice. Moreover, the seemingly revivified notices—which could be considered “zombie” notices—have led to some confusion in the employer community.
Historically, certain PAGA documents—such as proposed settlement agreements and judgments—were publicly available directly from the DIR, but PAGA notice letters were not posted online and could typically be obtained only via Public Records Act (PRA) requests.
More recently, the DIR has begun publishing PAGA notice letters for public download. As part of this effort, the agency appears to be uploading redacted versions of older notices, assigning new document titles and dates to the redacted uploads.
The result: employers receive automated or manual alerts tied to the September 2025 “redacted” posting and reasonably assume a new claim has been initiated, even though the underlying notice is the original, older filing.
Confusion over these zombie notices has considerable implications for employers. For example, misreading a redacted repost as a new filing can trigger unnecessary internal response efforts, insurance notifications, or litigation holds. Conversely, ignoring the posting could be risky if there actually is a new notice or amended notice associated with ongoing litigation activity. In addition, settled or dismissed PAGA matters can reappear in these postings, creating uncertainty about whether claims have been revived (they typically have not) or whether the posting reflects administrative housekeeping.
Quickly Triaging a ‘New’ DIR PAGA Notice Posting
An employer that is alerted to a DIR PAGA notice posting may want to take the following steps:
Verifying the DIR document history: Is the “redacted” file a new upload of an older notice? Consider checking the underlying notice date and any associated case identifiers.
Cross-checking prior case activity: Consider confirming whether a PAGA action was previously filed, stayed, settled, or adjudicated.
Looking for amended notices: Consider determining whether any recent amendments or new notices have been submitted by the same plaintiff or counsel.
Coordinating with insurers: Consider getting clarification from insurers regarding whether the posting affects coverage notifications or reporting obligations.
Preserving records appropriately: If there is any uncertainty, consider implementing proportionate preservation steps while the status is confirmed.
Conclusion
Employers that receive a “new” DIR PAGA notice letter—especially one labeled “redacted”—may want to work closely with their business teams and to investigate whether the notice is truly a new claim or simply a reposting of an older notice. Employers that take prompt, informed action can help ensure they respond appropriately and avoid unnecessary disruption.
Delaware Court Tells Wiring Manufacturer It’s Too Early and Too Late
The decision of when to sue insurance companies, especially excess insurers, can be difficult, especially in disputes involving multiple claims, long timelines, and conflicting coverage positions between insurers. A recent federal court in Delaware, General Cable Corp. v. Scottsdale Indemnity Co., No, 1:24-CV-00797-TMH, 2025 WL 2576384, (D. Del. Sept. 5, 2025) underscores the timing risks in pursuing recovery in and out of litigation. In a word of warning to Delaware policyholders, the court dismissed a lawsuit against a manufacturer’s directors and officers excess liability insurers because its claims were either not ripe for adjudication or untimely filed.
Background
Between 2011 and 2016, a wiring manufacturer was insured under three layers of D&O insurance, with Scottsdale providing second-layer excess coverage. Starting in 2012, the manufacturer incurred defense costs while defending against government investigations into its accounting practices and lawsuits alleging violations of the Foreign Corrupt Practices Act (FCPA).
The manufacturer sought coverage for these defenses costs for the lawsuits which were resolved in April 2019. The primary insurer and first excess insurer agreed to pay for part of the loss, albeit based on different coverage rationales. One insurer took the position that the accounting investigations and FCPA lawsuits were a single related claim under its 2011 policy, while the other insurer took the position that the accounting investigations were one claim under the 2011 policy and the FCPA lawsuits were another claim under the 2012 policy. Despite recovering from two insurers, the manufacturer still had more than $32 million in outstanding defenses costs, which is continued to pursue from the insurers.
The manufacturer notified Scottsdale of the claims. While Scottsdale acknowledged the notice, it did not provide a coverage position and neither denied nor agreed to cover the claims. The manufacturer then began discussing mediation with the first two layers of coverage to resolve the coverage disputes. The manufacturer requested that Scottsdale participate in that mediation with the other insurers, but again Scottsdale failed to respond by providing a coverage position.
Delaware Federal Court Finds Coverage Claim Both Not Ripe and Too Late
The manufacturer filed suit against Scottsdale in 2024 for declaratory judgment and anticipatory breach of contract. The insurer moved to dismiss, arguing that the declaratory judgment claim and the anticipatory breach of contract claim were barred by Delaware’s three-year statute of limitations. Applying Delaware law, the court agreed and dismissed the lawsuit.
The court’s ruling on the policyholder’s anticipatory breach of contract claim turned on when the excess policy attached and required the insurer to cover the claims. A contract is not breached, the court explained, until the time for performance is expired.
In that regard, the excess policy provided that “[i]t is expressly agreed that liability shall attach to the Company only after the full amount of the Underlying Limits is paid in accordance with the terms of the Underlying Policies by any or all of the following . . .” The court found that this provision meant the excess insurer was entitled to wait out “good-faith coverage disputes” between the manufacturer and its other insurers without breaching its performance obligations.
Accordingly, the manufacturer’s anticipatory breach of contract claim was not yet ripe for adjudication until the underlying policies were paid, and consequently, the statute of limitations had not yet begun to run. The court dismissed the claim without prejudice.
As for the declaratory judgment claim, the court noted that, under Delaware law, insurance claims become ripe when an insured establishes that there is a “reasonable likelihood” that coverage under the disputed policies will be triggered. Delaware also has a three-year statute of limitations, which the court explained applies to any breach of contract action based on a promise, which includes declaratory judgment claims. The court emphasized that the manufacturer incurred significant defense costs of more than $32 million, which would implicate Scottsdale’s excess policy regardless of the other insurers’ coverage positions. Because Scottsdale insured the manufacturer for losses over $25 million, and because the manufacturer had incurred defense costs far above the policy’s attachment point.
The claim became ripe, the court concluded, the day that the underlying accounting investigations and FCPA lawsuits against the manufacturer were resolved in 2019. It was from that date that Delaware’s three-year statute of limitations for the declaratory judgment claim began to run. Unfortunately for the manufacturer, it waited over five years to bring the declaratory judgment action against the recalcitrant excess insurer. Accordingly, that cause of action was time barred and dismissed with prejudice.
Takeaways
The General Cable decision highlights an interesting dichotomy where some insurance coverage claims can be timed-barred while others are not yet ripe. This can create a challenging set of factors for policyholders to balance when considering whether and when to bring a coverage lawsuit.
The Importance of Attachment Provisions
A proactive evaluation of the so-called “attachment” provisions in excess policies can help prevent the “too early” outcome in General Cable. Attachment provisions guide when excess coverage comes into play and impact whether a coverage claim might be ripe.
Evaluating the attachment provisions in an excess policy throughout the claim timeline—especially in disputes involving multiple claims over many years involving different insurance towers—can help guide important decisions of when to pursue excess insurers that have not lived up to the terms of their policies.
The Clock Is Ticking
In what may seem like a draconian outcome to some, the court in General Cable strictly enforced Delaware’s three-year statute of limitations period for breach of contract based on a promise, including declaratory judgment claims. Every state has its own limitations period, with some states applying materially different standards to assess when those periods begin to run.
A subpart of the discussion is the threshold question of what state’s laws even apply, since policyholders need to know the applicable limitations period before deciding when suit needs to be filed. Many times choice of law is clear, including if a policy has a choice-of-law provision, but in other claims there can be material differences in law addressing limitations periods that lead to separate disputes over governing law.
The manufacturer’s predicament in General Cable is all too common. The company seemed to be doing everything right—timely submitting claims, defending and resolving underlying disputes, coordinating recoveries under different policies, and attempting to resolve coverage disputes outside of formal litigation—yet over many years was ignored and rebuffed by the excess insurer, which failed to substantively respond or take action to move the claims towards resolution.
But when the policyholder was forced into litigation, the insurer benefited from those significant delays in prevailing on a limitations defense. Tools like tolling agreements and similar formal agreements to preserve rights under policies while underlying claims or complicated insurance claims run their course can help avoid accidental forfeiture of coverage due to the passage of time.
Conclusion
When to bring a coverage lawsuit is always a tough decision. Coordinating with coverage counsel, brokers, and risk professionals early and often to manage different claim timelines and limitations periods can help mitigate those risks.
Neat Result for Policyholders—SDNY Sides with Distillery in Collapse Dispute
Earlier this month, the Southern District of New York issued an opinion in The Vale Fox Distillery LLC v. Central Mutual Insurance Company, No. 24-cv-4169 (S.D.N.Y.), which concerned a catastrophic collapse of storage racks holding whiskey barrels at Vale Fox’s distillery, destroying over $2.5 million worth of aging single malt whiskey. The court determined there was coverage for Vale Fox’s loss but left the issue of valuation to be determined another day.
Background
Vale Fox, a small-batch distillery in Poughkeepsie, New York, stored whiskey barrels on metal racks. In December 2023, the racks collapsed, breaking 52 barrels and spilling years’ worth of aging single malt. An engineering investigation concluded that defective welds in the racks’ construction, compounded by the weight of the barrels, caused the collapse.
Vale Fox sought coverage under its industrial processing policy with Central Mutual. The policy covered “direct physical loss of or damage to Covered Property … caused by or resulting from any Covered Cause of Loss,” and specifically included “Stock,” defined as “merchandise held in storage or for sale, raw materials and in-process or finished goods.” The policy also contained “Additional Coverage—Collapse,” which extended coverage when “personal property abruptly falls down or caves in and such collapse is not the result of abrupt collapse of a building,” so long as the collapse was caused in part by “[u]se of defective material or methods in construction … [and] the weight of … personal property.”
Central Mutual denied the claim, arguing that “collapse” applied only to buildings, that “construction” meant building construction (not rack construction), and that exclusions for wear and tear, corrosion, and latent defects barred recovery.
The Decision
The court’s decision offers a detailed roadmap for how collapse coverage operates in commercial property policies. Central Mutual argued that the “Additional Coverage—Collapse” was intended only for building failures. The court disagreed, pointing to the text of the policy itself, which expressly extended collapse coverage to personal property “when such collapse is not the result of abrupt collapse of a building.” To adopt Central Mutual’s reading, the court explained, would render this section “superfluous and meaningless,” violating fundamental principles of contract interpretation.
Central Mutual also insisted that the phrase “defective material or methods in construction” referred exclusively to construction of the insured building. The court rejected this narrow view, holding instead that the defective construction at issue was that of the racks themselves. “[T]he only reasonable interpretation,” it wrote, “is that the defective construction must be of the thing that collapsed.” This interpretation aligns with other courts’ recognition that collapse coverage is not confined to structural building defects but can also encompass personal property losses when the policy language so provides.
Equally significant was the court’s treatment of exclusions. Central Mutual pointed to policy exclusions for wear and tear, corrosion, and hidden or latent defects, citing its expert’s finding that corrosion and aging may have contributed to the collapse. The court held those exclusions inapplicable, reasoning that they could not be read to undo the specific grant of coverage for collapse caused by defective construction combined with the weight of personal property. As the court explained, additional coverage provisions are meant to expand protection, not be nullified by general exclusions. This reasoning is consistent with decisions across jurisdictions holding that where collapse coverage expressly includes perils like defective construction or hidden decay, broad exclusions cannot be stretched to bar recovery.
The court, however, declined to rule in Vale Fox’s favor on valuation. The policy included a “Manufacturer’s Selling Price” clause for “finished ‘stock,’” but the parties disputed whether the destroyed whiskey—still aging in barrels—qualified as “finished ‘stock.’” The court found the term ambiguous and not resolvable on the pleadings, leaving the issue for later proceedings.
Takeaways
First, this decision reinforces that courts will not allow insurers to interpret policy provisions in a way that renders negotiated coverage illusory. Here, the court rejected Central Mutual’s narrow reading that would have effectively stripped collapse coverage for personal property of any practical meaning.
Second, the case highlights an important rule of policy construction: specific coverage grants prevail over general exclusions. Insurers often rely on broad wear-and-tear or defect exclusions to deny claims, but when the policy specifically promises coverage for collapse tied to defective materials or methods, courts are reluctant to let exclusions undo that bargain.
Finally, the decision underscores the importance of policyholders carefully negotiating and understanding valuation provisions. Whether whiskey still aging in barrels qualifies as “finished stock” worth selling-price valuation or merely “stock” subject to replacement-cost valuation could mean millions of dollars in claim recovery. Because the court found the term ambiguous, Vale Fox will have the opportunity to present extrinsic evidence on the parties’ intent—a reminder that ambiguous terms will be construed in favor of the insured, but only after a factual record is developed.
In short, Vale Fox offers policyholders an encouraging ruling on collapse coverage but also a cautionary lesson on valuation disputes—an area where precise drafting and advocacy can make all the difference.