Next Steps for Policyholders in the Aftermath of the California Wildfires
The insurance claims process can be daunting even under the most ordinary circumstances; a catastrophic series of fires like Southern California is enduring has created extraordinary circumstances.
To help make the insurance part of the recovery process easier and answer some common policyholder questions, we’ve prepared the following guide for navigating the first steps after a wildfire:
Take care of your family’s immediate needs and personal safety first.
Identify all insurance policies that may provide coverage.
For individuals, this will include a personal homeowners or renters policy. Coverage, especially for temporary living expenses, may also be available under policies held by landlords, condominium associations, and property managers.
For businesses, this will be the business’s property insurance policy (possibly provided as part of a larger, or “package,” policy).
Ask the insurance company to send you an up-to-date and complete copy of each policy with current declarations pages that specify the amount of coverage available for particular types of losses.
Investigate whether insurance is available under other policies that you have purchased or under policies purchased by others (e.g., naming you as an “additional” insured for certain losses.)
Immediately contact your insurer or insurance broker or agent to provide notice. Your insurance policy will specify details to be provided in the notice and who to provide notice to, usually in the “Conditions” section and/or the policy’s Declarations. If you do not have a copy of your policy, include the following in the notice: the affected property address, the fire, and the policy number. If you do not have the policy number, the insurer or your insurance broker or agent should have it readily available.
If notice is provided through an insurance broker or agent, ask them to confirm in writing that all applicable insurers have been placed on notice.
Read the entire insurance policy carefully, including all endorsements or attachments. Be aware of any policy deadlines, such as for proof of loss submissions or starting reconstruction, and of statutes of limitations for filing suit, and consider seeking extensions from your insurer. Policy deadlines are also often found in the “Conditions” section. All extensions should be confirmed in writing. Deadlines may be extended or suspended by the Department of Insurance or otherwise under the law.
Some common policy provisions and issues include:
How much coverage do you have? The limits of your policy were set at the time you purchased your property and should be identified in the “Declarations” section. Some policies may provide additional funds through coverages, such as “extended replacement” coverage, which may provide an additional 25% or more of your limits, and “upgrade” coverage (see below).
What type of property coverage do you have? Most homeowners policies will cover the cost of repairing—or more likely, replacing—a home with like quality materials, subject to other policy terms and limitations. This should be provided in the “Building” or “Structure” coverage section. It is important to be aware that some insurance policies cover “actual cash value,” which is the cost to replace the value of the property insured minus depreciation and obsolescence. In contrast, other policies provide “replacement cost” coverage, which is intended to replace the lost or damaged property with property of like kind and quality.
What about personal property? Policies may cover the loss of personal property (insured property other than the house and other insured buildings) differently. As with coverage for buildings, personal property insurance may provide coverage on an ACV or replacement-cost basis. Some personal property may be “scheduled” and not subject to depreciation (e.g., antiques); such items should be replaced at full value (up to limits of that coverage). It is not uncommon for insurers in a catastrophic loss situation, like the wildfires, to make a rough calculation and provide an initial payment, subject to a later negotiated true-up.
Do I need to rebuild to be compensated under replacement cost coverage? Under California law, replacement cost coverage is not contingent on rebuilding—you can use all available coverages under the insurance policy to buy or build at a different location. The cost of your land is not deducted from the amount of coverage to be paid.
Do I need to itemize destroyed personal property? Some insurance policies provide a rider for specific personal property items like clothing, sports equipment, jewelry, or electronics, and insurers will already have that detail. If not, insurers will typically require itemization; however, in a mass catastrophe like the fires, they may relax their requirements. Ask them.
Does my policy cover building upgrades to comply with current ordinances? While many policies only cover the cost of repairing or replacing the home, not the cost of “upgrades” (even to comply with current ordinances or regulations), some policies do expressly make additional amounts available for the cost of complying with current regulations.
Does a property insurance policy cover smoke damage? Even if the property is not destroyed by fire, the structure and personal property may have sustained substantial smoke damage. Many insurance policies will cover this loss.
Will renters insurance cover my losses as a renter? While policy language varies, many renters insurance policies provide coverage for specific losses.
If I own a business, will insurance cover my lost earnings? Most commercial property policies also cover lost profits or lost earnings that result from a covered peril, such as fire. Some policies afford this coverage even if your property was not directly damaged by the fire, as long as certain nearby properties were affected. The terms and conditions of each insurance policy will define the scope and amount of these and other coverages.
Maintain copies of all communications with insurers and insurance representatives. A written diary tracking all exchanges may be valuable.
Some insurers may set up local centers to support the community and provide immediate assistance. Determine whether your insurer has this resource available.
Finding temporary housing is a priority. Many insurance companies provide for living expenses in the event of an emergency. Insurers may be able to assist in finding accommodations of similar size.
Many property insurance policies provide coverage for expenses incurred due to loss of use of a home. Often, this is referred to as additional living expense (ALE) or loss of use coverage. Pay particular attention to per-diem limits and keep track of all receipts.
Many insurance policies provide coverage for damaged landscaping replacement necessitated by a fire, though the way that policies cover, and limit coverage, may vary.
Some insurance companies will provide cash advances for living expenses and replacing personal property. Ask your insurer what benefits are immediately available under your policy.
Insurers should not request any releases or other documents with legal effect in the immediate aftermath of the fire. It is best to defer considering releases until you’ve had an opportunity to completely assess your loss and coverages under the policy and talk with a qualified expert, as necessary.
Insurer representatives will often be supportive and friendly. Assume the best. Think of discussions as part of a constructive negotiation—the insurer is a profit-oriented enterprise, and you are trying to restore your assets.
Insurers may send an adjuster to meet with you and inspect your property. If the adjuster makes a settlement offer, it is best to take time to assess whether the offer is fair and fully compensates you for your loss. You should not feel pressured to “take it or leave it.” Should that occur, seek counsel immediately.
Document your claim—including all your damages and costs—as thoroughly as possible and be honest in all documentation. Negotiations with the insurer will be facilitated by evidence of your destroyed property; photos, invoices, schedules, and receipts for all out-of-pocket expenses are excellent resources. Nothing will undermine a claim faster than exaggeration, overstating values, or padding with extra items.
Do not sign contracts for repairs or other needs until you have spoken with your insurance company or agent.
Beware of anyone—whether lawyer, contractor, adjuster, or insurer—attempting to rush you into a contract. Keep copies of all agreements that you do sign.
Eleventh Circuit Overturns Major FCC TCPA Ruling: Here’s The Czar’s Definitive Take On The Ruling And What It Means To TCPAworld
All right, major TCPA developments on Friday.
The biggest news was the outcome of the Insurance Marketing Coalition’s (IMC) Hobbs Act petition to the Eleventh Circuit Court of Appeals challenging the Federal Communication Commission’s (FCC) new one-to-one express consent ruling under the Telephone Consumer Protection Act (TCPA).
The one-to-one consent rule–which was scheduled to go into effect today (January 27, 2025)– would have required consumer’s to specifically identify the entity to whom they were providing consent when filling out online webforms. It would have also required consent to be “topically and logically” related to the transaction that lead to the consent.
The rule was implemented to help cut down on unwanted robocalls arising from websites that resale consumer data numerous times based upon fine print disclosures consumers do not always read or understand.
According to the Eleventh Circuit, however, the FCC overstepped its authority by unduly limiting the consumer’s right to consent in its ruling.
Let’s break it down.
In Insurance Marketing Coalition v. FCC, 2025 WL 289152 (11th Cir. 2025) the key issue addressed by the Court was whether the FCC exceeded its statutory authority under the TCPA in issuing its 2023 Order because the one-to-one-consent and logically-and topically related restrictions impermissibly conflict with the ordinary statutory meaning of “prior express consent.” The Court concluded that it did, and the reasons for this conclusion are incredibly important.
First, the Eleventh Circuit took a very limited view of the FCC’s ability to “implement” the TCPA and found it had power only to perform those actions necessary to “complete, perform, [or to] carry into effect.” It the Court’s view the FCC could not “alter” any part of the statute as part of implementation. Rather it could only “reasonably define” the TCPA’s provisions.
The Court then focused on the TCPA’s statutory language. The TCPA permits calls made using regulated technology when the consumer has provided “express consent.” Critically, in the Court’s view the TCPA does not require “express consent plus.” So although the FCC has some ability to define and implement the phrase “express consent” it may not impose additional requirements and restrictions that exceed the intended scope of the phrase.
In light of this reality the Court framed the issue for review through the lens of two questions: i) to give “prior express consent” for telemarketing or advertising robocalls, must a consumer always consent to calls from only one entity at a time; and ii) can a consumer give “prior express consent” to receive telemarketing or advertising robocalls only when the consented-to calls are “logically and topically associated with theinteraction that prompted the consent”?
Pause.
Notice what an incredibly restrictive paradigm this presents for agencies.
If an agency is given authority from Congress to enforce a nationwide seatbelt ban and determines a seatbelt must be 3 inches in width, would the Court question “to wear a seatbelt must a consumer always have a belt 3 inches in width?” To articulate the ability of an agency to act by looking at the question through the lens of whether any portion of a statutory provision is limited by an agency rule is seemingly tantamount to destroying an agency’s ability to act.
To define is to limit, after all. Any effort to “reasonably define” a TCPA provision will necessarily limit it to some degree.
But the IMC court determined the FCC’s ruling failed specifically because its definition limited the TCPA express consent provision.
In the Court’s view, the definition of prior express consent has largely already been determined by case law. In its view express consent is consent “that is clearly and unmistakably granted by actions or words, oral or written…” and given before the robocalls or texts are made. Seemingly any expression of the law beyond this common law approach was doomed to meet with failure in the Court’s eyes as conflicting with the “plain language” of the statute, as interpreted by the courts.
Pause again.
Notice the huge shift in reasoning in addressing agency action here following Loper Bright. Not long ago (like this time last year) an agency’s determination of the meaning of a statute would be given wide deference by the courts. Now the IMC court essentially afforded zero deference and, in effect, expects the precise opposite– the agency must defer to the Court’s determinations!
Fascinating.
The rest of the Court’s reasoning makes this new paradigm perfectly clear.
For instance, the Court reasoned previous case law had permitted parties to consent “to multiple, vaguely defined entities at one time” in analyzing the scope of “express consent.” That being the case the FCC’s determination that consumers could consent only to a single entity at a time must necessarily conflict with the statute.
Next, as to the “logicially and topically” related component the Court reasoned a consumer might “consent to calls about “loan consolidation” while shopping online for “auto loans.” Under case law all that is required is that the consumer “clearly and unmistakably” state, before receiving a robocall, that he is willing to receive telemarketing or advertising robocalls about loan consolidation. So any suggestion by the FCC that consent is invalid must necessarily fail– it is powerless to implement a restriction contrary to a court’s determination of the meaning of the statute.
My goodness.
In the end, the Court defines the scope of the TCPA’s express consent rule as follows: “As long as a consumer clearly and unmistakably states, before receiving the robocall, that he is willing to receive the robocall, he has given ‘prior express consent’ under the TCPA.”
That’s it.
And because the FCC’s one-to-one rule went further than this definition, it is dust in the wid.
So let’s walk through some take aways:
The FCC’s one-to-one rule is no more. The Eleventh Circuit has jurisdiction to strike down the ruling for the entire country under the Hobbs Act. No other court may enforce the rule. It is essentially dead and cannot be leveraged in any TCPA suit. That’s the good news.
The bad news: consent forms will face even greater scrutiny now than they have in the past. The Eleventh Circuit’s repeated focus on “clearly and unmistakably” stated consent may posed a massive detriment to typical lead gen forms that are often neither clear nor unmistakable. This seems to make the efforts of REACH–to set standards for what qualifies as “clear and unmistakable” in the industry– more important than ever. Remember, courts are already refusing to enforce forms fairly routinely. The one-to-one rule was actually set to help lead buyers to a certain degree because consumers who provided enhanced levels of consent were unlikely to sue. Lead buyers may still wish to require one-to-one consent to make sure they are getting real consumers who are providing real leads. There is still a ton of risk out there.
On that topic, it seems clear the FCC has the authority to define what “clear and unmistakable” means in this context. So perhaps we will one-day see additional regulation defining express consent. But I don’t expect that any time soon.
To be absolutely clear nothing has changed under the TCPA. Literally. Meaning everything that was illegal on Friday is still illegal today. And that means lead gen forms that do not provide “clearly and unmistakably” stated consent in a “clear and conspicuous” manner consistent with the FCC’s current express written consent requirements are still illegal.
The incredibly restrictive approach adopted by the Eleventh Circuit in IMC is fascinating but is unlikely to catch on across the country. For instance, I do not expect a court in a suit between private parties to suddenly determine that “written” express consent is out the window because a consumer can “clearly and unmistakably” consent to receive robocalls orally. But hey, its Trump’s America now— so anything is possible. Again the IMC court’s ruling on one-to-one is effective across the country– but the restrictive analytic framework applied to assessing the legality of agency action is not.
The Court reserved the issue of whether the FCC’s dual treatment of consent–i.e. a higher standard for marketing versus informational messaging– is constitutional or not. Very interesting issue there– and a very strong argument can be made it is not. I suspect that will be the next battleground as industry pushes back on the TCPA’s express consent requirements.
Want to end with another note praising IMC here for their efforts. There was a little bit of Luck involved– literally– but they made the right moves to get the right result. While directionally one-to-one is good for the lead generation industry, the way the FCC framed its ruling was very very damaging for small business– it would have cost tens of thousands of jobs and hurt consumers.
Nobody should view this as a win for robocallers. It should be viewed as a win for common sense and–in a larger sense, a win for freedom against unwise government regulation. And for that reason in particular my hat is off to IMC. Nicely done folks.
Chat soon.
Top 10 Safe Driving Tips for Teens
Driving is an exciting milestone for many teenagers, but it also comes with significant responsibilities and preparation. According to the Governors Highway Safety Association (GHSA), young drivers are almost four times more likely to be involved in a fatal car crash. January is Teen Driver Awareness Month and to ensure your child stays safe on the road, here are some essential driving tips to teach them:
1. Always Buckle Up
Make it a habit to wear your seatbelt, regardless of how short the trip is. Seatbelts are one of the simplest and most effective ways to protect yourself in an accident.
2. Stay Focused
Distractions can come from your cell phone, passengers, or even the radio. Avoiding distractions can be challenging, so it’s crucial to keep your attention on the road. If you need to make a call or send a text, pull over safely first.
3. Follow the Speed Limit
Speed limits are designed for your safety as well as everyone else on the road. Following them not only keeps you safe, but also gives you more time to react to unexpected situations.
4. Avoid Driving Under the Influence
Never get behind the wheel if you’ve been drinking alcohol or using drugs. Plan for a designated driver or use a rideshare service if you do not plan on staying sober. Your safety—and the safety of others—depends on it.
5. Get Enough Sleep
Driving while sleep-deprived can be just as dangerous as driving under the influence of alcohol or drugs. Poor sleeping habits can lead to fatigue, which can cause a driver to fall asleep or lose focus behind the wheel. It’s important to pull over to a safe place and take a break if you feel drowsy.
6. Keep a Safe Distance
Maintain a safe following distance from the vehicle in front of you. Tailgating is never a good idea. This gives you enough time to react in case the car suddenly stops or brakes.
7. Use Turn Signals
Always signal your intentions when changing lanes, merging, or turning. This communicates your plans to other drivers and helps prevent accidents.
8. Be Cautious in Poor Conditions
Rain, snow, and fog can substantially impact visibility and traction. Slow down and drive with extra caution in these conditions, especially when there may be ice on the roads.
9. Know Your Vehicle
Familiarize yourself with your car’s features, including hazard lights, brakes, headlights, and windshield wipers. Understanding how your vehicle works can help you react better in emergencies and feel more comfortable while driving.
10. Be a Defensive Driver
Always be aware of your surroundings. Anticipate the actions of other drivers and be prepared to react appropriately. Stay alert and keep your eyes moving to scan the road.
Conclusion
By following these safe driving tips and teaching them to your teen, they can help ensure a safer driving experience for everyone on the road. Remember, responsible driving not only protects you but also those around you. Drive safe!
Will New York’s New Flood Insurance Law Create a Coinsurance Problem for Lenders and Policyholders?
A law recently passed by the New York State Assembly and signed by Gov. Kathy Hochul puts significant limits on the flood insurance that lenders can require borrowers to purchase on loans secured by residential real property. Commentary in the weeks since the law went into effect has focused on potential conflicts between the law and the federal Flood Disaster Protection Act or the potential for loans and properties to be underinsured for flood. Another hidden problem may occur, however, if policyholders opt to purchase coverage for significantly less than the building replacement cost on a policy that includes a coinsurance penalty.
Signed by Gov. Hochul on December 13, 2024, and effective immediately, Assembly Bill A5073A prohibits mortgage lenders from requiring borrowers to obtain flood insurance on improved residential real property at a coverage amount exceeding the outstanding principal mortgage balance as of the beginning of the year for which the policy shall be in effect, or that includes contents coverage. The bill additionally requires lenders to provide clear and conspicuous notice to borrowers that the required flood insurance will only protect the lender’s interest and may not be sufficient to pay for repairs or other loss after a flood.
Of course, purchasing coverage for less than full replacement cost of the insured building carries the risk that coverage will be insufficient to rebuild or repair in the event of a loss. But policyholders who consider taking this chance should also consider whether their flood policy has a coinsurance penalty. These provisions can limit payouts to insureds who purchase coverage for substantially less than the building replacement cost by paying only a fraction of the full loss. For example, both the FEMA and ISO personal flood policies have the potential to pay only a specified portion of the loss or the actual (depreciated) cash value, whichever is greater, when insurance limits are less than 80% of full replacement cost. Even if the policy pays the actual cash value, however, the policyholder and their lender may come in for a nasty shock if the depreciated cash value of the building is many thousands of dollars less than what is needed to complete repairs.
If a coinsurance penalty applies, purchasing coverage at the amount of the outstanding mortgage principal balance under New York’s law thus does not necessarily translate into an insurance payout in that amount. Notably, the notice required to be given to mortgagors by New York does not include a specific warning to the property owner of this possibility.
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Maryland’s FAMLI Program, Part II: The Proposed Regulations
Maryland’s Family and Medical Leave Insurance (FAMLI) law will provide up to twelve weeks of paid family and medical leave, with the possibility of an additional twelve weeks of paid parental leave, through a state-run program. Contributions from employers and employees to fund the program will begin July 1, 2025. In part two of our series on the Maryland FAMLI law, we discuss the Maryland Department of Labor’s proposed regulations to implement this law.
Quick Hits
Maryland’s Family and Medical Leave Insurance (FAMLI) law will provide up to twelve weeks of paid leave, with some eligible for an additional twelve weeks, and contributions from employers and employees will start July 1, 2025.
The Maryland Department of Labor has issued multiple iterations of draft regulations for public comment, including general provisions, contributions, and equivalent private insurance plans (EPIPs).
Employers can opt for an EPIP instead of the state program but must meet stringent requirements and deadlines for approval.
Generally, an agency releases proposed regulations and, following a period of public comment, final regulations. The MDOL, however, has taken a far more extensive and inclusive approach to the traditional rulemaking process. After a series of public engagement sessions, the MDOL issued “draft” regulations at the beginning of 2024. Subsequently, the General Assembly amended the FAMLI law during its 2024 legislative session. The MDOL then released a second iteration of “draft” regulations. This was followed by a set of official proposed regulations, for which the comment period closed in November 2024 and, in January 2025, by another section of proposed regulations, which are open for public comment.
The proposed regulations are divided into five sections: General Provisions, Contributions, Equivalent Private Insurance Plans (EPIPs), Claims, and—just issued—Dispute Resolution. In the second part of this series, we summarize the first three sections of the proposed regulations.
General Provisions
This section of the proposed regulations contains definitions (although other definitions are scattered throughout the rest of the proposed regulations) and identifies forms and templates that the MDOL, through its newly-created FAMLI Division, will provide. Certain definitions closely follow—but are not identical—to relevant definitions under the federal Family and Medical Leave Act (FMLA). These include:
“Continuing treatment” covers incapacity and treatment, pregnancy and prenatal care (although the proposed regulations specifically add childbirth, miscarriage, or stillbirth), chronic conditions, permanent or long-term conditions, and conditions requiring multiple treatments.
“Incapacity and treatment” is defined as involving treatment two or more times within thirty days of the first day of incapacity or treatment by a health care provider with a regimen of continuing treatment. (The proposed regulations specifically include “home care administered by a competent individual under the direction of a licensed health care provider.”) Like the FMLA, an individual is required to visit the health care provider within seven days of the first day of incapacity, but the proposed regulations specifically permit the visit to be by telehealth. (The FMLA regulations state that the visit must be in person, but during the pandemic, the U.S. Department of Labor (DOL) began permitting telehealth visits as well).
“Licensed health care provider” generally follows the FMLA definition of “health care provider,” but unlike the FMLA, it does not include Christian Science practitioners.
“Serious health condition” means an illness, injury, impairment or physical or mental condition that requires either (1) inpatient care or (2) continuing treatment by a health care provider. The proposed regulations also add donation of a body part, organ, or tissue.
“Service member’s next of kin” means the nearest blood relative other than a spouse, parent or child, in a specific order set out in the regulations.
Other important definitions include the following:
“Application year” means the twelve-month period beginning on the Sunday of the calendar week in which FAMLI leave begins.
“Carrier” means an insurer authorized by the Maryland Insurance Administration to sell insurance.
“Equivalent private insurance plan” (EPIP) means a commercially insured or self-insured plan, approved by the FAMLI Division, that meets or exceeds the state plan.
“Commercially insured EPIP” means an equivalent private insurance plan provided by an insurance company that has been approved to sell FAMLI products.
“Domestic partnership” means a relationship between two individuals who are at least eighteen years old, not related within four degrees of consanguinity, not married or in a civil relationship with someone else, and agree to be in a relationship of mutual interdependence involving contributions to the maintenance and support of the other.
“Kinship care” refers to existing definitions in Maryland law (meaning both a relative providing for the care and custody of a child due to a serious family hardship, and continuous twenty-four-hour care and supportive services for a child placed by a child placement agency in the home of a relative related within five degrees of consanguinity).
This section of the regulations also provides that the FAMLI Division may mandate the use of approved templates and forms, including the following:
Employer notice to employee templates
Claim application forms, certification of qualifying event forms, proof of relationship templates, good cause exemption forms, and intermittent leave use templates
Request forms, reconsideration scheduling templates, decision templates, and good cause exemption forms
Contributions
This section of the proposed regulations establishes the following important points:
Online account
Employers must create an online account to make required information reports, remit contribution payments, and communicate with the state.
Qualified employment
All wages paid for qualified employment are subject to contributions up to the Social Security wage base. Employment is qualified if: (1) the employer pays unemployment insurance (UI) contributions to Maryland for that employee, or (2) the employer does not pay UI anywhere else and the employment is performed either wholly or partly in Maryland where (a) employment performed outside Maryland is “incidental” to the employee’s Maryland employment, (b) employment performed in Maryland is not incidental to out-of-state work and the base of operations or the place from which the employment is controlled or directed is in Maryland, or (c) the employment is performed by a resident of Maryland and not in a state in which employment is controlled or directed or where the base of operations is located.
Small employer
In determining whether the employer has fewer than fifteen employees, all employees in the company are counted—not just those in Maryland.
Failure to deduct contributions
If an employer fails to deduct an employee’s portion of the contribution from the employee’s pay, the employer is deemed to have elected to pay the employee’s share and may not recoup the payment from the employee. But if there were insufficient funds in the employee’s paycheck because of other required federal, state, and local withholdings, the employer may recoup the contribution within the next six pay cycles.
Wage reporting and payment schedule
On a quarterly basis, employers must make contribution payments and informational wage and hour reports covering each employee. To be considered for small employer status, employers must also report the number of nonqualified employees outside the state. Amendments to the quarterly reports may be made within a year.
Contribution delinquencies
Employers are given thirty days to address any delinquencies. If they fail to do so, the FAMLI Division can assess the amount of the contribution, interest, and a penalty in the amount of two times the contribution and order an audit of the employer.
Contribution overpayments
Employers may request reimbursement up to one year following any overpayment and must return the employee’s share to the employee. If the employee cannot be found within ninety days, the money goes back to the state.
Equivalent Private Insurance Plans
Many employers are interested in the option of an EPIP, rather than participating in the state program. An employer may purchase an EPIP from an approved insurance carrier or create a self-insured plan, and those employers will not be required to make the contribution payments to the state plan. However, it appears that establishing an approved self-insured EPIP may be quite challenging, if not virtually impossible, for most employers. Some of the more significant points in these proposed regulations with regard to EPIPs are as follows.
EPIP requirements
An EPIP must meet or exceed the benefits and requirements under the state plan, including: employee eligibility (and if the employee worked for the employer for less than 680 hours in the prior four quarters, the employer must contact the FAMLI Division for eligibility information); use of state-provided forms and notices; reasons, amount, and use of leave; benefit amounts; limits on the timing and amount of employee contributions; claims processing, appeals and reconsideration procedures; confidentiality of employee information; job protection; and provisions prohibiting retaliation for requesting or using FAMLI leave. Employers may not impose any additional conditions, restrictions, or barriers on the use of FAMLI leave beyond those imposed by the state plan.
Appeal to the state
Employees may appeal the denial of benefits to the state, and if the state determines that benefits are due and would not be paid by the employer, it may pay the benefits and require reimbursement from the employer and/or EPIP administrator. There may be additional consequences for repeated failure to pay benefits, including termination of the EPIP by the state.
EPIP application
Employers must submit a FAMLI application form (to be prepared by the FAMLI Division), which will be reviewed by the FAMLI Division. Employers must address any deficiencies of which they are notified within ninety days, or the application will be denied.
Application fees
For a commercially insured EPIP, the application fee ranges from $100 for an employer with fewer than fifteen employees in Maryland to up to $1,000 for an employer with 1,000 or more employees in the state. The application fee for a self-insured EPIP is $1,000. EPIP approval expires after one year, and the employer must reapply for approval at least ninety days before expiration.
Special requirements for self-insured EPIPs
Only employers with fifty or more employees are eligible for self-insured EPIPs. The employer must obtain a surety bond in the amount of one year of expected future benefits as calculated using a state-provided formula, and there are additional conditions and requirements as to the bond. An employer may apply for a waiver of the surety bond requirement based on its capitalization and existing bondedness. The EPIP funds must be maintained in a separate account from all other employer funds and used only for benefit payments.
Oversight by the FAMLI Division
The division may initiate a review of an EPIP at any time, and employers must provide any requested documentation and information within thirty days. Failure to cooperate with the review may result in termination of the EPIP approval.
Recordkeeping
The following documentation must be retained for at least five years: applications; benefits paid; adverse determinations; internal reconsideration requests and outcomes; underlying documentation for benefits determinations and reconsiderations; and employee contributions.
Reporting
Employers are ultimately responsible for all reporting, even if they use a third-party administrator. Failure to submit timely and complete quarterly reports on claims and wage and hour data may result in termination of the EPIP.
Voluntary termination
Employers may voluntary terminate an EPIP after one year, and must give thirty days’ notice to the FAMLI Division and employees if they do so. Upon termination, they must either join the state plan or have an approved application for a different EPIP.
Involuntary termination
The FAMLI Division may terminate an employer’s EPIP if it determines that the terms or conditions of the plan have been “repeatedly or egregiously violated in a manner that necessitates termination.” This could include failure to pay benefits at all or in a timely manner, failure to make timely determinations, failure to maintain an adequate surety bond, misuses of EPIP money, and failure to submit required reports. Employers will be given fourteen days’ notice and may request review within that period. Employers will be required to pay the amount that would have been owed to the state plan for the year prior to the termination.
Continuation of benefits upon termination
The EPIP must pay benefits for valid claims filed before the termination until the earliest of the following: the total amount of the claim is paid, the duration of the leave ends, or the application year ends. The employer must also provide a report on claims paid and contributions collected or owing, and the FAMLI Division will determine if there are any contribution amounts due to the state plan.
Declaration of Intent (DOI) to obtain EPIP approval
From May 1, 2025, through August 29, 2025, employers may submit a DOI (that meets certain requirements) to enroll in an EPIP, and they must submit an EPIP application by April 1, 2026, for a self-insured EPIP and by June 1, 2026, for a commercially insured EPIP. The FAMLI Division will approve or deny a DOI within fifteen days of submission. If approved, the DOI will allow the employer to collect and hold the employer/employee contributions that would have been paid to the state until EPIP approval, at which point the monies are either released, with the employee portions returned to the employee or used to fund a self-insured EPIP. The DOI may be terminated for numerous reasons, including misuse of funds, failure to comply with FAMLI program requirements, excessive withholding of employee contributions, failure to submit reports, failure to respond timely to FAMLI Division requests, and failure to submit or denial of an EPIP application.
Deadlines for EPIP applications
Initial self-insured EPIP applications must be submitted between January 1, 2026, and April 1, 2026, while initial commercially insured EPIP applications must be submitted between March 1, 2026, and June 1, 2026, with the effective date for both on July 1, 2026.
Please stay tuned for part three of this series, which will cover the claims section of the proposed regulations and the newly issued section on dispute resolution, as well as some significant employer concerns that have not been addressed by the proposed regulations. Part one of this series, “Maryland’s FAMLI Program, Part I: An Overview of The Law,” covered the details of Maryland’s Family and Medical Leave Insurance (FAMLI) program.
Handling Insurance Claims in the Wake of the Los Angeles Wildfires
Los Angeles continues to be devastated by wildfires, and our thoughts are with those who have been affected. Tragically, lives have been lost. Homeowners and businesses ordered to evacuate have left behind properties that suffered enormous property damage and loss. At this time, more than 15,000 structures have been burned and counting. Landmarks, places of worship, schools and notable business are among the structures that have been damaged or destroyed. Recent estimates have pegged insured losses in the $20 billion to $30 billion range with some estimates coming in even higher.
Safety is the number one priority. At some point, though, the focus will shift as the fires seize and those affected rebuild and replace their property. There has already been much talk of insurance availability and maximizing insurance recoveries will be a key component of the recovery process. For those who will go through the insurance claims process, we have prepared critical action items to help policyholders navigate the claim process.
Navigating the Insurance Claims Process: Action Items
Obtain a Copy of Your Insurance Policy: Having a complete copy of your insurance policy, including all forms and endorsements (or riders), is critical. If you do not have a copy, request one immediately from the insurer.
Identify Applicable Insurance: Many policies, including homeowners and commercial property policies, cover physical loss or damage. These policies can contain many types of coverages (e.g., business interruption, dwelling, etc.) and it is important to know what coverages may apply and what limits are available as you begin the claim process.
Give Prompt Notice: Notice should be provided to the insurer consistent with the policy’s notice requirements and is crucial to preserving rights under the policy.
Detail Your Claim: When submitting the claim, it generally helps to be as detailed as reasonably possible. If necessary, the claim can always be supplemented with additional information. At the same time, avoid “padding” the claim and be as accurate as possible.
Be Wary of Public Adjusters: Following any significant disaster, unscrupulous individuals prey on vulnerable policyholders by charging exorbitant rates or making promises they can’t keep. Be careful should you decide to retain a public adjuster.
Maintain Documentation: Documentation plays a vital role in ensuring the maximum recovery under the policy. Businesses should keep records of losses suffered. Policyholders should document the property damaged, whether it be through photos, video, receipts, or other record. It is also vital to keep records of communications with the insurance adjuster, including sending follow-up written confirmation following verbal conversations, to help ensure they don’t sidestep their commitments.
Be Friendly, but Assert Your Rights: Policyholders generally have a duty to cooperate and it typically inures to one’s benefit to maintain a cordial relationship with the adjuster. Do not give an overwhelmed adjuster a reason to try to deny the claim or limit the benefits paid out. That being said, be assertive and remain steadfast in your position if you believe you are not getting what you are entitled to—adjusters are prone to making mistakes like anyone else, especially when handling an abundance of claims.
California Wildfires—Insurance Tips for Policyholders
The recent wildfires in California have clearly had a catastrophic impact, destroying a vast number of homes and business premises across the region. Homeowners and businesses may have limited means to protect against nature’s forces, but, in this alert, we provide tips on steps that can be taken to protect against denials of coverage by insurers. Careful and proactive attention to insurance coverage considerations could be the key to restoring homes and business operations and weathering the financial storms that follow from such disastrous events.
Potentially Relevant Insurance Policies
It is vital for affected homeowners and businesses to review all relevant or potentially relevant insurance policies promptly, including excess-layer policies, and to comply with loss notification procedures. The most common source of coverage for most individuals and businesses is likely to be first-party property coverage insuring the damaged premises and other assets, including against the risk of fire, smoke, and related damage. In many cases, this insurance will be supplemented by specialty coverages that apply to specific situations.
For businesses, the coverage will typically include the following:
Property damage where losses are caused to the business premises and assets, including computers and machinery.
Business interruption (BI) where the business experiences loss of earnings or revenue due to property damage or loss of use caused by an insured peril, for a specified period of time after the insured event or until normal business operations have been resumed.
Contingent BI which generally covers loss of revenue arising from damage to the property of a supplier, customer, or other business partner.
Denial of access, where use or access to the insured property is prevented or restricted for a specific period of time, for example, if roads or bridges leading to the property have been blocked or destroyed.
Civil authority coverage, which covers losses arising from an order made by a civil or government authority that interferes with normal business operations.
Service interruption coverage, which typically covers the insured for losses related to electricity or interruption of other utilities or supplies.
Extra expense incurred to enable business operations to be resumed or to mitigate other losses.
When presenting an insurance claim, it is important that policy provisions are considered against the backdrop of potentially applicable insurance coverage law to ensure that the policyholder is taking the steps necessary to maximize coverage. Many property policies are written on an “all risks” basis, but there will typically be exclusions, sublimits, or restrictions applicable to certain perils or circumstances. Some coverages may be subject to different policy limits and policy deductibles that impact the amount of coverage available. A proper analysis of the policy wording is vital to enable the insured to take full advantage of the coverage provided.
Practical Tips to Maximize Coverage
There are several steps policyholders should consider when making an insurance claim arising from natural disasters like the California fires:
Be Proactive in Notifying Insurers
Most policies identify specific procedures to be followed in presenting a claim, and there are likely to be timing deadlines associated with them. Failure to comply may result in insurers seeking to restrict or deny coverage for a claim otherwise covered by the policy. Policyholders should carefully consider any notice requirements, including any clause allowing for notice of a loss or an event that may or is likely to give rise to a claim. Prompt notification may assist policyholders in securing early access to loss mitigation resources and related coverages.
Early Assessment of Coverage
There are significant benefits in evaluating coverage at an early stage to understand any issues that may impact the way in which the claim is presented. Consultation with experienced coverage lawyers will assist in identifying and analyzing responsive policies as well as anticipating coverage issues or exclusions insurers might seek to rely upon.
Collate and Preserve Relevant Documents
Insurers typically require proof of loss and damage along with extensive supporting documentation. It is critical to take steps early on to ensure that potentially relevant documents and electronic records are located and preserved. In particular, insurers may argue that some part of the revenue loss is attributable to other causes, such as poor business decisions or economic downturn, such that historical records often must be examined and relied upon.
Preparation of Proof of Loss
The preparation of a detailed inventory and proof of loss is a time-consuming and challenging process but can prove invaluable in seeking to challenge any settlement offers made by the insurers or any loss adjustors appointed on their behalf. Many commercial policies include claim preparation coverage, which covers costs associated with compiling a detailed claim submission. The appointment of independent loss assessors or forensic accountants can prove particularly beneficial for collating BI losses, which are often challenged by insurers. For example, insurers may adopt a narrow view of what constitutes “interruption” to the business, particularly where certain business activities are ongoing.
Advance Payments
Any delays by insurers in making appropriate and periodic payments will delay the rebuilding of premises and the resumption of business operations. Insureds should consider requests for interim or advance payments, prior to completion of the loss adjustment process, particularly if the policy expressly provides for this.
Evaluating and Challenging Insurer Positions
The validity of any coverage defenses or limitations raised by insurers will be impacted by the precise wording of the insurance contract and by the applicable governing law. Experienced coverage counsel will be able to assist an insured in assessing the merit and viability of any coverage issues raised by insurers, or by their appointed loss adjusters, and in maximizing the insured’s potential recovery.
PBGC Technical Update on Accelerated Premium Filing Due Dates for 2025
As described in further detail below, absent Congressional action, plan sponsors should take note that PBGC premium filings will generally be due one month earlier than usual for plan years beginning in 2025. This modification only applies for 2025.
Under ERISA Section 4007, the PBGC determines when premium filings—the submission of required data and payment of any required premiums for PBGC-insured plans—are due. Accordingly, PBGC Regulation Section 4007.11 provides that, in most cases, the premium filings for a plan year are due the “fifteenth day of the tenth calendar month that begins on or after the first day of the premium payment year.”
However, Section 502 of the Bipartisan Budget Act of 2015 (“BBA of 2015”) provides that, notwithstanding ERISA Section 4007 and the corresponding PBGC regulation, for plan years beginning in 2025 only, premium due dates are accelerated by one month to the “fifteenth day of the ninth calendar month that begins on or after the first day of the premium payment year.”
Technical Update Number 25-1 released by the PBGC on January 6th provides further information on the timing of premium payments under the BBA of 2015 for plan years beginning in 2025, including clarification that this accelerated nine-month timeline applies to all premium due date rules in 2025 (including the special due date rules under the PBGC regulation for new plans and short plan years). The Technical Update also indicates that information regarding these special filing due dates for 2025 will be incorporated into the PBGC’s forthcoming 2025 Comprehensive Premium Filing Instructions.
It is important to note, however, that this special acceleration period for 2025 does not supersede PBGC’s disaster relief policy—which, for plans affected by a disaster, generally extends premium filing due dates to correspond with any disaster-related extensions of Form 5500 due dates by the IRS—nor does it supersede any of the PBGC’s general filing rules for due dates that fall on weekends or Federal Holidays.
For illustrative purposes, a calendar year plan beginning January 1, 2024, had a premium filing due date of October 15, 2024, under ERISA Section 4007 and the corresponding PBGC regulation. However, pursuant to the special acceleration provision under the BBA of 2015, for 2025, the same plan will instead have an accelerated premium filing due date of September 15, 2025. The Technical Update includes a full chart for plan years beginning in 2025, which is reproduced below.
Date Plan Year Begins
Due Date
1/1/2025
9/15/2025
1/2/2025 – 2/1/2025
10/15/2025
2/2/2025 – 3/1/2025
11/17/2025*
3/2/2025 – 4/1/2025
12/15/2025
4/2/2025 – 5/1/2025
1/15/2026
5/2/2025 – 6/1/2025
2/16/2026*
6/2/2025 – 7/1/2025
3/16/2026*
7/2/2025 – 8/1/2025
4/15/2026
8/2/2025 – 9/1/2025
5/15/2026
9/2/2025 – 10/1/2025
6/15/2026
10/2/2025 – 11/1/2025
7/15/2026
11/2/2025 – 12/1/2025
8/17/2026
12/2/2025 – 12/31/2025
9/15/2026
* The 15th day of the ninth month on or after the first day of the plan year falls on a weekend or federal holiday.
Finally, Technical Update Number 25-1 comes with a warning: because of anticipated increased costs and burdens on plan sponsors, a repeal of Section 502 of the BBA of 2015 has been on the legislative agenda for the past eight years. So, a mid-year repeal of the accelerated premium filing schedule by Congress is possible. The PBGC pledges to “revise the premium filing instructions and notify practitioners as quickly as possible” if such a repeal occurs.
Alex Scharr also contributed to this article.
HHS OCR Settlements: Last Week in Review
During the week of January 6, 2025, the U.S. Department of Health and Human Services’ Office for Civil Rights (“OCR”) entered into resolution agreements and corrective action plans with Elgon Information Systems (“Elgon”), Virtual Private Network Solutions, LLC (“VPN Solutions”) and USR Holdings, LLC (“USR”) for violations of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Security Rule.
The proposed resolutions with Elgon and VPN Solutions are the eighth and ninth ransomware investigation settlements announced by OCR. Elgon is required to pay $80,000 to OCR and will be subject to its monitoring for three years to ensure compliance with HIPAA. VPN Solutions is required to pay $90,000 and will be subject to one year of monitoring. The corrective action plans also lay out certain steps each entity is required to take to resolve potential violations of the HIPAA Privacy and Security Rules.
The proposed resolution with USR, announced on January 8, 2025, stems from a data breach, during which an unauthorized third party/parties were able to access a database containing the electronic protected health information (“ePHI”) of over 2,900 individuals and able to delete ePHI in the database. The resolution agreement requires USR to pay $337,750 to OCR and take steps to resolve potential violations of the HIPAA Privacy and Security Rules. USR will be subject to OCR monitoring for two years to ensure compliance with HIPAA.
Last week’s flurry of settlements is in keeping with a broader trend of OCR Security Rule enforcement activity in the past year. These agreements underscore how it is critical that organizations of all sizes that handle ePHI ensure their compliance with the HIPAA Security Rule, which requires administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of ePHI.
Ohio Streamlines Unemployment Insurance Reporting for Commonly Controlled, Concurrent Employers
New for January 1, 2025, Ohio has streamlined its unemployment insurance reporting process to allow employers that control multiple corporate entities to report unemployment insurance for their concurrent employees in a single account.
Quick Hits
Ohio now allows commonly controlled, managed, or owned companies—or companies reorganized in such a way—to apply for a single unemployment insurance account for reporting purposes.
Companies must file a “transfer of business form,” which began to be accepted on January 1, 2025.
On December 11, 2024, the Ohio Department of Job and Family Services (ODJFS) adopted revisions to Ohio Administrative Code Rule 4141-11-13 that rescinded the prior prohibition on common paymaster reporting, where one entity reports unemployment insurance for a group of related entities with concurrent employment. This change allows Ohio unemployment insurance reporting to be more closely aligned with the Internal Revenue Service’s “common paymaster” employment tax reporting.
Under the new Ohio rule, commonly controlled, managed, or owned companies, or companies reorganized in such a way, may apply for a single unemployment insurance account to report all employees. The rule is currently being interpreted to include registered professional employer organizations in which shared employees are coemployed. Companies meeting the rule’s definition must file a “transfer of business form … identifying the concurrent employers, and whether the employees will be reported on the primary account due to concurrent employment or transfer.”
The rule defines “concurrent employment” as the employment of an individual with at least two substantially commonly owned, managed, or controlled employers during the same time period.” According to ODJFS, commonly owned companies may further reorganize their structure to “create a new commonly owned entity” or may “use one of their existing commonly owned businesses as the primary-wage-reporting entity.”
The changes significantly streamline the unemployment insurance reporting process for commonly owned companies. Under the prior Rule 4141-11-13, each corporate entity was required to report payments for employees regardless of whether it was controlled by another entity under a “common paymaster arrangement” or similar.
The rule also makes clear that common paymaster reporting is an exception to the rule that one legal entity may not report another legal entity’s employees for Ohio unemployment insurance purposes without transferring the direction and control of the employees to the legal entity that will report the employees for Ohio unemployment insurance. Thus, common paymaster reporting is more than just an administrative election to report unemployment insurance under a particular entity.
Next Steps
The ODJFS began accepting applications for a single unemployment insurance reporting account on January 1, 2025. Employers must file a “Transfer of Business” form (JFS 20101), which can be found on the ODJFS website here.
If the primary account does not have an employer ID, ODJFS requires the employer to open a new account online or file “Report to Determine Liability” form (JFS 20100), which can be found on the ODJFS website here.
Supporting Employees Impacted by Wildfires
The ongoing Los Angeles, California, wildfires have caused widespread devastation, forcing residents to evacuate, and have destroyed homes and communities. President Joe Biden approved a Major Disaster Declaration in response to the wildfires in Los Angeles County on January 8.
There are several ways employers can support employees impacted by the wildfires, including by making qualified disaster relief payments to employees and creating paid leave sharing programs. Employers can also set up employee assistance funds through existing public charities that administer disaster relief programs, create an employer-sponsored charitable organization that provides disaster relief payments to employees, or set up a donor-advised fund with a sponsoring public charity. In addition, employers can allow employees greater access to distributions and loans from accounts under employer-sponsored retirement plans.
This alert provides a high-level overview of qualified disaster relief payments, leave sharing programs, disaster relief options using charitable organizations, and expanded opportunities to receive distributions and loans from employer-sponsored retirement plans. The following is intended to provide a brief introduction to the options available to employers and does not address the specific requirements for each option. Qualified disaster relief payments, leave bank programs, charitable organizations, and expansion of distributions and loans from employer-sponsored retirement plans must be carefully structured to ensure compliance under the federal tax laws. It is recommended to consult with legal or tax professionals to ensure full compliance and avoid potential liabilities.
Qualified Disaster Relief Payments
Section 139 of the Internal Revenue Code permits employers to make “qualified disaster relief payments” to employees in areas with an emergency disaster or major disaster declaration. Qualified disaster relief payments are not included in the employee’s gross income or subject to employment tax. Employers can also deduct qualified disaster relief payments to the same extent as payments treated as income to the employee.
A payment qualifies as a “qualified disaster relief payment” if the following requirements are satisfied:
There has been a “qualified disaster” (e.g., a federally declared disaster issued by the President of the United States).
The payment is intended to cover reasonable and necessary personal, family, living, or funeral expenses, or reasonable and necessary expenses incurred for repairing or replacing a personal residence or its contents, provided the expenses were incurred as a result of the qualified disaster and not covered by insurance or other resources.
The payment is not income replacement (e.g., severance, furlough pay, or lost wages from missed work).
Since President Biden approved the Major Disaster Declaration, employers can therefore provide financial assistance to employees impacted by the wildfires, provided that the payments meet the additional requirements described above. Employers who provide qualified disaster assistance payments should maintain adequate records for the program and request that recipients retain receipts and other documentation.
Leave Sharing Programs
Under Internal Revenue Service (IRS) Notice 2006-59, the IRS allows employers, responding to a “major disaster” (as declared by the president), to establish “leave banks” that enable employees to contribute accrued leave (up to the maximum amount the employee normally accrues during the year) to a collective pool for use by employees who have been adversely affected by a “major disaster” necessitating absence from work. Because President Biden approved a Major Disaster Declaration in response to the wildfires in Los Angeles County, employers can use employer-sponsored leave banks to support employees adversely impacted by the wildfires with additional paid leave. The leave is treated as wages with respect to the leave recipient and subject to federal income tax withholding and employment tax (e.g., FICA and FUTA). Leave donors are not entitled to a charitable contribution deduction on their individual income tax returns for the donated leave, but the portion of leave donated is not treated as income or wages to the leave donor. For employer-sponsored leave banks to qualify for the US federal tax treatment addressed herein, leave bank programs must meet certain additional requirements set forth in IRS Notice 2006-59.
Charitable Organizations
Employers can also support employees and other individuals impacted by the wildfires through disaster relief options using charitable organizations. Employers can set up employee assistance funds through existing public charities that administer disaster relief programs, create an employer-sponsored charitable organization that provides disaster relief payments to employees, or set up a donor-advised fund with a sponsoring public charity.
Employee Assistance Fund Administered by Existing Public Charity
Employers can create and fund an employee assistance fund administered by an existing public charity. This allows an employer to provide critical financial assistance to employees affected by the disaster while leveraging the charity’s established infrastructure and expertise.
Employer-Sponsored Public Charity
Employers can establish an employee-sponsored public charity to provide disaster relief payments to employees and other individuals impacted by current and future disasters. Employee-sponsored public charities are typically funded not only by the employer but also by employees or other donors. An employer-sponsored public charity can generally provide disaster relief to employees affected by current and future disasters, including qualified and non-qualified disasters or emergency hardship situations.
Employee-Sponsored Private Foundation
Employers can also establish an employee-sponsored private foundation to provide disaster relief payments to employees and other individuals impacted by current and future disasters. Employee-sponsored private foundations are generally funded by the employer and subject to additional requirements and restrictions that do not apply to public charities. An employer-sponsored private foundation can provide disaster relief to employees affected by current and future qualified disasters (but not non-qualified disasters or emergency hardship situations).
Employer-Sponsored Donor-Advised Fund
Employers can set up a donor-advised fund with a sponsoring public charity to support employees and their family members who are victims of qualified disasters. The sponsoring organization manages the fund, and a selection committee has advisory privileges over the fund. An employer-sponsored donor-advised fund can provide disaster relief to employees affected by current and future qualified disasters (but not non-qualified disasters or emergency hardship situations).
Disaster relief options involving charitable organizations are subject to complex tax requirements and must be carefully structured to ensure compliance.
Distributions and Loans From Employer-Sponsored Retirement Plans
Employers can allow their retirement plans to offer relief to “qualified individuals” impacted by a qualified disaster through expanded distribution options, increased access to plan loans, and loan repayment relief. A “qualified individual” is an individual whose principal residence during the incident period of any qualified disaster is in the qualified disaster area and the individual has sustained an economic loss by reason of that qualified disaster.
To the extent the plans do not already have provisions related to expansions of distributions and loans in the context of federally declared disasters, employers will need to amend their plans and would have until the end of this year to adopt the amendments.
Qualified Disaster Recovery Distributions
Employers can permit qualified individuals to receive distributions from the employee’s plan account in an amount up to $22,000 per disaster, with no early withdrawal penalty, and the option to repay all or a portion of the distribution within three years.
Increase to Plan Loan Limit
Employers can increase the maximum loan amount available to qualified individuals for plan loans made during a specified period following a qualified disaster. The plan loan limit may be increased to the full amount of the individual’s vested account under the plan, but not more than $100,000 (minus outstanding plan loans of the individual).
Relief for Plan Loan Repayments
Employers can also provide qualified individuals additional time (up to one year) to repay plan loans outstanding on the date of the declaration of the qualified disaster.
Wisconsin Appellate Court Interprets Construction Defect Exclusion and Fungi Exclusion
Cincinnati Insurance Company v. James Ropicky, et al., No. 2023AP588, 2024 WL 5220615 (Wis. Ct. App. Dec. 26, 2024)
On December 26, 2024, the Court of Appeals of Wisconsin issued is decision in Cincinnati Insurance Company v. James Ropicky, et al., No. 2023AP588, 2024 WL 5220615 (Wis. Ct. App. Dec. 26, 2024), addressing whether an ensuing cause of loss exception to a Construction Defect Exclusion, Fungi Exclusion, and Fungi Additional Coverage endorsement contained in a homeowner’s insurance policy issued by Cincinnati to its insureds precluded coverage for damage sustained by the insureds’ home following a May 2018 rainstorm. A final publication decision is currently pending for this case.
Background Information
James Ropicky and Rebecca Leichtfuss (collectively “the insureds”) submitted a claim to their homeowner’s insurer, Cincinnati Insurance Company (“Cincinnati”), for alleged water and fungal damage that their home sustained as a result of a rainstorm that occurred on May 11, 2018. Based on Cincinnati’s investigation and the opinions rendered by its expert following his inspections of the insureds’ home, Cincinnati provided limited coverage for the insureds’ claim based on the contention that a majority of the damage was the result of “design or installation deficiencies” that had allowed storm water to enter the interior wall structure. Therefore, Cincinnati concluded the subject damage was either excluded under the policy’s Construction Defect Exclusion and Fungi Exclusion, or subject to the policy’s Fungi Additional Coverage endorsement. As a result, Cincinnati paid $10,000 under the policy’s fungi-related coverage (Fungi Additional Coverage endorsement) and $2,138.53 for other damages falling within the ensuing cause of loss exception to the Construction Defect Exclusion. Cincinnati denied coverage for costs associated with remedying and repairing the purported construction defects.
Eventually, Cincinnati filed a lawsuit against its insureds seeking declaratory judgement as to its coverage position. In response, Cincinnati’s insureds disputed Cincinnati’s coverage position and filed counterclaims against Cincinnati for breach of contract, declaratory judgment, and bad faith related to Cincinnati’s handling of their claim. The circuit court ultimately granted Cincinnati’s summary judgment motion as to coverage, agreeing that the Construction Defect and Fungi Exclusions contained in the applicable homeowner’s policy barred any additional coverage under the policy’s terms beyond that which Cincinnati had already paid with respect to the alleged May 2018 rainstorm damage. Further, because the circuit court ruled in Cincinnati’s favor and held that Cincinnati had not breached its contract with the insureds, the court dismissed, sua sponte, the insured’s bad faith claim as a matter of law. The insureds appealed the circuit court’s decision.
Decision and Analysis
On appeal, the Court of Appeals of Wisconsin concluded the ensuing cause of loss exception to the policy’s Construction Defect Exclusion reinstates coverage, and the policy’s Fungi Additional Coverage endorsement renders the Fungi Exclusion inapplicable. Thus, the appellate court reversed the circuit court’s decision, finding the circuit court erred in granting summary judgment in Cincinnati’s favor, and remanded the case for further proceedings.
First, the appellate court held that even assuming the Construction Defect Exclusion applies, the damage to the insureds’ home nevertheless constitutes an ensuing cause of loss under the policy’s ensuing cause of loss exception and the authority of Arnold v. Cincinnati Insurance Co., 2004 WI App 195, 276 Wis. 2d 762, 688 N.W.2d 707. Relying on Arnold as binding authority, the appellate court explained that an “ensuing loss” “is a loss that follows the excluded loss ‘as a chance, likely, or necessary consequence’ of that excluded loss[,]” and “in addition to being a loss that follows as a chance, likely, or necessary consequence of the excluded loss, an ensuing loss must result from a cause in addition to the excluded cause.” Id. at ¶¶27, 29 (emphasis added). The appellate court then proceeded to apply the following three-step framework adopted in Arnold to determine whether the ensuing cause of loss exception applies: (1) first identify the loss caused by the faulty workmanship that is excluded; (2) identify each ensuing loss, if any – that is, each loss that follows as a chance, likely, or necessary consequence from that excluded loss; and (3) for each ensuing loss determine whether it is an excepted or excluded loss under the policy. See id. at ¶34. Based on the appellate court’s application of this three-step framework, it concluded the rainwater at issue, i.e., the May 2018 rainstorm, was an ensuing cause of loss within the meaning of the applicable policy’s ensuing cause of loss exception to a Construction Defect Exclusion.
Second, the appellate court held that the policy’s Fungi Exclusion and its anti-concurrent cause of loss clause did not exclude coverage for the damage to the insureds’ home. Most significantly, in reaching this conclusion, the appellate court determined that the phrase “[t]his exclusion does not apply” in the Fungi Exclusion does not introduce an exception to the exclusion, but rather introduces two scenarios in which the Fungi Exclusion is never triggered in the first instance because its conditions for application are never satisfied. According to the appellate court, one of the circumstances enumerated in the Fungi Exclusion, wherein it states the exclusion “does not apply” “[t]o the extent coverage is provided for in Section I, A.5. Section I – Additional Coverage m. Fungi, Wet or Dry Rot, or Bacteria with respect to ‘physical loss’ caused by a Covered Cause of Loss other than fire or lightning,” rendered the exclusion inoperative with respect to the subject loss. Notably, the concurring opinion explains how the majority’s interpretation of the Fungi Exclusion’s “this exclusion does not apply” language appears to depart from prior case law, wherein Wisconsin courts have repeatedly concluded that this language creates an exception to an exclusion that reinstates coverage. See Neubauer, J. (concurring).
Third, the appellate court held the policy’s $10,000 limit of Fungi Additional Coverage applies to the portion of subject home’s damages that was at least partially caused by “fungi, wet or dry, or bacteria.” However, the $10,000 limit does not decrease or limit the coverage that was otherwise available for the home’s damages caused solely by rainwater.
Based on its interpretation of the policy provisions set forth above, the appellate court additionally held: (1) genuine questions of material fact exist at least as to whether “fungi, wet or dry rot, or bacteria” caused any of the damage to the insureds’ home, and if so, what portion of the damage is attributable to “fungi, wet or dry rot, or bacteria”; (2) only after properly apportioning any damage caused by “fungi, wet or dry rot, or bacteria” can Cincinnati determine the extent of coverage it is obligated to provide under the terms of the homeowner’s insurance policy; and (3) because issues of material fact remain as to the cost to repair the construction defects (not the ensuing loss), this issue remains to be addressed on remand. The appellate court also reinstated the insureds’ bad faith claim asserted against Cincinnati in the underlying action, which had been dismissed by the circuit court when granting summary judgment in Cincinnati’s favor.