Category: Insurance

How Technological Advances Possibly Affect Automobile Insurance Policy Holders in New Jersey

In the 1970’s, “no-fault” insurance laws were enacted in New Jersey and several other states in response to criticism regarding the time-consuming and costly process of determining who was at-fault when an accident occurred. 

No fault insurance laws sought to streamline the claims process.  One key feature allowed insurers to pay for medical treatment of their injured policyholders.  This allowed for timely treatment and provider payment.  NJ automobile insurance policies offered up to $250,000 in coverage for medical treatment.  Recent changes in law now allow insureds to choose less coverage for medical treatment.

Further, recent technological advances change the way insurance customers choose coverage online.  While customers are served by the ease, flexibility, and pricing of policies through internet platforms, some adverse consequences naturally flow.  In this article, we discuss the changes, the consequences and subsequent response from participants and 3rd parties to address these outcomes.

Background

In the 1960’s, many more vehicles were entering into American roadways than in previous decades.  Baby boomers were coming of age and more cars were sold than ever before.  A natural consequence was automobile accidents and as a result, the necessary adjudication of which party caused the collision.

Insured and insurers alike expressed criticism of the process which consisted of petitioning the civil court system to resolve disputes.  In response, state legislatures adopted laws designed to streamline the process, and the 1970’s, many states adopted policies allowing injured accident victims to recover damages from their own auto insurance policies.

Almost half of the United States now have similar laws where policyholders are entitled to “benefits” from their own policies.  This of course means insurers are on the hook for more compensation, a fact they obviously utilized to lobby legislatures to place certain restrictions on the right to sue for damages not only against the insurer but against the tortfeasor as well.

One of the “trade-offs” made by the legislation was injured parties giving up some of their rights to sue under certain circumstances.

New Jersey No-Fault Law and Application

New Jersey’s no-fault laws have been amended throughout the years.  One of the most profound changes to the law occurred in 1998 with the passage of the Automobile Insurance Cost Reduction Act (“AICRA”).  This change in law gave NJ residents the opportunity to purchase a standard or basic policy.

The standard policy is much like a typical no-fault policy containing Personal Injury Protection (PIP) which pays for medical treatment (more on this in a moment); liability coverage for injury or property damage to another; and uninsured/underinsured coverage which kicks in if the at-fault driver has no or insufficient coverage.

A basic policy provides minimum coverage in certain areas such as personal liability, property damages, and medical benefits.  Because having automobile insurance is mandatory, the purpose of the basic policy was essentially to afford an option to those who simply wanted to follow State mandates.

With regard to the right to sue restrictions, a New Jersey insured was and still is offered a choice – give up the right to sue for “non-permanent” injuries (those with no objective medical evidence of permanency) and have the premium reflect a savings or retain the right to sue (zero threshold) and pay a much higher premium to offset the cost.  Further, one of the things insurers had to trade was that victims would have $250,000 worth of PIP coverage to pay for medical expenses.

Changes to NJ No-Fault Insurance and Consequences

The AICRA changes have been in effect for years.  Since that time, the internet altered the manner in which policyholders interact with insurers when choosing coverages.

The internet streamlines the sales process for many businesses.  Insurance is no different.  What is troubling about this streamlining is the lack of guidance users receive from insurance companies regarding their choice of coverage.

For example, one website asks you to choose between:

  • More Affordable
  • Popular Coverage
  • More Coverage

It is not so much that the choices are misleading – they aren’t.  However, other than these descriptions, there is little explanation of their consequences.  If you choose the “more affordable” option, you’re led to a screen that explains the coverages in more detail.

Do people read all the information?

Can they understand the language even if they do decide to read it?

Could it be that the ease of picking the cheapest option is too much to overcome?

Consider this description from a law firm in Maryland:

“PIP is easy to overlook, especially in this age of online insurance applications. It’s one box out of 200 that you can check. The application will say something like, “Waive PIP and save $57.” The applicant clicks and saves 57 bucks…when in reality, they’ve lost $2,500 if they get in an auto accident. Too many Maryland policyholders waive their PIP coverage. It’s really a good coverage not to waive. “

Likewise, in New Jersey’s Standard Coverage Selection Form, used by insurance companies as a questionnaire to draft a proposed policy, the PIP limits selection form actually lists the savings from choosing lower limit PIP coverage.  Remarkably, no such comparison exists on the Form for reductions in Bodily Injury/Liability limits.

In the old days, an insurance agent was tasked to explain various coverages.  A real human being who would answer questions depicting real word scenarios involving accidents.  This obviously allowed for more informed choices.

Now, a great deal of selling is done online.  Many cost-aware customers might respond only to a difference in price.  Many can and do simply choose the cheaper alternative.  This could cause problems later if an accident occurs and a claim is made.

A Potential Problem with Minimal Coverages

Consider a situation where the insured has the minimum coverages for PIP – $15,000.  The insured sustains a back injury and begins treatment.  The Emergency Room visit totals $6,000 complete with 3 level CT scans which reveal problems with the upper and lower back.  The insured then follows up with an orthopedic who requests MRI scans on the back which equal another $2,500.  Add in some physical therapy and the $15,000 PIP limits are exhausted in a couple of months.

None of this is a problem if the scans fail to reveal a major issue.  A soft tissue injury is serviceable under this scenario in that the insured gets treatment and is on the way to recovery.  If the scans reveal problems, such as multiple herniated discs and impingement on the spinal cord, treatment options become a tricky proposition.

The treatment is tricky because the benefits are gone.  Now the injured party must seek other options – some of these can be costly.

Responding to the Need

In response to the above, providers, lawyers and other market participants stepped in to serve the need for accident victims to secure medical treatment.  The following are some of those alternative payment methods.

Letters of Protection

Letters of protection (LOP’s) are agreements between the injured party’s attorney and a medical provider that the medical bills will be “protected” by the proceeds of any settlement received.  In return for the attorney’s promise to honor the lien against file, medical providers will perform a variety of treatments to the plaintiff, including surgery.  Surgery is often a deciding factor in the plaintiff’s ability to secure the treatment because normally, the case’s settlement value is increased after the procedure.

Use Existing Health Insurance to Pay Bills After PIP is Exhausted

In some instances, plaintiffs can use their own health insurance to pay for accident medical bills.  In NJ, insureds can choose which coverage is primary.  However, some health insurance policies exclude coverage for car accidents.  The standard health insurance limitations apply as well.  These include the need to pay deductibles, co-payments and sometimes co-insurance.  Further, there may be limits on the choice of medical provider.  Some policies require doctors to be “in network”.

Litigation Funding

In many cases, litigation funding is used to pay for much-needed medical treatment.  Originally utilized to bridge the gap between accidents and settlement, litigation funding sought to alleviate the need for plaintiffs to accept low-ball settlement offers simply because they were struggling financially.  Because lawsuit funding is the sale of a portion of the future proceeds of a personal injury case, they are sometimes used to pay for surgical or other procedures when there is no coverage available.

Technological Advances and Practical Trade-offs

Technology has certainly made life more convenient over the years.  Conveniences exist today that weren’t in our collective consciousness 20 years ago.  Consider being able to speak via video conference to someone on the other side of the world for FREE, when the toll charges for an overseas telephone call were many dollars only a short time ago.

But technology can cut both ways.  The ease with which insurance consumers can pick coverages that may or may not be in their best interest may be one such trade-off.  Thankfully, market participants (doctors, lawyers, litigation finance companies) step in and address the outcomes which naturally arise.  Free markets usually perform this function admirably.

Article By Paul M. Coppola of Fair Rate Funding

For more insurance and reinsurance legal news, click here to visit the National Law Review.

© Copyright 2022 Fair Rate Funding

Abortion-Related Travel Benefits Post-Dobbs

Immediately following the Supreme Court decision in Dobbs v. Jackson returning the power to regulate abortion to the states, a number of large employers announced that they would offer out-of-state travel benefits for employees living in states where abortion-related medical care is unavailable. Employers considering offering abortion-related travel benefits have several key considerations to keep in mind. The law currently allows health plans to provide reimbursement for travel primarily for and essential to medical care. Although this area of the law is evolving, employers with self-funded medical plans may amend their existing medical plans to provide abortion-related travel benefits while those with fully insured medical plans may face more obstacles in providing such benefits.

In Dobbs v. Jackson, an abortion clinic challenged a Mississippi law that would ban abortion after 15 weeks of pregnancy, with limited exceptions. In establishing the constitutional right to abortion in Roe v. Wade, the Supreme Court restricted states in their ability to limit or ban abortions before viability of the fetus, or 24 weeks from the time of conception. In upholding the Mississippi law, the Supreme Court overturned Roe and held that the protection or regulation of abortion is a decision for each state.

Alabama, Arkansas, Kentucky, Missouri, Oklahoma and South Dakota have already banned or made abortion illegal pursuant to trigger laws which went into effect as of the Supreme Court decision on June 24, 2022.  Also, a number of additional states are expected to soon have similar legislation in effect, either by virtue of expected legislative action or trigger laws with slightly delayed effective dates.  In response, a number of employers have announced that they will reimburse all or a portion of abortion-related travel expenses for employees in states where abortions are banned or otherwise not available.

Under Section 213(d) of the Internal Revenue Code, the definition of “medical care” includes transportation that is both “primarily for and essential to” the medical care sought by an individual. These types of travel benefits have historically been utilized in connection with certain specialized medical treatments, such as organ transplants.  However, Section 213(d) is not limited to particular types of procedures, and thus forms the framework for providing abortion-related travel benefits through existing medical plans.

Although Code Section 213(d) applies to both self-insured and insured medical plans, the substantive coverage provisions of insured medical plans will generally be governed by the state insurance code of the state in which the insurance policy is issued.  Coverage for abortion services or any related travel benefits may not be permitted under the insurance code of the state in which the policy is issued, or an insurer may not offer a travel benefit for such services even if permitted to do so.  Self-insured plans, by contrast, provide employers more flexibility in plan design, including control, consistent with existing federal requirements, over the types and levels of benefits covered under the plan. As noted above, existing plans may already cover travel-related benefits for certain types of medical procedures.

Employers with high-deductible health plans tied to health savings accounts (HSAs) will need to consider the impact of adding abortion-related travel benefits to such plans.  Travel-related benefits of any type would not appear to be eligible for first dollar coverage, and thus may be of minimal benefit to participants enrolled in high-deductible health plans.

Employers with fully insured medical plans that do not cover abortion-related travel benefits may be able to offer a medical travel reimbursement program through an integrated health reimbursement arrangement (HRA).  An integrated HRA is an employer-funded group health plan from which employees enrolled in the employer’s traditional group medical insurance plan are reimbursed for qualifying expenses not paid by the traditional plan.

Another potential option for employers with fully insured medical plans may be to offer a stipend entirely outside of any established group health plan. Such reimbursement programs may result in taxable compensation for employees who receive such reimbursements. Also, employers would need to be sensitive to privacy and confidentiality considerations of such a policy, which should generally be minimized if offered in accordance with the existing protections of HIPAA through a medical plan and under which claims are processed by an insurer or third-party administrator rather than by the employer itself.

Additionally, some state laws may attempt to criminalize or otherwise sanction so-called aiding and abetting actions related to the procurement of abortion services in another state.  This is an untested area of the law, and it is unclear whether any actions brought under such statutes would be legally viable.  In this regard, Justice Kavanaugh stated as follows in his concurring opinion in Dobbs:  “For example, may a State bar a resident of that State from traveling to another State to obtain an abortion? In my view, the answer is no based on the constitutional right to interstate travel.” (Kavanaugh Concurring Opinion, page 10.)  This is an area that will require continual monitoring by employers who offer abortion-related travel benefits.

Article By Thomas G. Hancuch, Philip L. Mowery, and Amal Rafiq of Vedder Price

For more labor and employment legal news, click here to visit the National Law Review.

© 2022 Vedder Price

Medicare Advantage: OIG Report Finds Improper Denials

On April 27,2022, the Office of Inspector General of the Department of Health and Human Services (OIG), Office of Evaluations and Inspections, issued a report on the performance of Medicare Advantage Organizations (MAOs) in approving care and payment consistently with Medicare coverage rules. In its review, OIG found that 13% of MAO denials of prior authorization requests should have been approved and that 18% of payment requests from providers were improperly denied. OIG also made a number of recommendations to the Center of Medicare and Medicaid Services (CMS) with respect to its oversight of MAOs.

Purpose and Method of the Study

OIG undertook the study to assess whether MAOs are appropriately providing access to medically necessary services and making payment to providers consistently with Medicare coverage rules. Since CMS pays MAOs principally by capitation, MAOs have a potential incentive to increase their profits by denying access to care of beneficiaries or by denying payments to providers. CMS’s annual audits of MAOs have indicated some persistent problems related to inappropriate denials of service and payment. As enrollment in Medicare Advantage continues to grow, OIG viewed it as important to ensure that medically necessary care is provided and that providers are paid appropriately.

OIG conducted the review by randomly selecting 250 denials of prior authorization requests and 250 payment request denials by 15 of the largest MAOs during a week in June of 2019. OIG had coding experts review the cases and had physician reviewers examine the medical records. Based on these reviews, OIG estimated the rates at which MAOs issued denials of services or payment that met Medicare coverage rules and MAO billing rules. OIG also examined the reasons for the inappropriate denials and the types of services involved.

Standards

MAOs must cover items and services included in fee-for-service Medicare, and may also elect to include additional items and services. MAOs are required to follow Medicare coverage rules that define what items and services are covered and under what circumstances. As the OIG states in the Report, MAOs “may not impose limitations – such as waiting periods or exclusions from coverage due to pre-existing conditions — that are not present in original Medicare.” In following Medicare coverage rules, MAOs are permitted to use additional denial criteria that were not developed by Medicare when they are deciding to authorize or pay for a service, provided the clinical criteria are “no more restrictive than original Medicare national and local coverage policies.” MAOs may also have their own billing and payment procedures, provided all providers are paid accurately, timely, and with an audit trial.

MAOs utilize prior authorization requests before care is furnished to manage care and payment requests from providers to approve payment for services provided. Beneficiaries and providers may appeal such decisions, and beneficiaries and providers are successful in many of the appeals (for a one-time period, as many as 75% of the appeals were granted).

Findings

Prior Authorization Denials

In the study, OIG found that 13% of prior authorization denials were for services that met Medicare coverage rules, thus delaying or denying care that likely should have been approved. MAOs made many of the denials by applying MAO clinical criteria that are not part of Medicare coverage rules. As an example, a follow-up MRI was denied for a beneficiary who had an adrenal lesion that was 1.5 cm in size, because the MAO required the beneficiary to wait one year for such lesions that are under 2 cm in size. OIG’s experts found such a requirement was not contained in Medicare coverage rules and was therefore inappropriate. Rather, the MRI was medically necessary to determine if the lesion was malignant.

OIG also found instances where MAOs requested further documentation that led to a denial of care when it was not furnished, as such additional documentation was not required to determine medical necessity. OIG’s reviewers found that either sufficient clinical information was in the medical record to authorize the care or the documentation requested was already contained in the medical record.

Payment Denials

OIG found in the study that 18% of payment denials fully met Medicare coverage rules and MAO payment policies. As a result of these denials, payment was delayed or precluded for services that should have been paid.

OIG found that common reasons for these inappropriate payment denials were human error in conducting manual reviews (for example, the reviewer not recognizing that a skilled nursing facility (SNF) was an in-network provider), and inaccurate programming.

OIG also found that advanced imaging services (including MRIs and CT scans), stays in post-acute facilities (including SNFs and inpatient rehabilitation facilities), and injections were the services that were most prominent in the inappropriate denials that should have been authorized for care and payment in accordance with Medicare coverage rules.

OIG Recommendations

Based on the study, OIG recommended that:

  • CMS should issue new guidance on both the appropriate and inappropriate use of MAO clinical criteria that are not contained in Medicare coverage rules. In particular, OIG recommended that CMS should more clearly define what it means when it states that MAO clinical criteria may not be “more restrictive” than Medicare coverage rules.

  • CMS should update its audit protocols to address issues identified in the report such as MAO use of clinical criteria and/or examine particular service types that led to more denials. OIG suggests CMS should consider enforcement actions for MAOs that demonstrate a pattern of inappropriate payment denials.

  • CMS should direct MAOs to identify and address the reasons that led to human errors.

CMS reviewed the OIG report and concurred with each of OIG’s recommendations. Those recommendations can affect future coverage decisions as well as utilization of prior authorization tools. AHIP, a national association of health care insurers, challenged the OIG’s sample size as inappropriate to support the agency’s conclusions, and defended prior authorization tools.

Takeaways

Given CMS’s concurrence with the report’s findings, we recommend that MAOs track these issues over the next several months in advance of CMS’s Final Rate Announcement for CY 2024.

MAOs should also be aware of potential False Claims Act (FCA) exposure in this area. FCA exposure can arise when a company seeks and receives payments despite being out of compliance with the basic terms for its participation. If an MAO knew it was denying claims that should be paid because they would be covered under traditional Medicare, but the MAO was still collecting full capitation, it is possible that a whistleblower or the government may pursue FCA liability. This risk warrants attention because whistleblowers can bring qui tam suits under the FCA, with resulting high costs for defense and potentially high penalties if a violation is proven (or settled to avoid further litigation). That said, an FCA suit based on this theory would raise serious questions, including whether any non-payment actually met the FCA’s “knowingly” standard (which includes reckless disregard), or whether any non-payment met the materiality threshold necessary to demonstrate a violation of the FCA.

Article By Alexis Finkelberg Bortniker, C. Frederick Geilfuss II, Matthew D. Krueger, Maureen F. Kwiecinski, and Kinal M. Patel at Foley & Lardner LLP

For more health law and managed care news, click here to visit the National Law Review.

© 2022 Foley & Lardner LLP

Russia’s Invasion of Ukraine: Maximizing Insurance Coverage to Mitigate Financial Losses

Russia’s invasion of Ukraine has led not only to severe humanitarian consequences, but also to severe economic consequences for Ukrainians, Russians, and others who conduct business within the region.  From the destruction of physical property in Ukraine, to forced abandonment of Ukrainian assets, to trade interruptions stemming from global sanctions on Russia, economic fallout from the invasion has been, and will continue to be, vast and wide-ranging.

Fortunately, political risk insurance policies may cover some of the economic distress that stems from precisely this type of situation.  While each is different, political risk policies often cover losses arising from forced divestiture or forced abandonment of assets, as well as political violence, currency inconvertibility, business interruption, and expropriation.  Such policies could come into play in a variety of ways with respect to Russia’s invasion of Ukraine:

  • Forced divestiture and forced abandonment of assets coverage protects a policyholder from losses arising from the necessary abandonment of a company’s operations.  This type of coverage often requires that a government agency (such as the U.S. Department of State) advise evacuation, either of all citizens or government personnel.  The United States issued such an advisory to citizens to leave Ukraine prior to the Russian invasion.  Thus, losses stemming from a U.S. company’s inability to conduct its business due to the evacuation of U.S. personnel may be covered.
  • Political violence coverage protects policyholders from losses arising from property damage due to riots, protests, other civil commotion, and sometimes war and politically-motivated terrorism.  Therefore, losses stemming from property damage due to Russia’s invasion of Ukraine may be covered.
  • Currency inconvertibility coverage protects policyholders from losses arising from their inability to convert local currency into foreign exchange due to exchange restrictions posed by a foreign government.  Technically, the U.S. dollar is still tradeable in Russia, although the Russian ruble has sunk to record low levels.  Ukraine has suspended all currency trading; whether this type of coverage applies will depend heavily on policy language.
  • Business interruption coverage may offer protection when any of these events results in loss of business income.  Companies that have been required to cease operations due to the disruption that sanctions have had on supply chains may potentially seek coverage for losses stemming from such interruption.
  • Expropriation coverage protects against losses caused by government actions that deprive the insured of all or part of its interest in a foreign investment or enterprise.  This may include reducing the control or rights of the insured’s investment, such as depriving the insured of its tangible property or control over its funds.  Russian President Vladimir Putin has expressed support for a law to nationalize assets of foreign companies that leave Russia over its invasion of Ukraine.  To the extent such nationalization comes to pass, expropriation coverage may apply.

Understandably, insurance may not be a company’s first concern when seeking to protect the health and safety of its employees during violent conflict.  But it is important for companies to act quickly to ensure that they maintain their coverage rights.  Actions taken now may have a significant impact on potential insurance recovery later.

First, policyholders should examine all “notice” requirements under their policies.  These requirements prescribe when and how a policyholder must provide notice to the insurer that the policyholder intends to file a claim.  Particularly because these requirements may be subjective (such as requiring notice to be provided “as soon as reasonably practicable”), it is important to provide notice promptly and to keep clear records of all actions taken.  In addition, certain policies may have rigid documentation requirements; keeping good records now will make securing coverage an easier task later.

Second, policyholders should review any deductible (or self-insured retention) requirements, which typically are listed near the beginning of a policy.  Understanding the deductible amount and weighing it against the policyholder’s losses or potential losses will help the policyholder in evaluating the merits of pursuing coverage from an insurer.

After taking these initial steps, there are several provisions policyholders should be aware of in moving forward with a claim.  Many political risk policies contain choice of law provisions.  These policies may require the use of the foreign state’s law, and potentially the use of the foreign state’s jurisdictional forum.  Of course, filing a claim in such a forum may prove difficult or even impossible given the rapidly evolving, complex situation on the ground.  And application of Russian law to a coverage dispute that may involve questions over whether the insured’s losses stemmed from unlawful actions by the Russian government may pose substantial complications.  Policyholders should read the policy carefully to determine the scope and applicability of such choice of law and forum provisions. Of course, every insurance policy is different, and the scope of potentially available coverage will be driven by specific policy language and specific law in various jurisdictions.  It is important to analyze policy language carefully to preserve and maximize potential recoveries.

© 2022 Gilbert LLP

Article By Emily P. Grim, Alison Gaske and Brandon Levey of Gilbert LLP

For more articles on Ukraine, visit the NLR Global section.

Will an Act of War Destroy Your Cyberinsurance Coverage?

Cyberinsurance spurs many complaints from US business. The cost is skyrocketing, retentions (deductibles) are rising quickly, and the insurance companies push their own panel lawyers on customers despite other relationships. Ransomware or email fraud can be excluded from some policies.

But news of significant hacks drives more companies into the cyberinsurance market despite the costs. According to Bloomberg, cyberinsurance prices rose nearly 100% in 2021 and keep climbing. Travelers Insurance, working to justify the leaping costs of its products, lists the following reasons for higher cybersecurity prices: a wave of ransomware, rising breach response costs (from forensic and legal experts to ransom payments and regulatory fines), increasing tech complexity and budgets, inadequate cybersecurity hygiene (which is why better controls can now lead to lower insurance prices), lack of advance response plans, and business interruption expenses. Shutting down business operations may be a way for criminals to force ransom payments, but it also creates an expensive risk reduction system, and all companies are suffering from it.

However, for the price of protection, you would expect your insurance company to pay to remediate a properly-reported cyberattack.  Property insurers have long excluded “acts of war” from insurable damage that would receive payments. Most cyberinsurance policies have similar exclusions. This leads insurance customers to wonder, in a world where hackers and ransomware gangs from Russia and Ukraine initiate a significant percentage of cyberattacks, when would those attacks be considered “acts of war” during a real shooting war? If your company is smacked with ransomware from a Russian crew associated with the Kremlin, will your insurance company exclude the costs from your cyberinsurance policy as an act of war?

Lloyds of London just released a set of new exclusion clauses for addressing cyber war. These clauses are for underwriters to consider placing in Lloyds insurance contracts, and “have been drafted to provide Lloyd’s syndicates and their (re)insureds (and brokers) with options in respect of the level of cover provided for cyber operations between states which are not excluded by the definition of war, cyber war or cyber operations which have a major detrimental impact on a state.” Lloyds specifies that the “act of war” exemption language applies to China, France, Japan, Russia, the U.K and the U.S.  The new clauses supply underwriters with extensive leeway to refuse to pay claims.Importantly, Lloyds can decide that the attack was an act of war even if the attackers do not declare themselves. Pending any government attribution of an attacker, Lloyds can decide through reasonable inference to attribute any attack to state activities, and therefor falling within the “act of war” exclusion.

Property insurers have long excluded “acts of war” from insurable damage that would receive payments. Most cyberinsurance policies have similar exclusions. This leads insurance customers to wonder, in a world where hackers and ransomware gangs from Russia and Ukraine initiate a significant percentage of cyberattacks, when would those attacks be considered “acts of war” during a real shooting war? If your company is smacked with ransomware from a Russian crew associated with the Kremlin, will your insurance company exclude the costs from your cyberinsurance policy as an act of war?

TED CLAYPOOLE

All hope is not lost for businesses relying on cyberinsurance. Courts tend to hold insurers to high standards when trying to avoid paying out claims due to broadly-defined exclusions. For example, earlier this year the Superior Court of New Jersey rules that insurers can’t use a nation-state “act of war” cyber-exclusion to avoid covering more than a billion dollars in damages that Merck claimed it suffered from the NotPetya cyberattack in 2017. According to Insurance Journal, “ The insurers had tried to use the exclusions to avoid paying out, citing the fact the NotPetya malware was attributed to Russia and was meant to be deployed to disrupt and destabilize Ukraine. The malware wound up affecting thousands of companies worldwide. . . The cyber attack also attracted the attention of regulatory scrutiny of so-called “silent cyber” exposure in all policies.” The court “unhesitatingly” ruled that war exclusions did not apply in this instance.

So an attack from Russian hackers in 2021 may be covered under most cyberinsurance policies, but what about an attack in March of 2022? Does the state of hostility between the U.S. and Russian – in which Putin has claimed that sanctions against Russia and providing arms to Ukraine is an act of war – mean that ransomware attacks from the same Russian hackers may be considered acts of war? For example, the Conti ransomware gang has officially announced its full support of the Russian government after the invasion of Ukraine and threatened to use all possible researches to attack both Ukraine and Western countries that might support Ukraine. It would be easy for US critical infrastructure businesses to be direct victims of attacks from Russians supporting the Kremlin, or to be indirect victims of attacks aimed at Ukraine that spread through open networks like NotPetya or other malicious viruses. Where would that leave an affected company if its insurance provider refuses to pay, claiming an “act of war” exclusion?

We simply don’t know many insurance companies will use these policy exclusions and will be allowed to do so by U.S. courts. But each of us should check our cyber insurance policies for exclusions that could be triggered by current international conflicts.

Beyond insurance, international cyberattacks have straddled the line between standard crime and acts of international state hostility. Since the internet connected our world electronically, our societies have not set rules about how public and private actors are allowed to behave toward each other. Brad Smith, the President of Microsoft, has called for a Digital Geneva Convention, so that the nations of the world can agree what acts of electronic aggression are acceptable in war and even which acts should be considered to be acts of war. Maybe the current crisis, where a long-existing state is invaded without provocation, may be the catalyst to discuss digital hostility and set some rules around what kinds of interactions will be tolerated by the international community.

For now, check your cyberinsurance policies.  For posterity, push our politicians to create baseline rules for the digital world.  We have promulgated the law of the sea and the law of space. We should create a law of cyberspace as well.

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more articles on cyberinsurance for your workplace, visit the NLR Cybersecurity Media & FCC section.

Surprise! The No Surprises Act Changes Again

The No Surprises Act (Act), which became effective Jan. 1, 2022, is the latest health care law passed with the best of intent: to create consumer protection from unexpected out-of-network medical bills and to create a federal independent dispute resolution (IDR) process to resolve payment disputes between payers and out-of-network providers. Unfortunately, the Act, especially the U.S. Department of Health and Human Services’ (HHS) implementation of the IDR process, also creates a new administrative burden for health care providers. Providers and medical associations filed lawsuits in multiple jurisdictions to challenge HHS’ implementation of the IDR process and the constitutionality of the Act before it was even in effect.

On Feb. 24, 2022, the United States District Court for the Eastern District of Texas granted the Texas Medical Association’s Motion for Summary Judgement to vacate select IDR requirements. The Court found that HHS’ interim final rule’s IDR process, intended to resolve payment disputes regarding reimbursement for out-of-network emergency services and out-of-network services provided at in-network facilities, was contrary to the clear language of the Act[1] (Rule).

In general, the Act[2] requires health insurance payers (Insurers) to reimburse providers for certain out-of-network services at a statutorily calculated “out-of-network rate.”[3] Where an All-Payer Model Agreement or specified state law does not exist, to set such a rate, an Insurer must issue an initial out-of-network rate decision and pay such amount to the providers within 30 days after the out-of-network claim is submitted.[4] If the provider disagrees with the Insurer’s proposed out-of-network reimbursement rate, the provider has a 30-day window to negotiate a different payment rate with the Insurer.[5] If these negotiations fail, the parties can proceed to the IDR process.[6]

Congress adopted a baseball-style arbitration model for the Act’s IDR process. The Insurer and provider each submit a proposed out-of-network rate with limited supporting evidence. The arbitrator picks one of the offers while taking into account specified considerations, including the “qualified payment amount,” the provider’s training, experience, quality, and outcomes measurements, the provider’s market share, the patient’s acuity, the provider’s teaching status, case mix, and scope of services, and the provider’s/Insurer’s good-faith attempts to enter into a network agreement.[7] The “qualifying payment amount” (QPA), is designed to represent the median rate the Insurer would pay for the item or service if it were provided by an in-network provider.[8]

The Rule requires the IDR arbitrator to select the proposed payment amount that is closest to the QPA unless “the certified IDR entity [arbitrator] determines that credible information submitted by either party … clearly demonstrates that the [QPA] is materially different[9] from the appropriate out-of-network rate.”[10] This is a clear departure from the analysis set forth in the Act.

The Texas Medical Association challenged the Rule under the Administrative Procedures Act (APA), arguing that the Departments exceeded their authority by giving “outsized weight” to one statutory factor over the others specified by Congress, and that the Departments failed to comply with the APA’s notice and comments requirements in promulgating the Rule. In turn, the Departments argued that the plaintiffs did not have standing to bring the claims.

After dispensing with defendant’s standing arguments, the Eastern District of Texas Court ruled in favor of the plaintiff’s Motion for Summary Judgment and determined that “the Act unambiguously establishes the framework for deciding payment disputes and concludes that the Rule conflicts with the statutory text.” Under the Act, the arbitrators (or certified IDR entities) “shall consider … the qualifying payment amounts” and the provider’s level of training, experience, and quality outcomes, the market share held by the provider, the patient’s acuity, the provider’s teaching status, case mix, and scope of services, and the demonstrated good faith efforts of both parties in entering into a network agreement.”[11] The Act did not specify that any one factor should be considered the “primary” or “most important” factor. The Rule, in contrast, requires arbitrators to “select the offer closest to the [QPA]” unless “credible” information, including information supporting the “additional factors,” “clearly demonstrates that the [QPA] is materially different from the appropriate out-of-network rate.”[12] The Departments characterized the other factors as “permissible additional factors” that may be considered only when appropriate.[13] The Court found that the Department’s Rule was inconsistent with the Act and that since Congress had spoken clearly on the factors to be considered in the arbitration process, the Department’s interpretation of the Act was not appropriate and had exceeded the Department’s authority.[14]

Following the Court’s decision, the Departments issued a memorandum on Feb. 28, 2022, clarifying the Act’s requirements for providers and Insurers. The memo specifically noted that the Court’s decision would not, in their opinion, affect the patient-provider dispute resolution process.[15] The Departments also stated they would withdraw any guidance inconsistent with the Court’s Opinion, provide additional training for interested parties, and keep the IDR process portal open to resolve disputes. The Departments also will be considering further rulemaking to address the IDR process.

The No Surprises Act continues to surprise us all with more adaptations. Enforcement of this new law remains uncertain in light of the numerous legal challenges, including at least one constitutionality challenge.

[1] Requirements Related to Surprise Billing: Part II, 86 Fed. Reg. 55,980 (Oct. 7, 2021).

[2] Consolidated Appropriations Act of 2021, Pub. L. No. 116-260, div. BB, tit. I, 134 Stat. 1182, 2758-2890 (2020).

[3] 300gg-111(a)(1)(C)(iv)(II) and (b)(1)(D).

[4] 300gg-111(a)(1)(C)(iv) and (b)(1)(C).

[5] 300gg-111(c)(1)(A).

[6] 300gg-111(c)(1)(B).

[7] 300gg-111(c)(5).

[8] 300gg-111(a)(3)(E)(i)(I)-(II).

[9] “Material difference” is defined as “a substantial likelihood that a reasonable person with the training and qualifications of a certified IDR entity making a payment determination would consider the submitted information significant in determining the out-of-network rate and would view the information as showing that the [QPA] is not the appropriate out-of-network rate. 149.510(a)(2)(viii).

[10] 45 C.F.R. 149.510(c)(4)(ii).

[11] 300gg-111(c)(5)(C)(i)-(ii).

[12] 45 C.F.R. 149.510(c)(4)(ii)(A).

[13] 86 Fed. Reg. 56,080.

[14] Because the Departments had exceeded their statutory authority, no Chevron deference was owed to their regulations. Chevron U.S.A. v. Natural Resources Defense Council, Inc., 468 U.S. 837 (1984).

[15] This is a separate dispute resolution process designed to address disputes between patients and providers when bills for uninsured and self-pay patients are inconsistent with the good faith estimate provided by the health care provider.

Article By Stacey A. Borowicz and Joseph D. Wheeler of Dinsmore & Shohl LLP

For more healthcare legal news, click here to visit the National Law Review.

© 2022 Dinsmore & Shohl LLP. All rights reserved.

Congress Grants Five Month Extension for Telehealth Flexibilities

On Tuesday, March 16, 2022, President Biden signed into law H.R. 2471, the Consolidated Appropriations Act, 2022 (“2022 CAA”). This new law includes several provisions that extend the Medicare telehealth waivers and flexibilities, implemented as a result of COVID-19 to facilitate access to care, for an additional 151 days after the end of the Public Health Emergency (“PHE”). This equates to about a five-month period.

The 2022 CAA extension captures most of the core PHE telehealth flexibilities authorized as part of Medicare’s pandemic response, including the following:

  • Geographic Restrictions and Originating Sites: During the extension, Medicare beneficiaries can continue to receive telehealth services from anywhere in the country, including their home. Medicare is permitting telehealth services to be provided to patients at any site within the United States, not just qualifying zip codes or locations (e.g. physician offices/facilities).
  • Eligible Practitioners: Occupational therapists, physical therapists, speech-language pathologists, and qualified audiologists will continue to be able to furnish and receive payment for telehealth services as eligible distant site practitioners during the extension period.
  • Mental Health:  In-person requirements for certain mental health services will continue to be waived through the 151-day extension period.
  • Audio-Only Telehealth Services: Medicare will continue to provide coverage and payment for most telehealth services furnished using audio-only technology. This includes professional consultations, office visits, and office psychiatry services (identified as of July 1, 2000 by HCPCS Codes 99241-99275, 99201-99215, 90804-90809 and 90862) and any other services added to the telehealth list by the CMS Secretary for which CMS has not expressly required the use of real-time, interactive audio-visual equipment during the PHE.

Additionally, the 2022 CAA allocates $62,500,000 from the federal budget to be used for grants for telemedicine and distance learning services in rural areas. Such funds may be used to finance construction of facilities and systems providing telemedicine services and distance learning services in qualified “rural areas.”

Passage of the 2022 CAA is a substantial step in the right direction for stakeholders hoping to see permanent legislative change surrounding Medicare telehealth reimbursement.

Article By Joelle M. Wilson and Laura Little of Polsinelli PC

For more health law legal news, click here to visit the National Law Review.

© Polsinelli PC, Polsinelli LLP in California

Intra-Class Conflict Dooms Auto Insurance Class Action in Fifth Circuit

Last week the Fifth Circuit issued a short opinion that made an important point that does not arise often in class certification decisions. Class certification failed because the plaintiffs’ proposed theory of liability would benefit only some class members and disadvantage others, who would be overpaid if the plaintiffs’ theory were correct. For that reason alone, the plaintiffs could not adequately represent the class.

Prudhomme v. Government Employees Insurance Company, No. 21-30157, 2022 WL 510171 (5th Cir. Feb. 21, 2022) (per curiam) was similar to another case I recently wrote about—the plaintiffs claimed that their insurer undervalued their vehicles that were deemed total losses, in violation of Louisiana statutes. Sidestepping questions about commonality and predominance, which are usually the focus of class certification decisions, the Fifth Circuit affirmed the denial of class certification because the adequacy of representation requirement was not met. This was because “a portion of the proposed class members received payments above (that is, benefitted from) the allegedly unlawful valuation.” According to the district court opinion, an expert witness opined that approximately one-fifth of the class would have received less on the plaintiffs’ theory than they received from GEICO. While the plaintiffs argued that class members who were overpaid on their theory might still be entitled to some damages under Louisiana law, that would likely create a typicality problem. Class representatives cannot adequately represent a class if they offer “a theory of liability that disadvantages a portion of the class they allegedly represent.”

Look out for this type of issue the next time you are litigating a class action. It might be lurking in your case when you peel back the onion.

Copyright © 2022 Robinson & Cole LLP. All rights reserved.
For more articles about class-action lawsuits, visit the NLR Litigation section.

Organizational Use of Social Media: Boon or Burden?

Organizational use of social media has evolved precipitously from the early days when social media was viewed as little more than a novel marketing concept on the fringe of broader traditional advertising campaigns.

However, with the increase in innovation comes concern over the extent to which increased organizational activities on social media may expose the organization to potential civil liability. Indeed, organizational use of social media has been described by some as a “virtual Pandora’s Box,” which is at once an exciting boon for business but filled to the brim with the potential for legal exposure.1 This article explores some of the most common insurance coverage issues organizations are likely to experience as their use of social media continues to expand and evolve. Although the article focuses on organizational issues, many of the principles described are equally applicable to coverage issues which may arise from an individual’s use of social media under consumer-focused policies.

As social media has become increasingly ingrained in the average consumer’s life, organizations and commercial entities have developed innovative ways to leverage their own social media presence as a marketing tool and as a means by which they can communicate directly with the consumer. For many organizations, this evolution means nothing more than using social media as an analogue to traditional advertising concepts, such as banner and sidebar ads, audio and video spots, product placement, and endorsement deals. For others, social media is at the core of the organization’s operations. Indeed, it is not uncommon for the world’s leading corporations to devote entire teams to the development and use of social media. Organizations running the gamut from national governments and major religious institutions, to startup social activist groups and mom-and-pop shops have found creative ways to use social media for endeavors ranging from disaster and emergency response, security at major events, breaking news coverage, broadscale organizational efforts, get out the word efforts, and customer service response centers.2

But as is all too often the case with innovation, the increase in organizational use of social media has been accompanied by litigation presenting novel legal questions on a variety of social media-related issues. And with the increase in litigation have come questions over the degree to which Commercial General Liability (“CGL”) insurance—the principles of which were developed decades before pioneering social media platforms such as MySpace and Friendster emerged—can keep up with ever evolving trends in the social media landscape. Fortunately, the legal theories under which social media-related lawsuits most typically arise are quite familiar. Libel, slander, copyright infringement, use of another’s advertising idea, and invasion of privacy all remain the stalwarts of the industry.3 Though courts throughout the nation have struggled at times to apply CGL’s pre-internet principles to modern day realities, traditional common law principles remain at the core of resolving these seemingly novel issues. Accordingly, and because courts have seemed inclined to require CGL carriers to provide coverage where the issues involved resemble otherwise traditional common law principles, organizations seeking to navigate the ever-evolving scope and substance of social-media related claims must keep traditional common law concepts in mind.

As a preliminary matter, social media comes with certain fundamental characteristics about which organizations must remain cognizant when developing their social media strategies. Indeed, the very feature of social media to which organizations are drawn most—the potential for cheap and instant access to 73% of the country4—necessarily implies that when a potentially problematic tweet or post catches steam, it stands to be shared far and wide and memorialized for all to see. Given the inherently “viral” nature of social media, plaintiffs are often well positioned to establish special damages by virtue of the far-reaching consequences of social media exposure alone. This is particularly problematic in libel-based defamation claims, which require proof of special damages as an element of the claim.5 Predictably, lawsuits alleging libel have grown in popularity as organizational use of social media has evolved,6 and given the wide array of theories under which such claims have been successful, they are perhaps the most problematic.7 Indeed, libel claims arising from organizational use of social media have become so common that that the phrase “Twibel”—a portmanteau of “Twitter” and “libel”—has emerged as a new favorite in the legal lexicon.

But claims arising from organizational use of social media are not limited to defamation alone. In jurisdictions that recognize the tort of invasion of privacy, courts have required CGL carriers to provide coverage in causes of action resulting from an insured’s role in the release of a third-party’s confidential information online.8 However, where the invasion of privacy has resulted from intentional conduct on the part of a third-party—such as a data breach—courts are divided on the issue of whether any potential negligence on the part of the insured satisfies the “publication” requirement of the invasion of privacy claim.9

Courts have also found that CGL coverage for so-called “advertising ideas” extends to social media-related claims.10 While these issues commonly resemble traditional trademark and trade dress infringement claims,11 some courts have interpreted Coverage B to encompass claims arising from organizations’ alleged infringement on another’s advertising strategy more broadly.12 Further, courts have used advertising ideas coverage to address publicity rights cases13 and, under certain circumstances, to encompass claims arising from patents related to internet and website functionality.14 Claims alleging intellectual property infringement have also commonly been held to apply to social media conduct under Coverage B’s express coverage for copyright, trade dress, and slogan infringement.15 Such claims are particularly likely to arise where an organization adopts content created by its social media followers without permission to do so.16

Importantly, recent revisions to CGL forms expressly contemplate certain social media conduct as “advertisement” for the purpose of coverage arising from advertising idea and infringement-related claims. Because these forms often set forth specific definitions of what constitutes an advertisement in the context of social media, organizations must pay close attention to what types of social media activity are and are not covered when developing their social media strategies.17

One interesting evolution in advertising in which such definitions have played an important role is the advent of an “influencer” industry, which has raised novel questions as to the degree to which a paid influencer’s representations of a product or infringement upon another’s intellectual property may constitute an advertisement for Coverage B purposes.18

Finally, it is worth noting that while Coverage B has been interpreted to cover a broad variety of claims arising from an organization’s use of social media, evolutions in policy exclusions and coverage limits may in some cases defeat coverage for social media-related claims.19 In particular, exclusions applicable to prior publication, intellectual property, media and internet, electronic chatrooms and bulletin boards, and unauthorized use of another’s name exclusions all stand to be implicated. However, because exclusions vary from policy to policy and are ever-evolving, a detailed examination of their potential broad applicability to social media-related claims generally is outside the scope of this article.

As this article demonstrates, organizational use of social media has emerged as a lucrative means by which organizations can market themselves and connect individually with their market base. However, as the means by which organizations use social media continues to evolve, so too have the legal theories under which social media-related claims are raised. However, with careful planning and an eye toward trends in the industry and the availability of increasingly diverse coverage options, organizations can make the most of the social media boon without falling prey to its potential pitfalls.

  1. Susan Evans Jennings, Justin R. Blount, & M. Gail Weatherly, Social Media—A Virtual Pandora’s Box: Prevalence, Possible  Legal Liabilities, and Policies, 77(1) Business & Professional Communication Quarterly, 96 (2014).

  2. See generally Matteo Tonello, Corporate Use of Social Media, Harvard Law School Forum on Corporate Governance, May 17, 2016.

  3. Although outside the scope of this article, organizational use of social media can under certain circumstances implicate federal regulatory issues. See Lord & Taylor Settles FTC Charges It Deceived Consumers Through Paid Article in an Online Fashion Magazine and Paid Instagram Posts by 50 “Fashion Influencers”, Federal Trade Commission (Mar. 15, 2016) https://www.ftc. gov/news-events/press-releases/2016/03/lord-taylor-settles-ftc-charges-it-deceived-consumers-through.

  4. See Social Media Fact Sheet, Pew Research, https://www.pewresearch.org/internet/fact-sheet/social-media/.

  5. See Restatement (Second) of Torts § 558 (describing the elements of defamation as “(1) a false factual statement concerning the plaintiff (2) published to a third-party (3) that is made either negligently or with malice, and (4) results in special damages”).

  6. See Raymond Placid, Judy Wynekoop, & Roger W. Feicht, Twibel: The Intersection of Twitter & Libel, 90 Fl. Bar J. 8, 32 (Sep./ Oct. 2016).

  7. See, e.g., AIX Specialty Ins. Co. v. Big Limo, Inc., Case No. 3:21-cv-08, 2021 WL 2708902, at *4–5 (S.D. Ohio July 1, 2021) (holding that an insurer had a duty to defend its insured nightclub under a theory of defamation where the nightclub had allegedly used a model’s picture in a Facebook post to promote a cabaret); Jar Labs. v. Great Am. E&S Ins. Co., 945 F. Supp. 2d 937 (N.D. Ill. 2013) (holding that an insurer had a duty to defend its insured under a theory of implied disparagement where the insured had published a Facebook post implicitly representing a competitor’s products in a false and misleading way).

  8. See State Farm Gen Ins. Co. v. JR’s Frames, Inc., 181 Cal. App. 4th 429, 448 (2010); Travelers Indem. Co. of Am. v. Portal Healthcare Sols., LLC, 644 F. App’x 245 (4th Cir. (Va.) 2016).

  9. See, e.g., St. Paul Fire & Marine Ins. Co. v. Rosen Millennium, Inc., 2018 WL 4732718, at *3 (M.D. Fla. Sept. 28, 2018); Innovak Int’l v. Hanover Ins. Co., 280 F. Supp. 3d 1340 (M.D. Fla. 2017); Zurich Am. Ins. Co. v. Sony Corp. of Am., 2014 WL 8382554 (N.Y. Sup. Ct. Feb. 21, 2014) (denying claims for invasion of privacy where the publication at issue arose from intentional third-party conduct); but see Landry’s Inc. v. Ins. Co. of the State of Penn., 4 4th 366, 270 (5th Cir. (Tex.) 2021) (requiring an insurer to defend against publication of personally identifiable information resulting from a data breach).

  10. See Atlantic Mut. Ins. Co. v. Badger Medical Supply Co., 528 N.W.2d 486, 490 (Wis. App. 1995) (defining “advertising idea” as “an idea for calling public attention to a product or business, especially by proclaiming desirable qualities so as to increase sales or patronage”).

  11. See Cat Internet Servs., Inc. v. Providence Washington Ins. Co., 333 F.3d 138, 142 (3rd Cir. (Penn.) 2003).

  12. See Great American Inc. Co. v. Beyond Gravity Media, Inc., Case No. 3:20-cv-53, 2021 WL 4192738 (S.D. Tex. Sept. 15, 2021) (finding that an insured’s use of the claimant’s martial arts-themed advertising strategy was subject to CGL coverage); See also Native Am. Arts, Inc. v. Hartford Cas. Ins. Co., 435 F.3d 729 (7th Cir. 2006); Gustafson v. Am. Family Mut. Ins. Co., 901 F. Supp. 2d 1289 (D. Colo. 2012).

  13. See Air Eng., Inc. v. Industrial Air Power, LLC, 828 N.W.2d 565 (Wis. App. 2013); Hyundai Motor Am. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., 600 F.3d 1092 (9th Cir. (Cal.) 2010); but see Holyoke Mut’l Ins. Co. in Salem v. Vibram USA Inc., 106 N.E.3d 572 (Mass. 2018) (rejecting claim that Coverage B provides coverage for traditional patent infringement claim).

  14. See Gencor Indus, Inc. v. Wausau Underwriters Ins. Co., 857 F. Supp. 1560 (M.D. Fla. 1994).

  15. See generally Daniel I. Graham Jr. & Thomas W. Arvanitis, Social Media Risks & “Personal & Advertising Injury” Coverage Issues, DRI Insurance Coverage & Practice Symposium, December 9–10, 2021. A special thanks to the authors for their extensive research, from which this article benefits considerably.

  16. See Stross v. Redfin Corp., 730 Fed. App’x 198 (5th Cir. 2018).

  17. See Graham & Arvanitis, supra, at 10–11.

  18. Michael B. Rush, Social Media Advertising Under CGL Coverage B, The National Law Review, May 21, 2019.

  19. See Graham & Arvanitis, supra, at 11.

This article was written by Christopher S. Etheredge of Steptoe & Johnson law firm. For more articles about social media use, please click here.

From Adele to the NFL, Large-Scale Event Disruptions Show the Need for Policyholders to Have a Strategy to Recover in the Event of a Loss

The ongoing Covid-19 pandemic and supply chain issues have caused several major event organizers to cancel or postpone concerts, sporting events, and awards shows, among many other large-scale events. For example, this week, Elton John postponed tour concerts after testing positive for Covid-19; last week, Adele put on hold her much-anticipated Las Vegas residency over “delivery delays” and Covid-19 diagnoses among her team; last month, the NHL, NBA, and the NFL rescheduled major games, with the NHL citing concerns about “the fluid nature of federal travel restrictions,” and the NFL citing “medical advice” after “seeing a new, highly transmissible form of the virus;” and the Grammys postponed its January 31 awards show in Los Angeles—to now take place on April 3 in Las Vegas. The cancellations and postponements of these types of events often have major financial effects on its organizers and producers. Given the risk of substantial losses following the cancellation of big-ticket events, businesses should be aware that they can tap into event cancellation insurance to mitigate and protect against these risks.

“Specialty” Event Cancellation Coverage

Contrary to general liability insurance coverage—which protects against third-party bodily injury or property damage claims—event cancellation insurance is an elective, specialty-type insurance coverage designed to protect a policyholder’s loss of revenue and expenses following the cancellation, postponement, curtailment, relocation, or abandonment of an event for reasons outside the policyholder’s control.

As a threshold matter, for there to be coverage under an event cancellation policy, there must first be a triggering cause covered under the policy. Some event cancellation policies are written as “all cause”/“all-risk” policies. These policies provide coverage for any cause that is not specifically excluded by the policy. Other event cancellation policies, however, provide more limited coverage and are written to insure event cancellations or postponements following a narrow set of causes, which are typically listed within the policy.

Potential Coverage Issues

Although event cancellation policies typically provide broad coverage, businesses must be wary of certain obstacles insurers may raise in trying to avoid paying claims. Insurers might seek to disclaim or limit coverage for various purported reasons, including alleged non-disclosure at the policy-application stage, failure to satisfy certain conditions after the loss, application of policy exclusions, timely notice, and questions about whether an event was cancelled for a covered cause of loss. By way of example, insurance companies have denied coverage for event cancellations during the Covid-19 pandemic arguing, in part, that the “proximate cause” of the policyholder’s loss was the Covid-19 pandemic (a “communicable disease” excluded by the policies) and not the government orders prohibiting large gatherings (a covered cause of loss under the policies).

Steps to Secure Coverage

If an event is cancelled or postponed that might be covered by event cancellation coverage, policyholders must know that they might have a claim for coverage to protect against the resultant losses and extra costs. To secure coverage, policyholders are well-advised to:

  1. review the event cancellation policy at issue for potential coverages (as well as all other insurance policies that might provide coverage);
  2. provide immediate notice of the potential event cancellation claim to all applicable insurers; and
  3. keep detailed, up-to-date accounting records of all losses and costs at issue, including lost revenue and profits, as well as extra expenses.

Article By Jorge R. Aviles and Andrea DeField of Hunton Andrews Kurth

For more insurance and reinsurance legal news, click here to visit the National Law Review. 

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.