Effective Cyberliability Insurance Coverage

According to a recent study, the median amount of time between a breach of a company’s cybernetwork and the discovery of that breach is 229 days. Given this lengthy amount of time, companies should consider the benefits of an expanded cyberliability insurance policy period, particularly if the company is switching from one insurance provider to another. As discussed in “Hackers Don’t Care About the Terms of Your Insurance Policy: The Importance of Retroactive Dates and Extended Reporting Periods in Effective Cyberliability Insurance Coverage,” a client alert written by Reed Smith partners Brian Himmel, Andrew Moss, David Weiss and Cristina Shea, two such options for expanding the policy period are retroactive dates (shifting the effective date of coverage back, to capture events that occurred or were occurring but were not yet discovered when the policy was purchased) and extended reporting periods (which provide additional time to report events that are not discovered until after the end of the policy period).

To read the client alert, click here.
 

Insurance Coverage for False Claims Act Lawsuits?

The number of qui tam actions brought under the False Claims Act (FCA) has increased dramatically over the past several years, as the incentives for bringing such claims have grown.

Reed Smith attorneys Brian Himmel and Natalie Metropulos have authored “Insuring Against FCA Suits in the Health Care Industry” in Corporate Counsel discussing the steps that health care service providers should take to insure themselves against allegations of FCA violations. Recommendations include assessing current insurance coverage for defending and resolving such claims, and additional types of policies that can provide FCA coverage.

To read the article, click here.

Innocent Co-Insureds Coverage Not Void Under Fake Doctor's Application

Reed Smith’s Policyholder Perspective blog recently posted about an October 21, 2014 ruling in the U.S. District Court in South Carolina that sounds as if it came from a Hollywood film. In Evanston Insurance Company v. Agape Senior Primary Care, et al., 2014 WL 5365679, the court held that despite a false application for professional liability insurance submitted by an applicant pretending to be a doctor, the insurance afforded to the company and other doctors and nurses identified as named insureds under the policy remained in force, and was not void ab initio as to the innocent co-insureds. To read the full alert by Reed Smith attorneys Kevin Dreher and Natalie Metropulos, click here.

Recent Data Breaches Serve as Warning for Companies to Assess Their Cybersecurity Insurance Coverage

Earlier this week, numerous media outlets reported on the Russian crime ring which had managed to steal more pieces of Internet data than any other group of hackers in history – a whopping collection of at least 1.2 billion user name and password combinations and over 500 million email addresses. The magnitude of data that this group has managed to accumulate, coupled with several other recent high-profile hacking incidents, is a wake-up call for businesses that cybersecurity has become a major contemporary concern. Data breaches are increasing in frequency, severity, and cost, and the potential consequences for an affected company can be devastating.

This trend and its insurance implications are discussed in a client alert by Reed Smith partners Doug Cameron, David Weiss, Andy Moss, and Cristina Shea, who point out that companies must start being proactive with their cybersecurity efforts. Businesses should take the time to assess their current cybersecurity insurance coverage as well as their coverage needs. Cyber-related insurance is an evolving area, so extensive research and consulting with counsel may be necessary before a company can select an insurance policy that maximizes its coverage.
 

CMS Seeks Public Comment on its Imposition of CMPs for Noncompliance with Medicare Secondary Payer Reporting Requirements; Opportunity for Clinical Trial Sponsors to Request Discretion

This post was written by Celeste Letourneau, Catherine Hurley and Jennifer Pike

The application of the Medicare Secondary Payer (MSP) law to clinical trial sponsors has long been a point of significant contention between sponsors and CMS, with CMS insisting (via subregulatory guidance, and a widely circulated letter) that clinical trial sponsors are like insurers, and thus subject to the law. In a positive development, however, Congress has now directed CMS to promulgate regulations addressing the circumstances under which CMS will exercise discretion not to impose civil monetary penalties (CMPs) for noncompliance with MSP insurer reporting requirements. This affords sponsors an important new opportunity to engage with CMS on this issue, and to request appropriate enforcement discretion.

On December 11, 2013, CMS released an advance notice of proposed rulemaking (ANPRM) soliciting comments on specific practices for which CMPs may or may not be imposed for failure to comply with MSP reporting requirements. Among other issues, CMS is seeking comments and proposals on mechanisms and criteria that it would employ to evaluate whether and when it would impose CMPs for noncompliance with MSP reporting requirements.

Although clinical trial sponsors are not mentioned in the ANPRM, CMS has expressly stated elsewhere that the MSP reporting requirements do apply to clinical trial sponsors.1 Specifically, CMS has taken the following position on clinical trial sponsors under the MSP reporting statute:

When payments are made by sponsors of clinical trials for complications or injuries arising out of the trials, such payments are considered to be payments by liability insurance (including self-insurance) and must be reported. The appropriate Responsible Reporting Entity (RRE) should report the date that the injury/ complication first arose as the Date of Incident (DOI). The situation should also be reported as one involving Ongoing Responsibility for Medicals (ORM).2

In sum, CMS views clinical trial sponsors, by virtue of any promise to pay for complications or injuries, as insurance companies, and subjects clinical trial sponsors to the same reporting obligations that liability insurers must meet. Failure to comply with the MSP reporting requirements can carry a CMP of $1,000 for each day of noncompliance, per individual, that should have been reported.3 Congress amended the MSP statute last year to afford CMS discretion with regard to whether to impose CMPs in instances of noncompliance.4 Prior to that, CMS had no such discretion. The purpose of the ANPRM is to solicit input for the circumstances under which CMS should exercise this discretion.

Clinical trial sponsors should consider whether they are prepared to comply with the MSP reporting requirements and face potential CMPs for failure to do so, or whether CMS should be urged not to impose CMPs on clinical trial sponsors. For example, clinical trial sponsors should consider whether they are prepared to:

  • Report to CMS all complications and injuries involving Medicare beneficiaries arising out of a clinical trial that they have agreed to pay for. This includes everything the sponsor has agreed to pay for; it is not limited to adverse events. For example, this could involve medications included in the study protocol and paid for by the sponsor that are intended to prevent or mitigate an anticipated adverse event.
  • For Medicare beneficiaries, collect and produce all of the data CMS requires to be reported, including identifiable information (such as patient name, social security number, date of birth, dates of incident, etc.), and all relevant ICD-9-CM/ICD-10-CM (International Classification of Diseases, Ninth/Tenth Revision, Clinical Modification) Diagnosis Codes describing the alleged injury/illness.
  • Potentially forgo Medicare reimbursement for routine costs associated with clinical trials, even though there is a national coverage determination (NCD) stating that CMS will pay.
  • Manage study subjects who are Medicare beneficiaries and who may be aggrieved because, as a result of the sponsor reporting their ICD-9-CM/ICD-10-CM codes to CMS pursuant to MSP, all their Medicare claims associated with those codes could be routinely denied during their participation in the study. 
  • Unblind clinical trials if necessary in order to satisfy reporting requirements.
  • Incur significantly increased administrative and financial costs to ensure compliance with MSP reporting. 
  • Incur the burden of complying with MSP reporting as both a clinical trial sponsor, and as a potential defendant in a product liability suit, if and when the investigational product is commercialized. This may include implementing complex and detailed processes in both the research and development, or the medical side of a company (for clinical trial sponsor reporting), and the legal department (for products liability reporting). Additionally, the former may be trial-specific, meaning that different internal processes for addressing MSP reporting may be needed for different trials. 
  • Refrain from offering to pay for research-related injuries in order to avoid triggering the MSP reporting requirements, even though this would likely result in the loss of Medicare beneficiaries as study subjects.
  • Pay a CMP of up to $1,000 per beneficiary per day for noncompliance.

The ANPRM presents the opportunity to explain to CMS that, because of the many complexities associated with imposing the MSP reporting requirements on clinical trial sponsors, CMS should not impose CMPs on clinical trial sponsors for failures to report.

The ANPRM is available at http://www.gpo.gov/fdsys/pkg/FR-2013-12-11/pdf/2013-29473.pdf. Comments to the ANPRM may be submitted in writing, or electronically at www.regulations.gov, on or before February 10, 2014.

_________________________________

1See CMS’ Office of Financial Management, Financial Services Group Director (Gerald Walters) to Holly Thames Lutz, Esq. of Gardner, Carton & Douglas, dated April 13, 2004.
2See CMS, MMSEA section 111 Medicare Secondary Payer Mandatory Reporting, Liability Insurance (Including Self-Insurance), No-Fault Insurance, and Workers’ Compensation USER GUIDE, Chapter III: POLICY GUIDANCE, Version 3.4 at 40 (July 3, 2012), available at http://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Mandatory-Insurer-Reporting-For-Non-Group-Health-Plans/Downloads/New-Downloads/NGHPUserGuideVer40Ch3Policy.pdf.
342 U.S.C. § 1395y(b) (Social Security Act § 1862(b)).
4Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012 [Public Law No: 112-242].

Practical Pointers for Protecting Your Insurance Rights in the Wake of Hurricane Sandy

This post was written by Paul E. Breene, Douglas E. Cameron, James M. Davis, John N. Ellison, Ann V. Kramer, Richard P. Lewis, Matthew J. Schlesinger, John D. Shugrue and Gary S. Thompson.

Hurricane Sandy left a swath of major damage and destruction over a large area of the Northeastern United States. Commercial policyholders will have major claims for property damage, loss of business income, and extra expenses. History teaches that the insurers will resist or seek to limit payments. Policyholders are advised to be proactive in claiming their rights under policies. Resolution is achievable, but usually with hard work and patience. Here is a list of some practical pointers that most commercial policyholders should consider:

  • First, Protect and Preserve the Assets. Emergency and temporary repairs should be documented and, if practical, reviewed with the insurer in real time.
  • Attend to Notice and Timing. Make sure all notices have been issued to all insurers that could be called to pay. If the policy requires a Proof of Loss within 30 days, obtain a written extension. Spot any other time-related requirements.
  • Reserve All Rights. Reserve all rights and contentions. Do not allow the insurer to classify or characterize your claim before you have had a full opportunity to review everything. If you let them, the insurers will dictate your claim to you.
  • Form a Team. Form a team of all personnel involved in the claim and hold regular team calls or meetings. Review the policy with counsel; remember that all exclusions and limitations must be construed strictly and narrowly. The insurer will have counsel, adjusters, consultants and accountants. Consider leveling the playing field with your own team. Many policies cover some of these claim-preparation costs.
  • Be Aware of Deductibles and Sublimits Before Agreeing on Causation. Review causation and proceed carefully before taking a position. Coverage, sublimits, and deductibles can be affected by determinations as to whether the damage was caused by a certain covered peril.
  • Look for Other Policies. Some properties are insured under other policies, like a “deductible buy-down” policy or a National Flood Insurance Program policy. Limits under these policies may offset the deductible that otherwise applies.
  • Communicate. Develop relationships at all levels of your team with their respective insurer-side counterparts. Keep communication open and civil.
  • Documentation and Accounting. Keep exact and tedious records of all communications, meetings, and exchanges. Keep submitting documentation. Set up accounting codes or other processes to track all invoices, costs, and expenses of any kind related to the claim, by various categories.
  • Attempt to Involve Insurers Before Repairs. Attempt to obtain insurer approvals before repair and replacement of property. Be aware of insurers’ rights to salvage property. If insurers are silent or non-responsive in the face of repair decisions – as is often the case – document it for the record. They should not be allowed to second-guess the decision after the fact.
  • Replacement Cost New Means Replacement Cost New. Most policies value property on an RCV basis. By definition, what is old is being replaced with something new. This is a natural “upgrade.” Be wary of insurer pronouncements that the damaged property had “preexisting” defects or wear and tear.
  • Do Not Forget Code Upgrades. Most policies cover code upgrades. Be aware of the underlying codes and whether they will increase repair costs. Capture all such costs in your claim.
  • Prepare the Business Interruption and Extra Expense Claim Carefully. Insurers will challenge attempts to recognize net profit for an interruption period. Utilize experts who can draw on market data to prove the “BI” analysis.
  • Review Other Agreements That Can Affect the Claim. There may be agreements that can impact a hotel claim – a loan agreement, a ground or space lease, a property management agreement, a condominium association agreement, etc.
  • Work Toward Resolution. All claims should settle. If yours does not, make sure it is only because the insurer is being unreasonable and that the record makes this obvious – so that if you do end up in litigation, it will be apparent that you gave the insurer every opportunity to adjust the claim based on the facts, and that the insurer chose to be aggressive and unreasonable.
  • Draw on the Business Side. Insurance is expensive. You should expect fair treatment on the claims side. Business contacts, such as between risk managers and brokers, should be explored. If the insurer does not live up to its end of the contract, consider renewal with a different insurer.

Reed Smith’s Insurance Recovery Group has unmatched experience in advising and assisting policyholders in all aspects of first-party property damage and business interruption insurance claims. Our experience is especially unparalleled in hurricane insurance claims.
 

China Life Sciences and Health Industry Client Briefing - August 2012 (September 18, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during August include:

  • New Regulations Concerning Hospital Procurement of Class-A Large-Scale Medical Equipment
  • MOH to Investigate Infection Events in Hospitals
  • Wenzhou Develops New Plans to Attract Private Medical Investors
  • Notice Concerning Public Hospital Reform in 2012
  • MOH to Establish EDLs for Secondary and Tertiary Hospitals
  • Pricing Developments for Drugs of Foreign Companies
  • Revised Regulations on Criminal Prosecutions for Leaks of Confidential Patient Information
  • State Council to Release Regulation Permitting Local Governments to Buy Commercial Insurance on for Serious Illnesses

To read the full briefing by Reed Smith China team members, click here.

MMSEA Section 111 Mandatory Insurer Reporting Updates

This post was written by Catherine A. Hurley.

The Centers for Medicare & Medicaid Services (CMS) has recently updated the information on its website with respect to the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), Section 111 “Mandatory Insurer Reporting” requirements. The recent updates cover (1) a revised implementation timeline for certain liability insurance (including self-insurance) total payment obligation to claimant settlements, (2) revised guidance on claims involving exposure, ingestion, and implantation issues, (3) upcoming improvements to the Medicare Secondary Payer (MSP) program, (4) a new exception for certain settlements paid into a qualified settlement fund and (5) a new way for certain injured Medicare beneficiaries to satisfy their past and future MSP obligations.

Revised Implementation Dates

First, CMS has delayed Section 111 reporting for certain liability insurance (including self-insurance) total payment obligation to claimant (TPOC) settlements, judgments, awards, or other payments. The revised implementation date for reporting will be based on the TPOC amount. A schedule of the new dates is provided here.

Exposure, Ingestion, and Implantation – Revised Guidance

Second, CMS has posted revised guidance pertaining to liability insurance (including self-insurance) responsible reporting entities (RREs) where the claims involve exposure, ingestion, and implantation issues. In the guidance, CMS explains its policies for claims involving exposure, ingestion, and implantation. Specifically, CMS discusses when Medicare will, and will not, assert a recovery claim against the settlement, judgment, award, or other payment, and when the MMSEA, Section 111 mandatory reporting rules must (or need not) be followed. CMS also provides examples of various factual scenarios involving exposure, ingestion, and implantation, and discusses how its policies will be applied to each. 

Upcoming MSP Improvements

Third, according to CMS, certain improvements to the MSP program can be expected within the next three to nine months, including:

  • The implementation of a Medicare Secondary Payer Recovery Contractor (MSPRC) web portal, where the beneficiary or representative can obtain information about Medicare's claim payments, demand letters, etc., and input information related to a settlement, disputed claims, etc.
  • The implementation of an option that allows for an immediate payment to Medicare for future medical costs that are claimed/released/effectively released in a settlement. 
  • The implementation of a process that discloses Medicare's conditional payment amount, prior to settlement in certain situations.

If implemented, these new options and processes could significantly improve the efficiency of the existing MSP system and provide greater certainty to all parties where settlements involve Medicare beneficiaries. More information can be found on CMS’s website. 

Narrow Exception for Qualified Settlement Funds Prior to October 1, 2011

Fourth, in an “Alert” dated September 20, 2011, a narrow exception has been announced for certain settlements that are paid into a qualified settlement fund (QSF) under Section 468B of the Internal Revenue Code (IRC) prior to October 1, 2011.  Specifically, each of the following criteria must be met in order for exception to apply:

  • The settlement, judgment, award, or other payment is a liability insurance (including self-insurance) TPOC amount, where no ongoing responsibility for medicals (ORM) is involved
  • The settlement, judgment, award, or other payment will be issued by a QSF under Section 468B of the IRC, in connection with a state or federal bankruptcy proceeding
  • The funds at issue were paid into the trust prior to October 1, 2011

New “Fixed Percentage Option”

Finally, for certain settlements that are less than $5,000, there is a new "fixed percentage option" for beneficiaries to satisfy Medicare's total MSP claim.  Details are provided on the MSPRC website and are reprinted below. Although this option is currently only available under narrow circumstances, it represents a significant departure from CMS’s historical and complicated approach to the MSP recovery process.  

 

Effective November 7, 2011, the Centers for Medicare & Medicaid Services has implemented a new and simple fixed percentage option that is available to certain beneficiaries. This option is available to beneficiaries who receive certain types of liability insurance (including self-insurance) settlements of $5,000 or less.

A beneficiary who elects this option will be able to resolve Medicare's recovery claim by paying Medicare 25 percent of his/her total liability insurance settlement instead of using the traditional recovery process. This means that a beneficiary will know what he/she owes and will be able to immediately pay Medicare.

In order to elect this option, the following criteria must be met:

  • The liability insurance (including self-insurance) settlement is for a physical trauma based injury. (This means that it does not relate to ingestion, exposure, or medical implant)
  • The total liability settlement, judgment, award, or other payment is $5,000 or less
  • The beneficiary elects the option within the required timeframe and Medicare has not issued a demand letter or other request for reimbursement related to the incident
  • The beneficiary has not received and does not expect to receive any other settlements, judgments, awards, or other payments related to the incident

 

California Supreme Court Limits Recoverable Medical Expenses to Amounts Actually Paid by Tort Plaintiff's Insurer

This post was written by Farah Tabibkhoei and Ginger Pigott.

In a highly anticipated decision, the California Supreme Court yesterday decided the issue of whether tortuously injured plaintiffs with private health insurance get to recover the full rate charged by their doctors and hospitals or the discounted, contract rate their insurers actually pay.

The standard, the California Supreme Court held in Howell v. Hamilton Meats & Provisions, is that personally injured plaintiffs may recover, at most, the dollar amount that actually is paid by their insurers for plaintiffs’ medical services, not the larger amount that generally is billed to those not covered by negotiated contracts between insurance companies and medical providers.

Motivating the Court’s decision was the fact that medical expenses are meant to be recovered by successful tort plaintiffs as economic damages, and insured plaintiffs’ damages are limited to the amounts they are personally obligated to pay—in other words, the amount their insurance company negotiated to pay for their care.

In its decision, the Court extended a rule it previously had adopted for tort plaintiffs with public health coverage, reasoning that regardless of whether public or private insurance is involved, the key issue is the amount of the plaintiffs’ personally liability for their medical bills.

This analysis is not without controversy, however, because of the collateral source rule, which ordinarily prohibits the introduction of evidence of insurance. Where the collateral source rule applies, however, as in products liability cases, the amount paid by an insurer for medical services is now admissible at trial to limit the amount of recoverable damages a plaintiff receives. The Court emphasized that its ruling is consistent with the collateral source rule, which is not meant to cover expenses plaintiffs never incurred in the first instance.

The collateral rule still bars evidence of the source of payment (that is, that an insurance company paid the plaintiff’s medical bills), as well as the undiscounted amount of the medical bills if the insurer has paid a discounted sum.

As to policy considerations, the Court rejected the argument that requiring tortfeasors to pay a lesser amount for their wrongdoing is necessarily an under-deterrent, as the Court observed that providers’ undiscounted bills do not always equal the reasonable value of medical services given the complexities inherent in medical billing in the United States.

The Court also concluded that limiting the recoveries of insured plaintiffs would not serve to punish those with the foresight to obtain insurance because insureds still get what they paid for, that is, having their medical bills satisfied by the insurer. That uninsured plaintiffs might reap larger recoveries, the Court noted, is just a fortuity of life.

The amounts at stake for defendants add up. In just Howell itself, an auto accident case, Howell’s undiscounted medical bills were $130,000, but her private health insurance company paid only $60,000. Given the number of personal injury lawsuits in California, the Howell decision certainly comes as a relief for personal injury defendants. 

Senate Finance Committee Options for Expanding Health Care Coverage (Comment Deadline May 22, 2009)

On May 11, 2009, Senate Finance Committee Chairman Max Baucus (D‐Mont.) and Ranking Member Chuck Grassley (R‐Iowa) released their policy options for expanding health care coverage, including options for designing a government-run public health insurance plan. Members are scheduled to meet to discuss these options on May 14, and public comments will be accepted on the options through May 22, 2009. An overview of the document is reprinted after the jump. This is the second of three options papers scheduled for release by the Committee, with the third options paper on financing health care reform planned for release before a May 20 meeting of Finance Committee members.

For the full post, please see our sister blog, HealthIndustryWashingtonWatch.com.

Cross-Complaints and Counterclaims May Trigger A Right To Insurance Recovery

Lawyers representing clients as plaintiffs in litigation often overlook the fact that a cross-complaint or counterclaim may give rise to an obligation by the client’s liability insurer to provide a defense. A recent decision in favor of Hewlett-Packard, awarding it $51 million, serves as a reminder that insurance coverage must be examined when a cross-complaint or counterclaim is filed.

Hewlett-Packard filed a patent infringement, trademark infringement and false advertising lawsuit against a company called Nu-kote. The case related to HP’s ink jet cartridge technology. Nu-kote apparently marketed products designed to refill HP ink jet cartridges after they ran out of ink. HP argued that Nu-kote’s products infringed HP’s patented technology, and that Nu-kote used deceptive packaging that copied HP’s trade dress. Nu-kote filed counterclaims against HP alleging antitrust violations, unfair competition, trade libel, false advertising and other alleged wrongful conduct.

HP tendered the defense of the counterclaims to its insurer, Ace Property and Casualty Company, seeking a defense under the advertising liability provisions of its general liability policy. A coverage lawsuit between HP and Ace followed. The coverage lawsuit entitled Hewlett-Packard Company v. Ace Property and Casualty Insurance Company, Case No. C-99-20207, was venued in the Northern District of California. The district court judge, The Honorable James Ware, found that Ace had an obligation to defend the counterclaims.

HP purportedly incurred approximately $28 million in litigation fees and costs after it tendered the case to Ace for a defense. The parties stipulated to have a Special Master determine the amount of those litigation expenses that were incurred in connection with the defense of the covered counterclaims, and to make a recommendation to the district court. Ace argued that more than $13 million of the litigation expenses were not covered because Ace contended they were not related to the defense of the counterclaims, or were otherwise not appropriate defense expenses. The Special Master rejected the insurer’s arguments and held that all of the expenses were covered. The district court ultimately affirmed the Special Master’s decision overruling extensive objections filed by Ace. The court entered judgment for HP in the amount of $51 million, which includes the past litigation expenses plus costs and prejudgment interest.

The moral of this story is that cross-complaints and counterclaims must always be analyzed for coverage and tendered to insurance carriers where there might be a potential defense obligation. Defense expenses are often payable in addition to policy limits, so in many cases obtaining a defense can be even more important than obtaining indemnity coverage for an ultimate settlement or judgment.

As evident from the HP case, in many situations it is appropriate to argue that once a counterclaim or cross-complaint has been filed, all or substantially all of the subsequent litigation expenses should be covered as being related to defensive litigation activities, as opposed to being purely related to the offensive claims that started the litigation.