Insurance is a part of virtually every transaction.?á Lenders want the security for a credit facility appropriately insured.?á Lessors and lessees alike want real and personal property protected by insurance.?á Buyers and sellers look to first party and third party policies to insure items sold and support the allocation of risk in indemnity provisions. For all its pervasiveness and importance, when it comes to drafting agreements, insurance terms may be treated as boilerplate when, in fact, the circumstances of a particular transaction may warrant a more careful and nuanced approach.?á In order to avoid future disputes, fulfill the intents and expectations of the parties, and add value to the transaction, corporate counsel should be familiar with the following five insurance tips: 1. ?á Additional Insured v. Loss Payee.?á Lenders will often require borrowers not only to maintain appropriate insurance protecting the security for a credit facility, but to name the… Continue Reading
Change in Interpretation Eliminating Unreduced Benefits for Terminated Vested Participants Violates ERISA?ÇÖs Anti-Cutback Rule
An employer?ÇÖs defined benefit plan provided unreduced early retirement benefits starting at age 60 for terminated vested participants and had been consistently so interpreted for a number of years. The employer later determined that early retirement benefits should be actuarially reduced, made a ?Ç£clarifying?Ç¥ amendment to the plan, and thereafter either reduced or stopped making pension payments to allegedly ?Ç£overpaid?Ç¥ participants whose benefits began before the changed interpretation and amendment. The U.S. Court of Appeals for the Third Circuit upheld a district court determination that the employer had violated ERISA?ÇÖs anti-cutback rule and awarded the employees the withheld payments plus interest. In dismissing the employer?ÇÖs arguments, the Third Circuit found that requiring claims exhaustion would have been futile and that the employer could not rely on favorable provisions in an SPD when the SPD clearly stated that in the event of any conflict with the plan, the plan terms would… Continue Reading
Fifth Circuit Remands Case to Determine Whether Out-of-Network Provider Discounts to Participants May Reduce the Plan?ÇÖs Payments to the Provider
Cigna, as both an insurer and a third-party administrator of employer sponsored health plans, did not pay the out-of-network coinsurance percentage for claims based on the out-of-network provider?ÇÖs charged amount in cases where the provider did not charge participants the plan?ÇÖs full coinsurance percentage. Cigna based its denials on the plans?ÇÖ exclusion of ?Ç£charges for which the participant is not obligated to pay or for which the participant is not billed.?Ç¥ North Cypress Medical Center, an out-of-network hospital in Texas, sued on behalf of participants to obtain the full out-of-network coinsurance percentage based on the provider?ÇÖs full charged amount. Although the U.S. Court of Appeals for the Fifth Circuit did not address the claim on its merits, the Court remanded the claim to the district court for full consideration as to whether Cigna had discretion to interpret the exclusion in this manner. Issues for the district court to consider include… Continue Reading
The U.S. Sixth Circuit Court of Appeals recently held that a disability plan participant was not entitled to disgorgement of an insurance company?ÇÖs profits when the participant had recovered on his wrongful denial of benefits claim. The en banc Sixth Circuit reversed a prior panel?ÇÖs opinion that held the participant could recover both for the value of unpaid disability benefits plus approximately $3.8 million in profits the insurance company earned on the unpaid amounts. The Sixth Circuit reasoned that equitable relief under ERISA, such as disgorgement of profits, is a ?Ç£catch all?Ç¥ remedy only available where a participant is not otherwise made whole under another of ERISA?ÇÖs remedial provisions. Here, the participant had been made whole by recovering the unpaid disability benefits plus his attorneys?ÇÖ fees. Accordingly, to permit him to also recover the insurance company?ÇÖs profits would result in a double recovery. The Sixth Circuit’s en banc opinion can… Continue Reading
How Required Individual Out-of-Pocket Maximum under Family Coverage Works with a High Deductible Health Plan
We previously posted a summary of the ?Ç£clarification?Ç¥ under the Affordable Care Act to the effect that an individual out-of-pocket maximum (?Ç£OPM?Ç¥) may need to be embedded in family coverage. ?áA new FAQ describes how this embedded individual OPM works with a high deductible health plan (?Ç£HDHP?Ç¥). A HDHP that has, for example, a $10,000 family deductible may provide payment for covered medical expenses for a covered person (without violating statutory requirements applicable to HDHPs) if that covered person has incurred covered medical expenses during the year of at least $2,600 (the minimum deductible for a 2015 family HDHP). The HDHP must also apply the individual OPM limit ($6,600 in 2015) to each covered person in the HDHP, even if this amount is below the plan?ÇÖs $10,000 family deductible limit. ?áThe FAQ can be found here.
Institutional Shareholder Services (“ISS“) has issued its U.S. Equity Plan Scorecard (“EPSC“) frequently asked questions for 2015, effective for meetings on or after February 1, 2015. For the 2015 proxy season, ISS intends to take a “more nuanced consideration of equity incentive programs” instead of applying a rigid pass/fail methodology, that will consider a range of positive and negative factors based on three “pillars” of plan cost, plan features, and grant practices. However, the new methodology will continue to result in “Against” recommendations for plan proposals that feature certain “egregious characteristics” (such as authority to reprice stock options without shareholder approval, single trigger change of control vesting, and tax gross-ups). Proposals related to the adoption or amendment of stock option plans, restricted stock plans, omnibus stock plans, and stock appreciation rights plans (stock-settled) will be evaluated under the EPSC policy. A copy of the FAQs may be found here.
Supreme Court Remands Religious-Affiliated Employer’s Challenge to the Affordable Care Act’s Contraception Mandate
On Monday, the U.S. Supreme Court granted certiorari, and at the same time summarily vacated the judgment of the U.S. Court of Appeals for the Seventh Circuit, on a religious-affiliated employer’s challenge to the Affordable Care Act’s contraception mandate. Previously, the Seventh Circuit held that requiring the University of Notre Dame, which is affiliated with the Catholic Church, to complete a waiver claiming an exemption from the Affordable Care Act’s contraception mandate was not a substantial burden on the university’s religious rights. Without elaboration, the Supreme Court remanded the case back to the Seventh Circuit for reconsideration in light of the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc. For more information on the Hobby Lobby decision, please see our prior post here. The Supreme Court’s order in University of Notre Dame v. Burwell can be found?áhere.
The Affordable Care Act imposes limits on the individual and family out-of-pocket maximums permitted under employer-sponsored, group health plans. New regulations clarify that the limit on an individual’s out-of-pocket maximum applies to all covered persons regardless of whether such individual is covered by employee-only coverage or family coverage. This means that out-of-pocket maximums for family coverage will have to include an embedded individual out-of-pocket maximum. This clarification applies to “2016 plans,” which presumably means for plan years beginning on or after January 1, 2016. The clarification can be found in the preamble to the Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2016; Final Rule?áhere.
The IRS recently issued Notice 2015-16, which is intended to “initiate and inform” its development of regulations implementing the Affordable Care Act’s so-called “Cadillac tax” on certain higher cost health plans. Beginning in 2018, Section 4980I of the Affordable Care Act imposes a 40% excise tax on the cost of employer-sponsored health coverage that exceeds an annual statutory limit ($10,200 for employee-only coverage and $27,500 for employee-plus-one coverage in 2018). The Notice outlines various approaches the IRS is considering related to some of the issues in implementing Section 4980I, such as (i) the type of coverage subject to the excise tax, (ii) how to determine the cost of coverage, and (iii) applying the annual statutory limit to the cost of coverage. Although the Notice provides insight into what the Cadillac tax regulations may ultimately provide, the Notice is merely a request for comments on the issues it addresses and is… Continue Reading
DOL Issues Final Rule Extending FMLA Protections to Same-Sex Spouses Regardless of State of Residence
Under the Family and Medical Leave Act of 1993 (“FMLA“), eligible employees are entitled to take a leave of absence to care for a spouse in certain circumstances. Originally, FMLA’s spousal provisions only applied to opposite-sex spouses. After the U.S. Supreme Court invalidated Section 3 of the federal Defense of Marriage Act in United States v. Windsor, the DOL revised its FMLA guidance to extend spousal protections to lawfully married same-sex spouses if they resided in a state that recognized their marriage. The DOL has now issued a final rule that extends FMLA spousal protections to all lawfully married same-sex spouses, regardless of their state of residence, so long as the marriage was validly entered into in a jurisdiction that recognizes same-sex marriage. The final rule is effective March 27, 2015. The final rule can be found here.?á A fact sheet on the final rule can be found here. Frequently… Continue Reading