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Although insurers largely have continued to have success in federal court defeating COVID-19 business interruption lawsuits, one judge – Judge Stephen Bough of the United States District Court for the Western District of Missouri – continues to be pro-policyholder. As we previously reported, last year he refused to dismiss several suits brought by policyholders seeking business interruption coverage for COVID-19 related losses.

Last week, in K.C. Hopps Ltd. v. The Cincinnati Ins. Co. Inc., No. 20-cv-00437-SRB (W.D. Mo. Sept. 21, 2021), Judge Bough gave policyholders seeking COVID-19 related business interruption coverage a significant victory by denying the majority of the insurance carrier’s motion for summary judgment and sending the case to trial.

In rejecting the insurer’s motion, the Court ruled that the policyholder “has sufficient evidence by which a reasonable juror could conclude the virus was present and rendered its property unsafe.” Id. at 18. In reaching that conclusion, the court relied on the policyholder’s expert and factual evidence supporting the conclusion that COVID-19 was present on its premises. Additionally, the Court relied on the policyholder’s expert evidence that COVID-19 “can physically contaminate property causing ‘physical loss,’ but also the virus creates an actual, tangible alteration to the property.” Id. at 17. The Court also provided further help to policyholders by stating that they do not need definitive proof that COVID-19 was present on its premises, but instead they must only prove that it was more likely than not that the virus physically contaminated the premises.

The Court provided insureds with further ammunition in their quest to capture coverage when it rejected the insurer’s other arguments. For example, the Court disregarded the insurer’s argument that the policyholder did not sustain a physical loss or physical damage because the premises were used during the relevant time period. In rejecting that argument, the court held that the policyholder could recover under the policy even if it used its property in a limited capacity.

Further, the Court rejected a new argument by the insurer that the policyholder had no damages because it received more in COVID-19 relief, including PPP loans, than it claimed in damages. The Court held that because the PPP loans were intended to keep workers employed, and to pay not to compensate owners for lost income, the policyholder had demonstrated a genuine dispute regarding its lost business income.

Importantly, the Court also distinguished this case from the Eighth Circuit’s recent holding in Oral Surgeons, P.C. v. The Cincinnati Ins. Co., 2 F.4th 1141 (8th Cir. 2021) that upheld the denial of coverage under a similar policy.  As the Court explained, “[u]nlike the plaintiff in Oral Surgeons, Plaintiff submits evidence supporting the inference that [COVID-19] is physical, contaminated its premise, and made Plaintiff’s property unsafe.” K.C. Hopps at 11. Thus, COVID-19 business interruption claims likely will continue to turn on the nature of the specific allegations and terms of the operative policies, and plaintiffs must plead and establish that COVID-19 was physically present on its property in order to survive motions to dismiss or for summary judgment.

The Court’s decision is particularly noteworthy because it is in contrast to many other federal courts that have dismissed COVID-19 business interruption actions at the motion to dismiss stage. Those other courts have routinely refused to accept the factual and scientific allegations in policyholders’ COVID-19 business interruption complaints as true and have granted insurer motions to dismiss on the grounds that COVID-19 cannot cause physical loss or damage.  Essentially, those judges have been making their own factual determinations about whether COVID-19 was on the premises and how it impacted the usability of the property. Not only does this decision remind judges that they should not be so quick to dismiss well-pleaded allegations, but also provides a roadmap for the type of evidence that policyholders may need to present in order to assert viable claims.

Judge Bough’s ruling confirms that, although insurance companies have won many early battles, the war is not over.

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Medical providers preparing to engage in arbitration with payors pursuant to the just-announced No Surprises Act dispute rules should be prepared to counter some tough tactics from payors. For health care providers, the first Interim Final Rule represents a reasonable solution against arbitrary rates for out-of-network services, but raises concerns that certain policies may result in a financial windfall for insurers at the expense of providers and consumers.

On July 1, 2021, the Departments of Treasury, Labor, and Health and Human Services issued “Requirements Related to Surprise Billing; Part I”, the first in a series of regulations implementing the “No Surprises Act,” which was signed into law in December 2020 as part of the Consolidated Appropriations Act of 2021 (H.R. 133). Effective January 1, 2022, the Act purports to: (i) protect patients from unexpected medical bills arising from emergency care and certain non-emergency care provided by an out-of-network provider at an in-network facility, including for air ambulance services; and (ii) allow out-of-network providers and insurers to use an independent dispute resolution (“IDR”) process if, after a 30-day negotiation period, the parties are unable to agree to  reimbursement amounts for services subject to the Act.

The IDR process follows “baseball-style” arbitration rules, where each party submits an offer for reimbursement (along with any supporting materials) and the arbitrator selects one of the offers—without modification—as the final payment amount. Notably, the Act requires the losing party to pay for the administrative costs of the IDR process, and provides that the party initiating arbitration is “locked out” from bringing another case against the same party for the same item or service for 90 days following the decision. Once the 90-day “cooling off” period has ended, however, the initiating party is free to submit such claims within four days.

The Rules provide a payment methodology for determining a patient’s cost-sharing amount for covered services and for calculating the so-called qualifying payment amount (“QPA”), which, as discussed below, are key factors in IDR proceedings. Despite the comprehensive approach outlined in the proposed Rules, several policies require further clarification and, as currently drafted, are  poised to be hotly-contested issues in future arbitrations. Specifically, providers should be wary of the following three areas of concern:

  1. The relative weight of the QPA for IDR Purposes. The Act requires the arbitrator in an IDR proceeding to “consider” the following factors when deciding on a payment amount: the QPA and, upon request by the IDR entity or either party, the provider’s training and experience, the complexity of the procedure or medical decision-making, the patient’s acuity, the market share of the insurer and provider, teaching status of the facility, scope of services, any demonstrations of good faith efforts to agree on a payment amount, and contracted rates from the prior year. The Rules do not indicate, however, the relative importance of each factor or whether any one factor should or should not be given preferential weight, leaving open the possibility that arbitrators may either directly or indirectly consider the QPA as the predominant factor. Such reliance on the QPA as the benchmark rate could hinder a provider’s ability to utilize the other factors in good faith negotiations with the insurer.
  2. The definition and calculation of the QPA. This is an issue of significant importance to insurers and providers as it determines patients’ cost liability, influences the financial stability of providers, and must be considered by arbitrators if the provider and payor cannot agree on a payment amount. QPA is defined in the Rules as the median of the contracted rates recognized by the health plan in 2019 for the same or similar item or service provided by a similar provider in the same geographic region (indexed for inflation). To ensure adequate reimbursement for out-of-network services, providers should push for the arbitrator to also consider the weighted average of contracted rates for all providers of that type that are in-network with the insurer in that particular geographic area, rather than a median of contracted rates at the group level, regardless of practice size. For instance, if an insurer has five group contracts in a particular region, the QPA should be the weighted average of the individual rates of all relevant providers from those five groups (and not the median of the five group rates). In addition, given the acceleration of payor-controlled medical service providers, independent providers should advocate that any weighted averages exclude the rates of providers acquired by or in partnership with major payors.
  3. Initial Payment Based on Insurer’s Reasonable Belief. The Act directs insurers to send an “initial payment” (or notice of denial of payment) within 30 days after the provider submits a claim for services subject to the Act. The Rules clarify that the initial payment should represent an amount that the insurer reasonably intends to be payment in full, and that the payment should not be used as a first installment. The Rules do not, however, establish a minimum initial payment amount or an objective methodology for determining that amount. Instead, the insurer can rely on what it subjectively believes to be payment in full. In addition, the Rules fail to expressly require insurers to take definitive action within the 30-day period, instead reiterating one of the Act’s requirements that disputes be resolved “in a timely fashion.” The lack of such safeguards creates loopholes that insurers can exploit to disrupt the financial stability of providers through systemic underpayment and prolonged “good-faith” negotiations.

The Act, together with the Rules, provides mechanisms that promote network contracting, good-faith negotiations between insurers and providers, and ultimately broader access to quality care. A number of gaps and ambiguities in the proposed regulations, however, create yet another opportunity for insurers to engage in self-dealing by financially destabilizing providers and thus restricting patient access to medical care—without any guarantee that insurers’ savings will pass on to consumers. Providers should closely monitor these issues during the rulemaking process and advocate for greater protections to ensure a balanced method of resolving payment disputes.

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On June 30, 2021, the Financial Crimes Enforcement Network (“FinCEN”), issued the first government-wide Priorities for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) policy (the “Priorities”). In accordance with the Anti-Money Laundering Act of 2020 (“AMLA 2020”), FinCEN established the Priorities, after consulting with the Attorney General, and various Federal regulators, to assist covered financial institutions, (which include, banks, brokers-dealers, mutual funds, insurance companies, commodities dealers, precious metal and stone dealers, credit card companies, loan or finance companies, money services businesses, and housing government sponsored entities) with meeting their AML and CFT obligations, including maintaining an AML program that combats money laundering and terrorism financing.

The Priorities identified: (1) corruption; (2) cybercrime, including relevant cybersecurity and virtual currency considerations; (3) foreign and domestic terrorist financing; (4) fraud; (5) transnational criminal organization activity; (6) drug trafficking organization activity; (7) human trafficking and human smuggling; and (8) weapons proliferation financing as the most significant “threats to the U.S. financial system and national security.” These Priorities build upon traditional AML/CFT concerns, such as combating cybercrime, including ransomware and phishing schemes, as well as the evolving use of convertible virtual currency by “criminals and other bad actors.”

Covered financial institutions are not required to take any immediate action in response to the Priorities. Indeed, FinCEN, in consultation with the relevant Federal and State regulators, contemporaneously issued statements for banks and non-bank financial institutions, which recognize that the Priorities “do not create an immediate change” in Bank Secrecy Act (“BSA”) requirements or supervisory expectations. FinCEN also indicated that it will not examine banks or non-bank financial institutions for compliance with the Priorities at this time. Instead, FinCEN and the relevant Federal and State regulators intend to issue regulations to implement the Priorities in 180 days. Covered financial institutions will have no obligation to incorporate the Priorities into their risk-based BSA/AML compliance programs until the effective date of the forthcoming regulations. However, FinCEN suggested that covered financial institutions “may wish to start considering how they will incorporate” the Priorities into their compliance programs by “assessing the potential risks associated with” their particular products and services, customer base, and the geographic area of operation.

Although no immediate action is required, covered financial institutions should review the Priorities to evaluate the need to modify their BSA/AML programs and related policies and procedures. Indeed, the forthcoming regulations, which will likely be issued by the end of 2021, will create new opportunities for regulatory scrutiny. Notably, the AMLA 2020 significantly increased penalties for BSA violations. In addition, the AMLA 2020 expanded whistleblower rewards and protections. Thus, now more than ever, an ounce of prevention may be worth several pounds of cure.

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Our colleague Lauren Petrin of Epstein Becker Green has a new post on Health Law Advisor that will be of interest to our readers:  “DOJ’s Recent Telehealth Enforcement Action Highlights Increased Abuse of COVID-19 Waivers.”

The following is an excerpt:

On May 26, 2021, the Department of Justice (“DOJ”) announced a coordinated law enforcement action against 14 telehealth executives, physicians, marketers, and healthcare business owners for their alleged fraudulent COVID-19 related Medicare claims resulting in over $143 million in false billing.[1] This coordinated effort highlights the increased scrutiny telehealth providers are facing as rapid expansion efforts due to COVID-19 shape industry standards.

Since the outset of the COVID-19 pandemic, the DOJ has prioritized identifying and prosecuting COVID-19 related fraudulent conduct, particularly in regards to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act[2] financial assistance programs. However, before this latest health care fraud takedown, the DOJ announced relatively little enforcement activity specific to federal healthcare programs. This renewed enforcement action may spark an increased effort by the DOJ to manage pandemic-related fraud as it relates to healthcare programs.

Click here to read the full post and more on Health Law Advisor.

Three years ago, the United States Supreme Court confirmed in Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018) that claims brought under the Securities Act of 1933 (the “Securities Act”) are subject to “concurrent jurisdiction,” meaning they can be asserted either in federal or state court and that a state court action cannot be removed to federal court. On the last day of this past term, the Supreme Court announced that it has now accepted certiorari in Pivotal Software, Inc. v. Tran in which it will address the follow-up question of whether the automatic stay of discovery in Securities Act cases applies when those cases are filed in state court.

The Private Securities Law Reform Act (the “PSLRA”), which amended the Securities Act (as well as the Securities Exchange Act of 1934), contains some provisions that apply just when Securities Act claims are filed in federal court and some that also apply when the claims are filed in state court. An important provision of the PSLRA is Section 77z-1(b)(1), which provides in pertinent part that “[i]n any private action arising under this subchapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss.” Various state courts, especially in New York and California (where Securities Act claims are often filed), have divided over the question of whether PSLRA Section 77z-1(b)(1) applies to state court-filed claims. This issue has become more pronounced since the Supreme Court’s decision in Cyan, which resulted in more Securities Act filings in state courts.

In Pivotal, investor plaintiffs brought securities actions in both California state and federal courts relating to representations made in connection with an initial public offering. At first, the state court plaintiffs voluntarily stayed their action while a motion to dismiss was pending in federal court, where that action was stayed pursuant to the PSLRA stay. After the federal court case was dismissed, the state court allowed discovery to proceed even though the defendants also moved to dismiss the state court action. Defendants also sought a stay of discovery, arguing that the plain meaning of the statute dictates that the stay applies “in any private action” wherever filed. The California state court, however, denied defendants’ motion, concluding that the PSLRA’s automatic stay was a “procedural” provision that did not explicitly direct stays in state court. The California appellate courts denied requests to review this decision.

Defendants petitioned the United States Supreme Court to take the case on grounds that state trial courts are sharply divided on the question of whether the PSLRA’s automatic stay applies to Securities Act claims filed in state court. The petition also underscored that the issue “consistently evades appellate review” because state appellate courts refuse to review the trial court determinations and the issue does not arise in federal actions. Although the state court plaintiffs decided, after the certiorari petition was filed, voluntarily to stay discovery pending the state court motion to dismiss, the United State Supreme Court nonetheless decided to grant the petition and will issue a decision later in the 2021/2022 term.

The Supreme Court’s decision will likely have a significant impact on Securities Act claims in state court. Stay tuned for further developments.

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As the “new normal” of pandemic virtual legal proceedings appears to be waning, a question arises as to which, if any, practices initially born out of necessity, but no longer so, should continue to be utilized. One such device previously employed sparingly, but which became de rigueur during COVID, is the virtual deposition. In some but not all circumstances, virtual depositions can remain an effective tool for litigators.

The critical considerations in determining whether to continue using this mechanism will hinge on the purpose of the deposition and the stature of the particular witness. For example, if a deposition is being conducted for basic discovery purposes, i.e., understanding the broad strokes of a dispute, or determining generally what the opposing side knows or has, it might make sense to conduct it virtually. What may be obtained from such witnesses over video-link likely would not be enhanced by conducting the depositions in person. Moreover, the technical hiccups sometimes incidental to a video deposition, such as audio deficiencies and temporarily frozen screens, likely would not diminish the value of such “low-stakes” testimony.

But, if the purpose is to obtain testimony that will be presented to a trier of fact, there is no substitute for a live deposition. Like cross-examining an opponent’s witness during a trial, being in the same room to control that witness without the delay of a video feed or the interference of opposing counsel who may be present with the witness while you are not, makes a world of difference. Due to the unavailability of witnesses, cases may be won and lost during depositions. Consequently, it is important to treat these depositions as if you are eliciting trial testimony. Doing so live will give you the best chance at a successful examination.

A second important consideration is the stature of the witness. A virtual deposition would certainly be appropriate for a low ranking company employee with no ability to bind an organization, or a document custodian whose elicited testimony would likely be mechanical in nature. However, the deposition of a critical fact witness, high-ranking company official, or corporate designee most definitely should be conducted live, if possible. There simply is no substitute for looking a witness in the eyes during questioning to gauge their credibility, or obtaining a face-to-face assessment of their composure and demeanor. That type of evaluation is simply not possible over a video-link, particularly given the possibility of technical mishaps.

These considerations should not be viewed in a vacuum, of course. For more and more clients, a primary concern is legal cost containment. For those attorneys with national practices, being able to conduct the video deposition of a witness who resides on the other side of the country surely will provide significant cost savings for such a client. Similarly, a busy litigator’s life will be made easier by having the option of deposing a witness virtually, rather than committing to otherwise avoidable travel time.

Like most legal conundrums, the answer to this question is not clear-cut. But, having options like those outlined above to address the different types of witnesses and circumstances will increase the likelihood of eliciting valuable testimony.

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Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers:  “Two Election-Related Decisions, Decided on Strict Ideological Grounds, Close Out the Term.”

The following is an excerpt:

No harmony today. The Court has rendered two 6-3 decisions mirroring strong ideological divisions. In one, Brnovich v. Democratic National Committee, the Court was unmoved by allegations that two provisions of Arizona election law offended Section 2 of the Voting Rights Act (“VRA”) and had resulted in disproportionate burdens on minority voters. In the other, Americans for Prosperity Foundation v. Bonta, the Court upheld the claim of several conservative charities that the California policy that required organizations like theirs to provide the State with a list identifying their largest donors offended their First Amendment rights. [Full disclosure: I am a member of the Board of Directors of the Campaign Legal Center, a public interest group that has taken public positions in both of these election campaign-related cases that accord with both dissents. To the extent that any opinion is expressed herein, it is my own.]

Click here to read the full post and more on SCOTUS Today.

SCOTUS-Today

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “Today, but a Few More Unusual Alliances.”

The following is an excerpt:

Three decisions were released today, each showing a greater division of opinion than we’ve seen over the last several weeks. While one of the three, an immigration case, was decided across strict conservative/liberal reputational lines, the other two, yet again, were the result of unusual alliances of Justices expressing independent views of the law and jurisprudential process.

In Johnson v. Guzman Chavez, there at least was no conflict between the conservative majority (Alito, J., joined by Roberts, C.J., and Kavanaugh, J., with Thomas and Gorsuch, J.J., concurring) and the liberal dissenters (Breyer, Sotomayor, and Kagan, J.J.) concerning the facts and the issue to be decided. The case concerns several non-citizens who had been ordered removed from the United States, who then returned illegally. The government then reinstated their removal orders and detained them. They argued that they could not be removed because they reasonably feared torture in the countries to which the government wanted to send them, and that they were entitled to bond during the expected lengthy time of proceedings to resolve the matter. The Court had to determine which of two provisions of immigration law governed the question of detention: 8 U. S. C. §1226 or 8 U. S. C. §1231. If it was §1226, which applies “pending a decision on whether the alien is to be removed from the United States,” then the aliens may receive a bond hearing before an immigration judge. If the answer is §1231, which applies after an alien is “ordered removed,” then the alien is not entitled to a bond hearing. The Court’s majority concluded that it is §1231, not §1226, that governs the detention of aliens subject to reinstated orders of removal. They, therefore, are denied a bond hearing. One would think, as the majority has, that the literal language of Section 1331 indeed should control, given the fact that the aliens in question clearly had been “ordered removed.” However, it takes 23 pages for Justice Alito to justify that simple application. The reason for that lies in the addressing the attempt of the dissenters to focus on the law’s 90-day removal period and its potential application to “withholding-only” proceedings—a limitation that it generally is impracticable to meet—and also what, to the dissenters, is the overriding significance of protecting aliens who have a legitimate fear of persecution. At the outset of the Biden administration, the country is experiencing a wave of illegal immigration. The Johnson case is likely going to have effect concerning the processing of many new detainees.

Click here to read the full post and more on SCOTUS Today.

SCOTUS-Today

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “Two ‘GVRs’ Show Continued Restraint by the Justices.”

The following is an excerpt:

The Court issued two per curiam opinions today, both of them granting cert., vacating the judgments below, and remanding the cases to a lower court for further factual inquiry, a procedure known colloquially as a “GVR.” Both of these unsigned opinions represent restraint, deferring to trial courts for factual findings and deferring reaching legal issues until it is unavoidable. In one of the two cases, three conservative Justices, a bit anomalously to normal conservative doctrine, I suggest, criticize the majority for doing that. However, in the end, the Court is acting as what it is supposed to be: one of legal review, not factfinding.

As last week’s decision in Cedar Point Nursery v. Hassid, illustrates, property rights cases are controversial among the Justices (and others), though not necessarily along the lines that many observers might have assumed. Today’s decision in another Fifth Amendment takings case, Pakdel v. City and County of San Francisco, avoids any such controversy. Here, the unanimous Court acknowledges the general rule that, in determining whether a regulatory taking violates the Fifth Amendment, a federal court should not consider the claim before the government has reached a “final” decision. However, the exhaustion of state remedies is not a prerequisite to an action, such as this one, under 42 U. S. C. §1983. Thus, the married couple who are co-owners of a multiunit residence, who had applied for conversion of the building into a condominium, but now sought the vacation of a lifetime lease to a tenant that had been a feature of the conversion approval, argued that their compelled agreement to the lease provision was an unconstitutional regulatory taking. While their appeals of the denial of their position were pending, the Supreme Court held that a §1983 case can be brought without first bringing a state lawsuit. The Ninth Circuit, nevertheless, insisted, pursuant to another Supreme Court ruling, that plaintiffs may challenge only “final” government decisions, which had not taken place here. In reversing the oft-reversed Ninth Circuit, the Supreme Court held that the appeals court’s view of finality was too stringent, that it tended to impose a rigid exhaustion condition that is not required in §1983 takings cases. Instead, the finality requirement is “relatively modest,” with a plaintiff having to show no more than that there is no question about how the city mandates that its governing regulation applies. On remand, the lower court will be able to take that into account, along with the issues just identified by the Court in the Cedar Point case.

Click here to read the full post and more on SCOTUS Today.

SCOTUS-Today

Our colleague Stuart Gerson of Epstein Becker Green has a new post on SCOTUS Today that will be of interest to our readers: “More Unlikely Lineups.”

The following is an excerpt:

Some critics might claim that the Justices are trying to prove something—that the unlikely alliances that they are forming are confined to narrowly drawn opinions issued to counter criticisms coming from the political arena that extra Justices should be appointed to the Court, or term limits should be imposed. It is, I suggest, clear enough that the Chief Justice is doing a masterful job of promoting restraint and unity, and I’ve commented to that effect on several recent occasions. However, that aside, it also is clear that the individual Justices are deciding cases according to their independent, personal, jurisprudential views, and are hardly marching in lockstep along two sides of a conservative-liberal divide. The unpredicted lineups in the three cases decided by the Court today firmly illustrate that point.

TransUnion LLC v. Ramirez is a case decided under the Fair Credit Reporting Act (FCRA), which creates a private cause of action by consumers to recover damages for certain actions. TransUnion is a credit reporting agency that compiles and sells consumer credit reports that included, through an add-on product, information as to consumer names that were matched up against a list of terrorists, drug traffickers, and other criminals maintained by the Treasury Department’s Office of Foreign Assets Control (OFAC). A class of 8,185 individuals with OFAC alerts in their credit files sued TransUnion under the FCRA for failing to use reasonable procedures to ensure the accuracy of their credit files. It was stipulated that only 1,853 class members (including the named plaintiff, Sergio Ramirez) had their misleading credit reports containing OFAC alerts provided to third parties during the period. The reports of the other 6,332 members of the class were not so circulated.

Click here to read the full post and more on SCOTUS Today.