Loss of manufacturing capability as a result of regulatory non-compliance can have a devastating impact on biotech, pharmaceutical or medical device companies and can happen anywhere along a company’s supply chain. Please fill out the form below to download the article about the impact of regulatory action on life science companies.
Many doctor visits today are plagued by difficulties scheduling appointments, long wait times and rushed conversations with the physician. It’s a frustrating experience for patients and challenging for organizations looking to prioritize member health without productivity taking a hit. Please fill out the form below to download the article about the value of on-site and near-site health centers.
Construction and real estate companies face large risks and have significant property and casualty insurance needs. These risks are growing in severity and frequency, creating a challenging environment for securing adequate insurance coverage at a reasonable rate. Please fill out the form below to download the article about securing property & casualty coverage for construction and real estate.
Parametric insurance solutions offer a means to guarantee direct payout after a qualifying event and protect against unpredictable but potentially devastating risks in ways traditional insurance packages cannot. Please fill out the form below to download the article about parametric insurance.
Imagine you are serving as the general contractor for a massive urban development job, responsible for building a skyscraper in downtown Philadelphia. Everything is going smoothly until the project is 90 percent complete and the property developer informs you they are not going to pay you in full for the work because of an issue with the electric wiring. You know your company or your subcontractors adequately installed the wiring and feel this refusal to pay is unjustified. What are your legal rights to fight this claim?
Failing to receive full payment for a job is a major nightmare. Unfortunately, it happens all of the time. The good news is there are tools available to contractors that can help ensure they get paid for their work.
There are two main recourses in these situations depending on the type of project: mechanic’s liens filed against the property developer and payment bond claims.
A mechanic’s lien is a security interest in real property that secures payments to a party who has improved the real estate with labor, materials or supplies.
Payment bond claims are another tactic used by government contractors that work on publicly-funded projects. All public projects will require the general contractor to provide a payment bond. Some private jobs require bonds as well.
Mechanic’s liens severely handcuff an owner when it comes to their property. They can cause the bank financing the construction to stop monthly draws and can prevent the property owner from receiving permanent financing and a certificate of occupancy until the lien is satisfied with either cash, a letter of credit or a lien surety bond.
Because these liens carry serious consequences for the property owner, before a contractor can file for a mechanic’s lien or a payment bond claim, there are a few considerations they must take into account. At Conner Strong & Buckelew, we have dedicated teams that provide guidance in cases where contractors are not getting paid.
Here are the four steps to take if you are a contractor exploring your options for using mechanic’s liens or payment bond claims.
Mechanic’s liens are a great tool to assist contractors in getting paid on private real estate jobs, but mechanic’s lien laws do not apply to public projects. Instead, these contractors are protected under payment bonds. If a contractor isn’t paid in a timely manner per the terms of the contract, they can file a claim on the payment bond and potentially receive payment that way.
There are a few other important distinctions between these two strategies. Liens create a security interest in the improved real estate for the amount due and owed. Requirements also vary from state to state. Payment bonds are slightly different in that they provide an underwritten payment guaranty for the amount due. It creates a financial obligation to pay subcontractors per the terms of the construction contract, and the process of filing a claim against a payment bond is typically detailed in the bond form.
For contractors filing for a lien, there are a few pieces of information they will need to have no matter what state they’re filing in. Below are a few of the most important pieces of required information:
Certain delay damages, materials or work not incorporated into a renovated property and general conditions costs could exclude a contractor from qualifying for a lien. It is also important to remember that landscaping work and other land improvements not incidental to construction oftentimes do not qualify a contractor to file for a lien.
Depending on which state the contractor is operating in and whether or not they are filing for a mechanic’s lien or a claim on a payment bond, the deadlines for filing vary. Below is a reference chart to help contractors operating in Pennsylvania and New Jersey understand the timing around this process. If you are operating in another state, contact a Conner Strong & Buckelew representative and we will help you ensure you have the correct filing timeline.
| Preliminary notice needed? | Deadline to enforce claim | ||
| Pennsylvania Mechanic’s Lien | Yes – On searchable projects, notice of furnishing is required within 45 days of starting work. Sub-contractors must give the owner 30 days written notice. | 6 months from last day of work | |
| New Jersey Construction Lien | No | 90 days from last day of work | |
| Pennsylvania Payment Bond Claim | Yes – Written notice is required within 90 days of last date of work for those not in direct contact with the bond principal | 90 days from last day of work | |
| New Jersey Payment Bond Claim | Yes – Written notice is required within 90 days of last date of work for those not in direct contact with the bond principal | 1 year from last day of work |
Eligibility for filing a mechanic’s lien typically depends on whether or not the contractor has a “contract” with the real estate owner. Depending on the state, the definition of a contract as recognized by the courts varies slightly:
The scope in which liens can be applied is also limited. In both Pennsylvania and New Jersey, payment bond claims and mechanic liens can extend to general contractors, first-tier subcontractors and second-tier subcontractors, but no further. If you are operating in another state, contact a Conner Strong & Buckelew representative and we will ensure you understand your eligibility qualifications.
Bringing it all together
Mechanic’s liens and payment bond claims are necessary tools contractors must know how to leverage in the event they are not being paid in full for a job well done. Knowing exactly when and how to deploy these tactics can be a difficult process. To ensure the lien and claims are filed for properly and on time, contractors are wise to surround themselves with third-party insurance and surety brokers as well as attorneys who are well versed in this area. Otherwise, these payment issues can turn into hung receivables and can have an adverse impact on a contractor’s bank and surety lines of credit.
Many employers are realizing there’s a better way to connect new hires and current employees to benefits information and resources. Benefits automation has emerged as a powerful tool to boost employee engagement, reduce administrative efficiencies and streamline compliance. Please fill out the form below to learn more about parametric insurance.
In late 2018, the U.S. Food and Drug Administration (FDA) sent Galt Pharmaceuticals LLC a type of letter no one wants to receive.
The FDA issued Galt Pharmaceuticals an untitled letter, a type of “warning letter” used to notify companies of a specific regulatory violation, such as poor manufacturing practices, problems with claims for what a product can do or incorrect directions for use.
The untitled letter delivered to Galt Pharmaceuticals was sent regarding its insomnia product, DORAL. The FDA alleged the company intentionally sent an email to doctors that made false or misleading claims related to the drug. The FDA said these claims were “extremely concerning from a public health perspective.” The claims minimize the risks of abuse and dependence associated with DORAL and suggest that the scheduled drug is superior in safety to other prescription and over-the-counter (OTC) products, according to the FDA’s Office of Prescription Drug Promotion (OPDP). Further, the OPDP said the letter Galt Pharmaceuticals sent included the benefits of the drug but omits serious drug risks.
In recent years, warning letters like these have been issued more frequently by the FDA. The FDA issued nine total letters in 2019, up from seven in 2018 and five in 2017. The letters are sent whenever pharmaceutical companies fail to follow quality system regulations that relate to methods used to design, manufacture, package, label, store, promote, sell, install and service drugs and devices.
“Clinical holds” are another corrective action the FDA leverages to ensure regulations are met during the clinical trial phase. The FDA defines a clinical hold as an order issued to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. Similar to untitled letters, clinical holds can cause significant financial damages when delays are introduced to the drug approval process.
Failing to comply with FDA warning letters may lead to severe repercussions such as product seizures, withholding of regulatory approvals and in some cases civil penalties. Warning letters may also be admitted as evidence in a product liability case. Additionally, clinical holds can also open up drug companies to significant financial losses in the form of business interruption, product recalls and much more.
As the FDA continues to deploy untitled letters and clinical holds, it has become imperative that pharmaceutical companies consider the impact on potential liability and liability insurance policies used by most insurance companies serving the life science industry. With this knowledge, they can better understand their liability in these situations and how to properly leverage their insurance coverage to stay protected.
Legal Consequences of Warning Letters or a Clinical Hold
A warning letter or clinical hold may have certain unintended consequences for a drug or biological manufacturer. It may trigger action by plaintiff law firms that believe the underlying problem illuminated by the clinical hold or by pending enforcement action may suggest a company’s negligent actions or explain an increase in adverse events or injuries resulting from the product, product claims/representations or services cited in the warning letter.
In fact, FDA warning letters could support a product liability lawsuit against the life science manufacturer. At minimum, FDA warning letters may be introduced as evidence in a product liability lawsuit. Since warning letters and clinical hold decisions are publicly available, the plaintiff attorney involved in civil litigation against the recipient of the FDA action may cite this information as evidence of a life science company’s alleged failure to comply with federal regulations and therefore as evidence of its knowledge of a product design, manufacturing defect or failure to warn. It is entirely likely for a plaintiff attorney to attempt to use the warning letters to establish a pattern of negligence. Or, they could be used to establish that the life science company or its investigators were reckless and/or knew about a particular risk or product defect based on the information contained in the warning letter or resulting from the clinical hold.
Insurance Implications
Most life science companies purchase claims-made product liability policies that provide certain insurance for bodily injury or property damage arising from an event or occurrence (defined by many insurers as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”) or circumstances (defined by many insurers as “fact(s) established by direct evidence” that “would reasonably be expected to result in any claim or suit”) that may give rise to a claim. Such policies apply to claims that occur during the policy period and typically are made against the company during the policy term, regardless of when the claim is reported to the insurance carrier.
Product liability claims can be complex, particularly for life sciences companies. Months or even years can elapse between an injury, the company’s awareness of that injury and a product liability claim or suit. Understanding how product liability insurance factors into a potential claim or suit involving a person (or persons) exposed to an event is essential to ensuring the correct policy period is triggered.
It is equally important to consider how an incident would be affected if a company changes insurers while the circumstance evolves or claims come in. What’s more, it’s necessary to consider whether the policy allows for an adequate time period to report such circumstances or claims. Claims-made policies typically won’t cover a claim before the retroactive date of the policy or after its basic reporting period at expiration unless a supplemental reporting extension endorsement is purchased.
The next insurer also may not respond to claims prior to the inception date of the replacement policy, particularly if it’s a situation where the company knew or should have known of a circumstance that might give rise to a claim or suit “deemed” to have occurred in that policy period. Such knowledge might be established in an instance where a clinical hold or warning letter was received by the company and later connected to a claim or suit.
In practice, companies may overlook a clinical hold event and not think of it as a reportable issue under its liability insurance policies until it’s too late. This may happen when a claim presents in the future and the insurance company denies coverage since the clinical hold occurred during a previous policy period, was unreported or noticed, and proper disclosure was not made to secure coverage for the next policy period.
The graphic below illustrates how important timing is to the resolution of a claim under a claims-made policy:
Claim 1: This claim would not be insured in the second policy period since the circumstance was reported in the first policy period. Since the facts of the claim in the second policy period connect it with the reported circumstance, the claim would telescope back to the first policy period, if no other insurance is available.
Claim 2: The coverage is moved to a new insurance company. A report is made before the end of the first policy period but the claim doesn’t materialize within the basic reporting period under the expiring policy. However, a supplemental reporting period is purchased providing enough time for a claim to be made for injury two and the facts of the claim are connected to the circumstance reported in the first policy period. In this case, the claim would be allowed since it is within the supplemental reporting period and it will be telescoped back to the first policy period where coverage was preserved when the circumstance was first reported.
Claims professionals and lawyers will uniformly suggest that a life science company report any circumstances involving an adverse event to them as soon as practicable. Providing as much detail as possible will help the insurance company determine whether the circumstance ultimately gives rise to a claim, what policy the circumstance is associated with and how that claim will telescope back to the policy in which the circumstance was first deemed known.
In general, such circumstances may involve:
Covering the Bases
As the FDA continues to send more untitled letters, life sciences companies must verse themselves in the regulatory risks they face as well as the financial and legal implications of experiencing such an event. These companies should start by working with their insurance broker to ensure their insurance coverage is sufficient.
If a company chooses to change insurance carriers, it is critical they work with their insurance broker to understand their rights under the policy for any previously reported circumstances. It’s essential to report any circumstances the company is aware of within the terms of the basic reporting period and to determine what facts to provide and how much time the new policy affords to report known circumstances. In addition, your broker will help you determine whether it would be wise to purchase a supplemental reporting endorsement to afford adequate time for such circumstances to be recognized as claims under their expiring policy.
BY SEAN MCILHENNEY
From product research and development, quality assurance, and everything in between, technological advancements are changing the manufacturing process.
Blockchain technology is improving supply chain management. Artificial intelligence (AI) and The Internet of Things (IoT) is completely transforming quality control processes with automation and remote monitoring. Drones have the capability to help monitor manufacturing plant operations and maintenance activities. Robotic and Computer Controlled machinery have become ubiquitous and are now responsible for many of the tasks and operations previously handled by employees. According to the Brookings Institution, there are likely more than 1.9 million robots in use in manufacturing facilities and warehouses across the globe; with roughly 240,000 in North America.
Wearable technology for employees exists which can signal automated equipment to shut down when an employee gets too close to a process that could result in employee injury. This technology reduces the risk of people getting injured in those situations where workers are operating machinery and equipment manually. In addition, technology applications are introducing new areas of risk that require manufacturers to conduct new and different hazard analyses on systems that are interconnected, impact the supply chain, and could create a process disruption.
As a result of these significant changes and advances, risk management practices and insurance coverages must be reassessed and updated to keep up with the evolving risks that inevitably come with the continued adoption of new capabilities.
The implementation of technology into manufacturing is unlikely to slow and, in fact, it is expected that the pace will accelerate. Therefore, reassessing and updating insurance coverages and risk management means that manufacturers are strongly encouraged to evaluate and update their insurance programs and risk management processes on an ongoing basis.
Three ways they can do this are:
1. Augment property insurance with cyber coverage
Whenever a new piece of network-connected technology is brought on line in a manufacturing plant, cyber security risks are inherently introduced. Today, many of the advancements reshaping assembly lines are remote-controlled by an internet-connected piece of technology. Whenever any equipment is connected to a network, it gives cyber criminals a potential pathway to hack their way in. Traditionally, cyber security concerns centered around data security and compromised sensitive personal information. But today, cyber criminals are also able to gain control of mission-critical equipment, sabotage production, damage machinery, and even harm employees.
The financial implications of such a cybersecurity breach can be devastating. Most property insurance does not cover damages that result from a cybersecurity event. While many manufacturers are beginning to purchase cyber coverage, many companies have not yet studied the potential implications of a cyber event and are exposed to significant financial loss and business interruption. Company owners and operators should also assess the cybersecurity infrastructure at their third-party vendors. If vulnerabilities exist at these companies, it is critical that the manufacturer ensure their contracts are structured to protect them from liability in the event of a breach.
2. Address rapidly rising equipment replacement and repair costs
The technology being deployed in manufacturing facilities is far more expensive to repair and replace than traditional machinery. Advanced manufacturing equipment is often custom made for a particular facility and repairing or replacing such a piece of equipment can take months and introduce costly production interruptions and delays. Plant owners and operators must take this into account when developing their property values and business interruption estimates for property and equipment breakdown insurance purposes. It is important that your policies include replacement cost valuation where appropriate, no coinsurance requirements (if available and at a reasonable premium), a sufficient period of indemnity for business interruption, extra expense coverage, and blanket limits where possible.
3. Update risk management practices to match changing worker dynamics
Technology is changing the way manufacturing workers do their jobs. Traditionally, manufacturing was very labor intensive, but technology advancements are increasingly taking these workers off the floor and out of harm’s way. By reducing human interaction and worker fatigue, this should reduce the risk for injuries and accidents. With fewer workplace injuries, not only can the cost of workers compensation be reduced, but all of the hidden costs that accompany employee related injuries should also be reduced. It should also be noted that in many cases, the workers compensation class codes for an insured may not have been updated to address the changes in job descriptions and activities resulting from process advancements. It is a good practice to periodically review this with your broker and carrier as your manufacturing process continues to change and evolve.
On the other hand, new technology can introduce new risks that must be addressed. Manufacturers must refresh their risk management approach and risk assessment strategies to reflect this new operating environment. Standard Operating Procedures must be reviewed and updated on a frequent basis. In addition to hazard assessments on new equipment, it is important to understand how a piece of advanced manufacturing machinery can affect the entire process in the event of an unplanned shutdown. Programming glitches, system failures, and breaches of the cyber environment can all have a devastating impact on a company. Table top exercises and testing of a business continuity plan are useful and can prepare a company to better manage a disruption. In addition, property and cyber underwriters have come to expect their insureds to have risk mitigation and continuity programs in place in order to provide insurance coverage at a competitive premium.
Keeping up with new technology
As with many other industries, technology is rapidly transforming the manufacturing segment. As a result, insurance coverages and risk management strategies must be updated to reflect the rapid advancements and the new risks they present. Insurance brokers that have experience in this industry and knowledge of the nuances of these dynamics can help ensure that a manufacturer has the proper coverages and procedures in place. Investing some time and attention today can save plant owners and operators from incurring significant financial setbacks and production delays in the future.
Debunking the most common myths around benefits stop-loss captives
Captives sometimes get a bad rap.
When businesses hear the word “captive,” they typically assume the solution is only for property and casualty, far too complex for their company or simply unnecessary to meet their needs. However, benefits stop-loss captives provide undeniable cost-savings and are extremely simple to implement.
Healthcare costs continue to chart a staggering upward trajectory. According to the Millman Medical Index, a family of four in the U.S. spends approximately $28,166 per year on healthcare and prescriptions on average, up significantly from $23,215 in 2014. Employers continue to subsidize their employees’ healthcare costs by paying an average of 56% of the total costs. As healthcare costs rise, this burden will only intensify, and companies need to find a way to contain these expenses.
Until now, there have been few financially feasible methods for mid-sized companies to self-insure and responsibly take the risk. Benefits stop-loss captives allow employers to band together to purchase and manage their stop-loss risk differently. This security can give mid-sized companies the kind of control and cost transparency enjoyed mostly by large employer groups. They can also help keep employee healthcare costs down and more consistent year over year.
Considering the state of healthcare costs today, benefits stop-loss captives can serve as a powerful tool to protect self-insured companies from year-over-year volatility and to help fully-insured companies gain better control over their costs. Yet many businesses still avoid using them. In reality, benefits stop-loss captives are a great fit for many mid-sized companies.
In order to help shine a light on the benefits, we explain the truth behind four of the largest myths around benefits captives:
Myth 1: They’re too complex
There is much confusion about what exactly a benefits stop-loss captive is. In simple terms, employee benefit group captives give small to midsize employers a way to gain control of the cost of employee benefits. When employee claims are extensive, your group captive absorbs the shock. When employee claims are modest, you essentially pocket a portion of the profit that would normally have gone to an insurance carrier.
Myth 2: It’s too much of a change
Adding a captive to an existing self-insured structure or switching from a fully insured structure is simple and straight forward. In most cases, employers can keep their Third Party Administrator (TPA), their network, and their plan design(s). The biggest change an employer will notice will be full transparency into claims and the various cost containment solutions now available to them.
Myth 3: My employees won’t like it
Implementing a benefits stop-loss captive is typically a smooth transition for companies. But it is an even smoother transition for employees, who likely won’t notice any change at all. Under a benefits stop-loss captive approach, employers contract with a TPA that handles all of the day-to-day logistics of the plan, including adjusting claims, providing ID cards, and providing both employer and employee customer service. If you’re already working with a TPA, chances are you can keep them under the captive which means no change to the network of doctors and hospitals your employees see today. In fact, employees will have no idea that you’ve moved to a captive model.
Myth 4: They’re too risky
Many employers are scared off by the fact that they’ll be taking on a “risk they cannot afford.” While it’s true a fully insured employer will be taking on some risk, the employer is protected by the strong reinsurance contract provisions that protect from both large claims and high claim frequency. Also, this structure represents inherently less risk than being 100% self-insured. One of the key advantages against a traditionally self-funded strategy is the captive offers a “no new laser” provision… for as long as you are in the captive.
An Employee Benefits Consultant’s Value
Benefits stop-loss captives offer employers the ability to gain clarity and consistency when it comes to their employee healthcare costs. But when transitioning to a benefits stop-loss captive, it’s important to go in with an experienced partner. Employers are wise to consult a broker that’s knowledgeable in the intricacies of these structures and can advocate for you to make sure your needs are met. These professionals can make sure the process is seamless for your leadership and employees.
