In the latest issue of The Wright Toolbox:

• State Contractors, Be Prepared: Maryland’s Responsible Payment of Employee Health Care Expenses Act Will Become Law Effective July 1, 2019 – read now
• Can’t We All Just Get Along – Cooperation Clauses in Insurance Policies – read now

State Contractors, Be Prepared: Maryland’s Responsible Payment of Employee Health Care Expenses Act Will Become Law Effective July 1, 2019

All contractors and sub-contractors bidding on state construction projects need to be aware of Senate Bill 433 from the 2019 Maryland legislative session. Despite significant concerns related to the constitutionality of some of its provisions, the new law takes effect on July 1, 2019. Senate Bill 433, the “Responsible Payment of Employee Health Care Expenses” law, provides that any bidder, contractor, or subcontractor on a State-funded construction contract must demonstrate the payment of employee health care expenses. Companies must do so by submitting certification or a valid contract to DGS or MDOT that shows that, for employees who will work on the construction project:

• the employer pays aggregate employee health care expenses of at least 5% of the wages paid by the employer; or
• the employer pays 50% or more of the required premium necessary to obtain coverage by a credible health insurance plan.

Beyond the certification form, a procurement officer may also require a responsible bidder or subcontractor to submit records that are sufficient to support the certification required by the law. Under the law, DGS, MDOT, and the DLLR must collaborate on the development of a certification form but it is not clear that a certification form will be available ahead of the effective date of the law.

The law exempts small businesses with fewer than 30 employees and Minority Business Enterprises (“MBEs”) from coverage. The permissibility of the exemption for MBEs has already drawn scrutiny, including a letter opinion from the Attorney General of Maryland suggesting that the exemption for MBEs is unconstitutional.

Beyond the constitutional issues, the law creates a number of questions and issues for employers. Based on the language of the statute, it is unclear whether employers are required to simply offer to pay 50% of the required premiums to obtain coverage or whether all of the employees on the project are required to actually be insured by the employer’s plan. The second possible reading creates a serious issue – how can employers mandate that their employees purchase their health insurance from them? Second, the bill creates another avenue for contractors to protest bids by contesting whether the winning bidder meets the law’s requirements. Finally, the law only provides that a procurement officer may void a contract if the awardee fails to provide requested documentation but does not mandate it. This creates serious questions about whether the law will be enforced consistently.

If you have any questions about Senate Bill 433, its impact or help complying with the new law, please contact our Employment & Labor Law practice group.

Can’t We All Just Get Along – Cooperation Clauses in Insurance Policies

by Michael Stover

Many insurance policies have what is commonly known in the industry as a “cooperation clause.” A typical clause might provide that the insured must “cooperate with the insurer in the investigation or settlement of the claim or defense against the suit.” The cooperation clause is designed to both aid in making every legitimate defense to the claimed liability and to render assistance in the trial. Under such a clause, the insured is obligated to assist in good faith in making every legitimate defense to a suit for damages. This includes a fair, frank and truthful disclosure of information requested by the insurer for the purpose of enabling it to determine whether or not there is a genuine defense. It has been held that such clauses should be construed and applied by the courts to effectuate their purpose.

However, under Maryland law, when an insurer seeks to disclaim coverage on any policy of liability insurance on the ground that the insured, or anyone claiming the benefits of the policy through the insured, has breached the policy by failing to cooperate with the insurer or by not giving requisite notice to the insurer, such disclaimer of coverage shall be effective only if the insurer establishes, by a preponderance of affirmative evidence that such lack of cooperation or notice has resulted in actual prejudice to the insurer.

Moreover, when insurance companies try to use the cooperation clause for reasons other than its intended purpose, policyholders may not be compelled to cooperate. So, for example, the cooperation clause is not designed to allow the insurance company to bargain with the policyholder’s rights against others. Similarly, an insurance company cannot use the cooperation clause to force a policyholder to assist it in litigation challenging whether there is coverage for the claim.
In a recent case, a court held that the cooperation clause could not be used by an insurer to force the insured to give up its rights against a third party. As one court observed, “[w]hile the Cooperation Clause surely precludes an insured from sabotaging the insurance company’s interests, the clause does not require the insured to subjugate its own best interests.”

The best practice is to fully and timely cooperate and assist your insurance company in defending claims asserted against you, so as to avoid prejudicing the insurance company in its defense and possibly jeopardize your coverage. But, there are limits on what the insurance company can require an insured to do under the Cooperation Clause. We can assist you in understanding your obligations under your insurance policies so that you can avoid potentially losing coverage.

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