The Indiana Supreme Court, applying Indiana law, has held that the settlement of a multi-district litigation, which alleged that the insured managed care organization had engaged in a scheme of systematically failing to pay claims by medical providers in full and in a timely manner, fell within the insuring agreement of the organization’s E&O policy because the insured’s losses resulted from alleged wrongful acts that occurred solely in the rendering or failure to render professional services. WellPoint, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2015 WL 1849523 (Ind. Apr. 22, 2015).
The insured managed care organization was named in various lawsuits alleging that the organization had engaged in an improper, unfair, and deceptive scheme designed to systematically deny, delay, and diminish payments due to doctors for rendering covered, medically-necessary services. Plaintiffs brought two lawsuits in Connecticut state court asserting claims for breach of contract, breach of the duty of good faith and fair dealing, violation of the Connecticut Unfair Trade Practices Act and Unfair Insurance Practices Act, negligent misrepresentation, and unjust enrichment. Plaintiffs in three lawsuits in Florida asserted claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), including conspiracy and aiding and abetting, and claims for breach of contract and violations of prompt-pay statutes.
The actions were all consolidated in a federal multi-district litigation in the United States District Court for the Southern District of Florida. The claims alleging breach of contract, unjust enrichment, and violations of state prompt-pay statutes were subsequently dismissed or dropped. In July 2005, the managed care organization settled the multi-district litigation but denied any wrongdoing or liability.
The managed care organization, which was self-insured for its primary and excess layers of E&O coverage, sought coverage from its E&O reinsurers. The excess reinsurers denied coverage for the settlement and defense costs, and the managed care organization filed this coverage action. The trial court granted summary judgment in favor of the reinsurers, and the intermediate court of appeals affirmed.
On appeal, the Indiana Supreme Court considered three principal contentions of the reinsurers as to why the settlement was not covered. First, the reinsurers argued that the settlement did not fall within the terms of the policy’s insuring agreement, which covered “Loss of the Insured resulting from any Claim or Claims … against the Insured … for any Wrongful Act of the Insured … but only if such Wrongful Act … occurs solely in the rendering or failure to render Professional Services.” The reinsurers argued that the managed care organization’s conduct at issue was not committed solely in the performance of professional services. The policy defined “professional services” as “services rendered or required to be rendered solely in the conduct of the Insured’s claims handling or adjustments.” The court held that the unambiguous language of the policy covered any claims resulting not only from the managed care organization’s actions adjusting and paying reimbursement claims from health care providers but also its failure to do so.
Second, the reinsurers also argued that Indiana public policy precludes insurance coverage for an insured’s intentional wrongdoing or its ordinary business obligations, and therefore the settlement fell within an exclusion from the definition of loss for matters deemed uninsurable by law. The court rejected this argument, finding no declared Indiana public policy that would preclude the managed care organization’s recovery because the relief it sought was contractual or restitutionary in character. Moreover, the court found that the policy covered intentional conduct because it defined “wrongful act” to include acts “wrongfully attempted,” and “attempt” necessarily involves intentional behavior.
Third, the court considered the reinsurers’ argument that coverage for the settlement was precluded by the policy’s dishonest or fraudulent acts exclusion. The exclusion contained an exception for claims “seeking both compensatory and punitive damages based upon or arising out of allegations of both fraud and bad faith in the rendering of or failure to render Professional Services.” The court concluded that issues of fact regarding the application of the exclusion prevented summary judgment for the reinsurers. Nonetheless, having already determined that the claim resulted from the managed care organization’s performance of or failure to perform professional services and finding that the settled claims alleged bad faith against the managed care organization, the court held that the settlement fell within the exception to the exclusion and was therefore covered by the policy.