A California federal court has held that a managed care organization E&O policy provided coverage for a suit alleging unfair competition, and was not limited to coverage for suits brought by the insured’s customers or clients. EYEXAM of Cal., Inc. v. Allied World Surplus Lines Ins. Co., 2015 WL 7015414 (N.D. Cal. Nov. 12, 2015).
An eyeglasses retailer contracted with an optometry practice to co-locate their businesses in the same outlets. Competitors of the retailer and the optometrists brought suit against both entities, alleging violations of Cal. Bus. & Prof. Code § 17200 et seq., California’s Unfair Competition Law (UCL). The competitors argued that the retailer and the optometrists violated California statutes that, inter alia, generally require optometrists to be independent of retailers of eyeglasses. Pursuant to the UCL, the competitors sought injunctive relief and attorneys’ fees and costs.
Both the retailer and the practice were insured under the same “Managed Care Organization” E&O policy. That policy provided specified coverage for “Claims” for “Wrongful Acts,” which was in turn defined to include the performance of “Managed Care Activities.” “Managed Care Activities” was a multi-pronged definition, which included “advertising, marketing, selling, or enrollment for health care or workers’ compensation plans”; “evaluating, selecting, credentialing, contracting with or performing peer review of any provider of Medical Services”; and “services or activities performed in the administration or management of health care workers’ compensation plans,” among other services. In addition, “Claim” was defined to mean “any written notice . . . that a person or entity intends to hold an Insured responsible for a Wrongful Act.” The insurer denied coverage, arguing that the underlying suits were not “Claims” and were not for “Wrongful Acts.”
In the ensuing coverage action, the court denied the insurer’s motion to dismiss. The court rejected the insurer’s argument that the underlying suits were not “Claims.” The insurer argued that a “Claim” must be filed by a customer or client of the insured. The court disagreed, reasoning that the terms of the policy specifically stated that a “Claim” included notices “that a person or entity intends to hold an Insured responsible for a Wrongful Act,” and therefore “Claims” were not limited to claims brought by healthcare providers or plan members.
The court also rejected the insurer’s argument that the underlying suits did not allege “Wrongful Acts.” The court noted that the underlying suits included allegations that the insureds interfered with the professional judgment of the doctors who worked at the optometry practice. According to the court, these acts fell within a prong of the definition of “Managed Care Activities” that provided specified coverage for “evaluating, selecting, credentialing, contracting with or performing peer review of any provider of Medical Services.” In addition, the court observed that the underlying suits alleged that the optometrists improperly promoted the services of the retailer of eyeglasses, which the court held fell within a provision of the definition of “Managed Care Activities” that provided specified coverage for “advertising, marketing, selling, or enrollment for health care or workers’ compensation plans.”
The insurer asserted that providing coverage for the underlying suits alleging unfair competition would be inconsistent with the purpose of the policy, which the insurer argued was designed to provide coverage for errors and omissions in the rendering of services to the insureds’ clients or customers. The court noted that nothing in the policy permitted the court to ignore the “clear and explicit” language of the policy, regardless of the purported purpose of the policy. The insurer also cited to Bank of the West v. Superior Ct., 2 Cal. 4th 1254, 1264 (1992), for the “principle” that insurance policies did not provide coverage for claims brought under California’s UCL. The court rejected this notion, noting that Bank of the West relied on particular wording present in CGL policies that was not present in this E&O policy. The underlying complaints sought injunctive relief and not disgorgement, and the court did not discuss Bank of the West’s additional holdings that the only monetary relief available under the UCL is disgorgement and is uninsurable under California law.