Coverage for a suit involving false billing claims submitted in violation of the False Claims Act is generally not recognized under a liability policy.  This was the result reached in a recent case decided by the Tenth Circuit.  See Zurich Am. Ins. Co. v. O’Hara Regional Center for Rehabilitation, Nos. 06-1357 and 06-1370 (10th Cir. June 18, 2008).

     The insured entered provider agreements with the United States under the Medicare and Medicaid programs.  Following an audit, the government determined the insured had submitted inflated invoices for patient services.  The government filed suit under the False Claims Act, 31 U.S.C. 3729 (a) to recover the overpayments made to the insured.  The insured tendered the suit to its three general liability insurers.  The insurers’ policies covered liability for "professional services," meaning liability caused by errors and omissions in furnishing or failing to furnish professional services.  The insured argued the underlying suit arose from failure to provide professionally adequate nursing or medical services.  Further, its billing practices pursuant to the Medicare and Medicaid provider agreements constituted professional services covered by the policies. Two insurers accepted the tender under a reservation of rights, while the third disclaimed coverage.

     The insurers filed a suit for declaratory judgment on their duty to defend, claiming the professional services provisions did not cover claims of fraud made by the government in the underlying suit.  The district court granted summary judgment to the insurers.

     The Tenth Circuit affirmed.  The government’s injury was not caused by the insured’s failure to provide professional services, but instead resulted from the insured’s submission of bills for services it did not provide.  Further, the preparation of bills or invoices did not qualify as professional services.  Because the underlying suit did not allege an injury caused by an activity covered by the policies, the insurers had no duty to defend or indemnify.

     Hawai`i appellate courts have never addressed whether allegations made against an insured under the False Claims Act are covered.