The Indiana Supreme Court reversed summary judgment issued to reinsurer Continental Casualty Company (CNA) and determined it must reimburse the insured for settlement costs under the E & O policy. Wellpoint, Inc., et al. v. National Union Fire Ins. Co. of Pittsburgh, PA, et al., 2015 Ind. LEXIS 316 (Ind. April 22, 2015).
Anthem, Inc. was a large managed health care organization. Anthem was its own primary and excess insurer for E&O liability. It had numerous excess reinsurers. Beginning in 1998, anthem was confronted by various lawsuits alleging it and other managed care organizations failed to pay claims in a full and timely manner, thereby breaching state and federal statutes. The various lawsuits alleged substantially the same wrongful conduct, namely that after promising to pay doctors in a timely manner for their services, Anthem sought to improperly deny, delay and diminish payments due.
The cases were consolidated into a federal multi-district litigation proceeding in the Southern District of Florida. Claims for breach of contract, unjust enrichment, and violations of state prompt pay statutes were dismissed or dropped. Anthem then settled the underlying litigation in July 2005 without admitting and instead denying any wrongdoing or liability. The settlement called for both cash payments and implementation of specific business practices consistent with requested injunctive relief.
The primary reinsurer for Anthem's self-insurance E&O policy, National Union, paid and exhausted its coverage. CNA and other excess reinsurers denied coverage for Anthem's defense and settlement of the underlying litigation. The ultimate settlement amounted to $198 million.
Anthem filed suit, claiming it had professional liability coverage under Part II of the CNA Policy, which provided that payment would be made for the "Loss of the Insured resulting from any Claim first made against the Insured . . . for any Wrongful Act of the Insured . . . but only if such Wrongful Act . . . occurs solely in rendering of or failure to render Professional Services."
CNA moved for summary judgment, arguing there was no coverage because claims settled in the underlying litigation did not arise out of acts that occurred "solely" in Anthem's rendering of, or failure to render, professional services. The trial court granted summary judgment to CNA.
The Indiana Supreme Court reversed. "Professional Services" were "services rendered or required to be rendered solely in the conduct of the Insured's claims handling or adjusting . . . ." The clear language of the policy therefore extended coverage to "any Claim or Claims" resulting from "any Wrongful Act" by Anthem that occurred "solely in the rendering of or failure to render" "claims handling and adjusting" services. Therefore, the policy covered not only Anthem's actions in adjusting and paying reimbursement claims from health care providers, but also its failure to do so.
The wrongful acts alleged in the underlying litigation - engaging in an improper, unfair, and deceptive scheme designed to systematically deny, delay and diminish claim payments - were clearly alleged wrongful acts by Anthem in the course of its claims handling and adjusting services. Therefore, they were Wrongful Acts occurring in the rendering or failure to render Professional Services. As a matter of law, the relief sought by Anthem fell within coverage for professional liability in Coverage II of the policy.
CNA also argued an exclusion for dishonest or fraudulent acts barred coverage. The exclusion provided, "the coverage section does not apply . . . (b) to any dishonest or fraudulent act or omission." An exception to the exclusion read, "this exclusion shall not apply to any Claim 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 held that Anthem's claim of settlement losses satisified the exemption and avoided the application of the exclusion as a matter of law.
