Last month, the Indiana Court of Appeals held that “professional services” coverage under a health insurer’s errors-and-omissions reinsurance policies did not apply to claims for conspiracy, RICO, tortious interference, conversion, bad faith, and unfair trade practices. (So why is this just now being reported? Sorry; I was on vacation.)
The Court of Appeals’ opinion in Wellpoint, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, P.A., appears to have brought an end to a long-running dispute between Wellpoint and its reinsurers. The case started back in November 1999 when several physicians filed a class action in Connecticut against WellPoint’s predecessor, Anthem, alleging failure to “timely and adequately reimburse for medical services,” and asserting claims for “breach of contract, conversion, tortious interference with business expectations, breach of good faith and fair dealing, violation of the Connecticut Unfair Trade Practices Act, and violation of the Connecticut Unfair Insurance Practices Act.” Then, starting in 2001, ten other lawsuits were filed against Anthem alleging that “Anthem conspired with other managed-care organizations to deny, delay, and diminish payments to doctors” and asserting “causes of action under the Racketeer Influence and Corrupt Organizations Act, claims for breach of contract, and violations of prompt-pay statutes.” This resulted in a multi-district proceeding in the United States District Court for the Southern District of Florida.
WellPoint ultimately settled those suits and sought reimbursement from its reinsurers. When the reinsurers balked, WellPoint initiated suit, and the trial court granted summary judgment for the reinsurers on the grounds that the claims in the suits were not covered under the policies’ “professional services” provision.
The Court of Appeals examined the policies’ “professional services” provision, which insured against wrongful acts “only if such Wrongful Act…occurs solely in the rendering of or failure to render Professional Services.” The policies further defined “professional services” as “services rendered or required to be rendered solely in the conduct of the Insured’s claims handling or adjusting.” As the court viewed it, “coverage is available only if the alleged wrongful acts that gave rise to the underlying litigation happened solely in the conduct of Anthem’s claims handling and adjusting. They did not.”
Key to the court’s decision was the trial court’s determination that the “underlying complaints do not simply allege that [Wellpoint] improperly denied claims. Rather, they allege [Wellpoint] participated in ‘a common scheme’ to ‘systematically deny, delay, and diminish the payments due to doctors.’” Also: “’the conduct that was central to the RICO claims was [Wellpoint’s] unlawful agreement with other managed care companies to unlawfully reduce payments to Providers,’ and such unlawful agreements and conspiracies are not claim handling activities.” In any event, “[e]ven if some professional services were implicated, the underlying actions did not arise ‘solely’ out of Wellpoint’s rendering or failure to render such services” as required under the policies.
The court also noted that other conduct alleged to be in furtherance of the RICO conspiracies was “Wellpoint’s involvement in trade associations that develop industry standards and in industry groups that disseminate unified information and exchange upper-level employees in order to facilitate unified action, and its participation in a managed care enterprise.” The court recited those allegations as part of its finding that the alleged conduct did not arise “solely” out of claims handling activities, and it’s unclear whether these allegations were given any weight separate from the more specific claims of conspiracies and unlawful agreements to reduce payments. It is concerning, however, that mere allegations of what may be considered standard or even “best” industry practices, even such innocuous conduct as involvement in trade associations, could potentially negate professional services coverage.
Fortunately, the case is designated “not for publication,” which means that it will have no precedential value under Indiana Appellate Rule 65(D). And to help reduce your stress levels even more: