Indiana Court of Appeals: “Professional Services” Does Not Include Conspiracy, RICO Claims

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.)

Of course I was thinking about insurance...ahem...

Of course I was thinking about insurance…

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:

Ahhh...That's much better.

Ahhh…That’s much better.

About Brian Jones

I represent clients in all aspects of business litigation, but focus my practice on complex litigation and arbitration matters concerning insurance and reinsurance, antitrust, class actions, securities, real estate disputes, and contract matters. I am the co-chair of the Bose McKinney & Evans Insurance Group. I was listed in the 2017 and 2016 "Best Lawyers in America" for Insurance Coverage and named a "Rising Star" in Insurance Coverage by Super Lawyers in Indiana in 2014. I was also named a "Rising Star" in Business Litigation by Super Lawyers in Indiana in 2013 and 2012, and a 2010 “Rising Star” in Business Litigation in Texas. I am a member of the State Bars of Indiana and Texas, the Defense Research Institute, a former member of the Pro Bono College of the State Bar of Texas, and I am licensed to practice before all state courts in Indiana and Texas, as well as all federal courts in Indiana, the Northern, Western, and Southern Districts of Texas, the Northern District of Illinois, and the United States Courts of Appeals for the Fifth, Seventh, and Eleventh Circuits. I received my bachelor’s degree, cum laude, in political science and my master’s degree in teaching from Trinity University, where I was elected to Phi Beta Kappa. I received my doctor of jurisprudence degree from the University of Texas School of Law, where I was the Director of Communications for the Legal Research Board and a member of the Phi Delta Phi Honor Society. Before attending law school, I taught high school geography, government and economics in San Antonio, Texas.
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