Health Care Provider E&O Insurance – A Decisive Victory for Policyholders

Health care companies have been the target of government investigations and lawsuits for some time now.  Everything, from alleged wrongful billing practices to cyber-security and HIPPA violations, is being watched.  Insurers have an equally long history of denying these kinds of health care organization claims, despite the fact that Professional liability or E&O insurance typically covers these very risks.  Although insurers will likely continue to challenge health care E&O insurance claims, a recent Indiana Supreme Court decision illustrates that, when claims are handled correctly, policyholders should prevail.  See WellPoint, Inc., et al. v. National Union Fire Ins. Co. of Pittsburgh, Pa., et al., 29 N.E. 3d 716, 727 (Ind. 2015).

Anthem’s Underlying Claims

WellPoint arose out of numerous lawsuits in different states brought against Anthem, Inc. (“Anthem”) and other managed health care organizations, alleging a pattern of failing to pay health care claims in a full and timely manner, with claims ranging from breach of contract, breach of the duty of good faith and fair dealing and unfair trade and insurance practices acts, to claims under the Racketeer Influenced and Corrupt Organizations Act (RICO).  Ultimately, the parties entered into a settlement.  Anthem looked to its Errors & Omissions (E&O) reinsurance for coverage.

National Union’s Reason for Denying Coverage

The Policies at issue covered costs as “Losses” resulting from claims for a “Wrongful Act” that occurs “solely in the rendering of or failure to render Professional Services.”  Id. at 721.  The insurers denied coverage, alleging that the allegations alleging related wrongful acts do not arise “solely” from the performance of “Professional Services.”  At issue in this decision was whether alleged conduct related to the rendering of professional services would still be covered under the policy.

National Union Held Responsible For Paying all Defense and Settlement Costs

The Indiana Supreme Court applied a broad standard for determining coverage under a professional liability provision.  The Court held that the insured’s entire liability did not need to arise solely out of its claim handling activities.  Id. at 722-23.  The wrongful acts alleged included “an improper, unfair, and deceptive scheme designed to … deny, delay and diminish claim payments” are acts taken by the insured “in the course of” carrying out its claims handling services.  Id. at 723.  Importantly, the policy was “intended to provide professional liability coverage for losses resulting from claims alleging a broad range of wrongful conduct.”  Except to the extent that “fraudulent, dishonest, or criminal acts” might not be covered under specific exclusions, the allegations would fall within coverage for professional liability.  Id.  In fact, without a “final adjudication” as to fraud or dishonesty, coverage was not excluded for purposes of defending or settling claims.  Id. at 726.

The WellPoint court found coverage for alleged wrongful acts related to the insured professional services, without regard for the skills required for the alleged tasks.  Importantly, the court noted that denial of coverage leaves the insurer exposed to the possibility of bad faith and punitive damages.  Id. at 727.

Conclusion

WellPoint, and other decisions addressing E&O coverage for managed care providers, highlights the complexities and potential pitfalls of pursuing coverage without first devising a comprehensive defense and insurance strategy.  WellPoint shows that many E&O liability insurer denials in this area are improper, and that insurers who have improperly denied coverage are subject to bad faith and punitive damages.  Wellpoint also shows that choice of forum and choice of law are crucial in these cases, as is the presentation and briefing of issues to the Court.   Prior insurance company victories in this area demonstrate that there are many ways for managed care organizations to forfeit coverage, and unsuspecting managed care companies can easily loose a battle with their insurers, and this battle can be lost before they even realize that a battle is being fought.

E&O insurers should not be permitted to deny coverage for these kinds of claims by alleging that something other than professional services is at issue.  When policyholders pursue their insurance under professional liability provisions, and they do it correctly, they can obtain coverage.

Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage.  Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results.  Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series.