Indiana Supreme Court Finds Insured Afforded Coverage For “Professional Services”

In Wellpoint, Inc. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 49S05-1404-PL-244 (Ind. Apr. 22, 2015) the Indiana Supreme Court reversed the trial court and granted summary judgment for Anthem, Inc.against numerous reinsurers (Excess Reinsurers), finding that Anthem was afforded coverage in the underlying litigation under the reinsurance policies.

Anthem, a large managed health care organization, was self-insured for E&O liability. It purchased policies from other insurers to reinsure its E&O liabilities. The underlying litigation consisted of several lawsuits filed against Anthem for alleged violations of numerous laws for denying, delaying, or diminishing payments owed to doctors for rendering covered, medically necessary services. Specifically, the lawsuits alleged causes of action for violations of the Connecticut Unfair Trade Practices Act (CUTPA), violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), negligent misrepresentation, conspiracy, and breach of contract, among others.

All of the underlying actions were consolidated, and Anthem settled the litigation.  As part of the settlement agreement, Anthem was to provide cash payments and the implementation of specific business practices initiatives consistent with the requested injunctive relief. After the settlement, Anthem sought indemnification from its Excess Reinsurers (the primary reinsurer paid and exhausted its coverage) and filed a declaratory judgment action.

Anthem contended that it was covered under the professional liability part of the policies. Continental Casualty Company (CNA), one of the Excess Reinsurers, filed a motion for summary judgment arguing there was no coverage because the underlying litigation did not arise “solely” out of Anthem’s rendering of or failure to render “Professional Services.” The trial court agreed and granted summary judgment in favor of CNA. The Indiana Court of Appeals affirmed.

The Indiana Supreme Court reversed, rejecting CNA’s three reasons for why the settlement was not covered under the reinsurance policies. First, in interpreting the language regarding wrongful acts occurring “solely in the rendering of or failure to render Professional Services,” the Supreme Court concluded that Anthem’s entire liability did not need to arise solely out of its claims handling activities in order to be afforded coverage. Since the underlying litigation clearly alleged wrongful acts related to Anthem’s actions in adjusting and paying reimbursement claims, the Supreme Court reasoned there was professional liability coverage.

Second, CNA claimed that settlement payments agreed to by Anthem did not constitute a “Loss” under the policy since Indiana public policy precludes indemnification for intentional wrongdoing. The Supreme Court rejected that argument, stating that Indiana favors the enforcement of contracts. Also, the Supreme Court noted that CNA was unable to cite to any specific Indiana public policy indicating that the settlement costs were not covered under the policies. Lastly, the Court reasoned that the relative bargaining power of the parties eliminated any public policy concern.

Third, CNA contended that the Fraudulent Acts Exclusion barred coverage “for any dishonest or fraudulent act or omission.” Anthem averred that an exception applied for “Professional Services” rendered in bad faith or fraudulently, thereby avoiding the exclusion. The Supreme Court was convinced that the allegations in the underlying litigation alleged “Professional Services” rendered in bad faith. Specifically, the allegations concerning CUTPA and RICO violations clearly sounded in lack of honesty and trust, which satisfied the basic understanding of bad faith. Consequently, the Supreme Court reversed the trial court’s decision and held that Anthem was entitled to coverage.