St. Luke's Health System, LTD. et al v. Allied World National Assurance Company et al

Filing 30

MEMORANDUM DECISION the Court will grant St. Luke's motion for partial judgment on the pleadings and deny Allied's motion. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
ST. LUKE’S HEALTH SYSTEM, LTD. AND
ST. LUKE’S REGIONAL MEDICAL
CENTER, LTD.,
Plaintiffs,

Case No. 1:14-CV-475-BLW
MEMORANDUM DECISION

v.
ALLIED WORLD NATIONAL
ASSURANCE COMPANY AND DARWIN
NATIONAL ASSURANCE COMPANY,
Defendants.

INTRODUCTION
The Court has before it cross-motions for a partial judgment on the pleadings under
Rule 12(c). The motions are fully briefed and at issue. For the reasons explained below, the
Court will grant St. Luke’s motion and deny Allied’s motion.
BACKGROUND
Allied insured St. Luke’s against a “loss” arising from any claim against St. Luke’s for
“antitrust activities.” The policy defines “loss” to include attorney fees and “antitrust
activities” to include “a violation of . . . the Clayton Act . . . or any similar provision of . . .
state . . . law.” The policy also included various exclusionary clauses.
Following a trial, this Court held that St. Luke’s violated the Clayton Act and a similar
Idaho law. St. Al’s v. St Luke’s 2014 WL 407446 (D.Id. Jan. 24 2014). That decision was
largely affirmed by the Ninth Circuit. St. Al’s v. St. Luke’s, 778 F.3d 775 (9th Cir. 2015).

Memorandum Decision – page 1

Both opinions focused on the bargaining leverage that St. Luke’s obtained by
purchasing the Saltzer Group, and predicted that this leverage would result in higher prices in
the future. St. Al’s, 2014 WL 407446 at *1 (holding that “[t]he antitrust laws essentially
require the Court to predict whether the [Saltzer merger] will have anticompetitive effects
[and] the Court predicts that it will”). Importantly, neither opinion included a finding that St.
Luke’s had actually used its bargaining leverage to obtain monetary or other financial gain.
St. Luke’s tendered a claim for its costs defending this lawsuit to Allied on January 9,
2013, and Allied agreed to pay those costs subject to a reservation of rights. In November of
2013, Allied partially reimbursed St. Luke’s for almost $8 million in defense costs. About four
months later, Allied sent St. Luke’s a letter denying coverage, demanding repayment of the $8
million, and refusing to pay any further defense costs. St. Luke’s responded by filing this
lawsuit alleging that Allied breached the policy by denying coverage and seeking a declaratory
judgment that Allied is obligated to pay St. Luke’s defense costs.
Both sides have now filed motions for judgment on the pleadings, and both agree that
the central issue is the interpretation of exclusionary language in the insurance policy. The
issue is therefore one of law that can be resolved on the briefs.
ANALYSIS
The insurance policy between Allied and St. Luke’s contains a provision entitled
“Exclusion A” that bars coverage for any loss in connection with any claim
arising out of, based upon or attributable to the gaining of any profit or
financial advantage or improper or illegal remuneration by [St. Luke’s], if
a final judgment or adjudication establishes that [St. Luke’s] was not
legally entitled to such profit or advantage or that such remuneration was
improper or illegal[.]

Memorandum Decision – page 2

In this case, the Court held that St. Luke’s was not legally entitled to the bargaining
leverage it obtained by purchasing Saltzer, and the Ninth Circuit affirmed that decision. The
Court made no finding that St. Luke’s used that bargaining leverage to actually obtain any
monetary or financial gain. The Court did not award any damages or order St Luke’s to
disgorge any profits or financial gain. Thus, there was no “final judgment or adjudication” that
St. Luke’s “was not legally entitled to such profit or advantage or that such remuneration was
improper or illegal.”
The lack of that finding appears to render Exclusion A inapplicable. If the language of
an insurance policy is clear, then the language will be given its plain and ordinary meaning.
Farm Bureau Mutual Insurance Co. of Idaho v. Schrock, 252 P.3d 98, 102 (Id.Sup.Ct. 2011).
Each of the three terms in Exclusion A – profit, financial advantage, improper/illegal
remuneration – pertain to various types of monetary or financial gain. Yet there was no
finding that St. Luke’s obtained any monetary or financial gain from its bargaining leverage.
Allied attempts to avoid the lack of this crucial finding by arguing that the term
“financial advantage” in Exclusion A should be interpreted to include bargaining leverage. Of
course, it would have been easy for Allied as the drafter to define financial advantage to
include bargaining leverage. But it did not do so. Allied urges this Court to “interpret” the
term financial advantage to include bargaining leverage, but it is really asking the Court to add
the definition that it failed to write into the policy. This Court cannot “add words to . . . avoid
liability.” Armstrong v. Farmers Ins. Co. of Idaho, 205 P.3d 1203, 1205-06 (Id.Sup.Ct. 2009).
An even closer look at the two terms does not assist Allied. Bargaining leverage is to
financial advantage what education is to employment – a means to an end. Just as education is
a means of obtaining employment, so is bargaining leverage a means of obtaining a financial
Memorandum Decision – page 3

advantage. Allied conflates the means with the ends. Just as the word education cannot be
used interchangeably with the word employment, so too financial advantage is not
interchangeable with bargaining leverage.
Allied uses the terms in Exclusion A to restrict coverage. “[A]n exclusion must be
strictly construed in favor of the insured.” Moss v. Mid-America Fire & Marine Ins. Co., 647
P.2d 754, 756 (Id.Sup.Ct. 1982). Moreover, “the burden is on the insurer to use clear and
precise language if it wishes to restrict the scope of its coverage.” Id. Strictly construing
Exclusion A in favor of St. Luke’s, there is no “clear and precise” language in that paragraph
alerting St. Luke’s that a finding of bargaining leverage without a finding of any
accompanying monetary or financial gain would result in an exclusion of coverage.
CONCLUSION
For all these reasons, the Court will grant St. Luke’s motion for partial judgment on the
pleadings and deny Allied’s motion. In its motion, St. Luke’s seeks the following relief: (1)
Allied has a duty to reimburse all defense costs that St. Luke’s incurred prior to and during the
appeal of the underlying litigation; (2) Allied has breached its duties under the Policy in failing
to reimburse St. Luke’s defense costs in the underlying litigation; (3) Exclusion A does not bar
coverage for this claim; and (4) Allied is not entitled to reimbursement of the defense costs it
previously paid to St. Luke’s. The Court will grant that relief.
Although St. Luke’s entitled its motion as a “partial” motion, its motion actually seeks
to resolve all remaining issues. See St. Luke’s Brief (Dkt. No. 19-5) at n. 3. Similarly, Allied’s
answer and counterclaim relies entirely on the language of Exclusion A evaluated in this
decision. Thus, no further issues remain to be resolved, and this decision ends the case.
Accordingly, the Court will enter a separate Judgment as required by Rule 58(a).
Memorandum Decision – page 4

DATED: September 4, 2015

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

Memorandum Decision – page 5