Illinois Union Insurance Company v. Louisiana Health Service and Indemnity Company

Filing 232

ORDER: IT IS HEREBY ORDERED that Blue Cross's 116 Motion for Summary Judgment on Coverage Obligations is DENIED. IT IS FURTHER ORDERED that Illinois Union's 118 Motion for Summary Judgment on Coverage is GRANTED IN PART and DENIED IN P ART. Illinois Union's motion is DENIED IN PART to the extent that it seeks summary judgment in its favor on: (1) Count I of Illinois Union's Complaint, in which Illinois Union seeks a declaratory judgment that Illinois Union is not required to indemnify Blue Cross for the underlying settlement due to the fact that Blue Cross did not obtain Illinois Union's written consent; (2) Count II of Illinois Union's Complaint, in which Illinois Union seeks a declaratory judgment that Il linois Union has no obligation to indemnify Blue Cross due to the fact that the settlement encompasses damages that are not covered under the Policy; (3) Count I of Blue Cross's counterclaim for declaratory judgment that Illinois Union must inde mnify Blue Cross for the settlement in the underlyingaction; and (4) Count II of Blue Cross's counterclaim for breach of contract as a result of Illinois Union's failure to indemnify Blue Cross for the settlement in the underlying action. T he motion is GRANTED IN PART to the extent that it requests summary judgment in Illinois Union's favor on the issue of whether it reimbursed Blue Cross's defense costs associated with the underlying action in excess of the SIR. The motio n is further GRANTED IN PART to the extent that it requests summary judgment in Illinois Union's favor denying Blue Cross's request for attorneys' fees in the instant action. Signed by Judge Nannette Jolivette Brown on 6/12/2017. (mmv)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ILLINOIS UNION INSURANCE COMPANY

CIVIL ACTION

VERSUS

CASE NO. 16-6604

LOUISIANA HEALTH SERVICE AND
INDEMNITY COMPANY

SECTION: “G” (2)

ORDER
Pending before the Court are Defendant/Counter Claimant Louisiana Health Service and
Indemnity Company d/b/a Blue Cross and Blue Shield of Louisiana’s (“Blue Cross”) “Motion for
Summary Judgment on Coverage Obligations”1 and Plaintiff/Counter Defendant Illinois Union
Insurance Company’s (“Illinois Union”) “Motion for Summary Judgment on Coverage.”2 Having
reviewed the motions for summary judgment, the memoranda in support and in opposition to each
motion, the record, and the applicable law, the Court will deny Blue Cross’s motion and deny in
part and grant in part Illinois Union’s motion.3
I. Background
A.

Factual Background
1.

The Policy at Issue

On May 19, 2016, Illinois Union filed a complaint for declaratory judgment against Blue
Cross.4 This matter involves the rights and obligations of Illinois Union under a Managed Care

1

Rec. Doc. 116.

2

Rec. Doc. 118.

3

Rec. Doc. 125-1 at 2.

4

Rec. Doc. 1.

1

Organization Errors and Omissions Liability Policy (“the Policy”) that it issued to Blue Cross for
the policy period of May 25, 2007, to January 1, 2009.5 In relevant part, the Policy states that
Illinois Union “shall pay on behalf of any insured any Loss which [Blue Cross] is legally obligated
to pay as a result of any Claim that is first made against the Insured during the Policy
Period . . . . ”6 Loss is defined to include “Defense Expenses and any monetary amount that an
Insured is legally obligated to pay as a result of a Claim . . . .”7 The Policy states that loss does not
include, inter alia: “fees, amounts, benefits, obligations or coverages owed under any contract with
any party . . ., health care plan or trust, insurance or workers compensation policy or plan or
program of self insurance;” “non-monetary or equitable relief or redress in any form;” and “matters
which are uninsurable” under Louisiana law.8 Additionally, the Policy contains a consent to settle
clause requiring the insured to obtain the insurer’s written consent before settling a claim, as well
as a cooperation clause requiring the insured to provide the insurer with “all information, assistance
and cooperation that the Insurer reasonably requests.”9
2.

The Underlying Action

In this action, Illinois Union seeks a declaration as to the extent of its obligation to Blue
Cross with respect to a settlement reached by Blue Cross with Omega Hospital, LLC (“Omega”)
in a separate lawsuit filed by Omega against Blue Cross in state court (“the Omega Lawsuit” or

5

Id at 3.

6

Rec. Doc. 118-5 at 8.

7

Id. at 9.

8

Id. at 10. The parties do not dispute that Louisiana law applies to the instant dispute. See Rec. Doc. 116-1
at 8 (Blue Cross citing Louisiana law); Rec. Doc. 118-1 at 6 (Illinois Union citing Louisiana law).
9

Id. at 16.

2

“the underlying action”).10 In the Omega Lawsuit, Omega alleged that Blue Cross engaged in
“systematic, sophisticated, and intentional conduct to avoid paying Omega” for services rendered
to patients who were owed benefits, obligations, or coverage under Blue Cross health care plans.11
Specifically, Omega alleged five causes of action: (1) violation of Louisiana’s Unfair Trade
Practices Act (“LUTPA”); (2) fraud; (3) negligent misrepresentation; (4) detrimental reliance; and
(5) unjust enrichment.12
Illinois Union alleges that Blue Cross settled the underlying action without Illinois Union’s
consent in violation of the Policy’s requirement that Blue Cross obtain Illinois Union’s written
consent to settle in order to obtain coverage.13 Illinois Union further alleges that even if Blue
Cross’s unilateral settlement did not violate the Policy’s written consent requirement, coverage is
precluded under the Policy because contractual damages of this kind do not constitute covered
“loss” under the Policy.14
B.

Procedural Background
On May 19, 2016, Illinois Union filed a complaint for declaratory judgment against Blue

Cross.15 On July 7, 2016, Blue Cross filed a counterclaim against Illinois Union for a declaration
that Illinois Union must indemnify Blue Cross for costs incurred to defend and settle the Omega

10

Rec. Doc. 1 at 1.

11

Id. at 2.

12

Rec. Doc. 1-2 at 8–11.

13

Id. at 9.

14

Id. at 10.

15

Rec. Doc. 1.

3

Lawsuit.16 Blue Cross also brings counterclaims for breach of contract and statutory bad faith
pursuant to Louisiana Revised Statute § 22:1973.17
On April 11, 2017, Blue Cross filed its currently pending motion for summary judgment
on coverage obligations.18 On April 18, 2017, Illinois Union filed an opposition to the motion.19
With leave of Court, Blue Cross filed a reply in further support of the motion on April 28, 2017.20
On April 12, 2017, Illinois Union filed its currently pending motion for summary judgment
on coverage obligations.21 On April 18, 2017, Blue Cross filed an opposition to the motion.22 With
leave of Court, Illinois Union filed a reply in further support of the motion for summary judgment
on April 28, 2017.23
II. Parties’ Arguments
A.

Blue Cross’s Motion for Summary Judgment on Coverage Obligations
Blue Cross moves for summary judgment in its favor with respect to: (1) Count I of Illinois

Union’s Complaint, in which Illinois Union seeks a declaratory judgment that Illinois Union is not
required to indemnify Blue Cross for the underlying settlement due to the fact that Blue Cross did
not obtain Illinois Union’s consent; (2) Count II of Illinois Union’s Complaint, which seeks a

16

Rec. Doc. 11.

17

Id.

18

Rec. Doc. 116.

19

Rec. Doc. 147.

20

Rec. Doc. 176.

21

Rec. Doc. 118.

22

Rec. Doc. 146.

23

Rec. Doc. 172.

4

declaratory judgment that Illinois Union has no obligation to indemnify Blue Cross due to the fact
that the settlement encompasses damages that are not covered under the Policy; (3) Count I of Blue
Cross’s counterclaim for a declaratory judgment that Illinois Union must indemnify Blue Cross
for the settlement in the underlying action; and (4) Count II of Blue Cross’s counterclaim for
breach of contract as a result of Illinois Union’s failure to indemnify Blue Cross for the settlement
in the underlying action.24
1.

Blue Cross’s Arguments in Support of the Motion for Summary Judgment
a. The Policy’s Definition of Loss

In support of its motion for summary judgment, Blue Cross represents that the Policy at
issue obligates Illinois Union to pay loss resulting from claims “alleging error or omissions” in the
performance of Blue Cross’s managed care professional services. 25 According to Blue Cross,
“loss” is defined broadly in the Policy to include “Defense Expenses and any monetary amount
that an Insured is legally obligated to pay as a result of a Claim” but excludes “fees, amounts,
limits, benefits, obligations or coverages owed under any contract.”26 Blue Cross contends that
Illinois Union improperly invokes this exclusion to deprive Blue Cross of coverage.27
Blue Cross asserts that in the underlying action, Omega Hospital alleged that Blue Cross
improperly reduced the amount of its reimbursement payments to Omega Hospital for medical

24

Rec. Doc. 116-1 at 17.

25

Id. at 10.

26

Id.

27

Id.

5

services and supplies.28 Blue Cross argues that damages resulting from Omega Hospital’s tortbased causes of action are clearly covered under the Policy as “loss” and are not excluded by the
carve out for benefits owed under a contract.29 According to Blue Cross, Omega Hospital pleaded
in the underlying action that it is an out of network hospital, thus acknowledging that it has no
contract with Blue Cross for the services it renders to Blue Cross insureds.30 Moreover, Blue Cross
avers, the court in the underlying action ruled that certain of Omega Hospital’s claims sounded in
tort rather than contract.31 Blue Cross also represents that another section in the Eastern District
of Louisiana held in the underlying action that Omega’s claims did not constitute benefits due
under an ERISA health plan and that remand to state court of the Omega case was therefore
necessary. 32 Blue Cross further avers that the head of Illinois Union’s medical risk claims
department acknowledged that many of the claims asserted by Omega in the underlying action
sought damages separate from amounts due under a contract.33 Thus, Blue Cross argues, the policy
exclusion on which Illinois Union relies does not bar coverage and it is entitled to summary
judgment.34

28

Id.

29

Id.

30

Id.

31

Id.

32

Id. at 11.

33

Id.

34

Id.

6

b.

The Policy’s Consent to Settle Clause

Next, Blue Cross argues that Illinois Union may not raise lack of consent as a coverage
defense.35 According to Blue Cross, under the terms of the Policy, Blue Cross may settle any claim
with Illinois Union’s written consent, which “shall not be unreasonably withheld.”36 Blue Cross
argues that an insurer cannot unreasonably refuse to consent to a settlement such that the insured
is forced to risk significant liability at trial.37 Here, Blue Cross argues that it was facing significant
risks if it chose a jury trial in the underlying action and that Illinois Union nevertheless
unreasonably withheld its written consent to settlement.38 Under such circumstances, Blue Cross
argues, Illinois Union’s unreasonably withheld consent left Blue Cross free to settle the underlying
action.39
Blue Cross next asserts that despite withholding its written consent, Illinois Union verbally
consented to the settlement. 40 According to Blue Cross, Illinois Union’s representative at the
mediation in the underlying action, Anthony Pizzonia (“Pizzonia”), testified that he often gives
verbal approval of settlements and that such approval is sufficient to comply with the policy
provision requiring Illinois Union’s consent to settle. 41 Blue Cross asserts that Illinois Union

35

Id. at 12.

36

Id.

37

Id. (citing Fed. Ins. Co. v. New Hampshire Ins. Co., No. 03-385, 2010 WL 28568, at *5 (M.D. La. Jan. 4,

38

Id. at 12–13.

39

Id. at 13.

40

Id.

41

Id. (citing Pizzonia Dep. Tr. at 122:18-123:10).

2010)).

7

verbally consented to the settlement by agreeing to pay a portion of the settlement at the
mediation.42
Blue Cross next argues that where an insurer wrongfully denies coverage, the insured
reasonably believes that “it may be cast in judgment if brought to trial,” and there is no evidence
that the insured “improperly entered into th[e] settlement,” the insured is entitled to settle the
claim. 43 Here, Blue Cross asserts that Illinois Union repeatedly informed Blue Cross that it
believed that the damages sought by Omega were amounts owed under a contract and therefore
excluded from coverage. 44 Thus, Blue Cross argues, Illinois Union denied coverage for Blue
Cross’s claim and relieved Blue Cross of a need to obtain Illinois Union’s consent before settling.45
c.

Breach of Contract

Finally, Blue Cross argues that Illinois Union breached its contractual obligations to Blue
Cross when it refused to indemnify Blue Cross as required under the Policy.46 Blue Cross avers
that it paid Illinois Union premiums for the Policy to cover exactly the type of claim at issue in the
underlying action.47 Blue Cross asserts that Illinois Union is obligated to indemnify Blue Cross
under the terms of the Policy and that Blue Cross has performed all conditions required by the
Policy.48 According to Blue Cross, it has been damaged by Illinois Union’s failure to perform its

42

Id.

43

Id. at 14 (citing Singleton v. United Tugs, Inc., 710 So.2d 347, 352 (La. App. 4 Cir. 3/18/98)).

44

Id. at 15.

45

Id. (citing Encinas Dep. Tr. 63:10-64:15; Rec. Doc. 116-11).

46

Id.

47

Id. at 16.

48

Id.

8

contractual obligations because it has been deprived of the benefit of the insurance protection for
which it paid premiums and has been forced to retain attorneys to defend against this action and
pursue coverage under the Policy.49 Because, Blue Cross argues, it made a timely demand upon
Illinois Union to perform its obligations under the Policy and Illinois Union has failed to do so,
Illinois Union breached and continues to breach its contractual obligations to Blue Cross.50
2.

Illinois Union’s Arguments in Opposition to the Motion for Summary
Judgment
a.

The Policy’s Definition of Loss

In opposition to Blue Cross’s motion for summary judgment, Illinois Union argues that the
Policy does not cover the voluntary settlement payment to Omega in the underlying action.51
Illinois Union contends that it is Blue Cross’s burden to prove that the settlement payment falls
within the Policy’s terms.52 Illinois Union represents that the Policy states that Illinois Union
“shall pay on behalf of any Insured any loss which the Insured is legally obligated to pay as a result
of any Claim.”53 According to Illinois Union, “loss” is defined as “any monetary amount that an
Insured is legally obligated to pay as a result of a Claim,” but the definition of loss does not include
“amounts” or “benefits” “owed under any contract with any party or any health care plan,”
“equitable relief or redress in any form,” and “matters which are uninsurable under the law.”54

49

Id.

50

Id.

51

Rec. Doc. 147 at 1.

52

Id. at 2 (citing Doerr v. Mobil Oil Corp.,774 So. 2d 119, 124 (La. 2000)).

53

Id. (citing Rec. Doc. 118-5).

54

Id.

9

Illinois Union argues that Blue Cross, as the insured, bears the initial burden of proof to
satisfy the Policy’s defined terms as incorporated into the insuring agreement.55 Illinois Union
further contends that in the context of insuring agreements providing coverage for loss, courts hold
that the insured bears the burden to prove satisfaction of the loss definition, even where the
definition identifies what does not constitute a loss.56 According to Illinois Union, the Policy’s
clear definition of what does and does not constitute a loss is not a burden-shifting exclusion but
rather a “proper definition.”57 Illinois Union argues that Blue Cross has not carried its burden to
prove that the settlement payment falls within the insuring agreement and therefore cannot prove
coverage.58
b.

Contractual Nature of Damages

Next, Illinois Union argues that Blue Cross’s settlement with Omega was for damages that
were contractual in nature and does not constitute a loss under the Policy.59 Illinois Union asserts
that Omega maintained that it had an implied contract with Blue Cross in the underlying action
and that the state court in the underlying action found that Omega had made allegations based on
contract and tort.60 Illinois Union represents that Blue Cross admitted that it had an obligation to
pay Omega, independent of any tortious behavior, and argues that these amounts paid pursuant to

55

Id. (citing Fielding v. Cas. Reciprocal Exch., 331 So. 2d 186, 188 (La. App. 3d Cir. 1976)).

56

Id. (citing Medill v. West. Port Ins. Corp., 143 Cal App. 4th 819 (2d Dist. 2006)).

57

Id. at 3.

58

Id.

59

Id.

60

Id. (citing Rec. Doc. 116-8).

10

an implied contract with Omega are not covered by the Policy’s definition of loss.61 Illinois Union
further argues that Blue Cross determined the amounts owed to Omega with reference to contracts
with in-network providers even though it considered Omega to be an out of network provider and
that these amounts similarly do not constitute loss under the Policy.62
Moreover, Illinois Union argues that the amount paid to Omega in the settlement also
represents benefits owed under health care plans/contracts with Omega’s patients, i.e. Blue Cross’s
members or subscribers.63 According to Illinois Union, Blue Cross was required to pay Omega for
services provided to patients pursuant to Louisiana’s Assignment Statute, which requires an
insurance company to reimburse a hospital for services rendered to an individual when that
individual’s right to the benefits has been assigned to the hospital.64 Illinois Union represents that
Blue Cross recognized that it had an obligation to its subscribers under the members’ contracts to
pay benefits to the member for services rendered at a hospital with a valid assignment and that
under Louisiana law, it was required to make those payments directly to Omega. 65 Because,
Illinois Union argues, Blue Cross was obligated to pay Omega the correct benefits due under the
members’ health care plans, the settlement of those payments under a health care plan do not
constitute loss, regardless of the theory of liability used to reach those damages.66

61

Id. at 10.

62

Id.

63

Id.

64

Id. at 11 (citing La. Rev. Stat. §40:2101).

65

Id. (citing Rec. Doc. 118-39).

66

Id. at 12.

11

c.

Settlement Allocation

Next, Illinois Union asserts that an insurer must only reimburse an insured to the extent
that a settlement compromises claims that are covered by a policy.67 According to Illinois Union,
Blue Cross’s settlement document with Omega allocates a small portion to benefits allegedly owed
on behalf of Blue Cross members pursuant to the members’ contracts and a much larger portion to
damages alleged in tort claims. 68 According to Illinois Union, this type of “coverageforeshadowing allocation” in a settlement agreement does not control.69
Illinois Union represents that the Fifth Circuit has recognized in Enserch Corporation v.
Shand Morahan & Company that an insured’s allocation in a settlement is “necessarily suspect
when insurance indemnification is at issue.” 70 Illinois Union further represents that the Fifth
Circuit in Federal Insurance Company v. New Hampshire Insurance Company applied Louisiana
law to reject a settlement allocation for an underlying claim and that subsequent decisions applying
Louisiana law have reached the same conclusion by looking beyond the terms of a settlement
agreement in determining allocation between covered and non-covered claims.71 According to
Illinois Union, the insured bears the burden to prove the amount of its settlement that can be
properly allocated to covered claims and damages, and Blue Cross has not met that burden here.72

67

Id. at 4 (citing Fed. Ins. Co. v. New Hampshire Ins. Co., 439 F. App’x 287, 291 (5th Cir. 2011)).

68

Id. (citing Rec. Doc. 118-26 at 326–327).

69

Id.

70

Id. (citing 952 F.2d 1485, 1495 (5th Cir. 1992)).

71
Id. at 4–5 (citing 439 F. App’x at 291; Gulf Fleet Marine Ops., Inc. v. Wartsila Power, Inc., 797 F.2d 257
(5th Cir. 1986)).
72

Id. at 5 (citing Cooper Indus., LLC v. Am. Int’l Spec. Lines Ins. Co., 273 F. App’x 297, 308 (5th Cir.

2008)).

12

Illinois Union contends that Blue Cross focuses on Omega’s legal theories to establish coverage
under the Policy.73 However, according to Illinois Union, factual allegations that show the origin
of damages, rather than legal theories, are determinative of coverage.74
Illinois Union next argues that the testimony of one of its employees, Pizzonia, as a fact
witness regarding which of Omega’s causes of action in the underlying action are covered by the
Policy is not proper summary judgment evidence, as the questions posed by Blue Cross’s counsel
to Pizzonia during his deposition were “vague hypotheticals” that sought “legal conclusions.”75
According to Illinois Union, the entirety of Omega’s claims against Blue Cross, even those
sounding in tort, do not satisfy the Policy’s definition of loss.76 Illinois Union represents that Blue
Cross did not specify what portion of the settlement, if any, is allocated to covered claims.77
Illinois Union argues that fraud is uninsurable and that while detrimental reliance and Louisiana
Unfair Trade Practices Act (“LUTPA”) violations could constitute covered causes of action, the
damages flowing from those causes of action, rather than the legal theories, control the insurer’s
indemnity obligations.78
Here, Illinois Union argues that Omega’s factual allegations in the underlying action raise
issues of underpaid amounts or benefits owed under a contract or health plan.79 Illinois Union

73

Id.

74

Id. (citing XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., 57 F.Supp.3d 728, 750 (E.D. La. 2014)).

75

Id. at 6.

76

Id.

77

Id.

78

Id. at 6–7.

79

Id. at 7.

13

notes that Omega’s opposition to Blue Cross’s motion for summary judgment in the underlying
action make references to Omega’s contract claims and that Blue Cross’s defense counsel also
testified that one of Blue Cross’s defenses was that it paid the benefits to Omega in accordance
with the terms of the underlying contracts.80 Although Omega allegedly lost profits related to its
claim for negligent representation, Illinois Union contends that this allegation was actually made
in the context of Omega’s claim for underpayment of benefits and that Omega produced no
evidence of tort damages resulting in loss of profits.81 Thus, regardless of the legal theory under
which Blue Cross couches Omega’s alleged damages, Illinois Union argues that Blue Cross in fact
seeks indemnity for underpaid amounts under a contract, which is not covered under the Policy’s
definition of loss.82
Moreover, Illinois Union contends that Blue Cross’s reliance on Judge Lemelle’s opinion
remanding the Omega lawsuit is misguided.83 Illinois Union represents that Judge Lemelle found
in the remand order that Omega was not asserting an ERISA claim and was instead seeking to
recover for payments that Blue Cross allegedly promised to pay.84 Illinois Union represents that
Judge Lemelle specifically acknowledged that the Omega action was a rate and fee dispute.85

80

Id.

81

Id.

82

Id.

83

Id.

84

Id. (citing Rec. Doc. 116-4 at 6).

85

Id.

14

According to Illinois Union, the remand order does not assist Blue Cross in establishing loss under
the Policy.86
d.

Consent to Settle Clause

Next, Illinois Union argues that Blue Cross settled the Omega claim without Illinois
Union’s consent, even though, Illinois Union represents, Blue Cross acknowledges that the Policy
requires Illinois Union’s written consent to settle a claim and does not dispute that consent is a
condition precedent to coverage.87 Illinois Union contends that Blue Cross’s argument that Illinois
Union unreasonably withheld its consent to settle is misguided and that the two cases it relies on
are distinguishable.88 In In re Spill by the Oil Rig Deepwater Horizon, Illinois Union argues, the
insurer acknowledged that the amount of the insured’s unilateral settlement was reasonable and
openly waived its right to raise the consent to settle clause in the policy.89 Here, Illinois Union
avers, it has never acknowledged that Blue Cross’s settlement was reasonable, and it expressly
objected to the settlement and advised that it was not waiving the consent to settle clause in the
Policy.90
Illinois Union likewise argues that Federal Insurance Company v. New Hampshire
Insurance Company is distinguishable, because that case involved a motion to dismiss under Rule
12(b)(6) in which the court found that the facts alleged, if accepted as true, could indicate that the

86

Id. at 9.

87

Id.

88

Id.

89

Id. (citing 2014 WL 5524268 (E.D. La. 2014), aff’d in part sub nom, In re Deepwater Horizon, 807 F.3d
689 (5th Cir. 2015)).
90

Id. at 12–13.

15

insurer unreasonably delayed settlement where time was of the essence.91 Here, Illinois Union
contends that it was justified in not tendering the Policy limits to settle the case, based on the lack
of information provided to Illinois Union and the fact that Blue Cross’s in-house counsel advised
Illinois Union that a potential trial in the underlying action was “very winnable.”92 Moreover,
Illinois Union argues, time was not of the essence in this case where trial was more than a week
away following mediation and Blue Cross could have sufficiently involved Illinois Union and
explained the potential liability and a reasonable settlement value. 93 Given the information
vacuum created by Blue Cross, Illinois Union argues that it was reasonable in withholding
consent.94
Moreover, Illinois Union contends that its offer at mediation to contribute $500,000 on a
cost of defense basis does not constitute consent to settle.95 Illinois Union argues that such a view
would mean that anytime an insurer contributes even a dollar of settlement money for any reason,
including cost of defense, it would follow that the insurer consents to the entire settlement up to
policy limits.96
Illinois Union next argues that it never denied coverage but rather reserved its rights to
enforce the consent to settle clause in the Policy.97 According to Illinois Union, the Fifth Circuit,

91

Id. at 13 (citing 2010 WL 28568 (5th Cir. 2010)).

92

Id. at 13–14 (citing Rec. Doc. 118-25).

93

Id. at 14.

94

Id.

95

Id.

96

Id.

97

Id. at 15.

16

applying Louisiana law, has held that a consent to settle clause precludes indemnity for an
insured’s voluntary settlement where an insurer reserves its rights to deny indemnity.98 Illinois
Union contends that the cases on which Blue Cross relies to support its position that Illinois Union
effectively denied its claim are distinguishable.99
According to Illinois Union, under Louisiana law as applied by the Fifth Circuit, there are
only three limited exceptions that allow an insured to settle without the insurer’s consent. 100
Illinois Union represents that these exceptions are: (1) when an insurer wrongfully refuses to
defend its insured; (2) when an insurer denies coverage where there is coverage; and (3) when an
insurer unjustifiably delays settlement.101 Illinois Union argues that none of these exceptions apply
in this case.
First, Illinois Union contends that the first exception does not apply, because under the
Policy, Blue Cross, not Illinois Union, has the duty to defend and there is no evidence that Illinois
Union instructed Blue Cross not to defend against Omega’s claims or failed to reimburse Blue
Cross for its defense.102 Second, Illinois Union avers that the second exception does not apply,
because here, the insurer asserts coverage defenses under a reservation of rights and does not deny
coverage where there is coverage.103 Third, Illinois Union contends that it did not unjustifiably

98

Id. (citing New England Ins. Co. v. Barnett, 465 F. App’x 302, 307 (5th Cir. 2012)).

99

Id. at 16 (citing Fed. Ins. Co. v. Hawaiian Elec. Indus., Inc., 1995 WL 1913089 (D. Hi. 1995)).

100

Id. at 17.

101

Id. at 17–18 (citing Barnett, 465 F. App’x at 307).

102

Id. at 17.

103

Id.

17

delay settlement and thus, the third exception does not apply. 104 Illinois Union avers that it
consistently sought information from Blue Cross that would enable it to gauge the availability of
coverage for Blue Cross’s potential liability in the underlying action but that Blue Cross did not
provide such information.105 According to Illinois Union, prior to mediation, Blue Cross provided
a defense memorandum noting that Omega sought $66 million in damages but did not include any
information regarding Omega’s theories of liability.106
According to Illinois Union, the mediation of the underlying action was “unilateral and
rushed.”107 Illinois Union asserts that on April 20, 2016, Blue Cross’s coverage counsel demanded
that Illinois Union attend the mediation and asserted that Omega was seeking damages in the range
of $45–$108 million.108 Illinois Union avers that it informed Blue Cross that it had still not been
provided any assessment of the damages allocated among Omega’s theories of liability but that it
agreed to attend the mediation despite the short notice.109 Illinois Union represents that it informed
Blue Cross at that time that because it could not yet determine which, if any, damages fell within
the Policy’s coverage, it would act based on information learned at the mediation.110

104

Id. at 18.

105

Id.

106

Id.

107

Id. at 19.

108

Id. (citing Rec. Doc. 118-32).

109

Id.

110

Id. (citing Rec. Doc. 118-33).

18

According to Illinois Union, during the mediation, Blue Cross represented that the money
it offered for settlement was Blue Cross’s own funds.111 Illinois Union asserts that near the end of
the mediation, Blue Cross informed Illinois Union that it had offered Omega significantly more
than the Policy limits at which point Illinois Union offered $500,000, i.e. the estimated savings in
defense costs if the matter was settled.112 According to Illinois Union, Blue Cross refused this
offer, demanded the full Policy limits, and expressly requested that Illinois Union waive the
consent to settlement condition in the Policy so that Blue Cross could settle with Omega. 113
Thereafter, Illinois Union asserts that it advised Blue Cross that it would not waive the condition.114
Thus, Illinois Union argues that the consent to settle provision bars coverage as a matter of law.115
3.

Blue Cross’s Reply in Further Support of the Motion for Summary Judgment

In its reply, Blue Cross argues that Illinois Union improperly attempts to broaden the scope
of the exclusion in the Policy to exclude coverage for all claims arising out of a contract. 116
According to Blue Cross, the exclusion in the Policy is for “benefits . . . owed . . . under any
. . . health care plan,” and Illinois Union’s attempt to expand the exclusion eviscerates coverage,
rendering coverage “illusory.”117 Moreover, Blue Cross contends that it is entitled to rely on the

111

Id. at 20 (citing Rec. Doc. 118-34).

112

Id.

113

Id.

114

Id.

115

Id.

116

Rec. Doc. 176 at 3.

117

Id. (citing Looney Ricks Kiss Architects, Inc. v. Bryan, No. 07-572, 2014 WL 931781, at *8 (W.D. La.
Mar. 10, 2014)).

19

testimony of Illinois Union’s employee, Pizzonia, regarding whether there is coverage for the
damages in the underlying action, because Pizzonia’s job was to evaluate coverage under the
Policy and make a coverage determination.118
Next, Blue Cross argues that it is not seeking to recover for amounts paid pursuant to
contracts with in-network providers or with its patients.119 Blue Cross avers that it may use the
negotiated amounts it paid to in-network providers as a “yardstick” for determining amounts owed
to Blue Cross members. 120 However, according to Blue Cross, the fact that tort damages are
calculated by comparison to amounts due under contracts with other entities does not transform
those tort damages into amounts it owed to Omega under a contract.121
Blue Cross next asserts that Illinois Union simultaneously argues that Blue Cross was
required to allocate Omega’s claimed damages among the various causes of action in the
underlying suit but that Blue Cross’s allocation of the damages in the settlement is necessarily
suspect.122 However, Blue Cross argues, Illinois Union cannot have it both ways.123 According to
Blue Cross, Illinois Union’s reliance on the Fifth Circuit’s opinion in Enserch Corporation v.
Shand Morahan & Company is misplaced, because the Fifth Circuit in that decision did not broadly
condemn settlement allocations or determine that damages are necessarily uncovered by a policy

118

Id. at 3–4.

119

Id. at 5.

120

Id.

121

Id.

122

Id.

123

Id.

20

where a settlement allocation may be suspect.124 Rather, according to Blue Cross, the Fifth Circuit
held that if a trial court could apportion damages solely by applying the terms of the settlement,
then the decision would be one of law and remanded the case to the trial court to determine whether
it could allocate covered and uncovered claims as a matter of law or if a jury trial would be required
on the issue.125
Blue Cross acknowledges that a portion of the damages in the underlying action were owed
under its members’ health plans and payable by statute to Omega and asserts that it does not seek
coverage for those amounts.126 Moreover, Blue Cross asserts, it does not ask Illinois Union or the
Court to rely solely on the terms of the settlement and instead presents the allegations in Omega’s
petition, the facts uncovered during discovery, and the decisions of the Louisiana state court and
Eastern District of Louisiana in the underlying action to support its request for coverage.127
Finally, according to Blue Cross, Illinois Union could have participated in the drafting of
the settlement agreement, but Illinois Union’s representatives decided to leave the mediation
before the terms of the settlement were complete.128 Blue Cross further avers that Illinois Union
has never questioned the reasonableness of the settlement or asserted that Blue Cross should not
have settled the underlying action. 129 Blue Cross contends that Illinois Union should not be

124

Id. at 5–6 (citing 952 F.2d 1485, 1495 (5th Cir. 1992)).

125

Id. at 6.

126

Id.

127

Id.

128

Id. at 7 (citing O’Brien Dep. Tr.).

129

Id.

21

permitted to contest the terms of the settlement and simultaneously shirk its obligation to
participate in the mediation.130
B.

Illinois Union’s Motion for Summary Judgment on Coverage Obligations
In its motion for summary judgment, Illinois Union seeks summary judgment in its favor

on: (1) Count I of its Complaint, which seeks a declaratory judgment that Illinois Union is not
required to indemnify Blue Cross for the underlying settlement due to the fact that Blue Cross did
not obtain Illinois Union’s consent; and (2) Count II of its Complaint, which seeks a declaratory
judgment that Illinois Union has no obligation to indemnify Blue Cross due to the fact that the
settlement encompasses damages that are not covered under the Policy.131 Additionally, Illinois
Union requests that the Court dismiss with prejudice Blue Cross’s counterclaims related to
coverage.132
1.

Illinois Union’s Arguments in Support of the Motion for Summary Judgment
a.

The Policy’s Consent to Settle Clause

In its motion for summary judgment, Illinois Union first argues that Blue Cross lacked the
required prior written consent to settle.133 According to Illinois Union, the Policy provides that an
insured may not settle or offer to settle any claim without the insurer’s prior written consent.134
Illinois Union contends that an insurer must show prejudice in order to avoid coverage due to an

130

Id.

131

Rec. Doc. 118 at 1.

132

Id.

133

Rec. Doc. 118-1 at 6.

134

Id. (citing 118-5).

22

insured’s breach of a policy condition unless the condition qualifies as a condition precedent.135
Moreover, Illinois Union argues, it suffered prejudice as a matter of law, because the Fifth Circuit
has held that an insurer suffers prejudice as a matter of law when an insured unilaterally settles a
claim.136 According to Illinois Union, Blue Cross failed to provide it with necessary information
to determine the supporting coverage of the underlying liability and damages in the underlying
suit, and Illinois Union expressly denied Blue Cross’s request to waive the consent to settlement
condition.137
b.

The Policy’s Cooperation Clause

Illinois Union next argues that Blue Cross failed to comply with the cooperation clause in
the Policy, which requires the insured to provide Illinois Union “with all information, assistance,
and cooperation” that it reasonably requests.138 According to Illinois Union, in order to prove a
breach of a cooperation clause under Louisiana law, an insurer must show: (1) a diligent effort to
obtain the necessary information; and (2) actual prejudice.139 Here, Illinois Union asserts, it made
a diligent effort to obtain the necessary information, as evidenced by its repeated requests to Blue
Cross, and it suffered prejudice when it lacked the information necessary to make an informed
decision to settle before Blue Cross did so unilaterally.140

135

Id.

136

Id. at 6–7 (citing Danrik Const., Inc. v. Am. Cas. Co., 314 F. App’x 720 (5th Cir. 2009)).

137

Id. at 7.

138

Id. at 7–8 (citing Rec. Doc. 118-5).

139

Id. at 8 (citing Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Cagle, 68 F.3d 905, 912 (5th Cir. 1995);
Johnson v. State Farm Mut. Auto. Ins. Co., 2013 WL 2156328, at *9 (E.D. La. 2013)).
140

Id.

23

c.

The Policy’s Definition of Loss

Next, Illinois Union argues that Blue Cross has not suffered “loss” as defined in the Policy,
and thus, there is no coverage under the Policy. 141 According to Illinois Union, loss includes
amounts Blue Cross is legally obligated to pay for errors in handling claims.142 However, Illinois
Union asserts, loss does not include amounts or benefits “owed under any contract with any party”
or “any health care plan,” “equitable relief or redress in any form,” and “matters which are
uninsurable under the law.”143 According to Illinois Union, “the gravamen of the Omega Lawsuit”
was Blue Cross’s failure to pay amounts due under its subscribers’/members’ contracts, which had
been assigned to Omega.144
Illinois Union asserts that Blue Cross bears the initial burden of proving satisfaction of the
loss definition in the Policy.145 Illinois Union represents that the causes of action pleaded against
Blue Cross in the underlying action are: (1) violation of LUTPA; (2) fraud; (3) negligent
misrepresentation; (4) detrimental reliance; and (5) alternatively, unjust enrichment. 146 First,
Illinois Union argues that fraud falls directly within one of the Policy’s carve outs from loss and
is thus not covered by the Policy.147 Second, Illinois Union contends that detrimental reliance and
unjust enrichment do not qualify as loss, because they are based on equitable principles under

141

Id.

142

Id. at 9.

143

Id. (citing Rec. Doc. 118-5).

144

Id.

145

Id. at 10.

146

Id. (citing Rec. Doc. 1-2).

147

Id.

24

Louisiana law and the Policy’s definition of loss carves out “equitable relief or redress in any
form.”148 Additionally, Illinois Union contends that unjust enrichment and detrimental reliance
are quasi-contractual and that the Policy does not include contractual obligations.149
Next, Illinois Union argues that even if the remaining causes of action in the underlying
lawsuit, i.e. claims for violation of LUTPA and negligent misrepresentation, are potentially
covered by the Policy, legal theories do not control an insurer’s indemnity obligation.150 Here,
Illinois Union argues, regardless of the legal theory of recovery, the facts demonstrate that Blue
Cross in fact seeks indemnity for underpaid amounts owed under contracts/health care plans, and
amounts owed under any contract/health care plan are carved out from coverage.151
According to Illinois Union, Omega argued throughout the underlying suit that Blue Cross
was obligated to reimburse Omega for the underpayment of benefits based on an implied contract
and Blue Cross admits that it had an obligation to pay Omega.152 Illinois Union argues that the
Policy’s carve out for amounts owed under a contract includes amounts owed under an implied
contract.153 Illinois Union further argues that Blue Cross determined the amounts owed to Omega
with reference to a contract with its in-network providers.154 Moreover, Illinois Union contends,
the amount Blue Cross paid to Omega represents benefits owed under health care plans/contracts

148

Id. (citing Patriot Const. & Equip. v. Rage Logistics, LLC, 2016 WL 1358526 (La. App. 3d 2016).

149

Id. at 11.

150

Id.

151

Id. at 12.

152

Id.

153

Id.

154

Id. at 13.

25

with Omega’s patients, i.e. Blue Cross’s members.155 According to Illinois Union, Blue Cross
maintains that it was obligated to pay Omega for services rendered to patients pursuant to
Louisiana’s Assignment Statute.156 Because, Illinois Union argues, Blue Cross was obligated to
pay Omega the correct benefits due under the members’ health care plans, Blue Cross’s payment
to settle Omega’s claim of insufficient reimbursement was an amount owed under a health care
plan and is carved out of the Policy’s definition of loss, no matter the theory of liability used to
reach those damages.157
Illinois Union asserts that case law interpreting similar policy language has held that
insurers are not obligated to reimburse for amounts due under a contract with a medical provider
and that no case has found that underpayment of benefits by a health care insurer qualifies as
loss. 158 Specifically, Illinois Union points to a Minnesota appellate court’s decision that it
represents held that an insurer was not obligated to cover losses in connection with an underlying
breach of contract claim against it.159 Illinois Union also points to a decision from a California
appellate court in which it represents that the court held that a professional liability insurer was
not obligated to indemnify the insured health insurance company for settlement of claims filed by
healthcare providers alleging underpaid benefits.160

155

Id.

156

Id. at 14 (citing La. Rev. Stat. § 40: 2101).

157

Id.

158

Id. at 15.

159

Id. (citing Union Fire Ins. Co. v. Hosp. Affiliates Mgmt. Corp., 363 N.W.2d 494 (Minn. App. 1985)).

160

Id. at 15–16 (citing Health Net, Inc. v. RLI Ins. Co., 206 Cal. App. 4th 232 (2d Dist. 2012)).

26

d.

Settlement Allocation

Next, Illinois Union argues, as it did in opposition to Blue Cross’s motion for summary
judgment, that the settlement allocation is not determinative and that an insurer must reimburse an
insured only to the extent that a settlement compromises claims covered by the policy. 161
According to Illinois Union, the settlement agreement in the underlying action allocates certain
sums for the settlement of benefits allegedly owed on behalf of Blue Cross members and certain
sums for the damages alleged in the tort claims.162 According to Illinois Union, Omega provided
no evidence of tort damages in the underlying action and Blue Cross represented that it did not
have any documents related to Omega’s tort claims. 163 Thus, Illinois Union argues, Omega’s
damages cannot be characterized as lost profits, and the only damages settled were for benefits
owed under a contract/health care plan, which are carved out of the Policy’s definition of loss and
not covered by the Policy.164
e.

Defense Costs & Attorneys’ Fees

Finally, Illinois Union argues that it is entitled to summary judgment on Blue Cross’s
counterclaim that Illinois Union failed to pay certain defense costs.165 According to Illinois Union,
there is no evidence that it failed to reimburse Blue Cross for any of its defense costs.166 Illinois

161

Id. at 17.

162

Id. (citing Exh. 22).

163

Id.

164

Id. at 19.

165

Id. (citing Rec. Doc. 11).

166

Id.

27

Union also argues that Blue Cross is not entitled to attorneys’ fees, because attorneys’ fees are
only recoverable when authorized by statute or contract, neither of which are present here.167

2.

Blue Cross’s Arguments in Opposition to the Motion for Summary Judgment
a.

The Policy’s Consent to Settle Clause

In its opposition to Illinois Union’s motion for summary judgment, Blue Cross argues, as
it did in its motion for summary judgment, that Illinois Union cannot raise lack of consent as a
coverage defense, because it unreasonably withheld its consent for Blue Cross to settle.168 Blue
Cross contends that given the potential liability it faced, Illinois Union’s refusal to consent in
writing to the settlement was unreasonable and left Blue Cross free to settle the case.169 Moreover,
Blue Cross avers that Illinois Union verbally consented to the agreement by agreeing to pay a
portion of the settlement. 170 Blue Cross represents that Illinois Union’s representative at the
mediation, Pizzonia, testified that he often gives verbal approval of settlement at the time of
mediation and that verbal approval is sufficient to comply with the consent to settle provision of
the Policy.171 Moreover, Blue Cross argues, Illinois Union told Blue Cross that there was no
coverage for the underlying action, which constituted a denial of coverage and relieved Blue Cross
of any need to obtain consent before settling. 172 According to Blue Cross, where an insurer

167

Id. (citing Sher v. Lafayette Ins. Co., 988 So.2d 186, 201 (La. 2008)).

168

Rec. Doc. 146 at 4.

169

Id. at 5.

170

Id. at 6.

171

Id.

172

Id. at 7–8 (citing Fed. Ins. Co. v. Hawaiian Elec. Indus., Inc., 1995 WL 1913089 (D. Haw. Dec. 15,

1995)).

28

wrongfully denies coverage, the insured is reasonable in believing that it could suffer an adverse
judgment at trial, and there is no evidence that the insured improperly entered into the settlement
agreement, an insured is entitled to settle.173
b.

The Policy’s Cooperation Clause

Next, Blue Cross argues that it complied with the Policy’s cooperation clause. 174
Moreover, according to Blue Cross, Illinois Union must demonstrate that an alleged breach of the
cooperation clause was both material and prejudicial in order to avoid its coverage obligations.175
Blue Cross avers that the determination of whether a breach was material and prejudicial is highly
fact specific and that a court in the Eastern District of Louisiana has determined that it is doubtful
that summary judgment is ever appropriate on an insured’s alleged failure to cooperate.176 Blue
Cross asserts that it provided Illinois Union regular status updates and had teleconferences with
Blue Cross to discuss the status of the Omega Hospital claim.177 Moreover, Blue Cross argues, it
risked waiving the attorney-client privilege by revealing defense counsel’s liability and damages
analysis.178 Therefore, Blue Cross argues, Illinois Union cannot demonstrate that it was prejudiced
by Blue Cross’s refusal to provide defense counsel’s damages and liability evaluations.179 Even if
Illinois Union was entitled to privileged defense counsel analyses, Blue Cross avers, defense

173

Id. at 7 (citing Singleton v. United Tugs, Inc., 97-1652 (La. App. 4 Cir. 3/18/98), 710 So.2d 347, 352).

174

Id. at 8.

175

Id.

176

Id. (citing Kovesdi v. Allstate Indem. Co., 2010 WL 3835893, at *6 (E.D. La. Sept. 24, 2010)).

177

Id. at 9–10.

178

Id. at 11–12.

179

Id. at 11.

29

counsel in the underlying action had not created any such analyses that would have been responsive
to Illinois Union’s requests.180 Blue Cross further argues that Illinois Union failed to engage in
any independent investigation of the underlying action and cannot now assert prejudice from a
lack of information.181
c.

Exclusionary Language in the Policy

Next, Blue Cross asserts that the rule requiring exclusionary language to be narrowly
construed applies with equal force to carve outs in the definition of loss, even if such carve outs
are not in the exclusions section of a policy.182 According to Blue Cross, Illinois Union has failed
to meet its burden of demonstrating that Blue Cross’s coverage claims are excluded by the terms
of the Policy. 183 First, Blue Cross argues that Illinois Union’s assertion that fraud claims are
uninsurable under Louisiana law is not true.184 Under the terms of the Policy, Blue Cross argues,
Illinois Union is only relieved of its obligation to pay loss brought about by fraudulent conduct if
that conduct is established through an admission or by other final adjudications.185 Moreover, Blue
Cross represents that Illinois Union’s employee testified that Illinois Union cannot apply the fraud
exclusion where a policyholder has not admitted an intentional act and the case is settled.186
As to loss resulting from Omega’s claims for negligent misrepresentation and violation of

180

Id. at 12.

181

Id. at 13.

182

Id. at 14 (citing MBIA, Inc. v. Fed. Ins. Co., 652 F.3d 152, 166 (2d Cir. 2011)).

183

Id. at 15.

184

Id.

185

Id. (citing Exh. B).

186

Id.

30

the Unfair Trade Practices Act, Blue Cross argues that Illinois Union must provide coverage,
because such claims do not arise out of Blue Cross’s contractual obligation to reimburse Omega
for services and instead arise out of a more general obligation related to “industry practice.”187
According to Blue Cross, these allegations in the underlying suit are not contractual in nature and
therefore, Illinois Union’s reliance on cases holding that insurers are not obligated to reimburse
for amounts due under a contract are irrelevant.188 Blue Cross also represents that in remanding
the underlying action to state court, the Eastern District of Louisiana found that Omega’s claims
did not arise out of patients’ rights to benefits.189
Blue Cross contends that in cases like this one where an underlying complaint alleges
claims premised on a violation of a statutory right, the exclusion for amounts due under a contract
does not bar coverage.190 Specifically, Blue Cross points to a Pennsylvania superior court case in
which the court found that damages resulting from allegations of Racketeer Influences and Corrupt
Organization Act (“RICO”) violations were covered under a policy, because they constituted
allegations of wrongful acts committed in the performance of professional service related to the
operation of a managed care organization.191 Here, as in that case, Blue Cross argues that Illinois
Union’s reading of the contract exclusion would render coverage illusory because it would nearly
always bar coverage for claims arising out of Blue Cross’s duty to provide managed care

187

Id. at 16–17.

188

Id. at 17.

189

Id.

190

Id. at 18 (citing Exec. Risk Indem., Inc. v. CIGNA Corp., 976 A.2d 1170 (Pa. Super. Ct. 2009)).

191

Id. at 18–19 (citing CIGNA Corp., 976 A.2d at 1173).

31

services.192
d.

Attorneys’ Fees

Finally, Blue Cross argues that it is entitled to attorneys’ fees, because Louisiana courts
have recognized an insured’s entitlement to attorneys’ fees where the insurer has been guilty of
bad faith toward the insured and the insured has to employ an attorney to protect its interests.193
Here, Blue Cross argues that it is entitled to an award of attorneys’ fees based on Illinois Union’s
bad faith conduct.194
3.

Illinois Union’s Reply in Further Support of the Motion for Summary
Judgment

In reply, Illinois Union first argues that its reservations of rights do not constitute denials
of coverage and did not waive Blue Cross’s obligation to obtain consent to settle.195 Illinois Union
further argues that Blue Cross improperly cites to the report of its expert and a sentence in a
discovery order stating that Illinois Union told Blue Cross that many of the claims were not covered
to attempt to show that Illinois Union denied coverage in this case.196 Whether a denial occurred,
Illinois Union argues, is a question of law for this Court and neither the expert report nor a
discovery order constitute proper summary judgment evidence.197
Next, Illinois Union contends that Blue Cross breached the duty to cooperate causing

192

Id. at 19.

193

Id. at 20 (citing Md. Cas. Co. v. Dixie Ins. Co., 622 So.2d 698, 703 (La. App. 1st Cir. 1993), writ denied,
629 So.2d 1138 (La. 1993)).
194

Id.

195

Rec. Doc. 172 at 1.

196

Id. at 1–2 (citing Rec. Doc. 131).

197

Id. at 2.

32

prejudice to Illinois Union.198 Illinois Union asserts that it never sought privileged information
from defense counsel but rather sought facts from its insured in order to understand the underlying
action. 199 Moreover, Illinois Union avers that Blue Cross did not provide regular or material
updates and in fact provided just sixteen updates over the course of six years of litigation.200
Illinois Union contends that it realistically could not have conducted an effective independent
investigation and that the information it sought could not be found on the state court’s docket.201
For example, Illinois Union avers that it would have been useful to see the settlement brochure
setting forth Omega’s theory of the case and outlined damages, but Blue Cross has yet to provide
this.202
Next, Illinois Union argues that Blue Cross cannot show any damages ensued from tort
theories in the underlying suit. 203 Illinois Union argues that Blue Cross allocated 90% of its
settlement to damages arising from Omega’s tort claims, even though there is no evidence of
damages arising from tortious conduct. 204 Rather, Illinois Union maintains that Blue Cross
understood that the focus of Omega’s case was Omega’s breach of contract claims and Blue
Cross’s underpayment of benefits for medical services and supplies, which is why it focused its

198

Id.

199

Id. at 3.

200

Id.

201

Id. at 4.

202

Id. (citing Rec. Doc. 117-5).

203

Id. at 5.

204

Id. at 6.

33

defense on those issues.205
Illinois Union next contends that the damages in the settlement are benefits owed under a
contract or health care plan and are therefore not covered under the Policy.206 According to Illinois
Union, the cases cited by Blue Cross to support its argument that the exclusion for amounts due
under a contract does not apply where claims are based upon a violation of a statutory right do not
apply here, because those cases involved exclusions that were found to be ambiguous.207
Next, Illinois Union argues that the fraud exception applies to exclude coverage in this
case.208 According to Illinois Union, the fraud exclusion requires some determination of fraud,
either through admission or a final adjudication in a proceeding constituting the claim or “in a
proceeding separate from or collateral to any proceeding constituting the claim.”209 Thus, Illinois
Union argues, this coverage action qualifies as a separate proceeding and fraud can be established
and excluded here.210
Finally, Illinois Union argues that Blue Cross’s bad faith cause of action under Louisiana
Revised Statute § 22: 1973 does not provide for attorneys’ fees.211

205

Id.

206

Id. at 7.

207
Id. The Court notes that Illinois Union also argues that Blue Cross cites to and attaches a case that cannot
be considered as precedent under Pennsylvania superior court rules and requests that it and the portions of Blue Cross’s
memorandum that quote the case be stricken from the record. Because the Court does not rely on the unpublished
Pennsylvania case in its analysis, Illinois Union’s request that the case be stricken is denied as moot.
208

Id. at 9.

209

Id. (citing Rec. Doc. 118-5).

210

Id.

211

Rec. Doc. 172 at 9.

34

4.

Illinois Union’s Sur-Reply in Further Support of the Motion

In further support of its motion for summary judgment, Illinois Union contends that Blue
Cross made “multiple settlement offers” to Omega without Illinois Union’s knowledge or written
consent.212 According to Illinois Union, Blue Cross stipulated in the deposition of its corporate
representative, Charles O’Brien, that O’Brien’s responses to the questions in the previous fact
deposition would be binding on Blue Cross.213 Illinois Union represents that O’Brien testified in
the fact deposition and in his deposition as a corporate representative that Blue Cross made at least
one settlement offer to Omega prior to the mediation without notifying Illinois Union or receiving
written consent.214 Illinois Union further argues that Blue Cross did not seek Illinois Union’s
consent before making an offer to settle at the mediation.215 Because, Illinois Union argues, under
the Policy, Blue Cross must obtain written consent before making an offer to settle, Blue Cross
violated the Policy and Illinois Union is not liable for any amounts voluntarily settled or any
amounts offered to settle the underlying action.216 Thus, according to Illinois Union, the consent
to settle provision precludes coverage for the settlement in the underlying action.217
III. Law and Analysis
A.

Legal Standard for Summary Judgment
Summary judgment is appropriate when the pleadings, the discovery, and any affidavits

212

Rec. Doc. 223-3 at 2.

213

Id.

214

Id.

215

Id.

216

Id. at 3.

217

Id. at 1.

35

show that “there is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.”218 When assessing whether a dispute as to any material fact exists, the court
considers “all of the evidence in the record but refrains from making credibility determinations or
weighing the evidence.”219 All reasonable inferences are drawn in favor of the nonmoving party,
but “unsupported allegations or affidavits setting forth ‘ultimate or conclusory facts and
conclusions of law’ are insufficient to either support or defeat a motion for summary judgment.”220
If the record, as a whole, “could not lead a rational trier of fact to find for the non-moving party,”
then no genuine issue of fact exists and the moving party is entitled to judgment as a matter of
law.221 The nonmoving party may not rest upon the pleadings, but must identify specific facts in
the record and articulate the precise manner in which that evidence establishes a genuine issue for
trial.222
The party seeking summary judgment always bears the initial responsibility of informing
the Court of the basis for its motion and identifying those portions of the record that it believes
demonstrate the absence of a genuine issue of material fact.223 Thereafter, the nonmoving party
should “identify specific evidence in the record, and articulate” precisely how that evidence

218

Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986); Little v. Liquid Air
Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
219

Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398–99 (5th Cir. 2008).

220

Galindo v. Precision Am. Corp., 754 F.2d 1212, 1216 (5th Cir. 1985); Little, 37 F.3d at 1075.

221

Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986).

222

See Celotex, 477 U.S. at 325; Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998).

223

Celotex, 477 U.S. at 323.

36

supports his claims.224 To withstand a motion for summary judgment, the nonmoving party must
show that there is a genuine issue for trial by presenting evidence of specific facts. 225 The
nonmovant’s burden of demonstrating a genuine issue of material fact is not satisfied merely by
creating “some metaphysical doubt as to the material facts,” “by conclusory allegations,” by
“unsubstantiated assertions,” or “by only a scintilla of evidence.” 226 Rather, a factual dispute
precludes a grant of summary judgment only if the evidence is sufficient to permit a reasonable
trier of fact to find for the nonmoving party. Hearsay evidence and unsworn documents that cannot
be presented in a form that would be admissible in evidence at trial do not qualify as competent
opposing evidence.227
B.

Legal Standard for Interpreting Insurance Contracts under Louisiana Law
Under Louisiana law, “an insurance policy is a contract between the parties and should be

construed by using the general rules of interpretation of contracts set forth in the Louisiana Civil
Code.”228 “The Louisiana Civil Code provides that ‘[t]he judiciary's role in interpreting insurance
contracts is to ascertain the common intent of the parties to the contract’ by construing words and
phrases ‘using their plain, ordinary and generally prevailing meaning.’”229 “Interpretation of an

224

Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994), cert. denied, 513 U.S. 871 (1994).

225

Bellard v. Gautreaux, 675 F.3d 454, 460 (5th Cir. 2012) (citing Anderson v. Liberty, 477 U.S. 242, 248–

49 (1996)).
226

Little, 37 F.3d at 1075.

227

Martin v. John W. Stone Oil Distrib., Inc., 819 F.2d 547, 549 (5th Cir. 1987); Fed. R .Civ. P. 56(c)(2).

228

In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007) (quoting Cadwallader v. Allstate
Ins. Co., 848 So.2d 577, 580 (La. 2003)); Mark v. Sunshine Plaza, Inc., No. 16-455, 2016 WL 6876645, at *2 (E.D.
La. Nov. 22, 2016) (Morgan, J.) (quoting Wisznia Co. v. Gen. Star Indem. Co., 759 F.3d 446, 448 (5th Cir. 2014)
(quoting Mayo v. State farm Mut. Auto. Ins. Co., 2003-1801, at 3 (La. 2/25/04); 869 So.2d 96, 99)) (quotation marks
omitted) (alterations omitted).
229

Wisznia Co., 759 F.3d at 448–49 (quoting Mayo, 2003–1801, at 3 (La.2/25/04); 869 So.2d at 99 (citing
La. Civ. Code arts. 2045, 2047)).

37

insurance contract generally involves a question of law.”230
If the contract is clear and unambiguous and does not have absurd consequences, the court
applies the ordinary meaning of the contractual language. 231 If the insurance policy contains
ambiguous provisions, the “[a]mbiguity . . . must be resolved by construing the policy as a whole;
one policy provision is not to be construed separately at the expense of disregarding other policy
provisions.”232 “An insurance contract, however, should not be interpreted in an unreasonable or
strained manner under the guise of contractual interpretation to enlarge or restrict its provisions
beyond what is reasonably contemplated by unambiguous terms or achieve an absurd
conclusion.”233 “Courts lack the authority to alter the terms of insurance contracts under the guise
of contractual interpretation when the policy's provisions are couched in unambiguous terms.”234
C.

Analysis
In its motion for summary judgment on coverage obligations, Blue Cross argues: (1) that

the damages settled in the underlying action are included in the Policy’s definition of loss; (2) that
the Policy’s consent to settle clause does not bar coverage; and (3) that Illinois Union breached a
contract with Blue Cross.235 Therefore, Blue Cross asserts that the Court should grant summary
judgment in Blue Cross’s favor on: (1) Count I of Illinois Union’s Complaint, which seeks a

230

In re Katrina Canal Breaches Litig., 495 F.3d at 206 (citing Bonin v. Westport Ins. Corp., 930 So.2d 906,
910 (La. 2006)).
231

Prejean v. Guillory, 2010-0740, at 6 (La. 7/2/10); 38 So. 3d 274, 279; see also Sapp v. Wood Grp. PSN,
Inc., No. 15-3, 2016 WL 6995897, at *4 (E.D. La. Nov. 30, 2016) (Brown, J.)).
232
In re Katrina Canal Breaches Litig., 495 F.3d at 207 (quoting La. Ins. Guar. Assoc. v. Interstate Fire &
Cas. Co., 630 So.2d 759, 763 (La. 1994)).
233

Id. at 208 (quoting Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La. 2003)).

234

Id.

235

Rec. Doc. 116.

38

declaratory judgment that Illinois Union is not required to indemnify Blue Cross for the underlying
settlement due to the fact that Blue Cross did not obtain Illinois Union’s consent; (2) Count II of
Illinois Union’s Complaint, which seeks a declaratory judgment that Illinois Union has no
obligation to indemnify Blue Cross due to the fact that the settlement encompasses damages that
are not covered under the Policy; (3) Count I of Blue Cross’s counterclaim for a declaratory
judgment that Illinois Union must indemnify Blue Cross for the settlement in the underlying
action; and (4) Count II of Blue Cross’s counterclaim for breach of contract as a result of Illinois
Union’s failure to indemnify Blue Cross for the settlement in the underlying action.236
Similarly, in its motion for summary judgment on coverage obligations, Illinois Union
argues that: (1) that the damages settled in the underlying action are not included in the Policy’s
definition of loss; (2) the Policy’s consent to settle clause bars coverage; (3) that the Policy’s
cooperation clause bars coverage; and (4) that Blue Cross is not entitled to defense costs or
attorneys’ fees.237 Thus, Illinois Union seeks summary judgment in its favor on: (1) Count I of its
Complaint, which seeks a declaratory judgment that Illinois Union is not required to indemnify
Blue Cross for the underlying settlement due to the fact that Blue Cross did not obtain Illinois
Union’s consent; (2) Count II of its Complaint, which seeks a declaratory judgment that Illinois
Union has no obligation to indemnify Blue Cross due to the fact that the settlement encompasses
damages that are not covered under the Policy.238 Additionally, Illinois Union requests that the

236

Rec. Doc. 116-1 at 17.

237

Rec. Doc. 118 at 1.

238

Id.

39

Court dismiss with prejudice Blue Cross’s counterclaims related to coverage and defense costs and
attorneys’ fees.239
Because the parties’ motions for summary judgment substantially overlap, the Court will
address the parties’ arguments together in turn.
1.

Blue Cross’s Damages in the Underlying Action and the Policy’s Definition of
Loss

In both motions for summary judgment, Blue Cross and Illinois Union each assert they are
entitled to summary judgment on the issue of whether Blue Cross’s settlement constitutes a
covered loss under the Policy. In its motion for summary judgment, Blue Cross argues that the
damages resulting from the tort-based causes of action in the underlying lawsuit are covered under
the Policy’s definition of loss and are not excluded by the carve-out for benefits owed under any
contract.240 Thus, Blue Cross avers, Illinois Union is obligated to indemnify Blue Cross for the
settlement in the underlying action with respect to the covered loss and has breached its contractual
obligation to Blue Cross by failing to do so.241 In its motion for summary judgment, Illinois Union
contends that Blue Cross’s damages in the underlying action are not covered by the Policy’s
definition of loss, because they fall within the Policy’s carve-outs.242 Therefore, Illinois Union
avers that it is not required to indemnify Blue Cross for the settlement in the underlying action.243
The Court will address each of the parties’ arguments in turn.

239

Id.

240

Rec. Doc. 116-1 at 10.

241

Id. at 10, 16.

242

Rec. Doc. 118-1 at 9, 11.

243

Id. at 20.

40

As noted supra, under Louisiana law, “an insurance policy is a contract that must be
construed in accordance with the general rules of interpretation of contracts set forth in the
Louisiana Civil Code.”244 With respect to coverage, the insured bears the burden of proving that
the incident giving rise to a claim falls within a policy’s terms.245 However, “the insurer bears the
burden of proving the applicability of an exclusionary clause within the policy.”246 Exclusionary
provisions must be read together with the entire policy and are construed strictly against the insurer
and in favor of coverage.247 Moreover, “[a]ny ambiguities within an exclusionary provision or the
policy as a whole must be construed against the insurer and in favor of coverage.”248 In other
words, “if the language of the exclusion is subject to two or more reasonable interpretations, the
interpretation which favors coverage must be applied.”249 Thus, “[a] summary judgment declaring
a lack of coverage under an insurance policy may not be rendered unless no reasonable
interpretation of the policy, when applied to the undisputed material facts shown by the evidence
supporting the motion, exists under which coverage could be afforded.”250

244

Coleman v. Sch. Bd. of Richland Par., 418 F.3d 511, 516–18 (5th Cir. 2005) (internal citation omitted);
see also N. Am. Treatment Sys., Inc. v. Scottsdale Ins. Co., 2005-0081 (La. App. 1 Cir. 8/23/06), 943 So. 2d 429,
443, writ denied, 2006-2918 (La. 2/16/07), 949 So. 2d 423, and writ denied, 2006-2803 (La. 2/16/07), 949 So. 2d 424
(“An insurance policy is a contract between the parties and should be construed employing the general rules of
interpretation of contracts.”).
245

Doerr v. Mobil Oil Corp., 774 So.2d 119, 124 (La. 2000). See also Coleman, 418 F.3d at 517.

246

Doerr, 774 So.2d at 124.

247

See id. See also Garcia v. St. Bernard Parish Sch. Bd., 576 So.2d 975, 976 (La. 1991).

248

Coleman, 418 F.3d at 517 (internal citations omitted).

249
Reynolds v. Select Props., Ltd., 634 So.2d 1180 (La. App. 4 Cir. 4/11/94) (citing Garcia, 579 So.2d 975,
976 (La. 1991); Breland v. Schilling, 550 So.2d 609, 610 (La. 1989)).
250

Widder v. La. Citizens Prop. Ins. Corp., 2011-0196 (La. App. 4 Cir. 8/10/11), 82 So.3d 294, 296 (internal
citation omitted).

41

The Court notes that Illinois Union argues that Blue Cross, as the insured, bears the burden
of demonstrating that the carve outs in the Policy’s definition of loss do not apply.251 However,
this contradicts Louisiana courts’ well established rule that the insurer bears the burden of showing
the applicability of “an exclusionary clause within a policy.”252 Moreover, the case cited by Illinois
Union for the proposition that Blue Cross must bear the burden of demonstrating the applicability
of the carve outs, Fielding v. Casualty Reciprocal Exchange, is readily distinguishable.253 In that
case, the Louisiana Third Circuit Court of Appeal held that it was the insured’s burden to
demonstrate that an automobile at issue was a “temporary substitute automobile,” which was
defined in the policy as an “automobile not owned by the named insured . . .”254 There was no
separate exclusion at issue. 255 By contrast, in the Policy at issue, “loss” is first defined
affirmatively.256 It is then followed by a list of four exclusions or “carve outs.”257 Because these
carve outs are exclusionary clauses within a Policy, Illinois Union bears the burden of
demonstrating their applicability to the damages at issue.258
Here, the Policy defines “loss” as “Defense Expenses and any monetary amount that an

251

Rec. Doc. 147 at 2.

252

See Jones v. Estate of Santiago, 2003-1424 (La. 4/14/04), 870 So. 2d 1002, 1010.

253

331 So. 2d 186, 188 (La. Ct. App. 1976).

254

Fielding, 331 So. 2d at 188.

255

Id.

256

Rec. Doc. 118-5 at 9.

257

Id. at 10. (“Loss shall not include . . . .”)

258

Jones 870 So. 2d at 1010.

42

Insured is legally obligated to pay as a result of a Claim . . . .”259 The Policy defines a “claim” as
“any written notice received by an Insured that a person or entity intends to hold any Insured
responsible for a Wrongful Act” committed during the covered Policy period.260 A “wrongful act”
is in turn defined in relevant part as “any actual or alleged act, error or omission in the performance
of, or failure to perform Managed Care Professional Services by an Insured Entity or any Insured
Person acting within the scope of his or her duties or capacity as such . . . .”261 The Policy states
in relevant part that loss “shall not include” the following: (1) “fees, amounts, limits, benefits,
obligations or coverages owed under any contract with any party (including providers of Medical
Services, health care plan or trust, insurance or workers compensation policy or plan or program
of self insurance;” (2) “non-monetary or equitable relief or redress in any form, including . . . the
restitution or disgorgement of funds, and the cost of complying with any injunctive, declaratory or
administrative relief;” and (3) “matters which are uninsurable under the law pursuant to which this
Policy is construed,” i.e. Louisiana law.262
As an initial matter, the Court notes that Blue Cross specifically acknowledges that a
portion of the damages in the underlying action were “owed under its members’ health plans and
payable, by statute, to Omega Hospital.”263 Moreover, Blue Cross specifically asserts that it does
not seek coverage for those amounts and thus does not seek to recover the entire balance of the

259

Rec. Doc. 118-5 at 9.

260

Id. at 8.

261

Id. at 11.

262

Id. at 10.

263

Rec. Doc. 176 at 6.

43

settlement, but instead only seeks to recover the portion of the settlement covered under the
Policy.264 Blue Cross argues that it is entitled to summary judgment on Illinois Union’s claims for
declaratory relief, as well as Blue Cross’s claims for declaratory relief and breach of contract,
because Blue Cross asserts that the damages it does seek clearly fall within the Policy’s definition
of loss. 265 In support of its motion, Blue Cross points to Omega Hospital’s petition in the
underlying action, which alleged that Blue Cross “improperly and systematically” reduced the
amount of its reimbursement to Omega Hospital for medical services and supplies.266 Blue Cross
further notes that Omega Hospital asserted tort-based causes of action, including negligent
misrepresentation and detrimental reliance, and that the damages flowing from those causes of
action are covered under the Policy’s definition of loss and are not excluded by the carve-out for
benefits owed under any contract.267 Blue Cross notes that Omega Hospital acknowledged that it
did not have a contract with Blue Cross and that the state court in the underlying action recognized
that some of the claims against Blue Cross sounded in tort.268 Blue Cross also points to a decision
by another section of the Eastern District of Louisiana remanding Omega’s original action against
Blue Cross to state court and finding that Omega’s claims did not constitute benefits due under an
ERISA health plan but arose from representations made by Blue Cross’s web portal and not from
patients’ rights under an ERISA plan.269

264

Id.

265

Rec. Doc. 116-1 at 8.

266

Id. at 10 (citing Rec. Doc. 1-2 at 3).

267

Id. (citing Rec. Doc.1-2 at 9–11).

268

Id. (citing Rec. Doc. 116-8 at 38).

269

Id. at 11 (citing Rec. Doc. 116-4 at 8).

44

Further, Blue Cross points to the testimony of Illinois Union’s head of medical risk claims
department, Pizzonia, in which he acknowledged that damages awarded under LUTPA, fraud,
negligent misrepresentation, and detrimental reliance are separate and apart from benefits owed
under a contract.270 Finally, Blue Cross points to the declaration of its litigation counsel in the
underlying action in which he asserts that Blue Cross calculated the amount of the shortfall in
payments owed to Omega and that the value of those calculations is itemized in the written
settlement.271 The declaration also asserts that Blue Cross does not seek coverage for that portion
of the settlement. 272 Blue Cross’s litigation counsel also testified in his deposition that
approximately 10% of the settlement was allocated to damages due to Omega under Blue Cross’s
members’ plans and approximately 90% was allocated to Omega’s tort claims.273

270

Id. (citing Rec. Doc. 116-7 at 5–9). The Court notes that Illinois Union argues that Pizzonia’s testimony
regarding coverage for Omega’s cause of action is “not proper summary judgment evidence.” Rec. Doc. 147 at 6.
However, on summary judgment, pursuant to Federal Rule of Civil Procedure 56(c)(1)(A), a party asserting a fact
cannot be or is genuinely disputed must support the fact by “citing to particular parts of materials in the record,
including depositions . . . .” Illinois Union argues that the questions posed to Pizzonia were “vague” but does not point
to any authority for its proposition that Pizzonia’s deposition testimony regarding Omega’s causes of action should
not be considered on summary judgment. Even if Pizzonia’s deposition testimony were improper, the Court finds that
Blue Cross has nevertheless pointed to sufficient evidence to raise a genuine dispute of material fact as to Illinois
Union’s coverage obligations over the underlying settlement.
271

Rec. Doc. 158-2 at 1–2.

272

Id. at 2. The Court notes Illinois Union’s arguments that the settlement allocation in the underlying action
is “inherently suspect.” However, in the case cited for that proposition, Enserch Corp. v. Shand Morahan & Co., Inc.,
the Fifth Circuit, applying Texas law, merely disapproved of the trial court’s instruction to the jury denying any
apportionment of the indemnification between settlement damages that were for covered damages and those that were
for non-covered damages under the insurance policy at issue. The Fifth Circuit also held that a trial court may look
beyond the settlement agreement itself to determine the allocation of damages if it was not clear form the complaint
and the insurance contract which of the settled claims were covered and which were not. 952 F.3d 1485, 1495 (5th
Cir. 1992). Enserch does not stand for the proposition that evidence of the settlement allocation should be disregarded
or discounted on summary judgment. While an insured’s settlement allocation in an underlying action is not
automatically suspect, neither is it automatically determinative of the insurer’s coverage obligation. See Fed. Ins. Co.,
439 F. App’x at 291 (applying Louisiana law and finding that an entire settlement was covered by a policy, despite
the fact that a portion of the settlement was characterized as payment for a claim that would not have been covered by
the policy).
273

Rec. Doc. 118-26 at 326–327.

45

By contrast, Illinois Union points to Omega’s opposition to Blue Cross’s summary
judgment motion in the underlying action, which it asserts made repeated reference to Omega’s
contract claims.274 Illinois Union also points to the testimony of Blue Cross’s defense counsel in
the underlying action in which he stated that one of Blue Cross’s defense prongs was that Blue
Cross paid benefits in accordance with the terms and conditions of the underlying subscriber
contracts.275 Illinois Union further notes that Omega only alleged lost profits once in its petition,
that Omega provided no evidence of tort damages resulting in a loss of profits or business
opportunity, and that Blue Cross has not produced any documents regarding Omega’s lost profits
and loss of business opportunities.276 Illinois Union also points to Blue Cross’s acknowledgement
that it was obligated to pay Omega the correct benefits due under the members’ health care
plans.277
Finally, Illinois Union notes that the settlement in the underlying action allocates a small
portion to benefits allegedly owed on behalf of Blue Cross members and a much larger portion to
damages alleged in the tort claims and argues that this allocation is “suspect” and crafted “for the
purpose of effectuating coverage.” 278 Illinois Union points to the testimony of Blue Cross’s
defense counsel in the underlying action in which he stated that Omega was not concerned “with
exactly what the legal theory of recovery was” and that Omega had “no evidence” of its allegations

274

Rec. Doc. 147 at 7 (citing Rec. Doc. 116-8; Rec. Doc. 147-5).

275

Id. (citing Rec. Doc. 147-6 at 18).

276

Id. (citing Rec. Doc. 1-2 at 59).

277

Id. at 12 (Rec. Doc. 118-39).

278

Id. at 4 (citing Rec. Doc. 118-26 at 326–27).

46

that Blue Cross was attempting to put Omega out of business.279 Illinois Union also points to Blue
Cross’s defense counsel’s testimony that the discovery that Blue Cross had actually been
underpaying Omega did not make Omega’s legal theories stronger but rather, dealt “a massive
blow to the credibility of a significant portion of our defense.”280 According to Illinois Union, this
testimony that a “significant portion” of Blue Cross’s defense related to underpayments calls into
question the veracity of the settlement allocation.281
Based on the foregoing, the Court finds that both parties have pointed to conflicting facts
in the record as to whether the underlying claim is covered by the Policy. As noted supra,
interpretation of insurance contracts generally involve questions of law. Here, however, the parties
present conflicting evidence as to the underlying facts of the settlement.
The Court notes that the terms of the underlying settlement are confidential and that neither
party submitted the settlement document into the record. While the record indicates that the
underlying settlement allocated approximately 10% of the total settlement to damages for benefits
owed to Omega on behalf of Blue Cross members and approximately 90% of the total settlement
to damages stemming from the tort claims alleged in Omega’s petition, Illinois Union presents
sufficient evidence to raise a genuine dispute of material fact as to whether the underlying claims
involved obligations under a contract such that they would be excluded from coverage under the
Policy.282

279

Rec. Doc. 172 at 6 (citing Rec. Doc. 172-5 at 19, 23).

280

Id. (citing Rec. Doc. 172-5 at 9).

281

Id.

282

See Rec. Doc. 118-26 at 326–27. See also Rec. Doc. 116-12 at 2.

47

Likewise, the Court finds that Blue Cross has pointed to sufficient facts in the record to
raise a genuine dispute of material fact as to whether approximately 90% of the damages in the
underlying settlement, allocated to damages stemming from Omega’s tort claims, are covered
under the Policy’s definition of loss and not excluded under the carve-outs or other exclusions in
the Policy. However, Blue Cross is not entitled to summary judgment on its coverage and breach
of contract claims, because Illinois Union has also pointed to sufficient facts in the record to raise
a genuine dispute of material fact as to the nature of the claims settled in the underlying action.
As the Fifth Circuit, applying Louisiana law, has held, “an insurer should have to reimburse
the insured only to the extent that the settlement compromised claims that were covered by the
policy.”283 Here, Illinois Union has pointed to facts in the record that suggest that the settlement
was intended to compromise claims for breach of contract that would be excluded from coverage
under the terms of the Policy. On the other hand, Blue Cross has pointed to facts in the record that
suggest that the settlement compromised claims that sounded in both contract and tort such that
part of the settlement would be covered by the Policy. Because both parties have pointed to facts
in the record that raise a genuine dispute of material fact as to the nature of the claims that were
compromised in the underlying action, Blue Cross is not entitled to summary judgment on its
coverage and breach of contract claims, and Illinois Union is likewise not entitled to summary
judgment on its coverage claim.
The Court notes that Illinois Union argues that three of the claims in the underlying action

283

Fed. Ins. Co. v. New Hampshire Ins. Co., 439 F. App’x 287, 290–91 (5th Cir. 2011) (citing Allan D.
Windt, 2 Insurance Claims and Disputes § 5:31 (5th ed. 2009) (internal quotations omitted). See also Gulf Fleet Marine
Ops., Inc. v. Wartsila Power, Inc., 797 F.2d 257, 261 (5th Cir. 1986) (applying Louisiana law and finding that the
insurer was only obligated to pay for the portion of the settlement that compromised claims that were covered by the
policy).

48

are uninsurable as a matter of law.284 First, Illinois Union argues that Omega’s claim for fraud in
the underlying action is not covered by the Policy, because fraud is uninsurable under Louisiana
law.285 Next, Illinois Union contends that Omega’s claims for detrimental reliance and unjust
enrichment do not qualify as loss under the Policy, because these causes of action are based on
equitable principles and are generally considered to be quasi-contractual and are therefore
excluded under the Policy.286
As to the fraud claim in the underlying action, the Court notes that in its reply brief in
further support of its motion for summary judgment, Illinois Union notes that the fraud exclusion
in the Policy actually requires “some in fact determination of fraud, either through an admission
or a final adjudication ‘in a proceeding constituting the Claim or in a proceeding separate from or
collateral to any proceeding constituting the Claim.’” 287 Illinois Union argues that fraud can
therefore be established and excluded in this proceeding. 288 Illinois Union relies on Bonin v.
Westport Insurance Corporation for the proposition that the Court can make a final adjudication
of fraud in this case and apply the exclusion for fraudulent conduct in the Policy at this time.289
However, in Bonin, the plaintiffs acknowledged that fraudulent conduct had occurred and the court
accordingly found that it could make a judicial determination that the plaintiffs’ behavior

284

Rec. Doc. 118-1 at 11.

285

Id. at 10.

286

Id.

287

Rec. Doc. 172 at 9 (citing Rec. Doc. 118-5).

288

Id.

289

930 So.2d 906, 916 (La. 2006).

49

constituted a fraudulent act under the policy and was excluded from coverage.290 In the instant
case, by contrast, Blue Cross has not acknowledged liability for any of the tort claims in the
underlying action,291 and Illinois Union has not pointed to facts in the record to demonstrate that
Blue Cross committed fraud such that the fraud exclusion in the Policy excludes coverage for any
of the settled claims in the underlying action. Accordingly, Illinois Union has not shown that there
is no dispute of material fact such that the fraud exclusion applies at this time to Blue Cross’s
damages in the underlying action.
As to Illinois Union’s arguments regarding the claim of detrimental reliance in the
underlying action, the Court notes that a detrimental reliance theory may sound in contract.292
However, as the Louisiana Supreme Court has recognized, “[i]t is the nature of the duty breached
that should determine whether the action is in tort or contract.” 293 Thus, even if a claim is
characterized as a claim for detrimental reliance, such a claim may in fact sound in tort depending
on the nature of the duty breached.294 Here, as noted supra, Blue Cross has pointed to evidence in

290

Id.

291
See Rec. Doc. 118-26 at 330 (Blue Cross’s coverage attorney testifying that Blue Cross did not
acknowledge liability for any of the tort claims in the underlying action).
292

See Stokes v. Georgia-Pac. Corp., 894 F.2d 764, 770 (5th Cir. 1990) (citing La. Civ. Code art. 1967)
(interpreting Louisiana law and finding that a detrimental reliance claim sounded in contract and was therefore subject
to the prescription period for contracts).
293

Copeland v. Wassserstein, Perella & Co., 276 F.3d 472, 479 (5th Cir. 2002) (citing Roger v. Dufrene,
613 So.2d 947, 948 (La. 1993)) (interpreting Louisiana law and finding that a detrimental reliance claim based on the
failure of a financial adviser to observe a standard of care sounded in tort).
294

Id. See also Roger, 613 So.2d at 949 (“The nature of certain professions is such that the fact of employment does
not imply a promise of success, but an agreement to employ ordinary skill and care in the exercise of the particular
profession. The duty imposed upon the insurance agent as well as [the lawyer, doctor, and accountant] upon whose
advice the client or patient depends is that of ‘reasonable diligence’ a breach of which duty results in an action in
negligence.”); § 19:8.Detrimental reliance, 18 La. Civ. L. Treatise, Civil Jury Instructions § 19:8 (3d ed.) (“The basis
of detrimental reliance is not the intent to be bound, since detrimental reliance is not really contractual in nature. It is
based on the idea that a person should not harm another person by making promises that he does not keep.”).

50

the record that Omega’s causes of action in the underlying action are related to Blue Cross’s breach
of its duty to adhere to an industry standard of care by, for example, presenting inaccurate
information on its web portal.295 On the other hand, as noted supra, Illinois Union has presented
evidence that the settled damages actually flow from Blue Cross’s breach of a contractual duty.296
Because Illinois Union has not shown that there is no dispute of material fact such that the settled
damages sound in contract rather than tort, it is not entitled to summary judgment on this basis.
Finally, the Court notes that a claim for unjust enrichment under Louisiana law is
characterized as “quasi-contractual.”297 However, the Court notes that Illinois Union does not
point to any authority for its assertion that an action characterized as “quasi-contractual” would be
excluded under the Policy’s carve-out for “fees, amounts, limits, benefits, obligations, or coverages
owed under any contract with any party . . . .” 298 Even if damages stemming from unjust
enrichment were excluded under the Policy’s carve-out, Illinois Union has not shown that there is
no dispute of material fact as to which portion of the settlement would be excluded. Finally, the
Court notes that Illinois Union argues that detrimental reliance and unjust enrichment are “based
on equitable principles.” 299 However, a party may seek monetary damages for a claim of
detrimental reliance or unjust enrichment,300 and Illinois Union has not shown that a claim that is

295

See, e.g., Rec. Doc. 1-2 at 10.

296

See, e.g., Rec. Doc. 172 at 6.

297

See Canal/Claiborne, Ltd. v. Stonehedge Dev., LLC, 2014-0664 (La. 12/9/14), 156 So. 3d 627, 633–34.
(holding that it is “well-settled in our jurisprudence” that unjust enrichment is a quasi-contract claim).
298

Rec. Doc. 118-5 at 10.

299

Rec. Doc. 118-1 at 10.

300

See Magic Moments Pizza, Inc. v. Louisiana Rest. Ass'n, 02-160 (La. App. 5 Cir. 5/29/02), 819 So. 2d
1146, 1149 (discussing what a party must prove to recover damages for detrimental reliance); Baker v. Maclay
Properties Co., 94-1529 (La. 1/17/95), 648 So. 2d 888, 897 (remanding case for determination of whether plaintiff

51

merely based on equitable principles is excluded under the Policy’s carve-out for “non-monetary
relief or equitable relief or redress in any form . . . .”301
Based on the foregoing, the Court concludes that there are genuine disputes of material fact
precluding summary judgment regarding whether the Policy covers the settlement damages for
which Blue Cross seeks coverage such that neither party is entitled to summary judgment.
2.

The Policy’s Consent to Settle Clause

In its motion for summary judgment, Illinois Union argues that even if the settled claims
are covered under the Policy, Blue Cross lacked the required prior written consent to settle the
underlying action.302 Illinois Union contends that the consent to settle clause in the Policy is a
condition precedent to coverage, because the Policy contains clear language that coverage is
precluded if the condition goes unmet.303 Illinois Union asserts that Blue Cross failed to provide
it with necessary information supporting coverage of the damages in the underlying suit and that
Illinois Union expressly denied Blue Cross’s request to waive the consent to settle condition.304
Thus, Illinois Union contends that because it never gave written consent to the settlement of the
underlying action, summary judgment is proper on its request for declaratory relief that it is not
required to cover Blue Cross’s losses in the underlying action.
Blue Cross argues that Illinois Union may not raise lack of consent as a coverage defense,

was entitled to damages for unjust enrichment).
301

Rec. Doc. 118-5 at 10.

302

Rec. Doc. 118-1 at 6.

303

Id.

304

Id. at 7.

52

because Illinois Union unreasonably withheld consent and thus left Blue Cross free to settle the
underlying action. 305 Blue Cross further avers that Illinois Union verbally consented to the
settlement by agreeing to pay a portion of the settlement at the mediation.306 Blue Cross contends
that where an insurer wrongfully denies coverage, the insured reasonably believes it will suffer an
adverse outcome at trial, and there is no evidence that the insured improperly entered into the
settlement, the insured is entitled to settle the claim.307 According to Blue Cross, Illinois Union
repeatedly informed Blue Cross that it believed that the damages sought by Omega in the
underlying action were excluded from coverage.308 Thus, Blue Cross argues, it was relieved from
the need to obtain Illinois Union’s consent before settling.309
Under Louisiana law, consent to settle clauses in insurance policies have been found to be
consistent with public policy.310 As the Fifth Circuit has recognized, Louisiana jurisprudence on
consent to settle clauses suggests “that whether a court will excuse a breach of a consent-to-settle
clause depends on the circumstances of the situation.” 311 “Louisiana courts have declined to
enforce consent to settle . . . clauses only in certain limited situations.”312 One such situation is

305

Rec. Doc. 116-1 at 13.

306

Id.

307

Id. at 14 (citing Singleton v. United Tugs, Inc., 710 So.2d 347, 352 (La. App. 4 Cir. 3/18/98)).

308

Id. at 15.

309

Id.

310

See Rosenthal v. Sec. Ins. Grp. of New Haven, 205 So.2d 816, 818 (La. App. 1968).

311

Danrik Const., Inc. v. Am. Cas. Co. of Reading Penn., 314 F. App’x 720, 723–24 (5th Cir. 2009) (per

312

New England Ins. Co. v. Barnett, 465 F. App’x 302, 307 (5th Cir. 2012) (per curiam).

curiam).

53

where the insurer “wrongfully refuses to defend its insured.”313 Another such situation is where
the insurer “denies coverage where there is coverage, or unjustifiably delays settlement.”314
Here, the Policy itself contains the following language in the “Conditions” section of the
Policy: “No Insured may settle or offer to settle any Claim, incur Defense Expenses, otherwise
assume any contractual obligation or admit liability with respect to any Claim without the Insurer’s
prior written consent, which consent shall not be unreasonably withheld. The Insurer shall not be
liable for any settlement, Defense Expenses, assumed obligation or admission to which it has not
consented.”315
The parties do not dispute that the Policy contains a consent to settle clause requiring Blue
Cross to obtain Illinois Union’s written consent before settling a claim.316 Moreover, the parties
do not dispute that Blue Cross did not obtain Illinois Union’s written consent before settling the
underlying action with Omega.317 However, both parties recognize that the Policy requires that
consent “not be unreasonably withheld.” 318 Here, both parties point to conflicting evidence
regarding whether Illinois Union’s unreasonably withheld its written consent.
In particular, Blue Cross points to evidence in the record that Omega was seeking damages

313

Id. (citing Arceneaux v. Amstar Corp., 66 So.3d 438, 452 (La. 2011); Thomas W. Hooley & Sons v. Zurich
Gen. Acc. & Liab. Ins. Co., 103 So.2d 449,452–53 (1958)).
314
Id. (citing Emile M. Babst Co., Inc. v. Nichols Constr. Corp., 488 So.2d 699, 703 (La. App. 1 Cir. 1986);
Fed. Ins. Co. v. N.H. Ins. Co., No. 03-385, 2010 WL 28568, at *4–5 (M.D. La. Jan. 4, 2010)).
315

Rec. Doc. 1-3.

316

See Rec. Doc. 116-1 at 13 (Blue Cross asserting that under the terms of the Policy, it may settle a claim
with Illinois Union’s written consent).
317

Id. at 12–13 (Blue Cross asserting that it requested but did not receive Illinois Union’s written consent
before settling, because Illinois Union declined to give its written consent).
318

Rec. Doc. 1-3 at 28.

54

in the range of $45 million to $108 million and that Blue Cross communicated this range to Illinois
Union.319 Blue Cross also points to the fact that the mediation at which it reached a settlement
with Omega took place on the eve of a quickly approaching trial date.320 Blue Cross notes that the
settlement ultimately allocated a portion of the damages to Omega’s tort claims in the underlying
action and argues that a portion of the claims in the underlying action were therefore covered under
the Policy. 321 Blue Cross also asserts that Illinois Union effectively denied coverage for the
settlement and points to the deposition testimony of an Illinois Union’s claims handler that Illinois
Union’s position was that there was no coverage for any judgment or settlement in the underlying
action and that this position was communicated to Blue Cross.322
Finally, Blue Cross argues that even though Illinois Union did not provide its written
consent to the settlement, Illinois Union verbally consented to the settlement in the underlying
action by agreeing to pay a portion of the settlement. 323 Blue Cross points to the deposition
testimony of Illinois Union’s representative at the mediation, Pizzonia, in which he stated that he
often gives verbal approval of settlements at the time of mediation and that verbal approval is
sufficient to comply with the Policy’s consent to settle clause. 324 Blue Cross also points to
Pizzonia’s testimony that he offered on behalf of Illinois Union to contribute $500,000 to the
settlement, an amount that Pizzonia testified was consistent with Blue Cross’s defense counsel’s

319

Rec. Doc. 116-1 at 12 (citing Rec. Doc. 1, Rec. Doc. 116-8).

320

Id.

321

Rec. Doc. 158-2 at 2.

322

Rec. Doc. 146 at 8 (citing Rec. Doc. 146-7 at 3, 7).

323

Rec. Doc. 116-1 at 13.

324

Rec. Doc. 116-7 at 4.

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budget for a trial.325
By contrast, Illinois Union asserts that its refusal to give written consent was reasonable
and points to a communication it received from Blue Cross prior to the mediation in which Blue
Cross’s in-house counsel advised Illinois Union that a trial with Omega would be “very winnable”
and that the damages in the case were “big—but imaginary.”326 Illinois Union argues that time
was not of the essence in this case, as trial was more than a week after the mediation.327 Illinois
Union further argues that it did not deny coverage for the settlement but rather, reserved its rights
under the Policy.328 Specifically, Illinois Union points to the deposition testimony of its employee
stating that Illinois Union reserved its rights under the Policy, pending further investigation.329
Illinois Union points to Pizzonia’s testimony that he informed Blue Cross’s counsel that he did not
have the authority to waive the consent to settle clause in the Policy,330 as well as Illinois Union’s
communication to Blue Cross’s counsel after the mediation stating that it would not waive the
consent to settle clause.331
Accordingly, based on the foregoing, both parties have pointed to facts in the record to
raise a disputed issue of material fact as to whether Illinois Union’s refusal to give written consent
to settlement was reasonable under the circumstances. Moreover, as noted supra, Louisiana

325

Id. at 14.

326

Rec. Doc. 147 at 13–14 (citing Rec. Doc. 118-25).

327

Id. at 14.

328

Id. at 15 (citing Rec. Doc. 147-4 at 3).

329

Rec. Doc. 147-4 at 3.

330

Id. at 15.

331

Rec. Doc. 116-10 at 2.

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jurisprudence suggests that a failure to conform to a consent to settle clause may be excused where
the insurer “denies coverage where there is coverage, or unjustifiably delays settlement.”332 Here,
there also exists a factual dispute as to whether Illinois Union effectively denied coverage of the
damages in the underlying suit.
The Court notes that in its sur-reply, Illinois Union argues that it is undisputed that: (1) the
Policy required that “no insured may settle or offer to settle any Claim . . . without the insurer’s
prior written consent, which consent shall not be unreasonably withheld;” and (2) that Blue Cross
made offers to settle in the underlying action without obtaining Illinois Union’s consent, both prior
to and during the mediation, which ultimately resulted in the settlement at issue.333 Thus, Illinois
Union contends that Blue Cross violated the Policy in making offers to settle prior to the mediation
and that coverage is therefore precluded for the settlement that was arrived at during the
mediation.334
However, the Court finds this new argument, brought for the first time in a sur-reply,
insufficient to show that summary judgment in Illinois Union’s favor is warranted. First, Illinois
Union has not shown that the Policy precludes coverage of a settlement if any offer to settle was
made prior to the ultimate settlement regardless of whether or not that offer was accepted. Here,
the Policy states that the insurer “shall not be liable for any settlement . . . to which it has not

332

New England Ins. Co. v. Barnett, 465 F. App’x 302, 307 (5th Cir. 2012) (per curiam) (citing Emile M.
Babst Co., Inc. v. Nichols Constr. Corp., 488 So.2d 699, 703 (La. App. 1 Cir. 1986); Fed. Ins. Co. v. N.H. Ins. Co.,
No. 03-385, 2010 WL 28568, at *4–5 (M.D. La. Jan. 4, 2010)).
333

Rec. Doc. 223-3 at 1.

334

Id.

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consented.”335 The Policy does not state that the insurer will not be liable for any settlement if any
offer to settle had been made previously without Illinois Union’s written consent. As noted supra,
under Louisiana law, the Court may not interpret an insurance contract “in an unreasonable or
strained manner . . . to enlarge or restrict its provisions beyond what is reasonably contemplated
by unambiguous terms or achieve an absurd conclusion.”336 Illinois Union’s reading of the Policy
would require the Court to read additional language into the Policy and would result in an insurer
being free to unreasonably withhold consent to a request for settlement if an insured had ever made
a separate offer to settle.
Second, the Court notes that Illinois Union also claims that Blue Cross did not inform
Illinois Union or seek Illinois Union’s written consent for the settlement offers made by Blue Cross
during the mediation.337 As this argument was raised for the first time on sur-reply, Blue Cross
has not had an opportunity to respond to this argument. However, in Illinois Union’s own motion
for summary judgment, it states that Blue Cross “informed Illinois Union that Omega wanted to
mediate.”338 Illinois Union also represented that Blue Cross again “advised two days later” that
mediation would occur on April 23, 2016.339 Moreover, Illinois Union stated that Blue Cross’s
coverage counsel “demanded Illinois Union attend the mediation with final authority up to Policy
limits, noting that Omega sought damages ‘in the range of $45,000,000 to $108,000,000’ and [Blue

335

Rec. Doc. 1-2 at 27.

336

In re Katrina Canal Breaches Litig., 495 F.3d at 208 (internal citation omitted).

337

Rec. Doc. 223-3 at 2.

338

Rec. Doc. 118-1 at 4.

339

Id.

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Cross] ‘believed the case can be settled for an amount within the remaining limits’ of the
Policy.”340 Additionally, Illinois Union confirms in its motion that it attended the mediation “with
authority.” 341 Although Illinois Union contends that communication between Blue Cross and
Illinois Union throughout the mediation day was lacking, Illinois Union states that Blue Cross
“advised Illinois Union that its offer was in excess of the eroding Policy limits . . . and advised a
settlement could be achieved.”342 Accordingly, the Court finds that Illinois Union has not shown
that there is no dispute of material fact that: (1) it had no knowledge of the ultimate offer to settle
that resulted in the underlying settlement; and (2) that there was no written consent to the offer to
settle despite Illinois Union’s admitted involvement in the mediation and surrounding
communications with Blue Cross. Moreover, as the Court noted supra, the Policy requires that
written consent to both settlements and offers to settle “shall not be unreasonably withheld.”343
Here, in light of the disputed factual issues regarding Illinois Union’s knowledge of the final offer
and whether it gave written consent to make the offer, Illinois Union has also not shown that there
is no disputed issue of material fact as to whether that consent was unreasonably withheld.
Because disputes of material fact exist regarding the reasonableness of Illinois Union’s
denial of written consent and whether Illinois Union denied coverage where there is coverage,
neither party is entitled to summary judgment based on the Policy’s consent to settle clause.

340

Id.

341

Id.

342

Id. at 4–5.

343

Rec. Doc. 118-5 at 27.

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3.

The Policy’s Cooperation Clause

In its motion for summary judgment, Illinois Union argues that coverage of the underlying
settlement is also barred, because Blue Cross failed to comply with the cooperation clause in the
Policy, which it represents requires the insured to provide Illinois Union “with all information,
assistance, and cooperation” that it reasonably requests.344 Illinois Union contends that it made a
diligent effort to obtain the information it needed from Blue Cross but that Blue Cross failed to
cooperate.345 As a result, Illinois Union avers, it suffered prejudice when it lacked the information
necessary to make an informed decision regarding a settlement before Blue Cross settled
unilaterally.346 Thus, Illinois Union argues that coverage is barred.347
In opposition, Blue Cross contends that it cooperated in accordance with the Policy’s
cooperation clause and that even if the Court does find a breach of the cooperation clause, Illinois
Union has failed to show that the breach was material and prejudicial.348 Moreover, Blue Cross
argues that its defense counsel in the underlying action did not create any damages or liability
analyses.349 Thus, Blue Cross argues, it did not fail to cooperate by not providing such analyses to
Illinois Union.350 Even if such analyses did exist, Blue Cross argues, Illinois Union would not be

344

Rec. Doc. 118-1 at 7–8.

345

Id. at 8.

346

Id.

347

Id.

348

Rec. Doc. 146 at 8–9.

349

Id.

350

Id.

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entitled to them because they would constitute privileged information.351 Blue Cross also contends
that Illinois Union failed to conduct an independent investigation of the allegations asserted against
Blue Cross even though the filings in the underlying action were publically available.352
“In an insurance contract, the insured’s duty to provide information ordinarily arises only
under the express policy obligations.”353 Under Louisiana law, cooperation clauses in insurance
contracts “fulfill the reasonable purpose of enabling the insurer to obtain relevant information
concerning the loss while the information is fresh.”354 Louisiana law recognizes that the insured’s
failure to comply with a cooperation clause “may constitute a breach of the contract and a defense
to suit on the policy.”355 At the same time, the dismissal of an insured’s suit on the basis of a
breach of a cooperation clause is “a draconian remedy which [courts] do not ordinarily favor.”356
For an insurer to obtain such a dismissal, it must “show a diligent effort to obtain [the requested]
information.”357 Additionally, the insured must show that the insured’s breach was “both material
and prejudicial to [it].”358

351

Id. at 12.

352

Id. at 13.

353

Nat’l Union Fire Ins. Co. of Pittsburgh v. Cagle, 68 F.3d 905, 912 (5th Cir. 1995).

354
Hamilton v. State Farm Fire & Cas. Ins. Co., 477 F. App’x 162, 165 (5th Cir. 2012) (per curiam) (internal
citation and quotation marks omitted).
355

Id. See also Lee v. United Fire & Cas. Co., 607 So.2d 685, 688 (La. Ct. App. 1992).

356

Lee, 607 So.2d at 685.

357

Nat’l Union, 68 F.3d at 912 (internal citation omitted).

358

Williams v. Lowe, 831 So.2d 334, 336 (La. App. 2002). See also Freyou v. Marquette Cas. Co., 149 So.
2d 697, 699–700 (La. Ct. App. 1963), writ refused, 150 So.2d 771 (La. 1963) (“From our view of the jurisprudence,
we have reached two conclusion: that each case rests on its own facts and circumstances, and that a breach of the
cooperation clause must be both material and prejudicial.” (internal citation omitted); Hamilton, 477 F. App’x at 165
(“The defendant must also show that it has been prejudiced by the failure of the plaintiffs [to cooperate].”) (internal
citations omitted); Johnson v. Geovera Spec. Ins. Co., 657 F. App’x 301, 303 (5th Cir. 2016) (per curiam) (applying
Louisiana law and finding that the cooperation clauses eliminate the insurer’s coverage duties “if, with prejudicial

61

Here, Illinois Union points to correspondence between Blue Cross’s counsel and Illinois
Union’s claims handler indicating that Blue Cross did not provide information regarding the
potential risk of damages in the underlying action until only weeks before the mediation.359 Illinois
Union also points to correspondence between Blue Cross’s counsel and Illinois Union’s claims
handler in which the claims handler indicates that Blue Cross failed to respond to requests for
information regarding the Omega lawsuit on nine occasions.360
In response, Blue Cross points to evidence that it provided regular status updates consistent
with the parties’ custom, including 16 updates it provided to Illinois Union regarding the
underlying action.361 Blue Cross also points to the deposition testimony of Illinois Union’s claims
handler for the underlying action, who acknowledged that she also had teleconferences with Blue
Cross to discuss the status of the Omega claim and that the teleconferences were helpful.362
The Court notes that Illinois Union argues that there were gaps in Blue Cross’s updates and
that Blue Cross could have provided Illinois Union with more helpful information over the course
of the litigation. 363 However, Illinois Union has not demonstrated that there is no dispute of
material fact such that the gaps or quality of the information provided establish that Blue Cross

effect, [the insured] fails to take certain actions after the event triggering the policy coverage occurs”); Kovesdi v.
Allstate Indem. Co., No. 10-697, 2010 WL 3835893, at *6 (E.D. La. Sept. 24, 2010) (Fallon, J.) (“[U]nder Louisiana
law, an insurer must show prejudice in order to avail itself of the defense based on an insured’s failure to cooperate.”);
2 La. Prac. Pers. Inj. § 16:17 (“To relieve a liability insurer of the obligation under the policy, a breach of the
cooperation clause must be material and prejudicial.”) (internal citations omitted).
359

Rec. Doc. 118-2 at 5–6 (citing Rec. Doc. 25 at 4) (correspondence between Illinois Union claims handler
and Blue Cross counsel with attached memorandum on the Omega suit dated March 8, 2016).
360

Rec. Doc. 118-23 at 1–2.

361

Rec. Doc. 146 at 9–10 (citing Rec. Docs. 146-16–146-25).

362

Rec. Doc. 146-7 at 5–6.

363

Rec. Doc. 172 at 3.

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breached the cooperation clause in the Policy. The Court finds that Blue Cross has pointed to
evidence in the record sufficient to raise a dispute of material fact as to whether it complied with
the cooperation clause in the Policy. Accordingly, to the extent Illinois Union asserts that summary
judgment in its favor is proper on the basis of Blue Cross’s failure to comply with the cooperation
clause, the Court finds that genuine disputes of material fact exist precluding summary judgment
on this basis.
4.

Defense Costs in the Underlying Action

In its motion for summary judgment, Illinois Union argues that it is entitled to summary
judgment on Blue Cross’s counterclaim that Illinois Union failed to pay certain defense costs in
the underlying action. 364 According to Illinois Union, there is no evidence that it failed to
reimburse Blue Cross for any of its defense costs.365
Illinois Union has submitted evidence, including correspondence between Blue Cross and
Illinois Union representatives, 366 correspondence between counsel for Blue Cross and Illinois
Union, 367 and Blue Cross’s report of defense costs, that indicates that Illinois Union paid
$1,157,006.79 in defense costs to Blue Cross after accounting for the $500,000 self-insured
retention (“SIR”) and determining that $1,336.50 of Blue Cross’s submitted defense costs were
attributable to tasks other than defense of the underlying action and therefore did not qualify as

364

Rec. Doc. 118-1 at 19.

365

Id. (citing Rec. Doc. 22).

366

Rec. Doc. 118-21 at 1; Rec. Doc. 118-22 at 1–2.

367

Rec. Doc. 118-37; Rec. Doc. 118-38.

63

defense costs in the underlying action.368
In its Counterclaim, Blue Cross asserts that Illinois Union has a duty to reimburse Blue
Cross for costs incurred in connection with the underlying action, including defense expenses.369
However, in Blue Cross’s statement of material facts attached to its opposition to Illinois Union’s
motion for summary judgment, Blue Cross admits that the Policy affords Blue Cross “errors and
omissions liability coverage once [Blue Cross] reaches a $500,000 self-insured retention (‘SIR’)”
and that “Illinois Union agreed to reimburse [Blue Cross’s] defense costs in excess of the SIR.”370
Accordingly, the Court finds that there is no dispute of material fact as to whether Illinois Union
agreed to reimburse Blue Cross’s defense costs in the underlying action in excess of the SIR. Thus,
Illinois Union’s motion is granted to the extent that it requests summary judgment on Blue Cross’s
request for defense costs in the underlying action in excess of the SIR.371
5.

Attorneys’ Fees in the Instant Action

Illinois Union also contends that it is entitled to summary judgment on Blue Cross’s request
for attorneys’ fees associated with the instant action, because attorneys’ fees are only recoverable
when authorized by statute or contract, neither of which applies here.372 In response, Blue Cross
argues that it has a right to recover attorneys’ fees in this action, because Louisiana courts
recognize an insured’s entitlement to attorneys’ fees where the insurer has been guilty of bad faith

368

Rec. Doc. 118-21 at 2.

369

Rec. Doc. 11 at 19.

370

Rec. Doc. 146-1 at 2.

371

Rec. Doc. 11 at 21.

372

Id.

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towards its insured.373
The Court notes as a preliminary matter that under Louisiana law, attorneys’ fees are
recoverable only when authorized by statute or contract.374 Neither party asserts that the Policy in
this case allows for the recovery of attorneys’ fees. However, Blue Cross argues that it is entitled
to attorneys’ fees for Illinois Union’s bad faith conduct.375 The Court notes that Blue Cross brings
a counterclaim against Illinois Union for bad faith under Louisiana Revised Statute § 22:1973.376
Section 22:1973 states that “the claimant may be awarded penalties assessed against the insurer in
an amount not to exceed two times the damages sustained or five thousand dollars, whichever is
greater.”377 However, as the Louisiana Supreme Court has recognized, Section 22:1973 does not
allow for recovery of attorneys’ fees.378 The Louisiana appellate case cited by Blue Cross for the
proposition that attorneys’ fees are recoverable under Section 22:1973 was later reviewed by the
Louisiana Supreme Court and the judgment in the case was amended to “delete the $10,000
attorneys [sic] fees.”379 Accordingly, Illinois Union is entitled to summary judgment in its favor
denying Blue Cross’s request for attorneys’ fees in the instant action.380

373

Rec. Doc. 146 at 20.

374

Sher v. Lafayette Ins. Co., 2007-2441 (La. 4/8/08), 988 So. 2d 186, 201, on reh'g in part (July 7, 2008)
(“Louisiana courts have long held that attorney’s fees are not allowed except where authorized by statute or contract.”).
375

Rec. Doc. 146 at 20.

376

Id. at 23.

377

La. Rev. Stat. § 22:1973(C).

378

Katie Realty, Ltd. v. La. Citizens Prop. Ins. Corp., 2012-0588, (La. 10/16/12), 100 So.3d 324, 330
(holding that a violation of §22:1973 may “subject the insurer to penalties ‘in an amount not to exceed two times the
damages sustained or five thousand dollars, whichever is greater.’ Attorney fees, though, are not recoverable.”).
379

Batson v. S. La. Med. Ctr., 734 So.2d 649 (La. 1999).

380

See Rec. Doc. 11 at 21, 24.

65

IV. Conclusion
Based on the foregoing, the Court finds that there are genuine disputes of material fact
precluding summary judgment for either party on: (1) Count I of Illinois Union’s Complaint, in
which Illinois Union seeks a declaratory judgment that Illinois Union is not required to indemnify
Blue Cross for the underlying settlement due to the fact that Blue Cross did not obtain Illinois
Union’s written consent; (2) Count II of Illinois Union’s Complaint, in which Illinois Union seeks
a declaratory judgment that Illinois Union has no obligation to indemnify Blue Cross due to the
fact that the settlement encompasses damages that are not covered under the Policy; (3) Count I of
Blue Cross’s counterclaim for declaratory judgment that Illinois Union must indemnify Blue Cross
for the settlement in the underlying action; and (4) Count II of Blue Cross’s counterclaim for
breach of contract as a result of Illinois Union’s failure to indemnify Blue Cross for the settlement
in the underlying action.
The Court concludes that there are genuine disputes of material fact precluding summary
judgment regarding whether the Policy covers the settlement damages for which Blue Cross seeks
coverage. Because disputes of material fact exist regarding the reasonableness of Illinois Union’s
denial of written consent, neither party is entitled to summary judgment based on the Policy’s
consent to settle clause. To the extent Illinois Union asserts that summary judgment is proper on
the basis of Blue Cross’s failure to comply with the cooperation clause, the Court finds that genuine
disputes of material fact exist precluding summary judgment on this basis.
The Court finds that there is no dispute of material fact as to whether Illinois Union agreed
to reimburse Blue Cross’s defense costs in the underlying action in excess of the SIR. Thus, the
Court finds that Illinois Union is entitled to summary judgment in its favor to the extent that it

66

requests summary judgment on Blue Cross’s request for defense costs associated with the
underlying action in excess of the SIR. Finally, because attorney’s fees are not recoverable under
Louisiana Revised Statute § 22:1973, the Court finds that Illinois Union is entitled to summary
judgment in its favor denying Blue Cross’s request for attorneys’ fees in the instant action.
Accordingly,
IT IS HEREBY ORDERED that Blue Cross’s “Motion for Summary Judgment on
Coverage Obligations”381 is DENIED.
IT IS FURTHER ORDERED that Illinois Union’s “Motion for Summary Judgment on
Coverage” 382 is GRANTED IN PART and DENIED IN PART. Illinois Union’s motion is
DENIED IN PART to the extent that it seeks summary judgment in its favor on: (1) Count I of
Illinois Union’s Complaint, in which Illinois Union seeks a declaratory judgment that Illinois
Union is not required to indemnify Blue Cross for the underlying settlement due to the fact that
Blue Cross did not obtain Illinois Union’s written consent; (2) Count II of Illinois Union’s
Complaint, in which Illinois Union seeks a declaratory judgment that Illinois Union has no
obligation to indemnify Blue Cross due to the fact that the settlement encompasses damages that
are not covered under the Policy; (3) Count I of Blue Cross’s counterclaim for declaratory
judgment that Illinois Union must indemnify Blue Cross for the settlement in the underlying
action; and (4) Count II of Blue Cross’s counterclaim for breach of contract as a result of Illinois
Union’s failure to indemnify Blue Cross for the settlement in the underlying action. The motion is
GRANTED IN PART to the extent that it requests summary judgment in Illinois Union’s favor

381

Rec. Doc. 116.

382

Rec. Doc. 118.

67

on the issue of whether it reimbursed Blue Cross’s defense costs associated with the underlying
action in excess of the SIR. The motion is further GRANTED IN PART to the extent that it
requests summary judgment in Illinois Union’s favor denying Blue Cross’s request for attorneys’
fees in the instant action.
NEW ORLEANS, LOUISIANA, this ______ day of June, 2017.
12th

_________________________________________
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT JUDGE

68