UnitedHealth Group Incorporated v. Lexington Insurance Company et al
Filing
1015
MEMORANDUM OPINION AND ORDER. IT IS HEREBY ORDERED THAT: 1. United's motion for summary judgment on the insuring agreements in the Lexington policy [Docket No. 879 ] is GRANTED IN PART as more fully described in the text of this opinion. 2. D efendants' cross-motion for summary judgment on the insuring agreements in the Lexington policy [Docket No. 906 ] is DENIED. 3. Columbia and FFIC's motion for summary judgment on interrelatedness [Docket No. 865 ] is GRANTED IN PART AND DENIED IN PART. a. The motion is GRANTED with respect to Columbia and FFIC's argument that the McRaney/Murphy and Florida Physicians claims are interrelated with the Shane claim within the meaning of § 5.2 of the Lexington policy. b. The motion is DENIED in all other respects. 4. FFIC's motion for summary judgment as to United's second and third affirmative defenses of waiver and estoppel [Docket No. 872 ] is DENIED. 5. United's motion for partial summary judgment against FFIC [Docket No. 883 ] isDENIED. (Written Opinion). Signed by Judge Patrick J. Schiltz on 12/27/11. (sf)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
UNITEDHEALTH GROUP
INCORPORATED, a Minnesota corporation,
Case No. 05-CV-1289 (PJS/SER)
Plaintiff,
MEMORANDUM OPINION AND ORDER
v.
COLUMBIA CASUALTY COMPANY, an
Illinois corporation; FIREMAN’S FUND
INSURANCE COMPANY; AMERICAN
ALTERNATIVE INSURANCE
CORPORATION; EXECUTIVE RISK
SPECIALTY INSURANCE COMPANY;
FIRST SPECIALTY INSURANCE
CORPORATION; STARR EXCESS
LIABILITY INSURANCE
INTERNATIONAL LIMITED; LIBERTY
MUTUAL INSURANCE COMPANY;
STEADFAST INSURANCE COMPANY; and
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA;
Defendants.
David B. Goodwin, Michael S. Greenberg, COVINGTON & BURLING, LLP; Jeffrey J.
Bouslog, Christine N. Lindblad, OPPENHEIMER WOLFF & DONNELLY LLP, for
plaintiff.
Charles E. Spevacek, Tiffany M. Brown, Katrina M. Giedt, MEAGHER & GEER, PLLP;
Michael M. Marick, J. Robert Hall, Rebecca R. Haller, MECKLER BULGER TILSON
MARICK & PEARSON LLP, for defendant Columbia Casualty Company.
William L. Davidson, LIND JENSEN SULLIVAN & PETERSON, PA; Louise M.
McCabe, Louis M. Segreti, TROUTMAN SANDERS LLP, for defendant Fireman’s
Fund Insurance Company.
John M. Anderson, Jeffrey R. Mulder, BASSFORD REMELE, PA; Adam H. Fleischer,
John A. Husmann, BATES CAREY NICOLAIDES LLP, for defendant American
Alternative Insurance Corporation.
Ronald P. Schiller, Daniel J. Layden, Robert L. Ebby, Jacqueline R. Dungee, HANGLEY
ARONCHICK SEGAL & PUDLIN, for defendants Executive Risk Specialty Insurance
Company and First Specialty Insurance Corporation.
David P. Pearson, Thomas H. Boyd, Erin A. Oglesbay, WINTHROP & WEINSTINE,
PA, for defendants Starr Excess Liability Insurance International Limited and National
Union Fire Insurance Company of Pittsburgh, PA.
Harvey Weiner, Michael J. Griffin, Jill M. Brannelly, PEABODY & ARNOLD LLP, for
defendants Liberty Mutual Insurance Company and Steadfast Insurance Company.
Plaintiff UnitedHealth Group Inc. (“United”) brings this action against ten insurance
companies — United’s primary insurer and nine of United’s excess insurers — asking this Court
to determine, with respect to each of several dozen claims that were brought against United
during the period December 1, 1998, through December 1, 2000, which of the ten insurers must
indemnify United or pay United’s defense costs. In essence, then, this lawsuit represents several
dozen coverage actions wrapped up into one. United’s primary insurer — Lexington Insurance
Company (“Lexington”) — threw in the towel early, tendering what was left of its $60 million
policy limits (which United refused to accept, until being ordered to do so, see Docket No. 123).
But the nine excess insurers have soldiered on, and this lawsuit is now well into its sixth year.
This is a difficult case. The main problem with this case is that it centers on an insurance
policy that is terribly written. As noted, Lexington was the primary insurer during the relevant
time period, and all nine of the excess insurers, to one degree or another, followed form to the
Lexington policy. Unfortunately, though, the 30-page Lexington policy was not a standard
policy that would be familiar to litigators and judges. Instead, the Lexington policy was
negotiated — provision-by-provision — by United and its many insurers. In negotiating the
policy, the parties borrowed from other policies, but they did so with little thought as to how the
provisions that they were borrowing would work together when combined within a single policy.
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And, when the parties took pen in hand to write their own provisions, they drafted those
provisions poorly, often leaving the Court and the attorneys who are now representing the parties
to wonder what the negotiators could possibly have had in mind. In short, then, the policy is a
mess, chock full of provisions that are unclear, provisions that are clear but absurd, and
provisions that are clear but contradicted by other provisions that are just as clear.
Because the Lexington policy is so badly drafted, it has spawned seemingly endless
disputes among the parties. Indeed, the parties seem to find new ambiguities in the policy on
almost a daily basis. Sometimes, in fact, the parties discover new ambiguities after submitting
briefs on a motion and before appearing in court to argue that motion. And sometimes the
parties even discover new ambiguities while standing before the Court during oral argument.
This matter is now before the Court on the fourth round of summary-judgment motions.
This latest round of summary-judgment motions can be divided into three groups:
(1)
Motions concerning whether the AMA and NYAG claims are within the primary
policy’s main insuring clause and antitrust endorsement;
(2)
Motions concerning whether certain underlying claims are interrelated with the
Shane claim; and
(3)
Motions concerning United’s affirmative defenses to the counterclaim of
defendant Fireman’s Fund Insurance Company (“FFIC”).
The Court addresses each set of motions in turn. Familiarity with the facts and the
Court’s previous orders in this and in a related case (UnitedHealth Group Inc. v. Hiscox
Dedicated Corporate Member Ltd., No. 09-CV-0210 (PJS/SRN), filed Jan. 29, 2009) is
presumed. The Court will briefly summarize the facts only when necessary.
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A. Standard of Review
Summary judgment is appropriate “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). A dispute over a fact is “material” only if its resolution might affect the outcome
of the lawsuit under the substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A dispute over a fact is “genuine” only if “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Id. “The evidence of the non-movant is to be
believed, and all justifiable inferences are to be drawn in [its] favor.” Id. at 255.
B. Coverage for the AMA and NYAG Claims
The first set of motions pertains to whether the AMA and NYAG claims fall within the
main insuring clause of the primary policy (i.e., the Lexington policy) or within the coverage
provided by the antitrust endorsement to the primary policy. The Court addresses each of these
provisions in turn, and then addresses the additional contention of the insurers that United cannot
recover for the AMA claim even if some portion of that claim falls within the coverage afforded
by one or both of these provisions.
1. The Main Insuring Clause
The main insuring clause of the primary policy provides as follows:
We will pay amounts any Protected Person is required to pay as
damages and claim expenses, including Damages assumed under
contract and related claim expenses assumed under contract, for
claims that directly or indirectly result from or are related to the
Operations, including but not limited to any Wrongful Act
committed or allegedly committed by you or another party for
whom you are alleged to be liable, in the rendering or failure to
render Services [sic].
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JEx64. Boldfaced terms are defined elsewhere in the policy.1 In particular, the term “damages”
is defined as follows:
Damages mean compensation to others. Damages include
compensatory, exemplary, enhanced, equitable and punitive
damages, settlements, and Claim Expenses awarded against or
agreed to as part of a covered claim settlement by a Protected
Person. If you are legally required, by statute, regulation or
contract, to pay a claimant’s legal costs and any interest that
applies to such costs, these costs will also be considered Damages.
JEx65.
The insurers argue that the payments United made to settle the AMA and NYAG claims
are not “damages,” but rather contractual benefit payments (in the case of AMA) or a “capital
investment” (in the case of NYAG). The Court disagrees with the insurers that the term
“damages” excludes these payments.2 As the Court explained in connection with the last round
of summary-judgment motions,
the definitions of “Damages,” “Operations,” and “Services” are
extremely broad . . . . In particular, the definition of “Damages”
includes more than just compensatory damages; it expressly
includes, among other things, equitable and punitive damages.
1
For the sake of readability, the Court will not use boldface or initial capital letters every
time it quotes a term that appears in boldface or with initial capital letters in the policy. Rather,
the Court will use boldface and initial capital letters only the first time that it quotes such a term.
2
The Court also disagrees with the insurers’ attempt to recharacterize the $50 million paid
to settle the NYAG claim as a “capital investment.” That payment was clearly a “settlement[]”
(and also likely “equitable . . . damages”) and thus plainly within the express definition of
“damages.” JEx65. It may well be, as the insurers argue, that the $50 million was not paid as
“compensation to others,” at least if “compensate” is used in its traditional legal sense to mean
“make whole someone who has been injured.” But the policy’s definition of “damages” is not
limited to “compensation to others” in that traditional sense. Rather, the policy explicitly defines
“damages” to include not only “compensatory . . . damages,” but also “exemplary . . . damages,”
“enhanced . . . damages,” “equitable . . . damages,” and even “punitive damages” — payments
that are not (or not usually) paid to make injured parties whole.
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Policy § 4.5. Similarly, the definitions of “Operations” and
“Services” are drafted to cover essentially everything that United
does, including “the design, marketing and administration of
benefit plans,” “claim handling, reviewing and adjusting,”
“insurance operations,” and “development, maintenance and
credentialing of provider networks.” Policy § 4.13; see also Policy
§ 4.18. Finally, as the Special Master found, the business-risk
doctrine does not override unambiguous policy language. An
insurer can elect to cover breach-of-contract claims. See Wanzek
Constr., Inc. v. Employers Ins. of Wausau, 679 N.W.2d 322,
326-27 (Minn. 2004).
Docket No. 460 at 7-8.
Relying mainly on cases applying the business-risk doctrine, the insurers strenuously
argue that it would make no sense for them to agree to cover breach-of-contract claims against
United, such as claims that United failed to pay benefits that it promised to pay under a healthinsurance policy that it issued. Such an agreement, the insurers point out, would give United
carte blanche to shift its contractual obligations onto its insurers. The Court has three responses:
First, it would make no sense for any insurer to agree to the entire Lexington policy —
which, as the Court has explained, was so badly drafted that a party to the contract could not
know what was and was not insured under the policy. And yet these insurers agreed to follow
form (more or less) to the Lexington policy. Given that the insurers committed the senseless act
of agreeing to the entire Lexington policy, it is hard to take seriously their argument that it
would have been senseless for them to agree to a particular provision within that policy. The
“senselessness” bridge was crossed long ago. Clearly, these insurers did not read the Lexington
policy carefully — or, if they read it carefully, they simply did not care that the plain language of
many provisions of the policy made them responsible for risks that insurers ordinarily do not
assume.
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Second, the Court observes — as it did in the order quoted above — that the businessrisk doctrine does not override unambiguous policy language. Insurers can and sometimes do
elect to cover breach-of-contract claims; if they do, they will be held to their promise. See
Wanzek Constr., Inc., 679 N.W.2d at 326-27; see also In re SRC Holding Corp., 545 F.3d 661,
668 (8th Cir. 2008) (“In the absence of contractual ambiguity, whether policy coverage ‘makes
sense’ as a business matter is largely irrelevant; freely contracting actors in the marketplace,
particularly sophisticated business entities who rely on experts to advise them, are best suited to
determine what makes the most economic sense, and the language they have mutually negotiated
and agreed to is the best evidence of what those parties intended.”). The policy’s definition of
“damages” may be extraordinarily broad, but it is not unclear, and it includes damages paid to
someone who has sued United for breach of contract.
And that leads to the third point: The overall approach of those who drafted the
Lexington policy is apparent. The drafters structured the policy so that, as an initial matter, it
covered just about everything. This is reflected not only in the extraordinarily broad definition
of “damages,” but also in the extraordinarily broad definitions of “operations” and “services,”
which “are drafted to cover essentially everything that United does.” Docket No. 460 at 8. Then
the drafters used a long series of exclusions to cut back on the initial scope of coverage, much as
a sculptor might start with a large block of marble and then carve a small statue out of it. The
insurers protest, for example, that the parties could not possibly have agreed to include United’s
liability for benefit payments within the scope of coverage. But the fact that the policy contains
a specific exclusion for benefit payments (see JEx73) is compelling evidence that the parties did
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just that. After all, if benefit payments were not covered as an initial matter, why would the
parties include a provision that specifically excluded them?
The insurers complain that the long series of exclusions fails to address every possible
type of contractual obligation for which United might be held responsible, and thus the policy
could leave the insurers liable for, say, United’s failure to pay the landscaper who mows the
grass at corporate headquarters, or United’s failure to pay the caterer who serves food at
company parties. The insurers are certainly correct that the exclusions are poorly drafted and, as
a result, fail to exclude coverage that many insurers might want to exclude. But the parties chose
to draft the policy this way, and they must live with the consequences of their decision.
Moreover, as United points out, the policy has a very large self-insured retention of $3 million
per claim, see JEx55, which by itself would preclude coverage for most routine contractual
obligations (such as the obligations to pay the landscaper or caterer).
The Court therefore holds that the amounts United paid to settle the AMA and NYAG
claims are “damages” for purposes of the main insuring clause of the policy.
2. The Antitrust Endorsement
The antitrust endorsement to the policy states, in relevant part:
In consideration of the premium charged and notwithstanding any
other provisions of this policy, including any exclusionary
provision, we will pay amounts any Protected Person is legally
required to pay as Damages and Claim Expenses for claims that
directly or indirectly result from or are related to, a Wrongful Act
consisting or allegedly consisting in whole or in part of anti-trust,
price fixing or restraint of trade activities occurring on or after the
Retroactive Date stated in the Declaration and before the
cancellation date or expiration date of this policy. Damages
arising out of the same or inter related acts, errors or omissions
shall be deemed to arise from the first such same or interrelated
acts, errors or omissions.
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JEx78.
The Court notes that, as much as any provision, this endorsement illustrates just how
little care the parties took in drafting the policy. Consider that the endorsement begins with the
words: “. . . notwithstanding any other provisions of this policy, including any exclusionary
provision, we will pay amounts . . . .” This clause, on its face, wipes out every provision of the
policy — including, but not limited to, every exclusion — that might eliminate or reduce an
insurer’s obligation to indemnify United for amounts that it pays in connection with “claims that
directly or indirectly result from or are related to, a wrongful act consisting or allegedly
consisting in whole or in part of anti-trust, price fixing or restraint of trade activities . . . .” In
other words, according to the literal terms of the antitrust endorsement, as long as a claim results
(“directly or indirectly”) from a wrongful act that is even alleged to consist in part of activities
that restrain trade, then the insurer must cover the claim, no matter what. The “notwithstanding”
clause, on its face, wipes out provisions regarding the limits of liability, the coverage period, and
the reporting requirements (to cite just a few examples), as well as every single one of the
policy’s exclusions — including exclusions for such things as criminal and dishonest acts.
It is a mystery why ten insurance companies would agree to a broad endorsement that
begins with the words “. . . notwithstanding any other provisions of this policy, including any
exclusionary provision, we will pay amounts . . . .” Both United and the insurers agree on one
thing: The “notwithstanding” clause in the antitrust endorsement cannot mean what it says. But
neither United nor the insurers have offered a plausible explanation of what the clause does
mean. United argues that the clause overrides only the policy’s exclusions, and nothing else in
the policy, even though the plain language of the clause says that it trumps “any other provisions
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of this policy, including any exclusionary provision.” For their part, the insurers argue that the
“notwithstanding” clause wipes out nothing save exclusions that specifically address liability for
restraint of trade, even though the plain language of the clause says that it trumps “any other
provisions of this policy, including any exclusionary provision.” Moreover, the insurers’
position is difficult to reconcile with the fact that the policy does not contain any exclusions that
preclude coverage for restraint of trade. Thus, if the insurers are correct, the “notwithstanding”
clause has no purpose whatsoever.
Returning to the matter at hand: There is no dispute that the AMA case included antitrust
claims, JEx257-JEx261, and thus the AMA claim is, at a minimum, a “claim[] that directly or
indirectly result[s] from or [is] related to, a wrongful act . . . allegedly consisting in whole or in
part of anti-trust, price fixing or restraint of trade activities . . . .” Although the New York
Attorney General did not explicitly threaten United with antitrust claims, the insurers do not
dispute that the NYAG claim is based on the same underlying conduct (the use of the Ingenix
databases) that was at issue in the AMA case and therefore, like the AMA case, “directly or
indirectly result[s] from or [is] related to, a wrongful act . . . allegedly consisting in whole or in
part of anti-trust, price fixing or restraint of trade activities . . . .”
Rather than disputing that the AMA and NYAG claims involved “anti-trust, price fixing or
restraint of trade activities,” the insurers rely on their already-rejected argument that the
payments that United made to settle the AMA and NYAG claims are not “damages.” The insurers
also raise a couple of additional arguments:
First, as noted above, the insurers argue that the “notwithstanding” clause in the antitrust
endorsement does not override all of the policy’s exclusions, but only those (non-existent)
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exclusions that specifically relate to restraint of trade. The insurers further argue that the AMA
and NYAG claims fall within some of the non-wiped-out exclusions. At this point, the Court
cannot discern the full scope of the “notwithstanding” clause. The Court agrees that, if the
clause is applied literally, it will lead to an absurd result, but as yet no party has been able to
suggest a plausible non-literal interpretation. That said, the Court does not need to demarcate all
of the boundaries of the clause to know that the insurers’ argument is untenable. Whatever else
it might mean, the “notwithstanding” clause clearly and unequivocally overrides all of the
policy’s exclusions. Because this meaning is clear — indeed, it could not be clearer — the Court
must enforce the clause as written, and not look to extrinsic evidence of the clause’s meaning.
Pederson v. United Servs. Auto. Ass’n, 383 N.W.2d 427, 430 (Minn. Ct. App. 1986) (extrinsic
evidence was not admissible to construe unambiguous policy).
Second, the insurers argue that coverage for the AMA and NYAG claims is barred by the
retroactive-date provision in the antitrust endorsement. As set forth in the insurers’ briefs, the
argument is as follows: The applicable retroactive date is January 1, 1977 — the date that
United came into existence. See JEx77, JEx83-JEx85. The antitrust endorsement provides
coverage only for antitrust activities that occur “on or after” that date. One of the Ingenix
databases was created in 1973, and, in their lawsuit against United, the AMA plaintiffs alleged
that this database was flawed from the beginning. Thus, coverage of claims related to the
Ingenix databases — the type of claims made in both AMA and NYAG — is barred. This
argument borders on the frivolous. The “wrongful act” that was at issue in AMA and NYAG was
not the creation of the Ingenix databases in 1973, but rather United’s use of the Ingenix
databases after 1977 — i.e., after the retroactive date.
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At the hearing, however, the insurers presented a different argument. The insurers
pointed out that, according to the antitrust endorsement, “[d]amages arising out of the same or
inter related acts, errors or omissions shall be deemed to arise from the first such same or
interrelated acts, errors or omissions.” JEx78. According to the insurers, an antitrust conspiracy
involving the use of the Ingenix databases began in 1973. United then joined that conspiracy
after United was created in 1977. United’s use of the Ingenix databases after 1977 is obviously
interrelated with the use of the Ingenix databases by United’s co-conspirators before 1977.
Thus, all damages arising from United’s use of the Ingenix databases are “deemed to arise from
the first such same or interrelated act” — i.e., from the first use of the Ingenix databases in 1973.
Because all damages arising from United’s use of the Ingenix databases are deemed to have
arisen in 1973, and because the antitrust endorsement only provides coverage for acts occurring
on or after January 1, 1977, the antitrust endorsement provides no coverage for the AMA and
NYAG claims. That, at least, is the argument of the insurers.
The insurers’ argument is certainly plausible. True, one would normally expect an
interrelated-acts provision to be limited to the acts of the insured. In other words, a typical
interrelated-acts provision would not work to combine acts committed by the insured with acts
committed by someone else before the insured even came into being. And thus, like so many
provisions of this policy, the interrelated-acts clause of the antitrust endorsement is strange.
Here, however, there may be method to the drafters’ madness. One who joins a conspiracy can
be held liable for all of the harm caused by the conspiracy, including harm caused by the
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conspiracy in the past.3 In theory, then, if United joined an antitrust conspiracy that had been in
existence for 50 years, United could be held liable for all of the harm caused by that conspiracy
during the preceding half century. The retroactive-date provision of the antitrust endorsement
may reflect the insurers’ attempt to avoid buying a pig in a poke. The insurers may have been
willing to assume the risk of covering antitrust damages caused by United after it came into
existence in 1977, but not to assume the risk of covering the unknown and largely unknowable
antitrust damages that had been caused by others prior to 1977.
While the argument presented by the insurers at the hearing may therefore have some
merit, the argument was sprung on both the Court and United with little warning. The Court
cannot rule on the insurers’ argument without the benefit of full briefing. Even at this point,
however, the Court is confident that the insurers’ argument depends on disputed questions of fact
concerning whether United joined an antitrust conspiracy that began before the retroactive date.
The insurers are therefore not entitled to summary judgment on this basis.
3. Remaining Arguments
With respect to both the main insuring clause and the antitrust endorsement, the insurers
argue that, even if some portion of the AMA claim is covered, United will not be able to prove at
trial (1) what portion, if any, of the global AMA/Malchow settlement was allocated to the AMA
claim; (2) how the AMA/Malchow settlement was allocated between damages paid by United and
3
See, e.g., Havoco of Am., Ltd. v. Shell Oil Co., 626 F.2d 549, 554 (7th Cir. 1980) (“It is
well recognized that a co-conspirator who joins a conspiracy with knowledge of what has gone
on before and with an intent to pursue the same objectives may, in the antitrust context, be
charged with the preceding acts of its co-conspirators.”); Indus. Bldg. Materials, Inc. v.
Interchemical Corp., 437 F.2d 1336, 1343 (9th Cir. 1970) (“One who enters a conspiracy late,
with knowledge of what has gone before, and with the intent to pursue the same objective, may
be charged with preceding acts in furtherance of the conspiracy.”).
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damages paid by various United subsidiaries (and, relatedly, which of those subsidiaries are
“protected persons” within the meaning of the main insuring clause and the antitrust
endorsement); or (3) that the defense costs United incurred were incurred in defense of an
insured claim and were reasonable and necessary, as required by the policy. All of these
arguments may have merit, but they are either beyond the scope of what the parties were
supposed to address in this round of summary-judgment motions or they raise disputes of fact
that will have to be resolved by a jury.
The Court therefore denies the insurers’ motion for summary judgment, grants United’s
motion in part, and concludes as follows:
First, the Court holds that the AMA and NYAG claims are within the main insuring clause
of the primary policy.
Second, the Court holds that the AMA and the NYAG claims are also within the insuring
language of the antitrust endorsement to the primary policy.
And third, the Court is unable to determine whether coverage for the AMA and NYAG
claims exists under the antitrust endorsement as a whole, because the Court is unable to
determine whether coverage is barred by the retroactive-date provision. That issue will have to
be tried to a jury.
C. Interrelation with the Shane Claim
The second set of motions concerns whether certain underlying claims are interrelated
with the Shane claim within the meaning of § 5.2 of the primary policy. Columbia Casualty
Company (“Columbia”) has already exhausted the per-claim limit of its policy on the Shane
claim. Columbia accordingly seeks a ruling that various other claims are interrelated with Shane
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and that Columbia’s layer of coverage is therefore exhausted with respect to those claims as
well. FFIC, which provides the next layer of coverage after Columbia, joins Columbia’s motion
to the extent that it seeks a ruling on interrelatedness.
Before addressing whether any particular claim is interrelated with Shane, the Court must
first address whether United should be allowed to raise a logically antecedent argument. United
now seeks to argue, for the first time, that whether a particular claim is interrelated with Shane
for purposes of § 5.2 of the primary policy is irrelevant because (1) Columbia’s and FFIC’s
policies do not incorporate § 5.2 of the primary policy and (2) Columbia’s and FFIC’s policies
apply on a per-incident and per-occurrence basis (respectively), while the primary policy applies
on a per-claim basis.
To the extent that United seeks to raise these arguments against Columbia, the Court
holds that United is precluded from doing so by its failure to raise them earlier. Nearly three and
a half years before oral argument on the parties’ current motions, United filed a motion for
partial summary judgment against Columbia seeking, among other things, a ruling that the
McRaney/Murphy claim — one of the claims now at issue in Columbia’s current motion — was
not interrelated with Shane within the meaning of § 5.2 of the primary policy. The parties, a
Special Master, and the Court spent a considerable amount of time and effort resolving United’s
motion — a motion whose very premise was that Columbia’s policy did incorporate § 5.2 of the
primary policy. (If it did not, then obviously there would have been no reason for United to ask
the Court to interpret § 5.2.) At no time during the exhaustive process of briefing and arguing
that motion before the Special Master and then before this Court did United so much as hint that
§ 5.2 of the primary policy was irrelevant because it was not incorporated in the Columbia
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policy. At oral argument on the current motions, United admitted that it in no way raised this
argument — in correspondence, in conversation, in discovery, in briefs, or in oral argument —
until it filed its brief opposing Columbia’s current motion. That brief was filed in July 2011, six
years after United sued Columbia, and well after the close of discovery. See Hr’g Tr. 198, Sept.
8, 2011; Docket No. 915 (United’s proof memorandum dated July 29, 2011); Docket Nos. 666,
709, 716, 798 (scheduling orders).
Much the same can be said about United’s argument that the per-incident limitation in the
Columbia policy means something different than the per-claim limit in the primary policy.
Indeed, in its January 19, 2010 order regarding United’s previous motion, the Court highlighted
this difference in language and noted that neither side contended that the difference had any
practical effect. Docket No. 460 at 16 n.8. United said not one word in response. In fact,
months after the Court made this assertion, United filed a supplemental complaint that continued
to treat the policies as substantively identical in this respect. Docket No. 556 ¶¶ 25, 87.
There is no excuse for United’s failure to raise these arguments against Columbia earlier.
United’s arguments do not rest on newly discovered facts or evidence, but rather on policy
language that United’s lawyers have been dissecting for over a decade. The Court therefore
finds that, by failing to raise these arguments against Columbia earlier, United has waived them.
See Valspar Refinish, Inc. v. Gaylord’s, Inc., 764 N.W.2d 359, 367 (Minn. 2009) (waiver is the
intentional relinquishment of a known right, the requisite knowledge may be actual or
constructive, and the intent to waive may be inferred from conduct).
In addition to finding that United has waived these arguments against Columbia, the
Court also finds that United should be precluding from raising them under the Court’s inherent
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authority to control its docket. As Columbia notes, United’s arguments are in essence an attempt
by United to get the Court to reconsider its denial of United’s earlier motion without making the
showing of “compelling circumstances” required by D. Minn. L.R. 7.1(h). In an ordinary case, it
is possible that the Court might nevertheless entertain United’s arguments, given that the Court’s
earlier orders are interlocutory and therefore subject to reconsideration. See First Union Nat’l
Bank v. Pictet Overseas Trust Corp., 477 F.3d 616, 620 (8th Cir. 2007) (interlocutory orders can
always be reconsidered and modified by a district court prior to entry of final judgment). But
this is far from an ordinary case.
As the Court has already explained, this case is in reality not one case, but dozens of
coverage actions consolidated into one proceeding. Indeed, this case resembles the type of case
normally overseen by the United States Judicial Panel on Multidistrict Litigation. This case is
already over six years old (it was filed nearly a year before the undersigned became a federal
judge), it has already consumed hundreds of hours of the time of magistrate and district judges, it
has undoubtedly already cost the parties millions of dollars in attorney’s fees — and the parties
insist that they have barely scratched the surface of the arguments that they wish to make. This
is an extraordinarily difficult case to manage.
Given the formidable challenges presented by this case, the Court cannot allow the
parties to ambush the Court and each other by making up new arguments years into the litigation
and following the close of discovery. None of the parties to this lawsuit has been shy about
changing its position — that is, about first arguing that the policy clearly means one thing, and
then, years later, arguing that the policy means exactly the opposite. That type of gamesmanship
must stop if the Court is to have any chance of resolving this litigation. Under its inherent
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authority to control its docket, therefore, the Court precludes United from arguing at this late
date that the Columbia policy does not incorporate § 5.2 of the primary policy or that the
Columbia policy’s per-incident limitation differs in some respect from the primary policy’s perclaim limitation. Cf. Link v. Wabash R.R., 370 U.S. 626, 630-31 (1962) (courts have inherent
authority “to manage their own affairs so as to achieve the orderly and expeditious disposition of
cases”).4
It is not entirely clear, however, whether United should be precluded from arguing that
the FFIC policy does not incorporate § 5.2 of the primary policy or that the FFIC policy’s peroccurrence limitation differs in some respect from the primary policy’s per-claim limitation. On
the one hand, FFIC was not a party to United’s earlier motion on interrelatedness and thus there
does not appear to have been an earlier opportunity for United to raise these arguments against
FFIC. On the other hand, although FFIC joined Columbia’s current motion, the motion was
briefed by Columbia and thus FFIC did not really have an opportunity to explain how it may be
prejudiced by United’s newfound arguments. Nor has FFIC had a proper chance to respond on
the merits with arguments specific to the FFIC policy. The Court will therefore decline to rule at
this time on whether United may raise these arguments against FFIC and, if so, on whether those
arguments are meritorious.
4
It should go without saying that the Court is unmoved by United’s lament at the hearing
that it did not have a chance to respond to Columbia’s assertion that United should be precluded
from switching its position at this late date. United could not possibly have failed to anticipate
that both the Court and Columbia would take a dim view of United’s attempt to argue for the
first time after the close of discovery that policy provisions over which United and Columbia
have been litigating for years are irrelevant.
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Turning now to the application of § 5.2 to this case: Columbia and FFIC ask the Court to
rule, as a matter of law, that the AMA, NYAG, McRaney/Murphy, and Florida Physicians claims
are interrelated with Shane. Whether the AMA and NYAG claims are interrelated with Shane
involves issues of fact that must be resolved by a jury. The record conclusively demonstrates,
however, that the McRaney/Murphy and Florida Physicians claims are interrelated with Shane.
Section 5.2 of the primary policy states, in relevant part:
Any damages or claim expenses incurred because of: . . .
—
a Wrongful Act; or
—
a series of Wrongful Acts that have as a common nexus, any true
facts, circumstance, situation, event, transaction, cause or series of
causally connected facts, circumstances, situations, events,
transactions or causes shall constitute a single claim. The claim
will be subject to the Limit of Liability effect [sic] at the time of
the first reported Wrongful Act.
JEx68-69. In its earlier order, the Court concluded that, but for the odd use of the word “true” in
§ 5.2, it would not hesitate to find that the overlapping allegations in McRaney/Murphy and
Shane rendered the claims interrelated. The only question with respect to the interrelatedness of
McRaney/Murphy with Shane, therefore, is whether any of the common facts linking those two
claims are “true.”
As the Court noted in its earlier order, § 5.2 is exceptionally broad — so broad that, once
again, the drafters could not have meant what they said. If § 5.2 is read literally, then just about
every claim ever brought against United would be considered interrelated with just about every
other claim ever brought against United because, as the Court explained in its earlier order, “all
claims for which United seeks indemnity from an insurer involve at least one common ‘true’ fact
or circumstance — such as the ‘true fact’ that United was named as a defendant in the
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underlying action or the ‘true fact’ that, in the underlying action, United was alleged to be a
Minnesota corporation or to have entered into a contract to make payments to healthcare
providers.” Docket No. 460 at 24-25. The Court nevertheless held in its earlier order that § 5.2
is not ambiguous as applied to the question of the interrelation between Shane and
McRaney/Murphy because those claims “share numerous important allegations that, if true,
would render the actions interrelated under any possible construction [of § 5.2].” Docket
No. 460 at 25. On the basis of this statement, the parties have agreed that the “true facts”
necessary to render claims interrelated must be “important.” Hr’g Tr. 244, Sept. 8, 2011; Hr’g
Tr. 266, 269, Sept. 9, 2011.
Among the common (and unquestionably important) circumstances linking Shane and
McRaney/Murphy are the plaintiffs’ allegations in each case that United “downcoded” claims —
that is, that United reduced provider payments by substituting lower, less-expensive billing
codes for the higher codes that were submitted by the provider. Likewise, one of the central
allegations in the Florida Physicians case was that United used a software program to
automatically downcode office-visit claims. JEx2301-JEx2303; see also Fla. Physicians Union,
Inc v. United Healthcare of Fla., Inc., 837 So. 2d 1133, 1134 (Fla. Dist. Ct. App. 2003)
(describing allegations). The allegation that United substituted lower billing codes for the higher
codes submitted by providers is thus an important fact or circumstance that, if true, provides a
“common nexus” between Shane, on the one hand, and McRaney/Murphy and Florida
Physicians, on the other.5
5
To the extent relevant, the Court notes that the Florida Physicians case was filed in
1999, indicating a temporal overlap (or at least a temporal proximity) between the downcoding
(continued...)
-20-
Columbia and FFIC have submitted testimony from United representatives admitting that
United did, in fact, change billing codes from higher, more-expensive codes to lower, lessexpensive codes. JDep310-JDep312, JDep265. Faced with this testimony from its own
representatives, United does not dispute that it changed billing codes. But United argues that, to
constitute “downcoding,” the changes must have been wrongful. United denies that the changes
were wrongful. Thus, says United, there is a factual dispute over whether it “downcoded”
claims.
On one level, United’s argument seems to be about semantics. Whether the term
“downcoding” means any changing of billing codes or just wrongful changing of billing codes is
beside the point.6 What matters is that United admits that it did change billing codes — and this
5
(...continued)
alleged in that case and the downcoding alleged in Shane and McRaney/Murphy. See Docket
No. 460 at 18.
6
It is worth noting that, when asked to define the term “downcoding,” a United
representative offered a non-pejorative definition and described United’s practice of changing
billing codes as “downcoding.” JDep310-JDep312.
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“true fact”7 provides a common nexus between Shane, McRaney/Murphy, and Florida
Physicians.
On another level, United seems to be arguing that, for claims to be interrelated for
purposes of § 5.2, the conduct connecting the claims must be proven to be wrongful. The Court
disagrees. Section 5.2 does not require proof that United committed an act that was wrongful.
Rather, § 5.2 defines claims as interrelated if the “wrongful acts” — which term, crucially, is
defined to include not only acts that are wrongful, but also acts that are merely alleged to be
wrongful, see JEx68 — “have as a common nexus, any true facts . . . .” In Shane,
McRaney/Murphy, and Florida Physicians, the plaintiffs alleged two different things: (1) that
United changed billing codes and (2) that United acted wrongfully in changing billing codes.
Because it is true that United changed billing codes, and because United’s changing of billing
codes was alleged to be wrongful, the wrongful acts alleged in Shane, McRaney/Murphy, and
Florida Physicians have a “true fact[]” that serves as a “common nexus.” The Court therefore
7
Reflecting the lack of care with which the policy was drafted, the parties used both the
plural “facts” and the singular “circumstance, situation, event, transaction, [or] cause” in the
same clause of § 5.2. A close examination of the clause suggests that adding the “s” at the end
of “fact” was probably a typographical error. At oral argument, though, United suggested that
there might be some significance to the use of the plural “facts” — although United could not
plausibly explain what that significance might be — and United appeared to take issue with the
Court’s use of the phrase “true fact” in lieu of the phrase “true facts.”
Why United is making an issue of this is difficult to understand. Even if § 5.2 requires
more than one “true fact,” it requires only one “true . . . circumstance, situation, event,
transaction, [or] cause,” and virtually every “fact” can also be described as a “circumstance,
situation, event, transaction, [or] cause.” In any event, the Court clarifies that it is using the
terms “true fact[]” and “true facts” as shorthand for the entire phrase “true facts, circumstance,
situation, event, transaction, [or] cause.”
-22-
holds that McRaney/Murphy and Florida Physicians are interrelated with Shane within the
meaning of § 5.2.
United next argues that, even if Columbia and FFIC can prove that McRaney/Murphy and
Florida Physicians are interrelated with Shane, Columbia and FFIC cannot prove which
“damages or claim expenses” were incurred “because of” the interrelated wrongful acts.
United’s argument is based on the language of § 5.2, which states that “damages or claim
expenses” that are incurred “because of . . . a series of wrongful acts” having a common nexus
“shall constitute a single claim.” In other words, § 5.2 does not, on its face, aggregate claims;
instead, it aggregates damages incurred “because of” the interrelated wrongful acts.
United correctly describes the wording of the policy. But here it is not only impossible to
know what the policy’s drafters intended, it is also impossible to know what the words that they
used mean. “Damages” can no more “constitute” a “claim” than, say, a dog can “constitute” a
cat. The policy variously defines “claim” as “a written demand which seeks Damages,” a
“written report of a bodily injury, incident, or Wrongful Act,” or a “suit.” JEx64. It makes no
sense to say that “damages” and “claim expenses” incurred “because of” a series of interrelated
wrongful acts become a “claim” — that, for example, such “damages” become “a written
demand which seeks damages.” This aspect of § 5.2 is gibberish, and thus the jury will have to
decide what, if anything, the parties actually agreed to.
D. United’s Affirmative Defenses of Waiver and Estoppel
The final set of motions relate to United’s defenses to FFIC’s counterclaim. In its
counterclaim against United, FFIC seeks a declaration that FFIC does not owe a duty to defend,
reimburse defense costs, or indemnify United in connection with the Shane claim or in
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connection with what the parties call the Shane “tag-along” claims. FFIC also seeks
reimbursement of amounts that it has paid for Shane and the tag-along claims to date. Docket
No. 573 at 16-29. (For simplicity’s sake, further references in this section to Shane are intended
to include the tag-along claims.)
FFIC’s counterclaim is based on several alternative grounds. First, FFIC contends that it
is entitled to reimbursement of all defense costs because Shane is not a covered claim. Second,
FFIC contends that, even if Shane is a covered claim, FFIC is entitled to reimbursement of some
defense costs because those costs were not reasonable or necessary. Finally, FFIC contends that
it is entitled to reimbursement of all defense costs regardless of whether Shane is a covered claim
because the liability limits of the underlying insurance policies were not fully exhausted.
In its answer to FFIC’s counterclaim, United raises the affirmative defenses of waiver
and estoppel. Docket No. 602 at 10. United does not dispute that FFIC can seek reimbursement
of defense costs on the ground that Shane is not a covered claim. But United contends that
FFIC’s conduct over the five-years-and-counting course of the Shane litigation should, under the
doctrines of waiver and estoppel, preclude FFIC from contesting the reasonableness and
necessity of United’s legal bills or the exhaustion of the underlying coverage. In particular,
United points to FFIC’s ongoing review, audit, and payment of United’s legal bills; FFIC’s
concurrent failure to object to the billing formats, hourly rates, and staffing levels that it now
contends made those bills unreasonable; and FFIC’s affirmative representation (before it started
paying United’s bills) that it would not begin paying United’s bills until it received proper proof
of exhaustion. Both FFIC and United seek summary judgment on United’s affirmative defenses.
-24-
FFIC first argues that, as a matter of law, the doctrines of waiver and estoppel may not be
used to expand the scope of insurance coverage. See Shannon v. Great Am. Ins. Co., 276
N.W.2d 77, 78 (Minn. 1979). This general rule, however, does not mean that waiver and
estoppel never apply in a coverage action. Although waiver and estoppel cannot operate to
change the written terms of an insurance policy — that is, to change an insurance policy that
does not cover x into an insurance policy that does cover x — these doctrines may operate to
preclude the insurer from denying the factual bases for coverage. Compare Shannon, 276
N.W.2d at 78 (insurer’s offer to settle for more than the amount of the policy did not estop the
insurer from relying on policy limits), Cont’l Ins. Co. v. Bergquist, 400 N.W.2d 199, 201 (Minn.
Ct. App. 1987) (waiver could not create coverage where damage occurred before the effective
date of the policy), and Pederson v. United Servs. Auto. Ass’n, 383 N.W.2d 427, 430-31 (Minn.
Ct. App. 1986) (insurer’s erroneous payment of underinsured-motorist benefits did not preclude
insurer from denying further payments on the ground that insured did not have such coverage),
with Reinsurance Ass’n of Minn. v. Timmer, 641 N.W.2d 302, 310-11 (Minn. Ct. App. 2002)
(insurer’s knowledge of insureds’ cattle-selling activities estopped insurer from denying that
those activities were covered as “farm operations”). See also Alwes v. Hartford Life & Accident
Ins. Co., 372 N.W.2d 376, 379 (Minn. Ct. App. 1985) (general rule that estoppel cannot create
coverage “does not mean that estoppel cannot be applied in insurance cases where
misrepresentation or material omission occurs”), holding limited on other grounds by In re
Westling Mfg., Inc., 442 N.W.2d 328 (Minn. Ct. App. 1989).
The facts of this case are more akin to those of Timmer than those of Shannon, Bergquist,
or Pederson. United is not trying to alter the terms of the policy or otherwise obtain coverage
-25-
for which it has not paid. United acknowledges that, under the policy, FFIC is obligated to pay
only for defense costs that are reasonable. United is merely arguing that FFIC is precluded, by
its own statements and conduct, from denying that United’s defense costs were reasonable.
Similarly, United acknowledges that, under FFIC’s policy, FFIC has no obligation to United
until the underlying layers of coverage are exhausted. United is merely arguing that FFIC is now
precluded from denying that the underlying layers of coverage were exhausted. The Court
therefore does not agree that United’s defenses of waiver and estoppel fail as a matter of law.
FFIC next argues that United cannot establish the required elements of either waiver or
estoppel because FFIC sent United a reservation-of-rights letter in June 2005. Having reviewed
the record, however, the Court believes that a reasonable jury could find that, notwithstanding
the letter, FFIC’s actions over the next five years amounted either to a misrepresentation or
concealment of material fact (for estoppel purposes) or to the intentional relinquishment of a
known right (for waiver purposes). See Brekke v. THM Biomedical, Inc., 683 N.W.2d 771, 777
(Minn. 2004) (elements of estoppel); Frandsen v. Ford Motor Co., 801 N.W.2d 177, 182 (Minn.
2011) (elements of waiver). In light of FFIC’s reservation-of-rights letter, however, the Court
also cannot find waiver or estoppel as a matter of law. In short, genuine issues of fact preclude
summary judgment for either side, and the issues of waiver and estoppel will have to be tried to a
jury. See Valspar Refinish, Inc. v. Gaylord’s, Inc., 764 N.W.2d 359, 367 (Minn. 2009) (waiver is
generally a question of fact); Slidell, Inc. v. Millennium Inorganic Chems., Inc., 460 F.3d 1047,
1057 (8th Cir. 2006) (under Minnesota law, equitable estoppel is ordinarily a jury question).
-26-
ORDER
Based on the foregoing, and on all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED THAT:
1.
United’s motion for summary judgment on the insuring agreements in the
Lexington policy [Docket No. 879] is GRANTED IN PART as more fully
described in the text of this opinion.
2.
Defendants’ cross-motion for summary judgment on the insuring agreements in
the Lexington policy [Docket No. 906] is DENIED.
3.
Columbia and FFIC’s motion for summary judgment on interrelatedness [Docket
No. 865] is GRANTED IN PART AND DENIED IN PART.
a.
The motion is GRANTED with respect to Columbia and FFIC’s argument
that the McRaney/Murphy and Florida Physicians claims are interrelated
with the Shane claim within the meaning of § 5.2 of the Lexington policy.
b.
4.
The motion is DENIED in all other respects.
FFIC’s motion for summary judgment as to United’s second and third affirmative
defenses of waiver and estoppel [Docket No. 872] is DENIED.
5.
United’s motion for partial summary judgment against FFIC [Docket No. 883] is
DENIED.
Dated: December 27, 2011
s/Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
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