UnitedHealth Group Incorporated v. Columbia Casualty Company et al

Filing 151

ORDER - Based on the foregoing, and on all of the files, records, and proceedings herein, the Court ADOPTS IN PART the Recommendation of the Magistrate Judge 117 . IT IS HEREBY ORDERED THAT: Defendants' objection 124 is SUSTAINED IN PART AND OVERRULED IN PART. Granting in part and denying in part 69 Motion to Dismiss; granting in part and denying in part 72 Motion to Dismiss; granting in part and denying in part 75 Motion to Dismiss; granting in part and denying in part 78 Motion to Dismiss; granting in part and denying in part 81 Motion to Dismiss. SEE ORDER FOR COMPLETE DETAILS. (Written Opinion). Signed by Judge Patrick J. Schiltz on 02/09/10. (bjs)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA UNITEDHEALTH GROUP INCORPORATED, Plaintiff, v. HISCOX DEDICATED CORPORATE MEMBER LTD., individually; LEXINGTON INSURANCE COMPANY; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; DARWIN NATIONAL ASSURANCE COMPANY; HOMELAND INSURANCE COMPANY OF NEW YORK; and ACE AMERICAN INSURANCE COMPANY, Defendants. MEMORANDUM OPINION AND ORDER Case No. 09-CV-0210 (PJS/SRN)

David B. Goodwin and Michael S. Greenberg, COVINGTON & BURLING, LLP; Jeffrey J. Bouslog, Christine L. Nessa, and Katherine M. Wilhoit, OPPENHEIMER, WOLFF & DONNELLY LLP, for plaintiff. Stephen M. Lazare and David E. Potter, LAZARE POTTER & GIACOVAS LLP; Eric C. Tostrud and David D. Leishman, LOCKRIDGE GRINDAL NAUEN P.L.L.P., for defendants Hiscox Dedicated Corporate Member Ltd. and Lexington Insurance Company. David P. Pearson, Thomas H. Boyd, and Erin A. Oglesbay, WINTHROP & WEINSTINE, for defendant National Union Fire Insurance Company of Pittsburgh, PA. Andrew M. Luger and Monte A. Mills, GREENE ESPEL P.L.L.P.; Lewis K. Loss and Matthew J. Dendinger, THOMPSON, LOSS & JUDGE, LLP, for defendant Darwin National Assurance Company. Patricia J. St. Peter and Matthew J. Gollinger, ZELLE HOFFMAN VOELBEL & MASON LLP, for defendant Homeland Insurance Company of New York. Steven J. Sheridan, FOLEY & MANSFIELD; Thomas M. Jones and Kevin M. Haas, COZEN & O'CONNOR, for defendant Ace American Insurance Company. -1-

Plaintiff UnitedHealth Group Incorporated ("United") recently agreed to settle two lawsuits -- one a class action filed in federal court in New Jersey, and the other an action threatened by the New York Attorney General's Office. In this lawsuit, United seeks to compel its managed-care liability insurers to indemnify it for the amounts that it agreed to pay to settle the two actions and for the attorney's fees and costs that it incurred in defending those actions. The insurers filed five motions to dismiss United's amended complaint. The Court referred those motions to Magistrate Judge Susan R. Nelson, who recommended denying the insurers' motions in their entirety. This matter is before the Court on the insurers' objection to Judge Nelson's recommendation. The Court has conducted a de novo review. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b). Based on that review, the Court finds that the insurers are not obligated to indemnify United for any of the amounts that United incurred in defending or settling the New Jersey action or the action threatened by the New York Attorney General's Office, with the following narrow exceptions: First, the insurers may be obligated to indemnify United for some of the amount (if any) that it paid to defend and settle the claim made against it by the New Jersey plaintiffs for the attorney's fees incurred by those plaintiffs. Second, the insurers may be obligated to indemnify United for the attorney's fees and costs that United incurred in defending the action threatened by the New York Attorney General's Office. With these exceptions, the motions of the insurers are granted, and United's complaint is dismissed.

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I. BACKGROUND United seeks coverage for two claims: (1) the "Malchow claim," which arises from a lawsuit captioned Malchow v. Oxford Health Plans, Inc., No. 08-935 (D.N.J. filed Feb. 19, 2008); and (2) the "NYAG claim," which arises from a Notice of Proposed Litigation ("NYAG Notice" or "Notice")1 sent to United by the New York Attorney General's Office. A. The Malchow Claim The Malchow action was filed in the United States District Court for the District of New Jersey on February 19, 2008. Am. Compl. ¶ 1(a). The Malchow plaintiffs had obtained health insurance through various Oxford Health Plan entities, which are subsidiaries of United. Am. Compl. ¶¶ 33-34; Lazare Decl. Ex. 3 ¶ 1 [Docket No. 92-2] (hereinafter "Malchow Compl."). According to the Malchow complaint, members of Oxford's health plans who received services from out-of-network providers were required to pay a fixed percentage of the "usual, customary, and reasonable amount" ("UCR") charged by healthcare providers for those services, with Oxford paying the balance. Malchow Compl. ¶ 9. If the out-of-network provider from whom the subscriber received services charged an amount in excess of the UCR, then the subscriber was required to pay all of the excess, as well as a fixed percentage of the UCR. Malchow Compl. ¶ 11. The Oxford health plans calculated the UCR using databases created by Ingenix, Inc., another subsidiary of United. Malchow Compl. ¶¶ 14, 95. The Ingenix databases were supposed

The Notice is formally captioned "Notice of Proposed Litigation Pursuant to Section 63(12) of the Executive Law, Sections 349 and 350 of Article 22-A of the [] General Business Law, and Section 2601(a) of the Insurance Law." Lazare Decl. Ex. 2 [Docket No. 92-1 at 70-77] (hereinafter "Notice at ___"). -3-

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to reflect the amounts charged by various healthcare providers for various services in various geographic regions. Malchow Compl. ¶ 14. Using data from the Ingenix databases, Oxford created multiple UCR schedules. Malchow Compl. ¶ 47. Under the "standard" schedule, for example, the UCR was purportedly set at the amount that 70% of all healthcare providers in the relevant geographic location would accept as full payment for the service. Malchow Compl. ¶ 47. The Malchow plaintiffs alleged, among other things, that Ingenix skewed the UCR downward by using flawed, incomplete, and outdated data. Malchow Compl. ¶¶ 18-19, 54-55, 105-108. Based on these and other allegations, the Malchow plaintiffs brought claims under ERISA and New Jersey law for: (1) unpaid benefits; (2) failure to provide a full and fair review of claims for benefits; (3) failure to comply with ERISA's disclosure obligations; (4) violations of fiduciary duty; and (5) violations of claims-handling procedures. On January 14, 2009, United executed a global settlement with the Malchow plaintiffs and with the plaintiffs in two similar class-action lawsuits: American Medical Association v. United Healthcare Corp., No. 00-2800 (S.D.N.Y. filed Mar. 15, 2000), and Oborski v. United Healthcare Corp., No. 00-7246 (S.D.N.Y. filed Sept. 25, 2000). Am. Compl. ¶ 3. The American Medical Association and Oborski actions were consolidated in 2001. Am. Compl. ¶ 3. United refers to these two actions collectively as the "AMA claim" and is seeking coverage for that claim in another lawsuit pending before this Court. See UnitedHealth Group Inc. v. Columbia Casualty Co., No. 05-1289 (PJS/SRN) (D. Minn. filed June 29, 2005).2 If the joint settlement of the Malchow and AMA actions is approved, United will be obligated to establish a cash
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The insurance policy at issue in UnitedHealth Group Inc. v. Columbia Casualty Co. is similar to the insurance policy at issue in this case. The Court will refer to UnitedHealth Group Inc. v. Columbia Casualty Co. as "the `05 case." -4-

settlement fund of $350 million from which members of the settlement class will be eligible to receive compensation. Am. Compl. ¶ 3; Lazare Decl. Ex. 5 § 3 [Docket No. 92-3] (hereinafter "Settlement"). In this action, United alleges that its insurers are obligated to pay portions of the Malchow/AMA settlement that are attributable to resolving the Malchow action, as well as attorney's fees and costs that United incurred in defending Malchow. Am. Compl. ¶¶ 3, 43. B. The NYAG Claim On February 13, 2008, the New York Attorney General's Office notified United that it intended to sue United and its subsidiaries to enjoin United's allegedly fraudulent use of the Ingenix databases. On January 13, 2009, United and the New York Attorney General's Office entered into an Assurance of Discontinuance ("AOD") -- essentially a settlement agreement3 -- under which United agreed, among other things, to contribute $50 million to a nonprofit organization for the purpose of creating and operating a new, independent database. Lazare Decl. Ex. 4 ¶¶ 20-21, 26 [Docket No. 92-2 at 53-71] (hereinafter "AOD ¶ ___"). Part of that $50 million will also be used by the nonprofit organization to fund various consumer-education efforts, including the creation and maintenance of a website that discloses out-of-network reimbursement rates. AOD ¶ 24, 26, 32-33. In this action, United alleges that its insurers are obligated to indemnify United for this $50 million contribution, as well as for the attorney's fees and costs that United incurred in defending and settling the threatened action. Am. Compl. ¶ 57.

Under New York Executive Law § 63(15), the attorney general may, in lieu of instituting a civil action, "accept an assurance of discontinuance of any act or practice in violation of such law from any person engaged or who has engaged in such act or practice." In any subsequent civil action brought by the attorney general, an AOD violation is prima facie evidence of a violation of the applicable law. -5-

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C. The Insurance Policies United seeks coverage under several insurance policies that were in effect from May 1, 2007 through May 1, 2008. Am. Compl. ¶ 1. The primary policy at issue is Lloyd's Policy No. 509/QG007207 ("the Policy"). Defendants Hiscox Dedicated Corporate Member Limited and Lexington Insurance Company subscribed to that Policy, with Hiscox acting as the lead underwriter. Am. Compl. ¶¶ 10, 11. The other defendants issued excess policies that generally followed form to the underlying Policy. Am. Compl. ¶¶ 19-24. The details of the Policy will be discussed below. II. ANALYSIS A. Standard of Review In deciding a Rule 12(b)(6) motion, a court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Aten v. Scottsdale Ins. Co., 511 F.3d 818, 820 (8th Cir. 2008); Maki v. Allete, Inc., 383 F.3d 740, 742 (8th Cir. 2004); Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 (8th Cir. 2003). Although the factual allegations in the complaint need not be pleaded in great detail, they must be sufficient to "raise a right to relief above the speculative level . . . ." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Ordinarily, if the parties present, and the court considers, matters outside of the pleadings, a Rule 12(b)(6) motion must be treated as a motion for summary judgment. Fed. R. Civ. P. 12(d). But the court may consider materials that are necessarily embraced by the complaint, as well as exhibits attached to the complaint, without converting the motion to dismiss into a motion for summary judgment. Mattes, 323 F.3d at 697 n.4. Here, the parties agree that the -6-

Court may properly consider the Policy, the Malchow complaint, the Malchow/AMA settlement, the NYAG Notice, and the AOD. Hr'g Tr. 15-17, Nov. 4, 2009 [Docket No. 142]. United argues, however, that although the Court may consider the Malchow/AMA settlement and the AOD, the Court may not treat the factual recitations in those documents as true. The Court agrees, but the Court also wishes to make clear that interpreting the terms of a contract is not the same thing as treating factual recitations within a contract as true. A contract sometimes recites certain facts before it sets forth the terms of the agreement between the parties. For example, in a prefatory paragraph, a settlement agreement might identify the plaintiff as a Minnesota corporation and the defendant as a Wisconsin corporation and recite that the Minnesota corporation has sued the Wisconsin corporation in federal court. Those would be factual representations. But every contract also includes provisions that define the obligations of the parties. For example, one provision of a settlement agreement may obligate the defendant to pay a sum of money to the plaintiff, and another provision may obligate the plaintiff to dismiss its lawsuit against the defendant. Such terms are not representations about facts; instead, they make up the agreement itself. When a court interprets such terms in a contract, the court is not treating factual representations as true; it is simply defining the legal obligations created by the contract. With respect to the Malchow/AMA settlement and the AOD, the Court will not treat any facts recited in those agreements as true. But the Court will interpret the terms of the agreements, just as the Court will interpret the terms of the insurance policies that United attached to its complaint. Specifically, in determining the purpose of the $50 million contribution required by the AOD, the Court will look to the terms of the AOD. After all, the -7-

AOD is the document that creates United's obligation to make the $50 million contribution and defines the nature and purpose of that contribution. When the Court ascertains the purpose of the $50 million contribution by referring to the AOD, the Court is not treating factual representations in the AOD as true, but simply doing what courts usually do when they rule on Rule 12(b)(6) motions in contract cases: construing the terms of the contract. B. Governing Law 1. Application of New York Law The Policy provides that it is to be construed under New York law. Am. Compl. Ex. A § 2.11 [Docket No. 44-1] (hereinafter "Policy § ___"). Under New York law, a court must enforce the clear language of an insurance contract. Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000). Clear and unambiguous provisions must be given their plain and ordinary meaning. U.S. Fidelity & Guar. Co. v. Annunziata, 492 N.E.2d 1206, 1207 (N.Y. 1986). The insured bears the initial burden of establishing coverage. Consol. Edison Co. of N.Y., Inc. v. Allstate Ins. Co., 774 N.E.2d 687, 690 (N.Y. 2002). Once the insured has established coverage, the burden shifts to the insurer to establish that an exclusion applies and defeats that coverage. Id. To defeat coverage, an exclusion must be clear and subject to no other reasonable interpretation. Seaboard Sur. Co. v. Gillette Co., 476 N.E.2d 272, 275 (N.Y. 1984). Policy exclusions are construed narrowly, and any ambiguity must be construed against the insurer as the drafter of the policy. Id.; Westview Assocs. v. Guar. Nat'l Ins. Co., 740 N.E.2d 220, 222 (N.Y. 2000). In this case, though, the parties seem to agree that the insurers did not draft the Policy -- or at least all of the Policy. Instead, the Policy was apparently negotiated by United -8-

and its insurers, and some of the Policy's provisions were apparently drafted by United. It is thus not clear whether and to what extent this canon of construction should apply. It makes little difference at this stage, however. Because any ambiguity in the Policy will either have to be construed against the insurers or resolved after discovery on the basis of extrinsic evidence, the Court will have to deny the insurers' motions to dismiss insofar as those motions rely on the meaning of ambiguous provisions. 2. Finding a Duty to Indemnify on a Rule 12(b)(6) Motion United argues, as an initial matter, that the insurers' motions must be denied because the Court cannot determine on a Rule 12(b)(6) motion whether an insurer has a duty to indemnify. Instead, United argues, the Court must await further discovery and development of the record. The Court disagrees. It is a basic precept of insurance law -- in New York and everywhere else -- that the duty to defend is broader than the duty to indemnify. Auto. Ins. Co. of Hartford v. Cook, 850 N.E.2d 1152, 1155 (N.Y. 2006) ("It is well settled that an insurance company's duty to defend is broader than its duty to indemnify."). The existence of a duty to defend can readily be determined on a Rule 12(b)(6) motion because "[a] duty to defend is triggered by the allegations contained in the underlying complaint." BP Air Cond. Corp. v. One Beacon Ins. Group, 871 N.E.2d 1128, 1131 (N.Y. 2007).4 In other words, a court can determine whether an insurer had

A duty to defend also arises when the insurer has actual knowledge of facts that could establish coverage. Frontier Insulation Contractors, Inc. v. Merchants Mut. Ins. Co., 690 N.E.2d 866, 868 (N.Y. 1997). United has not alleged any such actual knowledge on the part of the insurers. -9-

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an obligation to defend merely by examining the face of the complaint filed in the underlying action -- a task that is well within the authority of a court ruling on a Rule 12(b)(6) motion. It is true, as United argues, that where the underlying complaint establishes a duty to defend, the determination of whether the insurer also owes a duty to indemnify must ordinarily await the resolution of the underlying action -- or at least the development of a factual record in the coverage action. Lionel Freedman, Inc. v. Glens Falls Ins. Co., 267 N.E.2d 93, 95 (N.Y. 1971); Prashker v. U.S. Guarantee Co., 136 N.E.2d 871, 874-75 (N.Y. 1956); see also Servidone Constr. Corp. v. Security Ins. Co., 477 N.E.2d 441, 423 (N.Y. 1985) (although insurer's breach of duty to defend was undisputed, plaintiff still had to show that the loss was covered in order to trigger the duty to indemnify). But when the underlying complaint does not establish a duty to defend, there can be no duty to indemnify. Again, the duty to indemnify is narrower than the duty to defend; "if the allegations, on their face, do not bring the case within the coverage of the policy, there is no duty to defend or indemnify . . . ." Burkhart, Wexler & Hirschberg, LLP v. Liberty Ins. Underwriters, Inc., 875 N.Y.S.2d 590, 591-92 (N.Y. App. Div. 2009) (emphasis added); see also Lionel Freedman, Inc., 267 N.E.2d at 95 ("Inasmuch as our decision that the insurer is not obligated to defend could be reached only after a determination of no coverage, we conclude that summary judgment dismissing the complaint in its entirety should have been awarded to defendant."). In this case, the Policy technically obligates the insurers to reimburse United for its defense costs rather than to defend United themselves. But the point remains: If neither the Malchow complaint nor the NYAG Notice would have triggered a duty to defend -- that is, if neither the Malchow complaint nor the NYAG Notice "contains any facts or allegations which -10-

bring the claim even potentially within the protection purchased," BP Air Conditioning Corp., 871 N.E.2d at 1131 (citation and quotations omitted) -- then, as discussed above, the insurers do not have a duty either to pay United's defense costs or to indemnify United. The Court will therefore proceed to examine the Malchow complaint and the NYAG Notice to determine whether either "contains any facts or allegations which bring the claim even potentially within the protection purchased" by United from its insurers. Id. C. Malchow 1. Damages United cites three provisions of the Policy that potentially establish coverage for the Malchow claim: (1) the main insuring clause, (2) the Antitrust Endorsement, and (3) a clause that appears within an exclusion found at § 9.9 of the Policy -- a clause that, according to United, should be construed as an affirmative grant of coverage. Although these provisions differ in a number of respects, all provide that the insurers will pay "Damages" and "Claim Expenses" that result from a "Claim."5 See Policy §§ 3.1, 9.9, 10.2. A "Claim" is simply a "written demand which seeks Damages . . . ." Policy § 4.2.6 Accordingly, the first step in deciding whether the

The Antitrust Endorsement provides that it applies "notwithstanding any other provisions of this Policy, including any exclusionary provision . . . ." Policy § 10.2. United conceded at oral argument, however, that despite this extremely broad language, the Antitrust Endorsement covers only "Damages," as that term is defined in the Policy (including the portion of the definition that might be considered limiting or exclusionary). Hr'g Tr. 147-49, Nov. 4, 2009. "Damages" include "Claim Expenses" (which in turn include "Defense Costs"), but only to the extent that the "Claim Expenses" are "awarded against, or agreed to as part of a settlement." Policy §§ 4.3, 4.4. Thus, although United's own defense costs are "Claim Expenses," they are not "Damages" within the meaning of the Policy, as they would not be "awarded against" United or "agreed to as part of a settlement" by United. -116

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insurers are required to indemnify United in connection with the Malchow action is determining whether the complaint filed against United sought "Damages." The Policy defines "Damages" as follows: Damages mean any monetary amount in excess of the applicable Retention and not exceeding Underwriters' Limit of Liability which an Insured is legally obligated to pay as a result of a Claim. Damages include compensatory, exemplary, statutorily mandated, and punitive damages; settlements; and Claim Expenses awarded against, or agreed to as part of a settlement. Damages do not include fines, penalties, or taxes; amounts, benefits, or coverages owed to any enrollee, member, subscriber, or client under any contract, healthcare plan, insurance policy, reinsurance policy, or plan or program of self-insurance; amounts owed to any provider of Medical Professional Services under any contract; nonmonetary relief or redress in any form, including without limitation the cost of complying with any injunctive, declaratory, or administrative relief, and matters which are uninsurable under applicable law. Policy § 4.4. The Policy thus defines "Damages" to include certain things (for example, "compensatory, exemplary, statutorily mandated, and punitive damages") and not to include other things (for example, "fines, penalties, or taxes"). The parties dispute whether these latter provisions should be treated as exclusions. As noted, New York courts generally hold that the insurer bears the burden of proving that an exclusion defeats coverage. Apparently, though, New York at one time followed the rule that an insured's initial burden to establish coverage includes the burden to establish that any exclusionary provisions in the main coverage clause do not apply. See, e.g., Ruffalo's Truck. Serv. v. Nat'l Ben-Franklin Ins. Co., 243 F.2d 949, 952-53 (2d Cir. 1957). Some recent cases seem to follow that rule. See, e.g., Am. Cont'l Props., Inc. v. Nat'l Union Fire Ins. Co., 608 N.Y.S.2d 807, 809 (N.Y. App. Div. 1994). But most recent cases -12-

appear to focus on the nature of the provision, rather than its location in the policy, to determine whether the provision is an exclusion. See Planet Ins. Co. v. Bright Bay Classic Vehicles, Inc., 553 N.E.2d 562, 564 (N.Y. 1990) (finding that limiting language in the definition of coverage was an exclusion); Sokolowski ex rel. M.M. & P. Pension Plan v. Aetna Life & Cas. Co., 670 F. Supp. 1199, 1205-06 (S.D.N.Y. 1987) (treating similar exceptions from a "damages" definition as exclusions); see also McMahon v. Boston Old Colony Ins. Co., 412 N.Y.S.2d 465, 467 (N.Y. App. Div. 1979) (an exclusion takes out persons or events that are otherwise included within the defined scope of coverage). Some of these recent cases concern the insurers' compliance with statutory written-disclaimer requirements rather than the parties' respective burdens of proof, but the reasoning of the cases seems to apply in this context. The Court agrees with United that, to the extent that language in the second half of the "Damages" definition excludes coverage that is provided in the first half, that language should be treated as an exclusion, and the insurers should bear the burden of establishing that coverage is precluded by that exclusion. At this stage of the proceedings, though, it makes little difference who bears the burden of proof. If a provision is clear, then its clear meaning will be applied, regardless of who bears the burden of proof. If a provision is not clear, then the Court will deny the motions to dismiss insofar as they rely on that provision -- again, no matter who bears the burden of proof. As described above, the Malchow plaintiffs brought five claims: (1) a claim for unpaid benefits under ERISA and New Jersey law; (2) a claim for failure to provide a full and fair review of claims for benefits under ERISA; (3) a claim for failure to comply with ERISA's disclosure obligations; (4) a claim for violation of the fiduciary duties imposed by ERISA; and -13-

(5) a claim for violations of ERISA's claims-procedure provisions. The complaint mainly sought injunctive and declaratory relief, not monetary damages. In their prayer for relief, the plaintiffs sought declarations that United breached its contractual and fiduciary obligations and violated various provisions of law. The plaintiffs further sought injunctive relief that would compel United to comply with its legal, contractual, and fiduciary obligations. With one exception (discussed below), the only monetary amounts sought in the complaint were for unpaid benefits, interest on those unpaid benefits, and attorney's fees and costs. The cost of complying with injunctive and declaratory relief is not included in the Policy's definition of "Damages," and United concedes that the claims of the Malchow plaintiffs for injunctive and declaratory relief are not covered by the Policy. Similarly, "Damages" is defined to exclude "amounts, benefits, or coverages owed to any enrollee, member, subscriber, or client under any contract, healthcare plan, insurance policy, reinsurance policy, or plan or program of self-insurance . . . ." As United conceded at oral argument, the plaintiffs' demand for unpaid benefits in Count I of the complaint also does not trigger any duty to defend or indemnify. Hr'g Tr. 49-50, Nov. 4, 2009. Thus, United concedes that the bulk of the Malchow claims are not covered under the Policy. United nevertheless argues that coverage is at least potentially triggered by two forms of monetary relief sought in the complaint: (1) the plaintiffs' attempt to recover a statutory penalty of up to $110 per day for United's failure to comply with various disclosure obligations, and (2) the plaintiffs' demand for attorney's fees. The Court considers each claim in turn.

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a. Section 1132(c) In Count III of their complaint, the Malchow plaintiffs allege that United's "failure to supply accurate . . . information is actionable under 29 U.S.C. § 1132(c)." Malchow Compl. ¶ 164. Although the Malchow complaint did not cite a particular subsection of § 1132(c), the plaintiffs were apparently making a claim under § 1132(c)(1). Section 1132(c)(1) states, in relevant part: Any administrator . . . who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary . . . may in the court's discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper. The Department of Labor has promulgated a rule increasing the maximum recovery under § 1132(c)(1) to $110 per day for violations occurring after July 29, 1997. See 29 C.F.R. § 2575.502c-1. The question is whether Count III of the Malchow complaint, in seeking recovery of $110 per day under § 1132(c)(1), sought "Damages" as defined in the Policy. The Policy's definition of "Damages" expressly excludes "penalties." The Court finds, and United does not argue otherwise, that the term "penalties" is unambiguous. A "penalty" is a "[p]unishment imposed on a wrongdoer" -- in particular, "a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for the injured party's loss)." Black's Law Dictionary 1168 (8th ed. 2004). Federal courts uniformly agree that monetary awards under § 1132(c)(1) are penalties because they punish rather than compensate. Christensen v. Qwest Pension Plan, 462 F.3d 913, 919 (8th Cir. 2006) (§ 1132(c)(1) "is a statutory penalty that may not be imposed `unless the words of the statute -15-

plainly impose it'" (quoting Comm'r v. Acker, 361 U.S. 87, 91 (1959))); Chestnut v. Montgomery, 307 F.3d 698, 704 (8th Cir. 2002) ("The purpose of ERISA's statutory penalty [under § 1132(c)(1)] is to punish noncompliance."); Mondry v. Am. Family Mut. Ins. Co., 557 F.3d 781, 806 (7th Cir.) (holding that, in addition to the statutory penalty, the plaintiff could seek restitution for the administrator's failure to comply with its disclosure duties because "the purpose of those penalties [under § 1132(c)(1)] is to induce the plan administrator to comply with the statutory mandate rather than to compensate the plan participant for any injury she suffered as a result of non-compliance"), cert. denied, 130 S. Ct. 200 (2009); Scott v. Suncoast Beverage Sales, Ltd., 295 F.3d 1223, 1232 (11th Cir. 2002) (§ 1132(c)(1) is "designed more for the purpose of punishing the violator than compensating the participant or beneficiary"); Lampkins v. Golden, 104 F.3d 361, 1996 WL 729136, at *3 (6th Cir. Dec. 17, 1996) (unpublished table disposition) ("The purpose of the statutory penalty is not to compensate participants, but to induce administrators to expeditiously provide requested plan documents by punishing those who fail to comply."). The Eighth Circuit's decision in Christensen illustrates the point. In Christensen, the plaintiff requested and received several estimates of his expected pension benefits through an automated telephone system. Christensen, 462 F.3d at 915-16. After the plaintiff retired, he learned that the estimates were based on an erroneous assumption about his pay grade. Id. at 916. The plaintiff then sued under ERISA, contending, among other things, that the plan administrator was liable under § 1132(c)(1) because it had failed to comply with 29 U.S.C. § 1025(a)(1) (2000), which required plan administrators to provide a statement of total accrued

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benefits on written request.7 Id. at 918. The plaintiff argued that the written-request requirement should be broadly construed to include his electronically recorded requests. Id. at 919. The Eighth Circuit rejected this argument, explaining that, as a penalty provision, § 1132(c)(1) must be narrowly construed. Id. For support, the Eighth Circuit cited the Supreme Court's decision in Commissioner v. Acker, 361 U.S. 87 (1959), which explained that "penal statutes are to be construed strictly" and "one is not to be subject to a penalty unless the words of the statute plainly impose it." Christensen, 462 F.3d at 919; Acker, 361 U.S. at 91 (citations and quotations omitted). It is true, as United argues, that § 1132(c) itself labels as "penalt[ies]" only some of the monetary remedies available under that subsection. Specifically, when § 1132(c) authorizes the Secretary of Labor to assess a monetary amount, it describes that amount as a "civil penalty." By contrast, § 1132(c)(1) simply says that an administrator may be "personally liable" to participants and beneficiaries for up to $110 per day; it does not refer to the $110 recovery as a "penalty." United argues that this difference in language demonstrates that Congress intended to draw a distinction between penalties that the Secretary may assess and non-punitive monetary relief that a court may award to participants and beneficiaries. United's argument has surface appeal, but it is inconsistent with the great weight of authority. It is also inconsistent with the fact that, no matter how it is labeled, the $110 sanction operates as a penalty. The sanction is assessed against an administrator who unlawfully refuses to comply with a request for any information, and it can be assessed regardless of whether the refusal caused no harm, a little harm, or lots of harm to the

The language of § 1025(a)(1) has since been amended, but it retains the requirement that requests for information be in writing. -17-

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requester. United also cites a couple of cases in which courts, in dicta, have referred to the penalties in § 1132(c) as "damages." See Varity Corp. v. Howe, 516 U.S. 489, 507 (1996) (referring to the remedies available under § 1132(c) as "liquidated damages"); Swede v. Rochester Carpenters Pension Fund, 467 F.3d 216, 218 (2d Cir. 2006) (referring to "statutory damages" under § 1132(c)(1)). Neither of these cases is persuasive on this issue. Varity did not involve a claim under § 1132(c); instead, the issue in Varity was whether § 1132(a)(3) authorizes courts to award relief to individual plan beneficiaries for breach of fiduciary duty. Varity Corp., 516 U.S. at 507. Before addressing that question, the Supreme Court gave a brief summary of ERISA's enforcement provisions. Id. In its brief summary, and in obvious dicta, the Court referred to the penalties in § 1132(c) as "liquidated damages." Id. Given that Varity had nothing to do with § 1132(c), the Supreme Court was clearly not focusing on or making a decision about the precise nature of the monetary remedy available under that subsection. Indeed, the Supreme Court referred to all of the monetary remedies in § 1132(c) as "liquidated damages" even though, as noted, the statute explicitly labels as "penalt[ies]" the amounts assessed by the Secretary of Labor under § 1132(c). Swede is a bit closer to the mark, in that, unlike Varity, it at least involved a claim under § 1132(c). Swede, 467 F.3d at 218. But that claim was not at issue on appeal, and thus, as in Varity, the court's description of a claim under § 1132(c) as one for "statutory damages" was casual dicta, not a studied holding. For these reasons, the Court holds that the $110 per day monetary remedy in § 1132(c)(1) is a penalty -- and, as a penalty, is excluded from the Policy's definition of "Damages." Hence, -18-

the portion of the joint settlement of the Malchow and AMA actions that is attributable to the claim under § 1132(c)(1) is not the responsibility of United's insurers. b. Attorney's Fees United next argues that the Malchow plaintiffs' claim for attorney's fees is a claim for "Damages." See Malchow Compl. at 49. This is, at first blush, a strange argument. After all, United has conceded that all of the substantive claims brought against it in the Malchow action were not covered by the Policy, save the claim under § 1132(c)(1). The Court has held that the claim under § 1132(c)(1) was also not covered. Thus, the Malchow lawsuit was made up entirely of uncovered claims. Yet United argues the Malchow plaintiffs' demand that United pay the attorney's fees that they incurred in pursuing uncovered claims against United was itself a covered claim. The insurers do not dispute that, in the abstract, a claim against United for attorney's fees might trigger coverage. The Policy defines "Damages" broadly to mean "any monetary amount . . . which an Insured is legally obligated to pay as a result of a Claim." Policy § 4.4. "Claim" is defined simply as a "written demand which seeks Damages . . . ." Policy § 4.2. When a plaintiff files a lawsuit against United and demands, inter alia, that United pay the plaintiff's attorney's fees, the plaintiff is making a "Claim" -- that is, "a written demand" that seeks a "monetary amount." If a court then orders United to pay the fees of the plaintiff's attorney, that award represents "Damages" -- that is, "a[] monetary amount . . . which an Insured is legally obligated to pay as a result of a Claim." The same is true if United's obligation to pay the fees arises out of a settlement rather than a court order. The insurers argue that, while all of this is true in the abstract, United is nevertheless not -19-

"legally obligated to pay" the attorney's fees of the Malchow plaintiffs. According to the insurers, under the terms of the Malchow/AMA settlement, United is legally obligated to make one lump-sum settlement payment to the plaintiffs, and the plaintiffs are then obligated to pay their own attorney's fees out of that recovery. Because United has no legal obligation to pay attorney's fees -- but instead has only a legal obligation to pay a sum in settlement of the substantive claims, from which sum the plaintiffs will pay their attorneys -- United is not paying "Damages" with respect to the "Claim" for attorney's fees. United disagrees. United argues that some portion of the settlement fund is attributable to the Malchow plaintiffs' "Claim" for attorney's fees and thus qualifies as "Damages." Specifically, United contends that (1) the Malchow plaintiffs made a claim against United for attorney's fees; (2) United settled that claim; and (3) part of the total amount being paid to the plaintiffs under the Malchow/AMA settlement represents the amount that United agreed to pay to the Malchow plaintiffs to settle their claim for attorney's fees. If this is true -- and there is a good chance that it is true, given that the settlement agreement itself provides that the plaintiffs' attorney's fees will be paid out of the settlement fund, see Settlement § 17 -- then it is irrelevant that United will not be required to cut a separate check to the Malchow plaintiffs' attorneys. United is correct. Nothing in the definition of "Damages" excludes a claim for attorney's fees from being part of a judgment or settlement. And there is no dispute that, if the Malchow/AMA settlement is approved, United will be "legally obligated to pay" the amounts required by the settlement. Thus, to the extent that any portion of the Malchow/AMA settlement is attributable to a settlement of the Malchow plaintiffs' claim for attorney's fees -- and that is a

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matter that the Court cannot decide on a motion to dismiss -- that portion of the settlement falls squarely within the Policy's definition of "Damages." The insurers cite CNL Hotels & Resorts, Inc. v. Houston Casualty Co., 505 F. Supp. 2d 1317 (M.D. Fla. 2007), for the proposition that payment to counsel from an uncovered settlement fund does not give rise to coverage. In CNL Hotels, the insured was found to have improperly acquired funds and ordered to make restitution to its victims; the insured then sought indemnification from its insurers for the restitutionary payment. Id. at 1322-25. Applying New York law, the court found that such restitutionary payments were uninsurable. Id. In a cryptic footnote, the court rejected the insured's argument that an award of attorney's fees from the settlement fund was not the same as an uninsurable restitutionary payment: "The fact that the plaintiffs had to use some of that money to pay their attorneys does not alter the character of CNL's payment, which was clearly restitutionary." Id. at 1326 n.12. Unlike CNL Hotels, though, here there is a dispute concerning the character of the settlement. Again, the insurers claim that, under the settlement, United is paying to settle uncovered substantive claims, and the plaintiffs are then using part of their recovery to pay their own attorneys. This is the situation described in the CNL Hotels footnote. But United contends that, under the settlement, it is paying not only to settle uncovered substantive claims, but also to settle a covered claim for attorney's fees. The fact that most of a settlement is attributable to uncovered claims does not mean that the insured cannot seek indemnification for a portion of the settlement that is attributable to covered claims. Cf. Nat'l Union Fire Ins. Co. v. Ambassador Group, Inc., 556 N.Y.S.2d 549, 553 (N.Y. App. Div. 1990) (discussing apportionment of a settlement between covered and uncovered claims). -21-

The insurers also cite Millennium Partners, L.P. v. Select Insurance Co., 882 N.Y.S.2d 849 (N.Y. Sup. Ct.), aff'd, 889 N.Y.S.2d 575 (N.Y. App. Div. 2009), for the proposition that defense costs may not be recovered except in connection with covered claims. But Millennium Partners concerned an insured's attempt to be indemnified for attorney's fees that it incurred in defending uncovered claims, id. at 851, not an insured's attempt to be indemnified for a claim for attorney's fees made against the insured by a third party. The Court again acknowledges that the result sought by United seems counterintuitive: The insurers would have to pay the attorney's fees incurred by the Malchow plaintiffs in pursuing uncovered claims against United, even though the insurers would not have to pay the attorney's fees incurred by United in defending those uncovered claims.8 But the Policy says what the Policy says. Under the extremely broad language used by the policy, the claim for attorney's fees made against United by the Malchow plaintiffs was a "Claim" for "Damages."9

The Court does not understand United to be arguing that, if the claim of the Malchow plaintiffs for their attorney's fees was a covered claim, United is entitled to recover from the insurers not only the fees and costs that it incurred in defending against that covered claim, but also all of the fees and costs that it incurred in defending against all of the uncovered claims. Such a contention would appear to be inconsistent with § 4.3(a) of the Policy, which defines "Claim Expenses" to include amounts "incurred in the investigation and defense of any Claim covered hereunder . . . ." (Emphasis added.) See Sokolowski v. Aetna Life & Cas. Co., 670 F. Supp. 1199, 1208-10 (S.D.N.Y. 1987) (holding that a claim for attorney's fees under ERISA triggered the insurer's duty to defend and indemnify); see also Pac. Ins. Co. v. Burnet Title, Inc., 380 F.3d 1061, 1065-66 (8th Cir. 2004) (holding that a claim for attorney's fees, which was the sole claim for monetary relief not excluded from the definition of damages, was a claim for damages); Nat'l Cas. Co. v. Coastal Dev. Servs. Found., 171 Fed. Appx. 680, 685 (9th Cir. 2006) (holding that a suit for equitable relief that included a claim for attorney's fees was a claim for damages). Some courts have held that claims for attorney's fees under 42 U.S.C. § 1988 are not damages because § 1988 expressly defines attorney's fees as costs. See, e.g., City of Sandusky v. (continued...) -229

8

In sum, if the insurers are to avoid responsibility for reimbursing United for the amount (if any) that it paid to settle the claim of the Malchow plaintiffs for attorney's fees, the insurers will not be able to rely on the Policy's definition of "Damages." Instead, the insurers will have to rely on an exclusion in the Policy. United argues, however, that all of the exclusions in the Policy are irrelevant because the Malchow claim is covered not only by the general insuring clause, but also by two specific insuring clauses that override all exclusions. Before examining the Policy's exclusions, then, the Court must first determine whether United is correct in arguing that none of those exclusions is even relevant. 2. The Antitrust Endorsement The first of the two specific insuring clauses that United contends cover the Malchow claim for attorney's fees is the Antitrust Endorsement.10 That endorsement 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

(...continued) Coregis Ins. Co., 192 Fed. Appx. 355, 359-60 (6th Cir. 2006). This reasoning is inapplicable here for two reasons. First, the Malchow plaintiffs sought fees under ERISA, which does not define fees as part of the costs. See 29 U.S.C. § 1132(g)(1). Second, and more importantly, the Policy's definition of "Damages" includes "Claim Expenses awarded against, or agreed to as part of a settlement," and "Claim Expenses" includes "all costs taxed against the Insured in any Suit." Policy §§ 4.3, 4.4. Thus, even if the attorney's fees sought by the Malchow plaintiffs were considered "costs," they would still be included within the definition of "Damages." As noted above, United concedes that the Antitrust Endorsement covers only "Damages," as that term is defined in the Policy. Hr'g Tr. 147-49, Nov. 4, 2009. The Court has already held that the only claim brought by the Malchow plaintiffs that sought "Damages" was their claim for attorney's fees. -2310

9

consisting or allegedly consisting in whole or in part of anti-trust, restraint of trade activities occurring on or after the Retroactive Date stated in Item 6 of the Declaration and before the cancellation date or Expiration Date of this Policy. Damages arising out of the same or interrelated Wrongful Acts shall be deemed to arise from the first such same or interrelated acts [sic] Wrongful Acts. Policy § 10.2. United contends that the claim of the Malchow plaintiffs for attorney's fees is covered by this endorsement -- an endorsement that, by its terms, trumps "any exclusionary provision" in the Policy. The Court disagrees. Even assuming that the claim of the Malchow plaintiffs related to "anti-trust, restraint of trade activities" -- something that is far from clear -- the Antitrust Endorsement does not provide coverage for that claim. The parties agree that the terms used in the Antitrust Endorsement are defined in the same way as they are defined in the rest of the Policy. The Policy defines "Wrongful Act" to "mean[] any actual or alleged negligent act, error, omission, misstatement, [or] breach of duty . . . ." Policy § 4.17. As described above, the Malchow litigation focused on United's allegedly unlawful use of the Ingenix databases to deny or underpay claims. Without question, every time that a United employee unlawfully used an Ingenix database to deny a claim or part of a claim for benefits, that United employee committed a "breach of duty" -- that is, a separate Wrongful Act. Moreover, the parties do not dispute that every unlawful use of the Ingenix databases was "interrelated" with every other unlawful use of the Ingenix databases. Thus, for purposes of the Policy, the Malchow plaintiffs sought damages arising out of interrelated Wrongful Acts. The second sentence of the Antitrust Endorsement provides that "[d]amages arising out of . . . interrelated Wrongful Acts shall be deemed to arise from the first such . . . interrelated . . .

-24-

Wrongful Acts." Under the Policy, then, all of the damages sought by the Malchow plaintiffs are deemed to arise from United's first use of the Ingenix databases -- a use that occurred no later than 1994.11 The problem for United is that the Antitrust Endorsement does not provide coverage for United's first use of the Ingenix databases in or before 1994. The Antitrust Endorsement covers only 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, restraint of trade activities occurring on or after the Retroactive Date stated in Item 6 of the Declaration . . . ." The "Retroactive Date stated in Item 6 of the Declaration" is July 29, 2004. See Policy at 3, § 10.1.12 Because the last sentence of the Antitrust Endorsement dictates that all of the damages suffered by the Malchow plaintiffs are deemed to arise from a Wrongful Act that occurred before July 29, 2004, and because the Antitrust Endorsement covers only damages that arise from Wrongful Acts that occurred on or after July 29, 2004, the Antitrust Endorsement does not cover any of the damages sought by the Malchow plaintiffs. United's argument to the contrary is sometimes difficult to follow, but it seems to be premised on the contention that United's use of the Ingenix databases over a period of many years -- a period of time that began before the Retroactive Date and ended after the Retroactive

The Malchow plaintiffs complained of United's use of the Ingenix databases beginning sometime around 2002. See Malchow Compl. ¶¶ 44-50, 59-63, 73-80, 137-138. But the Malchow/AMA settlement class includes persons whose out-of-network healthcare benefits were calculated using the Ingenix databases as early as 1994. Settlement at 11. There are different Retroactive Dates applicable to United and its various subsidiaries. Because the Malchow action was brought against Oxford Health Plans, the applicable Retroactive Date is July 29, 2004. -2512

11

Date -- constituted only a single Wrongful Act. In United's view, the first sentence of the Antitrust Endorsement covers that single Wrongful Act because that act "consist[ed] or allegedly consist[ed] in whole or in part of anti-trust, restraint of trade activities occurring on or after the Retroactive Date . . . ." Based on this assumption, United presumably believes that the last sentence of the Antitrust Endorsement is irrelevant. As United reads it, that sentence applies only to "[d]amages arising out of the same or interrelated Wrongful Acts" -- plural. But, in United's view, United committed only one Wrongful Act -- singular. Thus, according to United, the claim of the Malchow plaintiffs for attorney's fees is covered by the first sentence of the Antitrust Endorsement, and that coverage is not disturbed by the second sentence of the Antitrust Endorsement. It is tempting to dismiss United's argument out of hand. As explained above, there is no question that, every time a United employee unlawfully used an Ingenix database to deny a claim for benefits, that United employee committed a separate Wrongful Act. Again, the Policy defines "Wrongful Act" to include a "breach of duty," and each unlawful use of the Ingenix databases breached a duty to a claimant. Each such denial could have been the focus of a separate lawsuit, and each such denial could have led to a separate recovery. Clearly, then, the Malchow plaintiffs were complaining of thousands of individual Wrongful Acts, not a single Wrongful Act. United's argument cannot be dismissed so quickly, however. Although United neglects to mention it, one part of the definition of "Wrongful Act" -- a part that the Court has not yet quoted -- can be read to support United's argument. Specifically, after defining "Wrongful Act" in § 4.17, the Policy goes on to say the following:

-26-

All Wrongful Acts arising out of the same or related actual or alleged negligent act, error, omission, misstatement, breach of duty, breach of privacy or breach of confidentiality shall be deemed to be the same Wrongful Act. Policy § 4.17. The parties agree that every unlawful use of the Ingenix databases was "related" to every other unlawful use of the Ingenix databases. And thus, although every unlawful use of the Ingenix databases was a separate Wrongful Act, all of these Wrongful Acts "[arose] out of the same or related . . . breach of duty," and thus, under § 4.17, all of these Wrongful Acts are "deemed to be the same Wrongful Act." The issue, though, is how this provision affects the analysis under the Antitrust Endorsement. In particular, how does it change the analysis under the second sentence of that endorsement, which, again, provides that "[d]amages arising out of the same or interrelated Wrongful Acts shall be deemed to arise from the first such same or interrelated . . . Wrongful Acts"? Presumably, United would argue that, because § 4.17 dictates that all of its thousands of illegal uses of the Ingenix databases be "deemed to be the same Wrongful Act," United should be deemed for purposes of the Policy to have committed only a single Wrongful Act. Hence, the second sentence of the Antitrust Endorsement would not apply, as it applies only when there are "the same or interrelated Wrongful Acts" -- plural. United might further argue that it would make no sense to provide that damages that arise out of only a single Wrongful Act must "be deemed to arise from the first such" Wrongful Act. If there is only a single Wrongful Act, then there would not be a "first such" Wrongful Act, because there would not be a "second such" or a "third such" Wrongful Act. Or so the argument would go.

-27-

The problem with United's argument -- or, more accurately, the argument that the Court is putting in United's mouth -- is that it would render the second sentence of the Antitrust Endorsement meaningless. All Wrongful Acts that are "the same or interrelated" for purposes of the Antitrust Endorsement are also going to "aris[e] out of the same or related . . . negligent act, error, omission, [etc.]" for purposes of § 4.17. Thus, the Wrongful Acts that would trigger application of the second sentence of the Antitrust Endorsement would always, by virtue of § 4.17, be deemed to be "the same Wrongful Act." If United's argument is correct, then the second sentence of the Antitrust Endorsement would apply only to situations involving multiple related Wrongful Acts. But such situations would never arise, as multiple related Wrongful Acts would always be deemed to be a single Wrongful Act under § 4.17. The last sentence of the Antitrust Endorsement would be meaningless, and, under New York law, "[a]n insurance contract should not be read so that some provisions are rendered meaningless." County of Columbia v. Cont'l Ins. Co., 634 N.E.2d 946, 950 (N.Y. 1994). Clearly, then, when the second sentence of the Antitrust Endorsement speaks of attributing damages that "aris[e] out of the same or interrelated Wrongful Acts" to "the first such same or interrelated . . . Wrongful Acts," it is referring not to the one big Wrongful Act that is artificially created by § 4.17, but to the many little Wrongful Acts that make up that one big Wrongful Act. In other words, what the second sentence of the Antitrust Endorsement describes as "the same or interrelated Wrongful Acts" is exactly the same thing as what § 4.17 describes as "Wrongful Acts arising out of the same or related actual or alleged . . . breach of duty . . . ." In both provisions, "Wrongful Acts" is referring to the component Wrongful Acts, not to the consolidated Wrongful Act. -28-

This is the only reading of the second sentence of the Antitrust Endorsement that gives it meaning and that permits it to fulfill its apparent purpose. The second sentence seems designed to protect the insurer from liability for any Wrongful Acts that occurred after the Retroactive Date and that related to Wrongful Acts that occurred before the Retroactive Date. Put differently, the second sentence protects the insurer from having to pay for antitrust violations that are ongoing at the time that the insured becomes covered under the Antitrust Endorsement. (In this respect, the second sentence acts like a preexisting-conditions exclusion in a healthinsurance policy.) On United's reading of the second sentence, it would not do anything, and thus it would obviously not fulfill this purpose. On the Court's reading, it would. Cf. Evanston Ins. Co. v. GAB Bus. Servs., Inc., 521 N.Y.S.2d 692, 695 (N.Y. App. Div. 1987) ("`[R]esort to a literal construction may not be had where the result would be to thwart the obvious and clearly expressed purpose which the parties intended to accomplish or where such a construction would lead to an obvious absurdity . . . .'" (quoting McGrail v. Equitable Life Assurance Soc., 55 N.E.2d 483, 486 (N.Y. 1944))). The second sentence of the Antitrust Endorsement is not a thing of beauty, but its meaning is clear enough: When an insured (such as United) is sued by a plaintiff (such as Malchow) who has been injured by a Wrongful Act (such as the unlawful denial of a benefit claim), and that Wrongful Act was related to other Wrongful Acts (such as other unlawful denials of benefit claims), then the damages sought by the plaintiff are deemed to arise from the first of that group of Wrongful Acts. If the first of that group of Wrongful Acts occurred before the Retroactive Date, then the Antitrust Endorsement provides no coverage for any of the

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damages caused by any of the Wrongful Acts in the group.13 For these reasons, the Court holds that the Antitrust Endorsement does not cover the Malchow plaintiffs' claim for attorney's fees.

The Court's reading of the Antitrust Endorsement does not render meaningless the endorsement's use of the phrase "consisting in whole or in part of anti-trust, restraint of trade activities occurring on or after the Retroactive Date . . . ." Consider two scenarios: Suppose that the first in a series of related Wrongful Acts occurs before the Retroactive Date, and the last in that series of Wrongful Acts occurs after the Retroactive Date. Those Wrongful Acts would be deemed to be a single Wrongful Act by virtue of § 4.17, and that single Wrongful Act would "consist[] in whole or in part of anti-trust, restraint of trade activities occurring on or after the Retroactive Date . . . ." Hence, the first sentence of the Antitrust Endorsement would initially extend coverage to all of the Wrongful Acts. But the second sentence of the Antitrust Endorsement dictates that all of the damages caused by that series of Wrongful Acts would be deemed to have been caused by the first Wrongful Act in the series -- a Wrongful Act that is not within the coverage period. Thus, as a practical matter, the second sentence limits the coverage that is initially extended by the first sentence, just as exclusions often limit coverage that is initially extended by insuring clauses. But consider a second scenario: Suppose that the first in a series of related Wrongful Acts occurs after the Retroactive Date but before the Expiration Date, and the last in that series of Wrongful Acts occurs after the Expiration Date. Those Wrongful Acts would be deemed to be a single Wrongful Act by virtue of § 4.17, and that single Wrongful Act would "consist[] in whole or in part of anti-trust, restraint of trade activities occurring on or after the Retroactive Date . . . and before the . . . Expiration Date . . . ." Hence, the first sentence of the Antitrust Endorsement would extend coverage to all of the Wrongful Acts (something that would not be true without the words "in part"). Morever, the second sentence of the Antitrust Endorsement dictates that all of the damages caused by that series of Wrongful Acts would be deemed to have been caused by the first Wrongful Act in the series -- a Wrongful Act that was within the coverage period. The second sentence makes clear that damages caused after the Expiration Date are covered, as long as the later Wrongful Act that causes those damages relates to an earlier Wrongful Act that occurred before the Expiration Date. Roughly speaking then, the Antitrust Endorsement does not cover any damages caused by a series of related Wrongful Acts that begin before the Retroactive Date. In other words, the Antitrust Endorsement does not cover antitrust violations that are already ongoing at the time that the insured becomes covered under the endorsement. (In this case, Oxford was acquired by United -- and thus became covered under the endorsement -- on the Retroactive Date.) But the Antitrust Endorsement covers all damages caused by a series of Wrongful Acts that begin after the Retroactive Date -- that is, after the insured becomes covered under the endorsement -- and then extend past the Expiration Date. If an antitrust violation starts on the insurer's watch, the insurer will cover all damages caused by that violation, including damages that arise after Expiration Date. -30-

13

3. Section 9.9 The second of the two specific insuring clauses that United contends cover the Malchow claim for attorney's fees is a clause found in § 9.9 of the Policy. Section 9.9, which is a Policy exclusion, provides as follows: 9.9. Benefits and Provider Contracts. We will not cover Claims for any amounts or limits payable under any insurance policy, benefits contract or provider contract; however, we will pay the Damages and Claim Expenses incurred by a Protected Person in the defense of a Claim for liability that results from the activity of administrating benefit claims. United contends that the carveback in the second sentence of this exclusion is actually an affirmative grant of coverage that supersedes every exclusion in the Policy. Of course, the phrase "the activity of administrating benefit claims" describes most of what United does. Thus, United is contending that at the bottom of the 22nd page of the Policy, in a section entitled "What This Policy Will Not Cover -- Exclusions," at the end of the 9th of the 21 exclusions listed in that section, following a semicolon, the parties tucked 31 words that effectively wipe out much of the rest of the Policy and obligate the insurers to cover just about any claim that might be brought against United. United's contention is highly implausible, and, not surprisingly, United has not found any New York cases that are particularly supportive of its position. United does rely on Miceli v. State Farm Mutual Automobile Insurance Company for the general proposition that "[t]he specific denomination of a policy provision as an exclusion is not necessarily dispositive of whether that provision is indeed an exclusion." 762 N.Y.S.2d 199, 201 (N.Y. App. Div. 2003); rev'd on other grounds, 819 N.E.2d 995 (N.Y. 2004). But, in Miceli, everyone agreed that the

-31-

provision in question limited (rather than granted) coverage. The dispute was merely about whether the limiting provision should be classified as an exclusion from coverage or instead as a part of the description of the scope of coverage. Id. at 200-01. Miceli thus had nothing to do with whether a carveback from an exclusion is an affirmative grant of coverage. More to the point, United's argument that the carveback in § 9.9 supersedes every exclusion in the Policy has been rejected by numerous New York cases. Under New York law, "[e]xclusions in policies of insurance must be read seriatim, not cumulatively, and if any one exclusion applies there can be no coverage since no one exclusion can be regarded as inconsistent with another." Zandri Constr. Co. v. Firemen's Ins. Co., 440 N.Y.S.2d 353, 356 (N.Y. App. Div.), aff'd sub nom. Zandri Constr. Co. v. Stanley H. Calkins, Inc., 430 N.E.2d 922 (N.Y. 1981). In adopting this rule, Zandri explicitly rejected the argument that an ambiguity created by a carveback to an exclusion should be resolved by holding that the carveback controls over all other exclusions. Id. at 355. New York courts (and courts applying New York law) have consistently followed this rule since it was adopted in Zandri. See, e.g., Maroney v. N.Y. Cent. Mut. Fire Ins. Co., 839 N.E.2d 886, 888 (N.Y. 2005); Tradin Organics USA, Inc. v. Md. Cas. Co., 325 Fed. Appx. 10, 11 (2d Cir. 2009); Catucci v. Greenwich Ins. Co., 830 N.Y.S.2d 281, 282 (N.Y. App. Div. 2007); Ruge v. Utica First Ins. Co., 819 N.Y.S.2d 564, 566 (N.Y. App. Div. 2006); Sampson v. Johnston, 708 N.Y.S.2d 210, 211 (N.Y. App. Div. 2000); Monteleone v. Crow Constr. Co., 673 N.Y.S.2d 408, 411 (N.Y. App. Div. 1998); Charter Oaks Fire Ins. Co. v. Clayton, 62 F.3d 1414, 1995 WL 469423, at *4-6 (4th Cir. Aug. 9, 1995) (per curiam) (unpublished table disposition); Rhinebeck Bicycle Shop, Inc. v. Sterling Ins. Co., 546 N.Y.S.2d 499, 501-02 (N.Y. App. Div. 1989). -32-

United contends that the seriatum rule has not been adopted by New York's highest court and is inconsistent with the principle that insurance policies must be construed as a whole. Both of these assertions are incorrect. The "seriatum" rule originated in Zandri, which the New York Court of Appeals affirmed in a brief, three-sentence opinion. Zandri, 430 N.E.2d at 922. About the only substantive comment that the Court of Appeals made in its short opinion was that "[t]he exception to the exclusion for contractual liability when read in conjunction with the other policy exclusions does not lead to a contrary result." Id. The Court of Appeals therefore appeared to rely on the seriatum rule in affirming the lower court. The Court of Appeals has also explicitly relied on Zandri and its progeny for the principle that "`if any one exclusion applies there can be no coverage.'" Maroney, 839 N.E.2d at 888 (quoting Monteleone, 673 N.Y.S.2d at 411, which in turn was quoting Zandri). Finally, even if the Court of Appeals had not signaled its approval of Zandri by affirming it in the first instance and later citing it in Maroney, this Court would not be free to disregard a long line of authority from New York's intermediate appellate courts. Cf. Hope v. Klabal, 457 F.3d 784, 790 (8th Cir. 2006) ("We are bound by decisions of the Minnesota Supreme Court, and if that court has not considered an issue, we must follow decisions of the Minnesota Court of Appeals if they are the best evidence of Minnesota law."). Zandri also makes clear that the "seriatum" rule, far from being inconsistent with the rule that insurance policies must be construed as a whole, is in fact a particularized application of that rule: The so-called "doctrine of ambiguity" is a rule of construction and is intended as an aid in the interpretation of policy terms when the intent of the contracting parties is unclear. It is not a rule of law to be rigidly applied when there is a de minim[i]s conflict that readily

-33-

gives way when a full reading of the policy makes the intent of the parties clearly discernible. Zandri, 440 N.Y.S.2d at 355. United's suggestion that Zandri conflicts with other rules of construction is thus erroneous. The Court