ALLIED WORLD SPECIALTY INSURANCE COMPANY v. INDEPENDENCE BLUE CROSS
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE JUAN R. SANCHEZ ON 10/31/2017. 10/31/2017 ENTERED AND COPIES E-MAILED.(kp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
ALLIED WORLD SPECIALTY
formally known as
DARWIN NATIONAL ASSURANCE
INDEPENDENCE BLUE CROSS
Juan R. Sánchez, J.
October 31, 2017
Plaintiff Allied World Specialty Insurance Company f/k/a Darwin National Assurance
Company seeks a declaratory judgment that the Managed Care Organization Errors and
Omissions Liability Insurance Policy it issued to Defendant Independence Blue Cross, LLC (the
Policy) provides no coverage for the claims asserted against Independence in multi-district
litigation in which Independence is a defendant in the Northern District of Alabama. See In re:
Blue Cross Blue Shield Antitrust Litig., Master File No. 2:13-cv-20000-RDP (M.D. Ala.) (the
MDL Action). Allied World asserts there is no coverage for the MDL Action and the cases
consolidated therein under the Policy because (1) the claims asserted against Independence fall
under the “Related Claim” Exclusion in the Policy; (2) the claims asserted against Independence
fall under the “Prior or Pending or Prior Claims” Exclusions in the Policy; and (3) plaintiffs in
the MDL Action seek relief that does not constitute “Loss” under the Policy and/or is
uninsurable as a matter of law. Independence moves to dismiss or stay this declaratory judgment
action, asserting Allied World’s coverage obligations depend on the outcome of claims that have
yet to be resolved in the MDL Action.
In response, Allied World argues its “threshold
questions” of whether the Related Claim and/or Prior Litigation Exclusions within the Policy bar
coverage do not depend on the development of the underlying action and are ripe for review.
The Court agrees with Allied World. Allied World’s secondary question of whether the relief
sought by the plaintiffs in the MDL Action is covered under the Policy, however, cannot be
addressed until resolution of the plaintiffs’ claims for relief. Independence’s Motion to Dismiss
or Stay is therefore denied in part, and granted in part insofar as the discrete issue of whether the
relief sought by the plaintiffs in the MDL Action is covered under the Policy is stayed for a
period of six months.
In 2012, several class action lawsuits were filed by healthcare providers and subscribers
against multiple Blue Cross Blue Shield entities and member plans, including Independence (the
Blues), and the Blue Cross Blue Shield Association, alleging the defendants “conspired to
leverage their economic power and market dominance to under-compensate healthcare providers
for their services and to increase healthcare costs to subscribers by coordinating their operations
and limiting their activities through restrictions in their trademark licenses,” in violation of
federal antitrust laws. Compl. ¶ 7. Several of these actions were transferred to the United States
District Court for the Northern District of Alabama for coordinated pretrial proceedings as part
of the MDL Action. The parties to the MDL Action are currently in the midst of discovery. See
Def.’s Mem. Ex. A (Scheduling Order).
Prior to the filing of the lawsuits consolidated in the MDL Action, Independence was a
defendant in another class action, Love v. Blue Cross Blue Shield Assoc., No. 03-21296 (S.D.
Fla), which was part of an earlier MDL proceeding styled In re Managed Care Litigation, No.
1:00-MDL-1334. As in the MDL Action, the plaintiffs in Love alleged the Blues entered into
cooperation agreements with each other to maximize their profits, in violation of federal antitrust
laws. Independence was also a defendant in a subsequent action, Musselman v. Blue Cross Blue
Shield of Ala., No. 13-20050 (S.D. Fla.), in which provider plaintiffs in the MDL Action, who
were also plaintiffs in the Love class and participated in the Love settlement, sought a declaration
that they could assert their antitrust claims in the MDL Action despite being releasing parties in
the Love settlement. 1
Following the commencement of the MDL Action, Independence provided notice of the
MDL Action to Allied World and requested coverage under the Policy. In a March 4, 2014,
letter, Allied World agreed to reimburse defense costs incurred by Independence in connection
with the MDL Action under the Policy, but reserved its rights to deny coverage. See Compl. Ex.
Allied World later reversed course, however, advising Independence in a June 14, 2017,
letter that it had determined the Policy does not provide coverage for the claims asserted by the
plaintiffs in the MDL Action because (1) the MDL Action is a “Related Claim” to previous
litigation—the Love litigation—under the Policy and is therefore excluded under the Policy’s
Related Claim Exclusion, and (2) coverage for the MDL Action is also precluded by the Policy’s
Prior or Pending Litigation or Prior Claims Exclusions. See Def.’s Supp. Mem. Ex. C. Allied
World also “reserve[d] its rights to the extent that any award might include fines, penalties, nonmonetary relief, amounts deemed uninsurable under law, or claim that does not fall within the
definition of Loss.” Id. at 11. As a result, Allied World informed Independence it would no
longer advance Independence’s defense expenses in the MDL Action, and requested
The Blues filed a motion to dismiss the Musselman complaint, which the district court granted
after finding the antitrust claims asserted by the Musselman plaintiffs in the MDL Action were
released by the settlement agreements in the Love litigation. The United States Court of Appeals
for the Eleventh Circuit affirmed that decision. See Musselman v. Blue Cross Blue Shield of
Ala., 684 F. App’x 824 (11th Cir. 2017).
reimbursement of amounts advanced to date pursuant to the parties’ Defense Expenses
Repayment Agreement. 2
Allied World now seeks a declaratory judgment that the Policy does not provide coverage
to Independence for the MDL Action, and that it is entitled to recoup the defense costs it has
already expended in the MDL Action.
Independence moves to dismiss Allied World’s
Complaint, arguing Allied World’s coverage obligations depend on facts that have yet to be
developed in the underlying antitrust cases. In the alternative, Independence moves to stay this
action pending the resolution of the MDL Action.
The Declaratory Judgment Act (DJA) permits a federal court to “declare the rights and
other legal relations of any interested party seeking such declaration, whether or not further relief
is or could be sought.” 28 U.S.C. § 2201(a). The remedy provided by § 2201 is discretionary.
See Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (“We have repeatedly characterized the
Declaratory Judgment Act as an enabling Act, which confers a discretion on the courts rather
than an absolute right upon the litigant.” (internal quotation marks omitted)). A court may, in
appropriate circumstances, abstain from entertaining an action seeking only declaratory relief,
see Kelly v. Maxum Specialty Ins. Grp., 868 F.3d 274, 281 (3d Cir. 2017), or stay a declaratory
judgment action, see Wilton, 515 U.S. at 282-83.
In deciding whether to entertain a declaratory judgment action, a district court considers
factors “bearing on the usefulness of the declaratory judgment remedy, and the fitness of the case
for [federal] resolution.” Kelly, 868 F.3d at 282 (alteration in original). The court must first
Independence and Allied World executed a Repayment Agreement, which gives Allied World
the right to recoup any defense expenses paid to Independence if it is determined that the Loss
incurred by Independence in the MDL Action is not covered by the Policy. See Compl. ¶ 49.
determine the “significant” factor of whether there is a “parallel state proceeding.” Id. The
existence of a parallel state proceeding “militates significantly in favor of declining jurisdiction,”
where as “the absence of pending parallel state proceedings militates significantly in favor of
exercising jurisdiction.” Id.
The court must then consider other relevant factors, including, but not limited to:
(1) the likelihood that a federal court declaration will resolve the uncertainty of
obligation which gave rise to the controversy;
(2) the convenience of the parties;
(3) the public interest in settlement of the uncertainty of obligation;
(4) the availability and relative convenience of other remedies;
(5) a general policy of restraint when the same issues are pending in a state court;
(6) avoidance of duplicative litigation;
(7) prevention of the use of the declaratory action as a method of procedural
fencing or as a means to provide another forum in a race for res judicata; and
(8) (in the insurance context), an inherent conflict of interest between an insurer’s
duty to defend in a state court and its attempt to characterize that suit in federal
court as falling within the scope of a policy exclusion.
Id. at 282-83 (quoting Reifer v. Westport Ins. Corp., 751 F.3d 129, 146 (3d Cir. 2014). Where a
parallel state proceeding does not exist, before declining jurisdiction, a court should ensure “the
lack of pending parallel state proceedings is outweighed by opposing factors.” Id. at 282.
The parties agree no parallel state proceeding exists here. The MDL Action is in federal
court, and, in any event, it is not a parallel proceeding to the instant declaratory judgment action.
See Kelly, 868 F.3d at 284 (holding “there must be a substantial similarity in issues and parties
between contemporaneous pending proceedings” in order to “make those proceedings parallel”).
Thus, this Court may decline jurisdiction only if the lack of a parallel state proceeding is
outweighed by the factors enumerated in Kelly. The Court finds these factors warrant the
exercise of jurisdiction.
There is no serious dispute that the first, second, and fourth factors weigh in favor of
exercising jurisdiction. As to the first factor, a declaration in this case would resolve Allied
World’s coverage obligations to Independence under the Policy. See Kelly, 868 F.3d at 288 (“[A]
declaratory judgment by the District Court would resolve the uncertainty that prompted filing of
the Declaratory Action[,]” as it “would unquestionably clarify and settle the dispute regarding
[the insurer’s] obligations under the insurance policy.”); Allied World Surplus Lines Ins. Co. v.
Wellmark, Inc., No. 17-117, Order at 3 (S.D. Iowa June 27, 2017) (finding that a declaratory
judgment regarding Allied World’s obligations to Wellmark, another defendant in the MDL
Action, would “terminate and afford relief from uncertainty, insecurity, and controversy” to both
parties). 3 As to the second factor, the parties will not be inconvenienced by having this matter
adjudicated in this forum. Independence has its principal place of business in Pennsylvania, and
Allied World chose this forum in filing this lawsuit. The fourth factor also weighs in favor of
accepting jurisdiction, as Allied World argues it has no other remedy available, and
Independence merely asserts this action is premature, not that other remedies would be adequate
or more convenient. See id. at 289. Indeed, the “resolution of [the] coverage issue in another
action is ‘by no means certain and the presence of multiple unrelated issues [makes] efficient
resolution even less certain.’” Wellmark, No. 17-117, Order at 3-4 (S.D. Iowa June 27, 2017)
(alterations in original) (quoting Lexington Ins. Co. v. Integrity Land Title Co., 721 F.3d 958, 968
(8th Cir. 2013)).
The parties also do not dispute that the third, seventh, and eighth factors are neutral in
this case. As to the third factor, this Court is “well-equipped” to address “the usual [public]
interest in the fair adjudication of legal disputes.” Kelly, 868 F.3d at 288. The seventh factor is
neutral, as there are no allegations here of procedural fencing, a race for res judicata, or, more
In Wellmark, Allied World sought a declaratory judgment that policies it issued to Wellmark,
another Blue Cross Blue Shield entity, provided no coverage for a claim arising out of the same
MDL Action at issue in this case. The court denied Wellmark’s motion to dismiss or stay after
applying the relevant factors. Wellmark, No. 17-117, Order at 4 (S.D. Iowa June 27, 2017).
generally, improper motive. The eighth factor is also neutral; Allied World has ceased covering
defense costs and, therefore, any conflict no longer exists. Further, there is no indication there
exists an inherent conflict of interest between Allied World’s duty to advance or reimburse
defense costs in the MDL Action and its argument that certain policy exclusions prohibit
coverage in the MDL Action, as Allied World is not a party to the MDL Action and need not
make conflicting legal and factual assertions in the two proceedings. See Kelly, 868 F.3d at 289;
cf. Westfield Ins. Co. v. Icon Legacy Custom Modular Homes, No. 15-0539, 2015 WL 4602262,
at *5 (M.D. Pa. July 30, 2015) (finding inherent conflict of interest factor neutral where insurer
was pursuing declaratory judgment action against Icon while defending Icon in the underlying
action, as the insurer “need not argue against Icon’s interest[ ] in this action; it is merely arguing
that any liability on Icon’s part is not covered under the Policy”).
In arguing the Court should dismiss this case, Independence relies primarily on the fifth
and sixth Kelly factors—“a general policy of restraint” and “duplicative litigation”—arguing
these factors weigh heavily in favor of dismissing this action due to the “entanglement” of this
action with the MDL Action. Independence argues any coverage determination by this Court
depends on the facts that must be determined in the MDL Action, and any findings of facts made
by this Court may conflict with the MDL court’s findings. Allied World agrees this to be true as
to one coverage issue—the “Loss” issue—but argues that whether coverage is barred by the
application of the Related Claim and Prior or Pending Litigation Exclusions is solely a question
of law. 4
The Court agrees. Independence has offered no argument as to how determining
Independence also argues Allied World’s reliance on extrinsic evidence in its Complaint and
coverage position letter—namely the complaint in Love and statements made in the Musselman
Action—demonstrates a coverage determination cannot be made solely by looking at the
complaints in the underlying and prior actions, and is further reason to stay or dismiss this action.
Indeed, both parties go to some length to dispute the difference between the standard a court
whether those exclusions bar coverage would interfere with the MDL Action, and there is no
indication the coverage issue will be addressed in the MDL Action. Thus, a “general policy of
restraint” serves no purpose here where Allied World’s obligations under the Policy are not
pending in the MDL Action.
See Kelly, 868 F.3d at 289.
Similarly, there is no risk of
duplicative litigation as to those policy exclusions. See id. (“[T]here is no reason at this juncture
to be concerned about duplicative litigation as the issues in the two proceedings are distinct.”).
The Court therefore finds the coverage dispute as to the Related Claim and Prior Litigation
Exclusion is ripe for consideration. 5 See Wellmark, No. 17-117, Order at 4 (S.D. Iowa June 27,
should apply in determining a duty to advance defense costs, a duty to defend, and a duty to
indemnify, which standard applies here, and whether the Court may look to evidence outside the
four corners of the Complaint. But such questions need not be answered at this time. Contrary
to Independence’s argument, that this Court must look to pleadings in other cases to determine
whether exclusions in the Policy bar coverage in the MDL Action does not mean the Court will
“engage in extensive factual inquiries” that may conflict with the factual development of the
MDL Action, nor is it dispositive of whether a determination of the coverage dispute is entangled
in the underlying action. See Wellmark, No. 17-117, Order at 4 (S.D. Iowa June 27, 2017)
(finding that although “there may be some issues of overlapping fact, the Court does not see any
overlapping issues of law that would result in an ‘unnecessary entanglement’” (quoting
Lexington Ins. Co. v. Integrity Land Title Co., 721 F.3d 958, 968 (8th Cir. 2013))); Westfield Ins.
Co., 2015 WL 4602262, at *4 (finding that although the underlying state court proceedings “may
involve many of the same factual issues as this [declaratory judgment action],” those proceedings
would “not resolve the fundamental dispute at issue”—whether the insurer must continue to
defend the insured); id. at *5 (noting that resolving the coverage dispute would “involve a
comparison of the Policy language with the state court complaints, and possibly any facts
uncovered through discovery”).
Independence further argues Allied World’s prior involvement in the MDL Action—
attending court proceedings and mediation sessions and retaining experts—necessarily entangles
the two proceedings. See Def.’s Reply 3. But Allied World’s initial efforts to comply with its
duty to advance expense costs do not bear on the entanglement of issues in the two proceedings.
Independence further argues this matter should be dismissed because Allied World, having
ceased advancing defense costs, would not be prejudiced if this action were dismissed or stayed.
See Def.’s Mem. 8 n.3; Def.’s Reply 5. On the other hand, Independence argues, it is prejudiced
by having to litigate this action while defending the MDL Action, which may force it to make
arguments in support of coverage in this action that could prejudice its defense of the underlying
case. Independence relies on a recent order by a district court in the District of Oregon issuing a
twelve-month stay of a declaratory judgment action filed by Allied World against Cambia, a co8
2017) (finding there would be no unnecessary entanglement with the MDL Action as a result of
“overlapping issues of fact or law,” as Allied World was not a party to the underlying MDL
Action and the MDL litigation did not “involve interpretations of insurance policy provisions, as
Allied World’s request for declaratory judgment [did]”).
Nevertheless, Allied World has conceded the discrete issue of whether the relief sought
by the plaintiffs in the MDL Action constitutes a Loss, is uninsurable as a matter of law, or is
otherwise not covered under the Policy depends on the development of facts and the
determination of relief in the MDL Action, and may be stayed. Indeed, because relief has not yet
been assessed in the MDL Action, it would be premature for this Court to decide whether the
relief sought in the underlying action is covered by the Policy. See Kelly, 868 F.3d at 287 n.12
(“It is possible that, in certain circumstances, determining the issue of coverage will rely on
questions central to the underlying liability proceeding . . . . Even if the proceedings are not
parallel . . . such may be the type of situation which nevertheless warrants a court’s abstention.”).
This issue will therefore will be stayed.
defendant of Independence in the MDL Action, finding “an adequate showing of hardship to the
defendant, to the insured, from having to proceed right now [with discovery and litigation] . . . in
light of the fact that the plaintiff is not currently advancing defense costs to its insured.” Def.’s
Am. Notice of Filing Supp. Auth. Ex. 1 at 6, ECF. 29. Although prejudice is not an enumerated
factor in Kelly, the Court may consider it. See Kelly, 868 F.3d at 282 n.6 (noting the list of
factors “is not exhaustive and . . . other considerations might be relevant in the appropriate
case”). Nevertheless, the Court does not find that the current lack of prejudice to Allied World—
notwithstanding the defense costs it has already advanced to Independence—a determining
factor in staying this matter, especially when weighed against the factors that favor maintaining
jurisdiction. Moreover, the Court is not persuaded a potential conflict in litigating both actions
weighs in favor of dismissal. As an example of such a conflict, Independence admits it has taken
inconsistent positions in the Musselman action and in the instant action, as it argued in
Musselman that allegations in the MDL Action involve the same allegations as those made in
Love, thereby releasing the claims in the MDL Action and barring further litigation. Such
arguments now work against Independence, as they tend to admit that the plaintiffs’ allegations
in the MDL Action arise out of and are related to the allegations in Love. Independence fails to
demonstrate, however, how that conflict, or any other potential conflict, would prejudice its
defense in the MDL Action.
Although a stay is appropriate as to the Loss issue, resolution of the Related Claim and
Prior Litigation Exclusions issue may resolve this coverage dispute. If the Court determines
those Exclusions bar coverage, the question of whether any relief awarded in the MDL Action
constitutes a covered Loss would be moot. On the other hand, if the Court determines the
Exclusions do not apply, the remaining issue regarding Loss could be decided upon the
assessment of damages against Independence or other resolution of the plaintiffs’ claim for relief
in the underlying MDL Action. There is therefore no reason not to proceed as to the Exclusion
issues at this time.
For the reasons discussed above, Independence’s Motion to Dismiss or Stay will be
granted insofar as the issue of whether the relief sought by the plaintiffs in the underlying MDL
Action is covered under the Policy is stayed for a period of six months. The balance of the
Motion is denied, and this case shall proceed as to whether coverage is barred by the Related
Claim and/or Prior Litigation Exclusions in the Policy. An appropriate Order follows.
BY THE COURT:
/s/ Juan R. Sánchez
Juan R. Sánchez, J.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?