MSO Washington Inc v. RSUI Group Inc et al

Filing 27

ORDER Granting Defendant's Motion for Summary Judgment, by Judge Robert J. Bryan. Defendants' Motion for Summary Judgment (Dkt. 13) is GRANTED. Plaintiff's request for a Fed. R. Civ. P. 56(d) continuance is DENIED. All claims filed by Plaintiff MSO Washington, Inc. are DISMISSED WITH PREJUDICE.(DK)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

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MSO WASHINGTON, INC.,
a Washington Corporation,

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Plaintiff,

CASE NO. C12-6090 RJB
ORDER GRANTING
DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT

v.
RSUI GROUP, INC., a foreign insurer;
RSUI INDEMNITY COMPANY, INC., a
foreign insurer and LANDMARK
AMERICAN INSURANCE COMPANY,
a wholly-owned subsidiary of RSUI
INDEMNITYCOMPANY, INC.,
Defendants.
This matter comes before the Court on the motion for summary judgment of Defendants

20 RSUI Group, Inc., Landmark American Insurance Company, and RSUI Indemnity Company,
21 Inc. (collectively, RSUI). Dkt. 13. RSUI seeks dismissal of Plaintiff MSO Washington, Inc.’s
22 (MSO) claims for wrongful denial of insurance coverage and failure to provide a defense
23 (contract claims), negligence, breach of duty of good faith, violation of the Washington
24 Consumer Protection Act, and violation of the Washington Insurance Fair Conduct Act. Id. p. 1.
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 1

1 The Court has considered the pleadings in support of and in opposition to the motion and the
2 record herein.
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INTRODUCTION AND BACKGROUND
MSO is a management services organization which contracts with licensed health care

5 providers to provide administrative and management services. Dkt. 22-12 p. 2. The services
6 provided by MSO are set forth in the Management Services Agreement (MSA) executed by
7 MSO and the contracting health care providers. See Dkt. 22-12. One of the primary
8 responsibilities of MSO under the MSA is to provide billing and collection services on behalf of
9 the contracting health care providers. Id. p. 4. Specifically, the agreement provides:
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2.2 Billing and Collection. On behalf of and for the account of Provider,
MSO shall establish and maintain credit, billing, and collection policies and
procedures, and shall be responsible for the billing and collection of all professional
and other fees for all billable medical services provided by Provider. In connection
with the billing and collection services to be provided hereunder, and throughout
the term of the Agreement, Provider hereby grants MSO a special power of attorney
and appoints MSO as Provider's true and lawful agent and attorney-in-fact, and MSO
hereby accepts such special power of attorney and appointment, for the following
purposes:
a. To bill Provider's patients, in Provider's name and on Provider's
behalf, for all billable medical services provided by Provider;

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b. To bill, in Provider's name and on Provider's behalf, all claims for
reimbursement or indemnification from insurance companies, Medicare,
Medicaid, and all other third-party payers for all covered billable medical
services provided by the Provider providers under contracts with such payers;
c. To collect and receive, in Provider's name and on Provider's behalf, all
accounts receivable generated by such billings and claims for reimbursement
or indemnification or otherwise delivered to MSO on Provider's behalf, and
to deposit all amounts collected into the Provider account, which account shall
be, and at all times shall remain, in Provider's name; and
d. To take possession of, endorse in the name of Provider, and deposit into the
Provider account any notes, checks, money orders, insurance payments, and
other instruments received in payment of accounts receivable for medical
services.

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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 2

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Upon request of MSO, Provider shall execute and deliver to MSO or the financial
institution wherein the Provider account is maintained, such additional documents or
instruments as may be necessary to evidence or affect the special power of attorney
granted to MSO by Provider pursuant to this Section.
MSO shall have no ownership of or other entitlement to funds it collects on behalf of
Provider, except as to any deduction for Management Fees as provided in this
Agreement, and shall hold all such funds solely as agent for Provider. MSO and Provider
agree to establish such bank accounts or other financial institution arrangements as may
be necessary to document and perfect the agency relationship between them.

7 Dkt. 22-12 pp. 4-5.
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On August 3, 2006, a federal False Claims Act (FCA) qui tam complaint was filed

9 against MSO, its sole shareholder Charles Plunkett, and certain physicians. United States, ex rel.
10 Brandler v. MSO Washington, Inc. et al., C06-5473 RJB W. D. Washington (Tacoma). Dkt. 1-1
11 pp. 1-18. The complaint was filed ex parte and under seal. Id. The complaint alleged two
12 counts under the FCA: that the defendants (1) knowingly submitted false or fraudulent claims for
13 payment to the federal government, and (2) knowingly made or used false records or statements
14 to get false or fraudulent claims paid or approved by the government. Id. pp. 16-17. The
15 complaint alleged that MSO engaged in a scheme to defraud the United States through its health
16 insurance programs, including Medicare and Medicaid. Id. p. 2. The complaint states that MSO
17 provided "medical care delivered to the home and other non-medical office settings." Id. It
18 alleges that MSO used a computerized electronic medical records and billing program to
19 routinely "code up" services and place of service to billing codes that cost more, and that it used
20 "canned entries" to over-represent the services supplied to patients. Id. The complaint requested
21 treble damages, a civil penalty, an award to the relator (i.e., former employee/whistleblower),
22 and attorneys' fees and expenses. Id. p. 17.
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 3

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Because the complaint was filed under seal as required by federal law, it was not

2 immediately served on MSO or the other named defendants. On May 5, 2008, the Inspector
3 General of the U.S. Department of Health and Human Services served subpoenas on MSO,
4 Plunkett, and certain other entities. Dkt. 1-1 pp. 20-73. The subpoena to MSO instructed it to
5 produce copies of records dating back to January 1, 2002, regarding, among other things,
6 electronic claims for health care services submitted to Medicare, Medicaid, or similar programs,
7 medical records, and Explanation of Benefits forms. Id. pp. 38-43. The subpoena stated that it
8 was "in connection with an investigation regarding the submission of possibly false, fraudulent,
9 or improper claims for payment under title XVIII of the Social Security Act . . .” Id. p. 38. The
10 service of the subpoenas in May of 2008 provided MSO with the first indication that a claim was
11 being made against MSO. Dkt. 1 p. 3. On May 23, 2008, MSO sent notice to RSUI of the
12 issued subpoenas and the potential claim.
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RSUI issued a “Medical Professional Liability” claims-made basis insurance policy to

14 MSO under Policy No. LHM808920, with a policy period of February 20, 2008, to February 20,
15 2009. Dkt. 15-1 p. 1. The policy Declarations list the named insured as MSO Washington, Inc.,
16 and lists the “Named Insured’s Professional Services” as “Medical Outpatient Facility.” Dkt.
17 15-1 p. 1. MSO’s application for the 2008-2009 policy described its professional activities and
18 specialty as “Primary Care, Medical Outpatient Facility.” Dkt. 15-1 p. 19.
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The policy states that it covers negligence in rendering professional services:

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Part I. Insuring Agreements

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A. Covered Services

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The Company will pay on behalf of the Insured, as shown in the Declarations, all
sums that the Insured becomes legally obligated to pay as Damages and
associated Claim Expenses arising out of a negligent act, error or omission, even
if such Claim is groundless, false or fraudulent, in the rendering of or failure to
render professional services as described in the Declarations, provided that the:

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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 4

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1. Claim is first made against the Insured during the Policy Period, and
reported to the Company no later than thirty (30) days after the end of the
Policy Period.
…
3. Negligent act, error or omission took place after the Retroactive Date as
shown in the Declarations.
Dkt. 15-1 p. 3.
The policy requires RSUI to defend MSO against certain claims:
B. Defense and Settlement
The Company will have the right and duty to defend any Claim against an
Insured seeking Damages to which this policy applies, even if any of the
allegations of the Claim are groundless, false or fraudulent.

10 Dkt. 15-1 p. 3.
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The policy contains an exclusion for dishonesty:

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Part II. Exclusions

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This policy does not apply to any Claim or Claim Expenses based upon or
arising out of:
…

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E. Dishonest, fraudulent, criminal or intentional acts, errors or omissions
committed by or at the direction of the Insured.

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Dkt. 15-1 p. 5.
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The Definitions provision defines a claim as:
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C. Claim means a written or verbal demand, including any incident, occurrence or
offense which may reasonably be expected to result in a claim, received by the
insured for money or services, including service of suit or institution of arbitration
proceeding against the Insured.

21 Dkt. 15-1 p. 6. The “retroactive date” means the date stated in the Declarations on or after which
22 any alleged or actual negligent act, error or omission must have first taken place. Id. The
23 “policy period” is the period of time stated in the Declarations. Id.
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 5

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The “Notice of Claim” provision provides:

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The Insured must notify the Company as soon as practicable of an incident,
occurrence or offense that may reasonably be expected to result in a Claim.
Where notice to the Company of such incidents, occurrences or offenses
has been acknowledged as adequate by the Company in writing, subsequent
Claims derived from such incidents, occurrences or offenses will be deemed
as first made at the time the incident, occurrence or offense giving rise to such
Claim was first provided. The Insured also must immediately send copies to the
Company of any demands, notices, summonses or legal papers received in
connection with any Claim, and must authorize the Company to obtain records
and other information.

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Dkt. 15-1 p. 7.
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RSUI acknowledged receiving the subpoenas in a letter dated May 28, 2008. Dkt. 15-2.
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This letter advised MSO that the insurer had a right and duty to defend claims that are or may be
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covered under the policy, and that absent a coverage denial, and assuming a claim as defined in
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the policy has been made, the insurer will appoint counsel to defend the matter. The letter also
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states that, pending further investigation, the insurer is proceeding in the matter under a
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reservation of its rights, with a coverage position to follow pending an investigation of the claim.
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Id. pp. 1-2.
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On June 3, 2008, Robert Orr, RSUI's Vice President for Professional Liability Claims,
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sent a letter to MSO's sole shareholder, Charles Plunkett, identifying certain provisions of the
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RSUI policy and noting that the subpoenas served on MSO were not claims and did not trigger a
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duty to defend or indemnify. Dkt. 15-3. Orr informed MSO that RSUI was treating the report as
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a notice of potential claim and that it would continue to monitor the matter subject to a full
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reservation of rights under the policy. Id. p. 5. MSO was also instructed to immediately forward
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any demands, lawsuits, or other legal pleadings since they could change the coverage analysis.
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Id. RSUI’s analysis of the potential claim provided as follows:
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 6

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The Landmark Policy provides Medical Professional Liability coverage to MSO.
Pursuant the terms of the Policy's Insuring Agreement, the Policy provides coverage for
Claims seeking covered damages that arise out of negligent acts, errors or omissions
(E&O) attributable to MSO in the rendering or failing to render its medical professional
services, which are described in the Policy's Declaration Page as "Medical Outpatient
Facility". However, the initial report to Landmark does not identify a medical incident or
evidence of an alleged E&O arising out of medical care or treatment of patients by MSO.
Rather, the initial report to Landmark is based entirely upon MSO's receipt of subpoenas
from the U.S. Department of Health and Human Services seeking information regarding
MSO’s billing practices. Accordingly, based upon our review of information provided to
Landmark with the initial claim report it is c1ear that a claim, as defined by the Policy,
has not been made against MSO at this time. The subpoenas served upon MSO do not
make a "demand for money or services" against MSO as required by the Policy's
definition of a Clam, nor are the subpoenas accompanied by an allegation of a negligent
act; error or omission arising from the performance of MSO's described medical
professional services. Further, the subpoenas do not seek covered damages against MS0
as defined by the Policy's Damages definition. Therefore, for the above reasons, the
subpoenas served upon MSO do not rise to the level of a claim as defined by the policy
and do not trigger duty to defend or indemnify on the part of Landmark.

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RSUI did not receive any response to the May 28 and June 3, 2008 letters, and on March

13 26, 2009, RSUI sent another letter to MSO requesting a status update of the potential claim. Dkt.
14 15-4. MSO did not respond. Dkt. 15 p. 2.
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Correspondence from MSO in late 2009 and early 2010 disclosed that an investigation by

16 DHHS was still underway and that a settlement was expected. Dkt. 15 p. 2.
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On February 23, 2010, RSUI was notified by MSO that a settlement, subject to court

18 approval, had been reached with DHHS for an amount of $600,000. Dkt. 15-7. On August 23,
19 2010, MSO's legal counsel asked that RSUI fund MSO's anticipated settlement with the United
20 States. Dkt. 15 p. 3. RSUI responded, detailing the previous contacts between MSO and RSUI
21 regarding the potential claim. Dkt. 15-9. RSUI stated that it had never indicated that there was
22 coverage and that it was reserving all its rights. Id. RSUI requested that MSO forward a copy of
23 any lawsuit, demand or other claim may by DHHS against MSO. Id.
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 7

1

On November 4, 2010, RSUI was provided with a copy of the August 3, 2006 complaint

2 in USA v. MSO. Dkt. 15-10 p. 3. This is the same date on which DHHS first made the
3 complaint available to MSO. Dkt. 22 p. 20.
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On November 30, 2010, RSUI sent correspondence to MSO denying the tender and

5 explaining RSUI's coverage position. It noted that the policy did not cover the FCA claims
6 against MSO because (1) the complaint did not allege negligence; (2) billing is not a covered
7 professional service; (3) the exclusions for fraud and contractual liability barred coverage; (4) the
8 complaint did not seek covered damages; and (5) the claim was not first made in the policy
9 period. Dkt. 15-10.
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MSO later settled its claims with the United States. On February 4, 2011, the District

11 court entered a stipulation dismissing the claims against MSO and Plunkett. Dkt. 14-1. Several
12 months later, in a letter dated November 9, 2011, new counsel representing MSO contended that
13 the RSUI policy covered the claims against MSO and demanded payment of the $600,000
14 settlement amount and $97,160.57 in defense costs. Dkt. 15-11. MSO further maintained that
15 RSUI breached the policy, acted in bad faith, and violated IFCA by failing to defend, failing to
16 investigate, and failing to notify MSO promptly of its coverage decisions. Id.
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RSUI responded on December 9, 2011, adhering to its previous denial of the claim

18 because the allegations against MSO arose from improper billing practices, which was not a
19 covered professional service of a medical outpatient facility. Dkt. 15-12 pp. 4-5. RSUI also
20 stated that the exclusion for dishonesty would preclude coverage. Dkt. 15-12 p. 5.
21

In August 1012, MSO tendered coverage to RSUI under two additional policies of

22 insurance. Dkt. 15-13. A second policy was issued to MSO under Policy No. LHR811238, with
23 a policy period of February 20, 2009, to February 20, 2010. Dkt. 15-14. A third policy was
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 8

1 issued to MSO under Policy No. LHR813359, with a policy period of February 20, 2010, to
2 February 20, 2011. Dkt. 15-16. Both of those policies have retroactive dates of February 20,
3 2009. They differ from the initial 2008-2009 policy in that both subsequent policies list the
4 named insured’s professional services as “Physician Practice / Management Services” Dkt. 155 14 p. 1; Dkt. 15-16 p. 1. They also both include Miscellaneous Professional
6 Liability Coverage Form – Claims Made Basis. Dkt. 15-14 pp. 2-3; and Dkt. 15-16. pp. 2-3.
7 This policy form provides the same coverage language as the initial policy. Compare Dkt. 15-14
8 p. 3 and Dkt 15-16 p. 3 with Dkt. 15-1 p. 3. These policies also contain the Exclusion for
9 dishonesty. Dkt. 15-14 p. 5 and Dkt. 15-16 p. 5.
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In a September 5, 2012 letter, RSUI denied the tender explaining that neither the 2009-

11 2010 nor the 2010-2011 policies covered the claims against MSO because the complaint did not
12 seek damages arising out of negligent acts; the claim was not first made during the policy
13 periods; the alleged acts occurred before the retroactive date of February 2, 2009; the complaint
14 was a dispute over fees, which is not included as damages; and exclusions for dishonest acts,
15 known losses, and administrative actions brought by the federal government applied. Dkt. 15-15
16 pp. 4-5. In addition, there was no coverage under 2010-2011 policy because it excluded any
17 claim arising from "[a]ny gain, profit or advantage to which the insured in not legally entitled,"
18 and the complaint alleged actions taken for the purpose of obtaining a gain or profit to which
19 MSO was not legally entitled. Dkt. 15-15 pp. 5-6.
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This lawsuit followed.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate only when the pleadings, depositions, answers to

23 interrogatories, affidavits or declarations, stipulations, admissions, answers to interrogatories,
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 9

1 and other materials in the record show that “there is no genuine issue as to any material fact and
2 the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In assessing a
3 motion for summary judgment, the evidence, together with all inferences that can reasonably be
4 drawn therefrom, must be read in the light most favorable to the party opposing the motion.
5 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); County of
6 Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001).
7

The moving party bears the initial burden of informing the court of the basis for its

8 motion, along with evidence showing the absence of any genuine issue of material fact. Celotex
9 Corp. v. Catrett, 477 U.S. 317, 323 (1986). On those issues for which it bears the burden of
10 proof, the moving party must make a showing that is sufficient for the court to hold that no
11 reasonable trier of fact could find other than for the moving party. Idema v. Dreamworks, Inc.,
12 162 F.Supp.2d 1129, 1141 (C.D. Cal. 2001).
13

To successfully rebut a motion for summary judgment, the non-moving party must point

14 to facts supported by the record which demonstrate a genuine issue of material fact. Reese v.
15 Jefferson Sch. Dist. No. 14J, 208 F.3d 736 (9th Cir. 2000). A “material fact” is a fact that might
16 affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477
17 U.S. 242, 248 (1986). Where reasonable minds could differ on the material facts at issue,
18 summary judgment is not appropriate. See v. Durang, 711 F.2d 141, 143 (9th Cir. 1983). A
19 dispute regarding a material fact is considered genuine “if the evidence is such that a reasonable
20 jury could return a verdict for the nonmoving party.” Anderson, at 248. The mere existence of a
21 scintilla of evidence in support of the party's position is insufficient to establish a genuine
22 dispute; there must be evidence on which a jury could reasonably find for the party. Id., at 252.
23

The instant action was removed to this Court based on diversity of the parties.

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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 10

1 Accordingly, the issues presented are governed by Washington State law. See Insurance Co. N.
2 Am. v. Federal Express Corp., 189 F.3d 914, 919 (9th Cir. 1999). Washington State law is clear
3 that the interpretation of policy language contained in an insurance contract is a question of law.
4 Butzberger v. Foster, 151 Wn.2d 396, 401 (2004); State Farm General Ins. Co. v. Emerson, 102
5 Wn.2d 477, 480 (1984). Where there are no material facts in dispute, interpretation of the
6 insuring language at issue is appropriately decided on summary judgment. See American
7 Bankers Ins. v. N.W. Nat. Ins., 198 F.3d 1332 (11th Cir. 1999).
8
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DUTY TO DEFEND AND INDEMNIFY
The rule regarding the duty to defend is well settled in Washington and is broader than

10 the duty to indemnify. Hayden v. Mut. of Enumclaw Ins. Co., 141 Wn.2d 55, 64 (2000). The
11 duty to defend arises at the time an action is first brought, and is based on the potential for
12 liability. Truck Ins. Exch. v. VanPort Homes, Inc., 147 Wn.2d 751 (2002). An insurer has a duty
13 to defend when a complaint against the insured, construed liberally, alleges facts which could, if
14 proven, impose liability upon the insured within the policy's coverage. Id.; Unigard Ins. Co. v.
15 Leven, 97 Wn. App. 417, 425 (1999). An insurer is not relieved of its duty to defend unless the
16 claim alleged in the complaint is clearly not covered by the policy. Truck Ins. Exch., at 760; Kirk
17 v. Mt. Airy Ins. Co., 134 Wn.2d 558, 561 (1998). Moreover, if a complaint is ambiguous, a court
18 will construe it liberally in favor of triggering the insurer's duty to defend. Truck Ins. Exch., at
19 760; R.A. Hanson Co. v. Aetna Ins. Co., 26 Wn. App. 290, 295 (1980). The insurer must
20 investigate the claim, that is, consider facts outside the complaint, if (1) coverage is not clear
21 from the face of the complaint but may nonetheless exist, or (2) the allegations are in conflict
22 with facts known to or readily ascertainable by the insurer, or the allegations of the complaint are
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 11

1 ambiguous or inadequate. Holly Mountain Resources, Ltd. v. Westport Ins. Corp., 130 Wn. App.
2 635, 647 (2005)
3

In contrast, the duty to indemnify “hinges on the insured's actual liability to the claimant

4 and actual coverage under the policy.” Hayden, 141 Wash.2d at 64. In sum, the duty to defend
5 is triggered if the insurance policy conceivably covers the allegations in the complaint, whereas
6 the duty to indemnify exists only if the policy actually covers the insured's liability.
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Notice of Claim and Subsequent Policies

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The notice-of-claim provision in all three policies provides that the insured must notify

9 the insurer soon as practicable of an incident, occurrence or offense that may reasonably be
10 expected to result in a claim. Where notice to the insurer of such incidents, occurrences or
11 offenses has been acknowledged as adequate by the insurer in writing, subsequent claims derived
12 from such incidents, occurrences, or offenses will be deemed as first made at the time the
13 incident, occurrence or offense giving rise to such Claim was first provided.
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MSO notified RSUI of the receipt of the False Claim Act subpoenas on May 23, 2008.

15 RSUI acknowledged receipt of the subpoenas and informed MSO in writing that if would treat
16 the subpoenas as a notice of potential claim. The receipt of further claim information, including
17 receipt of the actual FCA complaint in 2010, relates back to the original notice of the potential
18 claim in 2008, and is deemed to have been reported at that time. Accordingly, any coverage, or
19 duty to defend, under the claims made policies is confined to the initial 2008-2009 policy.
20

The subsequent policies provide insurance coverage for certain claims, provided that the

21 negligent act, error, or omission took place after the retroactive date in the declarations. The
22 retroactive date for the 2009-2010 and 2010-2011 policies is February 2, 2009. Because the
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 12

1 claim arose prior to this retroactive date, there is no duty to defend or indemnify under these
2 subsequent policies.
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Professional Services Under Initial Policy

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The 2008-2009 RSUI policy covers negligence "in the rendering of or failure to render

5 professional services as described in the Declarations." The Declarations identify the named
6 insured's professional services as "Medical Outpatient Facility." RSUI denied a duty to defend
7 and to indemnify because the alleged claim was for wrongful Medicare and Medicaid billing; an
8 activity that is not a professional service of a medical facility.
9

The courts in this District and elsewhere have unanimously concluded that the

10 submission of billing claims under the FCA does not qualify as a “professional service.” See
11 Chicago Ins. Co. v. Center for Counseling & Health Resources, 2011 WL 1222792 (W.D. Wash.
12 2011); Zurich Am. Ins. Co. v. O'Hara Regional Ctr. for Rehabilitation, 529 F.3d 916, 925 (10th
13 Cir. 2008); Cohen v. Empire Cas. Co., 771 P.2d 29, 31 (Colo. Ct. App. 1989); Medical Records
14 Assoc., Inc. v. Am. Empire Surplus Lines Ins. Co., 142 F.3d 512, 515-516 (1st Cir. 1998));
15 Horizon West, Inc. v. St. Paul Fire & Marine Ins. Co., 214 F. Supp. 2d 1074, 1079 (E.D. Cal.
16 2002).
17

MSO attempts to avoid this conclusion by arguing that its professional services are

18 distinguishable from the professional services of the medical practitioners addressed in the
19 foregoing cases. MSO argues that it is not a provider of medical care to patients, where billing
20 may be considered ancillary, but that it is a medical management services profession providing
21 billing services for its health care providers.
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While this may be true, MSO represented to RSUI in the issuance of the initial policy that

23 it was providing primary care as a medical outpatient facility, and RSUI issued the medical
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 13

1 professional liability policy on that basis. MSO cannot claim otherwise to create an issue of
2 coverage.
3

In sum, billing services are not covered professional services under the initial 2008-2009

4 insurance contract and there was no duty to defend or indemnity.
5

False Claims Act and Negligent Errors and Omission Coverage

6

The insurance coverage provided MSO covers negligence in rendering professional

7 services. The insuring agreements provide coverage for damages and associated claim expenses
8 arising out of a “negligent act, error or omission … in the rendering of or failure to render
9 professional services …” Accordingly, for a claim to be covered it must allege negligent
10 conduct.
11

The notice of potential claim (issuance of the subpoenas) and the subsequent complaint

12 allege violations of the False Claims Act (FCA). The complaint alleges two causes of action
13 under the FCA - one under § 3729(a)(1) (presenting false claims for payment or approval), and
14 one under § 3729(a)(2) (knowingly making or using a false record or statement for purposes of
15 obtaining payment by the government on a false or fraudulent claim).
16

The FCA makes liable anyone who “knowingly makes, uses, or causes to be made or

17 used, a false record or statement” that is material to a “false claim for payment or approval” by
18 the United States government. 31 U.S.C. § 3729(a)(1). Liability pursuant to § 3729(a)(2)
19 applies to anyone who knowingly uses a “false record or statement to get a false or fraudulent
20 claim paid or approved by the Government.” U.S. ex rel. Putnam v. Eastern Idaho Regional
21 Medical Center, 696 F.Supp.2d 1190, 1205 (D. Idaho 2010).
22

The essential elements of an FCA claim are (1) a false statement or fraudulent course of

23 conduct, (2) made with requisite scienter, (3) that was material, causing (4) the government to
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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 14

1 pay out money or forfeit moneys due. U.S. v. Corinthian Colleges, 655 F.3d 984, 992 (9th Cir.
2 2011). The FCA requires more than just a false statement-it requires that the defendant knew the
3 claim was false. United States ex rel. Oliver v. Parsons, 195 F.3d 457, 464 (9th Cir. 1999).
4

A party cannot be held liable pursuant to the FCA for mere negligence. For liability to

5 attach, there must be the knowing presentation of what is known to be false. U.S. ex rel. Hagood
6 v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). An innocent mistake or
7 negligence will not support a FCA claim. U.S. v. Bourseau, 531 F.3d 1159, 1167 (9th Cir.
8 2008); U.S. ex rel. Ali v. Daniel, Mann, Johnson & Mendenhall, 355 F.3d 1140, 1150 (9th Cir.
9 2004). Gross negligence is insufficient to establish liability under the FCA. U.S. ex rel. Rakow
10 v. Pro Builders Corp. 37 Fed. Appx. 930, 931 (9th Cir. 2002); United States ex rel. Hochman v.
11 Nackman, 145 F.3d 1069, 1073 (9th Cir. 1998).
12

The notice of a FCA claim does not fall within the coverage provisions of the subject

13 policies for damages arising out of a negligent act, error or omission. See Zurich American Ins.
14 Co. v. O'Hara Regional Center for Rehabilitation, 529 F.3d 916, 922-23 (10th Cir. 2008).
15

RSUI had no duty to defend or indemnity the FCA claim.

16

Dishonesty Exclusion

17

The three insurance policies at issue all contain the exclusion of coverage for “dishonest,

18 fraudulent, criminal or intentional acts, errors or omissions committed by or at the direction of
19 the insured.”
20

Liability under the FCA involves dishonesty. "The requisite scienter is the knowing

21 presentation of what is known to be false and . . . 'known to be false' does not mean
22 scientifically untrue; it means a lie." U.S. ex rel. Hochman v. Nackman, 145 F.3d 1069, 1073
23 (9th Cir. 1998)(citations omitted). The FCA claim falls within the dishonest act exclusion and
24
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 15

1 RUSI had no duty to defend or indemnify MSO. See International Ass'n of Chiefs of Police, Inc.
2 v. St. Paul Fire and Marine Ins. Co., 686 F. Supp. 115 (D. Md. 1988).
3

Pursuant to the exclusion for dishonest acts RSUI had no duty to defend or indemnify

4 MSO.
5

EXTRA-CONTRACTUAL CLAIMS

6

Rule 56(d) Continuance to Allow Discovery

7

MSO requests a continuance of RUSI’s motion for summary judgment on the extra-

8 contractual claims pursuant to Fed. R. Civ. P. 56(d). A party requesting a continuance, denial, or
9 other order under Rule 56(d) must demonstrate: (1) it has set forth in affidavit form the specific
10 facts it hopes to elicit from further discovery; (2) the facts sought exist; and (3) the sought-after
11 facts are essential to oppose summary judgment. Family Home & Fin. Ctr., Inc. v. Fed. Home
12 Loan Mortg. Corp., 525 F.3d 822, 827 (9th Cir. 2008); California v. Campbell, 138 F.3d 772,
13 779 (9th Cir. 1998). The rule requires (a) a timely application which (b) specifically identifies
14 (c) relevant information, (d) where there is some basis for believing that the information sought
15 actually exists. Employers Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Clorox Co.,
16 353 F.3d 1125, 1129 (9th Cir. 2004). The burden is on the party seeking additional discovery to
17 proffer sufficient facts to show that the evidence sought exists, and that it would prevent
18 summary judgment. Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1161 n. 6 (9th Cir. 2001);
19 Tatum v. City & County of San Francisco, 441 F.3d 1090, 1100 (9th Cir. 2006). The movant
20 “must make clear what information is sought and how it would preclude summary judgment.”
21 Margolis v. Ryan, 140 F.3d 850, 853 (9th Cir. 1998). Denial of a Rule 56(d ) application is
22 proper where it is clear that the evidence sought is almost certainly nonexistent or is the object of
23 pure speculation. State of Cal., on Behalf of California Dept. of Toxic Substances Control v.
24
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 16

1 Campbell, 138 F.3d 772, 779-80 (9th Cir. 1998). Failing to meet this burden is grounds for the
2 denial of a Rule 56(d) motion. Pfingston v. Ronan Eng. Co., 284 F.3d 999, 1005 (9th Cir. 2002).
3

MSO argues that it should be provided the opportunity to conduct discovery in regard to

4 the investigation which RSUI conducted in regard to the FCA claim, particularly in light of the
5 enhanced duties under a reservation of rights. Dkt. 21.
6

The issues regarding RSUI’s investigation of the claim appear to lack any merit. As

7 previously discussed, the underlying FCA action against MSO is not within the coverage
8 provided in any of the policies of insurance. There is no duty to defend or indemnify the claim.
9 MSO has not demonstrated the existence or the necessity of discovery of additional facts relevant
10 to the issue of a proper investigation of the claim.
11

The motion for a Rule 56(d) continuance should be denied.

12

Bad Faith Claim

13

Insurer bad faith claims are analyzed applying the same principles as any other tort: duty,

14 breach of that duty, and damages proximately caused by any breach of duty. Mutual of
15 Enumclaw Ins. Co. v. Dan Paulson Constr. Co., 161 Wn.2d 903, 916 (2007). In order to
16 establish bad faith, an insured is required to show the breach was unreasonable, frivolous, or
17 unfounded. Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558 (1998).
18

An insurer has a duty to act with reasonable promptness in investigation and

19 communication with their insureds following notice of a claim and tender of defense. St. Paul
20 Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 132 (2008). An unreasonable, frivolous,
21 or unfounded breach of this duty is bad faith. Id.
22

Harm is an essential element of an action for an insurance company's bad faith handling

23 of a claim. St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 1323 (2008). If the
24
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 17

1 insured shows by a preponderance of the evidence that the insurance company breached its duty
2 of good faith, there is a presumption of harm. Id. The insurance company can rebut this
3 presumption by showing by a preponderance of the evidence that its breach did not harm or
4 prejudice the insured. Id.
5

In actions for bad faith, a denial is reasonable if it is performed in good faith under an

6 arguable interpretation of existing law. Shields v. Enter. Leasing Co., 139 Wn.App. 664 (2007).
7 An insurer is entitled to summary judgment on a policyholder's bad faith claim if there are no
8 disputed material facts pertaining to the reasonableness of the insurer's conduct, or the insurance
9 company is entitled to prevail as a matter of law on the facts construed most favorably to the
10 nonmoving party. See Smith v. Safeco Ins. Co., 150 Wn.2d 478, 486 (2003).
11

RSUI had no duty to defend or indemnify MSO under any of the policies. The claims

12 against MSO were for fraudulent billing practices, and fraudulent billing is not a professional
13 service or a negligent act covered by the first RSUI policy. The 2009-2010 and 2010-2011
14 policies do not cover the loss because the alleged wrongful acts occurred before the retroactive
15 date of those policies, and the policies do not cover negligent acts.
16

RSUI is entitled to summary judgment on the bath faith claim.

17

Insurance Fair Conduct Act

18

The Insurance Fair Conduct Act (IFCA), RCW 48.30.015, provides as follows:

19

21

(1) Any first party claimant to a policy of insurance who is unreasonably denied a claim
for coverage or payment of benefits by an insurer may bring an action in the superior
court of this state to recover the actual damages sustained, together with the costs of
the action, including reasonable attorneys' fees and litigation costs, as set forth in
subsection (3) of this section.

22

The IFCA further provides that a court “may, after finding that an insurer has acted

20

23 unreasonably in denying a claim for coverage or payment of benefits or has violated [certain
24
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 18

1 insurance regulations], increase the total award of damages to an amount not to exceed three
2 times the actual damages.” RCW 48.30.015(2). A court “shall, after a finding of unreasonable
3 denial of a claim for coverage or payment of benefits, or after a finding of a violation of a rule in
4 subsection (5) of this section, award reasonable attorney's fees and actual and statutory litigation
5 costs, including expert witness fees, to the first party claimant of an insurance contract who is the
6 prevailing party in such an action.” RCW 48.30.015(3). The statute provides a list of WAC
7 violations that give rise to treble damages or to an award of attorney's fees and costs.
8

Although violations of the enumerated regulations provide grounds for trebling damages

9 or for an award of attorney's fees; they do not, on their own, provide a IFCA cause of action
10 absent an unreasonable denial of coverage or payment of benefits. See Weinstein & Riley, P.S. v.
11 Westport Ins. Corp., 2011 WL 887552 (W.D. Wash. 2011); Travelers Indem. Co. v. Bronsink,
12 2010 WL 148366 (W.D. Wash. 2010); Lease Crutcher Lewis WA, LLC v. Nat. Union Fire Ins.
13 Co. of Pittsburgh, PA, 2010 WL 4272453 (W.D. Wash. 2010).
14

MSO has not raised a material issue of fact supporting an unreasonable denial of the

15 claim or any unreasonable violation of any enumerated regulations. There is no evidence that
16 RSUI failed to disclose or concealed benefits, coverages, or other provisions of insurance, or to
17 provide reasonable assistance to its insured. There was no coverage and no duty to defend under
18 the applicable policies.
19

The IFCA claim is subject to dismissal.

20

Consumer Protection Act Claim

21

To establish a violation of the Washington Consumer Protection Act (CPA), a plaintiff

22 must demonstrate: (1) an unfair or deceptive act or practice; (2) occurring in trade or commerce;
23 (3) public interest impact; (4) injury to plaintiff in his or her business or property; (5) causation.
24
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 19

1 Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778 (1986); RCW
2 19.86.060.

Violations of WAC 284-30-330 may constitute per se violations of the CPA,

3 provided the other Hangman Ridge factors are also met. Truck Ins. Exch. v. VanPort Homes,
4 Inc., 147 Wn.2d 751, 764 (2002). In addition, an insurer's bad faith constitutes a per se violation
5 of the CPA. Ledcor Indus. (USA), Inc. v. Mut. of Enumclaw Ins. Co., 150 Wn.App. 1, 12 (2009).
6

The CPA claim fails for the same reasons as the IFCA and bad faith claims. MSO has

7 failed to establish a genuine issue of fact that there was a breach of a duty of care.
8

The Consumer Protection Act claim is subject to dismissal.

9

Negligence

10

MSO asserts that RSUI failed to exercise ordinary care in investigating and handling the

11 tender of defense of the FCA claim.
12

A negligence cause of action requires proof of four elements, (1) duty, (2) breach of that

13 duty, (3) damages, (4) proximately caused by the breach. Hartley v. State, 103 Wn.2d 768
14 (1985). The analysis of a negligence cause of action is essentially the same as that of a claim of
15 bad faith. See Hamilton v. State Farm, 83 Wn.2d 787 (1974).
16

MSO having failed to establish a cause of action for bad faith, the negligence action is

17 also subject to dismissal.
18
19

CONCLUSION
There are no issues of material fact. RSUI had no duty to defend or indemnify MSO

20 under any of the policies. The FCA claims against MSO were for fraudulent billing practices,
21 and fraudulent billing is not a professional service or a negligent act covered by the 2008-2009
22 RSUI policy. The 2009-2010 and 2010-2011 policies do not cover the loss because the alleged
23 wrongful acts occurred before the retroactive date of those policies and the policies do not cover
24
ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 20

1 the claim acts. The non-contractual claims for violation of the CPA, IFCA, bath faith, and
2 negligence are subject to dismissal as there is no evidence creating a material issue of fact
3 supporting these claims and MSO has not sustained its burden of demonstrating that a
4 continuance is appropriate.
5

Therefore, it is hereby ORDERED:

6

Defendants’ Motion for Summary Judgment (Dkt. 13) is GRANTED. Plaintiff’s request

7

for a Fed. R. Civ. P. 56(d) continuance is DENIED. All claims filed by Plaintiff MSO

8

Washington, Inc. are DISMISSED WITH PREJUDICE.

9
10

Dated this 8th day of May, 2013.

A

11
12

ROBERT J. BRYAN
United States District Judge

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ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT- 21