Benecard Servs., Inc. v. Allied World Specialty Ins. Co.
| Decision Date | 31 May 2020 |
| Docket Number | Civil Action No. 15-8593 (MAS) (TJB) |
| Parties | BENECARD SERVICES, INC., Plaintiff, v. ALLIED WORLD SPECIALTY INSURANCE COMPANY f/k/a DARWIN NATIONAL ASSURANCE COMPANY, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
This matter comes before the Court upon Plaintiff Benecard Services Inc.'s ("Benecard") Motion for Partial Summary Judgment Against Travelers Property Company of America ("Travelers") (the "Motion"), (ECF No. 171), and Travelers's Opposition to Benecard's Motion and Cross-Motion for Summary Judgment (the "Cross-Motion"), (ECF No. 180). ACE Property & Casualty Company ("ACE") joined in the Cross-Motion (the "ACE Motion") "[b]ecause each of the ACE excess policies at issue in this action follows form to the underlying Travelers'[s] policy and does not pay a loss if the underlying Travelers policy does not pay the loss." (Notice of Joinder 2, ECF No. 173). Benecard opposed Travelers's Cross-Motion, (ECF No. 188), and Travelers filed a reply, (ECF No. 193), in which ACE joined sections I, II, and IV, (ACE's Joinder in Reply 1, ECF No. 195). ACE also joined section V of Atlantic Specialty Insurance Company's ("Atlantic Specialty") Reply Brief in Support of Atlantic Specialty's Motion for Summary Judgment (ECF No. 198). (ACE's Joinder in Reply 1). The Court has carefully considered the parties' arguments and decides the matter without oral argument pursuant to Local Civil Rule 78.1. For the reasons set forth herein, Benecard's Motion for Partial Summary Judgment is denied, and Travelers's Cross-Motion for Summary Judgment is granted. All claims as to Travelers (i.e., Counts IV and VII) are dismissed with prejudice, and the Court enters summary judgment on Travelers's Counterclaim declaring that Travelers does not have any obligation to defend, indemnify, or reimburse any sums to Benecard in connection with the Smart action. The Court further grants ACE's Motion and hereby enters summary judgment in its favor and dismisses Counts V and XI of Benecard's Amended Complaint with prejudice.
In 2011, Smart Insurance Company ("Smart"), "decided to create and operate Medicare Part D prescription drug plans." (Benecard's Statement of Material Facts Against Travelers ("BMF") ¶ 2, ECF No. 171-4; Travelers's Response to BMF ("TRMF") ¶ 2, ECF No. 180-3.) In 2012, Smart was approved by the Centers for Medicare and Medicaid Services ("CMS") to act as a Medicare Part D plan sponsor. ( Benecard agreed to provide Smart with certain services in connection with the Part D plans. (Id. ¶¶ 16-19.) As alleged by Smart, Benecard was tasked with (1) handling all matters related to member enrollment; (2) managing the plan formulary and adjudicating member claims for coverage at the point of sale; (3) administering the coverage determination, appeal, and grievance process; (4) providing Smart with real-time, online access to Benecard's prescription drug claims database and system; (5) running the call center andanswering member questions; and (6) complying with federal law and CMS requirements. (Id. ¶ 19.)
On April 23, 2013, after auditing the plans, CMS sanctioned Smart, suspending enrollment in and marketing of the plans. (Id. ¶ 50.) Smart wrote to Benecard on April 22, 2014, to advise that "a dispute between Smart and Benecard is a likelihood." (BMF ¶ 15; TRMF ¶ 15.) Smart sold the plans that August and, on December 15, 2014, advised Benecard that it "intend[ed] to pursue claims against [it] for, among other things, breach of contract and fraud." (BMF ¶¶ 14, 16 ()
On June 8, 2015, Smart filed suit against Benecard in the United States District Court for the Southern District of New York, (BMF ¶ 17; TRMF ¶ 17), alleging claims "aris[ing] out of the failure of Benecard to perform its contractual obligation to manage Smart's Medicare Part D Prescription Drug plans," and "out of a number of intentionally false representations and material omissions that Benecard made to convince Smart not to terminate their contract," (Smart Compl. ¶ 1). Smart asserted two counts: (1) breach of contract, and (2) fraudulent misrepresentation, omission, or concealment. (Id. ¶¶ 92, 101-05.)
(Id. ¶ 33.) Smart claimed that its efforts at supervision of Benecard's efforts to redress those problems "were thwarted by Benecard's . . . efforts to conceal the true nature and extent of its problems from Smart." (Id. ¶ 35.) According to Smart, Benecard knew even before the launch date that "it was not going to be ready to process claims or handle coverage determination requests, appeals, and grievances" and that significant problems were going to occur on launch. (Id. ¶ 38.) Nevertheless, Smart alleges, Benecard "concealed the information," and "Benecard's senior management, including Chief Executive Officer Michael Perry ("Perry"), instructed Benecard's staff to make sure Smart falsely believed Benecard would be ready to launch the Plans by January 1[, 2013]." (Id.) Smart claimed Benecard ignored its corrective efforts, refused assistance, and spurned Smart's repeated requests for real-time access to its systems until the eve of CMS's audit. (Id. ¶¶ 39-42.) Furthermore, after CMS's audit identified several problems with Benecard's system, including the improper dental of prescription drug coverage at the point of sale, Smart alleged "Benecard represented to Smart that it had fixed the identified problems." (Id. ¶¶ 39-42, 47.) According to Smart, CMS's sampling of claims showed Benecard had not fixed many of the issues, and also identified ten new deficiencies. (Id. ¶ 47.) CMS imposed sanctions, including prohibiting new member enrollment and marketing, which Smart alleged cost it "tens of thousands of new members and millions of dollars." (Id. ¶ 50.)
Turning to Benecard's alleged "misrepresentations, omissions and concealment," Smart alleged Benecard "made a number of false representations and material omissions" and "concealed critical information from Smart, knowingly and intentionally and with the goal of ensuring that Smart did not terminate the Agreement." (Id. ¶¶ 56-57.) As an example, Smart alleged "Benecard representatives, including Michael Perry, represented to Smart throughout the last quarter of 2012that Benecard would be ready to handle its claim processing responsibilities and coverage determination, appeal and grievance processing responsibilities on January 1, 2013," but that "Benecard knew these representations were false," and "Perry instructed his staff to conceal from Smart that Benecard would not be ready and that it was falling further and further behind schedule." (Id. ¶ 58.) Smart further alleged, among many other examples, that Benecard's senior personnel instructed its employees to ignore Smart's corrective action plans, that Benecard assigned untrained personnel to its call center after telling Smart that Benecard would rapidly increase the number of properly trained staff, and that Benecard's Chief Operating Officer told employees that its system was proprietary and that Smart would not be given access to it after repeatedly representing to Smart that it would be given real-time online access. (Id. ¶¶ 59-61.) Smart alleged "Benecard made all of the misrepresentations and material omissions described above to Smart in the last few months of 2012 and the first two months of 2013 . . . ." (Id. ¶ 96.) Smart asserted that "[w]hen Benecard made these misrepresentations and omissions to Smart, it knew they were false, or, alternatively, it made them recklessly and without knowledge as to their truth or falsity," that Benecard "knew it was concealing information that was material to Smart in determining whether to terminate the Agreement," and "made these statements and omissions with the intention of Smart relying on them, with the intent to deceive Smart or with reckless disregard." (Id. ¶¶ 97-99.) Smart claimed that, "[i]f Benecard had not made these misrepresentations and omissions, and if Smart had been aware of the true nature and depth of the problems at Benecard, Smart would have terminated the Agreement, switched to a new [pharmacy benefit manager] much earlier and saved its Plans from further damage." (Id. ¶ 69.) Smart asserted it had been damaged as a result of Benecard's misrepresentations, omissions, and concealment. (Id. ¶ 104.)
In June 2013, CMS informed Smart that the Plans were still not adjudicating claims properly and that CMS would "terminate the Plans on August 1, 2013 unless Smart sold the Plans by July 31, 2013." (Id. ¶ 73.) Smart alleged it sold the Plans to another company on August 31, 2013 for a fraction of their prior market value. (Id. ¶ 74.) Smart sought damages comprising the amounts it paid Benecard for its services under the contract, the amounts Smart paid to others to assist Benecard, and the Plans' diminished value. (Id. ¶ 90.)
Smart and Benecard entered into mediation. (Travelers's Statement of Material Facts ("TMF") ¶...
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