Cardiovascular Consultants Heart Ctr. v. Norcal Mut. Ins. Co.
| Decision Date | 17 March 2022 |
| Docket Number | B317096 |
| Court | California Court of Appeals Court of Appeals |
| Parties | CARDIOVASCULAR CONSULTANTS HEART CENTER, Plaintiff and Appellant, v. NORCAL MUTUAL INSURANCE COMPANY, Defendant and Respondent. |
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Fresno County No 18CECG01943, Kimberly A. Gaab, Judge. Affirmed.
Wilkins, Drolshagen & Czeshinski, Matthew J. Wilkins and James H. Wilkins for Plaintiff and Appellant.
Troutman Pepper Hamilton Sanders, Michael K. Cassata and Jennifer Mathis for Defendant and Respondent.
Plaintiff Cardiovascular Consultants Heart Center (the Center) appeals from the summary judgment granted in favor of defendant NORCAL Mutual Insurance Company (NORCAL). The Center also challenges the denial of its own motion for summary adjudication. The issue in this appeal arises from the Center's contention that NORCAL had a duty to defend the Center under a medical professional liability insurance policy in connection with civil investigative demands issued by the United Stated Department of Justice (DOJ). These demands alleged that the Center "submitted false claims to the U.S. Government for excessive, medically unnecessary and/or inadequately documented cardiovascular procedures" in violation of the False Claims Act (31 U.S.C. §§ 3729-3733; FCA). We conclude NORCAL did not have a duty to defend as a matter of law and affirm the judgment.
The facts and relevant policy language are largely, if not entirely, undisputed. The main issue on appeal is the question of coverage, which we resolve as a matter of law on undisputed facts. (Crown Capital Securities, L.P. v. Endurance American Specialty Ins. Co. (2015) 235 Cal.App.4th 1122, 1128.)
NORCAL issued Medical Professional Liability Insurance Policy No. 105297N to the Center for the period January 1, 2016, to January 1, 2017 (the Policy). As relevant here, the Policy provided coverage in the amount of $1 million per claim and $3 million in the aggregate per policy period under Coverage A for Medical Professional Liability
Insurance.[1]
Under Coverage A, NORCAL had the following defense obligations: "We have the duty and exclusive right, using counsel of Our choice, to investigate, negotiate, and defend a Claim resulting from a Medical Incident . . . by the payment of Defense Costs and Additional Benefits, which are payable in addition to the applicable Each Claim Limit for Medical Professional Liability Insurance."
A claim was defined as: (1) "Actual Claim: Written notice or demand for Damages because of injury that an Insured has received regarding a Medical Incident"; or (2) "Potential Claim: Any Medical Incident that may result in an actual Claim." A medical incident was defined as "any act or omission or series of related acts or omissions resulting directly from the rendering of or failure to render Professional Health Care Services." Professional health care services was defined, in relevant part, as "medical or health care services the Insured provides, including: [¶] 1. direct medical, surgical, dental, or nursing treatment, including furnishing food or beverages in connection with these; [¶] 2. making medical diagnoses and rendering medical opinions and or medical advice."
Damages was defined, in relevant part, as "those sums that an Insured becomes legally obligated to pay by reason of the liability imposed upon that Insured by law." However Damages do not include: "restitution, return, or disgorgement of fees or profits, charges for productions or services rendered, . . . or any other funds allegedly wrongfully held or obtained"; "relief or redress in any form other than monetary compensation[;]" and "matters that are uninsurable under applicable law."
On May 15, 2012, the Office of the Inspector General (OIG) issued a subpoena (OIG subpoena) to the Center for certain medical records "in connection with an official investigation into possible false or otherwise improper claims to Medicare." The OIG subpoena demanded the Center produce documents, including patient records and related billing records for a limited sample of Medicare beneficiaries.
On April 29, 2016, the DOJ issued a Civil Investigative Demand (initial CID) to the Center pursuant to FCA in the course of an investigation. The initial CID stated that the FCA investigation concerned "allegations that [the Center] ha[d] submitted false claims to the U.S. Government for excessive, medically unnecessary, and/or inadequately documented cardiovascular procedures." The initial CID required the Center to produce documents and provide responses to written discovery.
In May 2016, the DOJ and the Center entered into a tolling agreement because the FCA investigation had been "lingering" with the prior Assistant United States Attorney (AUSA) and the then-newly assigned AUSA Edward Baker "was concerned about statute of limitations issues" with respect to the 2012 OIG subpoena, and "insisted on the tolling agreement." The agreement stated, in part, that the DOJ believed "they may have certain civil causes of action and administrative claims against [the] Center and/or its member physicians under the False Claims Act . . ., the Civil Monetary Penalties Law . . ., equity, and/or the common law arising from [the] Center's submission of alleged claims to the U.S. Government for allegedly excessive, medically unnecessary, and/or inadequate documented nuclear medicine scans, echocardiograms, and associated cardiovascular procedures (herein referred to as 'the alleged Claims.')."
On October 31, 2016, the DOJ issued Civil Investigative Demands to five Center employees (individual CIDs), requesting documents and testimony related to the DOJ's investigation of the Center for FCA violations.[2]
On January 30, 2017, NORCAL received a letter from counsel for the Center (Daniel O. Jamison) requesting coverage for the CIDs pursuant to the Policy. On March 7, 2017, NORCAL denied coverage for the CIDs. NORCAL stated that the Policy was "not implicated because, among other reasons, the False Claims Act Investigation does not involve a Medical Incident," rather the DOJ was "investigating allegations that [the Center had] submitted false claims to the United States Government for excessive, medically unnecessary, and/or inadequate documented cardiovascular procedures."[3]
On June 6, 2017, Mr. Jamison sent NORCAL another letter arguing that NORCAL was obligated under the Policy to defend against the CIDs as a "Potential Claim." He contended the federal government alleged it incurred and will incur damages because of a "Medical Incident." Mr. Jamison discussed a March 13, 2017 meeting that transpired between the Center and the DOJ. At this meeting, Mr. Jamison reported that AUSA Baker contended that "certain nuclear medicine scans, echocardiograms, cardioversions, and angiograms were medically unnecessary" and that these unnecessary procedures totaled to $6.1 million for 7, 980 false claims. AUSA Baker also allegedly "noted that this number at this time does not include compensation for allegedly 'unnecessary diagnostic radiation exposure' for patients." From this meeting, Mr. Jamison concluded that it was "a fact and not speculation that the [federal] [g]overnment is contending . . . that the patients were physically harmed," and the federal government would have to pay for additional follow-up procedures.
On October 3, 2017, FCA investigation was ultimately resolved when United States of America (acting through the DOJ and OIG), the State of California, and the Center (and its shareholder physicians) entered into a settlement agreement (FCA settlement).
On June 1, 2018, the Center filed a complaint against NORCAL for breach of the duty to defend and breach of the implied covenant of good faith and fair dealing. The complaint alleged, in part, that NORCAL owed a duty to defend to the Center in connection with the CIDs issued by the DOJ alleging FCA violations. On July 20, 2018, NORCAL filed a cross-complaint against the Center. NORCAL sought declaratory relief that, among other things, it had no duty to defend the Center.
On October 8, 2018, the Center filed a motion for summary adjudication on the issue of whether NORCAL owed a duty to defend the Center against the CIDs under the Policy. After hearing argument from the parties, the trial court denied the motion on March 14, 2019.
On July 16, 2019, NORCAL filed a motion for summary judgment, or in the alternative, summary adjudication, on the ground that there was no potential for coverage of the CIDs under the Policy and therefore, no duty to defend. And, where there are no coverage obligations, an insurer cannot be found liable for bad faith. After hearing argument from the parties and taking the matter under submission, the trial court issued its ruling granting the motion for summary judgment on December 16, 2019.[4] The court found, as relevant here, that the CIDs and related extrinsic evidence did not constitute a "Potential Claim" triggering the duty to defend. Judgment was entered in favor of NORCAL on January 10, 2020.
On appeal, the Center challenges both the grant of NORCAL's motion for summary judgment, and the denial of its own motion for summary adjudication.
In determining whether NORCAL had a duty to defend, the key question is whether the CIDs issued by the DOJ in connection with the FCA investigation gave rise to a "Potential Claim" under the Policy. It is undisputed that a "Potential Claim" triggers the Policy's duty to defend when there are allegations of a "Medical Incident" that may result in a notice or demand for...
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