Ill. Union Ins. Co. v. La. Health Serv. & Indem. Co.
| Decision Date | 12 June 2017 |
| Docket Number | CIVIL ACTION CASE NO. 16-6604. |
| Citation | 257 F.Supp.3d 763 |
| Parties | ILLINOIS UNION INSURANCE COMPANY v. LOUISIANA HEALTH SERVICE AND INDEMNITY COMPANY |
| Court | U.S. District Court — Eastern District of Louisiana |
Leah Nunn Engelhardt, Thomas Prince, Adelaida J. Ferchmin, Edward F. Kohnke, IV, Preis PLC, New Orleans, LA, Ciera Nichole Locklair, Robert L. Shannon, Jr., Hall, Booth, Smith & Slover, PC, Atlanta, GA, Deborah M. Minkoff, Cozen & O'Connor, Philadelphia, PA, Edwin G. Preis, Jr., Preis, PLC, Lafayette, LA, Kevin T. Dossett, Preis PLC, Houston, TX, for Illinois Union Insurance Company.
Aimee Williams Hebert, Gary M. Carter, Jr., Kelly Hart & Pitre LLP, New Orleans, LA, Richard S. Vale, Pamela Noya Molnar, William Lee Brockman, Blue Williams, LLP, Metairie, LA, Ashley Lauren Turner, McCarter & English, LLP, Newark, NJ, Joann M. Lytle, McCarter & English, LLP, Philadelphia, PA, for Louisiana Health Service and Indemnity Company.
SECTION: "G" (2)
Pending before the Court are Defendant/Counter Claimant Louisiana Health Service and Indemnity Company d/b/a Blue Cross and Blue Shield of Louisiana's ("Blue Cross") "Motion for Summary Judgment on Coverage Obligations"1 and Plaintiff/Counter Defendant Illinois Union Insurance Company's ("Illinois Union") "Motion for Summary Judgment on Coverage."2 Having reviewed the motions for summary judgment, the memoranda in support and in opposition to each motion, the record, and the applicable law, the Court will deny Blue Cross's motion and deny in part and grant in part Illinois Union's motion.3
On May 19, 2016, Illinois Union filed a complaint for declaratory judgment against Blue Cross.4 This matter involves the rights and obligations of Illinois Union under a Managed Care Organization Errors and Omissions Liability Policy ("the Policy") that it issued to Blue Cross for the policy period of May 25, 2007, to January 1, 2009.5 In relevant part, the Policy states that Illinois Union "shall pay on behalf of any insured any Loss which [Blue Cross] is legally obligated to pay as a result of any Claim that is first made against the Insured during the Policy Period...."6 Loss is defined to include "Defense Expenses and any monetary amount that an Insured is legally obligated to pay as a result of a Claim...."7 The Policy states that loss does not include, inter alia : "fees, amounts, benefits, obligations or coverages owed under any contract with any party ..., health care plan or trust, insurance or workers compensation policy or plan or program of self insurance;" "non–monetary or equitable relief or redress in any form;" and "matters which are uninsurable" under Louisiana law.8 Additionally, the Policy contains a consent to settle clause requiring the insured to obtain the insurer's written consent before settling a claim, as well as a cooperation clause requiring the insured to provide the insurer with "all information, assistance and cooperation that the Insurer reasonably requests."9
In this action, Illinois Union seeks a declaration as to the extent of its obligation to Blue Cross with respect to a settlement reached by Blue Cross with Omega Hospital, LLC ("Omega") in a separate lawsuit filed by Omega against Blue Cross in state court ("the Omega Lawsuit" or "the underlying action").10 In the Omega Lawsuit, Omega alleged that Blue Cross engaged in "systematic, sophisticated, and intentional conduct to avoid paying Omega" for services rendered to patients who were owed benefits, obligations, or coverage under Blue Cross health care plans.11 Specifically, Omega alleged five causes of action: (1) violation of Louisiana's Unfair Trade Practices Act ("LUTPA"); (2) fraud; (3) negligent misrepresentation; (4) detrimental reliance; and (5) unjust enrichment.12
Illinois Union alleges that Blue Cross settled the underlying action without Illinois Union's consent in violation of the Policy's requirement that Blue Cross obtain Illinois Union's written consent to settle in order to obtain coverage.13 Illinois Union further alleges that even if Blue Cross's unilateral settlement did not violate the Policy's written consent requirement, coverage is precluded under the Policy because contractual damages of this kind do not constitute covered "loss" under the Policy.14
On May 19, 2016, Illinois Union filed a complaint for declaratory judgment against Blue Cross.15 On July 7, 2016, Blue Cross filed a counterclaim against Illinois Union for a declaration that Illinois Union must indemnify Blue Cross for costs incurred to defend and settle the Omega Lawsuit.16 Blue Cross also brings counterclaims for breach of contract and statutory bad faith pursuant to Louisiana Revised Statute § 22:1973.17
On April 11, 2017, Blue Cross filed its currently pending motion for summary judgment on coverage obligations.18 On April 18, 2017, Illinois Union filed an opposition to the motion.19 With leave of Court, Blue Cross filed a reply in further support of the motion on April 28, 2017.20
On April 12, 2017, Illinois Union filed its currently pending motion for summary judgment on coverage obligations.21 On April 18, 2017, Blue Cross filed an opposition to the motion.22 With leave of Court, Illinois Union filed a reply in further support of the motion for summary judgment on April 28, 2017.23
Blue Cross moves for summary judgment in its favor with respect to: (1) Count I of Illinois Union's Complaint, in which Illinois Union seeks a declaratory judgment that Illinois Union is not required to indemnify Blue Cross for the underlying settlement due to the fact that Blue Cross did not obtain Illinois Union's consent; (2) Count II of Illinois Union's Complaint, which seeks a declaratory judgment that Illinois Union has no obligation to indemnify Blue Cross due to the fact that the settlement encompasses damages that are not covered under the Policy; (3) Count I of Blue Cross's counterclaim for a declaratory judgment that Illinois Union must indemnify Blue Cross for the settlement in the underlying action; and (4) Count II of Blue Cross's counterclaim for breach of contract as a result of Illinois Union's failure to indemnify Blue Cross for the settlement in the underlying action.24
In support of its motion for summary judgment, Blue Cross represents that the Policy at issue obligates Illinois Union to pay loss resulting from claims "alleging error or omissions" in the performance of Blue Cross's managed care professional services.25 According to Blue Cross, "loss" is defined broadly in the Policy to include "Defense Expenses and any monetary amount that an Insured is legally obligated to pay as a result of a Claim" but excludes "fees, amounts, limits, benefits, obligations or coverages owed under any contract."26 Blue Cross contends that Illinois Union improperly invokes this exclusion to deprive Blue Cross of coverage.27
Blue Cross asserts that in the underlying action, Omega Hospital alleged that Blue Cross improperly reduced the amount of its reimbursement payments to Omega Hospital for medical services and supplies.28 Blue Cross argues that damages resulting from Omega Hospital's tort-based causes of action are clearly covered under the Policy as "loss" and are not excluded by the carve out for benefits owed under a contract.29 According to Blue Cross, Omega Hospital pleaded in the underlying action that it is an out of network hospital, thus acknowledging that it has no contract with Blue Cross for the services it renders to Blue Cross insureds.30 Moreover, Blue Cross avers, the court in the underlying action ruled that certain of Omega Hospital's claims sounded in tort rather than contract.31 Blue Cross also represents that another section in the Eastern District of Louisiana held in the underlying action that Omega's claims did not constitute benefits due under an ERISA health plan and that remand to state court of the Omega case was therefore necessary.32 Blue Cross further avers that the head of Illinois Union's medical risk claims department acknowledged that many of the claims asserted by Omega in the underlying action sought damages separate from amounts due under a contract.33 Thus, Blue Cross argues, the policy exclusion on which Illinois Union relies does not bar coverage and it is entitled to summary judgment.34
Next, Blue Cross argues that Illinois Union may not raise lack of consent as a coverage defense.35 According to Blue Cross, under the terms of the Policy, Blue Cross may settle any claim with Illinois Union's written consent, which "shall not be unreasonably withheld."36 Blue Cross argues that an insurer cannot unreasonably refuse to consent to a settlement such that the insured is forced to risk significant liability at trial.37 Here, Blue Cross argues that it was facing significant risks if it chose a jury trial in the underlying action and that Illinois Union nevertheless unreasonably withheld its written consent to settlement.38 Under such circumstances, Blue Cross argues, Illinois Union's unreasonably withheld consent left Blue Cross free to settle the underlying action.39
Blue Cross next asserts that despite withholding its written consent, Illinois Union verbally consented to the settlement.40 According to Blue Cross, Illinois Union's representative at the mediation in the underlying action, Anthony Pizzonia ("Pizzonia"), testified that he often gives verbal approval of settlements and that such approval is sufficient to comply with the policy provision requiring Illinois Union's consent to settle.41 Blue Cross asserts that Illinois Union verbally consented to the settlement by agreeing to pay a portion...
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