Millennium Labs., Inc. v. Allied World Ins. Co., Case No. 12–cv–2280–BAS (KSC).
| Decision Date | 30 September 2015 |
| Docket Number | Case No. 12–cv–2280–BAS (KSC). |
| Citation | 135 F.Supp.3d 1165 |
| Parties | MILLENNIUM LABORATORIES, INC., Plaintiff, v. ALLIED WORLD INSURANCE COMPANY (U.S.), INC., Defendant. |
| Court | U.S. District Court — Southern District of California |
Marc D. Halpern, Abelson Herron Halpern LLP, San Diego, CA, Vincent H. Herron, Lisa Von Eschen, Nadia A. Sarkis, Abelson Herron Halpern LLP, Los Angeles, CA, for Plaintiff.
Frank Gooch, III, Jane Elizabeth Lippman, Yen N. Hope, Gilchrist and Rutter, Santa Monica, CA, Thomas H. Prouty, Troutman Sanders LLP, Irvine, CA, Phillip E. Wilson, Jr., Robert A. Wiygul, Ronald P. Schiller, Hangley Aronchick Segal Pudlin and Schiller, Philadelphia, PA, for Defendant.
(1) GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT; AND
This case arises from an insurance coverage dispute in which Plaintiff Millennium Laboratories, Inc. ("Millennium") seeks reimbursement for the money it has spent responding to an investigation by the United States Department of Justice ("DOJ"). Millennium seeks to recover under a Forcefield Healthcare Organizations Directors and Officers Liability Policy No. 0307–1511 ("the Policy") issued by Defendant Allied World Assurance Company (USA), Inc. ("Allied World") for the policy period of December 1, 2011 to December 1, 2012.
Millennium contends that it is entitled to payment of all defense costs related to the DOJ Investigation up to the Policy's full $5,000,000 limits of liability. Allied World, however, claims that Millennium is limited by the Sublimits of the "Regulatory Claims Coverage" in the Policy to $100,000 recovery, which it has already paid to Millennium.
Alternatively, Allied World argues that the "Related Claims" provision in the Policy militates against recovery and that several exclusions in the Policy, including the prior or pending litigation exclusion, the prior noticed claims exclusion and the specific claims exclusion, prohibit Millennium from recovering any defense costs at all. Both sides have brought cross motions for summary judgment.
Millennium is a specialty diagnostics laboratory that provides services to the chronic pain market. (Declaration of Martin A. Price ("Price Decl.") ¶ 6, ECF No. 156–2.) Specifically, Millennium provides drug testing of chronic pain patients for doctors and other authorized health providers. (Id. ) Millennium states that approximately seventy percent (70%) of its services are paid for by private insurance programs, with most of the remainder covered by government sponsored programs such as Medicare or Medicaid. (Price Decl. ¶ 7.)
Millennium obtained the Policy from Allied World for the period of December 1, 2011 to December 1, 2012. (Price Decl. ¶ 8.) Among other coverage, the Policy provides "Company Claims Coverage" for any "Loss [including legal costs or attorney fees] arising from a Claim ... against [Millennium] for a Wrongful Act" defined as "any actual or alleged act, error, omission, neglect, breach of duty, misstatement or misleading statement." The Policy also provides "HIPAA Claims Coverage" covering Defense Expenses "arising from a Claim ... against [Millennium] for an actual or alleged act, error or omission of [Millennium] in violation of [HIPAA] and any rules or regulations promulgated thereunder." The Aggregate Limit of Liability for both of these types of coverage is $5,000,000. (Declaration of Robert A Wiygul ("Wiygul Decl.") Ex. 17, §§ I.C, I.F, Policy Declarations 3A, ECF No. 161–2.)
A specific endorsement expands the definition of a "Claim" to include a "formal civil or criminal investigation of an Insured Person, which is commenced by the filing or issuance of a ... subpoena ... identifying such Insured as a person against whom a proceeding ... may be commenced." (Wiygul Decl. Ex. 17, Endorsement 9 ¶ 4.) The definition also adds a "formal administrative or regulatory investigation of an Insured, which is commenced by the filing or issuance of a ... subpoena ... identifying an Insured as a person or entity against whom a proceeding ... may be commenced." (Id. ¶ 5.)
The Policy additionally provides "Regulatory Claims Coverage" for any "Loss [including legal costs or attorney fees] arising from a Claim ... against [Millennium] for a Regulatory Wrongful Act." (Wiygul Decl. Ex. 17 § I.E.) "Regulatory Wrongful Act" is defined as an:
(Wiygul Decl. Ex. 17 § II.BB.) Coverage for "Regulatory Claims" is subject to a Sublimit on Liability of $100,000. (Wiygul Decl. Ex. 17 § I.E, Policy Declarations 3C.)
The Policy states that "[a]ll Related Claims shall be deemed to be a single Claim made on the date on which the earliest Claim within such Related Claim was first made." (Wiygul Decl. Ex. 17 § VII.D.) "Related claims" are defined as "all Claims for Wrongful Acts based upon, arising out of, directly or indirectly resulting from, or in consequence of, the same or related facts, circumstances, situations, transactions or events or the same or related series of facts, circumstances, situation, transactions or events." (Wiygul Decl. Ex. 17 § II.CC.)
Several exclusions in the Policy are also at issue. The "Prior or Pending Litigation Exclusion" excludes coverage for any defense costs:
alleging, arising out of, based upon or attributable to ... any pending or prior: (1) litigation; or (2) administrative or regulatory proceeding or investigation of which an Insured had notice, including any Claim alleging or derived from the same or essentially the same facts, or the same or related Wrongful Acts, as alleged in such pending or prior litigation or administrative or regulatory proceeding or investigation[.]
(Wiygul Decl. Ex. 17 § III.D.) The "Prior Noticed Claims Exclusion" bars coverage for any claim "alleging, arising out of, based upon or attributable to the same or essentially the same facts alleged, or to the same or related Wrongful Acts alleged or contained, in any Claim which has been reported ... under any policy[.]" (Wiygul Decl. Ex. 17 § III.E.) And the "Specific Claims Exclusion" provides that "[n]o coverage will be available for Loss from any Claim based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving" the Ameritox Action, the Aegis Action and the Robert Cunningham Action. (Wiygul Decl. Ex. 17, Endorsement 7.)
On or about March 27, 2012, August 2, 2012, February 28, 2013, March 5, 2013, April 17, 2013, and October 10, 2013, the DOJ served Millennium with "HIPAA subpoenas." (Price Decl. ¶¶ 9–14, Exs. B–G, ECF No. 165–2–7; Wiygul Decl. Exs. 5–7.) Millennium states that shortly after receiving the initial subpoena, it provided the subpoena to Allied World. (Price Decl. ¶ 17.) In these subpoenas, a wide variety of potential health care offenses are listed, along with far-reaching broad documentary requests. (Wiygul Decl. Exs. 5–7; Price Decl. Exs. B–G, ECF No. 165–2–7.)
In several letters sent from the DOJ attorney to Millennium's attorney in 2012, the DOJ attorney explains:
[T]his Office is presently a conducting a joint criminal and civil investigation of your client Millennium, and its officers, employees and agents. that conduct includes, without limitation, allegations that Millennium and certain of its officers, employees and agents may have violated various federal criminal statutes including but not limited to ... [conspiracy to defraud, submission of false, fictitious, fraudulent claims to the US, health care fraud offenses, mail fraud and/or wire fraud, anti-kickback acts and certain civil statutes including civil false claims acts and administrative statutes] ... in connection with billing false or fraudulent claims to federal health care programs and/or other payors; payment of remuneration to physicians and/or others to induce referrals of laboratory tests to Millennium, and interference with witnesses and /or destruction of evidence.
Prior to December 1, 2011, Millennium had been named as a party in several qui tam and private lawsuits. These prior actions involved competitors alleging that Millennium had gained a competitive edge by engaging in unlawful business practices including encouraging health care providers to submit false and/or fraudulent claims to health insurers and by providing unlawful kickbacks.
For example, in United States ex rel. Cunningham v. Millennium, No. 09–12209 (D.Mass. Dec. 29, 2009) (the "Cunningham Action"), Cunningham alleged Millennium violated the Federal False Claims Act, 31 U.S.C. § 3729(a), and other state laws, by using a "Physician Billing" Model that "encourage[d] physicians to submit false claims to government and private health insurance programs." (Wiygul Decl. Ex. 2 ¶ 16.) The complaint further alleges Millennium "misrepresent[ed] the number of urine samples it was testing." (Id. ¶ 29.)
Similarly, in United States ex rel. Schur v. Millennium, No. 11–2198 (C.D.Cal. Mar. 15, 2011), Schur alleged Millennium and eight other drug testing labs, along with many healthcare providers, in violation of 31 U.S.C. § 3729(a), "knowingly present[ed] and/or caus[ed] to present to agents, contractors, or employees of the Government false and fraudulent billings for payment and approval." (Wiygul Decl. Ex. 3 ¶ 19.)
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