Regence Grp. v. Tig Specialty Ins. Co.

Decision Date12 October 2012
Docket NumberCase No. 3:07–cv–01337–HA.
Citation903 F.Supp.2d 1152
PartiesThe REGENCE GROUP, Regence Blueshield, Regence Bluecross Blueshield Of Oregon, Regence Blueshield Of Idaho, and Regence Bluecross Blueshield of Utah, Plaintiffs, v. TIG SPECIALTY INSURANCE COMPANY, Defendant.
CourtU.S. District Court — District of Oregon

OPINION TEXT STARTS HERE

Joseph M. Saka, Scott N. Godes, Andrew M. Reidy, Catherine J. Serafin, Mark H. Kolman, Dickstein Shapiro LLP, Washington, DC, Beth Keller Stroup, James H. Kallianis, Jr., Meckler Bulger Tilson Marick & Pearson LLP, Chicago, IL, Bradley F. Tellam, Stephen H. Galloway, Stoel Rives LLP, Portland, OR, for Plaintiffs.

Beth Keller Stroup, Jodi S. Green, Brent J. Graber, Carlos Del Carpio, James H. Kallianis, Jr., Julie L. Trester, Steven D. Pearson, Meckler Bulger Tilson Marick & Pearson LLP, Chicago, IL, Randy Lee Arthur, Thomas H. Tongue, Dunn Carney Allen Higgins & Tongue, LLP, Portland, OR, Amy L. Miner, Bollinger Ruberry & Garvey, Chicago, IL, Bradley F. Tellam, Stoel Rives LLP, Portland, OR, for Defendant.

OPINION AND ORDER

ANCER L. HAGGERTY, District Judge:

Plaintiffs The Regence Group, Regence Blueshield, Regence Bluecross Blueshield of Oregon, Regence Blueshield of Idaho, and Regence Bluecross Blueshield of Utah (collectively, “Regence” or plaintiffs) brought this action seeking a declaration that defendant TIG Specialty Insurance Company (TIG) is obligated to pay defense and indemnity costs related to a class action lawsuit known in this case as “ Thomas(or “ Thomas/Love ”), and seeking damages arising from TIG's claims handling of the Thomas case and two other class action lawsuits. Regence asserts the following six claims against TIG: (1) declaratory relief; (2) breach of contract; (3) breach of the implied duty of good faith and dealing; (4) bad faith; (5) fraud in the inducement; and (6) fraudulent misrepresentation. TIG has counterclaimed for declaratory relief based on the following: (1) breach of the cooperation agreement; (2) the capitation exclusion; (3) that disgorgement remedies are not covered by the insurance policy; (4) that business changes are not covered by the insurance policy; and (5) that public policy precludes recovery.

After extensive discovery, both parties filed two motions for partial summary judgment. TIG, however, withdrew its motion seeking summary judgment on Regence's claim for attorney fees after the Oregon Supreme Court issued its opinion in Morgan v. Amex Assurance Co., 352 Or. 363, 287 P.3d 1038 (2012). This court held oral on the remaining motions on September 24, 2012. For the following reasons, TIG's Motion for Partial Summary Judgment regarding plaintiffs' Bad Faith Cause of Action [706] is DENIED; plaintiffs' Motion for Partial Summary Judgment regarding the Capitation Exclusion [709] is GRANTED; and plaintiffs' Motion for Partial Summary Judgment regarding TIG's Duty to Indemnify [711] is DENIED.

STANDARDS

Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Summary judgment is improper if material factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995).

The moving party bears the initial burden of demonstrating the absence of a genuine dispute of material fact for trial, but it need not disprove the other party's case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Once the moving party meets its burden, the adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but must set forth specific facts showing that there is a genuine dispute for trial. Id. at 248–49, 106 S.Ct. 2505. A nonmoving party cannot defeat summary judgment by relying on the allegations in the complaint, or with unsupported conjecture or conclusory statements. Hernandez v. Spacelabs Medical, Inc., 343 F.3d 1107, 1112 (9th Cir.2003) (citations omitted).

The court must view the evidence submitted on summary judgment in the light most favorable to the non-moving party. Campbell v. PricewaterhouseCoopers, LLP, 642 F.3d 820, 824–25 (9th Cir.2011). All reasonable doubt as to the existence of a genuine factual dispute should be resolved against the moving party. MetroPCS, Inc. v. City & County of San Francisco, 400 F.3d 715, 720 (9th Cir.2005) (citation omitted).

FACTUAL BACKGROUND

The following facts are taken from the parties' briefing, declarations, and copious exhibits. They are undisputed unless otherwise noted and are stated in the light most favorable to the non-moving party where applicable.

1. The Policy At Issue

TIG issued a Managed Care Organizational Liability Insurance Policy No. HCM 38831059 (“the Policy”) to Regence for the period of January 1, 2001 to January 1, 2002. Saka Aff. [722] at Ex. 1 (the Policy); Stroup Decl. [723] at Ex. B (same); Kallianis Decl. [708] at Ex. I (TIG's binder letter to Marsh). The Policy provides coverage for managed care errors and omission liability, as well as insurance company errors and omissions. Saka Aff. [722] at Ex. 1, p. 10. The Policy has professional liability limits of $50 million per claim/$50 million aggregate, and a self insured retention applicable to indemnity of $250,000 per claim/$500,000 annually. Id. at p, 1; Kallianis Decl. [708] at Ex. I, p. 2. The Policy was a renewal of a policy in effect during the prior year. Kallianis Decl. [708] at Ex. I, p. 5.

The Policy's declarations page lists the “Named Insured” as “The Regence Group,” with a Portland, Oregon address. Kallianis Decl. [708] at Ex. D. An endorsement to the Policy included several additional insured entities to the Policy, including the other plaintiffs in this suit. Kallianis Decl. [708] at Ex. E, The Policy also listed the Portland office of The Regence Group's insurance broker, Marsh USA, Inc. (“Marsh”), as the producer for the Policy. Kallianis Decl. [708] at Ex. D. During the relevant period, Kimber Lantry served as TIG's lead underwriter and senior vice president, and he was the underwriter of the Policy. Maguire Aff. [714] at ¶ 3.

TIG delivered the quotation for the Policy, the related binder, and the Policy to Marsh's offices in Portland. Kallianis Decl. [708] at Exs. H & I; Stroup Decl. [723] at Exs. C & F. Marsh's Portland office sent an invoice for the Policy premium to Regence's office in Portland, and Regence remitted the premium in the amount of $673,631, as well as the surplus lines tax, to Marsh. Id. at Ex. F, p. 2; Ex. G at p, 2; Ex. J; Stroup Decl. [723] at Ex. D.

The Policy provided that TIG would pay sums Regence was obligated to pay as damages, including damages assumed under contract, arising out of [w]rongful acts committed in the course of your business operations” and [w]rongful acts committed in the course of your providing insurance services.” Saka Aff. [722] at Ex. 1, p. 10. The term “wrongful act” is defined under the Policy as “a negligent act, error, omission, misstatement or misleading statement, or breach of duty.” Id. at p. 34. “Insurance services” is defined as “services of an insurance company rendered by or on behalf of the insured, including such services provided to others,” which includes [c]laims handling and adjusting.” Id. at p. 31. “Business operations” is defined under the Policy as:

a. Review of healthcare services, including the cost of health care or necessity of healthcare and utilization review/management, to evaluate the appropriate use of medical care resources, including but not limited to:

• Cost of health care;

• Necessity of healthcare;

• Prospective review to authorize treatment or expenses;

• Concurrent review to evaluate continued patient care;

• Retrospective review to evaluate medical services already rendered; or

• Case management or disease management.

b. Claims handling.

c. Provider selection, contracting, retention, supervision, monitoring and termination [and] d. The following activities or services you provide, or contractually agree to provide: ...

• Development of practice guidelines and treatment protocols which affect healthcare treatment decisions....

Id. at p. 30, 48.

The Policy also included several exclusions. One of the exclusions at issue in this matter is the capitation exclusion, which provided that the Policy did not apply to “Business Risks.” Id. at p. 14. According to the Policy, “Business Risks” included claims arising out of [c]apitation payments, including any withholds for risk or bonus agreements, or payments, fee-for-service payments or other salary payments owed to contracted or employed health care providers[.] Id. at p. 14.

As originally written, TIG's policy form contained an express exclusion for claims alleging “actual or alleged” violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961–1968. Id. at p. 14; Maguire Aff. [714] at ¶ 3. In 1999, Regence's associate general counsel, Margaret Maguire, became concerned about the prevalence of RICO claims being asserted against health care organizations. Maguire Aff. [714] at ¶ 4; Kallianis Decl. [759] at Ex. A, p. 2 (noting that her concern was based on RICO class actions regarding “financial incentives to doctors and failure to disclose those arrangements”); Saka Aff. [722] at Ex. 143, p. 3. Therefore, Maguire expressly sought coverage for RICO claims as part of Regence's January 1, 2000 to January 1, 2001 policy with TIG. Maguire Aff. [714] at ¶ 4–5; see also Kallianis Decl. [759] at Ex. F, p. 2–3 (including notes from Marsh about discussion with Maguire on RICO coverage in November 1999); Ex. G (noting Marsh's intent to obtain RICO coverage at least for defense); Saka Aff. [722] at Ex. 143, p. 4.

During a meeting on December 1, 1999 between Maguire, Marsh, and TIG, Lantry agreed on behalf of TIG to remove the RICO exclusion and provide coverage for RICO claims in exchange for an additional premium. Maguire Aff. [714...

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