Steadfast Ins. Co. v. Caremark Rx, Inc.

• Decision Date: 14 September 2005
• Docket Number: No. 1-04-3423.,1-04-3423.
• Citation: 359 Ill. App.3d 749,835 N.E.2d 890,296 Ill.Dec. 537
• Parties: STEADFAST INSURANCE COMPANY, Plaintiff-Appellant, v. CAREMARK RX, INC. and Caremark, Inc., Defendants-Appellees.
• Court: United States Appellate Court of Illinois

835 N.E.2d 890

359 Ill. App.3d 749

296 Ill.Dec. 537

STEADFAST INSURANCE COMPANY, Plaintiff-Appellant, v. CAREMARK RX, INC. and Caremark, Inc., Defendants-Appellees.

No. 1-04-3423.

Appellate Court of Illinois, First District, Third Division.

August 17, 2005.

Rehearing Denied September 14, 2005.

COPYRIGHT MATERIAL OMITTED

Meckler Bulger & Tilson, LLP, Chicago (Philip R. King, Eric D. Stubenvoll & John K. Daly, of counsel), for Appellant.

Ungaretti & Harris LLP, Chicago (Frank E. Pasquesh, Robert H. Griffith & Kevin P. Shea, of counsel), for Appellees.

Justice HOFFMAN delivered the opinion of the court:

In this declaratory judgment action, the plaintiff, Steadfast Insurance Company ("Steadfast"), appeals from a circuit court order entering summary judgment in favor of the defendants, Caremark Rx, Inc. ("Caremark Rx") and Caremark, Inc., finding that Steadfast has a duty to defend them in two underlying federal actions, and denying its cross-motion for summary judgment. For the reasons which follow, we reverse and remand the matter to the circuit court for further proceedings not inconsistent with the opinions expressed herein.

The facts giving rise to this litigation are not in dispute. Caremark Rx and its subsidiary, Caremark, Inc., are in the business of providing pharmacy benefit management services to various health plan sponsors throughout the country. In 2001, Steadfast issued a managed care professional liability policy (hereinafter referred to as the "Policy"), pursuant to which it agreed, under specified circumstances, to pay those sums in excess of the Policy's deductible that Caremark Rx might become legally obligated to pay as "Damages" for "Claims" made by reason of "Wrongful Acts" committed by Caremark Rx or its subsidiaries arising out of its rendering or failing to render "Professional Services" in the course of business. Under the Policy, wrongful acts include any alleged or actual negligent act, error, or omission with respect to professional services rendered or failed to be rendered. Any claims arising from, inter alia, dishonest, fraudulent, criminal, intentional, or malicious acts or any acts of a knowingly wrongful nature are specifically excluded from coverage.

On March 22, 2002, Roland H. Bickley filed a putative class action suit on behalf of the Georgia Pacific Corporation Health and Accident Plan and all other similarly situated plans against Caremark Rx in the United States District Court for the Central District of California (hereinafter referred to as the "Bickley Action"). Bickley alleged in his six-count complaint that he is a participant in the Georgia Pacific Corporation Life Health and Accident Plan (hereinafter referred to as the "Plan"), for which Caremark Rx serves as the pharmacy benefits manager and acts as a "fiduciary" to the Plan under the Employee Retirement Income and Security Act (ERISA) (29 U.S.C. § 1001 et seq.). According to the factual allegations realleged in each count of the complaint, Caremark Rx contracts with retail pharmacies to provide drugs at a discounted rate for the benefit of the members of the Plan and also purchases drugs from manufacturers at a discounted price which it sells through its mail order pharmacies. Bickley alleged that Caremark Rx is involved in a scheme whereby it "secretly and subversively" through the use of pricing spreads "diverts and converts" a portion of the discounted retail and mail drug prices from the Plan for its own use and benefit. It is alleged that Caremark Rx carries out this scheme by entering into contracts with drug manufacturers, securing for its own benefit undisclosed discounts and rebates from the manufacturers, and favoring certain higher priced drugs in exchange for these "kickbacks." Bickley further alleged that Caremark Rx "conspires secretly" with the drug manufacturers to "subvert and circumvent" the "best pricing" rules set forth in the Omnibus Reconciliation Act (42 U.S.C. § 1396r-8) and, under this "hidden scheme", it distorts the average wholesale prices of its drugs and increases prescription costs to the Plan.

Predicated on the factual allegations set forth above, counts I through IV of Bickley's amended complaint consist of claims for breach of fiduciary duty under ERISA. Specifically, the complaint alleges that Caremark Rx breached its fiduciary duty by: failing to act in good faith and candor (count I); dealing with the Plan's assets for its own interest (count II); engaging in transactions on behalf of parties whose interests are adverse to those of the Plan (count III); and receiving consideration for its own account from parties dealing with the Plan (count IV). Count V charges Caremark Rx with misrepresentation and failure to disclose material information to the Plan, and count VI is an action for an accounting.

Caremark Rx promptly served Steadfast with the summons and a copy of the complaint in the Bickley Action, and requested that Steadfast assume defense of the action based on the terms of the Policy. By letter dated April 11, 2002, Steadfast stated that it had no obligation to defend or indemnify Caremark Rx in the Bickley Action. Shortly thereafter, Caremark Rx requested that Steadfast reconsider its position in this regard.

On May 21, 2002, while Caremark Rx was awaiting a response from Steadfast, Mary Dolan filed a complaint on behalf of the Wells Fargo Health Plan against Caremark Rx in the United States District Court for the Central District of California (hereinafter referred to as the "Dolan Action").¹ The Dolan Action mirrors the Bickley Action in all material respects, as it sets forth the same claims and seeks identical relief. Caremark Rx promptly tendered defense of the Dolan Action to Steadfast.

By letter dated June 17, 2002, Steadfast restated that it had no obligation to defend or indemnify Caremark Rx in the Bickley Action. Likewise, Steadfast subsequently informed Caremark Rx that it held the same position as to the Dolan Action.

Although Steadfast maintained that it had no duty to defend or indemnify Caremark Rx in either action, it failed to seek a declaratory judgment at that time. Instead, on September 9, 2002, Caremark Rx filed a declaratory judgment action against Steadfast in the United States District Court for the Northern District of Illinois, seeking a finding that Steadfast had an obligation to defend and indemnify it with regard to the Bickley and Dolan Actions. During this time, the underlying complaints were both amended to include Caremark, Inc. as a party defendant. For ease of analysis, we will hereinafter refer to Caremark Rx and Caremark, Inc. collectively as "Caremark".

After Caremark filed the federal declaratory judgment action, Steadfast filed the instant action seeking a declaration that it did not have a duty to defend or indemnify Caremark in the Bickley and Dolan Actions. Steadfast maintained that the underlying complaints failed to allege any "wrongful act" covered by the Policy, and that the Policy specifically excluded coverage for claims arising from intentional acts or those of a knowingly wrongful nature. Caremark filed a counterclaim, seeking a declaration that Steadfast owed Caremark a duty to defend and indemnify it in the underlying actions and that it was estopped from raising any Policy defenses. Caremark also asserted that it was entitled to attorneys' fees under section 155 of the Illinois Insurance Code (215 ILCS 5/155 (1) (West 2002)) because Steadfast's denial of coverage was vexatious and unreasonable.²

Steadfast and Caremark filed cross-motions for summary judgment. Steadfast argued in its motion that it had no duty to defend or indemnify Caremark in the underlying actions, whereas Caremark argued in its cross-motion that Steadfast owed it a duty to defend. On September 23, 2003, the circuit court denied Steadfast's motion and granted Caremark's cross-motion, finding that Steadfast in fact had a duty under the Policy to defend Caremark in both the Bickley and Dolan Actions. The court, however, stated in its written order that it was reserving ruling on the "issues of estoppel and application of Section 155 of the Illinois Insurance Code". Steadfast subsequently made a motion requesting a finding of appealability pursuant to Supreme Court Rule 304(a) (hereinafter "Rule 304(a)") (155 Ill.2d R. 304(a)) and to further stay enforcement of the September 23, 2003, order pending resolution of its appeal on the issue of the duty to defend. The trial court made the requisite Rule 304(a) finding with respect to that order, but denied Steadfast's request to stay enforcement thereof. The instant appeal followed.

Before considering the substantive issues raised by Steadfast, we must first discuss the question of our jurisdiction over this appeal. Steadfast contends that our jurisdiction is invoked pursuant to Rule 304(a), which provides that, where a case involves multiple parties or claims, "an appeal may be taken from a final judgment as to one or more but fewer than all of the parties or claims only if the trial court has made an express written finding that there is no just reason for delaying enforcement or appeal or both." 155 Ill.2d R. 304(a). Steadfast argues that "it is undisputable that judgment was entered on the duty to defend claim" and, pursuant to our holding in Fremont Casualty Insurance Co. v. Ace-Chicago Great Dane Corp., 317 Ill.App.3d 67, 250 Ill.Dec. 624, 739 N.E.2d 85 (2000), an order disposing of a duty to defend claim, but reserving judgment regarding the duty to indemnify, is a final determination with respect to a definite and separate portion of the litigation.

Caremark, on the other hand, argues that a final determination was not made on a definite and separate part of the litigation because the circuit court expressly reserved ruling on the issue of estoppel and discovery is now moving forward on that issue. Caremark appears to be arguing that, although the trial court found that...