William Beaumont Hosp. v. Fed. Ins. Co., Case No. 11-15528

• Decision Date: 13 March 2013
• Docket Number: Case No. 11-15528
• Parties: WILLIAM BEAUMONT HOSPITAL, Plaintiff/Counter-Defendant, v. FEDERAL INSURANCE COMPANY, Defendant/Counter-Plaintiff.
• Court: U.S. District Court — Eastern District of Michigan

WILLIAM BEAUMONT HOSPITAL, Plaintiff/Counter-Defendant,

v.FEDERAL INSURANCE COMPANY, Defendant/Counter-Plaintiff.

Case No. 11-15528

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

Dated: March 13, 2013

Hon. Gerald E. Rosen

OPINION AND ORDER GRANTING

PLAINTIFF'S MOTION FOR JUDGMENT ON THE PLEADINGS

At a session of said Court, held in

the U.S. Courthouse, Detroit, Michigan

on March 13, 2013

PRESENT: Honorable Gerald E. Rosen

Chief Judge, United States District Court

I. INTRODUCTION

Plaintiff William Beaumont Hospital commenced this action in this Court on December 18, 2011, seeking a declaration that the Defendant insurer, Federal Insurance Company, is obligated to defend Plaintiff in a pending antitrust suit brought in this Court against Plaintiff and other Detroit-area hospitals, and that Defendant also is obligated to provide indemnification coverage to Plaintiff in connection with a settlement it recently reached with the plaintiffs in the underlying antitrust suit. Defendant, for its part, has asserted a counterclaim against Plaintiff, seeking a declaration that it owes no duty to defend or indemnify Plaintiff under the terms of the insurance policy it issued to Plaintiff.This Court's subject matter jurisdiction over this suit rests upon the diverse citizenship of the parties. See 28 U.S.C. § 1332(a).

Through the present motion filed on March 21, 2012, Plaintiff now seeks a judgment in its favor on the pleadings, arguing that the allegations of the complaint, answer, and counterclaim, along with the exhibits accompanying these pleadings, establish as a matter of law (i) that Plaintiff's settlement of the underlying antitrust suit qualifies as a "loss" under the policy issued by Defendant, and (ii) that there is no exclusion in the policy that would overcome Defendant's obligation to indemnify Plaintiff for this loss. In response, Defendant contends (i) that outstanding issues of fact preclude this Court from determining as a matter of law whether Plaintiff's settlement of the antitrust suit constitutes a "loss" under the policy, and (ii) that the relief sought by the plaintiffs in the underlying antitrust suit triggers language in a policy endorsement dictating that the amount paid by Plaintiff to settle this suit is not a covered "loss."

Plaintiff's motion has been fully briefed by the parties.¹ Having reviewed the parties' briefs in support of and opposition to Plaintiff's motion, as well as the accompanying exhibits and the remainder of the record, the Court finds that the relevant allegations, facts, and legal arguments are adequately presented in these writtensubmissions, and that oral argument would not aid the decisional process. Accordingly, the Court will decide Plaintiff's motion "on the briefs." See Local Rule 7.1(f)(2), U.S. District Court, Eastern District of Michigan. For the reasons set forth below, the Court finds that Plaintiff's motion should be granted.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The Pertinent Policy Terms

On July 31, 2007, Defendant Federal Insurance Company issued Executive Protection Policy No. 8801-8892 (the "Policy") to Plaintiff William Beaumont Hospital, with a policy term of April 1, 2007 to April 1, 2008. (See Defendant's Response, Ex. 2.B, Executive Protection Policy.) As a general matter, the Policy provides coverage to Plaintiff for "all Loss for which the Insured becomes legally obligated to pay on account of any Claim first made against the Insured during the Policy Period . . . for a Wrongful Act committed, attempted, or allegedly committed or attempted, by an Insured before or during the Policy Period." (Id. at 3.)²

Under Endorsement No. 10 to the Policy, Plaintiff was expressly provided coverage for "Claims for Antitrust Activities." (See Plaintiff's Motion, Ex. A, Endorsement No. 10.) This endorsement calls for Defendant to pay on behalf of Plaintiff the "Covered Percentage . . . of Loss, including Defense Expenses, from each AntitrustClaim first made against an Insured during the Policy Period." (Id. at 1.)³ Under this endorsement, "Antitrust Activity" is defined as

any actual or alleged . . . price fixing; restraint of trade; monopolization; unfair trade practices; or violation of the Federal Trade Commission Act, the Sherman Act, the Clayton Act, or any other federal statu[t]e involving antitrust, monopoly, price fixing, price discrimination, predatory pricing or restraint of trade activities, or of any rules or regulations promulgated under or in connection with any of the foregoing statu[t]es, or of any similar provision of any federal, state or local statute, rule or regulation or common law.

(Id. at 2.)

The principal point of dispute in this case involves the Policy's definition of "Loss." This term is defined generally as "the total amount which any Insured becomes legally obligated to pay on account of each Claim and for all Claims in each Policy Period . . . made against them for Wrongful Acts for which coverage applies, including, but not limited to, damages, judgments, settlements, costs and Defense Costs." (Policy at 9.) Under Endorsements No. 28 and No. 31 to the Policy, the definition of "Loss" was amended to include "the multiple portion of any multiplied damage award." (Policy, Endorsement No. 28, ¶ 7(a); Endorsement No. 31, ¶ 7(a).) Endorsement No. 31 further provides:

Solely with respect to any Claim based upon, arising from or in consequence of profit, remuneration or advantage to which an Insured was not legally entitled, the term Loss . . . shall not include disgorgement by anyInsured or any amount reimbursed by any Insured Person.

(Endorsement No. 31, ¶ 6.)

B. The Underlying Cason-Merenda Antitrust Litigation

The insurance coverage dispute in this case concerns the obligation of the Defendant insurer to indemnify Plaintiff for a settlement it has reached with the plaintiffs in an antitrust suit presently pending before this Court, Cason-Merenda v. Detroit Medical Center, et al., Case No. 06-15601. As the Court explained in a recent ruling on the defendants' summary judgment motions, the plaintiffs in Cason-Merenda are registered nurses ("RNs") who "seek to recover on behalf of themselves and a class of RNs against eight Detroit-area hospitals, alleging that the [d]efendant health care providers have violated § 1 of the federal Sherman Act, 15 U.S.C. § 1, by (i) conspiring among themselves and with other local hospitals to hold down the wages of RNs employed by these institutions, and (ii) exchanging compensation-related information among themselves in a manner that has reduced competition among Detroit-area hospitals in the wages paid to RNs." Cason-Merenda v. Detroit Medical Center, 862 F. Supp.2d 603, 605 (E.D. Mich. 2012).

In their third corrected class action complaint filed on June 15, 2007,⁴ the Cason-Merenda plaintiffs allege that the defendant hospitals "have for years conspired among themselves and with other hospitals in the Detroit [area] to depress the compensationlevels of registered nurses ('RNs') employed at the conspiring hospitals, in violation of the Sherman Act, 15 U.S.C. § 1." (Cason-Merenda v. Detroit Medical Center, No. 06-15601, Third Corrected Class Action Complaint at ¶ 1.) This conspiracy, according to the complaint, was facilitated by an agreement among the defendant hospitals and their alleged co-conspirators "to regularly exchange detailed and non-public information about the compensation each is paying or will pay to its RN employees." (Id. at ¶ 2.) Apart from this alleged conspiracy to depress the level of RN compensation, the plaintiffs further allege that this "exchange of information itself has suppressed competition among Detroit-area hospitals in the compensation of RN employees, and has depressed the compensation they have paid to such employees, in violation of Section 1 of the Sherman Act." (Id.)⁵ Thus, the plaintiffs state that they, on their own behalf and on behalf of a class of RNs "employed by any defendant or co-conspirator to work in a hospital in the Detroit [area] as an RN at any time from December 12, 2002 until the present," seek to "recover for the compensation properly earned by RNs employed at Detroit-area hospitals but unlawfully retained by such hospitals as a result of the conspiracy alleged herein." (Id. at ¶¶ 4, 21.)

The Cason-Merenda plaintiffs allege that they "have suffered substantial economicharm in the form of lost compensation as a direct result of defendants' and their co-conspirators' unlawful agreement to depress RN compensation and their unlawful agreement to exchange RN compensation information." (Id. at ¶ 49.) They further allege, under each of the two counts of their complaint, that they and the other members of the putative class "have been injured in their business or property by receiving artificially depressed compensation during and before the Class period." (Id. at ¶¶ 53, 69.) As relief for the two § 1 violations asserted in their complaint, the Cason-Merenda plaintiffs request a declaration that the defendants' actions violated § 1 of the Sherman Act, and they and the other members of the putative class also seek to "recover their damages against each defendant, jointly and severally," with this damage award to "be trebled pursuant to 15 U.S.C. § 15(a)." (Id., Prayer for Relief ¶¶ B, C.) Finally, the plaintiffs request that they "and the other members of the Class be granted such other relief deemed proper to this Court." (Id., Prayer for Relief ¶ F.)

C. Plaintiff's Claims for Policy Coverage and Defendant's Responses

Upon being named as a defendant in the Cason-Merenda suit, Plaintiff timely reported this litigation to Defendant and requested defense and indemnity coverage under the Policy. Under a "Defense Agreement" entered into by the parties, Defendant agreed to pay the "Covered Percentage" (i.e., 80 percent) of the defense costs incurred by Plaintiff in the Cason-Merenda litigation, subject to Defendant's reservation of its right to...