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Justices rule in favor of Anthem in excess insurance disputes

April 23, 2015

Anthem Inc. is entitled to its costs of settling litigation in which the insurance giant was accused of improperly handling claims, the Indiana Supreme Court ruled Wednesday. The reinsurance companies argued that coverage was barred based on the excess insurance policies.

Lawsuits were brought in Florida and Connecticut in the late 1990s accusing Anthem Inc. – which later merged with WellPoint Inc. – of engaging in a pattern of failing to pay claims in a full and timely manner. Anthem denied the claims, which were consolidated into multi-district litigation in Florida, but eventually settled the case in 2005 for nearly $200 million without admitting any wrongdoing.

Anthem was self-insured for errors and omissions liabilities and purchased policies from other insurers to reinsure its E&O liabilities. After it settled, Anthem sought indemnification from its reinsurers, some of which denied coverage and successfully obtained summary judgment.

Anthem sought coverage under Part II of its policies with the excess reinsurers for its losses in the underlying litigation including its ultimate settlement for $198 million, its defense costs, and other losses it incurred in the settlement agreement.

In WellPoint, Inc. (f/k/a Anthem, Inc.) and Anthem Insurance Companies, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, AIG Europe (U.K.) limited, New Hampshire Insurance Co. et al., 49S05-1404-PL-244, the justices reversed summary judgment for the reinsurers and ruled largely in favor of Anthem.

“The use of the word ‘solely’ in the professional liability insuring agreement operates here to prescribe coverage for Anthem losses resulting from claims for any wrongful acts by Anthem in the course of its claims handling and adjusting services but not for losses resulting from claims for wrongful acts that occur outside its rendering of such services. The wrongful acts alleged by the original plaintiffs — engaging in an improper, unfair, and deceptive scheme designed to systematically deny, delay, and diminish claim payments — are clearly alleged wrongful acts by Anthem in the course of its claims handling and adjusting services and thus qualify as covered Wrongful Acts occurring in the rendering or failure to render Professional Services as specified in the insuring agreement,” Justice Brent Dickson wrote, noting Anthem is entitled to coverage for defense costs.

The justices declined to find the covered risks to be uninsurable under Indiana law in light of the very strong presumption of enforceability of contracts and the relative equality of sophistication and bargaining power among the parties.

They did find that Exclusion (b) of the policy, which says Coverage II does not apply to any dishonest or fraudulent act or omission, but then qualifies it with an exception that “this exclusion shall not apply to any Claim seeking both compensatory and punitive damages based upon or arising out of allegations of both fraud and bad faith in the rendering of or failure to render Professional Services,” does not apply to plaintiff Connecticut State Medical Society. CSMS only sought declaratory and injunctive relief and litigation expenses, but not punitive damages.  As such, Anthem is not entitled to settlement losses resulting from CSMS’ claim nor for Anthem’s bad faith claim.

The matter is remanded for further proceedings. Justice Robert Rucker concurred in result without a separate opinion.

 

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