Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS—D. Idaho.: Insurer had duty to pay St. Luke’s costs for defending antitrust litigation, (Sep 8, 2015)

By Linda O’Brien, J.D., LL.M.

An insurance company had a duty to reimburse all defense costs that a medical center incurred in antitrust litigation over its acquisition of a major physician practice group, breached that duty under the insurance policy by failing to do so, and was not entitled to reimbursement of defense costs it previously paid to the medical center, the federal district court in Boise has decided. Thus, the medical center’s motion for summary judgment was granted (St. Luke’s Health System, Ltd. v. Allied World National Assurance Company, September 4, 2015, Winmill, B.).

St. Luke’s Health System, an Idaho not-for-profit health system that operates six hospitals, sought to acquire Saltzer Medical Group, Idaho’s largest independent, multi-specialty physician practice group. In November 2012, St. Alphonsus Medical Center sued to enjoin the acquisition. After a preliminary injunction was denied by the court, St. Luke’s acquisition of Saltzer was completed in December 2012. In March 2013, the FTC and the Idaho Attorney General filed an additional antitrust suit, and the two suits were subsequently consolidated. The litigation proceeded to trial in February 2014. Judgment was entered against St. Luke’s, which was upheld on appeal.

Allied World National Assurance Company issued a directors and officers liability (D&O) insurance policy to St. Luke’s for coverage for the period of June 2011-June 2012 and June 2012-June 2013, which expressly provided antitrust activities coverage. St. Luke’s tendered a claim for the costs of defending the suit and Allied partially reimbursed St. Luke’s for almost $8 million in defense costs. In March 2014, after judgment was entered by the trial court, Allied refused to reimburse St. Luke’s for the balance of the defense costs incurred in connection with the litigation or for any costs that it will incur in connection with the appeal of the judgment entered by the trial court, and demanded repayment of the previously reimbursed expenses. In November 2014, St. Luke’s filed suit against Allied, alleging that the insurance company’s refusal to pay the defense and appeal costs was a breach of its insurance contract. The parties filed cross-motions for summary judgment.

The court found that the exclusionary provision of the insurance policy was inapplicable. The insurance policy between Allied and St. Luke’s contained a provision that barred coverage for any loss in connection with a claim arising out of or attributable to St. Luke’s gain of profit, financial advantage, or illegal remuneration if a final judgment or adjudication established that St. Luke’s was not legally entitled to such profit, advantage, or remuneration.

In this case, the court held that St. Luke’s was not legally entitled to the bargaining leverage it obtained by purchasing Saltzer and that decision was affirmed on appeal. The court made no finding, however, that St. Luke’s used that bargaining leverage to actually obtain any financial gain. There was no award of damages or order to St. Luke’s to disgorge any profits or financial gain. Therefore, there was no final judgment or adjudication that St. Luke’s was not legally entitled to such profit, advantage, or remuneration.

Allied’s argument that the term “financial advantage” should be interpreted to include bargaining leverage was rejected. The court noted that the language of the insurance policy was clear and should be given its plain and ordinary meaning. Further, Allied used the terms of the exclusion provision to restrict coverage and such exclusions should be strictly construed in favor of the insured. The burden was on the insurer to use clear and precise language if it wished to restrict the scope of its coverage, the court concluded.

The case is No. 1:14-cv-00475-BLW.

Attorneys: Ernest Summers, III (Faegre Baker Daniels LLP) for St. Luke's Health System, Ltd. and St. Luke's Regional Medical Center, Ltd. Charles A. Jones (Troutman Sanders LLP) for Allied World National Assurance Co. and Darwin National Assurance Co.

Companies: St. Luke’s Health System, Ltd.; St. Luke’s Regional Medical Center, Ltd.; Allied World National Assurance Company; Darwin National Assurance Company.

Cases: AcquisitionsMergers Antitrust IdahoNews