Antitrust Law Daily Wrap Up, ANTITRUST NEWS: St. Luke’s sues over insurance coverage for costs defending antitrust litigation, (Nov 7, 2014)

By Linda O’Brien, J.D., LL.M.

An insurance company’s refusal to pay the defense and appeal costs incurred by a medical center in antitrust litigation over its acquisition of a major physician practice group was a breach of its insurance contract, according to a complaint filed in the federal district court in Boise, Idaho (St. Luke’s Health System, Ltd. v. Allied World National Assurance Company, November 4, 2014).

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 filed an appeal.

The complaint in the present action states that Allied World National Assurance Company issued a directors and officers liability (D&O) insurance policy for coverage for the period of June 2011-June 2012 and June 2012-June 2013. The policies (1) expressly provided antitrust activities coverage; (2) defined “claim” to mean any judicial, administrative or regulatory proceeding for monetary, non-monetary or injunctive relief, including any appeal therefrom; (3) defined “loss” as legal costs or attorneys fees awarded by a court; and (4) defined “defense costs” as reasonable and necessary fees, costs, charges or expenses resulting from the investigation, defense or appeal of a claim.

In January and April 2013, Allied acknowledged St. Luke’s Notice of Circumstance and Tender of the litigation in which Allied admitted that the St. Alphonsus lawsuit and FTC investigation potentially triggered covered under the policies. In September 2013, Allied informed St. Luke’s that it might invoke an exclusion if a judgment were entered that showed applicability to an exclusion. However, Allied paid St. Luke’s defense costs through November 2013, the complaint alleged.

In March 2014, after judgment was entered by the trial court, Allied allegedly 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. The reason Allied gave for declining coverage was the exclusion stating the coverage will not cover any loss in connection with any claim arising out of or attributable to the gaining of any profit, financial advantage, or improper or illegal remuneration by an insured. Allied invoked the exclusion, stating that the court entered judgment in the lawsuit and it constituted a final judgment under the exclusion provision.

No damages were awarded in the litigation and there was no finding that any profit, financial advantage, or improper remuneration was actually gained by St. Luke’s. Allied’s refusal to pay the loss within the policy terms was a material breach of the insurance contract. The policy must be read as a whole and the exclusion could not be read in conflict with the policy definitions of “loss,” “claim,” and “defense costs,” all of which include appeals and fee awards. Coverage promoting provisions must be interpreted broadly in favor of the insured, whereas coverage restricting provisions, such as the exclusion, must be interpreted narrowly, the complaint charged.

The plaintiffs assert claims for breach of insurance contract. The action seeks declaratory relief, damages, costs of suit, attorney fees, and any other just and proper relief.

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

Attorneys: J. Walter Sinclair (Holland & Hart LLP) and Earnest Summers and Kate E. Middleton (Faegre Baker Daniels LLP) for St. Luke’s Health System, Ltd. and St. Luke’s Regional Medical Center, Ltd.

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

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