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Availability of Information Regarding Ongoing Lawsuit Does Not Preclude Exclusions for Prior Acts or Pending Litigation

By William Knauss on August 15, 2019
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The United States District Court for the Northern District of Illinois, applying Illinois law, has held that there is no coverage under a professional liability policy where the claim arose out of the same set of facts upon which a separate lawsuit against the insured was filed before the policy incepted.  Arch Ins. Co. v. PCH Healthcare Holdings, 2019 WL 3554062 (N.D. Ill. Aug. 5, 2019).  The court further held that the plain language of an exclusion for “healthcare services” precluded coverage for the claim.

In September 2017, a lawsuit was filed against the insured, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and various common law causes of action arising out of a purported “health care billing fraud scheme.”  A different party had previously sued the insured on June 30, 2017 based on the same alleged scheme.  The insured tendered the matter for coverage under a professional liability policy purchased for the policy period of September 11, 2017 to September 11, 2018.  The insurer denied coverage on multiple grounds and filed a complaint seeking a declaratory judgment that it had no duty to defend.

The district court granted the insurer’s motion for judgment on the pleadings, holding that the two matters were “claims arising from, based upon, or attributable to the same wrongful act,” and therefore were deemed a single claim first made before the policy period began, and in any event, coverage would be precluded by the policy’s exclusion for claims “arising from, based upon, or attributable to any … Wrongful Act specified in [a] prior demand, suit or proceeding or any Interrelated Wrongful Acts thereof.”  The insured unsuccessfully argued that the insurer waived its right to enforce the policy provisions because it should have uncovered the June 30 lawsuit in its underwriting process.  In rejecting the insured’s argument, the court held that “there is no reason to think that knowing about the [June 30] lawsuit would have changed [the insurer’s] decision to issue the Policy” because the insurer “could have reasonably assumed it would not be covered under any policy that was eventually issued.”

The court also held that the policy barred coverage based on an exclusion “for any Claim against an Insured arising from, based upon, or attributable to any Healthcare Services.”  The court applied the plain meaning of the contract language and rejected the insured’s argument that such a provision rendered coverage under the policy illusory, citing Nicor, Inc. v. Assoc. Elec. & Gas. Ins. Ltd., 841 N.E.2d 78, 86 (Ill. 2005) (“The policy need not provide coverage against all possible liabilities; if it provides coverage against some, the policy is not illusory.”).

 

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  • Posted in:
    Corporate & Commercial, Insurance
  • Blog:
    Wiley Executive Summary
  • Organization:
    Wiley Rein LLP
  • Article: View Original Source

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