D & O Policy Professional Services Exclusion - Post 4830
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The California Court of Appeals was asked to resolve a dispute over the applicability of professional services coverage exclusions in directors and officers liability insurance policies. The policies were issued to Practice Fusion, Inc., a company that develops and licenses electronic health record software for use by healthcare providers.
In Practice Fusion, Inc. v. Freedom Specialty Insurance Company et al., A167130, A167886, California Court of Appeals, First District, Second Division (June 21, 2024) it responded.
FACTUAL BACKGROUND
An electronic health record is an electronic version of a patient’s medical history as maintained by a healthcare provider.
Following investigations by the United States Department of Justice, Practice Fusion entered into a civil settlement with the United States that resolved two distinct sets of claims that alleged that Practice Fusion violated the federal Anti-Kickback Statute. Further, although the alerts appeared to healthcare providers as unbiased medical information, in some instances they were designed to encourage healthcare providers to prescribe a specific product or class of products to the benefit of the sponsoring pharmaceutical company.
Practice Fusion sought insurance coverage for the civil settlement under its directors and officers liability insurance policies. The insurers denied coverage on the ground that the policies’ professional services exclusions applied to the losses. Practice Fusion then sued the insurers for breach of contract.
The trial court granted the insurers’ motion for summary adjudication because the claims arose from Practice Fusion providing professional services to the pharmaceutical companies and its claim was barred by the professional services exclusion in the policies.
The Settlement Between the United States Department of Justice and Practice Fusion
In January 2020, Practice Fusion agreed to pay $118,642,000 plus interest to the United States and participating states to resolve claims arising from investigations relating to Practice Fusion’s electronic health record software.
Practice Fusion’s Insurance Coverage
Several insurers relevant to the CDS claims insured Practice Fusion under primary or excess directors and officers (D&O) liability insurance policies. The policies in an “insurance tower” provided a total of $50 million in coverage. All policies contained an exclusion that applies to all “Insureds” and bars coverage for “Loss in connection with any Claim made against any Insured . . . alleging, arising out of, based upon or attributable to an Insured’s performance of or failure to perform professional services for others, or any act(s), error(s) or omission(s) relating thereto; ….”
DISCUSSION
At issue in this case are exclusions that apply to losses connected to claims arising from “professional services for others.” The loss claimed by Practice Fusion as a result of its settlement with the United States as to the CDS alerts falls within the provisions in Practice Fusion’s D&O policies exclude coverage for claims arising out of, based upon or attributable to an Insured’s performance of professional services for others, or any act(s), error(s) or omission(s) relating thereto.
Practice Fusion conceded it agreed to modify its software to include the CDS alerts, which were targeted for particular patients with particular conditions based on selected guidelines. The contracts between Practice Fusion and the pharmaceutical companies are premised upon Practice Fusion providing the companies with professional services. The Court of Appeals concluded that the CDS claims, which Practice Fusion settled, are claims that meet the terms of the exclusion.
Accordingly, the loss connected to the settlement of the DOJ’s claims regarding the CDS alerts was barred by the professional services exclusion. The contracts included as a major objective for Practice Fusion to provide the companies with services by deploying CDS alerts in its software and by “arranging for or recommending” that healthcare providers prescribe their products.
ZALMA OPINION
Health insurance fraud is rampant. If you read Zalma’s Insurance Fraud Letter you will see dozens of convictions for fraud on government funded health care programs and multiple civil settlements like that reached with Practice Fusion. It would be ridiculous to allow a person or entity to insure for its fraudulent conduct and payment to avoid criminal prosecution. To do so would avoid the purpose of the kickback statutes and the crime that Practice Fusion avoided by agreeing to pay the Government and eliminate the fact that D&O insurance was designed to protect against fortuitous losses not intentional criminal conduct.
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Concealing a Weapon Used in a Murder is an Intentional & Criminal Act
Post 5002
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In Howard I. Rosenberg; Kimberly L. Rosenberg v. Chubb Indemnity Insurance Company Howard I. Rosenberg; Kimberly L. Rosenberg; Kimberly L. Rosenberg; Howard I. Rosenberg v. Hudson Insurance Company, No. 22-3275, United States Court of Appeals, Third Circuit (February 11, 2025) the Third Circuit resolved whether the insurers owed a defense for murder and acts performed to hide the fact of a murder and the murder weapon.
FACTUAL BACKGROUND
Adam Rosenberg and Christian Moore-Rouse befriended one another while they were students at the Community College of Allegheny County. On December 21, 2019, however, while at his parents’ house, Adam shot twenty-two-year-old Christian in the back of the head with a nine-millimeter Ruger SR9C handgun. Adam then dragged...
Renewal Notices Sent Electronically Are Legal, Approved by the State and Effective
Post 5000
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Washington state law allows insurers to deliver insurance notices and documents electronically if the party has affirmatively consented to that method of delivery and has not withdrawn the consent. The Plaintiffs argued that the terms and conditions statement was not “conspicuous” because it was hidden behind a hyperlink included in a single line of small text. The court found that the statement was sufficiently conspicuous as it was bolded and set off from the surrounding text in bright blue text.
In James Hughes et al. v. American Strategic Insurance Corp et al., No. 3:24-cv-05114-DGE, United States District Court (February 14, 2025) the USDC resolved the dispute.
The court’s reasoning focused on two main points:
1 whether the ...
Rescission in Michigan Requires Preprocurement Fraud
Post 4999
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Lie About Where Vehicle Was Garaged After Policy Inception Not Basis for Rescission
This appeal turns on whether fraud occurred in relation to an April 26, 2018 renewal contract for a policy of insurance under the no-fault act issued by plaintiff, Encompass Indemnity Company (“Encompass”).
In Samuel Tourkow, by David Tourkow v. Michael Thomas Fox, and Sweet Insurance Agency, formerly known as Verbiest Insurance Agency, Inc., Third-Party Defendant-Appellee. Encompass Indemnity Company, et al, Nos. 367494, 367512, Court of Appeals of Michigan (February 12, 2025) resolved the claims.
The plaintiff, Encompass Indemnity Company, issued a no-fault insurance policy to Jon and Joyce Fox, with Michael Fox added as an additional insured. The dispute centers on whether fraud occurred in...
Insurance Fraud Leads to Violent Crime
Post 4990
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CRIMINAL CONDUCT NEVER GETS BETTER
In The People v. Dennis Lee Givens, B330497, California Court of Appeals, Second District, Eighth Division (February 3, 2025) Givens appealed to reverse his conviction for human trafficking and sought an order for a new trial.
FACTS
In September 2020, Givens matched with J.C. on the dating app “Tagged.” J.C., who was 20 years old at the time, had known Givens since childhood because their mothers were best friends. After matching, J.C. and Givens saw each other daily, and J.C. began working as a prostitute under Givens’s direction.
Givens set quotas for J.C., took her earnings, and threatened her when she failed to meet his demands. In February 2022, J.C. confided in her mother who then contacted the Los Angeles Police Department. The police ...
Police Officer’s Involvement in Insurance Fraud Results in Jail
Post 4989
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Von Harris was convicted of bribery, forgery, and insurance fraud. He appealed his conviction and sentence. His appeal was denied, and the Court of Appeals upheld the conviction.
In State Of Ohio v. Von Harris, 2025-Ohio-279, No. 113618, Court of Appeals of Ohio, Eighth District (January 30, 2025) the Court of Appeals affirmed the conviction.
FACTUAL BACKGROUND
On January 23, 2024, the trial court sentenced Harris. The trial court sentenced Harris to six months in the county jail on Count 15; 12 months in prison on Counts 6, 8, 11, and 13; and 24 months in prison on Counts 5 and 10, with all counts running concurrent to one another for a total of 24 months in prison. The jury found Harris guilty based on his involvement in facilitating payments to an East Cleveland ...
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To Dispute an Arbitration Finding Party Must File Dispute Within 20 Days
Post 4988
EXCUSABLE NEGLECT SUFFICIENT TO DISPUTE ARBITRATION LATE
In Howard Roy Housen and Valerie Housen v. Universal Property & Casualty Insurance Company, No. 4D2023-2720, Florida Court of Appeals, Fourth District (January 22, 2025) the Housens appealed a final judgment in their breach of contract action.
FACTS
The Housens filed an insurance claim with Universal, which was denied, leading them to file a breach of contract action. The parties agreed to non-binding arbitration which resulted in an award not
favorable to the Housens. However, the Housens failed to file a notice of rejection of the arbitration decision within the required 20 days. Instead, they filed a motion for a new trial 29 days after the arbitrator’s decision, citing a clerical error for the delay.
The circuit court ...
