257 F. Supp. 3d 763
E.D. La.2017Background
- Illinois Union issued a Managed Care Organization Errors & Omissions policy to Blue Cross covering May 25, 2007–Jan 1, 2009; policy covers "Loss" (including defense expenses and monetary amounts an insured is legally obligated to pay) but excludes amounts/benefits owed under any contract, equitable/non‑monetary relief, and uninsurable matters; it contains a prior‑written‑consent‑to‑settle and cooperation clause.
- Omega Hospital sued Blue Cross in state court alleging improper underpayment and asserted causes of action including LUTPA, fraud, negligent misrepresentation, detrimental reliance and unjust enrichment; Blue Cross settled the case and allocated roughly 10% to member benefits and 90% to tort damages (settlement confidential).
- Illinois Union refused to give written consent to the settlement and reserved rights, arguing the settlement paid amounts excluded as contractual/plan benefits and that Blue Cross breached the policy’s consent and cooperation provisions.
- Blue Cross contends (1) substantial tort-based damages were released and thus covered under the policy, (2) Illinois Union unreasonably withheld consent (and verbally approved), and (3) Illinois Union breached by refusing indemnity; Blue Cross seeks indemnity and attorneys’ fees/bad-faith relief.
- The parties cross‑moved for summary judgment; the district court denied Blue Cross’s motion, granted in part and denied in part Illinois Union’s motion, holding material factual disputes precluded summary judgment on coverage, consent to settle, and cooperation, but finding Illinois Union paid defense costs in excess of the self‑insured retention and disallowing recovery of attorneys’ fees.
Issues
| Issue | Illinois Union's Argument | Blue Cross's Argument | Held |
|---|---|---|---|
| Whether the settlement payments constitute covered "Loss" under the policy | Payments primarily compensated contractual/plan benefits or quasi‑contractual/equitable relief excluded from "Loss"; insurer must show exclusion applies | Settlement resolved tort‑based claims (LUTPA, negligent misrepresentation, etc.) that are covered; allocation and other record evidence support coverage | Denied for both sides: genuine disputes of material fact exist as to whether settled amounts are excluded or covered; summary judgment inappropriate |
| Whether Blue Cross’s failure to obtain insurer's prior written consent bars coverage | Consent is a condition precedent; insurer reasonably withheld consent and reserved rights; unilateral settlement prejudices insurer | Insurer unreasonably withheld consent, effectively denied coverage (or verbally consented by agreeing to contribute), so insured was justified in settling | Denied for both sides: factual disputes exist about whether insurer unreasonably withheld consent or effectively denied coverage; summary judgment inappropriate |
| Whether Blue Cross breached the cooperation clause such that coverage is barred | Blue Cross failed to provide requested information and thus prejudiced insurer; material and prejudicial breach bars coverage | Blue Cross provided regular updates and cooperated; any gap was not material/prejudicial; insurer failed to independently investigate | Denied for both sides: disputed facts about completeness/timing of information and prejudice preclude summary judgment |
| Whether Illinois Union must reimburse defense costs in excess of the SIR and whether attorneys’ fees are recoverable | Insurer already reimbursed defense costs in excess of SIR; attorneys’ fees not recoverable absent statute or contract | Blue Cross sought reimbursement and attorneys’ fees for alleged bad faith | Granted in part to Illinois Union: no dispute that insurer reimbursed defense costs above SIR (insurer entitled to summary judgment on that issue); attorneys’ fees denied (not recoverable under statute or contract) |
Key Cases Cited
- Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485 (5th Cir. 1992) (settlement allocations may be examined when determining insurer indemnity obligations)
- In re Katrina Canal Breaches Litig., 495 F.3d 191 (5th Cir. 2007) (principles on interpreting insurance contracts and construing exclusions strictly against insurers)
- Bonin v. Westport Ins. Corp., 930 So.2d 906 (La. 2006) (fraud exclusion requires adjudication or admission to apply)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard and burden shifting)
- Fed. Ins. Co. v. New Hampshire Ins. Co., [citation="439 F. App'x 287"] (5th Cir. 2011) (insurer reimburses only to extent settlement compromised covered claims)