379 F. Supp. 3d 554
E.D. Tex.2019Background
- Oceans Healthcare, LLC (insured) held a claims-made D&O-style "run-off" policy from Illinois Union Insurance Company (IUIC) with $1,000,000 aggregate and $25,000 retention; run-off date: Dec. 27, 2012.
- In Aug. 2015 the HHS Office of Inspector General (OIG) served a subpoena seeking documents dated Jan. 1, 2008–Aug. 27, 2015 in connection with an investigation into possible False Claims Act (FCA) violations; Oceans produced documents and incurred ~ $1.1M in defense costs.
- IUIC initially took a position that no "Claim" had been made; after a qui tam complaint was unsealed in Aug. 2017, IUIC denied coverage.
- Oceans sued IUIC for breach of contract, violations of the Texas Insurance Code ch. 542, and fees; IUIC counterclaimed for declaratory relief that (1) the OIG subpoena is not a covered Claim/Wrongful Act, (2) the run-off exclusion bars coverage for acts after Dec. 27, 2012, and (3) an alternative $250,000 government-funding defense-cost sublimit applies.
- The court resolved cross Rule 12(c) motions: it held the subpoena is a "Claim" alleging Wrongful Acts but the Run-Off Exclusion bars coverage because the subpoena sought documents through Aug. 27, 2015 (after the run-off date); IUIC's fee request denied; Oceans' claims dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the OIG subpoena is a "Claim" (policy defines Claim to include a written demand for non-monetary relief) | Subpoena is a written demand for non-monetary relief and thus a Claim | Subpoena merely seeks information and is not a demand for relief; some cases disallow coverage for investigative subpoenas | Held: subpoena is a Claim; a subpoena compelling document production qualifies as a demand for non-monetary relief |
| Whether the subpoena alleges a "Wrongful Act" under the policy | Subpoena identifies target, investigative purpose (possible FCA violations), and a multi-year period — that amounts to an allegation of wrongful acts | Subpoena only seeks documents and does not itself allege wrongdoing | Held: subpoena sufficiently alleges Wrongful Acts (investigation into possible FCA violations) |
| Whether the Policy's Run-Off Exclusion precludes coverage (run-off date Dec. 27, 2012) | If subpoena covers documents 2008–2015, allegations span before and after run-off, so insurer must defend entire claim | Because subpoena requests documents through Aug. 2015, the claim involves Wrongful Acts occurring after run-off; exclusion bars coverage | Held: Run-Off Exclusion applies — subpoena alleges Wrongful Acts in whole or in part after Dec. 27, 2012; coverage precluded |
| Whether IUIC is entitled to attorneys' fees on its declaratory counterclaims | Not addressed separately by Oceans | IUIC sought fees under federal or Texas declaratory judgment law | Held: Fees denied — DJA does not provide independent basis for fees in federal diversity suit and IUIC cited no substantive statute authorizing fees |
Key Cases Cited
- Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (choice-of-law principle for federal courts sitting in diversity)
- GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006) (eight-corners rule and duty-to-defend framework)
- Pendergest-Holt v. Certain Underwriters at Lloyd's of London, 600 F.3d 562 (5th Cir. 2010) (declining to extend eight-corners rule beyond traditional duty-to-defend context where contract contemplates extrinsic evidence)
- Century Surety Co. v. Seidel, 893 F.3d 328 (5th Cir. 2018) (exclusions phrased as "arising out of" are construed broadly)