65 F.4th 830
6th Cir.2023Background
- A qui tam False Claims Act complaint (filed under seal) alleged SHH engaged in fraudulent Medicare billing and also alleged SHH retaliated against three employee-relators; DOJ issued a Civil Investigative Demand (CID) requesting documents and info about recent terminations.
- SHH applied (April 2019) for directors & officers, employment practices, and fiduciary liability coverage (claims-made policy); application included Question 1 (disclose inquiries/investigations/claims in last 3 years), Question 2 (know of any acts that could give rise to a claim), and an Application Exclusion incorporating those answers into the policy; SHH answered “none” to Q1 and “no” to Q2.
- The qui tam complaint was partially unsealed in Aug. 2019; SHH learned then of the retaliation allegations and shortly thereafter notified Allied World, which denied coverage citing the application answers and Application Exclusion.
- SHH settled the retaliation claim for $2.2 million (March 2020) and the government claims separately; SHH sued Allied World for breach of contract and bad faith and sought declaratory relief and attorneys’ fees.
- The district court granted summary judgment to SHH on breach of contract and declaratory relief, denied the bad-faith claim, and awarded SHH reimbursement, defense costs, interest, and attorneys’ fees.
- The Sixth Circuit reversed: it held Q1 and Q2 (and the Application Exclusion) unambiguously covered the CID/retaliation matters and therefore precluded coverage; it also reversed the fee award because SHH was no longer a prevailing party.
Issues
| Issue | Plaintiff's Argument (SHH) | Defendant's Argument (Allied World) | Held |
|---|---|---|---|
| Scope of Question 1 (disclose inquiries/investigations/claims filed in last 3 years) | Q1 limited to matters relevant to the particular coverage sought (i.e., only inquiries that could give rise to the applied-for coverage) | Q1 requires disclosure of any inquiry/investigation/claim targeting any entity for which coverage is sought, regardless of subject matter | Q1 unambiguous: modifies “any Subsidiary, any Executive or other entity proposed for any coverage”; broad disclosure required; Q1 encompassed the CID/qui tam complaint |
| Scope of Question 2 (knowledge of acts that could give rise to a claim) | Q2 only covers acts/errors/omissions that would give rise to coverage the applicant actually could seek | Q2 covers any act/error/omission that could possibly give rise to a claim under any coverage part | Q2 covers acts that could give rise to a claim; the facts about employee terminations and CID made the retaliation claims fall within Q2 |
| Application Exclusion (does presence of responsive matters at application time exclude later claims) | Exclusion should be read narrowly; SHH lacked notice of retaliation claims so exclusion shouldn’t apply to those claims | Exclusion plainly excludes matters responsive to Q1/Q2 that existed at application and any claims arising therefrom | Exclusion applies: CID and employee-termination facts were responsive to Q1/Q2 and existed at application, so retaliation claims (which arose from them) are excluded from coverage |
| Attorneys’ fees award to insured for litigating coverage | SHH argued it was entitled to fees it incurred pursuing coverage | Allied World argued fees were not recoverable under the circumstances | Reversed: because SHH is not a prevailing party after reversal on coverage, the district court’s fee award is vacated; (court also reviewed state-law fee rule de novo) |
Key Cases Cited
- Wright State Physicians, Inc. v. Doctors Co., 78 N.E.3d 284 (Ohio Ct. App. 2016) (explaining claims-made policy timing rule)
- Colvin v. Caruso, 605 F.3d 282 (6th Cir. 2010) (standard of review for summary judgment)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S. 1986) (summary judgment requires drawing reasonable inferences for nonmoving party)
- Lockhart v. United States, 577 U.S. 347 (U.S. 2016) (rule that qualifying phrase ordinarily modifies the immediately preceding noun or phrase)
- Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256 (Ohio 2003) (contract unambiguity and interpretation principles)
- Beverage Holdings, L.L.C. v. 5701 Lombardo, L.L.C., 150 N.E.3d 28 (Ohio 2019) (narrow scope of the absurdity exception to plain-language interpretation)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary judgment standard; reasonable jury inquiry)
- Park-Ohio Indus., Inc. v. Home Indem. Co., 975 F.2d 1215 (6th Cir. 1992) (contract may be unambiguous in some applications and ambiguous in others)