My Left Foot Children's Therapy, LLC et al v. Certain Underwriter's at Lloyd's London Subscribing to Policy No. HAH15-0632, No. 2:2015cv01746 - Document 52 (D. Nev. 2016)

Court Description: ORDER granting in part and denying in part Defendant's ECF No. 26 Motion for Summary Judgment; denying Plaintiffs' ECF No. 29 Motion for Partial Summary Judgment; denying without prejudice Plaintiffs' ECF No. 45 Motion for Leave to File First Amended Complaint. Signed by Judge Miranda M. Du on 9/19/2016. (Copies have been distributed pursuant to the NEF - KR)
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My Left Foot Children's Therapy, LLC et al v. Certain Underw...cribing to Policy No. HAH15-0632 Doc. 52 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 DISTRICT OF NEVADA 10 *** 11 12 MY LEFT FOOT CHILDREN’S THERAPY, LLC, JON GOTTLIEB, ANN MARIE GOTTLIEB, Plaintiffs, 13 14 15 v. CERTAIN UNDERWRITER’S AT LLOYD’S LONDON SUBSCRIBING TO POLICY NO. HAH15-0632, 16 Case No. 2:15-cv-01746-MMD-GWF ORDER (Defendant’s Motion for Summary Judgment – ECF No. 26; Plaintiff’s Motion for Partial Summary Judgment – ECF No. 29) Defendant. 17 18 19 I. SUMMARY 20 This dispute relates to coverage for a qui tam action under a professional liability 21 insurance policy and its relevant endorsements. Defendant Certain Underwriter’s at 22 Lloyd’s London Subscribing to Policy No. HAH15-0632 (“Underwriters” or “Defendant”) 23 has filed a Motion for Summary Judgment (“Defendant’s Motion”). (ECF No. 26.) 24 Plaintiffs My Left Foot Children’s Therapy, LLC’s (“My Left Foot”) and Jon and Ann Marie 25 Gottlieb (collectively “Plaintiffs”) have filed a Motion for Partial Summary Judgment 26 (“Plaintiffs’ Motion”). (ECF No. 29.) The Court has reviewed the parties’ respective 27 responses (ECF Nos. 37, 38) and replies (ECF Nos. 39, 40). The Court has also 28 considered the arguments presented at the September 13, 2016, hearing on the parties’ 1 Motions. For the reasons discussed below, Defendant’s Motion (ECF No. 26) is denied 2 in part and granted in part and Plaintiffs’ Motion (ECF No. 29) is denied. 3 II. BACKGROUND 4 A. The Insurance Policy 5 Plaintiffs maintained a Professional Liability Insurance Policy (“Policy”) with 6 Underwriters for the coverage period of April 15, 2015, through April 15, 2016. (ECF No. 7 1 at 2.) The Policy includes a Retroactive Date of Coverage of April 15, 2014. (ECF No. 8 30-9 at 5.) The Policy is a “claims made” policy, meaning that the Policy provides 9 professional liability coverage to Plaintiffs for covered claims made and reported to 10 Underwriters during the policy period. (ECF No. 26 at 8.) Section I.B. of the Policy 11 provides that Underwriters has the duty to defend Plaintiffs against any “Claim” or “Suit” 12 brought against them arising from a professional liability act covered by the Policy and 13 must do so up to the “Limit of Liability.” (ECF No. 30-9 at 7.) The Limit of Liability 14 identified in the Declarations of the Policy is $2,000,000 per claim and $4,000,000 in the 15 aggregate, subject to a $2,500 deductible. (Id. at 5.) Coverage extends to any act, error 16 or omission in the rendering of or failure to render professional services. (Id. at 17.) 17 Section I.A. of the Policy provides coverage for “those sums in excess of the deductible . 18 . . that an Insured becomes legally obligated to pay as Damages and Claim Expenses 19 which the Insured shall become legally obligated to pay because of any Claim or 20 Claims.” (Id. at 7 (emphasis in original).) Section V.B. defines “Claims Expenses” as 21 “fees, costs and expenses resulting from the investigation, adjustment, defense and 22 appeal of a Claim, suit or proceeding arising in connection therewith, if incurred by the 23 Underwriters or by the Insured…” (Id. at 11 (emphasis in original).) Plaintiffs purchased 24 additional endorsements, including a Billing Errors 25 Endorsement and a Claims Expenses Endorsement, to provide supplemental coverage 26 in addition to what was covered under the Policy. (ECF No. 1 at 18.) 27 /// 28 /// 2 1 B. 2 On June 30, 2015, Plaintiffs received notice of a qui tam action filed against them 3 in the District of Nevada (“Qui Tam Action”).1 (ECF No. 1 at 2.) The case had been filed 4 under seal on October 28, 2014. (Id. at 7.) The Qui Tam Action is based on allegations 5 that Plaintiffs provided medically unnecessary therapy services in violation of federal and 6 state false claims acts. (Id. at 2.) Plaintiffs timely notified Underwriters of the lawsuit on 7 July 14, 2015. (Id. at 7.) Underwriters extended $25,000 of coverage2 for any expenses 8 that Plaintiffs incurred in defending and resolving the Qui Tam Action. (Id. at 8.) C. 9 The Qui Tam Action Coverage Dispute 10 The Complaint asserts three claims for declaratory relief, seeking a declaration 11 that Underwriters has a duty to indemnify for Claim Expenses (Count I), a duty to defend 12 (Count II), and a duty to indemnify for damages (Count III). (ECF No. 1 at 8-11.) 13 Plaintiffs’ Motion seeks summary judgment on the first two claims. (ECF No. 29.) 14 Plaintiffs contend that the Policy requires Underwriters to defend them and provide up to 15 $2 million for defense expenses. (See id. at 6.) Defendants’ Motion seeks summary 16 judgment, contending that the Qui Tam Action falls outside of the Billing Errors 17 Endorsement’s coverage period or, if the Qui Tam Action falls within the Endorsement’s 18 coverage period, that coverage is limited to the sub-limit of $25,000 identified in the 19 Billing Errors Endorsement. (ECF No. 26.) 20 III. LEGAL STANDARD 21 The purpose of summary judgment is to avoid unnecessary trials when there is no 22 dispute as to the facts before the court. Nw. Motorcycle Ass’n v. U.S. Dep’t of Agric., 18 23 F.3d 1468, 1471 (9th Cir. 1994). Summary judgment is appropriate when the pleadings, 24 1 25 26 27 28 The Qui Tam Action is assigned to the undersigned. See case no. 2:14-cv01786-MMD-GFW. 2 Underwriters denied coverage under the professional liability portion of the Policy but agreed to make $25,000 available to Plaintiffs for Claims Expenses and Loss under the Billing Errors Endorsement (see ECF No. 1 at 8), subject to a reservation of rights to contest the applicability of the Endorsement to the qui tam action (see ECF No. 26 at 11). 3 1 the discovery and disclosure materials on file, and any affidavits “show there is no 2 genuine issue as to any material fact and that the movant is entitled to judgment as a 3 matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). An issue is “genuine” 4 if there is a sufficient evidentiary basis on which a reasonable fact-finder could find for 5 the nonmoving party and a dispute is “material” if it could affect the outcome of the suit 6 under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). 7 Where reasonable minds could differ on the material facts at issue, however, summary 8 judgment is not appropriate. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 9 1995). “The amount of evidence necessary to raise a genuine issue of material fact is 10 enough ‘to require a jury or judge to resolve the parties' differing versions of the truth at 11 trial.’” Aydin Corp. v. Loral Corp., 718 F.2d 897, 902 (9th Cir. 1983) (quoting First Nat’l 12 Bank v. Cities Service Co., 391 U.S. 253, 288-89 (1968)). In evaluating a summary 13 judgment motion, a court views all facts and draws all inferences in the light most 14 favorable to the nonmoving party. Kaiser Cement Corp. v. Fishbach & Moore, Inc., 793 15 F.2d 1100, 1103 (9th Cir. 1986). 16 The moving party bears the burden of showing that there are no genuine issues 17 of material fact. Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). “In 18 order to carry its burden of production, the moving party must either produce evidence 19 negating an essential element of the nonmoving party’s claim or defense or show that 20 the nonmoving party does not have enough evidence of an essential element to carry its 21 ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 22 F.3d 1099, 1102 (9th Cir. 2000). Once the moving party satisfies Rule 56’s requirements, 23 the burden shifts to the party resisting the motion to “set forth specific facts showing that 24 there is a genuine issue for trial.” Anderson, 477 U.S. at 256. The nonmoving party “may 25 not rely on denials in the pleadings but must produce specific evidence, through 26 affidavits or admissible discovery material, to show that the dispute exists,” Bhan v. NME 27 Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991), and “must do more than simply show 28 that there is some metaphysical doubt as to the material facts.” Orr v. Bank of Am., 285 4 1 F.3d 764, 783 (9th Cir. 2002) (internal citations omitted). “The mere existence of a 2 scintilla of evidence in support of the plaintiff’s position will be insufficient.” Anderson, 3 477 U.S. at 252. 4 Further, “when parties submit cross-motions for summary judgment, ‘[e]ach 5 motion must be considered on its own merits.” Fair Hous. Council of Riverside County, 6 Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (quoting William W. 7 Schwarzer, et al., The Analysis and Decision of Summary Judgment Motions, 139 F.R.D. 8 441, 499 (Feb. 1992) (citations omitted). “In fulfilling its duty to review each cross-motion 9 separately, the court must review the evidence submitted in support of each cross- 10 motion.” Id. 11 IV. DISCUSSION 12 A. Qui Tam Action Falls Within the Endorsement Period 13 As a preliminary matter, both parties concede that absent the Billing Errors 14 Endorsement, coverage for the Qui Tam Action is not available under the professional 15 liability insurance portion of the Policy. (See ECF No. 29 at 14; see also ECF No. 26 at 16 4.)3 Before addressing the scope of coverage under the Billing Errors Endorsement, the 17 Court will address the threshold question of whether the Quit Tam Action falls within the 18 coverage period. 19 Defendant argues that because the Qui Tam Action was filed on October 28, 20 2014, it falls outside of the Billing Errors Endorsement’s coverage period, which covers 21 April 15, 2015, to April 16, 2016. (ECF No. 26 at 4.) More specifically, Underwriters point 22 to section III.2. of the Billing Errors Endorsement, which states that coverage “does not 23 apply to Insured Events which arise from any facts, circumstances, situations, events, 24 transactions or causes of action which are underlying or alleged in litigation pending on 25 or prior to the initial effective date.” (ECF No. 26 at 16.) Defendant contends that section 26 III.2. clearly provides that coverage under the Billing Errors Endorsement does not apply 27 /// 28 Plaintiffs’ counsel conceded this point during oral argument. 3 5 1 to the Qui Tam Action because litigation is pending once it has been filed, regardless of 2 when it was served on the insured. (Id. at 16-17 (relying on HR Acquisition I Corp. v. 3 Twin City Fire Ins. Co., 547 F.3d 1309, 1317-19 (11th Cir. 2008).) 4 The Court disagrees. Underwriters’ position is tenuous given the unique 5 procedural stature of qui tam lawsuits under the False Claims Act (“FCA”), 31 U.S.C. § 6 3729 et seq. Indeed, Underwriters acknowledge that the FCA contemplates that 7 complaints will remain under seal for at least 60 days after being filed. (See ECF No. 26 8 at 17.) Yet, Defendant relies on various non-FCA cases in support of its position that if 9 the Billing Errors Endorsement were to apply to the Qui Tam Action, then the 10 Endorsement would have clearly stated that it applied to lawsuits that had been filed but 11 not served. (See id. at 16-17.) The language of the Billing Errors Endorsement is clear 12 that the Endorsement specifically applies to a “Billing Error Proceeding,” which 13 Defendant admits covers qui tam lawsuits. (See ECF No. 26 at 5, 16.) It would be 14 superfluous for the Endorsement to explicitly state that the date of service is the date of 15 notice for purposes of coverage as it is commonly understood that a qui tam suit under 16 the FCA becomes active once the defendant has notice of the lawsuit and that notice 17 most often occurs at the time of service.4 18 19 The Court therefore finds that the Qui Tam Action was served on Plaintiffs in June 2015 and falls within the endorsement period in the Billing Errors Endorsement. 20 B. 21 An insurance policy “must be enforced according to its terms.” Farmers Ins. Exch. 22 v. Neal, 64 P.3d 472, 473 (Nev. 2003) (the court must “give plain and ordinary meaning 23 to the terms” of the insurance policy “from the perspective of one not trained in law”).5 24 25 26 27 28 Billing Errors Endorsement is Unambiguously Clear 4 Qui tam suits under the FCA are often under seal for extended periods of time while the government investigates whether or not to intervene. See § 3730(b)(3). Notice may occur either when the complaint is unsealed and the defendant receives service of the summons, see § 3730(b)(2), or when the government uses its civil investigative authority to subpoena defendants, see § 3733. 5 When a federal district court is sitting in diversity jurisdiction, the court must apply state law to substantive legal questions. See Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th Cir. 2003). The parties agree that Nevada law applies. 6 1 While Plaintiffs are correct that, in the insurance context, the courts broadly interpret 2 clauses providing coverage to afford the greatest possible coverage, Fed. Ins. Co. v. 3 Am. Hardware Mut. Ins. Co., 184 P.3d 390, 392 (Nev. 2008), unambiguous provisions 4 may not be rewritten by the court. Farmers Ins. Exch., 64 P.3d at 473. Whether a 5 contract is ambiguous is a matter of law. See Anvui, LLC v G.L. Dragon, LLC, 163 P.3d 6 405, 407 (Nev. 2007) (“construction of a contractual term is a question of law”) 7 (quotations omitted). A “Nevada court will not increase an obligation to the insured where 8 such was intentionally and unambiguously limited by the parties.” Capitol Indemnity 9 Corp. v. Wright, 341 F.Supp.2d 1152, 1156 (D. Nev. 2004). Furthermore, an 10 endorsement to an insurance policy supplements the policy and is not a separate 11 contract. See Fed. Ins. Co. v. Amer. Hardware Mut. Ins. Co., 184 P.3d 390 (Nev. 2008). 12 Plaintiffs concede that there is no coverage for the Qui Tam Action under the 13 professional liability portion of the Policy and that coverage is available only because of 14 the Billing Errors Endorsement. (See ECF No. 29 at 14.) However, Plaintiffs argue that 15 the Billing Errors Endorsement is ambiguous on its face because it does not expressly 16 disclaim a duty to defend. (See id. at 19.) And, because the Endorsement is silent as to 17 the duty to defend, Plaintiffs argue that the Billing Errors Endorsement’s $25,000 sub- 18 limit applies only to indemnification for Loss. (See id. at 6-7.) They point to the first 19 sentence of the second paragraph in the Endorsement to argue that the phrase “Claim 20 Expenses which the Insured incurs” creates a separate obligation for Claim Expenses 21 that is not subject to the sub-limit identified in the Endorsement. (See id. at 7.) Plaintiffs 22 then look to the Claims Expenses Endorsement to argue that the $2 million Limit of 23 Liability in the Policy applies to Claim Expenses in the Qui Tam Action. (See id.) 24 25 26 27 28 However, the Court must look first to the language of the Billing Errors Endorsement. The first paragraph in Section I states as follows: In consideration of the premium charged, it is hereby understood and agreed that a sub-limit of liability of $25,000 per occurrence and $25,000 in the aggregate, and subject to a $2,500 deductible, applies to any Billing Error Proceeding made against an Insured during the Endorsement 7 1 Period below and is reported to Underwriters as soon as practicable (but not more than 30 days after expiration of the Endorsement Period). 2 3 (ECF No. 30-9 at 36 (emphasis in original).) The Qui Tam Action is a “Billing Error 4 Proceeding,” an interpretation which is not subject to dispute. Section I unambiguously 5 provides that “a sub-limit of liability of $25,000 per occurrence and $25,000 in the 6 aggregate, and subject to a $2,500 deductible, applies to any Billing Error 7 Proceeding.” (Id.) Clearly, this means what it says: “a sub-limit of liability of $25,000 . . . 8 applies to any Billing Error Proceeding” — i.e., the Qui Tam Action. The Billing Errors 9 Endorsement is unambiguous as to the scope of coverage for the Qui Tam Action. 10 The Court disagrees with Plaintiffs that the Billing Errors Endorsement is silent as 11 to Underwriters’ duty to defend. Section I of the Billing Errors Endorsement goes on to 12 state that “Underwriters shall indemnify the Insured for Loss in excess of the deductible 13 stated above which the Insured is obligated to pay and Claims Expenses which the 14 Insured incurs.” (Id. (emphasis in original).) This Endorsement does not differentiate 15 between Damages and Claim Expenses in defining this sub-limit of liability. Section V.B. 16 of the Policy defines Claim Expenses as “fees, costs and expenses resulting from the 17 investigation, adjustment, defense, and appeal of a Claim, suit or proceeding arising in 18 connection therewith…” (ECF No. 30-9 at 11) (emphasis added). Thus, “Claim 19 Expenses” as used in the Billing Errors Endorsement incorporates expenses arising from 20 the duty to defend under the Policy. 21 In sum, the Court finds that the Billing Errors Endorsement is unambiguous in 22 providing both that there is a duty to defend and that the sub-limit of liability for that duty 23 is $25,000. Accordingly, the Court must construe the Billing Errors Endorsement as 24 written and reject Plaintiffs’ proposed construction which involves an interwoven reading 25 of the Policy, the Billing Errors Endorsement and the Claims Expenses Endorsement. 26 V. CONCLUSION 27 The Court notes that the parties made several arguments and cited to several 28 cases not discussed above. The Court has reviewed these arguments and cases and 1 determines that they do not warrant discussion because they do not affect the outcome 2 of the parties’ Motions. 3 It is therefore ordered that Defendant’s Motion for Summary Judgment (ECF No. 4 26) is denied in part and granted in part. It is denied with respect to Defendant’s 5 argument that the Qui Tam Action falls outside of the Billing Errors Endorsement’s 6 coverage period. It is granted with respect to Defendant’s argument that coverage for the 7 Qui Tam Action is available under the Billing Errors Endorsement up to the sub-limit of 8 liability of $25,000. 9 10 It is further ordered that Plaintiffs’ Motion for Partial Summary Judgment (ECF No. 29) is denied. 11 The parties are directed to confer on the effect this Order has on Plaintiffs’ 12 pending motion for leave to file the first amended complaint (ECF No. 45). Accordingly, 13 Plaintiffs’ motion for leave to file the first amended complaint (ECF No. 45) is denied 14 without prejudice. 15 DATED THIS of 19th day of September 2016. 16 17 MIRANDA M. DU UNITED STATES DISTRICT JUDGE 18 19 20 21 22 23 24 25 26 27 28 9