A health care company is not entitled to coverage for retaliation claims under its Allied World Specialty Insurance Co. policy because of an exclusion, even though it was unaware of the claims when it obtained the policy, a federal appeals court ruled Friday, overturning a lower court ruling.
In November 2016, a whistleblower’s False Claims Act lawsuit was filed under seal in Virginia against Beachwood, Ohio-based SHH Holdings LLC, its subsidiaries and several nurses it owned or contracted with, according to the ruling by the 6th US Circuit Court of Appeals in Cincinnati in SHH Holdings LLC v. Allied World Specialty Insurance Co . The allegations in the complaint included retaliation.
In January 2017, SHH received a demand for civil investigation of various documents and a response to interrogatories from the US Department of Justice, informing it that it was the subject of an ongoing FCA investigation for alleged fraudulent claims practices.
However, the company was not made aware of the retaliation allegations at the time.
Almost two years later, in April 2019, SHH filed an insurance claim with Allied World seeking directors and officers liability, employment practices liability and fiduciary liability.
In response to a question in the “Exclusion of Applications” section of its filing as to whether it knew of any act, fault, or omission that could give rise to a claim, it answered “No,” and it received coverage.
The company learned of the retaliation allegations in August 2019. SHH notified Allied World of the whistleblower action and sought coverage, which the insurer denied.
The whistleblower action was settled with the whistleblowers for $2.2 million in March 2002, while SHH reached a $10 million settlement with the government over the violation claims in April 2020.
In the ensuing coverage dispute, the U.S. District Court in Cleveland concluded that the policy did not exclude the retaliation claims from coverage and awarded the company $2.3 million.
On appeal, a three-judge court panel overturned the lower court’s decision.
“SHH knew it was taking adverse employment action against relatives, and (DOJ’s civil investigative demand) requested information about recent terminations of SHH employees, including relatives.
“These facts gave rise to a claim under the policy, indicating they were sufficiently serious to warrant disclosure,” the ruling said, reversing the district court’s grant of summary judgment on the breach of contract and declaration claims and its attorney fees to SHH, and remanding the case to the district court to enter judgment in Allied World’s favor.
Attorneys in the case did not respond to requests for comment.