Pennsylvania Appellate Court Considers Confidential Nature of Qui Tam Actions in Light of Insurance Policy

In the corporate world, companies often take out extensive insurance policies to protect against the inevitable financial harms following a civil lawsuit. Much like any other insurance policy, the insurer will usually include language in the policy terms excluding coverage for any pending lawsuits filed or commenced prior to the start date of the policy. In a recent case arising out of a Pennsylvania appellate court, the appellant (appealing party), AmerisourceBergen Corp., sought judicial review of the appellee insurance company’s refusal to cover the costs of a False Claims Act case filed against Amerisource. The appellant raised an interesting argument against the claim refusal premised on the confidential, in camera nature of False Claims Act filings – claiming it should not be denied coverage for a pending False Claims Act case that was not filed pursuant to the typical civil procedure process.

Background of conflict

Appellant Amerisource is a “group of businesses that provides a vast range of services to healthcare providers and pharmaceutical companies, including distribution, logistics, clinical education, and marketing.” The appellee, Ace American Insurance Company, provides professional liability coverage to Amerisource pursuant to several policies entered into along the following timeline:

2006-2007

Amerisource purchased an excess liability policy above and beyond its current policy held with St. Paul Traveler’s. Amerisource held a $21 million with Traveler’s and added an additional $10 million in coverage from Ace.

2007-2008

Amerisource switches its primary coverage provider to Ace pursuant to a replacement policy. The new policy consisted of 37 pages (as opposed to the four-page excess policy) and contained “vastly different” terms than the 2006-2007 policy.

2008-2009

Amerisource renewed its 2007-2008 primary coverage policy with Ace.

2009-2010

Amerisource again renewed its primary insurance policy with Ace.

 

On June 5, 2006, a qui tam relator filed a lawsuit under the federal False Claims Act alleging that Amerisource and a company known as Amgen worked together to submit false claims to Medicare and Medicaid pertaining to the anemia drug Aranesp. Allegedly, Amerisource did not learn of the False Claims Act lawsuit until March, 2008, when it was made aware that Amgen was under federal investigation. The Department of Justice informed Amerisource of its investigation in February, 2009. In June, 2009, Amerisource received a formal subpoena from the Department of Justice. In total, the complaint remained under seal for a three-year period.

On July 8, 2009, Amerisource sent Ace notice of the potential pending litigation, coverage for which was denied on April 5, 2010 on the premise that the litigation was ongoing – and therefore excluded – when Amerisource entered into its primary insurance policy with Ace in 2007. Amerisource argues that it had no way of knowing that the sealed qui tam complaint was filed until it was made aware nearly three years later.

Court sides with Ace Insurance

The Court began with the premise that the 2009-2010 policy covered the claim since Amerisource reported the pending litigation during that time period. It then reviewed the definition of the word “claim,” which means “civil proceeding against [Amerisource] seeking monetary damages…commenced by the service of a complaint or similar pleading.” From there, the Court applied the “pending litigation” exclusion, which excludes any claim,

[A]lleging, based on, arising out of, or attributable to any prior or pending litigation, claims, demands, arbitration, administrative or regulatory proceeding or investigation filed or commenced on or before the earlier of the effective date of this policy or the effective date of any policy issued by [ACE] of which this policy is a continuous renewal or a replacement, or alleging or derived from the same or substantially the same fact, circumstance or situation underlying or alleged therein.

In response to Amerisource’s argument that the claim was not “filed,” the Court disagreed, holding that the language of the policy must be construed using a plain and ordinary meaning. In other words, filed means filed. Since the policy does not address the filing of confidential, sealed complaints, the court had no choice but to rely upon the filing date of the False Claims Act lawsuit – which occurred nearly one year before Amerisource commenced its primary insurance policy.

Amerisource also argued, in the alternative, that the 2006-2007 insurance policy should have carried over to subsequent years under the premise that subsequent policies were meant to “replace” the 2006-2007 excess policy. Again, the Court construed the word “replace” according to its ordinary meaning, holding that the 2006-2007 policy was too unique to be considered a replacement of the previous years’ policies.

In sum, the Court denied Amerisource’s bid for coverage – and it will be forced to defend itself against possible False Claims Act liability.

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By | 2018-09-21T14:23:37+00:00 October 15th, 2014|False Claims Act Legal News|