An appellate court in New York, reversing a trial court's decision, has ruled that an insurance company that issued a healthcare general liability insurance policy and a healthcare professional liability insurance policy to a health services company was obligated to pay settlement and defense costs incurred by the company in an action charging that it had violated several federal laws.
The Case
Americare Certified Special Services, Inc., a certified home health care agency (“CHHA”) approved to participate in the Medicaid program, was named as a defendant in a class action lawsuit also asserted against Personal Touch Home Care, Inc., another CHHA, and various state and local officials involved in administering the Medicaid program in New York.
The named plaintiffs in the underlying action, who received Medicaid-funded home health services from Americare or Personal Touch, sought class certification, declaratory and injunctive relief, and compensatory damages. They alleged that, in response to state budget cuts that changed the reimbursement rates applicable to Medicaid-funded home care services in a manner designed to discourage providing unnecessarily high levels of services to particular patients, Americare and Personal Touch had terminated or had reduced their home health services even though their patients' medical needs remained the same. Americare and Personal Touch allegedly did so without affording patients the statutory due process protections to which they were entitled in violation of the Medicaid Act, 42 U.S.C. § 1396, and the Americans with Disabilities Act, 42 U.S.C. § 12131, and their implementing regulations, the Rehabilitation Act of 1973, 29 U.S.C. § 794, and the due process clause of the Fourteenth Amendment to the United States Constitution. The plaintiffs in the underlying action also alleged that other CHHAs throughout the state had routinely engaged in similar practices.
Americare sought defense and indemnification in the underlying action under two insurance policies issued to it by Nautilus Insurance Company – a healthcare general liability policy and a healthcare professional liability policy – that were in effect at the time of Americare's alleged improper reduction or termination of home health services.
Nautilus disclaimed coverage on the grounds that the allegations of the class action complaint fell outside the scope of both policies and that both policies excluded coverage for non-monetary damages.
Americare undertook its own defense and ultimately entered into a stipulation of settlement pursuant to which it agreed to pay $50,000 to the plaintiffs' counsel for damages and attorneys' fees.
Following the settlement, Americare sued Nautilus, seeking, among other things, a judgment declaring, in effect, that Nautilus was obligated to pay the settlement and defense costs Americare had incurred in the underlying action.
The trial court awarded Nautilus summary judgment and Americare appealed.
The Appellate Court's Decision
The appellate court reversed.
In its decision, it found that Americare had demonstrated that Nautilus was obligated to defend and indemnify it in the underlying action by submitting evidence establishing that the class action complaint contained claims for compensatory damages for physical and emotional injuries falling within the scope of coverage of both the general liability and professional liability policies, and that the $50,000 payment was to settle these covered claims.
Because Nautilus failed to raise a triable issue of fact, the appellate court ruled, the trial court should have ruled that Nautilus was obligated to pay the settlement and defense costs Americare had incurred in the underlying action.
The case is Americare Certified Special Services, Inc. v. Nautilus Ins. Co. (App.Div. 2d Dep't March 16, 2016). Attorneys involved include: Melito & Adolfsen P.C., New York, N.Y. (Ignatius John Melito and Michael F. Panayotou of counsel), for appellant; Duane Morris LLP, New York, N.Y. (Thomas R. Newman of counsel), for respondent.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].