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CorVel Corp. v. Homeland Ins. Co. of New York

Supreme Court of Delaware

March 6, 2015

CORVEL CORPORATION, Defendant Below-Appellant,
v.
HOMELAND INSURANCE COMPANY OF NEW YORK, Plaintiff Below-Appellee

Submitted December 3, 2014

Motion for Reargument filed 3/20/2015; Denied 4/02/2015. Case Closed April 2, 2015.

Court Below: Superior Court of the State of Delaware, in and for New Castle County. C.A. No. N11C-01-089.

REVERSED and REMANDED.

Kevin G. Abrams, Esquire, John M. Seaman, Esquire, (argued), Steve C. Hough, Esquire, Abrams and Bayliss LLP, Wilmington, Delaware; Somer G. Brown, Esquire, (argued), Cox, Cox, Filo, Camel & Wilson LLC, Lake Charles, Louisiana, for Appellant.

James W. Semple, Esquire, (argued), Corrine Elise Amato, Esquire, Morris James LLP, Wilmington, Delaware; Michael J. Rosen, Esquire, Peter F. Lovato, III, Esquire, Boundas, Skarzynski, Walsh & Black, LLC, Chicago, Illinois, for Appellee.

Before STRINE, Chief Justice, HOLLAND, VALIHURA, and VAUGHN, Justices, BOUCHARD,[*] Chancellor, constituting the Court en Banc.

OPINION

Page 864

VAUGHN, Justice, for the Majority:

Defendant Below/Appellant, CorVel Corporation (" CorVel" ), appeals from an order of the Superior Court granting partial summary judgment in favor of Plaintiff Below/Appellee, Homeland Insurance Company of New York (" Homeland" ). The case arises from class actions filed against CorVel and others in the State of Louisiana. In those actions, medical service providers alleged that CorVel violated notice provisions contained in a Louisiana statute known as the Preferred Provider Organizations Act.[1] CorVel eventually entered into a settlement in which it resolved all of the Louisiana litigation.

CorVel was insured under an errors and omissions insurance policy issued by Homeland. The policy had a number of exclusions, one of which was an exclusion for " penalties." The issue in this case is whether the amount that CorVel paid to settle the Louisiana litigation was a " penalty," and, therefore, not a covered loss under the insurance policy. The Superior Court concluded that the amount paid was a " penalty." We have concluded that it was not a " penalty," and that the policy's exclusion for " penalties" does not apply.

I. FACTUAL AND PROCEDURAL HISTORY

CorVel, a Delaware corporation, owns and operates a Preferred Provider Organization (" PPO" ) network throughout the United States. As part of its national network, CorVel had PPO agreements with medical providers in Louisiana. Under the agreements, the medical providers agreed to discount rates on certain medical services. CorVel also entered into agreements with group workers' compensation payers, such as employers, who utilized CorVel's discounted PPO rates when paying for workers' compensation services.

Page 865

By statute, the State of Louisiana has approved PPO networks and their discounted rates, but has imposed certain statutory requirements. One requirement is that the PPO give notice to a medical provider when a discount is to be applied. The notice provisions of the Louisiana statute can be satisfied in either one of two ways. One way is by issuing a benefit card to a patient that the patient can then present to the medical provider. The other way is by issuing a written notice to the medical provider that a certain group purchaser is a PPO participant.

Failure to comply with the notice requirements subjects a PPO to financial consequences under La. R.S. § 40:2203.1(G), which reads as follows:

Failure to comply with the [notice provisions] of this Section shall subject a group purchaser to damages payable to the provider of double the fair market value of the medical services provided, but in no event less than the greater of fifty dollars per day of noncompliance or two thousand dollars, together with attorney fees to be determined by the court.

Two class actions were brought against CorVel and others in Louisiana state-court alleging that CorVel had failed to comply with the statutory notice provisions. The actions sought damages under La. R.S. § 40:2203.1(G). Both actions made the same allegations and sought the same relief. The first action was captioned SWLA Hospital Assoc. d/b/a Lake Charles Memorial Hospital v. CorVel (the " LCMH Arbitration" ).[2] The second action, filed September 30, 2009, was captioned George Raymond Williams M.D. Orthopedic Surgery v. SIF Consultants of Louisiana, Inc. (the " Williams Litigation," and together with the LCMH Arbitration, the " Louisiana Litigation" ).[3] On March 24, 2011, Homeland and Executive Risk Specialty Insurance Co. (" Executive Risk" ), another CorVel insurer, were also made parties to the Williams Litigation under La. R.S. § 22:1269, which provides that under certain conditions an " injured person . . . shall have a right of direct action against the insurer within the terms and limits of the policy; and, such action may be brought against the insurer alone." [4]

On July 23, 2011, CorVel agreed to settle the Louisiana Litigation and other claims pending before the Louisiana Office of Workers' Compensation for $9 million, including an amount for attorneys' fees payable to plaintiff class counsel. As part of the settlement, CorVel assigned to the plaintiff class its rights under the insurance policy issued by Homeland and Executive Risk.[5]

On January 10, 2011, Homeland filed an action against CorVel in the Delaware Superior Court seeking, among other things, declaratory relief that any amount paid by CorVel to the plaintiff class as a result of the Louisiana Litigation was a " penalty" under La. R.S. § 40:2203.1(G) and not a covered loss under the insurance policy.

Page 866

The Homeland policy provided, in pertinent part, as follows:

The Underwriters will pay on behalf of the Insured any Loss which the Insured is legally obligated to pay as a result of any Claim that is first made against the Insured .. . and reported to the Underwriter either during the Policy Period or in any event within ninety (90) days after the end of the Policy Period, in accordance with CONDITION (B) of this Policy.
" Loss" means . . . Defense Expenses and any monetary amount which an Insured is legally obligated to pay as a result of a claim.
Loss shall include:
(1) a claimant's attorney's fees and court costs, but only in an amount equal to the percentage that the amount of monetary damages covered under this Policy for any settlement or judgment bears to the total amount of such settlement or judgment . . .
(3) punitive, exemplary or multiplied damages where insurable by law . . .
Loss shall not include:
(1) fines, penalties or taxes; provided that (A) punitive damages shall not be deemed to constitute fines, penalties or taxes for any purpose herein . . . .

Executive Risk sought and received approval to intervene in the Superior Court action filed by Homeland.[6] The Executive Risk policy contained language similar to the Homeland policy, and, of importance to this case, also excluded penalties from coverage.

On June 13, 2013, the Superior Court issued an opinion and order granting summary judgment to Executive Risk and partial summary judgment to Homeland on the ground that the amount that CorVel paid to settle the Louisiana Litigation was a penalty.

When the Superior Court issued its June 13, 2013, opinion, a motion for partial summary judgment filed by the plaintiff class against Executive Risk in the Williams Litigation was pending in Louisiana. In the motion, the plaintiff class contended that damages under La. R.S. ยง 40:2203.1(G) were statutory damages and not penalties. Executive Risk contended, as Homeland does here, that the damages under the statute were penalties. Because the insurance policy excluded penalties from the definition of Loss, ...


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