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Homeland Insurance Co. of New York v. Corvel Corp.

Supreme Court of Delaware

November 20, 2018

CORVEL CORPORATION, Plaintiff Below, Appellee.

          Submitted: September 26, 2018

          Court Below: Superior Court of the State of Delaware C.A. Nos. N11C-01-089 and N15C-05-069 (Consolidated)

         Upon appeal from the Superior Court. REVERSED.

          David Newmann, Esquire, and Catherine E. Stetson, Esquire (Argued), Hogan Lovells U.S. LLP, Washington, D.C., Timothy Jay Houseal, Esquire, Jennifer M. Kinkus, Esquire, and William E. Gamgort, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware, Michael J. Rosen, Esquire and Peter F. Lovato, III, Esquire, Skarzynski Black, LLC, for Appellant, Homeland Insurance Company of New York.

          John M. Seaman, Esquire (Argued), and April M. Kirby, Esquire, Abrams & Bayliss LLP, Wilmington, Delaware, for Appellee, CorVel Corporation.

          Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and TRAYNOR, Justices, constituting the Court en Banc.

          VAUGHN, Justice


         Homeland Insurance Company of New York appeals from a Superior Court judgment entered against it in the amount of $13.5 million plus pre-judgment interest. The litigation that led to the judgment was initiated by CorVel

         Corporation. CorVel is a Delaware company that operates a national Preferred Provider Organization (PPO) network. Homeland issued CorVel a claims-made errors and omissions liability policy with limits of $10 million and a policy period of October 31, 2005 to October 31, 2006. Thereafter, Homeland issued renewal policies, which were the same in all material respects.

         CorVel's PPO network included agreements with medical providers in Louisiana. In late 2004 and early 2005, Louisiana medical providers began filing claims (the "PPO claims") asserting that CorVel had improperly discounted medical payments without providing proper notice in violation of a Louisiana statute (the "Louisiana PPO Statute"). Litigation ensued in Louisiana which ultimately involved millions of dollars of claims against CorVel. In 2011, CorVel entered into a settlement of the litigation. As part of the settlement consideration, CorVel paid $9 million.

         In 2015, CorVel filed its complaint in this case, alleging that Homeland owed it damages and penalties under another Louisiana statute. The statute in question, La. R.S. 22:1973 ("Louisiana's Bad Faith Statute"), provides, in relevant part, that an insurance company that knowingly misrepresents "pertinent facts or insurance policy provisions" shall be liable for any damages sustained by the insured "as a result of" the misrepresentation and may, in addition, be held liable for penalties.[1]CorVel alleged that Homeland knowingly misrepresented facts or policy provisions in a complaint that Homeland filed in a declaratory judgment action in Delaware in 2011. The alleged misrepresentation was an averment that CorVel had not timely reported the PPO claims in accordance with the policy's requirements. The damages CorVel sought were the $9 million that it paid to settle the Louisiana litigation, penalties, attorneys' fees, and pre-judgment interest. The Superior Court agreed with CorVel's claim and awarded it $9 million in damages, $4.5 million in penalties, and pre-judgment interest.

         Homeland makes three arguments on appeal. First, it argues that the allegation in its declaratory judgment complaint, that CorVel had not timely reported the claims, was a statement of a coverage position that could not give rise to a finding of bad faith under either Delaware or Louisiana law. Next, it argues that no causal connection exists between the allegation in the declaratory judgment complaint and CorVel's decision to settle the PPO claims. Finally, it argues that the applicable statute of limitations bars CorVel's claim. The Superior Court, Homeland contends, committed errors by ruling against it on each of these three points.

         We have concluded that the statute of limitations does bar CorVel's claim and that the Superior Court erred by ruling that it did not. Because the statute of limitations bars CorVel's claim, we find it unnecessary to address Homeland's first two arguments.


         As mentioned, the earliest PPO claims against CorVel were filed in late 2004 and early 2005. Those claims included claims filed by Lake Charles Memorial Hospital ("LCMH") with the Louisiana Department of Labor, Office of Workers' Compensation.[2] In July 2005, CorVel filed an action in a federal district court in Louisiana seeking to compel arbitration of the claims. The federal district court agreed with CorVel, and on November 6, 2006, ordered that the parties submit their disputes to arbitration. On or about December 22, 2006, LCMH submitted a demand for arbitration to the American Arbitration Association (the "LCMH arbitration"). CorVel notified Homeland in writing of the arbitration proceeding on March 28, 2007.

         By letter dated June 4, 2007, Homeland informed CorVel that it declined coverage of all the PPO claims. As grounds for denial, Homeland relied upon provisions in the policy that excluded (1) claims made against CorVel prior to the inception date of CorVel's claims-made policy, (2) claims made during the policy period but which were related to claims made prior to the inception date, and (3) claims not reported within 90 days of the end of the policy period.

         On September 3, 2010, the American Arbitration Association issued an Order holding that LCMH's arbitration demand against CorVel could proceed as a class-wide arbitration. On September 24, 2010, CorVel wrote to Homeland informing it of the arbitration order. CorVel's letter also stated that CorVel would look to Homeland for full defense and indemnity of the arbitration claims. In December 2010, ...

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