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Health Care Industry Liability Insurance Program v. Momence Meadows Nursing Center

May 20, 2009

HEALTH CARE INDUSTRY LIABILITY INSURANCE PROGRAM, PLAINTIFF-APPELLEE,
v.
MOMENCE MEADOWS NURSING CENTER, INC., AND JACOBGRAFF, DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Central District of Illinois. No. 07 C 02005-David G. Bernthal, Magistrate Judge.

The opinion of the court was delivered by: Manion, Circuit Judge

ARGUED JANUARY 9, 2009

Before MANION, ROVNER, and SYKES, Circuit Judges.

Vanessa Absher and Lynda Mitchell sued Momence Meadows Nursing Center, Inc., and its owner and operator, Jacob Graff (collectively "Momence"). They sought damages for themselves and on behalf of the United States and the State of Illinois for alleged violations of the federal False Claims Act ("FCA"), 31 U.S.C. § 3729 et seq., and the Illinois Whistle-blower Reward and Protection Act ("IWRPA"), 740 ILCS 175/1 et seq. The Health Care Industry Liability Insurance Program ("Healthcap") filed this action seeking a declaration that it had no duty to defend Momence in that lawsuit under a commercial general liability policy it had issued to Momence. The district court found that Healthcap had no duty to defend Momence, and Momence appeals. We affirm.

I.

Vanessa Absher and Lynda Mitchell are former employees at Momence's nursing center. In their third amended complaint (which we will refer to hereafter as the "underlying complaint"), Absher and Mitchell sought treble damages for exposing thousands of false charges Momence submitted to Medicare and Medicaid. Their theory of recovery was predicated on the statutory requirement that Medicare and Medicaid providers may not submit claims for services that failed to meet "professionally recognized standards of health care." 42 U.S.C. § 1320c-5(a)(2). According to Absher and Miller, Momence violated that requirement by certifying on its annual cost reports that it was meeting the required standard of care when, in fact, Momence's management knew that it was not.

The underlying complaint provides detailed allegations of how Momence was not meeting the standard of care for Medicare and Medicaid. It alleges, for instance, that Momence failed to maintain the minimum staffing levels for nurse and nurse assistants, failed to ensure its residents received their medications as prescribed by their physicians, failed to ensure residents received adequate nutrition and assistance with meals, and failed to provide the residents with clean and dry beds, clothes, and regular baths. The underlying complaint devotes several pages to further elaborating these alleged standard-of-care failures. Included in those pages is a detailed description of the resulting injuries patients suffered from Momence's substandard care, such as scabies, sepsis, seizures, and death.

The underlying complaint sets forth four counts. In count one, the plaintiffs seek statutory and treble damages under the FCA for Momence's submission of false claims to the United States. In count two, they seek statutory and treble damages under the IWRPA for Momence's submission of false claims to the state of Illinois. In counts three and four, Absher and Mitchell seek damages under the anti-retaliation provisions of the FCA and IWRPA, respectively. Mitchell claims that Momence terminated her in retaliation for complaining to Momence's management about the failures to provide adequate care. Absher alleges constructive discharge for the same reason.

As Absher and Mitchell's suit proceeded, Healthcap brought this action seeking a declaration that it had no duty to defend or indemnify Momence in the underlying suit based on a commercial general liability policy Healthcap issued to Momence in 2004. That policy provides Momence with multiple lines of coverage. Relevant to this appeal are the commercial general liability coverage ("CGL coverage") and the professional liability coverage ("PL coverage").*fn1 The CGL coverage has two separate coverage sections, CGL coverage A,*fn2 which provides coverage for bodily injury and property damage, and CGL coverage B,*fn3 which addresses personal and advertising injury liability. In addition, the CGL coverage contains an employment-related practices exclusion*fn4 applicable to both CGL coverage A and CGL coverage B.

Approximately a year after filing suit, Healthcap moved for summary judgment, arguing that it had no duty to defend or indemnify Momence. In a comprehensive opinion, the magistrate judge*fn5 held that Healthcap had no duty to defend Momence. The court further held that the issue of indemnification was not ripe for consideration because Momence had yet to incur any liability in the underlying action. It therefore dismissed the action without prejudice with leave for Momence to reinstate the suit after the underlying proceedings became final and liability had been determined. Momence appeals.

II.

On appeal, Momence asserts that the magistrate judge erred in concluding that Healthcap had no duty to defend it in the underlying litigation. We review the lower court's grant of summary judgment, as well as its construction of the commercial general liability policy, de novo. Lyerla v. AMCO Ins. Co., 536 F.3d 684, 687 (7th Cir. 2008). Since this is a diversity action, state law applies. RLI Ins. Co. v. Conseco, Inc., 543 F.3d 384, 390 (7th Cir. 2008). The parties proceed under the assumption that Illinois law applies; so will we.

Momence first argues that the magistrate judge's opinion "contain[s] an inherent inconsistency requiring reversal." According to Momence, the inconsistency is the lower court's granting of summary judgment on the duty to defend while postponing judgment on the duty to indemnify. If there really were no duty to defend, Momence points out, then the magistrate judge would have held that there was no duty to indemnify either, since the duty to defend is broader than the duty to indemnify. BASF AG v. Great Am. Assur. Co., 522 F.3d 813, 819 (7th Cir. 2008) (applying Illinois law). But because the lower court left open the question of indemnification, Momence reads the magistrate judge's action as admitting that a possibility still exists that the policy covers the underlying suit. And because the possibility of coverage triggers the duty to defend, see, e.g., Gibraltar Cas. Co. v. Sargent & Lundy, 574 N.E.2d 664, 673 (Ill. App. Ct. 1991), Momence therefore argues that the lower court wrongly held that Healthcap had no duty to defend.

The "inherent inconsistency" Momence believes is present in the magistrate's decision is of no moment to us. Where, as here, the duty to defend is broader than the duty to indemnify, a finding of no duty to defend necessarily precludes a finding of a duty to indemnify. As the ...


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