Appeal from the Circuit Court of Cook County. No. 09 CH 26140 Honorable Lee Preston, Judge Presiding.
The opinion of the court was delivered by: Justice Connors
JUSTICE CONNORS delivered the judgment of the court, with opinion. Presiding Justice Harris and Justice Quinn concur in the judgment and opinion.
¶ 1 This appeal arises out of a dispute over whether an insurer, West American Insurance Company, owed its insured, Midwest Open MRI, a duty to defend or indemnify in a lawsuit brought against Midwest by one of its competitors. West American filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Midwest in the underlying lawsuit and Midwest filed a counterclaim seeking a declaration of coverage. The parties filed cross-motions for judgment on the pleadings. The circuit court granted West American's motion and denied Midwest's motion, finding that: (1) the underlying claim alleged an economic loss that was not covered under the policy; (2) the underlying lawsuit contained no discrimination claims; and (3) West American was not estopped from raising defenses to coverage. Following Midwest's timely appeal of the judgment, we affirm.
¶ 3 Midwest provides magnetic resonance imaging (MRI) services to patients. It was sued by one of its competitors, Advanced Physicians, for allegedly violating section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/2 (West 2010)). Advanced Physicians and its principals, Richard and Dana Vallandigham, filed a series of amended complaints which, for the purposes of this appeal, are all substantially similar in their allegations.*fn1 The following allegations are taken from Advanced Physician's verified fourth amended complaint, the last complaint filed.
¶ 4 Generally, Advanced Physicians alleged that Midwest engaged in "widespread solicitation and conspiracy to engage in kickback[-]for[-]referral arrangements" with certain physicians or clinics and submitted false and deceptive billing records to patients and third-party payors. Advanced Physicians claimed that it has been "restrained from capturing much of the outside MRI business in [the region] *** because a substantial part of that market has been and is being illegally monopolized by [Midwest]" in conspiracy with those referring physicians and clinics.
¶ 5 Specifically, Advanced Physicians alleged that Midwest contracts with certain physicians who refer patients to it for MRI scans, and in return, these referring physicians share in the medical billing revenues. The alleged scheme is conducted in one of two ways. In the first scenario, a physician would refer a patient to Midwest's facility. Midwest's technicians would perform MRI scans on the referred patients and its radiologists would read the MRI studies as well. Midwest would forego billing the patients and their insurers for the costs of performing these procedures and instead allow the referring physicians to bill for and collect those payments, even though the physicians did not perform those services. In exchange, the referring physician allegedly would pay Midwest $350 to $450 for each scan, which is "well below the usual and customary charge," and call the payment a "lease payment or equipment rental" fee. According to Advanced Physicians, this practice guaranteed Midwest "a substantial contracted stream of referred patients."
¶ 6 In the second scenario, Advanced Physicians again alleged that Midwest would perform the MRI scans on patients referred to it by a referring physician. But in this scenario, Midwest would bill the patients and their insurers the usual and customary fee for MRI services and collect those fees directly. Midwest then would pay the referring physician approximately $450 per referral, often pursuant to the terms of a written management services agreement. Significantly, Advanced Physicians alleged that under these referral arrangements, the amount Midwest collected from referring physicians for performing these services was "designed to price other non-participating MRI facilities out of the market or drastically reduce competition in the diagnostic testing market," which constitutes a "predatory pricing scheme[ ] *** used to monopolize the pool of [r]eferring [p]hysicians" in the region.
¶ 7 Dr. Richard Vallandigham, the principal of Advanced Physicians, discovered this alleged scheme in 2005, when he began marketing his new "state of the art" MRI facility to local physicians in an effort to obtain business. He claimed that many of the physicians he met told him that they had contractual referral agreements with Midwest, "pursuant to which they received compensation for referred MRI scans and for which they did no work." Consequently, the physicians declined to refer patients to Advanced Physicians. Vallandigham was advised that this contractual referral system among physicians and Midwest, among others, was the "usual and customary procedure in the industry."
¶ 8 Vallandigham was also told that these physicians entered into "sham lease agreements" with Midwest, which purported to show that physicians leased space at Midwest to attend to their patients, although they did not in fact see any patients at Midwest's facility. The "sham lease agreements" allowed Midwest and the physicians to submit false billings to patients and their insurers. Vallandigham alleged that he had a telephone conversation with Dr. Niranjana Giri, president and chief executive officer of Midwest, during which Dr. Giri allegedly admitted that she participated in the referral arrangements and lease agreement schemes with the referring physicians. Dr. Giri agreed to meet with Vallandigham to discuss the details of these schemes with him, but the meeting never occurred.
¶ 9 As a result of these arrangements between Midwest and the referring physicians, Midwest is believed to perform 300 to 400 scans per month at the below-market contracted rate for services. On the other hand, Advanced Physicians claimed it charged its patients the usual and customary rate but performed less than half as many scans, despite its capacity to perform 750 scans per month. Furthermore, of its 145 monthly scans, only 20 of them resulted from "open market referrals." Advanced Physicians alleged that Midwest's "wrongful conduct interfere[d] with the market competition, doctor-patient relationships[,] and the public's right to choose their own physician and is a direct impediment to [Advanced Physician's] ability to provide quality healthcare" in the region.
¶ 10 Advanced Physicians specifically alleged that the physicians' refusal to do business with it is a result of the "contracting conspiracy involving [Midwest] and the [r]eferring [p]hysicians, *** which has operated and continues to operate to deny [Advanced Physicians] access to essential referral sources in order to fairly compete" in this region. Additionally, Midwest has allegedly attained an "overwhelming" share of the market for MRI services through its "predatory price fixing."
¶ 11 Advanced Physicians alleged that Midwest violated section 2 of the Consumer Fraud Act by "knowingly ma[king] its kickback offers to dozens of potential [r]eferring [p]hysicians" and "actually pa[ying]" them for patient referrals. 815 ILCS 505/2 (West 2010). It alleged that Midwest "has cultivated a business practice of inducing, conspiring[,] and rewarding fraud in order to increase business, limit competition[,] and/or drive entities like [Advanced Physicians] out of business." It further alleged that Midwest has "solicited and accomplished widespread fraud in the diagnostic imaging marketplace, harming *** competitors such as [Advanced Physicians] as it is unable to compete because it is unwilling to participate in fraud." Midwest's conduct was alleged to be "willful, intentional, [and] evidence of an evil motive and constitutes reckless indifference to the rights of medical consumers and competitors, including [Advanced Physicians]." As a result of Midwest's actions, Advanced Physicians alleged that it "suffered and continues to suffer substantial monetary damages." Advanced Physicians sought the following relief: a declaration that Midwest's conduct violated the Consumer Fraud Act, a permanent injunction to prevent Midwest from engaging in the unlawful conduct described, monetary damages and restitution, penalties awarded under the Consumer Fraud Act, and attorney fees.
¶ 12 Midwest tendered each version of the Vallandigham and Advanced Physicians complaints to West American pursuant to the terms of its general liability insurance policy. Shortly after Midwest tendered the first Vallandingham complaint, which included multiple MRI facility defendants to West American, the court determined that the defendants had been improperly joined. The precise disposition of that complaint is unclear from the record and the order itself is not included in the record on appeal. Midwest represented in its filings here and in the court below that it filed a motion to sever and the court, "by striking the complaint, in fact dismissed the case." However, "[l]eave to amend was allowed but only by the filing of a new case, without joining the other defendants." Nevertheless, West American filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Midwest in the underlying action, but it was filed after the disposition of the first Vallandigham complaint. West American amended its declaratory judgment complaint each time Midwest tendered an amended complaint filed by the Vallandighams or Advanced Physicians in the underlying lawsuits.
¶ 13 West American challenged coverage on several grounds. First, it alleged that the Vallandigham and Advanced Physician complaints failed to allege an "occurrence" or "Bodily Injury," "Property Damage," or "Personal and Advertising Injury" as defined by the policy. West American also asserted several policy exclusions for intentional and criminal behavior and alleged that the claimed injuries suffered by Advanced Physicians occurred before the effective date of the policy pursuant to the known loss doctrine.
¶ 14 Midwest filed a counterclaim against West American seeking a declaration of coverage, a duty to defend and indemnify Midwest in the underlying actions, and reimbursement for attorney fees already expended in defending against the underlying complaints. Midwest also asserted that West American was estopped from denying that it owed Midwest a duty to defend or indemnify in the underlying action because West American filed its declaratory judgment action after the initial Vallandigham complaint had been dismissed.
¶ 15 The relevant provisions of Midwest's insurance policy are as follows.
COVERAGE A BODILY INJURY AND PROPERTY ...