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Arch Insurance Co. v. PCH Healthcare Holdings, LLC

United States District Court, N.D. Illinois, Eastern Division

August 5, 2019

Arch Insurance Company, Plaintiffs,
PCH Healthcare Holdings, LLC, The People's Choice Hospital, LLC PCH Management Newman, LLC, PCH Lab Services, LLC, PCH Labs, Inc., Seth Guterman, David Wanger, Aetna, Inc., and Aetna Life Insurance Company, Defendants.


          Honorable Edmond E. Chang United States District Judge.

         The plaintiff in this insurance-coverage dispute, Arch Insurance Company, seeks a declaration that it has no duty to defend the PCH Defendants from a lawsuit brought by the Aetna Defendants.[1]. R. 1, Compl.[2] PCH also filed counterclaims for breach of contract and damages under 215 ILCS 5/155. R. 33, Am. Counterclaim. The parties have now cross-moved for judgment on the pleadings. R. 34, Pl.'s Mot. J. Pleadings; R. 56, Def.'s Resp. and Cross-Mot. Arch has also moved to dismiss PCH's Counterclaim 2. R. 35, Mot. Dismiss. For the reasons explained below, Arch's motions for judgment on the pleadings and to dismiss are granted, and PCH's motion for judgment on the pleadings is denied.

         I. Background

         In deciding each party's motion for judgment on the pleadings, the Court takes all well-pled allegations as true and draws all reasonable inferences in the non-movant's favor. Hayes v. City of Chi., 670 F.3d 810, 813 (7th Cir. 2012). So when the Court evaluates PCH's motion, Arch gets the benefit of reasonable inferences; conversely, when evaluating Arch's motion, the Court gives PCH the benefit of the doubt.

         A. The Underlying Complaint

         In September 2017, Aetna filed a complaint against the PCH Defendants in the United States District Court for the Eastern District of Pennsylvania. See R. 1-2, Compl. Exh. 2, Underlying Compl. The complaint included claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962, et seq., as well as common law fraud, negligent misrepresentation, unjust enrichment, civil conspiracy, tortious interference, and equitable accounting. See generally, id.

         In that underlying complaint, Aetna alleged that the PCH Defendants created “an extensive health care billing fraud scheme through which they bilked Aetna, employers that sponsor health plans, and Aetna members out of more than $21 million.” Underlying Compl. ¶ 1. Aetna's theory is that the PCH Defendants caused Aetna to overpay for laboratory tests and services at hospitals that PCH managed. Id. ¶ 2. PCH allegedly did this by taking advantage of the hospitals' agreements with Aetna, under which Aetna had agreed to pay higher-than-usual prices for laboratory services conducted at the hospital. Id. But instead of having the hospitals conduct the tests (as required for the higher prices Aetna had agreed to), PCH had the tests performed at out-of-network laboratories that would usually have commanded a lower rate from Aetna. Id. PCH then billed Aetna at the higher rate without disclosing the fact that the tests had been outsourced. Id.

         But, Aetna is not the only entity that has sued PCH for damages incurred as a result of the alleged scheme. One of the hospitals that PCH managed, and which was implicated in the scheme Aetna alleges, was Newman Memorial Hospital. Underlying Compl. ¶ 2. Before Aetna filed its lawsuit, Newman Memorial Hospital had also sued the very same set of defendants, “relating to the same alleged fraudulent billing scheme.” Compl. ¶¶ 3, 37-47 (“Newman claimed, among other things, that the defendants submitted claims to private payors, including Aetna, under Newman's national provider identifier number for laboratory tests in violation of Newman's provider agreements with payors.”); see generally also R. 1-3, Compl. Exh. 3, Second Am. Pet. in Newman Lawsuit. The Newman lawsuit was first filed on June 30, 2017. Compl. ¶ 37. The Second Amended petition in that case was served on PCH on August 7, 2017. Id. ¶ 38. Aetna specifically mentioned the Newman lawsuit in the underlying complaint in its own case against PCH. Underlying Compl. ¶¶ 141-143 (explaining that “Newman recently filed suit against many of the Defendants” and describing many of the allegations in the Newman lawsuit).

         B. The Insurance Policy

         PCH purchased the Arch policy at issue here for the policy period of September 11, 2017 to September 11, 2018. Compl. ¶ 21; R. 1-1, Compl. Exh. 1, Policy at 1. The Policy does not cover “claims arising from, based upon, or attributable to the same wrongful act” as claims that were first made before the policy period began. See Policy at 13.[3] Also, the policy contains an explicit exclusion of any claim “arising from, based upon, or attributable to any … Wrongful Act specified in [a] prior demand, suit or proceeding or any Interrelated Wrongful Acts thereof.” Policy at 30, 41.

         Among other exclusions, the Policy also bars coverage for claims resulting from “healthcare services.” Endorsement 16 to the Policy states: “The Insurer shall not pay Loss for any Claim against an Insured arising from, based upon, or attributable to any Healthcare Services.” Policy at 86. “Healthcare services, ” is defined as “all healthcare and related services, including, without limitation, any … (b) laboratory, imagining and diagnostic services; (c) billing for services rendered or products provided; or (d) advice given in connection with any of the above.” Id.

         II. Legal Standard

         A. Motion for Judgment on the Pleadings

         A party may move for judgment on the pleadings after the pleadings are closed. Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings is subject to the same standard as a motion to dismiss under Rule 12(b)(6). Hayes, 670 F.3d at 813. In deciding a motion for judgment on the pleadings, the Court must accept all well-pled allegations as true and view the alleged facts in the light most favorable to the non-moving party. Id. Judgment on the pleadings is proper “if it appears beyond doubt that the [non-moving party] cannot prove any set of facts” sufficient to support his claim for relief. Id. (cleaned up).[4] The Court considers the pleadings alone, which consist of the complaint, the answer, and any documents attached as exhibits. N. Ind. Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998).

         In evaluating an insurance-coverage dispute, the Court must “look to the allegations of the underlying complaint[]” to determine whether it “allege[s] facts within or potentially within policy coverage.” U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930 (Ill. 1991) (emphasis in original). The insurer is liable to pay whenever the allegations in the complaint match the policy's coverage: “An insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face of the underlying complaint[] that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage.” Id. Both the insurance policy and the underlying complaint “must be liberally construed in favor of the insured, ” and “all doubts and ambiguities must be resolved in favor of the insured.” Id.

         B. ...

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