Tenth Circuit Deems D&O Policy Ambiguous Based on Interplay of Coverage Grant with Managed Care Exclusion
The United States Court of Appeals for the Tenth Circuit, applying Kansas law, has held that a D&O insurer was obligated to reimburse defense costs where a policy expressly covered antitrust claims but excluded coverage for such claims in the context of the insured’s “core business,” thereby creating an asserted ambiguity. Allied World Specialty Ins. Co. v. Blue Cross & Blue Shield of Kan., Inc., 2024 WL 4969268 (10th Cir. Dec. 4, 2024). The court also held that, because at least some of the claims asserted in the underlying action were unrelated to those alleged in prior litigation, the policy’s related claims provision and prior litigation exclusion did not preclude the potential for coverage.
A group of providers and subscribers sued the insured, a healthcare insurer, alleging an anticompetitive scheme to underpay providers and overcharge subscribers. The insurer initially denied coverage based on a “managed care activities” exclusion. During litigation, the insurer justified its denial pursuant to this “managed care” exclusion, as well as two other provisions: (1) a related claims provision, and (2) an exclusion for conduct involved in prior litigation. Because the underlying litigation was ongoing, the insured only sought reimbursement of defense costs. The district court granted the insurer’s motion for judgment on the pleadings.
On appeal, the Tenth Circuit reversed, concluding that the insurer was not entitled to judgment on the pleadings given what it viewed as an ambiguity in the policy. First, the court predicted that the Kansas Supreme Court would apply the same potentiality standard used to evaluate an insurer’s duty to defend to the question of whether the insurer was obligated to reimburse the insured’s defense costs. Next, the court determined that “an ambiguity exists from the combination of [the managed care] exclusion with the provisions stating what [the insurer] will cover.” The court observed that the policy expressly covered antitrust claims involving price fixing and monopolization, so the insured “would presumably interpret the policy to provide reimbursement of defense costs when sued for price fixing and monopolization.” At the same time, “the exclusion purports to deny coverage when the price fixing or monopolization involves managed care.” The court reasoned that, because the insured’s “core business is managed care,” all price-fixing or monopolization claims against the insured would necessarily involve these excluded activities. Because the policy expressly covered antitrust claims but excluded “coverage in the sole area where these claims could arise,” the policy “creates an ambiguity even if some coverage otherwise existed for antitrust claims involving mergers and acquisitions.” The potential for coverage thus existed, obligating the insurer to reimburse defense costs.
The Tenth Circuit also rejected the insurer’s argument that no coverage existed by operation of the policy’s related claims provision and prior litigation exclusion. The court found that the current underlying litigation asserted causes of action based on three categories of alleged misconduct, but the prior litigation involved only one of these. The court then held that, even if the third category was related to the conduct at issue in the prior litigation, “the presence of some unrelated claims would require [the insurer] to reimburse [the insured] for all of its defense costs.”
