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Allied World Specialty Insurance Co. v. Independence Blue Cross

United States District Court, E.D. Pennsylvania

October 31, 2017

ALLIED WORLD SPECIALTY INSURANCE COMPANY, formally known as DARWIN NATIONAL ASSURANCE COMPANY
v.
INDEPENDENCE BLUE CROSS

          MEMORANDUM

          Juan R. Sánchez, J.

         Plaintiff Allied World Specialty Insurance Company f/k/a Darwin National Assurance Company seeks a declaratory judgment that the Managed Care Organization Errors and Omissions Liability Insurance Policy it issued to Defendant Independence Blue Cross, LLC (the Policy) provides no coverage for the claims asserted against Independence in multi-district litigation in which Independence is a defendant in the Northern District of Alabama. See In re: Blue Cross Blue Shield Antitrust Litig., Master File No. 2:13-cv-20000-RDP (M.D. Ala.) (the MDL Action). Allied World asserts there is no coverage for the MDL Action and the cases consolidated therein under the Policy because (1) the claims asserted against Independence fall under the “Related Claim” Exclusion in the Policy; (2) the claims asserted against Independence fall under the “Prior or Pending or Prior Claims” Exclusions in the Policy; and (3) plaintiffs in the MDL Action seek relief that does not constitute “Loss” under the Policy and/or is uninsurable as a matter of law. Independence moves to dismiss or stay this declaratory judgment action, asserting Allied World's coverage obligations depend on the outcome of claims that have yet to be resolved in the MDL Action. In response, Allied World argues its “threshold questions” of whether the Related Claim and/or Prior Litigation Exclusions within the Policy bar coverage do not depend on the development of the underlying action and are ripe for review. The Court agrees with Allied World. Allied World's secondary question of whether the relief sought by the plaintiffs in the MDL Action is covered under the Policy, however, cannot be addressed until resolution of the plaintiffs' claims for relief. Independence's Motion to Dismiss or Stay is therefore denied in part, and granted in part insofar as the discrete issue of whether the relief sought by the plaintiffs in the MDL Action is covered under the Policy is stayed for a period of six months.

         BACKGROUND

         In 2012, several class action lawsuits were filed by healthcare providers and subscribers against multiple Blue Cross Blue Shield entities and member plans, including Independence (the Blues), and the Blue Cross Blue Shield Association, alleging the defendants “conspired to leverage their economic power and market dominance to under-compensate healthcare providers for their services and to increase healthcare costs to subscribers by coordinating their operations and limiting their activities through restrictions in their trademark licenses, ” in violation of federal antitrust laws. Compl. ¶ 7. Several of these actions were transferred to the United States District Court for the Northern District of Alabama for coordinated pretrial proceedings as part of the MDL Action. The parties to the MDL Action are currently in the midst of discovery. See Def.'s Mem. Ex. A (Scheduling Order).

         Prior to the filing of the lawsuits consolidated in the MDL Action, Independence was a defendant in another class action, Love v. Blue Cross Blue Shield Assoc., No. 03-21296 (S.D. Fla), which was part of an earlier MDL proceeding styled In re Managed Care Litigation, No. 1:00-MDL-1334. As in the MDL Action, the plaintiffs in Love alleged the Blues entered into cooperation agreements with each other to maximize their profits, in violation of federal antitrust laws. Independence was also a defendant in a subsequent action, Musselman v. Blue Cross Blue Shield of Ala., No. 13-20050 (S.D. Fla.), in which provider plaintiffs in the MDL Action, who were also plaintiffs in the Love class and participated in the Love settlement, sought a declaration that they could assert their antitrust claims in the MDL Action despite being releasing parties in the Love settlement.[1]

         Following the commencement of the MDL Action, Independence provided notice of the MDL Action to Allied World and requested coverage under the Policy. In a March 4, 2014, letter, Allied World agreed to reimburse defense costs incurred by Independence in connection with the MDL Action under the Policy, but reserved its rights to deny coverage. See Compl. Ex. 7.

         Allied World later reversed course, however, advising Independence in a June 14, 2017, letter that it had determined the Policy does not provide coverage for the claims asserted by the plaintiffs in the MDL Action because (1) the MDL Action is a “Related Claim” to previous litigation-the Love litigation-under the Policy and is therefore excluded under the Policy's Related Claim Exclusion, and (2) coverage for the MDL Action is also precluded by the Policy's Prior or Pending Litigation or Prior Claims Exclusions. See Def.'s Supp. Mem. Ex. C. Allied World also “reserve[d] its rights to the extent that any award might include fines, penalties, non-monetary relief, amounts deemed uninsurable under law, or claim that does not fall within the definition of Loss.” Id. at 11. As a result, Allied World informed Independence it would no longer advance Independence's defense expenses in the MDL Action, and requested reimbursement of amounts advanced to date pursuant to the parties' Defense Expenses Repayment Agreement.[2]

         Allied World now seeks a declaratory judgment that the Policy does not provide coverage to Independence for the MDL Action, and that it is entitled to recoup the defense costs it has already expended in the MDL Action. Independence moves to dismiss Allied World's Complaint, arguing Allied World's coverage obligations depend on facts that have yet to be developed in the underlying antitrust cases. In the alternative, Independence moves to stay this action pending the resolution of the MDL Action.

         DISCUSSION

         The Declaratory Judgment Act (DJA) permits a federal court to “declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a). The remedy provided by § 2201 is discretionary. See Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (“We have repeatedly characterized the Declaratory Judgment Act as an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant.” (internal quotation marks omitted)). A court may, in appropriate circumstances, abstain from entertaining an action seeking only declaratory relief, see Kelly v. Maxum Specialty Ins. Grp., 868 F.3d 274, 281 (3d Cir. 2017), or stay a declaratory judgment action, see Wilton, 515 U.S. at 282-83.

         In deciding whether to entertain a declaratory judgment action, a district court considers factors “bearing on the usefulness of the declaratory judgment remedy, and the fitness of the case for [federal] resolution.” Kelly, 868 F.3d at 282 (alteration in original). The court must first determine the “significant” factor of whether there is a “parallel state proceeding.” Id. The existence of a parallel state proceeding “militates significantly in favor of declining jurisdiction, ” where as “the absence of pending parallel state proceedings militates significantly in favor of exercising jurisdiction.” Id.

         The court must then consider other relevant factors, including, but not limited to:

(1) the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise ...

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