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UnitedHealth Group Inc. v. Columbia Cas. Co.

United States District Court, D. Minnesota

September 25, 2014

UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation, Plaintiff,

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For Plaintiff: David B. Goodwin and Michael S. Greenberg, COVINGTON & BURLING, LLP; Jeffrey J. Bouslog and Christine N. Lindblad, OPPENHEIMER, WOLFF & DONNELLY LLP.

For Executive Risk Specialty Insurance Company and First Specialty Insurance Corporation, Defendants: Ronald P. Schiller, Robert L. Ebby, Jacqueline R. Dungee, and Bonnie M. Hoffman, HANGLEY ARONCHICK SEGAL PUDLIN & SCHILLER; Alan L. Kildow and Sonya R. Braunschweig, DLA PIPER U.S. LLP.

For Starr Excess Liability Insurance International Limited, defendant: David P. Pearson, Thomas H. Boyd, Brent A. Lorentz, and Sofia A. Estrellado, WINTHROP & WEINSTINE, P.A.

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Patrick J. Schiltz, United States District Judge.

Plaintiff UnitedHealth Group Inc. (" United" ) brought this coverage action against ten insurance companies -- United's primary insurer and nine of United's excess insurers -- asking this Court to determine, with respect to each of several dozen claims that were brought against United during the period December 1, 1998, through December 1, 2000, which of the ten insurers must indemnify United or pay United's defense costs. This case is now in its ninth year. The Court has ruled on numerous non-dispositive motions, dispositive

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motions, and motions in limine, and certain matters were tried to juries in May 2012 and June 2013. United has exhausted its primary insurance and settled with some of its excess insurers. At this point, there are effectively three excess insurers remaining in this case: Executive Risk Specialty Insurance Company; First Specialty Insurance Corporation; and Starr Excess Liability Insurance International Limited (collectively " the insurers" ).

This matter is before the Court on the insurers' motion for summary judgment on Counts V and VI of United's second amended supplemental complaint. In Counts V and VI, United seeks coverage for the " AMA claim," which is by far the largest of the underlying claims. For the reasons that follow, the Court grants the insurers' motion.


On January 14, 2009, United executed a $350 million settlement (" the Settlement" ) of two putative class actions: American Medical Association v. United Healthcare Corp., No. 00-2800 (LMM/GWG) (S.D.N.Y. removed Apr. 12, 2000) (" AMA " )[1] and Malchow v. Oxford Health Plans, Inc., No. 08-935 (FSH/PS) (D.N.J. filed Feb. 19, 2008) (" Malchow " ). UA0432.[2] Broadly speaking, the AMA and Malchow actions involved similar factual allegations against United, various United subsidiaries, and various entities related to United. To simplify the discussion of AMA and Malchow, the Court will collectively refer to the defendants in those cases as " United" except when it is necessary to distinguish among them.

A. United's Coverage Actions

This action had been pending for over three years when United executed the Settlement. Shortly after executing the Settlement, United amended its complaint in this case to seek coverage for the portion of the Settlement attributable to the claims asserted against United in the AMA action. ECF No. 336 ¶ 3; see also ECF No. 556 ¶ ¶ 1-3.[3]

At about the same time, United filed a separate lawsuit seeking coverage for the portion of the Settlement attributable to the claims asserted against United in the Malchow action.[4] See UnitedHealth Grp. Inc. v. Columbia Cas. Co., No. 09-0210 (PJS/SRN) (D. Minn. filed Jan. 29, 2009) (" the '09 action" ). United filed the separate '09 action -- rather than amending its complaint in this action -- because United sought coverage for the Malchow claim under a tower of insurance that differed from the tower of insurance that is at issue in this case.[5] See id. ECF No. 44 ¶ 43.

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The Court dismissed most of the '09 case in February 2010. In essence, the Court held that the Malchow action was not covered under United's insurance policies, and thus United's insurers were not obligated to indemnify United for the amounts that it paid to defend and settle the Malchow claim. Id. ECF No. 151. The parties then stipulated to entry of judgment, and the Court dismissed the case with prejudice. Id. ECF Nos. 170-72. United did not file an appeal.

That brings us to the nub of the present dispute: As noted above, the Settlement covered both the AMA claim and the Malchow claim. In the '09 case, this Court held that the portion of the Settlement attributable to the Malchow claim was not covered. In this case, United is seeking to be indemnified for the portion of the Settlement attributable to the AMA claim. Thus, United's claim for indemnity requires a jury to allocate the Settlement between the (uncovered) Malchow claim and the (potentially covered) AMA claim.[6] In their motion for summary judgment, the insurers argue that the record does not contain sufficient evidence to permit a reasonable jury to perform this allocation. Familiarity with the substantive and procedural complexity of the AMA and Malchow cases is necessary to evaluate the insurers' argument.

B. The AMA Case

United is a large health-insurance company. In the AMA lawsuit, the plaintiffs alleged that, under the terms of certain United healthcare policies, United was obligated to pay a certain percentage of the " usual, customary and reasonable" (" UCR" ) rate for out-of-network medical services. UA0053-54. United determined UCR rates using databases maintained by Ingenix, a wholly owned subsidiary of United. The plaintiffs alleged that the Ingenix databases incorporated flawed, incomplete, and manipulated data, resulting in United paying less for out-of-network services than it was obligated to pay. UA0063-66. The AMA plaintiffs included healthcare providers as well as subscribers and beneficiaries of United healthcare plans.

The AMA case was originally filed in New York state court in March 2000. UA0008. The defendants removed the case to the United States District Court for the Southern District of New York, and the case was assigned to Judge Lawrence McKenna.

Over the next nine years, Judge McKenna presided over extensive motion practice and discovery. UA1089-90. Judge McKenna issued a number of lengthy and detailed opinions, including a 75-page order granting in part the defendants' motion for summary judgment on the claims pleaded in the third amended complaint, UA1086; a 57-page order granting in part the plaintiffs' motion for leave to file a fourth amended complaint, UA0220; and a 40-page order granting in part the defendants' motion to dismiss the fourth amended complaint, UA0180.

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Judge McKenna's rulings considerably narrowed the plaintiffs' claims. The third amended complaint consisted largely of claims under ERISA[7] and claims that United had engaged in deceptive trade practices in violation of New York law. UA1088-89. Judge McKenna held that the plaintiffs were required to exhaust their administrative remedies with respect to any ERISA claim that was based on an alleged violation of a healthcare plan. UA1096-1130. He also agreed with the defendants that those plaintiffs who could not show that they had suffered out-of-pocket losses lacked standing to seek monetary damages (although they could nevertheless seek injunctive relief for breach of fiduciary duty). UA1133-39. Finally, he held that those plaintiffs whose plans named someone other than United as the plan administrator could not seek monetary benefits from United. UA1153-57.

Before issuing these rulings, Judge McKenna closely examined evidence concerning various plan terms, United's claims practices, and individual plaintiffs' administrative records. Judge McKenna had to make many tough calls on difficult legal issues, such as whether the failure to exhaust administrative remedies could be excused on any of a number of grounds. UA1106-23. Judge McKenna's task was further complicated by the fact that the AMA plaintiffs were insured under various healthcare plans with various administrative requirements and other provisions. See, e.g., UA1111-12.

Although he narrowed the plaintiffs' ERISA claims, Judge McKenna permitted the plaintiffs to expand the overall scope of the case by adding antitrust and RICO[8] claims in the fourth amended complaint. In August 2008, Judge McKenna dismissed most of the RICO claims but left the antitrust claims largely intact. UA0180-219. This was Judge McKenna's last substantive ruling in AMA before the parties executed the Settlement.

C. The Malchow Case

Meanwhile, in February 2008 -- nearly eight years after the AMA case commenced -- the Malchow plaintiffs filed suit in the United States District Court for the District of New Jersey. UA0277. United was not a defendant in Malchow. Instead, the Malchow plaintiffs brought claims against various Oxford entities that United had acquired in 2004. Malchow was assigned to Judge Faith Hochberg.

Like AMA, the Malchow case challenged the use of the Ingenix databases to determine UCR rates. UA0283-85. In addition, the Malchow plaintiffs alleged that the Oxford entities had engaged in other wrongful conduct, such as denying full reimbursement for emergency services in violation of state law; automatically reducing coverage for multiple procedures performed on the same day; denying full reimbursement even after subscribers reached the contractual out-of-pocket maximum; and wrongfully denying coverage altogether when subscribers failed to get preauthorization for a procedure. UA0313-16.

Based on these allegations, the Malchow plaintiffs brought various ERISA claims. A subset of plaintiffs also alleged violations of a New Jersey regulation that set particular standards for calculating UCR rates for small-employer health plans. UA0320-28. Unlike AMA, however, Malchow did not involve antitrust or RICO claims.

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D. The Health Net Case

Again, Malchow was assigned to Judge Hochberg. As it turned out, Judge Hochberg did not have to issue much in the way of substantive rulings in Malchow. But the parties nevertheless had considerable evidence about how Judge Hochberg was likely to rule on certain critical issues. At the time that Malchow was filed, Judge Hochberg was already presiding over several other cases that also challenged the use of the Ingenix databases to calculate UCR rates. Several of those cases had been consolidated into a single case that the parties refer to as " Health Net."

Like AMA, Health Net was a protracted, hard-fought case involving extensive motion practice (not to mention several appeals to the Third Circuit). Long before Malchow was filed, Judge Hochberg had already issued a number of significant rulings in Health Net. Among other things, Judge Hochberg had held that the plaintiffs did not need to exhaust administrative remedies, and she certified a class of subscribers and beneficiaries. Wachtel v. Guardian Life Ins. Co., 223 F.R.D. 196, 208, 218-19 (D.N.J. 2004), vacated and remanded, 453 F.3d 179 (3d Cir. 2006) (vacating and remanding for a definition of claims, issues, and defenses to be treated on a class basis).

About six months after Malchow was filed -- and about five months before United executed the Settlement -- Judge Hochberg approved a settlement of the Health Net case. The Health Net settlement provided a $215 million fund and significant equitable relief estimated to be worth $26 to $38 million for a class of about 2.5 million people. McCoy v. Health Net, Inc., 569 F.Supp.2d 448, 452-55 (D.N.J. 2008).

E. The AMA$/Malchow Settlement and Approval Process

As noted, United executed the Settlement of the AMA and Malchow lawsuits on January 14, 2009. UA0432, UA0467. Under the Settlement, United essentially agreed to pay $350 million in return for the release of the claims of a large settlement class that included putative class members from both AMA and Malchow.

The settling parties agreed that they would implement the Settlement by asking Judge McKenna to certify a settlement class and approve the Settlement as part of the AMA case. UA0453-56, UA438 (procedure for seeking settlement approval and certification from the " Court," defined as the United States District Court for the Southern District of New York); UA0445 (defining " Settlement Class" to include all persons whose healthcare benefits were insured or administered by any " Defendant" ); UA0439 (defining " Defendants" to include United entities (who were sued in AMA ) and Oxford entities (who were sued in Malchow )).

The Settlement did not call for consolidation of the AMA and Malchow cases, however. In the event that Judge McKenna did not approve the Settlement, Malchow would continue to proceed before Judge Hochberg, and AMA would continue to proceed before Judge McKenna. UA0452 (" In the event that this Settlement Agreement is terminated or the Effective Date does not occur, the stay shall be vacated and the Oxford Action shall proceed as though the Settlement Class has never been certified." ); UA0435 (defining Malchow as the " Oxford Action" ). The parties agreed that, pending Judge McKenna's consideration of the Settlement, they would ask Judge Hochberg to stay Malchow.

As they had agreed to do, the parties jointly moved in AMA for conditional certification of a settlement class and preliminary approval of the Settlement. Am. Med. Ass'n, No. 00-2800, ECF No. 344.

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Judge McKenna held an evidentiary hearing that spanned seven days. UA0393. Among the witnesses who testified at the hearing was Daniel Slottje, a professor of economics at Southern Methodist University. Am. Med. Ass'n, No. 00-2800, ECF No. 393 at 11-12; UA0899. Slottje testified about what the parties called the " delta," which (roughly speaking) refers to the difference between the total amount that had been billed by out-of-network healthcare providers to United subscribers and the total amount that United had paid on those bills. Am. Med. Ass'n, No. 00-2800, ECF No. 393 at 10. The parties used calculations of the delta to provide a rough estimate of the " worst-case" scenario for United -- that is, of the outer boundary of damages that plaintiffs could recover. UA0395. At the hearing, Slottje testified that he calculated the delta to be approximately $4.18 billion. Am. Med. Ass'n, No. 00-2800, ECF No. 393 at 11-12.

After the evidentiary hearing, Judge McKenna issued an order in which, among other things, he reserved judgment on the motion for preliminary approval of the Settlement and requested additional information about the delta. Id. at 15-16. United then gave Slottje access to extensive claims records and data. UA0899, UA0901. Slottje prepared a lengthy affidavit (dated September 10, 2009) in which he analyzed the records, calculated a new delta, and estimated the size of the settlement class. UA0898-936. Specifically, Slottje opined that the delta was $4.76 billion (after excluding certain claims), and he estimated that the settlement class included 21.11 million members. UA0900.[9]

After conducting more hearings and receiving extensive submissions, Judge McKenna preliminarily approved the Settlement and certified a settlement class in an order dated November 17, 2009. UA0393-410. Judge McKenna discussed the parties' competing calculations of the delta -- he noted, for example, that the objecting plaintiffs' estimates ranged as high as $26.4 billion -- and he found that Slottje's estimate was the most reasonable. UA0394-96. Judge McKenna also accepted the Settlement proponents' contention that the delta should be reduced by 60 percent on the basis of his ruling that United could not be held liable with respect to claims submitted under plans for which United did not serve as the named administrator. UA0399-401. He also took note of the argument that the delta should be further reduced by 20 percent to account for deductibles and coinsurance, but it is unclear whether he agreed with that argument. UA0399. Judge McKenna did not expressly calculate a final delta; he did, however, find that the Settlement was reasonable in light of what he characterized as the " considerable problems facing plaintiffs should they choose to proceed to trial," UA0401, including the exhaustion-of-remedies issue and the issue of standing, UA0402-03.

For about another year, Judge McKenna dealt with various requests for clarification and miscellaneous motions. A number of class members submitted objections to the Settlement. Ultimately, Judge McKenna granted final approval to the Settlement on October 5, 2010. UA0411-27.

F. The Wrap-up of Malchow

Shortly after the Settlement was executed, the Malchow defendants asked Judge Hochberg to stay Malchow pending the settlement-approval process in AMA. Malchow,

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No. 08-935, ECF No. 102. As the parties informed Judge Hochberg, however, there was a complicating factor: only one of the five named Malchow plaintiffs supported the Settlement, and the Malchow plaintiffs' attorneys were sharply divided over it. Id. ECF No. 95; id. ECF No. 109 at 3.[10] The four non-settling plaintiffs and their lawyers opposed any stay of Malchow, explaining that they objected to the Settlement on both substantive and procedural grounds. Id. ECF No. 109.

Judge Hochberg denied the motion to stay. Id. ECF No. 117. Shortly thereafter, the Malchow plaintiffs filed an amended complaint. Id. ECF Nos. 121, 122. The parties continued with discovery. See, e.g., id. ECF Nos. 129, 130, 145.

After Judge McKenna preliminarily approved the Settlement in November 2009, the Malchow defendants again moved to stay Malchow. Id. ECF No. 162. This time, Judge Hochberg granted the motion. Id. ECF No. 174. After Judge McKenna issued his final approval order, Judge Hochberg dismissed Malchow without prejudice. Id. ECF No. 182. The Malchow parties later stipulated to dismissal with prejudice. Id. ECF Nos. 183, 184.


United now seeks to be indemnified for the amount of the Settlement that was attributable to the AMA claim. The insurers move for summary judgment on the ground that United has insufficient evidence from which a jury could allocate the Settlement between the (possibly covered) AMA claim and the (definitely uncovered) Malchow claim.

A. Standard of Review

Summary judgment is warranted " if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A dispute over a fact is " material" only if its resolution might affect the outcome of the suit under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute over a fact is " genuine" only if " the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. " The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor." Id. at 255.

In responding to a motion for summary judgment, a party with the burden of proof must submit and cite specific evidence in support of its claims. See Ince v. Aetna Health Mgmt., Inc., 173 F.3d 672, 677 (8th Cir. 1999) (" A party opposing summary judgment who will bear the burden of proof at trial must come forward with evidence substantiating his position to avoid summary judgment." ); cf. Rodgers v. City of Des Moines, 435 F.3d 904, 908 (8th Cir. 2006) (" Without some guidance, we will not mine a summary judgment record searching for nuggets of factual disputes to gild a party's arguments." ).

The Court emphasizes this point because, during oral argument, United often alluded to broad categories of evidence without providing citations or other specifics. See, e.g., ECF No. 1533 at 10 (stating that United's AMA counsel " will testify extensively on what happened in the AMA case" ). At one point in its briefing, United even suggested that, at trial, it can meet its burden of proof on allocation by using

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any admissible evidence that it disclosed during discovery. See ...

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