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UnitedHealth Group Inc. v. Executive Risk Specialty Insurance Co.

United States Court of Appeals, Eighth Circuit

September 7, 2017

UnitedHealth Group Incorporated, a Minnesota corporation, Plaintiff- Appellant,
v.
Executive Risk Specialty Insurance Company; First Specialty Insurance Corporation; Starr Excess Liability Insurance International Limited; National Union Fire Insurance Company of Pittsburgh, PA, Defendants - Appellees.

          Submitted: October 19, 2016

         Appeal from United States District Court for the District of Minnesota - Minneapolis

          Before LOKEN, SMITH, [1] and COLLOTON, Circuit Judges.

          COLLOTON, Circuit Judge.

         UnitedHealth Group sued several insurers in the District of Minnesota, seeking indemnity and defense costs for underlying litigation settlements under its professional liability excess insurance policies. UnitedHealth appeals the district court's[2] grant of summary judgment in favor of four insurance companies. UnitedHealth contends that the court erred in three ways: (1) by granting National Union Fire Insurance Company's summary judgment motion based on UnitedHealth's failure to provide adequate notice of its claim; (2) by determining that UnitedHealth presented insufficient evidence on how a settlement was allocated between covered and non-covered claims; and (3) by granting summary judgment sua sponte on UnitedHealth's claim for certain defense costs. We conclude that the district court did not err on the allocation issue, and that UnitedHealth waived its objection to the asserted sua sponte order on defense costs. Because the district court's rulings on those issues mean that National Union's coverage would not be implicated, it is unnecessary to address the court's separate order on the adequacy of notice to National Union. We therefore affirm.

         I.

         This appeal involves a dispute over insurance coverage for settlement amounts arising from two different lawsuits. UnitedHealth reached a single lump-sum settlement for the two actions together. There was potential insurance coverage for claims in one lawsuit but not for claims brought in the other. A dispute then arose over how to allocate the settlement amount between the covered and non-covered claims.

          The first lawsuit was filed in New York in 2000. A group of plaintiffs, including several group health plans insured or administered by UnitedHealth or its subsidiaries, sued UnitedHealth in New York state court, and United Health removed the action to federal court. One plaintiff was the American Medical Association, and we refer to this litigation as the AMA suit. The case involved databases used by UnitedHealth. UnitedHealth's subsidiary, Ingenix, owned two databases that UnitedHealth and other insurers used to calculate the usual, customary, and reasonable charges for medical services. UnitedHealth used the databases' calculations to determine the amount that it was required to pay for out-of-network services. The AMA plaintiffs alleged that UnitedHealth conspired with other insurers to provide inaccurate information to the Ingenix databases to reduce payment for out-of-network benefit claims. The plaintiffs brought claims under the Employee Retirement Income Security Act, Racketeer Influenced and Corrupt Organizations Act, Sherman Act, and state law. The district court, Judge Lawrence M. McKenna, dismissed most of the ERISA and RICO claims. The antitrust claims under the Sherman Act proceeded until the case eventually was settled.

         The second action was filed in 2008 in New Jersey. In February 2008, a group of plaintiffs sued Oxford Health, an entity that UnitedHealth acquired in 2004, in the United States District Court for the District of New Jersey. One of the plaintiffs was named Malchow, and we refer to this action as the Malchow suit. The Malchow plaintiffs asserted claims under ERISA and violations of a state regulation, arising from breaches of contract and claims regarding Oxford's billings and payments.

         That same month, the New York Attorney General served UnitedHealth with a Notice of Proposed Litigation based on allegations similar to those in the AMA suit. We refer to this action as the NYAG suit. On January 13, 2009, UnitedHealth settled the NYAG suit by entering into an agreement known as an Assurance of Discontinuance, under which UnitedHealth agreed to discontinue operating and using the Ingenix database once an independent database was created. See N.Y. Exec. Law § 63(15). As part of this settlement, UnitedHealth was required to pay $50 million to help establish this independent database.

         The following day, UnitedHealth signed a settlement agreement to resolve both AMA and Malchow suits for $350 million. The settlement agreement did not state how the $350 million was to be allocated between the AMA plaintiffs and Malchow plaintiffs.

         The AMA and Malchow plaintiffs moved to be certified as a settlement class before Judge McKenna in New York. The court reviewed the settlement agreement and held a seven-day evidentiary hearing to determine whether the settlement was fair and reasonable. In October 2010, Judge McKenna certified the settlement class, approved the $350 million settlement, and dismissed the AMA suit. Following the court's approval, and in accordance with the settlement agreement, the Malchow plaintiffs stipulated to the dismissal of the Malchow suit in New Jersey.

         After signing the settlement agreement, UnitedHealth filed an amended complaint in this ongoing lawsuit in the District of Minnesota against its professional liability excess insurers. UnitedHealth sought damages for the insurers' failure to indemnify it for: (1) the AMA portion of the $350 million settlement under the Antitrust Endorsement of its professional liability insurance policy and $35 million in AMA defense costs; (2) the NYAG settlement; and (3) certain denied claims arising out of lawsuits alleging that UnitedHealth failed to reimburse certain medical expenses. In counts III and IV of its second amended complaint, UnitedHealth sought a declaratory judgment and damages for certain denied claims that are not at issue in this appeal. In counts V and VI, UnitedHealth sought a declaratory judgment and damages for an alleged breach of contract to reimburse UnitedHealth for the costs to defend and settle the AMA suit. In counts VII and VIII, UnitedHealth sought the same relief for alleged breaches related to the NYAG suit.

         After several years of litigation, four excess insurers remain in this action: Executive Risk Specialty Insurance Company, First Specialty Insurance Corporation, Starr Excess Liability Insurance International Limited, and National Union Fire Insurance Company (collectively, the "Insurers"). Executive Risk holds the first excess insurance policy relevant to this appeal; coverage attaches at $95 million in damages. The others provide coverage at higher levels of damages.

         In January 2013, the Insurers moved for partial summary judgment. National Union argued that UnitedHealth had failed to provide proper notice of the AMA claim during the policy period and thus was not entitled to any recovery from National Union for that claim. The district court agreed and dismissed UnitedHealth's claims against National Union based on the AMA suit. The court also ruled that UnitedHealth had the burden to allocate the settlement between the potentially covered AMA claims and the non-covered Malchow claims.

         In October 2013, the district court ordered the parties to brief three issues relating to the allocation of UnitedHealth's $350 million settlement between covered and non-covered claims. The court stated that it would, if necessary, issue a scheduling order to address any remaining issues, including the allocation of UnitedHealth's defense costs in the AMA suit. After briefing and a hearing on the issues, the district court granted summary judgment for the Insurers on counts V and VI. The court ruled that UnitedHealth failed to meet its burden to present sufficient evidence to support an allocation between the potentially covered AMA claims and the non-covered Malchow claims. The court also ruled that the Insurers were entitled to summary judgment on UnitedHealth's claim for defense costs in the AMA suit.

         Following the district court's grant of summary judgment on those claims, UnitedHealth and the Insurers entered into a stipulation for entry of final judgment because the remaining claims (counts III, IV, VII, and VIII) did not involve an amount of damages that was sufficient to trigger coverage under the excess policies. The district court granted judgment in favor of the Insurers pursuant to the parties' stipulation. UnitedHealth now appeals, arguing that the district court erred in determining that UnitedHealth failed to provide adequate notice of the AMA claim to National Union, incorrectly placed the burden of allocation on ...


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