Healthcare Provider Afforded “Medical Incident” Insurance Coverage For Qui Tam Allegations Against It

By: Martin Bienstock

False Claims Act allegations are covered “medical incident” claims which the insurer must defend and indemnify, according to a recent opinion by the Fourth Circuit Court of Appeals in Affinity Living Group v. Starstone Specialty Insurance Co. Under the decision, policyholders with appropriately worded policies are entitled to medical incident coverage of qui tam claims with any causal connection to healthcare services.

The facts of the case are as follows. Affinity Living Group was a personal-care service provider. A False Claims Act lawsuit alleged that that it had submitted fictitious claims to Medicaid for reimbursement.

Affinity’s policy covered “damages resulting from a claim arising out of a medical incident,” which was defined as an “act, error or omission in [Affinity’s] rendering or failure to render medical professional services [i.e., ‘the health care services or the treatment of a patient’].” The parties disputed coverage.

The Fourth Circuit held that the claim was covered. It explained that while billing for reimbursement was not itself a “medical incident,” the policy covered claims “arising out of a medical incident” a broad term requiring only some causal connection between the claim and a medical incident. The qui tam claim arose from a medical incident, the Court explained, because it arose from Affinity’s alleged failure to provide the health care services for which it had billed.

The opinion in Affinity Living Group noted that the Tenth Circuit previously had held that allegations of fraudulent Medicaid billing were not covered “medical incident” claims. See Zurich Am. Ins. Co. v. O’Hara Regional Ctr. for Rehabilitation. The Fourth Circuit distinguished O’Hara Regional because the policy in that case provided coverage only when the loss was “caused by” a medical incident. Under applicable Colorado law, the term “caused by” required proximate causation, a more stringent requirement than the mere causation requirement imposed by the “arising out of” language in Affinity Living Group.

Policyholders facing qui tam allegations should look carefully to the terms of their policy to determine if coverage might be available.

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