Colo. Access v. Atl. Specialty Ins. Co.

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COLORADO ACCESS, Plaintiff, v. ATLANTIC SPECIALTY INSURANCE COMPANY, and THE MEDICAL PROTECTIVE COMPANY, Defendants.

Civil Action No. 21-cv-02913-NYW

United States District Court, D. Colorado

February 16, 2023

MEMORANDUM OPINION AND ORDER

NINA Y. WANG, JUDGE

This matter is before the Court on Insurers Atlantic Specialty Insurance Company and The Medical Protective Company's Motion for Summary Judgment (the “Insurers' Motion for Summary Judgment”) [Doc. 36] and Plaintiff's Cross-Motion for Summary Judgment [Doc. 41]. Upon review of the Motions and the related briefing, the applicable case law, and the record before the Court, the Court concludes that oral argument will not materially assist in the resolution of this matter. For the reasons set forth below the Insurers' Motion for Summary Judgment is respectfully DENIED, and Plaintiff's Cross-Motion for Summary Judgment is respectfully GRANTED in part and DENIED in part.

BACKGROUND

This civil action arises out of an insurance coverage dispute between Plaintiff Colorado Access, Inc. (“Plaintiff” or “Colorado Access”) and Atlantic Specialty Insurance Company (“ASIC”) and The Medical Protective Company (“MedPro”) (collectively, “Defendants” or “Insurers”). See generally [Doc. 6]. Generally, Colorado Access alleges that the Insurers have a duty to indemnify Colorado Access with respect to a settlement agreement it entered into in 2021. See [id. at ¶¶ 14-20]. Colorado Access asserts three claims in this case: (1) breach of contract against ASIC; (2) bad faith breach of an insurance contract against ASIC and MedPro; and (3) unreasonable delay or denial of insurance benefits under Colo. Rev. Stat. §§ 10-3-1115 and -1116 against ASIC and MedPro. [Id. at 4-5]. The Insurers have asserted one declaratory judgment counterclaim against Colorado Access, seeking a “judgment that they are not obligated to indemnify Colorado Access for the settlement payment it made as part of the Settlement Agreement.” [Doc. 20 at 22, ¶ 40].

On March 30, 2022, the Insurers filed the Insurers' Motion for Summary Judgment. See [Doc. 36]. Therein, they argue that the plain language of the insurance Policy issued to Colorado Access unambiguously excludes Plaintiff's settlement payment from indemnification coverage. See [id. at 1]. On this basis, they argue that they are entitled to summary judgment on each of Plaintiff's three claims. [Id. at 16]. Plaintiff filed its Cross-Motion for Summary Judgment on April 20 2022, arguing that it is entitled to summary judgment with respect to the legal question of whether the insurance Policy excludes the settlement payment from indemnification coverage. [Doc. 41 at 6]. Both Motions are fully briefed [Doc. 46; Doc. 51], and are thus ripe for resolution.

UNDISPUTED MATERIAL FACTS

The below material facts are drawn from the Parties' briefing and are undisputed unless otherwise noted.

1. Plaintiff Colorado Access is a corporation that oversees mental health services. [Doc. 36 at ¶ 1; Doc. 41 at ¶ 1; Doc. 27 at 5, ¶ 2].

2. Defendant ASIC issued a Managed Care Errors and Omissions Liability Policy (the “Policy”) to Colorado Access, with a coverage period from February 27, 2019 to February 27, 2020. [Doc. 36 at ¶ 20; Doc. 41 at ¶ 20; Doc. 36-19].^[1]

3. The Policy provides coverage for “Damages and Claim Expenses in excess of the Retention that you are legally obligated to pay as a result of a Claim for . . . an act, error, or omission, or series of acts, errors, or omissions, committed or allegedly committed by you or on your behalf in the performance of a Managed Care Activity.” [Doc. 36 at ¶ 21; Doc. 41 at ¶ 21; Doc. 36-19 at DEFS000010 (emphasis omitted)].^[2]

4. The Policy defines “Damages” as including “any settlements, judgments, prejudgment interest, post-judgment interest . . ., or other amounts . . . which you are legally obligated to pay as the result of a Claim.” [Doc. 36 at ¶ 23; Doc. 41 at ¶ 23; Doc. 36-19 at DEFS000014 (emphasis omitted)].

5. However, the Policy definition of “Damages” does not include “any payment, restitution, return, or disgorgement of any fee, profit, royalty, premium, commission, or charge, or any fund allegedly wrongfully or unjustly held or obtained, including but not limited to any profit, remuneration or advantage to which you were not legally entitled” or “any amount any of you pay or may be obligated to pay under any contract or agreement, including but not limited to any policy, bond, benefit plan, or provider agreement.” [Doc. 36 at ¶ 23; Doc. 41 at ¶ 23; Doc. 36-19 at DEFS000014-15 (emphasis omitted)].

6. Colorado Access entered into Facility Provider Agreements (“FPAs”) with three Institutions of Medical Disease: Cedar Springs Hospital Inc., d/b/a Cedar Springs Behavioral Health; UHS of Denver, d/b/a Highlands Behavioral Health; and UHS of Centennial Peaks, d/b/a Centennial Peaks Hospital (collectively, the “IMDs”). [Doc. 36 at ¶ 3; Doc. 41 at ¶ 3; Doc. 27 at 5, ¶ 4; Doc. 37-1].

7. The IMDs provide residential behavioral health services to Medicaid patients in Colorado. [Doc. 36 at ¶ 2; Doc. 41 at ¶ 2; Doc. 27 at 5, ¶ 3].

8. On August 22, 2019, the IMDs alleged that Colorado Access had breached its contractual duties under the FPAs because it failed to pay for patients who stayed at the IMDs for more than 15 days. [Doc. 36 at ¶ 4; Doc. 41 at ¶ 4; Doc. 36-3].

9. The IMDs demanded that Colorado Access pay $600,000 for those patients, pursuant to the FPAs. [Doc. 36 at ¶ 4; Doc. 41 at ¶ 4; Doc. 36-3 at 1].

10. On August 26, 2019, Colorado Access reported the demand to the Insurers (“Underlying Claim”). [Doc. 36 at ¶ 5; Doc. 41 at ¶ 5; Doc. 36-4].

11. The Insurers sent a letter to Colorado Access on September 25, 2019 stating: “In the Demand Letter, the UHS seeks amounts allegedly owed pursuant to a contract or agreement . . . and/or return of fees that have (allegedly) been wrongly or unjustly withheld. None of these types of relief constitute Damages as defined by the Policy.... [ASIC] reserves all rights with regard to the Definition of[] . . . Damages.” [Doc. 36 at ¶ 6; Doc. 41 at ¶ 6; Doc. 36-5 at 3].^[3] 12. The IMDs submitted an arbitration demand on October 21, 2019, alleging that Colorado Access had breached its obligations under the FPAs. [Doc. 36 at ¶ 7; Doc. 41 at ¶ 7; Doc. 36-6 at 4].

13. On June 22, 2020, the arbitrator issued a written ruling in favor of the IMDs and against Colorado Access, ruling that the FPAs “unambiguously provide[] for payment of IMD stays without a 15[-]day limit.” [Doc. 36 at ¶ 9; Doc. 41 at ¶ 9; Doc. 36-11 at 5].^[4]

14. The arbitrator scheduled a damages hearing, but before the damages hearing was held, Colorado Access challenged the arbitrator's role due to an alleged conflict of interest. The American Arbitration Association (“AAA”) appointed another arbitrator to evaluate the arbitration decision. [Doc. 36 at ¶ 11; Doc. 41 at ¶ 11; Doc. 36-12 at 1-2; Doc. 37-2 at 1].

15. A new arbitrator was appointed, and the new arbitrator sent an email to the arbitrating parties on December 14, 2020 stating: “I will evaluate [the conflict] at the time of the final hearing^[5] with any information the parties wish to submit (if any) or to argue. At this point, though, because a mid-proceeding disqualification does go to the overall integrity of the process, I will revisit the summary judgment ruling if the undisclosed conflict is shown to have impacted the ruling, directly or indirectly.” [Doc. 36 at ¶ 12; Doc. 41 at ¶ 12; Doc. 36-14 at 1].^[6] 16. Colorado Access submitted a settlement offer to the IMDs on November 2, 2020 to resolve the arbitration dispute. [Doc. 36 at ¶ 13; Doc. 41 at ¶ 13; Doc. 20 at 17, ¶ 17; Doc. 21 at ¶ 17].

17. On April 22, 2021, Colorado Access entered into a Settlement Agreement with the IMDs. [Doc. 36 at ¶ 15; Doc. 41 at ¶ 15; Doc. 45-2].

18. The Settlement Agreement states that Colorado Access and the IMDs “entered into [FPAs] which govern the contractual relationship between the Parties” and states that the “Parties have agreed to a settlement of [the IMDs'] claims against Colorado Access with respect to the 15 Day Dispute and Arbitration.” [Doc. 36 at ¶ 15; Doc. 41 at ¶ 15; Doc. 45-2 at 1].

19. After paying the settlement, Colorado Access sought reimbursement from the Insurers for the settlement. [Doc. 36 at ¶ 18; Doc. 41 at ¶ 18; Doc. 36-18 at 1].

20. On August 12, 2021, the Insurers denied coverage for the settlement because “the settlement does not constitute covered ‘Damages' as defined in the Policy, and, therefore, does not fall within the coverage grant.” [Doc. 36 at ¶ 19; Doc. 41 at ¶ 19; Doc. 36-18 at 1 (emphasis omitted)].

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56, 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 is genuine if there is sufficient evidence so that a rational trier of fact could resolve the issue either way. A fact is material if under the substantive law it is essential to the proper disposition of the claim.” Crowe v. ADT Sec. Servs., Inc., 649 F.3d 1189, 1194 (10th Cir. 2011) (internal citations and quotation omitted).

“[I]t is not the party opposing summary judgment that has the burden of justifying its claim; the movant must establish the lack of merit.” Alpine Bank v. Hubbell, 555 F.3d 1097, 1110 (10th Cir. 2009). In attempting to meet this standard, a movant that does not bear the ultimate burden of persuasion at trial does not need to disprove the other party's claim; rather, the movant need simply point the Court to a lack of evidence for the other party on an essential element of that party's claim. Adler v Wal-Mart Stores, Inc., ...