Week of May 25, 2020 through May 29, 2020
Affinity Living Grp., LLC v. StarStone Specialty Ins. Co., No. 18-2376
- Majority Opinion: Richardson
- Dissent: King
- Argued: January 30, 2020
- Decided: May 26, 2020
The Fourth Circuit held that the insurance claim of Affinity Living Group (an operator of adult care homes) for Medicaid reimbursements was an extension of its insurance policy with StarStone Specialty Insurance, which covered claims “‘arising out of a medical incident.’” The court noted that North Carolina courts construe “arising out of” broadly when the phrase is used in insurance provisions. The court said that an incident will be covered if there is a mere causal connection between the conduct defined in the insurance policy and the injury for which coverage is sought. Additionally, the court distinguished the dispute between Affinity and StarStone from other cases that sought to prevent voluntary dismissal of claims by manufacturing jurisdiction since the claims that were stipulated and dismissed by the parties were necessarily fatal after the judgment on the first two counts of the action. The Fourth Circuit vacated the district court’s judgment (Eagles), which ruled in favor of StarStone and remanded.
In 2016, a private party sued Affinity under the False Claims Act, 31 U.S.C. § 3729, and under the North Carolina False Claims Act, N.C. Gen. Stat. § 1-605, alleging that Affinity submitted Medicaid reimbursements for services that it never provided. Affinity then filed an insurance claim, under a policy it had with StarStone, for the false claim action brought against it, which StarStone denied. Affinity’s policy covered damages resulting from claims arising out of a medical incident. StarStone argued that Affinity’s claim arose not out of a medical incident, but out of improperly billing Medicaid for reimbursements and, as such, should not be covered.
Affinity brought four claims against StarStone. The first two—breach of coverage and breach of contract—were judged in favor of StarStone. The district court held that the insurance policy did not cover the insurance claims from the false claims suit. Two counts remained, which Affinity stipulated with StarStone to be dismissed with prejudice, explaining that any amendment to counts three and four cannot revive the claims in the case, and that the remaining claims were fait accompli following the judgment on the first two claims.
The court first addressed whether the appeal was properly before the court, since Affinity essentially manufactured a final decision in the case to make it appealable. The court noted the “long-settled principle that no appeal lies from a judgment of voluntary nonsuit.” Keena v. Groupon, Inc., 886 F.3d 360, 365 (4th Cir. 2018). The court discussed recent decisions by the Supreme Court, Microsoft Corp. v. Baker, 137 S.Ct. 1702, 1710 (2017), and the Fourth Circuit, Keena, 886 F.3d at 362−63, that did not tolerate the voluntary dismissal tactic—establishing that a voluntary dismissal does not constitute a final judgment where the district court’s ruling has not foreclosed the plaintiff’s ability to prove the required elements of the cause of action. The Fourth Circuit distinguished both cases based on that reasoning: success on the first two counts was necessary for Affinity to prevail on the merits of counts three and four. The dissent took umbrage with this decision, arguing that this is the contrived finality that the Supreme Court sought to prevent in its Microsoft decision. The dissent claimed the majority’s distinction complicates an already confusing landscape of appellate jurisdiction and such distinctions should be discouraged. In rejecting the first two contractual claims, the district court doomed the remaining extra-contractual claims. Therefore, the Fourth Circuit concluded that the appeal was properly before it.
The court next addressed StarStone’s obligations to Affinity. Affinity argued that although seeking Medicaid reimbursement is not a medical incident, its insurance claims did “arise out of” a medical incident. The court looked to North Carolina’s courts interpretation of “arise out of.” The court explained that when used in a provision extending coverage, courts interpret “arise out of” broadly, requiring only a causal connection. Conversely, when used in a provision excluding coverage, courts interpret it more narrowly, requiring proximate causation. The Fourth Circuit’s opinion said that “arising out of” falls within a provision extending coverage, and so only requires some causal connection between the conduct defined in the policy and the injury for which coverage is sought. The court held that although the alleged false billing was not itself for medical professional services, a failure to render medical professional services bears a causal relationship to the billing, and since the failure to render services is covered under the policy, the false claims action fell within the policy’s coverage.
Miles J. Reynolds