Houston Casualty Co. and National Specialty Insurance Co. asked the Eleventh Circuit to sustain U.S. District Judge Marcia G. Cooke ruling that they have no duty to defend or protect Direct General, arguing that she correctly held that some pre-policy claims against Direct General regarding PIP benefits were claims for wrongful acts, and that the pre-policy claims came from the same conduct as post-policy lawsuits such that they all constituted a single claim and were omitted from coverage.
Houston and National Specialty urged the Eleventh Circuit to note that in past pleadings, Direct General took the completely opposite position by arguing that the 70,000 individual claims should all be considered related to the two class action lawsuits in order to avoid a separate claim policy limit, the pair of excess insurers said.
“While Direct now fights to fabricate a viable distinction between the pre policy claims and the later PIP claims to suit its evolving interests, it should not now be permitted to distance itself from these admissions and representations,” Houston and National Specialty wrote.
Here is the underlying lawsuit: Direct General, which issues automobile policies providing PIP benefits under Florida law, is protected by parent company Elara Holdings Inc.’s professional liability insurance program.
Elara’s primary policy with Indian Harbor, which covered March 2008 through March 2009, contained a $10 million limit with a $1 million per claim retention. Houston Casualty and National Specialty each contributed $10 million in excess coverage.
Florida’s PIP statute expired in October 2007 and was re-enacted effective Jan. 1, 2008.
Before 2008, the state allowed insurers to reimburse certified medical providers for 80 percent of reasonable expenses for medically necessary surgery, dental and other services, in the “reasonable amount method.” The 2008 PIP statute retained that method but let insurers also calculate reasonable expenses using the Medicare Part B fee schedule. Direct General implemented the Medicare Part B fee schedule.
Direct General was hit with two proposed class actions by MRI service providers arguing that Direct failed to properly calculate benefits under the PIP statute. The first was filed in June 2008 and was voluntarily dismissed in November 2010. The second action, led by plaintiff MRI Associates of St. Pete Inc., was lodged in September 2012 and settled last year.
The defendant insurers accepted both actions for coverage under a reservation of rights and acknowledged that they constituted related claims.
Then, in December 2013, Direct General notified the defendants of 70,000 individual claims asserting that it had misunderstood the scope of its obligation to pay PIP benefits. Direct General later identified 34 PIP demands that predated the policy period but argued that those demands weren’t claims for wrongful acts as defined by the policies.
Ultimately, Direct General paid $62 million to settle and more than $10 million to defend the individual claims. Subsequently, Direct General filed the suit against Indian Harbor, Houston Casualty and National Specialty seeking defense and for them to pay what Direct had paid in the settlement and what they had paid to defend the individual claims. Indian Harbor later settled with Direct General.
In October 2015, Judge Cooke granted Houston and National Specialty’s joint motion for summary judgment, finding that under the terms of the excess policies, related claims are all considered one single claim. Consequently, in at least some of the PIP demands Direct General received before the policy arose from the same circumstances as claims filed against it during the policy period, and if even one pre-policy claim relates to a later lawsuit, then all the claims fall outside the scope of coverage, the judge said.
Appealing the decision in early January, Direct General argued that Judge Cooke “fundamentally misunderstood” the scope of insurance company professional liability insurance and misconstrued the policies’ terms and its “related claims” provision in a way that decided their coverage as misleading.
The case is Direct General Insurance Co. v. Houston Casualty Co. and National Specialty Insurance Co., case number 15-14887, in the U.S. Court of Appeals for the Eleventh Circuit.