Tenth Circuit Denies General Liability Insurance Coverage for False Billing Claims
In Zurich American Ins. Co. et al. v. O’Hara Regional Center for Rehabilitation, et al., 2008 U.S. App. LEXIS 12913 (10th Cir., June 18, 2008), the Tenth Circuit addressed the question of whether general liability insurance policies trigger a duty to defend false billing claims. The insured, O’Hara Regional Center for Rehabilitation (“O’Hara”) is a long-term care facility in Denver that was licensed by the State of Colorado to provide specialized nursing home care, and provided such care pursuant to agreements with the United States and the State of Colorado under the Medicare and Medicaid programs. After concluding that O’Hara submitted inflated invoices for patient services, the government sued O’Hara under the False Claims Act and state common law, alleging O’Hara “knowingly presented or caused to be presented claims for payment to the Medicare and Medicaid programs, for care, goods or services not rendered, that were inadequate or worthless, or that were rendered in violation of applicable statutes, regulations and guidelines with a nexus to payment.” The government further alleged that O’Hara “‘systematically and routinely understaffed [the facility]’ in violation of the provider agreements.” LEXIS p. 5. O’Hara tendered defense of the suit to its three liability carriers. Two accepted the defense under a reservation of rights, while the third simply denied coverage.
Under Colorado law, the court was required to consider only the four corners of the underlying complaint in determining the duty to defend. “If the complaint ‘alleges any facts that might fall within the coverage of the policy,’ then the insurer has a duty to defend the insured.” LEXIS p. 12 (quoting Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1089 (Colo. 1991)). The court found that the relevant coverage provisions under the general liability policies for all three insurers involved were roughly the same, providing coverage “where the insured causes injury by negligently (1) providing nursing or medical services or treatment; or (2) generally, providing professional services.” LEXIS p. 12.
O’Hara made primarily two arguments in support of its theory for professional services coverage: (1) “that the misconduct alleged by the government arose from O’Hara’s negligent design and implementation of health care practices ― namely, its failure to provide professionally adequate nursing or medical services.,” and (2) “that its billing practices pursuant to the Medicare and Medicaid provider agreements also constitute professional services covered by the policies.” LEXIS p. 10. The court found neither argument persuasive. As to the first argument, the court found that “The government’s injury was not caused by O’Hara’s failure to provide professional services, but instead resulted from O’Hara’s submission of false and fraudulent claims for reimbursement,” and that “the problem was not the actual level of services provided to O’Hara’s patients, but rather that O’Hara billed for services it did not provide ― namely, enhanced services.” Id. at 13-14.
Addressing the insured’s second argument, that its billing practices constituted professional services covered by the policies, the court found that the various policies used the terms “any service . . . of a professional nature,” “professional services,” and “professional health care services,” none of which were defined in the policies. The court then applied the following definition of professional services, which it found was most frequently relied on by the courts:
A ‘professional’ act or service is one arising out of a vocation, calling, occupation, or employment involving specialized knowledge, labor, or skill, and the labor or skill involved is predominantly mental or intellectual, rather than physical or manual.
LEXIS p. 22 (quoting Marx v. Hartford Acc. & Indem. Co., 183 Neb. 12, 157 N.W. 2d 870, 871-72 (Neb. 1968)). The court then found that “Although processing Medicare and Medicaid claims may be difficult and time consuming, the activity does not characterize a ‘professional service.’” LEXIS p. 23 The court further stated that “O’Hara’s billing practices are incidental to its business as an operator of a nursing facility. O’Hara’s failure to file accurate reimbursement claims with the government is not a failure to provide services in its professional capacity.” LEXIS p. 26.
In essence, the court rejected the insured’s multiple creative attempts to recharacterize allegations of fraudulent billing practices as the negligent provision of professional services within a general liability policy, and ruled that the insurers had no duty to defend or indemnify O’Hara. (Contrast the Washington Supreme Court’s decision in Woo v. Fireman’s Fund Ins. Co., 161 Wn.2d 43, 57, 164 P.3d 454 (2007), where the Court found that, for purposes of the duty to defend, the insertion of boar tusk flippers into an unconscious patient’s mouth and the taking of humiliating pictures “conceivably fell within the policy’s broad definition of the practice of dentistry.”)
