In a 2-1 decision, a Fourth Circuit Court of Appeals panel has held that, under North Carolina law, insurance coverage for “damages resulting from a claim arising out a medical incident” must be extended to cover a qui tam suit filed under False Claims Act (FCA).
In 2016, a plaintiff filed qui tam action under the FCA against a North Carolina-based nursing home. The suit alleged that the nursing home failed to provide the services for which it had submitted claims for reimbursement to Medicaid. After the nursing home became aware of the FCA suit, it asked its insurer to cover the suit pursuant to its insurance policy. Coverage was denied, however, and the nursing home filed its own suit against its insurer wherein it asked a federal court to compel the extension of the requested coverage.
Under the nursing home’s insurance policy, the insurer was required to cover claims for “damages resulting from a claim arising out of a medical incident.” The policy defined the term “medical incident” as an “act, error or omission in … rendering or failure to render medical professional services [i.e., ‘the health care services or the treatment of a patient’].” The insurer agreed that the nursing home’s alleged failure to render the services for which it submitted Medicaid claims qualified as a “medical incident” under the policy, but it disputed the contention that any damages incurred by the government “arose out of” that medical incident.
In ruling against the nursing home, the federal district court acknowledged that North Carolina courts interpret the phrase “arising out of” broadly when the term is found in a provision extending insurance coverage. The district court nevertheless held that any damages resulting from the allegedly false Medicaid claims did not “arise out of” the failure to provide medical services (i.e. the “medical incident”) because the submission of the allegedly false Medicaid claims was “an ‘intervening cause’ that severs any connection between the medical incident” and the alleged damages. In other words, the government’s damages “arose out of” the nursing home’s submission of false Medicaid claims, not the nursing home’s failure to provide medical services. The district court held that, because the submission of false Medicaid is not a “medical incident” under the policy, coverage need not be extended to cover the FCA action.
In its reversal of the district court’s ruling, the majority of the Fourth Circuit panel reiterated that North Carolina courts interpret “arising out of” broadly and added that the law requires only a “causal connection” when term is used in a provision extending insurance coverage. The panel then noted that such a “causal connection exists” because, but for the nursing home’s alleged failure to provide medical services, there would be no claim for damages under the FCA. The majority of panel further explained that, “while the [submission of false Medicaid claims] was not itself a medical professional service,” there is a “causal relationship” between the submission of false Medicaid claims and the alleged failure to render medical professional services (i.e. the “medical incident”). “Thus, under North Carolina’s caselaw, the False Claims Act action falls within the coverage provision in the  insurance policy.”
A court applying Georgia law would likely come to the same conclusion because Georgia courts interpret the phrase “arising out of” to include “almost any causal connection or relationship” between a loss and a specified act. This interpretation is arguably even broader than the North Carolina courts’ interpretation.
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with government investigations and False Claims Act litigation. If you need assistance with such a matter, please contact us today.
1. The opinion is captioned Affinity Living Group, LLC v. StarStone Specialty Insurance Company, No. 18-2376, 2020 WL 2630845, United States Court of Appeals, Fourth Circuit, May 26, 2020.