California Court of Appeal rules False Claims Hold No Coverage Under Medical Professional Liability Policy
In Cardiovascular Consultants Heart Ctr. v. Norcal Mut. Ins., 2022 Cal. App. Unpub. LEXIS 1642 (March 17, 2022), the California Court of Appeal has affirmed the decision of the lower court’s grant of summary judgment to NORCAL Mutual Insurance Company (NORCAL). As per the Fresno County Superior Court’s findings, the court strictly ruled out a coverage given for a False Claims Act investigation under a medical professional liability insurance policy as the gravamen of such a claim is the presentation of false claims to the government, not any deficiencies in the underlying patient care. In doing so, the court also affirmed that the insured’s speculation about what the government could have alleged was not the appropriate standard for determining the duty to defend. The NORCAL was represented by Jennifer Mathis and Michael Cassata of Troutman Pepper.
In this case, there was a False Claims Act investigation into the alleged submission of fraudulent bills to Medicare for excessive, medically unnecessary, and/or inadequately documented cardiovascular procedures. In general, the insurance agreement provides coverage for “medical incidents” that may result in a claim for “damages.” In this case, the insured claimed that there have been unnecessary diagnostic radiations done to the patient diagnostic radiation exposure for the alleged unnecessary scans at issue in the government’s FCA investigation, creating the possibility of a future claim that would fall within the coverage of the policy, and NORCAL accordingly owed a duty to defend. However, the court did not agree with this argument and affirmed that the FCA’s duty was only to process the claim for payment and not to the fraudulent activity such as excessive, medically unnecessary, and/or inadequately documented cardiovascular procedures.
The court has taken into account a long-established California law rejecting coverage by speculation. It says that while the duty to defend is broad, it flows from the nature of the underlying claim, and cannot be triggered solely by unfounded speculation or conjecture by the insured about what claims the third-party plaintiff might pursue at some future date.
 See Superior Court of Fresno County, No. 18CECG01943, Kimberly A. Gaab, Judge
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