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From Antitrust Law Daily, January 21, 2014

Insurer obligated to indemnify hospital for antitrust class action settlement

By Linda O’Brien, J.D., LL.M.

An insurance company was obligated under the express terms of the insurance policy to provide indemnification coverage to a hospital system for the settlement of an antitrust action by nurses against the hospital system and other area hospitals, the U.S. Court of Appeals in Cincinnati has ruled (William Beaumont Hospital v. Federal Insurance Company, January 16, 2014, Per Curiam.). Thus, the granting of the hospital’s motion for summary judgment was affirmed.

Federal Insurance Company issued an insurance policy to William Beaumont Hospital, a health care system in the Detroit metropolitan area. During the policy term, two registered nurses, not employed by Beaumont, instituted a class action against of eight Detroit-area hospital systems, including Beaumont. The nurses claimed the hospitals conspired to depress the wages of nurses and exchanged information regarding nurse compensation, which had the effect of depressing their wages, in violation of Section 1 of the Sherman Act. The nurses’ conspiracy claim was dismissed. However, their “rule of reason” claim for unlawfully sharing compensation information in a manner that harmed competition and depressed wages was allowed to proceed. Beaumont timely requested coverage under the policy for the action. Federal, recognizing the action as an antitrust claim as defined by the policy, consented to pay 80 percent of the covered antitrust loss.

During settlement discussions in the class action, Beaumont filed suit against Federal seeking a declaration that Federal was obligated to indemnify the hospital. The district court granted Beaumont’s motion for summary judgment on the pleadings.

The appellate court determined that, under the terms of the policy, only disgorgement was specifically excluded from coverage. Disgorgement and restitution were distinct remedies—disgorgement was the act of giving up ill-gotten gains, and damages were amounts awarded to compensate for injury or loss. According to the nurses’ complaint, the hospital never acquired the nurses’ wages unjustly; rather, Beaumont retained the due, but unpaid wages, unlawfully. In addition to the specific terms of the policy, the calculation of the settlement also indicated that the nurses were seeking only compensatory damages. Since Beaumont could not give up ill-gotten gains it never obtained, the damages the hospital paid in settlement did not constitute disgorgement.

Additionally, Michigan public policy did not bar coverage of the settlement. Under state law, the doctrine that an insured may not profit from its own wrongdoing relates to intentional tortious or criminal acts. Since the nurses’ conspiracy claims were dismissed, the alleged wrongful conduct was not per se illegal. Moreover, Federal presented no authority holding that disgorgement was not insurable. Thus, the district did not err in granting the hospital’s motion for summary judgment.

The case is No. 13-1468.

Attorneys: Keefe A. Brooks (Brooks Wilkins Sharkey & Turco) and Stephanie Douglas (Bush, Seyferth & Paige) for William Beaumont Hospital. Michael F. Perlis (Locke Lord LLP) for Federal Insurance Company

Companies: William Beaumont Hospital; Federal Insurance Company

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