As previously noted in a recent blog post, defendants should immediately evaluate their insurance coverage upon receipt of a class action complaint.  But as one defendant recently discovered the hard way, that evaluation must be undertaken with great care.  In UnitedHealth Group Inc. v. Columbia Casualty Company et al., an insurer was able to avoid responsibility for its share of United’s settlement with certain plaintiffs, not because United’s notice was untimely, but because United did not send the notice to the address designated in the policy.

United, a health insurance company, had been sued by multiple parties, including the American Medical Association and individual health insurance subscribers, for understating the usual, customary and reasonable charges for out-of-network providers and for insufficient reimbursement for such treatment to its insureds.  United sought coverage from a number of insurance companies for the defense and settlement costs it incurred in connection with those lawsuits, including a $350 million settlement with certain plaintiffs.  

One insurer, National Union Fire Insurance Company of Pittsburgh, PA (National Union), denied liability for its share of the $350 million settlement — estimated to be approximately $20 million — and moved for summary judgment on the ground that United failed to report the claim in the manner prescribed in its “claims made and reported” policy.  The policy contained a “Claims Handling Endorsement,” which required United to provide written notice of a claim to National Union’s claims department in New York.  United acknowledged that it did not send written notice in literal compliance with the Endorsement, but argued that it substantially complied by providing loss runs reflecting the claim to a National Union underwriter.

In response, the US District Court for the District of Minnesota said it “can conceive of no reason why an insurer such as National Union should not be able to protect itself by requiring that notice be given to a particular person or department.”  The court rejected United’s argument that National Union had a duty to inform United that its notice was insufficient, noting that “the insurer has no reason to suspect that the insured has made a claim, as the person or department whose job it is to receive, recognize, and process claims has not received any notice” of the claim.  “Imposing an obligation to investigate on the insurer in this context would mean that every agent of the insurer would have to be charged with the responsibility of receiving, recognizing, and processing claims, which is precisely what National Union sought to avoid by specifying to whom notice must be sent.”  The court noted that even if National Union had that duty, it fulfilled it by “clearly informing United of that fact in its policy.”

Despite giving force to the literal terms of the Claims Handling Endorsement in this case, the court agreed with United that substantial compliance would be acceptable if there was proof that notice somehow was received by National Union’s claims department during the policy period.  Because United could not present sufficient evidence to that effect, the court granted National Union’s motion for summary judgment.

Again, the need for a careful evaluation of all applicable insurance policies upon receipt of a class action complaint cannot be overstated.  As demonstrated in this case, the failure to comply with a simple policy requirement can prove to be quite costly.