Claims and Bad Faith Law Blog

DOMINATING THE DATA: BIG HEALTHCARE COMPANIES WANT TO BUY SECRETS.

The U.S. Department of Justice, joined by the States of Minnesota and New York, have together raised the prospect of a UnitedHealth Group subsidiary buying a health tech company for the purpose or with the effect of buying its secrets.  See Download USA State of Minnesota and New York State v. UnitedHealth Group Inc. Complaint Doc. 1 filed Feb. 24 2022 (D.C.D.C. No. 1.22.cv.00481).

In discovery confidentiality litigation, large companies are consistent in fighting to keep their secrets including whether they have been sued and how many times for bad faith, for example.

In this case, UnitedHealth is accused of buying secrets:

1. The Complaint against Optum, the UnitedHealth Group subsidiary set to acquire Chicago Healthcare, "a company that offers technology services to insurers," David McCabe, Justice Dept. Sues to Block Deal By UnitedHealth Worth $13 Billion, NEW YORK TIMES, Friday, February 25, 2022, at B6, expresses the governments' concern that when Chicago Healthcare gathers data during the course of helping to "process insurance claims," UnitedHealth as its owner will be able to see the procedures used in processing claims by competing insurance carriers who pay Chicago Healthcare for its claims data services.

This is significant and real, not unimportant or theoretical.  "The lawsuit claims that, according to a UnitedHealth estimate, more than half of American medical insurance claims 'pass through (or touch)' Chicago Healthcare's systems."  David McCabe, NEW YORK TIMES, supra (emphasis added).

2. The Complaint further alleges the governments' concern that UnitedHealth could steer Chicago Healthcare's systems away from UnitedHealth's competitors, or even bar the competing insurance companies from buying those systems, if UnitedHealth is allowed to buy Chicago Healthcare.  This has the clear potential to become a significant competitive advantage in the healthcare insurance industry, especially during a pandemic.
3. The Complaint also alleges that UnitedHealth could end up with a monopoly if this acquisition is allowed to proceed. The resulting monopoly would be over Chicago Healthcare's "type of service that was used to screen insurance claims for errors and speed up processing."  David McCabe, NEW YORK TIMES, supra,

The case has been assigned to Judge Carl Nichols.  A former clerk of Supreme Court Justice Clarence Thomas, he was appointed to the federal bench in 2019.  Since then he has also been assigned to oversee the contempt citation case against Steve Bannon, which has been set for trial in July, 2022.

In the last sentence of the judge's standing order in civil cases, he says:  'The parties shall not file a discovery motion without leave of Court."  Download J. Carl Nichols D.C.D.C. Standing Order.  Putting aside the question of whether this kind of blanket ruling is even valid, it is hard to imagine an antitrust case like this one without lots of discovery.  There are likely to be lots of requests for "leave of Court" to file discovery motions concerning the discovery disputes that will pile up in the future.

Here's hoping they are resolved faster than the contempt citation against Steve Bannon.

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

BAD FAITH TO RELY ON COMPUTER PRELIMINARY RESTORATION EVALUATION.

In Nikfard v. State Farm Fire & Cas. Co., No. C19-6001RSL 2021 WL 3620277 (W.D. Wash. August 16, 2021), a fire damaged a rental house owned by the plaintiff policyholder.  After he made a claim for the damage, his "first-party property insurance" carrier accepted coverage and recommended that the policyholder contact a certain insurance restoration specialist, which he did.

          The insurance restoration specialist was a general contractor.  The g.c. prepared a preliminary estimate of what it would take to restore the house, using a computerized program called Xactimate.  The program is familiar to insurance companies and to coverage practitioners. 

          In this case, the evaluation was only intended to be preliminary.  It was never intended to be the basis for the g.c. (or, apparently, anyone else) to perform the restoration work.  The preliminary evaluation was $149,900.86.  Nikfard, 2021 WL 3620277, at *1.  The carrier seized upon this figure and this computer report and never let go.  Even though the evidence showed that the repairs would realistically take at least $100,000.00 more than that before restoration was finished on this particular house.

          In fact, the restoration project ultimately cost $334,470.00.  Before the project ended, the carrier paid $174,071.94.

          The policyholder sued, alleging several claims.  First and foremost, he sued for breach of contract and was awarded the difference between what the carrier paid and what the restoration ultimately and actually cost, which was a difference of $160,398.06.  Nikfard, 2021 WL 3620277, at *4.

          He also alleged a pair of claims which were unsuccessful, for one reason or another, for the "tort of bad faith in insurance claim handling"  and for alleged violation of IFCA the Washington State Insurance Fair Conduct Act. Nikfard, 2021 WL 3620277, at *5.

          The policyholder's final claim, brought under the Consumer Protection Act in Washington, was successful in providing the basis for an award of his attorney's fees.  He proved his CPA claim in part by proof of a violation of an Unfair Claim Settlement Practices Regulation which has the force of law in Washington, and generally if not identically follows the Uniform Unfair Claim Settlement Practices Acts promulgated by the National Association of Insurance Commissioners and in force across the country.  See 2 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith §§ 9:14 (Express statutory causes of action) and 9:15 (Implied statutory causes of action) (3d Edition Thomson Reuters West, with 2021 Supplements).  (The effects of the UCSP Acts in third-party or liability insurance cases are discussed in Volume 1 of id., § 3:28.)

          The policyholder's attorney's fees in this case were awarded in the amount of $261,964.00 and his costs were awarded in the amount of $7,339.26.

          The homeowner's carrier's continued reliance on a preliminary computerized restoration evaluation of just under $150,000.00 in this case, ultimately cost it $429,702.32.

          The moral of the story?  Well, one moral to draw is that basing a final position on a preliminary investigation is never a wise thing to do, even if the preliminary evaluation was done on a computer.  What's important is that it was preliminary, that it was not the final word, regardless of the involvement of computer software.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.

INDIANA SUPREME COURT HOLDS COMPUTER HACKING RANSOM COVERED BY INSURANCE.

Recently, the Indiana Supreme Court was called upon to interpret the phrase, "resulting directly from the use of a computer," in an insurance policy providing Commercial Crime Coverage with a Computer Fraud provision.  The policyholder, G&G Oil, paid ransom demanded by a computer hacker in that case.  G&G's claim was denied by its insurance carrier, Continental Western.

          The Supreme Court held that the ransom payment was a covered loss:

    Analyzing G&G Oil's actions in this case, its transfer of Bitcoin was nearly the immediate result—without significant deviation—from the use of a computer. Though certainly G&G Oil's transfer was voluntary, it was made only after consulting with the FBI and other computer tech services. The designated evidence indicates G&G Oil's operations were shut down, and without access to its computer files, it is reasonable to assume G&G Oil would have incurred even greater loss to its business and profitability. These payments were “voluntary” only in the sense G&G Oil consciously made the payment. To us, however, the payment more closely resembled one made under duress. Under those circumstances, the “voluntary” payment was not so remote that it broke the causal chain. Therefore, we find that G&G Oil's losses “resulted directly from the use of a computer.”

G&G Oil Co. of Ind. Inc. v. Continental W. Ins. Co., 165 N.E.3d 82 (Ind. 2021) (quotation follows Headnote 16 in the Westlaw version; pinpoint page numbers not available at this time.)

          The Indiana Supreme Court decided this issue after the trial court entered summary judgment for the insurance company and the intermediate appellate court affirmed.  The  Supreme Court reversed and remanded with instructions that neither the policyholder nor the insurance company was entitled to summary judgment on the record before it.

Please read the disclaimer.  ©2021 Dennis J. Wall.  All rights reserved.