Summary judgment for “knowing misrepresentation” regarding late notice claim

A Delaware state court judge found Homeland Insurance Co. of New York (“Homeland”) liable for bad faith for its actions in denying a claim by its policyholder CorVel Corp. (“CorVel”) and ordered Homeland to pay damages and penalties in the amount of $13.5M. In the underlying class action arbitration brought in Louisiana, CorVel had been accused of improperly discounting medical services payments without providing proper notice to its providers.  Homeland sued CorVel in Delaware asserting that the Errors and Omissions “claims-made” policy at issue didn’t provide coverage, in part, because the claim was allegedly made before the policy period.  When faced with a potential judgment of $140M, CorVel settled the underlying claim and a related class action for $9M plus an assignment to the class members of its insurance claim.  CorVel sued Homeland for bad faith, and Homeland’s case against CorVel and CorVel’s bad faith action were consolidated.  The consolidated case was stayed pending the resolution of the insurance coverage action between Homeland and the class members, which resulted in a finding of coverage requiring Homeland to pay the class members $12.4M.  Thereafter, the Delaware stay was lifted.

After a lengthy choice of law analysis, the court elected to apply Louisiana law with respect to the bad faith dispute because the underlying action was brought in Louisiana and involved hospitals located in Louisiana for violation of a Louisiana statute.  Louisiana’s bad faith statute is violated if an insurer knowingly misrepresents facts or policy provisions to its policyholder.

The judge found that Homeland had violated the bad faith statute because the facts showed that CorVel had indeed notified Homeland of the arbitration during the policy period, yet Homeland later disputed coverage for CorVel’s alleged failure to comply with the policy reporting requirements.  The essential facts regarding notice were not disputed.  Homeland argued that it denied the claim because a related action pre-dated the Louisiana class action, and thus, the claim was “first made” prior to the effective date of the policy. However, the court distinguished that assertion from Homeland’s broader claim that CorVel had failed to comply “with the reporting requirements of the Homeland policy.”  The judge rejected Homeland’s distinction that it was making a “legal” and not a “factual” argument in so asserting, and found that Homeland’s actions in “knowingly misrepresenting” the facts violated the Louisiana bad faith statute.  The judge further found that Homeland had committed bad faith by filing suit against CorVel and seeking a declaration of no coverage, because Homeland knew at the time that the claim was made against CorVel during the policy period. The judge found that CorVel had suffered $9M in actual damages because it had to settle and pay the underlying claim itself.  The judge also imposed an additional statutory penalty of $4.5M, for a total of $13.5M.  Homeland Ins. Co. of New York v. CorVel Corp., No. N11C-01-089 and CorVel Corp. v. Homeland Ins. Co. of New York, Co. N15C-05-069 (Del. Super. Ct. Jan. 5, 2018).