Two Class Actions About Impropriety in Performing Probation Services Are Not “Related”

The Superior Court of the State of Delaware, applying Delaware law, held that two class actions alleging impropriety regarding the collection of fees from probationers were not “related” for purposes of a “Prior Acts or Prior Notice” exclusion.

Providence Service Corporation (“Providence”) owns Pathways Community Corrections, Inc. (“PCC”).  PCC administered a probation system in Tennessee.  PCC’s work involves the collection of court costs and fees from probationers.  PCC was sued in a class action federal lawsuit in Tennessee for allegedly illegally assessing fees and surcharges against probationers and making improper threats of arrest and probation revocation if the probationers did not pay (the “Rodriguez Action”).  The parties reached a settlement agreement, but not before Providence incurred millions of dollars in defense costs.  After the primary insurer paid some of PCC’s defense costs, Illinois Union Insurance Company (“Illinois Union”), Providence’s excess insurer, refused to pay for the excess loss.  According to Illinois Union, coverage for the Rodriguez Action was barred under the Policy’s “Prior Acts or Prior Notice” exclusion.  Illinois Union argued that the Rodriguez Action was “related” for purposes of the policy exclusion to another class action, the “Bell Action”.  The Bell Action was filed five years prior to the Rodriguez Action. The Bell Action focused on two specific fees charged by PCC, a picture fee and a supervisory fee, and was later amended to include a 42 U.S.C. § 1983 allegation.

In the coverage case, Providence alleged Illinois Union breached its obligations under the “follow form” Healthcare Facilities Concurrent Excess Liability Policy that it sold to Providence.  Illinois Union argued that it had no coverage obligations because the Rodriguez Action was “related” to the Bell Action as both cases share “many common facts, circumstances, and decisions.”  The parties filed cross motions for summary judgment.

Per the Illinois Union policy, “[a]ll ‘professional liability claims’ by the same person that arise out of the same ‘professional incident’ or ‘related professional incidents’ will be considered to have been made at the time of the first of those ‘professional liability claims’ or ‘professional liability incidents’ have been reported to us.”  The policy defines “related professional incidents” as “‘professional incidents’ that are logically or casually connected to each other by any common fact, circumstance, situation, transaction, event, advice, or decision.”  According to the court, actions may be “related” when they involve “fundamentally identical” claims.  To determine whether actions are “related,” courts compare allegations in the complaints to determine their similarities and differences.  “As a general matter, any challenges to the provision of probationary services can be ‘related,’ but the analysis cannot stop there.  To accept [Illinois Union’s] broad definition of ‘related’ would render all claims involving PCC professional services ‘related.’  Coverage would be illusory.”  The court found that the professional incidents in the Bell Action and the Rodriguez Action were not “related” for purposes of the “Prior Acts or Prior Notice” exclusion because the similarities between the two were outweighed by their differences.  The court found the significant differences between the two class actions were as follows:  one action was for breach of contract and one action raised constitutional challenges; one settlement was narrow, while the other settlement was broad; and one action sought an injunction, while the other sought millions of dollars in damages.  Providence Serv. Corp. v. Illinois Union Ins. Co., C.A. NO. N18C-06-114 MMJ CCLD (Supr. Ct. Del. July 9, 2019).