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“Knowing Misrepresentation” Costs Insurer $13.5M in Bad Faith Case

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In litigation that lasted the better part of eight years, a Delaware Superior Court judge has ruled that Homeland Insurance Co. of New York acted in bad faith when it denied coverage to its Errors and Omissions policyholder, CorVel Corp. CorVel had been accused of improperly discounting medical services payments without providing adequate notice to healthcare providers. Homeland was ordered to pay CorVel $13.5 million in damages and penalties.

The coverage dispute arose from a class action filed in Louisiana against CorVel. A group of Louisiana healthcare providers sued, alleging that CorVel had violated a state statute known as the Preferred Provider Organizations Act. Homeland refused to cover CorVel’s defense in the dispute. Accordingly, CorVel settled that case through arbitration for $9M and assigned its rights against Homeland under the policy to the class plaintiffs. CorVel then filed its own suit for bad faith against Homeland.

Meanwhile, the Louisiana plaintiffs filed suit against Homeland in Louisiana state court, and Homeland filed suit in Delaware, seeking a judgment that would validate its denial of coverage. According to a report in Law360, “Homeland asserted that CorVel had failed to timely report the underlying suit to the insurer.”

The Louisiana trial court found in favor of the plaintiffs, ruling that CorVel’s policy with Homeland covered the claims of the class. Delaware consolidated its two cases and eventually placed them on hold as the Louisiana case played out on appeal. The Louisiana appeals court affirmed the judgment against Homeland, which paid the class members $12.4 million, consisting of the original judgment plus interest.

With the Delaware consolidated cases free to proceed, Delaware Superior Court Judge Andrea L. Rocanelli found that Homeland had acted in bad faith when it denied coverage to CorVel. Evidence showed that CorVel had given Homeland notice of the arbitration action during the policy period. Therefore, Homeland’s claim that CorVel had not reported the action in compliance with policy requirements was “a knowing misrepresentation.” As a direct result of that misrepresentation, “CorVel suffered actual damages due ... in the form of the $9 million settlement payment.”

The judge also ruled that "Homeland committed bad faith in seeking a declaration that there was no coverage." Clearly, if the company knew it had no reasonable basis for denying coverage, and it nevertheless filed suit, seeking to make the court a party to what is essential fraud, Homeland was guilty of egregious abuse of the legal system.

This is just the type of chicanery that bad faith insurance laws attempt to eliminate. The judge ordered Homeland to “pay CorVel $9 million in damages, plus an additional statutory penalty of half that sum, or $4.5 million.”

When an insurance company seeks to evade its responsibility under the terms of the policy, policyholders are exposed to potentially crushing liability. A good bad-faith lawyer is experienced in dealing with such evasion. If your insurance company has wrongly denied coverage to your business, contact our firm for immediate assistance.

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Steve Hochfelsen is an Orange County, California business litigation lawyer and author.
To connect with Steve: [hidden email] or 714-907-0697.



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David Kani & Steve Hochfelsen are represented by Elite Lawyer Management, managing agents for America's best attorneys.
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