United States District Court, D. Maine
DECISION AND ORDER
E. WALKER, U.S. DISTRICT JUDGE
Oceanway Mental Health Agency, Inc., and Oceanway Manor,
Inc., bring this diversity action to obtain a declaratory
judgment that Defendant Philadelphia Indemnity Insurance
Company owes a duty to defend and indemnify Plaintiffs
against administrative proceedings initiated against
Plaintiffs by the Maine Department of Health and Human
Services. Compl. (ECF No. 1). The parties have asked the
Court to resolve their dispute in the context of competing
motions for summary judgment based on stipulated facts.
Pl.'s Mot. for Summ. J. (ECF No. 27); Def.'s Mot. for
Summ. J. (ECF No. 25). For reasons explained herein,
Plaintiffs' motion is denied and Defendant's motion
Oceanway Mental Health Agency (“OWMHA”) and
Oceanway Manor (“OWM”) are mental health services
agencies that contracted with the Department of Health and
Human Services to provide mental health services to
individuals qualified to receive services through programs
administered by the Department. Compl. ¶¶ 13, 16,
17, 20, 21. Pursuant to the agreement, Plaintiffs agreed to
bill for services and the Department agreed to pay for
services under the auspices of the Medicaid or Mainecare
program. Id. ¶¶ 14, 18; Joint Stipulation
of Facts ¶¶ 1-2 (ECF No. 26).
Underlying Medicaid Controversy
billing procedures are demanding and subject to regulatory
oversight. Along these lines, the parties stipulate to the
existence of a regulatory scheme that required Plaintiffs to
comply with several billing and record keeping requirements
and authorized the Department to monitor compliance and to
impose sanctions, recover overpayments, and apply penalties
for noncompliance with Medicaid requirements. Joint
Stipulation ¶¶ 4-6, 12-14, 19. Additionally, if
there is a credible allegation of fraud, the Department was
authorized to suspend payments pending an investigation.
Id. ¶¶ 7-8. Examples of fraud include:
“Billing for services, supplies, or equipment that were
not rendered to, or used for, MaineCare members”;
“Claiming of costs for non-covered or non-chargeable
services, supplies or equipment disguised as covered
“Material misrepresentations of dates and descriptions
of services rendered, or of the identity of the member or the
individual who rendered the services.”
Id. ¶ 9 (citing MaineCare Benefits Manual
2016, the Department's Program Integrity Unit conducted a
site visit to investigate Plaintiff OWMHA's compliance
based on its receipt of complaints about OWMHA's billing
submissions and records. Id. ¶¶ 45-47. On
October 19, 2016, the Program Integrity Unit sent a Notice of
Violation to OWMHA. Id. ¶ 48 & Ex. E. The
review involved over 5, 000 claims paid to OWMHA between
April 1, 2015, and April 30, 2016. Id. ¶ 50. As
the result of its investigation, the Program Integrity Unit
found certain violations and took remedial action against
OWMHA, including imposition of a penalty for inadequate
records for some claims, as well as a requirement that OWMHA
return the entirety of certain “overpayments or
payments made in error, ” to the tune of $437, 796.37.
Id. ¶¶ 51-53.
November 15, 2016, the Program Integrity Unit sent a Notice
of Violation to OWM. Id. ¶ 54; Joint
Stipulation Ex. F. The Unit found certain violations,
including bills submitted for services provided by employees
lacking qualifications and bills submitted for services when
a member was out of the facility and not using the
facility's support services. Id. ¶¶
55-56. As a result of these violations, the Program Integrity
Unit imposed similar recoupment penalties as a sanction for
billing violations, in the amount of $25, 614.57.
Id. ¶¶ 57-58.
letters dated October 26, 2016, the Program Integrity Unit
advised OWMHA and OWM that it would temporarily suspend all
future MaineCare payments based on a determination that there
existed a credible allegation of fraud. Id.
¶¶ 59, 62 & Exs. G, H. Then, in December 2016,
the Department's Office of MaineCare Services notified
OWMHA and OWM that it was terminating their MaineCare
provider agreements. Id. ¶¶ 65, 67 &
Exs. I, J.
Request for Coverage
around October 2016, Plaintiffs provided notice of loss to
Defendant. Id. ¶ 69. Defendant denied the
claim, stating that there was no coverage under the Policies
because, inter alia, there was no claim
“involving bodily injury, property damage or personal
and advertising injury caused by an occurrence” per the
insuring agreements set forth in the CGL coverage form, and
that “intentional acts by an insured are excluded as
are any claims related to breach of contract.”
Defendant also stated that with respect to the professional
liability coverage form there was “no professional
incident” and that certain exclusions applied,
including “exclusions related to damages that are
expected and intended; damages that arise out of a failure to
collect or pay money, arising out of an insured gaining any
personal profit or advantage to which they are not legally
entitled and damages arising out of any acts, errors or
omissions of a managerial or administrative nature.”
Id. ¶ 70 & Exs. K, L.
letter dated March 29, 2017, counsel for Plaintiffs requested
“reimbursement and coverage for the costs of defending
OWMHA … pursuant to the Human Services Organization
Professional Liability Coverage in the above-referenced
policies.” Id. ¶ 72, Ex. M. In October
2017, Plaintiffs filed a two-count complaint against
Defendant, seeking declaratory relief and monetary damages
with respect to “claims asserted by [the Department] in
the administrative proceedings initiated against OWMHA and
OWM by Notices dated October 26, 2016.” Id.
April 2016, Defendant issued “commercial lines”
policies to Plaintiffs with a policy period of April 16, 2016
to April 16, 2017 (collectively the “Policy”).
Id. ¶ 22. The Policy includes a Human Services
Organization Professional Liability Coverage Form.
Id. ¶ 23 & Ex. C.
“insuring agreement” under the professional
liability coverage form provides that Defendant: (a) will pay
only “those sums that the insured becomes legally
obligated to pay as ‘damages' arising out of a
‘professional incident' in the course of performing
professional services for, or on behalf of, [the] human
services organization to which this insurance ...