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Oceanway Mental Health Agency Inc. v. Philadelphia Indemnity Insurance Company

United States District Court, D. Maine

January 23, 2019




         Plaintiffs 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 is granted.


         Plaintiffs 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).

         The Underlying Medicaid Controversy

         Medicaid 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 items”; and
“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 1.22-1).

         In June 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.

         On 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.

         By 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.

         Plaintiffs' Request for Coverage

         In or 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.

         By 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. ¶ 74.

         The Coverage Forms

         In 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.

         The “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 ...

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