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Paco Assurance Co., Inc. v. Hanson

United States District Court, W.D. Washington, Seattle

February 27, 2018

PETER J. HANSON, Defendant.


          Robert S. Lasnik United States District Judge.

         This matter comes before the Court on “Plaintiff's Motion for Summary Judgment.” Dkt. # 18. Plaintiff PACO provided Chiropractic Professional Liability coverage to defendant Hanson in 2011 and 2012. Hanson was accused of submitting misleading, false, and/or fraudulent bills and supporting documentation in order to obtain Personal Injury Protection (“PIP”) payments from State Farm, his patients' auto insurance company. He tendered the defense of the claim to PACO, which agreed to defend under a full reservation of rights. PACO filed this lawsuit to obtain a declaration regarding its defense obligations.

         The Court, having reviewed the memoranda, declarations, and exhibits submitted by the parties, [1] finds as follows:

         PACO agreed to indemnify Hanson for all sums he becomes obligated to pay as damages as a result of claims made during the policy period “because of malpractice committed by” Hanson. Dkt. # 19 at 32-33. “Malpractice” is not defined in the policy, but “malpractice incident” means “any act, error, or omission by the Insured in the providing of or failure to provide professional services.” Dkt. # 19 at 34. “Professional services” are defined as “those services which are within the scope of practice of a chiropractor in the state in which the chiropractor is licensed.” Dkt. # 19 at 35.

In Washington, insurance policies are construed as contracts. An insurance policy is construed as a whole, with the policy being given a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance. If the language is clear and unambiguous, the court must enforce it as written and may not modify it or create ambiguity where none exists. If the clause is ambiguous, however, extrinsic evidence of intent of the parties may be relied upon to resolve the ambiguity. Any ambiguities remaining after examining applicable extrinsic evidence are resolved against the drafter-insurer and in favor of the insured. A clause is ambiguous when, on its face, it is fairly susceptible to two different interpretations, both of which are reasonable.

Panorama Village Condominium v. Allstate Ins. Co., 144 Wn.2d 130, 137 (2001) (quoting Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 665-66 (2000)) (internal quotation marks omitted).

         In this case, Hanson, as the insured, has the burden of showing that the claims asserted in the underlying litigation trigger the insuring provisions of the agreement. Moeller v. Farmers Ins. Co. of Wash., 173 Wn.2d 264, 271-72 (2011). The insurer's duty to defend is broader than the duty to indemnify, however, because it is triggered by the mere potential for liability: if the complaint against the insured alleges facts which could, if proven, impose liability that falls within the coverage provision, the duty to defend arises. Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 793, 802-03 (2014). Any ambiguities in the complaint must be liberally construed in favor of triggering the insurer's duty to defend. Woo v. Fireman's Fund Ins. Co., 161 Wn.2d 43, 53 (2007). “Only if the alleged claim is clearly not covered by the policy is the insurer relieved of its duty to defend.” Truck Ins. Exchange v. Vanport Homes, Inc., 147 Wn.2d 751, 760 (2002).

         The parties fundamentally disagree regarding the nature of the claims asserted by State Farm against Hanson in the underlying lawsuit. PACO argues that State Farm seeks damages arising from fraudulent billing practices that are not professional services and therefore do not involve a covered malpractice incident. Hanson, on the other hand, argues that State Farm is challenging his chiropractic treatment decisions when it alleges that the medical care provided to its insureds was not reasonable or necessary.

         Hanson has the better of this argument. State Farm is not only alleging that Hanson billed for services he did not perform (which is the type of fraudulent billing practice generally at issue in the cases on which PACO relies), but also alleges that Hanson provided treatment that was not medically necessary and/or was not reasonable given the diagnoses and medical records. In particular, Hanson is accused of utilizing a predetermined treatment plan whenever a patient was eligible for no-fault benefits under a State Farm policy. State Farm alleges that this treatment plan was not designed “to appropriately examine, diagnose, and provide medically necessary services to benefit each individual plaintiff” but rather to enrich Hanson by exploiting available insurance benefits. See, e.g., Dkt. # 19 at 5. The complaint contains allegations regarding an appropriate treatment plan for patients with non-specific neck and back pain and compares that to the treatment provided by Hanson. State Farm also alleges that Hanson over-treated patients, including the overuse of x-rays. These allegations, liberally construed, place at issue the appropriateness of the professional services Hanson provided to State Farm's insureds. In order to prove its allegations, State Farm will have to show that the treatment plan was not only consistent (which would likely not be enough to establish either fraud or unjust enrichment), but also fell below the standard of care in some respect. Hanson, for his part, will defend the case by defending his treatment choices and protocols. The dispute involves alleged errors or omissions in the services provided by a chiropractor and therefore triggers the coverage provisions of the policy.[2]

         If PACO hopes to avoid coverage, it has the burden of showing that “the loss is excluded by specific policy language.” McDonald v. State Farm Fire and Cas. Co., 119 Wn.2d 724, 731 (1992). “Exclusions from coverage are strictly construed against the insurer because they are contrary to the protective purpose of insurance.” Berkshire Hathaway Homestate Ins. Co. v. SQI, Inc., 132 F.Supp.3d 1275, 1286 (W.D. Wash. 2015) (citing Stuart v. Am. States Ins. Co., 134 Wn.2d 814, 818-19 (1998)). PACO identifies five exclusions which it believes apply in this case.

         (1) Intentional Acts

         Exclusion (a) makes the policy inapplicable “to any claim based upon or arising out of any dishonest, fraudulent, criminal, malicious or knowingly wrongful acts, errors, or omissions intentionally committed by or at the direction of the Insured.” Dkt. # 19 at 35. In addition to a common law fraud claim, State Farm asserts that Hanson was unjustly enriched, a claim which can be proven without regard to intent. PACO has not shown that this exclusion applies to all of the related claims, and there is no right of allocation under Washington law. See Bordeaux, 145 Wn.App. at 698.

         (2) Violation of Law or Ordinance

         Exclusion (c) makes the policy inapplicable “to any act committed in violation of any law or ordinance.” Dkt. # 19 at 35. State Farm's unjust enrichment claim can be proven without evidence of ...

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