Homeland Insurance Company of New York v. Corvel Corporation

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
HOMELAND INSURANCE )
COMPANY OF NEW YORK, )
)
Plaintiff, )
)
v. ) C.A. No. N11C-01-089 ALR
)
CORVEL CORPORATION, )
)
Defendant. )
)
CORVEL CORPORATION, )
)
Plaintiff, )
)
v. ) CA. No. N15C-05-069 ALR
)
HOMELAND INSURANCE )
COMPANY OF NEW YORK, )
)
Defendant. )
Submitted: November 17, 2017
Decided: January 5, 2018
MEMORANDUM OPINION
Upon CorVel Corporation’s Motion for Summary Judgment
GRANTED IN PART
Upon Homeland Insurance Company of New York’s Motion for Summary
Judgment
DENIED IN PART
ROCANELLI, J.
Before the Court are cross-motions for summary judgment filed by CorVel
Corporation (“CorVel”) and Homeland Insurance Company of New York
(“Homeland”). CorVel contends that Homeland committed bad faith under a
Louisiana statute (“Louisiana Bad Faith Statute”) by knowingly “misrepresenting
pertinent facts or insurance policy provisions relating to any coverages at issue.” 1
Homeland challenges both the applicability of the Louisiana Bad Faith Statute and
the merits of CorVel’s bad faith claim. This is the Court’s decision on CorVel and
Homeland’s cross-motions for summary judgment.
Factual and Procedural Background
I. The Parties
CorVel is a Delaware corporation that owns and operates a Preferred Provider
Organization (“PPO”) network throughout the United States.2 CorVel entered into
a number of PPO agreements with providers in Louisiana, which has a statute
providing certain notice requirements that a PPO must meet when it applies a
discount (“Louisiana PPO Statute”).3 If a PPO fails to comply with the Louisiana
PPO Statute’s notice requirements, it can be subjected to financial consequences.4
1
La. R.S. § 22:1973(B)(1).
2
See CorVel Corporation v. Homeland Insurance Company of New York, 112 A.3d
863, 864 (Del. 2015) (providing a general description of the facts in the underlying
coverage litigation).
3
La. R.S. § 40:2203.1.
4
La. R.S. § 40:2203.1(G).
1
Homeland is an insurance company incorporated in New York. Homeland
issued a Managed Care Organizations Errors and Omissions Liability Policy to
CorVel for a policy period of October 31, 2005 to October 31, 2006 (“Homeland
Policy”). The Homeland Policy was subsequently renewed for two continuous
policy periods of October 31, 2006 to October 31, 2007 and October 31, 2007 to
December 1, 2007. The Homeland Policy was a “claims-made” policy, which
provided:
The Underwriter will pay on behalf of the Insured any Loss which the
Insured is legally obligated to pay as a result of any Claim that is first
made against the Insured during the Policy Period and reported to the
Underwriter either during the Policy Period or in any event within
ninety (90) days after the end of the Policy Period…5
II. The Louisiana Arbitration Action
In December 2006, a Louisiana hospital initiated a class action arbitration
(“Louisiana Arbitration Action”) against CorVel, alleging that CorVel violated the
notice requirements of the Louisiana PPO Statute. On March 28, 2007, CorVel’s
director of legal services, Sharon O’Connor, called Homeland’s claims
administrator, Virginia Troy, to notify Homeland of the claim asserted against
CorVel in the Louisiana Arbitration Action. On the same day, O’Connor sent Troy
documents relating to the Louisiana Arbitration Action, including: (1) a December
4, 2006 letter from counsel for the class notifying CorVel of the class’s intention to
5
Joint Appendix (“J.A.”) at 21.
2
initiate the Louisiana Arbitration Action; (2) an engagement letter confirming
CorVel’s engagement of counsel in connection with pending litigation and “related
arbitration proceeding;” and (3) a letter from CorVel’s counsel to the Case Manager
for the American Arbitration Association regarding the pending Louisiana
Arbitration Action.6
In December 2010, CorVel sought permission from Homeland to settle the
Louisiana Arbitration Action for the policy limits of the Homeland Policy.7
However, Homeland did not consent to a settlement. Furthermore, Homeland never
provided a coverage determination to CorVel.
III. Homeland’s Delaware Declaratory Judgment Action
Homeland filed a declaratory judgment action in this Court on January 10,
2011 (“Delaware Declaratory Judgment Action”) seeking a declaration that there
was no coverage for the Louisiana Arbitration Action under the Homeland Policy.
Homeland contended that there was no coverage for four reasons: (1) coverage was
barred by a prior proceedings exclusion in the Homeland Policy; (2) the claim was
first made before the policy period; (3) CorVel failed to report the Louisiana
Arbitration Action in compliance with the reporting requirements of the Homeland
6
See J.A. at 47-53.
7
See J.A. at 106 (stating that CorVel asked Homeland to commit to a settlement of
up to the limits of the Homeland Policy at a December 22, 2010 teleconference).
3
Policy; and (4) the Louisiana Arbitration Action sought recovery of penalty damages
that would not qualify as an insured loss under the Homeland Policy.8
IV. CorVel’s Settlement
On March 24, 2011, CorVel and Homeland9 were named as defendants in a
class action already filed in Louisiana state court alleging the same violations of the
Louisiana PPO Statute (“Louisiana Class Action”).10 Shortly thereafter, CorVel
notified Homeland that it agreed to settle the Louisiana Arbitration Action and the
Louisiana Class Action.11 On June 23, 2011, CorVel entered into a settlement
agreement with the Louisiana Class for $9 million and an assignment of CorVel’s
insurance claim against Homeland.12 Thereafter, the Louisiana Class continued to
litigate against Homeland13 in Louisiana (“Louisiana Coverage Action”), and the
Delaware Declaratory Judgment Action and the Louisiana Coverage Action
continued on parallel tracks.
8
See J.A. at 474-86.
9
Homeland was named as a defendant pursuant to a Louisiana statute allowing an
injured party to bring suit directly against an insurer. La. R.S. § 22:1269. Another
CorVel insurer, Executive Risk Specialty Insurance Company (“Executive Risk”),
was also named as a defendant.
10
The case was captioned Williams v. SIF Consultants of Louisiana, Inc., et al., No.
09-C-05244-C (Dist. Ct., St. Landry Parish, La.).
11
See J.A. at 744.
12
See J.A. at 111-83.
13
The Louisiana Class also continued to litigate against Executive Risk. However,
Executive Risk eventually settled with the Louisiana Class for $1,750,000. See J.A.
631-33.
4
V. Conflict Between Delaware and Louisiana on Penalty Issue
On June 13, 2013, the Delaware Superior Court granted partial summary
judgment to Homeland in the Delaware Declaratory Judgment Action, concluding
that the damages available under the Louisiana PPO Statute were an uninsurable
penalty rather than a covered loss.14 However, seven weeks later, the Louisiana trial
court reached the opposite conclusion in the Louisiana Coverage Action. The
Louisiana trial court granted partial summary judgment to the Louisiana Class,
holding that the damages available under the Louisiana PPO Statute were covered
damages, not uninsurable penalties.15 As a result, on April 2, 2015, the Delaware
Supreme Court reversed the Delaware Superior Court’s order and deferred to
Louisiana’s interpretation of its own statute as a matter of comity.16
VI. CorVel’s Bad Faith Action
On May 8, 2015, CorVel commenced its own action in this Court, alleging
breach of contract for Homeland’s refusal to provide indemnification and defense
pursuant to the terms of the Homeland Policy. CorVel subsequently amended its
complaint to add a claim for violation of Homeland’s duty of good faith and fair
14
Homeland Insurance Co. v. CorVel Corporation, 2013 WL 3937022 (Del. Super.
June 13, 2013). The judge who issued the June 13, 2013 opinion retired shortly
thereafter and the case was reassigned to this judicial officer.
15
Will. v. SIF Consultants of Louisiana, Inc., 2013 WL 7330225 (La. Dist. Ct.
July 29, 2013).
16
CorVel Corporation v. Homeland, 112 A.3d at 868.
5
dealing. The Court consolidated the Delaware Declaratory Judgment Action and
CorVel’s action on July 7, 2015 (“Delaware Consolidated Action”).
VII. Louisiana Finds Coverage
On January 21, 2016, the Louisiana trial court granted summary judgment to
the Louisiana Class in the Louisiana Coverage Action, finding that there was
coverage under the Homeland Policy for the claims made under the Louisiana PPO
Statute.17 The Louisiana trial court first found that the Louisiana Arbitration Action
was made and reported during the policy period of the Homeland policy. 18 The court
then considered Homeland’s argument that there was no coverage because the
claims in the Louisiana Arbitration Action were related to prior claims made before
the policy period of the Homeland Policy. 19 The Louisiana trial court rejected
Homeland’s argument because, even though the claims were factually similar, the
previously filed claims could not possibly have been covered claims under
17
Will. v. SIF Consultants of Louisiana, No. 09-C-5244-C, at 6 (27th Jud. Dist.
Ct. La., Jan. 21, 2016).
18
Id. at 4-5 (“In December of 2006, [Louisiana Class] sent to Corvel a class
arbitration demand for claims made against the same for its violation of [the
Louisiana PPO Statute]. From that day forward, Homeland continued to receive
notice of the filing of the class arbitration by [Louisiana Class] against Corvel.”).
19
Id. at 3 (referring to a worker’s compensation demand by the Office of Risk
Management in 2005 that was factually similar to the claims made in the Louisiana
Arbitration Action).
6
Homeland’s policy.20 As a result, the Louisiana trial court entered judgment in favor
of the plaintiff class on February 5, 2016 for $10 million plus interest.21
Homeland appealed to the Louisiana Court of Appeal for the Third Circuit,
and this Court stayed the Delaware Consolidated Action pending the outcome of the
appeal in Louisiana.22 On December 29, 2016, the Louisiana Court of Appeal
affirmed the Louisiana trial court’s decision finding coverage.23 Homeland filed an
Application for a Writ of Certiorari with the Louisiana Supreme Court, which was
denied on April 13, 2017.24 On April 21, 2017, Homeland paid the class
$12,439,383.56 to satisfy the judgment and the interest owed.25
VIII. Status of Delaware Consolidated Action
On July 6, 2017, this Court held an office conference to clarify the status of
the Delaware Consolidated Action in light of the coverage ruling from Louisiana.
The parties agreed that the Louisiana coverage ruling rendered Homeland’s coverage
claims moot in the Delaware Consolidated Action. The Court subsequently issued
20
Id. at 5 (finding that the worker’s compensation claims would have been
specifically excluded under Homeland’s policy).
21
Will. v. SIF Consultants of Louisiana, No. 09-C-5244-C (27th Jud. Dist. Ct.
La., Feb. 5, 2016).
22
Homeland Ins. Co. of New York v. CorVel Corporation, 2016 WL 1423047, at *3
(Del. Super. Apr. 6, 2016).
23
Will. v. SIF Consultants of Louisiana, Inc., 209 So. 3d 903, 912 (La. Ct. App.
3 Cir. 2016).
24
Will. v. SIF Consultants of Louisiana, 218 So. 3d 629, 630 (La. 2017).
25
See J.A. at 346-47.
7
an Order lifting the stay and providing that “the claim of bad faith is the only
remaining claim to be resolved in this action.”26
Pursuant to the Court’s Order, the parties engaged in extensive briefing on the
bad faith claim. CorVel moves for summary judgment, contending that Homeland
committed bad faith under the Louisiana Bad Faith Statute. Homeland also moves
for summary judgment, contending that the Louisiana Bad Faith Statute does not
apply, and challenging the merits of CorVel’s bad faith claim. This is the Court’s
decision on CorVel and Homeland’s cross-motions for summary judgment in the
Delaware Consolidated Action.
Standard of Review
The Court may grant summary judgment only where the moving party can
“show that there is no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law.”27 The moving party bears the initial
burden of proof and, once that is met, the burden shifts to the non-moving party to
show that a material issue of fact exists.28 At the motion for summary judgment
phase, the Court must view the facts “in the light most favorable to the non-moving
party.”29 Where the parties have filed cross-motions for summary judgment and
26
Homeland Ins. Co. of New York v. CorVel Corporation, C.A. No. N11C-01-089,
at 1 (Del. Super. July 6, 2017).
27
Super. Ct. Civ. R. 56(c).
28
Moore v. Sizemore, 405 A.2d 679, 680-81 (Del. 1979).
29
Brozka v. Olson, 668 A.2d 1355, 1364 (Del. 1995).
8
both argue that there are no existing issues of material fact, the Court shall treat the
motions as a stipulation for decision on the merits based on the record submitted
with the motions.30
Choice of Law Analysis
CorVel brought its bad faith claim solely under the Louisiana Bad Faith
Statute.31 Therefore, before evaluating the merits of CorVel’s bad faith claim, the
Court must first determine if Louisiana law applies.
I. The Parties’ Positions on Choice of Law
Before conducting the choice of law analysis, the Court notes that both
Homeland and CorVel argue that choice of law has already been decided in this case,
but reach opposite conclusions. Therefore, the Court will first address the parties’
positions on choice of law.
A. Homeland’s Position that Delaware Law Controls
Homeland argues that Delaware law controls the bad faith claim for two
reasons. First, Homeland argues that Delaware law controls because, during the
appeal of the penalty issue before the Delaware Supreme Court, CorVel conceded
that Delaware law applied to the construction of the insurance policy.32 The Court
rejects this argument. The Supreme Court’s opinion dealt solely with the limited
30
Super. Ct. Civ. R. 56(h).
31
La. R.S. § 22:1973.
32
See CorVel Corporation v. Homeland, 112 A.3d at 870.
9
question of whether the damages available under the Louisiana PPO Statute were an
uninsurable penalty or a covered loss.33 To that end, the Supreme Court noted that
“the parties may have agreed for purposes of this appeal that Delaware law applies
to the construction of the policy.”34 Any concession CorVel made regarding choice
of law was limited to the context and subject matter of the Supreme Court’s narrow
review, and does not control choice of law for the bad faith claim.
Second, Homeland argues that Delaware law controls based on the Delaware
Supreme Court’s decision in Certain Underwriters at Lloyds, London v. Chemtura
Corporation.35 Chemtura dealt with which state’s law should apply to the
interpretation of an insurance policy that covered risks nationwide.36 The Superior
Court used the Second Restatement’s “most significant relationship” framework for
its choice of law analysis and concluded that the “site-of-the-risk” should determine
which state’s law applies.37 In other words, where an insurance policy insures
against risks nationwide, the Superior Court held that the “underlying contract law
of the states where the [] claims arose would govern on a claim-by-claim basis.”38
The Delaware Supreme Court reversed, holding that the courts should use the “most
33
Id. at 864.
34
Id. at 870 (emphasis added).
35
160 A.3d 457 (Del. 2017).
36
Id. at 459.
37
Id.
38
Id.
10
significant relationship” framework to find one consistent body of law that will apply
no matter where the claim arises so that the policies will not be “read in
fundamentally different ways in different cases, based on the happenstance of where
… potential liability results in litigation.”39
Homeland relies on Chemtura to argue that Louisiana law should not apply to
the interpretation of the insurance contract simply because the underlying claim
arose in Louisiana. Rather, according to Homeland, the Court should apply a
consistent body of law, Delaware law, no matter where the claim arises.40 However,
Homeland’s reliance on Chemtura is misplaced. In Chemtura, the insured sought
coverage for similar claims arising in multiple states.41 In the underlying litigation
of this case, CorVel sought coverage for one claim brought solely in Louisiana for
violation of a Louisiana statute that does not apply outside of Louisiana. In addition,
39
Id. at 460.
40
Homeland’s argument suggests that, under Chemtura, Delaware law has the “most
significant relationship” to the Homeland Policy. However, aside from referencing
CorVel’s purported stipulation that Delaware law controls the interpretation of the
Homeland Policy before the Delaware Supreme Court, Homeland does not explain
why Delaware has the “most significant relationship” to this bad faith claim. As the
Supreme Court noted, the only connection these parties have with Delaware is that
CorVel is incorporated here. See Corvel Corporation v. Homeland, 112 A.3d at 869.
However, the insured’s situs of incorporation does not dictate choice of law. For
example, in Chemtura, the Delaware Supreme Court found that the state with the
“most significant relationship” to the insurance policy was actually the insured’s
principal place of business. Chemtura, 160 A.3d at 460.
41
Id. at 463 (providing that the litigation involved claims arising in Arkansas and
Ohio).
11
while Chemtura was a coverage dispute, this is a bad faith claim after coverage has
already been determined. Therefore, Chemtura does not require that this Court must
apply Delaware law to the bad faith claim.
B. CorVel’s Position that Louisiana Law is the Law of the Case
CorVel relies on Premier Parks, Inc. v. TIG Insurance Company42 to argue
that Louisiana law is the law of the case, and should therefore be applied to the bad
faith claim. In Premier Parks, the parties cross-moved for summary judgment in a
declaratory judgment action on a coverage issue.43 During an earlier phase of the
litigation, the Superior Court had determined that Oklahoma law applied to the
interpretation of the insurance contract.44 Therefore, the Court recognized that its
prior holding was “the law of the case” and continued to apply Oklahoma law to the
insurance policy.45
Relying on Premier Parks, CorVel argues that the Delaware Supreme Court,
this Court, and the Louisiana courts have already applied Louisiana substantive law
to the coverage claims, so Louisiana law is the law of the case. However, unlike in
Premier Parks, no court has yet made a choice of law determination for either the
42
2006 WL 2709235 (Del. Super. Sep. 21, 2006).
43
Id. at *1.
44
Id. at *9.
45
Id.
12
coverage dispute or the bad faith claim.46 In addition, choice of law determinations
on the coverage issues would not necessarily control which state’s law applies to the
bad faith claim. Therefore, it remains necessary for this Court to conduct a choice
of law analysis to determine which state’s law applies to the bad faith claim.
II. Delaware’s Choice of Law Rules
Because Delaware is the forum, the Court will apply Delaware’s choice of
law standards to determine which state’s law applies to the bad faith claim. 47 In both
contract and tort disputes, Delaware courts determine which state’s law has the
“most significant relationship” to the dispute pursuant to the Second Restatement’s
choice of law framework.48 However, the Court considers different factors
depending on whether the dispute sounds in contract or tort.49 Delaware courts
46
See CorVel Corporation v. Homeland, 112 A.3d at 868-70 (stating that Louisiana
and Delaware law are not different regarding contract interpretation and applying
Louisiana’s interpretation of a Louisiana statute solely as a matter of comity).
47
See AT&T Wireless Services, Inc. v. Federal Ins. Co., 2007 WL 1849056, at *2
(Del. Super. June 25, 2007).
48
See Chemtura, 160 A.3d at 464-65 (explaining the “most significant relationship”
approach to contract disputes); Travelers Indemnity Company v. Lake, 594 A.2d 38,
48 (Del. 1991) (adopting the “most significant relationship” approach in tort
disputes).
49
See Restatement (Second) of Conflict of Laws § 188 (1971) (“Second
Restatement”) (providing the choice of law framework for contract disputes);
Second Restatement § 145 (providing the choice of law framework for tort disputes).
13
typically ground a bad faith cause of action in contract.50 Therefore, the Court will
apply the Second Restatement’s choice of law framework for contract disputes.
There are three components to the Second Restatement’s “most significant
relationship” analysis for choice of law in contract disputes: “(i) determining if the
parties made an effective choice of law through their contract; (ii) if not, determining
if there is an actual conflict between the laws of the different states each party urges
should apply; and (iii) if so, analyzing which state has the most significant
relationship.”51
When determining the “most significant relationship” in a contract dispute,
the Second Restatement lists five factors for the Court to consider (“Contract
Factors”).52 The Contract Factors are:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place
of business of the parties.53
The Contract Factors are meant “to be evaluated according to their relative
importance with respect to the particular issue.”54
50
See Enrique v. State Farm Mutual Automobile Insurance Co., 142 A.3d 506, 512
(Del. 2016).
51
Chemtura, 160 A.3d at 464.
52
Second Restatement § 188.
53
Second Restatement § 188(2)(a)-(e).
54
Second Restatement § 188(2).
14
In addition, the Court should conduct its analysis “in light of the Second
Restatement’s general considerations found in § 6 that ‘underlie all rules of choice
of law and are used in evaluating the significance of a relationship, with respect to
the particular issue, to potentially interested states, the transaction and the parties.’”55
The general considerations of choice of law listed in the Second Restatement are:
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative
interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.56
III. Choice of Law Determination in this Case
The Court will apply the three steps to determining choice of law in a contract
dispute to determine which state’s law applies to the bad faith claim.57 First,
Homeland and CorVel did not make a choice of law determination in the insurance
contract. Therefore, the contract provisions do not dictate choice of law for the bad
faith claim.
Second, the Court must determine if there is an actual conflict between the
laws of Delaware and Louisiana, which Homeland and CorVel respectively argue
55
Chemtura, 160 A.3d at 465 (citing Second Restatement § 6 cmt. b).
56
Second Restatement § 6.
57
See Chemtura, 160 A.3d at 464.
15
apply to the bad faith claim. In Delaware, the standard for bad faith is generally
dictated by case law.58 The Delaware Supreme Court has held that an insured has a
cause of action for bad faith when “an insurer refuses to honor its obligations and
clearly lacks reasonable justification for doing so.”59 By contrast, Louisiana bad
faith claims are controlled by the Louisiana Bad Faith Statute.60 The Louisiana Bad
Faith Statute expressly defines conduct constituting bad faith, and such conduct does
not typically require a “reasonable justification” element.61 In addition, the
Louisiana Bad Faith Statute provides for a mandatory award of damages and a
discretionary penalty for bad faith conduct.62 Therefore, the Court finds that there
is an actual conflict between the bad faith law in Delaware and Louisiana. As a
result, the Court must determine which state’s law has the “most significant
58
See, e.g., Enrique, 142 A.3d at 511.
59
Id.
60
La. R.S. § 22:1973.
61
La. R.S. § 22:1973(B). The last two provisions in the statute defining bad faith
deal with an insurer’s failure to pay claims under certain conditions, and provide that
such failure to pay must be “arbitrary, capricious, or without probable cause” before
the conduct rises to the level of bad faith. However, the remaining provisions merely
provide a description of the conduct necessary for a finding of bad faith without
requiring a showing that the conduct is “arbitrary, capricious, or without probable
cause.”
62
La. R.S. § 22:1973 (A), (C).
16
relationship” to the bad faith claim by analyzing the Contract Factors and the general
choice of law principles contained in the Second Restatement.63
It is unclear where the underlying insurance contract was entered into or
negotiated.64 The contract at issue was a Managed Care Organizations Errors and
Omissions Liability Policy issued by Homeland to CorVel to insure against risks
CorVel faced while operating its PPO network. To that end, the location of the
subject matter of the contract would theoretically be wherever a potential claim
against CorVel could arise.65 Similarly, because the nature of the insurance contract
was to insure against nationwide risks, it is not clear that the parties contemplated a
singular “place of performance” in the contract.66 With respect to the parties’
locations, CorVel is incorporated in Delaware and has its principal place of business
in California. Homeland is incorporated in New York and, at the time of filing its
Delaware Declaratory Judgment Action, had its principal place of business in
Massachusetts.67 Thus, where there is no obvious location of the subject matter of
the contract or place of performance, and where the parties do not share any
63
The Court notes that the parties did not address the Contract Factors. Nevertheless,
the Court has sufficient information regarding the underlying insurance contract to
apply this test.
64
See Second Restatement § 188(2)(a)-(b).
65
See Second Restatement § 188(d).
66
See Second Restatement § 188(c).
67
See Second Restatement § 188(e). Homeland has not indicated to the Court where
its current principal place of business is located.
17
important locations in common, the Court finds that the Contract Factors do not
suggest which state has the “most significant relationship” to the bad faith claim.
Therefore, to determine which state has the “most significant relationship” to
the bad faith claim, the Court turns to the general choice of law principles contained
in the Second Restatement.68 Of these, the Court finds that it is particularly relevant
to consider the policies and interests of the states whose law is argued to apply.69 To
this end, the Court notes that Louisiana has a particular interest in the application of
Louisiana law to this bad faith claim. The underlying coverage claim was brought
in Louisiana by a Louisiana hospital for a violation of a Louisiana statute that does
not apply outside Louisiana. Thus, without Louisiana law, the underlying coverage
claim giving rise to this bad faith claim would not have existed. Louisiana has an
interest in ensuring that insurers faced with coverage claims in Louisiana follow its
laws, or face the consequences associated with not doing so.70
This view is consistent with the Delaware Supreme Court’s opinion
addressing the penalty issue. There, the Court observed that there was “very little
connection to the State of Delaware” because the “only nexus with the State of
68
See Second Restatement § 6.
69
See Second Restatement § 6(2)(c).
70
See La. R.S. § 22:1973; See also Ferrara, Inc. v. Lafayette Ins. Co., 2010 WL
8972263, at *10 (La. Ct. App. Aug. 4, 2010) (stating that the Louisiana Bad Faith
Statute’s allowance of penalties for an insurer’s bad faith conduct “is a vehicle to
punish an insurer for such egregious conduct”).
18
Delaware is CorVel’s situs of incorporation.”71 By contrast, the Court stated that the
“connection this litigation has with the State of Louisiana is much stronger” because
the litigation began with a Louisiana hospital alleging a violation of a Louisiana
law.72 Therefore, after considering the Contract Factors and the general principles
underlying choice of law determinations from the Second Restatement, the Court
finds that Louisiana has the “most significant relationship” to the bad faith claim and
will apply the Louisiana Bad Faith Statute.
Discussion
The Louisiana Bad Faith Statute provides in relevant part:
A. An insurer, including but not limited to a foreign line and surplus
line insurer, owes to his insured a duty of good faith and fair dealing.
The insurer has an affirmative duty to adjust claims fairly and
promptly and to make a reasonable effort to settle claims with the
insured or the claimant, or both. Any insurer who breaches these
duties shall be liable for any damages sustained as a result of the
breach.
B. Any one of the following acts, if knowingly committed or performed
by an insurer, constitutes a breach of the insurer’s duties imposed in
Subsection A of this Section:
(1) Misrepresenting pertinent facts or insurance policy provisions
relating to any coverages at issue.
...
C. In addition to any general or special damages to which a claimant is
entitled for breach of the imposed duty, the claimant may be
71
CorVel Corporation v. Homeland, 112 A.3d at 869.
72
Id.
19
awarded penalties assessed against the insurer in an amount not to
exceed two times the damages sustained or five thousand dollars,
whichever is greater. …73
Under the Louisiana Bad Faith Statute, the Court must address three
questions. First, did Homeland commit bad faith by knowingly misrepresenting a
fact or insurance policy provision related to coverage? Second, if Homeland did
commit bad faith, what actual damages did CorVel sustain as a result? Third, should
the Court or a jury decide whether to impose a discretionary penalty against
Homeland and, if it is the Court, what is the appropriate penalty?
I. Homeland Committed Bad Faith by Knowingly Misrepresenting the
Fact that CorVel Reported the Louisiana Arbitration Action in
Compliance with the Reporting Requirements of the Homeland
Policy.
CorVel argues that Homeland committed bad faith under the Louisiana Bad
Faith Statute by knowingly misrepresenting a fact related to coverage. Specifically,
CorVel contends that Homeland made a knowing misrepresentation when it stated
that CorVel failed to report the Louisiana Arbitration Action in compliance with the
reporting requirements of the Homeland Policy. The parties do not dispute any
material facts related to Homeland’s purported misrepresentation, so the Court will
decide the question of Homeland’s bad faith as a matter of law.
73
La. R.S. § 22:1973.
20
With respect to the insured’s obligation to report a claim to Homeland, the
Homeland Policy provides:
The Underwriter will pay on behalf of the Insured any Loss which the
Insured is legally obligated to pay as a result of any Claim that is first
made against the Insured during the Policy Period and reported to the
Underwriter either during the Policy Period or in any event within
ninety (90) days after the end of the Policy Period…74
The Homeland Policy defines “Claim” as “any written notice received by any
Insured that a person or entity intends to hold an Insured responsible for a Wrongful
Act” committed during the policy period and specifically provides that a “Claim”
may be in the form of an arbitration.75 The Homeland Policy was in effect from
October 31, 2005 to December 1, 2007.
On December 4, 2006, CorVel received a letter providing written notice of
the intent of the Louisiana Class to initiate a class action arbitration against CorVel
for violations of the Louisiana PPO Statute. CorVel provided notice of the claim
asserted in the December 4, 2006 letter to Homeland on March 28, 2007. On that
day, CorVel’s director of legal services, Sharon O’Connor, called Homeland’s
claims administrator, Virginia Troy, to give notice of the claim. On the same day,
O’Connor sent Troy an email with documents related to the claim, including: (1) a
copy of the December 4, 2006 letter; (2) an engagement letter confirming CorVel’s
74
J.A. at 21.
75
J.A. at 22.
21
engagement of counsel in connection with pending litigation and “related arbitration
proceeding;” and (3) a letter from CorVel’s counsel to the Case Manager for the
American Arbitration Association regarding the pending Louisiana Arbitration
Action.76
Beginning in December 2010, CorVel sought permission from Homeland to
settle the Louisiana Arbitration Action.77 On January 5, 2011, Homeland
acknowledged that it received “material that was attached to [Sharon O’Connor’s]
late March 2007 emails” to Homeland.78 However, less than a week after
acknowledging the March 2007 emails, Homeland filed the Delaware Declaratory
Judgment Action in this Court. Homeland sought a declaration that there was no
coverage under the Homeland Policy for four reasons, including that CorVel failed
to report the Louisiana Arbitration Action in compliance with the reporting
requirements of the Homeland Policy.79
At the time that Homeland filed the Delaware Declaratory Judgment Action,
it knew that CorVel had sent documents related to the Louisiana Arbitration Action
76
See J.A. at 47-53.
77
See J.A. at 106 (stating that CorVel asked Homeland to commit to a settlement of
up to the limits of the Homeland Policy at a December 22, 2010 teleconference).
78
J.A. at 106-07.
79
See J.A. at 483; See also J.A. 206-207 (denying that CorVel reported the claim in
accordance with the requirements of the Homeland Policy in Homeland’s Responses
to CorVel’s Second Set of Discovery Requests).
22
in March 2007.80 In addition, Homeland knew that these documents contained the
December 4, 2006 letter initiating the Louisiana Arbitration Action against CorVel.
Thus, at the time that Homeland filed the Delaware Declaratory Judgment Action,
Homeland knew that a claim was first made against CorVel during the policy period
and that CorVel reported the claim to Homeland during the policy period. Therefore,
by claiming that CorVel did not report the Louisiana Arbitration Action in
compliance with the reporting requirements of the Homeland Policy, Homeland
made a knowing misrepresentation.81
Homeland argues that it did not make a knowing misrepresentation because
Homeland was making a legal argument, not a factual argument, regarding whether
CorVel reported a claim that was “first made” during the policy period. Homeland
contends that regardless of whether CorVel provided actual notice to Homeland of
the Louisiana Arbitration Action, such notice would not have been in compliance
with the reporting requirements if the claim was actually “first made” against CorVel
prior to the policy period of the Homeland Policy. Homeland’s position rests on the
idea that, even though the Louisiana Arbitration Action was first brought against
80
J.A. at 106-07.
81
See McGee v. Omni Ins. Co., 840 So. 2d 1248, 1256 (La. Ct. App. 3 Cir. 2003)
(“Misrepresentation can occur when an insurer either makes untrue statements to an
insured concerning pertinent facts or fails to divulge pertinent facts to the insured.”).
23
CorVel in December 2006, it was factually similar to earlier claims brought against
CorVel that were made prior to the policy period of the Homeland Policy.
The Court rejects Homeland’s argument. The undisputed facts show that
Homeland knew at the time of filing the Delaware Declaratory Judgment Action that
the Louisiana Arbitration Action was made against CorVel during the policy period
of the Homeland Policy. Homeland’s argument that the Louisiana Arbitration
Action was actually “first made” before the policy period of the Homeland Policy
because of its factual similarity with earlier filed claims was a coverage argument
unrelated to the factual issue of whether CorVel reported the claim to Homeland. 82
This is consistent with Homeland’s own position in the Delaware Declaratory
Judgment Action, in which Homeland separately argued that coverage was barred
by a prior proceedings exclusion in the Homeland Policy and that the claim was
“first made” before the policy period of the Homeland Policy.83
82
The Louisiana trial court also considered the issue of whether the Louisiana
Arbitration Action was made and reported during the policy period of the Homeland
Policy separately from the issue of whether coverage was barred because the
Louisiana Arbitration Action was factually similar to earlier filed claims. See
Williams, No. 09-C-5244-C, at 4-5.
83
See J.A. 474-86. Homeland raised four “separate and independent” counts in the
Delaware Declaratory Judgment Action. Count I was that the prior proceedings
exclusion barred coverage. Count II was that the arbitration claim was “first made”
before the Homeland policy period. Count III was that CorVel failed to report the
Louisiana Arbitration Action in compliance with the reporting requirements of the
Homeland Policy.
24
Therefore, the Court finds that Homeland committed bad faith by knowingly
misrepresenting the fact that CorVel provided notice of the Louisiana Arbitration
Action in compliance with the reporting requirements of the Homeland Policy.
II. CorVel is Entitled to the Damages It Sustained as a Result of
Homeland’s Bad Faith Conduct, which Consist of the $9 Million
CorVel Paid to Settle the Louisiana Arbitration Action and the
Louisiana Class Action.
The Louisiana Bad Faith Statute provides that an insurer who commits bad
faith “shall be liable for any damages sustained as a result of the breach.”84 Thus,
once the trial court makes a finding of bad faith, “the trial court must award the
plaintiff, in addition to the amount found to be due under the policy, any damages
found to have resulted from the insurer’s breach.”85 CorVel does not argue that there
is an amount due under the policy.86 However, CorVel does argue that it suffered
actual damages in the form of the $9 million CorVel paid to settle the Louisiana
Arbitration Action and the Louisiana Class Action. Therefore, this Court must
determine the extent of CorVel’s actual damages.
The Court finds that CorVel did sustain $9 million in damages as a result of
Homeland’s bad faith conduct. In December 2010, CorVel sought permission from
84
La. R.S. § 22:1973(A) (emphasis added).
85
Audobon Orthopedic and Sports Medicine, APMC v. Lafayette Ins. Co., 38 So. 3d
974 (La. Ct. App. 4 Cir. 2010).
86
CorVel assigned its insurance claim against Homeland to the Louisiana Class,
which successfully litigated the coverage issue.
25
Homeland to settle the Louisiana Arbitration Action for the policy limits of the
Homeland Policy.87 In response, Homeland filed the Delaware Declaratory
Judgment Action, seeking a declaration that there was no coverage for the Louisiana
Arbitration Action by relying, in part, on its bad faith misrepresentation regarding
notice. As a result of Homeland’s position in the Delaware Declaratory Judgment
Action, which contained Homeland’s bad faith misrepresentation, CorVel could not
expect coverage from Homeland and faced a potential judgment of approximately
$140 million.88 Therefore, to avoid incurring a significantly higher judgment,
CorVel settled the Louisiana Arbitration Action and the Louisiana Class Action for
$9 million and an assignment of its insurance claim against Homeland. Thus, the
Court finds that there is a direct causal link between Homeland’s bad faith conduct
and CorVel’s payment of $9 million.
Homeland argues that CorVel cannot establish that the $9 million settlement
was caused by Homeland’s misrepresentation because Homeland also asserted three
87
See J.A. at 106 (stating that CorVel asked Homeland to commit to a settlement of
up to the limits of the Homeland Policy at a December 22, 2010 teleconference).
88
See J.A. at 810-11. CorVel sent Homeland the Louisiana Class’s damages analysis
in February 2011 in anticipation of an upcoming mediation. The Louisiana Class
alleged 71,172 violations of the Louisiana PPO Statute. The Louisiana PPO Statute
provides for an award of “the greater of fifty dollars per day of noncompliance or
two thousand dollars.” Estimating that the court could award $2000.00 for each
violation of the Louisiana PPO Statute, CorVel faced a potential judgment of over
$140 million. See also J.A. at 105 (providing that a different class action brought
under the Louisiana PPO Statute settled for $150 million).
26
other grounds for denying coverage in the Delaware Declaratory Judgment Action.
Homeland’s argument suggests that as long as it had any non-frivolous argument for
denying coverage in addition to its bad faith misrepresentation, it cannot be found to
have caused CorVel’s damages. The Court rejects Homeland’s argument. The
Louisiana Bad Faith Statute is designed, in part, to punish insurers for their bad faith
conduct.89 As a result, Homeland should not be able to claim that CorVel’s damages
stem from Homeland’s other arguments for denying coverage rather than
Homeland’s bad faith misrepresentation. Homeland committed bad faith in seeking
a declaration that there was no coverage. As a result, CorVel settled the claims
against it and paid that settlement itself, thereby sustaining damages as a result of
Homeland’s bad faith denial of coverage. Thus, there is a direct causal link between
Homeland’s bad faith and CorVel’s damages. Under the Louisiana Bad Faith
Statute, this Court must award CorVel $9 million in respect of the actual damages it
sustained as a result of Homeland’s bad faith.
III. The Court Has the Discretion to Award, and Does Award, a Penalty
Against Homeland for its Bad Faith Conduct.
In addition to the mandatory award of actual damages, the Louisiana Bad
Faith Statute provides that an insured “may be awarded penalties assessed against
the insurer in an amount not to exceed two times the damages sustained or five
89
See Ferrara, 2010 WL 8972263 at *10.
27
thousand dollars, whichever is greater.”90 Unlike the award of actual damages, the
award of a penalty under the Louisiana Bad Faith Statute is purely discretionary.
CorVel argues that because the penalty is discretionary, the issue should go to a jury
to decide. Thus, the Court must answer two questions with respect to a penalty under
the Louisiana Bad Faith Statute. First, should the Court or a jury decide whether to
impose a penalty against Homeland? Second, if it is the Court, what is the
appropriate penalty?
The Court is the appropriate entity to decide whether to impose a penalty
against Homeland for its bad faith. In interpreting the Louisiana Bad Faith Statute,
a Louisiana Circuit Court of Appeal stated:
Once the finder of fact has [found bad faith], the trial court must award
the plaintiff … any damages found to have resulted from the insurer’s
breach. If no damages are found to have resulted from the breach, the
trial court may, in its discretion, assess against the insurer any amount
up to $5,000 as a penalty; conversely, if damages as a result of the
breach have been awarded, the trial court may, in its discretion, also
award a penalty of up to twice the amount (200%) of those damages.”91
Thus, it is within the trial court’s discretion to award a penalty against an insurer for
bad faith conduct.
As a result, the Court must decide whether to impose a penalty against
Homeland for its bad faith, and the appropriate amount of such a penalty. The Court
90
La. R.S. § 22:1973(C).
91
Audobon, 38 So. 3d at 974 (emphasis added).
28
finds that a penalty is appropriate given that an underlying purpose of the Louisiana
Bad Faith Statute is to punish insurers for their bad faith conduct.92 CorVel seeks
the maximum penalty available under the Louisiana Bad Faith Statute, or $18
million. However, the Court finds that it is more consistent with the purposes of the
Louisiana Bad Faith Statute and the record in this case to award a penalty in the
amount of $4.5 million, or one-half of CorVel’s actual damages.
IV. Homeland’s Affirmative Defenses Are Without Merit.
In response to CorVel’s motion for summary judgment, Homeland raises
several affirmative defenses. Homeland asserts that CorVel’s bad faith claim is
barred by: (1) the applicable statute of limitations; (2) the compulsory counterclaim
rule of Superior Court Rule of Civil Procedure 13(a) (“Rule 13(a)”); (3) res judicata;
(4) judicial estoppel; and (5) acquiescence. For the reasons discussed below, the
Court concludes that Homeland’s affirmative defenses are without merit.
A. CorVel’s Bad Faith Claim is Not Barred by the Statute of Limitations.
In Delaware, the general rule is that the forum state’s statute of limitations
applies, even if another state’s law governs the parties’ substantive rights. 93 Thus,
this Court will apply Delaware’s statute of limitations to CorVel’s bad faith claim.
As previously discussed, a bad faith claim sounds in contract in Delaware,94 and the
92
See Ferrara, 2010 WL 8972263 at *10.
93
See TrustCo Bank v. Mathews, 2015 WL 295373, at*5 (Del. Ch. Jan. 22, 2015).
94
See Enrique, 142 A.3d at 512.
29
statute of limitations for contract claims is three years.95 Thus, CorVel was required
to bring its bad faith claim within three years of it arising.
Homeland argues that CorVel’s bad faith claim arose when CorVel could
plead damages. To that end, Homeland contends that the limitations period began
to run at the latest96 on June 23, 2011, the date on which CorVel settled with the
Louisiana Class for $9 million. As a result, Homeland contends that the limitations
period expired on June 23, 2014 and, therefore, that CorVel was outside of the
limitations period when it brought its bad faith claim on June 9, 2015.
The Court rejects Homeland’s argument. CorVel’s bad faith claim did not
arise when it settled with the Louisiana Class because CorVel could not incur
damages until there was a determination on coverage. Under Louisiana law, bad
faith claims are “derivative claims relating to the statutory duties of insurance
carriers.”97 Therefore, “[t]o prevail under [the Louisiana Bad Faith Statute], a
95
See 10 Del. C. § 8106.
96
Homeland also contends that the limitation period began to run on January 10,
2011, the date on which Homeland filed the Delaware Declaratory Judgment Action
with the bad faith misrepresentation. Homeland contends that on this date, CorVel
was entitled to demand the statutory penalty of $5,000 under the Louisiana Bad Faith
Statute, and therefore, incurred damages. Homeland’s position is incorrect. The
penalty available under the Louisiana Bad Faith Statute is a discretionary penalty
that only becomes available after there has been a finding of bad faith. Thus, CorVel
did not immediately incur damages upon Homeland’s filing of the Delaware
Declaratory Judgment Action.
97
Chet Morrison Contractors, L.L.C. v. Onebeacon American Ins. Co., 2015 WL
1221616, at *6 (E.D. La. 2015).
30
plaintiff must first have a valid, underlying, substantive claim upon which insurance
coverage is based.”98 As a result, it does not matter that CorVel paid $9 million to
the class on June 23, 2011 for statute of limitations purposes, because CorVel could
not have had a claim for damages under the Louisiana Bad Faith Statute until it had
a valid claim for coverage.99 CorVel ultimately brought its bad faith claim on June
9, 2015, and the Louisiana trial court did not find coverage until January 21, 2016.
Therefore, CorVel is in compliance with the applicable statute of limitations.
B. CorVel’s Bad Faith Claim is Not Barred by Rule 13(a).
Rule 13(a) provides:
A pleading shall state as a counterclaim any claim which at the time of
serving the pleading the pleader has against any opposing party, if it
arises out of the transaction or occurrence that is the subject matter of
the opposing party’s claim and does not require for its adjudication the
presence of third parties of whom the Court cannot acquire
jurisdiction.100
Homeland argues that, pursuant to Rule 13(a), CorVel was required to assert its bad
faith claim in its responsive pleading in the Delaware Declaratory Judgment Action
98
Riley v. Sw. Bus. Corp., 2008 WL 4286631, at *3 (E.D. La. 2008).
99
Homeland contends that CorVel did not need to wait until a final judgment on
coverage to bring its bad faith claim because all that is required is that the insured
have a valid claim to coverage. To that end, Homeland asserts that CorVel had a
valid claim for coverage in 2011 when the Louisiana Class brought its coverage
claims against Homeland. However, CorVel did not have a valid claim to coverage
in 2011, as Homeland asserts, because CorVel assigned its insurance claims against
Homeland to the Louisiana Class as part of the settlement.
100
Super. Ct. Civ. R. 13(a).
31
because it arises from the same “transaction or occurrence that is the subject matter”
of Homeland’s complaint, that is, Homeland’s denial of coverage. CorVel argues
that its bad faith claim was not ripe until coverage was determined, which was not
until after CorVel filed its responsive pleading. In addition, CorVel argues that Rule
13(a) does not bar its bad faith claim because the relevant prior action, the Delaware
Declaratory Judgment Action, had not yet been decided on the merits at the time it
brought its bad faith claim.
The Court agrees that CorVel’s bad faith claim was not ripe until coverage
was determined. As previously mentioned, in order for CorVel to have a cause of
action under the Louisiana Bad Faith Statute, it had to have a valid coverage claim.101
Therefore, the Court finds that CorVel’s bad faith claim was not ripe until coverage
was determined and, therefore, that CorVel did not need to raise it in its responsive
pleading.102
In addition, the Court finds that CorVel’s bad faith claim is not barred by Rule
13(a) because the Delaware Declaratory Judgment Action had not yet been resolved
on the merits at the time CorVel brought its bad faith claim. 103 CorVel brought its
101
See Riley, 2008 WL 4286631 at *3.
102
See Pontone v. Milso Industries Corporation, 2014 WL 2439973, at *10 (Del.
Ch. May 29, 2014) (“[A] claim for relief that is not ripe at the time a defending party
serves its responsive pleading does not qualify as a compulsory counterclaim.”).
103
See Fields v. Frazier, 2005 WL 3193820 (Del. Super. Nov. 21, 2005) (“[Rule
13(a)] bars the assertion of a compulsory counterclaim arising from the same subject
matter of an earlier action, only where the prior action resulted in a judgment on the
32
action against Homeland on May 8, 2015 and added its bad faith claim on June 9,
2015. At that time, the Delaware Declaratory Judgment Action had yet to be decided
on the merits,104 and the two cases were ultimately consolidated into the Delaware
Consolidated Action on July 7, 2015. Thus, to the extent that the policy underlying
Rule 13(a) is “to prevent multiplicity of actions and to achieve resolution in a single
lawsuit of all disputes arising out of common matters,”105 that policy is not disrupted
here where the issues are consolidated, and will be resolved, in a single action.
Therefore, the Court finds that Rule 13(a) does not bar CorVel’s bad faith claim.
C. CorVel’s Bad Faith Claim is Not Barred by Res Judicata.
Under the doctrine of res judicata, “a judgment in a prior suit involving the
same parties, or persons in privity with them, bars a second suit on the same cause
of action.”106 Res judicata will bar a claim where a five-part test is satisfied:
(1) [T]he original court had jurisdiction over the subject matter and the
parties; (2) the parties to the original action were the same as those
parties, or in privity, in the case at bar; (3) the original cause of action
or the issues decided was the same as the case at bar; (4) the issues in
merits.”) (citing Brady v. C.F. Schwartz Motor Co., Inc., 723 F. Supp. 1045 (D. Del.
1989)).
104
Homeland argues that the coverage issues which underlie the Delaware
Declaratory Judgment Action were resolved on the merits in Louisiana, and
therefore, that Rule 13(a) does bar CorVel’s bad faith claim. However, Homeland’s
argument is flawed because the coverage issues were not decided on the merits in
Louisiana until January 21, 2016, which was after CorVel brought its bad faith claim
in this Court.
105
Southern Const. Co. v. Pickard, 371 U.S. 57 (1962) (referring to nearly identical
version of Rule 13(a) found in the Federal Rules of Civil Procedure).
106
Foltz v. Pullman, Inc., 319 A.2d 38, 40 (Del. Super. 1974).
33
the prior action must have been decided adversely to the [plaintiff] in
the case at bar; and (5) the decree in the prior action was a final
decree.107
Homeland argues that res judicata bars CorVel’s bad faith claim in this case because
it arises out of the same transaction as the coverage issues in the Louisiana Coverage
Action, and the Louisiana Class successfully litigated CorVel’s coverage claims in
that action.
The Court finds that the all five criteria necessary for res judicata to bar a
claim are not present in this case. It is true that the Louisiana trial court had
jurisdiction over the subject matter and parties in the Louisiana Coverage Action and
that the judgment in that action was a final decree. However, it is not necessarily
clear that the Louisiana Class was in privity with CorVel or that the coverage issues
decided in the Louisiana Coverage Action were the same as the issues in this action.
In addition, even if the Court assumes that these two requirements are met, res
judicata would still not bar CorVel’s bad faith claim because the coverage issues in
the Louisiana Coverage Action were decided in favor of the Louisiana Class, not
adversely to them. Thus, when assuming that the Louisiana Class and CorVel are in
privity, res judicata cannot bar CorVel’s bad faith claim because the issues decided
107
Dover Historical Soc., Inc. v. City of Dover Planning Com’n, 902 A.2d 1084,
1092 (Del. 2006).
34
in the prior action were resolved in CorVel’s favor. Therefore, res judicata does not
bar CorVel’s bad faith claim.
D. CorVel’s Bad Faith Claim is Not Barred by Judicial Estoppel.
The doctrine of judicial estoppel provides that “[w]here a party assumes a
certain position in a legal proceeding, and succeeds in maintaining that position, he
may not, thereafter, simply because his interests have changed, assume a contrary
position.”108 Delaware courts apply the doctrine of judicial estoppel where “(i) ‘a
litigant advances a position inconsistent with a position taken in the same or earlier
legal proceeding’ and (ii) ‘the court was persuaded to accept the previous argument
as a basis for its earlier ruling.’”109 Homeland contends that judicial estoppel should
bar CorVel’s bad faith claim here because the Louisiana Class changed its position
on when the claims were “first made” against Homeland during the pendency of the
Louisiana Coverage Action.110
The Court rejects Homeland’s argument that CorVel should be judicially
estopped from asserting its bad faith claim in this case as a result of coverage
108
New Hampshire v. Maine, 532 U.S. 742, 749 (2001) (citing Davis v. Wakelee,
156 U.S. 680, 689 (1895).
109
In re Rural/Metro Corp. Stockholders Litigation, 102 A.3d 205, 246 (Del. Ch.
2014) (citing VIII-Hotel II P Loan Portfolio Hldgs., LLC v. Zimmerman, 2013 WL
5785290, at *3 (Del. Super. Dep. 19, 2013)).
110
Specifically, Homeland contends that the Louisiana Class first argued that the
claims against CorVel were “first made” during the policy period of the Executive
Risk policy before changing its position to argue that the claims were “first made”
during the policy period of the Homeland Policy.
35
arguments made by the Louisiana Class in a separate action. Further, the Court notes
that the Louisiana courts considered and rejected identical arguments from
Homeland on judicial estoppel in the Louisiana Coverage Action.111 This Court will
follow the Louisiana Court’s well-reasoned opinions on this issue.
E. CorVel’s Bad Faith Claim is Not Barred by the Doctrine of
Acquiescence.
To succeed on an acquiescence defense under Delaware law, a defendant must
show that “(1) the plaintiff remained silent (2) with knowledge of her rights (3) and
with knowledge or expectation that the defendant would likely rely on her silence,
(4) the defendant knew of the plaintiff’s silence, and (5) the defendant in fact relied
to her detriment on the plaintiff’s silence.”112 Homeland argues that CorVel’s bad
faith claim should be barred under the doctrine of acquiescence because CorVel did
not affirmatively assert its coverage position in between giving notice on March 28,
2007 and its demand for coverage in December 2010. In making this argument,
Homeland references a letter sent to CorVel in June 2007, in which Homeland listed
claims that had been reported to Homeland and did not include the Louisiana
Arbitration Action. Homeland contends that CorVel’s failure to correct Homeland
following that June 2007 letter constituted acquiescence.
111
See Williams, No. 09-C-5244-C, at 2-6; Williams, 209 So. 3d at 908-09.
112
Lehman Brothers Holdings Inc. v. Spanish Broadcasting System Inc., 2014 WL
718430, at *10 (Del. Ch. Feb. 25, 2014).
36
The Court rejects Homeland’s argument. CorVel met its duty under the
Homeland Policy by reporting the Louisiana Arbitration Action to Homeland on
March 28, 2007. The Homeland Policy did not require CorVel to demand coverage
within a certain time or to correct any of Homeland’s misstatements, like that in the
June 2007 letter. For that reason, Homeland cannot establish the requirements of an
acquiescence defense, and CorVel’s bad faith claim is not barred by acquiescence.
Conclusion
Homeland committed bad faith under the Louisiana Bad Faith Statute by
knowingly misrepresenting a fact related to coverage, that CorVel gave notice in
compliance with the reporting requirements of the Homeland Policy. As a result,
CorVel is entitled to the $9 million in damages it sustained as a result of Homeland’s
bad faith, and the Court finds that it is consistent with the purposes of the Louisiana
Bad Faith Statute to impose a penalty against Homeland in the amount of $4.5
million. In addition, the Court concludes that Homeland’s affirmative defenses are
without merit. Therefore, summary judgment must be granted in favor of CorVel.
NOW, THEREFORE, this 5th day of January, 2018, CorVel
Corporation’s Motion for Summary Judgment is hereby GRANTED IN
PART, and Homeland Insurance Company of New York’s Motion for
Summary Judgment is hereby DENIED IN PART.
37
JUDGEMENT IS HEREBY ENTERED in favor of CorVel Corporation
and against Homeland Insurance Company of New York for damages in the
amount of $9 million and a penalty in the amount of $4.5 million.
IT IS SO ORDERED.
Andrea L. Rocanelli
___________________________________
The Honorable Andrea L. Rocanelli
38