Blue Shield of Calif. Sues Insurance Company for Breach of Contract

California Physician Service doing business as Blue Shield of California and Blue Shield of California Life & Health Insurance Company filed a complaint in the Northern District of California against Homeland Insurance Company of New York regarding a purported breach of insurance contract to defend Blue Shield regarding certain types of litigation.

According to Wednesday’s filing, Blue Shield of California (BS of CA) contracted with Homeland Insurance Company (Homeland) to provide a Managed Care Errors and Omissions Liability Policy with a term of coverage from January 1, 2013, through January 1, 2014. 

BS of CA notes the policy contained language regarding related claims: ““[a]ll Related Claims will constitute a single Claim regardless of: (A) the number, identity, or addition of parties, theories of liability, or requests for relief; (B) the number or timing of the Related Claims, even if the Related Claims were made in more than one policy period; or (C) whether the Related Claims are asserted in a class action or otherwise. All Related Claims will be treated as a single Claim made when the earliest of the Related Claims was first made against you . . . . The Policy defines ‘Related Claims’ to mean ‘all Claims based upon or arising out of the same or related acts, errors, omissions, or course of conduct or the same or related series of acts, errors, omissions, or course of conduct.’” 

Additionally, the policy had a specific requirement for notice: “[i]f, during the Policy Period . . . , any Claim is first made against you, as condition precedent to any right to coverage under this Policy, you must give us written notice of the Claim as soon as practicable thereafter . . . .”

As stated in the complaint, BS of CA was sued by a single law firm representing four hospitals with virtually identical lawsuits. The plaintiff timely provided notice of the suits and petitioned the court for coordination of the suits which the court approved of. The same firm later brought a further suit against a BS subsidiary in 2017, which was also coordinated with the original suits as it involved the same firm, same hospital plaintiffs and same issues. However, the defendant refused to defend the suits, arguing that the suits were not related and therefore separate notice and separate deductibles applied to the coverage. BS of CA noted exception to this decision, but defended the suits directly. As a result, BS of CA incurred millions in costs and fees defending themselves.

However, BS of CA alleges that these cases meet the standard for related claims in their policy and should have been treated as a single claim, therefore the defendant should have defended the suits.

BS of CA is suing for breach of contract and breach of good faith and fair dealing. The plaintiff is represented by Farella Braun & Martel LLP.