Appeals

Summary Judgement Victory from California Court of Appeals

Al Alikin and Christian Nagy, along with attorneys for other carriers in the same D&O Tower, prevailed in the California Court of Appeals in a case further adding to the body of case law interpreting…

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The D&O policies at issue were issued to Practice Fusion, Inc., a company that develops and licenses electronic health record software for use by healthcare providers. Following investigations by the United States Department of Justice, Practice Fusion entered into a civil settlement that resolved two distinct sets of claims, one of which (at issue here) alleged that Practice Fusion violated the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b) by taking money from pharmaceutical manufacturers in exchange for Practice Fusion deploying “Clinical Decision Support alerts” (“CDS alerts”) in its software that were intended to increase sales of the companies’ products. When Practice Fusion sought insurance coverage for the civil settlement under the D&O policies, Defendant insurers denied coverage as to both sets of claims on the ground that the policies’ professional services exclusions applied to the losses. Practice Fusion then sued the insurers for breach of contract.

The trial court granted the insurers’ motion for summary adjudication of Practice Fusion’s cause of action pertaining to the Clinical Decision Support alerts, in which FMG attorneys argued that the claims concerning the Clinical Decision Support alerts arose from Practice Fusion providing professional services to the pharmaceutical companies by designing and implementing the alerts under its contracts with those companies, and that coverage for the claims is thus barred by the professional services exclusion in the policies Practice Fusion appealed. In affirming the trial court’s ruling, the California Court of Appeal applied a broad interpretation to the “arising out of” language connected to the professional services exclusion, even though the phrase “professional services” was undefined in the policies. It further held that Practice Fusion’s conduct in designing and coding CDS alerts for the pharmaceutical companies with which it contracted constituted professional services because the conduct arises out of specialized knowledge or skill that is predominantly mental or intellectual, rather than physical or manual. It also rejected Practice Fusion’s arguments about providing a product instead of a service.

Practice Fusion, Inc. v. Freedom Specialty Ins. Co., et al. California Court of Appeal, Case No. A167130; A167886

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