The state Superior Court has ruled Cigna Corp.'s excess insurer is not obligated to indemnify the company for any of the $140 million it paid to settle class action claims for breach of contract and violations of the Racketeer Influenced and Corrupt Organizations Act.
The case, known as Executive Risk Indemnity v. Cigna, goes back more than a decade. According to court documents, the insurance dispute in Executive Risk arose from a series of federal class-action lawsuits litigated between 1999 and 2002 that named Cigna as a defendant.
In those cases, plaintiffs alleged that Cigna, along with a number of other managed care organizations, systematically underpaid medical providers' claims, court documents said.
The complaints alleged Cigna had breached its contract as well as committed RICO violations by conspiring with other insurance companies to keep payments down, according to court documents. In 2003, court documents said, Cigna settled all of the cases with no admission of wrongdoing for $140 million.
When Cigna sought indemnity from Executive Risk, the insurer denied the claims on the grounds that Cigna's losses were the direct result of the company's contractual duty to reimburse medical providers' claims, court documents said.
Reviewing the case on its second appeal in less than two years, a three-judge panel ruled 2-1, on July 18, in Executive Risk that Cigna failed to show that at least 75 percent of the settlement in In re Managed Care Litigation -- comprising what are known as the Shane and Kaiser suits -- was attributable to RICO-related claims.
The court had previously ruled that RICO claim settlements were covered under Cigna's policy with excess insurer Executive Risk Indemnity Inc., but breach of contract claim settlements were excluded from coverage.
The court had remanded the case to Philadelphia Court of Common Pleas Judge Mark I. Bernstein to determine how much of the total settlement represented RICO claims versus breach of contract claims.
On remand, following an apportionment hearing, Judge Bernstein denied Cigna's request for either judgment notwithstanding the verdict or a new trial, finding the company failed to show that 75 percent of the settlement funds were earmarked to settle RICO claims, meaning the covered claims did not reach the $65 million threshold necessary to trigger its excess policy with Executive Risk.