Does a D&O Policy That Expressly Covers Antitrust Claims Exclude Antitrust Damages?

By Seth Lamden

According to the court in William Beaumont Hospital v. Federal Insurance Co., No. 13–1468 (6th Cir. Jan. 16, 2014) [enhanced version available to lexis.com subscribers], the answer is "no." The court in that case held that a hospital's settlement of a private antitrust claim alleging that it had conspired to depress the compensation paid to its nurses was covered "loss" under the hospital's D&O policy, which was endorsed to expressly cover antitrust claims, rather than excluded "disgorgement," as alleged by the D&O insurer.

The plaintiffs in the underlying action sought damages pursuant to Section 1 of the Sherman Act, 15 U.S.C. § 1 [enhanced version available to lexis.com subscribers], for "compensation properly earned by [registered nurses] employed at Detroit-area hospitals but unlawfully retained by such hospitals as a result of the conspiracy alleged herein."

The court disagreed with the insurer's characterization of the settlement of this claim as excluded "disgorgement of the value of the advantage" gained by the hospital of "receiving nursing services at below-market compensation." Agreeing with the insured instead, the court held that the settlement was not "disgorgement" because "money unlawfully retained is not the same in its legal character as money wrongfully acquired." As the court explained, the hospital "never gained possession of (or obtained or acquired) the nurses' wages illicitly, unlawfully, or unjustly." Instead, reasoned the court, the hospital "retained the due, but unpaid, wages unlawfully . . . . The hospital could not have taken money from the nurses because it was never in [the nurse's] hands in the first place." In other words, the claim was to compensate the nurses for their improperly depressed wages rather than to return money that had been wrongfully taken from them.

The court also rejected the insurer's argument that Michigan public policy precludes coverage for disgorgement or damages for statutory violations, noting that the insurer had cited no Michigan case law that supported this argument.

The district court also rejected the insurer's arguments, albeit with more colorful language, describing the insurer's argument that the settlement was excluded even though the policy was endorsed to expressly cover antitrust claims "as truly a position that only an insurer (and its lawyer) could embrace" and describing the insurer's efforts to deny coverage based on Michigan public policy as a "Procrustean effort to deprive Plaintiff of the antitrust coverage that it plainly bargained and paid for. Endorsement No. 10 to the Policy explicitly provides coverage for 'Claims for Antitrust Activities.'" William Beaumont Hospital v. Federal Insurance Co., No. 11-15528, 2013 U.S. Dist. LEXIS 35558 (E.D. Mich. March 13, 2013) [enhanced version available to lexis.com subscribers].

Note: The Merriam-Webster dictionary defines "Procrustean" as follows:

adjective
Usage: often capitalized
1 : of, relating to, or typical of Procrustes
2 : marked by arbitrary often ruthless disregard of individual differences or special circumstances

    Seth Lamden, Partner, Neal, Gerber & Eisenberg LLP

 

 

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