Insurance Law360 - October 17, 2014
The standard for summary judgment is neither novel nor new. Most of us can recite it from memory: Summary judgment is warranted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” But in defending against a summary judgment motion, even the most seasoned practitioners should not forget what is required of the party bearing the burden of proof — admissible evidence in support of its claims.
A recent decision by the Judge Patrick J. Schiltz in UnitedHealth Group Inc. v. Columbia Casualty Co., et al. (D. Minn.)[1] provides a stark reminder of the consequences for failing to abide by these fundamental principles. The case is also instructive on the types of evidence a policyholder may introduce to meet its burden of proof in a litigated coverage dispute involving allocation of a multiclaim settlement between covered and uncovered claims.
In 2005, the policyholder in UnitedHealth Group Inc. v. Columbia Casualty Co., et al., brought a coverage action against several of its insurers seeking coverage for dozens of claims brought against United during the period Dec. 1, 1998, through Dec. 1, 2000. Initially, United sought reimbursement for its underlying defense costs. In 2009, while the coverage action was pending, United settled two separate putative class actions, the AMA and Malchow actions, for a total settlement of $350 million.[2]
The settlement included claims by doctors and patients (the AMA action) and other United subscribers (the Malchow action) who alleged they were underpaid or received inadequate reimbursement for health care services, which they attributed to United’s use of a flawed in-house database that set rates for out-of-network medical services. Shortly after the settlement of the AMA and Malchow actions, United filed a separate lawsuit against its 2009 insurers seeking coverage for the portion of the settlement attributable to the Malchow action.[3] In 2010, Judge Schiltz dismissed United’s separate lawsuit seeking coverage for the portion of the $350 million settlement attributable to the Malchow action, concluding that that action was not covered under United’s 2009 policies.[4]
After nine years of litigation, United’s three remaining excess insurers brought a motion for summary judgment on the portions of United’s amended complaint which sought coverage for the settlement amount attributable to the AMA action. The carriers argued that the record did not contain sufficient evidence to permit a jury to allocate the settlement between the uncovered Malchow claim and the potentially covered AMA claim.
In a lengthy and well-reasoned opinion, Judge Schiltz granted the insurers’ motion for summary judgment.
The court began by reiterating the summary judgment standard: A party (with the burden of proof) responding to a motion for summary judgment must submit and cite specific evidence to support its claim. The court emphasized that a party cannot survive that motion based on “vague descriptions of the evidence it intends to introduce at trial” because “summary judgment is not a dress rehearsal or practice run; it is the put-up or shut-up moment in a lawsuit, when a party must show what evidence it has that would convince a trier of fact to accept its version of the events.”
The court granted the insurers’ motion because United lacked sufficient admissible evidence to permit a jury to determine how a reasonable person in United’s position would determine how much of the $350 million settlement should be allocated to the AMA claims.
Judge Schiltz began his analysis by outlining the three types of evidence that an insured may introduce to meet its allocation burden:
A party may introduce evidence of how the settling parties and their attorneys valued the claims at the time of settlement; a party may introduce evidence of what was known to the parties and their attorneys at the time of the settlement and ask the jury to assess the settlement value of each of the claims based on that information; or a party may introduce expert testimony about the settlement value of the settled claims.
Unfortunately for United, in its opposition to the insurers’ summary judgment motion, it did not come forward with any of these types of evidence.
Judge Schiltz explained that the first type of evidence was not available to United because of United’s assertion of the attorney-client privilege and the work-product doctrine over discovery of its (or its underlying defense counsels’) subjective evaluations of the AMA/Malchow actions. The court declined to allow United to use the attorney-client privilege or work-product protections “both as a shield and sword,” finding that if United had wanted to use evidence of its or its counsels’ settlement evaluations to meet its burden of proof on how the $350 million settlement should be allocated between the AMA and Malchow actions, it must allow the insurers to inquire about those evaluations during discovery.
Judge Schiltz likewise concluded that United could not rely on the multiple orders issued by Judge Lawrence McKenna in the AMA action and ask a jury to assess the value of the Malchow action because the task was “beyond the capabilities of a lay jury.” Explaining that the AMA/Malchow actions were not “slip-and-fall cases,” but rather “extraordinarily complex class actions,” involving “arcane legal concepts and vocabulary,” the court concluded that the case would be “difficult even for lawyers to comprehend,” much less a jury. The court was careful to say that expert testimony was not required in every case that a jury is asked to allocate a settlement among various claims. However, in this particular case, involving complex claims and legal arguments and hundreds of pages of briefing and rulings, the court found that a jury needed the assistance of expert testimony.
And that is where United encountered its third obstacle. United’s expert opined that 90 to 95 percent of the $350 million settlement should be allocated to the AMA action. However, because United’s expert did not analyze the Malchow action, the court held that United’s expert had no basis to opine on the settlement value of the two actions, nor could he testify about how the settlement should be allocated between them.
The court relied on an art analogy to illustrate the flaw in the expert’s analysis. Using the analogy of a buyer who purchased two paintings for a total of $50 million, one a Picasso and the other from a different artist, the court reasoned that a buyer who intends to sell the Picasso needs to determine how much each painting is worth before the sale. As the court reasoned, “[n]o expert could reliably opine on the amount of the $50 million purchase price that should be allocated to the Picasso without examining the other painting.”
So too here. Although United’s expert testified that the AMA claim is valuable (i.e., the equivalent of a Picasso) the court reasoned that without assessing the Malchow claim, “a jury cannot determine whether Malchow is the equivalent of a Van Gogh or the equivalent of a black velvet Elvis.” The court concluded that without knowing or analyzing the value of the Malchow action, United’s expert could not testify as to how the settlement should be allocated between the two actions.
The UnitedHealth decision provides a blunt reminder of the consequences where the party with the burden of proof fails to submit and cite specific evidence in support of its claims. It is also instructive on the types of proof an insured may rely on to prove allocation between covered and uncovered claims in a multiclaim settlement, and how that proof may be challenged by insurers.
The case is also a good reminder that summary judgment is not simply the dress rehearsal for trial — the failure to prove up one’s case with actual evidence when called upon at the summary judgment phase can have serious consequences.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] UnitedHealth Group Inc. v. Columbia Cas. Co., et al., No. 05-CV-1289 (PJS/SER), 2014 WL 4783394 (D. Minn. Sept. 25, 2014).
[2] The AMA and Malchow actions are: American Medical Association v. United Healthcare Corp., No. 00–2800 (LMM/GWG) (S.D.N.Y. removed Apr. 12, 2000) and Malchow v. Oxford Health Plans Inc., No. 08–935 (FSH/PS) (D.N.J. filed Feb. 19, 2008).
[3] UnitedHealth Group Inc. v. Hiscox Dedicated Corporate Member LTD, et al., No. 09-CV-210 (PJS/SRN) (D. Minn. Mar. 5, 2009) (ECF No. 44).
[4] Id. (ECF No. 151).
[5] The court similarly precluded United from relying on Judge McKenna’s prior assertions about the value of the AMA/Malchow claims on the basis of hearsay. Explaining that although “a judicial ruling is not hearsay if offered to prove its operative legal effect,” United could not rely on Judge McKenna’s settlement-approval orders to prove the truth of those assertions (e.g., that the Malchow claim was weak and the overall settlement for both actions was reasonable).