Hope Is Not a Strategy: Manage Risk Before False Claims Act Claims Are Made

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1 Hope Is Not a Strategy: Manage Risk Before False Claims Act Claims Are Made Today s Webinar Presented by Brian Flood, Lorinda Holloway and Kirsten Byrd 0

2 Agenda Manage risk before FCA claims are made: Obtaining insurance coverage Indemnity agreements Buying or selling a practice 1

3 Why plan ahead? Increased risk: Affordable Care Act FCA changes State false claims acts State AG consumer fraud divisions Private payers 2

4 Why plan ahead? The costs can be staggering: Investigation Treble Damages Penalties per claim Government costs Defense costs and fees Relator fees 3

5 Obtaining Insurance Coverage 4

6 Insurance Coverage Conventional wisdom Traditional policies Newer policies The devil is always in the details policy definitions and exclusions 5

7 Insurance Coverage The traditional contenders Errors and Omissions (professional liability) Directors & Officers Liability Employment Practices Liability 6

8 Insurance Coverage: D&O and E&O Definition of Claim Definition of Loss Exclusions Definition of Covered Defense Expenses 7

9 Insurance Coverage: D&O and E&O Fraud Exclusion Intentional Acts, Gross Negligence Exclusions Contractual Liability Exclusion Exclusion for Illegal Profit/Advantage Exclusion for Billing 8

10 Insurance Coverage: D&O and E&O Exclusion for Claims Made by an Insured Professional Services definition in E&O 9

11 Insurance Coverage: D&O and E&O Rescission clause Allocation provision 10

12 Insurance Coverage: D&O and E&O Side C coverage option protects the company One covered claim may trigger duty to defend Additional claims often accompany FCA allegations 11

13 Insurance Coverage: new policies New tailored policies sometimes called Specialty E&O Healthcare Regulatory Liability Billing E&O (not just for billing) Ability to pick up prior acts Definition of loss 12

14 Insurance Coverage: new policies Definition of claim Fraud exclusion 13

15 Insurance Coverage: EPL EPL policies may cover losses arising from the FCA whistleblower s alleged wrongful or retaliatory termination Definition of wrongful acts Definition of claim 14

16 Insurance Coverage: EPL Definition of employee Multiple damage and relator s attorneys fees 15

17 Insurance Coverage Consider requiring third parties to add your practice/entity as an Additional Insured on their policies 16

18 Take action! Take inventory Negotiate Know the notice requirements Find one covered claim Consider additional insured status 17

19 Indemnity Agreements with Third Parties Who Impact Your FCA Exposure 18

20 Indemnity generally Indemnity where one has the obligation to pay for a loss or damage that has been or might be incurred by another. A cause of action for indemnity can arise by statute, by common law, or more often by written contract. 19

21 Indemnity and the FCA By statute not under the FCA By common law not if just shifting FCA liability; against public policy By contract chances greatly improve 20

22 Indemnity and the FCA Courts do not allow common law indemnity claims if all they do is seek to shift FCA liability: Mortgages, Inc. v. US Dist. Ct., 934 F.2d 209 (9th Cir. 1991) (per curium) U.S. ex rel. v. Puchalski, 906 F.Supp.2d 451 (D. S.C. 2012) (following Mortgages) 21

23 Indemnity and the FCA But chances improve with damages independent of FCA liability U.S. ex rel. Madden v. General Dynamics Corp., 4 F.3d 827 (9th Cir. 1993) 22

24 Indemnity and the FCA With contractual indemnity there is a better chance No court has held that the FCA bars a party from trying to enforce contractual indemnity Example In Cell Therapeutics, Inc. v. Lash Group, Inc., 586 F.3d 1204 (9th Cir. 2009) 23

25 Indemnity and the FCA Another example where the FCA defendant was permitted to pursue a contractual indemnity claim U.S. ex rel. Wildhirt v. AARS Forever, Inc., No. 09 C 1215, 2013 WL (N.D. Ill. Sept. 19, 2013) 24

26 Indemnity and the FCA How to decide if a contractual claim for indemnity is worth pursuing Does the claim depend on FCA liability? Is there any finding or recitation of FCA liability that would preclude the claim? 25

27 Indemnity and the FCA Do not hinge indemnity on FCA liability or govt loss Do include Warranties of meeting regulatory requirements requirement to advise of regulatory non-compliance indemnity for loss arising from breaches of warranties and reps indemnity for loss caused by vendor s negligence 26

28 Indemnity and the FCA Settlement agreement language Not an admission of liability For the settling parties benefit only No release of potential claims against others Not admissible as evidence of fault, act, or omission 27

29 Buying or Selling a Practice 28

30 Buying or Selling a Practice What can happen: successor liability theory Courts apply a test when deciding successor liability. common law/traditional test, or substantial continuity test 29

31 Buying or Selling a Practice U.S. ex rel. Bunk v. Gosselin World Wide Moving, No. 1:02-cv (E.D. Va. 2014) and U.S. ex rel. Ammons v. Gosselin World Wide Moving NV, No. 1:07-cv (E.D. Va. 2014) 30

32 Buying or Selling a Practice Common law/traditional test: purchaser does not assume liabilities unless: 1. the successor agrees to assume liability; 2. the transaction is a de facto merger; 3. the successor is a mere continuation of the predecessor; or 4. the transaction is fraudulent. 31

33 Buying or Selling a Practice Substantial continuity test: 1. business of both companies is essentially the same; 2. employees of the new business are doing the same jobs; and 3. the new entity has the same production processes and customers. 32

34 Buying or Selling a Practice Regardless of which test is used and even if you are successful, you have incurred fees and expenses along the way. 33

35 Buying or Selling a Practice Plan for successor liability risk Clear indemnity language in sales agreement Solvent seller sufficient funds in escrow conintue D&O and Specialty E&O (prior acts 6 years) tail coverage (typically 2 years) 34

36 Poll Question 35

37 Questions 36

38 A special thank you to Husch Blackwell associate Meredith Mills for her research assistance and to HealthSure.com Brian Flood Austin, TX Lorinda Holloway Austin, TX Kirsten Byrd Kansas City, MO This program is approved for CLE credit in Illinois, Missouri, Nebraska, Tennessee and Texas. Note: The information provided today is for information purposes only. Consult an attorney for advice on your specific circumstances. 37