While an insured can't be penalized for not filing a claim related to a sealed qui tam action within a certain policy period, the insurance company can deny coverage based on the "prior or pending" litigation exclusion in the policy even though the insured wasn't aware the sealed action was pending, a Philadelphia judge has ruled.

Philadelphia Court of Common Pleas Judge Albert J. Snite Jr. rejected Ace American Insurance Co.'s argument that it did not have to cover AmerisourceBergen's $17.6 million claim under the claims-made policy because the underlying qui tam action was first filed under seal in 2006, before AmerisourceBergen's 2007 policy with Ace began.

Snite ruled a claim, as defined in the policy, was not made against AmerisourceBergen until the company was served with the suit in 2009.

But the judge granted Ace's summary judgment motion based on his interpretation of certain other coverage exclusions in the 2007 policy and subsequent renewal policies in 2008 and 2009. AmerisourceBergen had first become aware of the qui tam action filed against it in Massachusetts federal court in February 2009 when a redacted complaint was posted on PACER. That would fall within the 2009 policy period, Snite ruled.

Snite then turned to the policy's "Exclusion L," which excluded a claim "'alleging, based upon, arising out of, or attributable to any prior or pending litigation.'" Because the 2008 and 2009 policies were renewals of the May 1, 2007, policy, Snite concluded any litigation filed prior to May 1, 2007, would be considered pending litigation under Exclusion L.

The Massachusetts qui tam action was filed June 5, 2006. Snite said that, under the meaning of Exclusion L, litigation can commence with the filing of an unserved qui tam complaint. He said False Claims Act litigation commences with the filing of an action on behalf of the government.

"I am finding that the 'prior or pending' exclusion applies to prior or pending litigation even if not served on the insured, including a qui tam False Claims lawsuit that has not been disclosed to the insured," Snite said.

The judge said Exclusion L was triggered in June 2006 when the Massachusetts case was filed, docketed and given a case number, even if service did not occur.

Snite rejected AmerisourceBergen's argument that litigation cannot begin without service being made.

"Simply stated, with respect to the facts of this case, a 'claim' is either a written demand, or a filed and served civil proceeding," Snite said. "Pending litigation is a civil pleading that has been docketed, but not necessarily served.

"The policy does not cover losses wherein no written demand has been made and civil litigation has been docketed but not yet served. This occasional, but by no means extraordinary, situation must be foreseen by insureds, especially those who are changing carriers."

Snite further found AmerisourceBergen's claim was barred from coverage under portions of the policy's "Exclusion Y," which dealt with false, deceptive or unfair business practices.

In the Massachusetts case, the relator alleged AmerisourceBergen conspired with Amgen to falsely inflate the average sales price of prescription drug Aranesp, allegedly causing submission of false Medicare claims, Snite said.

Snite said each count of the Massachusetts complaint describes false, deceptive or unfair practices. He said Exclusion Y applies to any claim alleging such practices.

The exclusion also bars coverage of any claim alleging any violation of consumer protection laws. Ace argued allegations against AmerisourceBergen under the Medicare and Medicaid Patient Protection Act were violations of consumer protection laws. Snite disagreed, finding Ace didn't provide sufficient authority to show a patient was the same as a consumer for purposes of consumer protection laws.

Snite's opinion granting Ace's motion for summary judgment and denying AmerisourceBergen's partial motion for summary judgment came down July 16. There has been no activity on the docket since that time.

AmerisourceBergen had kept Ace informed of the Massachusetts litigation since it learned of the complaint in 2009. Ace denied coverage in 2010 and AmeriscourceBergen sued the insurance company in 2011 for breach of a professional liability insurance contract and bad faith.

Courtney C.T. Horrigan of Reed Smith in Pittsburgh represented AmerisourceBergen. She said it was the company's policy not to comment on litigation.

Stephen A. Cozen of Cozen O'Connor represented Ace. He said it seemed clear on its face that the Exclusion Y applied to bar coverage in this case.

"As far as prior pending litigation, the history of the litigation was clear that this was prior pending litigation whether they knew about it or didn't know about it," Cozen said.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.

(Copies of the 16-page opinion in AmerisourceBergen v. Ace American Insurance, PICS No. 13-2240, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)