Appeals court reverses insurer’s win in D&O coverage dispute

The 10th U.S. Circuit Court of Appeals said Wednesday that Allied World Specialty Insurance Co. should not have prevailed in a dispute with Blue Cross and Blue Shield of Kansas Inc. over reimbursement of defense costs under a directors and officers liability policy.

The three-judge appellate panel in Allied World Specialty Insurance Co. et al. v. Blue Cross and Blue Shield of Kansas Inc. said the policy was ambiguous because it provides and excludes coverage for activities involving managed care.

The panel also overruled the Fairfax Financial Holdings Ltd. unit’s argument that the allegations in the lawsuit against Blue Cross did not trigger coverage because they relate back to prior litigation.

Allied issued a D&O policy to Blue Cross that was in effect from July 2012 until October 2013. Blue Cross asked Allied for reimbursement of the costs it incurred defending against a lawsuit brought by providers and subscribers accusing it of engaging in a scheme to underpay providers, overcharge subscribers and restrict competition.

Allied refused to reimburse Blue Cross, saying an exclusion barred coverage for managed care activities. The companies sued each other in federal court in Kansas City, Kansas, seeking a ruling on the coverage dispute. Blue Cross also brought claims for breach of contract and bad faith, court records show.

Allied filed a motion for judgment on the pleadings, and U.S. District Judge Daniel D. Crabtree granted it in June 2023. Blue Cross appealed.

Representatives for the parties did not respond to requests for comment.