Insurance Company Sued by Los Angeles Hospital Over $42 Million Whistleblower Settlement

A now-closed hospital in Los Angeles filed a lawsuit against its insurance provider, alleging a denial of coverage to the facility while the hospital was publicly criticized for alleged illegal referral agreements.

The case stems from a whistleblower lawsuit filed in 2013 by Paul Chan against Pacific Alliance Medical Center (PAMC) under the False Claims Act’s qui tam provision. Chan claimed the hospital violated state and federal false claims legislation by forming illegal referral agreements with local clinics.

In 2015, the U.S. Department of Justice subpoenaed the hospital, leading to an investigation that lasted for two years. In January 2017, the DOJ decided not to press charges against PAMC, and in June of that year the facility agreed to settle the case for $42 million.

PAMC’s current lawsuit

PAMC filed its current lawsuit on July 10, claiming the hospital’s legal entity PAMC Ltd. notified its insurer, National Union Fire Insurance Co. of Pittsburgh, about the subpoena and ongoing whistleblower lawsuit, doing so in April 2017. The insurer acknowledged the submission claim that same month, but denied hospital coverage for the whistleblower and subpoena the next month, claiming neither were reported to the company in a timely manner under the insurer’s policy, which meant the costs were not eligible for reimbursement.

The hospital seeks a full reimbursement for the $42 million figure. It also opposes the insurer’s position that the subpoena from the DOJ did not qualify as a “claim.” The lawsuit instead maintains the hospital was prohibited from disclosing the legal proceedings to the insurer under federal law until the gag order was lifted, upon which time it provided immediate notice to the insurer.

For further guidance related to ongoing changes in the world of whistleblower law, speak with a knowledgeable Dallas attorney at Kardell Law Group.