Underlying Medicaid Fraud Claim Covered
An operator of adult care facilities sought declaratory judgment that its insurer had a duty under its professional liability policy to defend and indemnify it in an underlying qui tam action claiming the operator billed Medicaid for services that were not performed. The insured claimed breach of contract, breach of duty of good faith and fair dealing and a violation of North Carolina’s Unfair and Deceptive Trade Practices Act. The issue was whether the qui tam action arose out of a “medical incident” giving rise to the insurer’s duty to defend even though the alleged false billing was not itself a “medical professional service.” The insured argued a failure to render services was a covered “medical incident” and the billing's alleged falsity was the result of failure to render services. The Fourth Circuit sided with the insured reasoning while the alleged false billing was not itself a “medical professional service,” the failure to “render medical professional services” bears a causal relationship to the billing. Thus, the false-claims-act action is covered.