The Delaware Supreme Court dismissed an appeal by four major insurance companies in a complex coverage dispute with The Cigna Group, allowing a lower court ruling favorable to the healthcare giant to stand. The case centers on whether Cigna can recover costs incurred responding to a federal investigation under its managed care errors and omissions insurance policies.
The appellants—XL Specialty Insurance Company, Homeland Insurance Company of New York, Travelers Casualty & Surety Company of America, and Admiral Insurance Company—sought interlocutory review of a Superior Court determination that could expose them to significant liability. The Delaware Supreme Court's order, decided Feb. 16 after submission on Jan. 7, effectively ends their challenge at this procedural stage.
The underlying dispute involves Cigna's attempts to secure coverage under its MCE&O insurance towers for the 2016-17 and 2017-18 policy periods. The Superior Court bifurcated the proceedings into multiple phases, with Phase 1 focusing specifically on whether Cigna can recover reimbursement for costs incurred responding to a civil investigative demand issued by the U.S. Department of Justice in December 2016.
The crux of the coverage dispute turns on the interpretation of policy language defining what constitutes a compensable "Claim." Under the relevant policies, insurers must pay defense expenses resulting from any "Claim" first made against Cigna during the policy period. The policies define a "Claim" as "any written notice received by [Cigna] that a person or entity intends to hold [Cigna] responsible for a Wrongful Act."
The Superior Court determined that the December 2016 DOJ civil investigative demand qualified as a "Claim" under this definition, a ruling the insurance companies sought to overturn on appeal. The insurers argued this interpretation exceeded the scope of coverage they intended to provide, while Cigna maintained the DOJ demand clearly triggered coverage obligations.
The insurance structure involves multiple layers of coverage, with a nonparty insurer providing the primary policy and the appellant insurers providing excess coverage that follows the form of the primary policy. This "follow form" arrangement means the excess policies provide coverage "in conformance with" the terms and conditions of the primary policy, creating potential exposure across multiple insurance companies.
Civil investigative demands represent a significant enforcement tool used by the DOJ to gather information during investigations of potential violations of federal law. Companies receiving such demands often incur substantial legal costs in responding, making insurance coverage for these expenses a critical financial consideration.
The Delaware Superior Court's bifurcation of the case reflects the complex nature of insurance coverage disputes, which often involve multiple policy periods, various types of claims, and intricate questions of policy interpretation. By separating the proceedings into phases, the court can address discrete legal issues without becoming bogged down in the full complexity of multi-year coverage disputes.
The Supreme Court's dismissal of the interlocutory appeal means the Superior Court's Phase 1 determination stands, at least for now. However, the insurers may still have opportunities to challenge the ruling as the case proceeds through subsequent phases or on final appeal after complete resolution of all phases.
This outcome represents a procedural victory for Cigna in its efforts to secure insurance coverage for investigation-related costs. The healthcare company has faced various regulatory scrutiny over the years, making access to comprehensive insurance coverage for defense costs a significant business consideration.
For the insurance industry, the case highlights ongoing tensions over the scope of coverage for regulatory investigations and enforcement actions. As government oversight of healthcare companies intensifies, disputes over whether investigation costs qualify for insurance reimbursement have become increasingly common and financially significant.
The involvement of multiple major insurers—including XL Specialty, a prominent excess and surplus lines carrier, and Travelers, one of the largest commercial insurance providers—underscores the high stakes involved in these coverage interpretations. Such cases often establish precedents that influence coverage determinations across the industry.
The Delaware Supreme Court's order was brief, focusing on procedural requirements for interlocutory appeals rather than substantive coverage questions. This approach suggests the court may have viewed the insurers' challenge as premature or inappropriate for immediate appellate review.
Looking ahead, the case will return to the Superior Court for continuation of the bifurcated proceedings. Additional phases may address coverage questions for other time periods or types of claims, potentially creating additional opportunities for dispute between the parties.
The resolution of Phase 1 in Cigna's favor may influence settlement discussions or strategic decisions in subsequent phases, as insurance companies weigh the costs and risks of continued litigation against negotiated resolutions. The case serves as a reminder of the complexity involved in modern insurance coverage disputes, particularly those involving regulatory enforcement actions and multi-layered insurance programs.