A federal appeals court ruled this week that StarStone Specialty Insurance Co. must cover Affinity Living Group’s costs to successfully defend against a $60 million False Claims Act lawsuit alleging the North Carolina-based operator engaged in billing fraud, which was later dismissed. The ruling overturned a lower court’s decision in October 2018 that StarStone had no obligation to cover Affinity’s legal costs.
Affinity originally sought coverage for the litigation under a policy issued by Chicago-based StarStone, which previously was known as Torus Specialty Insurance Group Co. StarStone denied coverage, and Affinity filed suit in the U.S. District Court in Greensboro, NC, which ruled in the insurer’s favor.
The ruling was overturned Tuesday, with the appeals court holding that the allegations in the Affinity’s complaint fall within the insurance policy’s coverage provision. The court found that the False Claims Act action “arises out of” a medical incident as required to fall under the coverage provision of StarStone’s policy.
Affinity attorney Carl A. Salisbury, with Bramnick, Rodriguez, Grabas, Arnold & Mangan LLC, said in a statement to Business Insurance that, “The majority was carefully faithful to the rules regarding the interpretation of insurance policies under North Carolina law, and it correctly analyzed the language of the StarStone policy to find that the fraudulent billing allegations in the underlying complaint were causally related to the allegation that there was a failure to provide covered medical services.”
