Profit Exclusion Does Not Apply to Judgment Against Insured for Anti-Trust Violation

The United States Court of Appeals for the Ninth Circuit, applying Idaho law, has affirmed a lower court’s decision that a judgment against an insured for a violation of the Clayton Act did not preclude coverage under a liability insurance policy’s “financial gain” exclusion.  St. Luke’s Health Sys., Ltd. v. Allied World Nat’l Assurance Co., 2017 WL 3727010 (9th Cir. Aug. 28, 2017).

The insured, a hospital, was found liable for anti-competitive conduct violating the Clayton Act in connection with the insured’s acquisition of a medical facility.  The judgment against the insured centered on the improper bargaining power gained by the insured as a result of the anti-competitive merger.

The insured tendered defense costs incurred in the antitrust action to a liability insurer, which reimbursed $8 million of the insured’s costs subject to a reservation of rights.  The insurer later denied coverage and requested repayment, arguing that the antitrust violation fell within a policy exclusion that barred coverage for loss arising from “financial advantage” if a judgment established that the insured was not legally entitled to the advantage.

In the resulting coverage litigation, the lower court held that the exclusion did not apply, finding no evidence to suggest that the insured gained an actual “financial advantage” as a result of the bargaining power it improperly received from the merger.

The Ninth Circuit affirmed, holding that the policy’s definition of “loss” plainly included defense costs resulting from a violation of the Clayton Act.  The court further rejected the insurer’s argument that an anti-competitive merger necessarily meant that the insured improperly gained a financial advantage, noting that under Idaho law, exclusions must be “clear and precise” to restrict coverage.