Dive Brief:
- A Rhode Island federal judge has ruled that two insurers must pay out on the $30 million claim hospital operator Lifespan Corp. filed after it was ordered to pay this sum due to a partnership break up.
- The $29.6 million judgment against Lifespan stems from the collapse of its relationship with the New England Medical Center, for which it had served as corporate parent. A court ruled that Lifespan had breached its duty to the state Attorney General, and was grossly negligent in failing to negotiate with health insurers in ways that would bring in more money for the medical center.
- Insurers National Union Fire Insurance and RLI Insurance had contended that they didn't have to pay the claim Lifespan filed after the judgment due to several coverage exceptions, notably the CFO's work with Morgan Stanley to develop an interest rate swap that would finance the medical center. The insurers had alleged that the swap generated an unlawful advantage, which would have allowed them to refuse coverage.
Dive Insight:
This case has its roots back in 1997, when Lifespan agreed to become the corporate parent for troubled New England Medical Center. Though the medical center saw some improvement under Lifespan's management, Lifespan didn't manage a turnaround, and the two entities agreed to terminate the partnership in 2002. From that point on, things got very complicated.
First, as per their agreement, the New England Medical Center was required to pay Lifespan $30 million, plus half of its Medicare recovery, as part of its duties under the termination requirements of the deal. The medical center fell $3.6 million short of paying the lump sum, and paid none of the Medicare payments, which then caused Lifespan to sue the center in 2006 for breach of contract.
Then, the Massachusetts attorney general got involved in the case. In 2011, both Lifespan's claim and AG Martha Coakley's counterclaims were adjudicated in New Hampshire federal court, which awarded Lifespan $20 million in damages, but also ordered Lifespan to pay $29.6 million to the medical center.
It's at this point that Lifespan's insurers tried to bail out on indemnifying Lifespan against the loss. But it now appears that the insurers are on the hook for the $30 million.