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Complete Defense Verdict for AIG in Major Insurance Fraud Dispute

August 2022

The firm recently obtained a hard-fought and decisive jury verdict for AIG Specialty Insurance Company and Lexington Insurance Company, providing them with a complete defense to coverage of a $236 million Medicaid Fraud settlement. The Quinn Emanuel team not only represented AIG Specialty Insurance Company and Lexington Insurance Company, but also served as lead trial counsel for all insurers that went to trial. The plaintiff, Conduent State Healthcare LLC (“Conduent”), paid $236 million (a record in Texas!) to settle a Medicaid Fraud claim brought by the Texas Attorney General’s Office, and Conduent thought that it could game the settlement process to force its tower of insurers to indemnify Conduent for the payment. A Delaware jury said no.

For several years leading up to the $236 million settlement, the Texas Attorney General investigated and pursued a Medicaid Fraud claim against Conduent. During this time, the Texas Attorney General informed Conduent that it was seeking over $2 billion in civil fines and penalties resulting from Conduent’s alleged Medicaid Fraud. Throughout the Medicaid Fraud case, Conduent repeatedly attempted to bring additional parties into the suit to allocate its liability to such parties and reduce its overall liability. However, in mid-2018, the Texas Supreme Court held that Conduent was forbidden from doing so. The Court specifically found that the Medicaid Fraud claim could not be allocated among multiple parties and that Conduent had to defend its suit alone.

In the wake of this loss at the Texas Supreme Court, Conduent engaged with the Texas Attorney General’s Office to discuss a settlement of the Medicaid Fraud claim. During these discussions, Conduent adamantly pressed the Texas Attorney General to add a breach of contract claim and a negligence claim to Texas’s case against Conduent. The Texas Attorney General repeatedly refused this request, but after receiving an ultimatum from Conduent deep in the settlement negotiations, Texas relented and amended its petition to include the additional claims. On the same day that Texas added the new claims, the parties executed a settlement agreement that allocated all of the proceeds of the settlement to the brand new claims for breach of contract and negligence, and none of the settlement proceeds to the claim for Medicaid Fraud. This was no coincidence. Conduent and its insurers had discussed the Medicaid Fraud case on several occasions, and Conduent knew that the insurers would not cover any amount allocated to the claim for Medicaid Fraud based on several exclusions in the insurance policies. So, in an attempt to secure coverage, Conduent pressured the state to amend and then allocated all of the settlement proceeds away from the Medicaid Fraud claim.

Needless to say, the insurers were not informed of Conduent’s campaign to pressure Texas to amend its petition. Indeed, the only communications they received from Conduent created the misleading impression that the Texas Attorney General made the decision, of its own volition, to add these new claims for the purpose of prosecuting them to completion. After being left in the dark, the insurers were handed a finalized settlement agreement and an amended petition and were asked to provide coverage. The insurers rightly refused. It was only during the course of litigation—through discovery—that the insurers finally learned the details of Conduent’s scheme to manufacture coverage. And the details of this scheme were laid bare before the jury in Delaware.

After a six-day trial, the Delaware jury took only two hours to find in favor of the insurers on several grounds. The jury found that Conduent had committed insurance fraud, breached its duty to cooperate, and failed to settle the Texas case in good faith, findings that gave the insurers a complete coverage defense.