Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_15-cv-03643/USCOURTS-cand-3_15-cv-03643-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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United States District Court 

Northern District of California 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

San Francisco Division 

EYEXAM OF CALIFORNIA, INC., a 

California corporation; and LUXOTTICA 

RETAIN NORTH AMERICA INC., an Ohio 

corporation, 

Plaintiffs, 

v. 

ALLIED WORLD SURPLUS LINES 

INSURANCE COMPANY, et al., 

Defendants. 

Case No. 3:15-cv-03643-LB 

ORDER DENYING ALLIED’S MOTION 

TO DISMISS 

[Re: ECF No. 17] 

INTRODUCTION 

The plaintiffs EYEXAM of California, Inc. and Luxottica Retail North America, Inc. 

(“LRNA”) sued the defendants Allied World Surplus Lines Insurance Co. and Darwin Select 

Insurance Co. for Darwin’s failure to defend them in two underlying lawsuits. Allied, as Darwin’s 

successor, moves to dismiss the claims arising from one lawsuit (Altair Eyewear, Inc. v. Luxottica 

Retail North America, Inc., et al.), on the ground that the lawsuit was not covered under the 

insurance policy’s definition of “Claim.” The court denies Allied’s motion. 

STATEMENT 

1. The Parties 

EYEXAM is a health care service plan under the Knox-Keene Health Care Service Plan Act of 

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1975, Cal. Health & Safety Code § 1340 et seq., and is licensed by the California Department of 

Managed Healthcare. (Complaint, ECF No. 1, ¶ 10.) EYEXAM employs practicing optometrists 

who are licensed by the California Board of Optometry. (Id.) LRNA is a dispensing optician 

registered with the Division of Licensing of the California Medical Board. (Id. ¶ 11.) LRNA owns 

and operates LensCrafters, which has over 100 retail locations in California. (Id.) LRNA and 

EYEXAM have adopted business practices at LensCrafters retail locations to provide consumers 

with a “one-stop shopping” experience in which they can (i) obtain their eyeglass prescription 

from a licensed optometrist employed by EYEXAM, (ii) purchase frames and eyewear 

accessories, and (iii) have their lenses and frames fitted by a trained optician. (Id. ¶ 12.) 

Darwin issued the insurance policy at issue in this litigation to EYEXAM and LRNA. (Id. ¶ 

13.) Allied is the successor to Darwin. (Id. ¶ 6.) 

2. The Insurance Policy 

Darwin issued a Managed Care Organization Errors and Omissions Liability Insurance Policy 

No. 0303-7769, effective March 15, 2013 to March 15, 2014 (the “Policy”), to Luxottica U.S. 

Holdings Corp. (Id. ¶ 13; Policy, ECF No. 18-1, Policy Declarations.1) EYEXAM was named as 

an “Insured Entity,” and LRNA was named as an “Additional Insured,” pursuant to an 

endorsement. (Complaint, ECF No. 1, ¶ 13; Policy, ECF No. 18-1, Endorsement No. 17.) 

The Policy covers “any Insured Loss which the Insured is legally obligated to pay as a result 

of a Claim that is first made against the Insured during the Policy Period . . . .” (Complaint, ECF 

No. 1, ¶ 14; Policy, ECF No. 18-1, Insuring Agreement, § I, Definitions, § IV(J) (bolding in 

original).) The policy has the following relevant definitions: 

 “‘Loss’ means Defense Expenses and any monetary amount which an insured is legally 

obligated to pay as a result of a Claim.” (Policy, ECF No. 18-1, Definitions, § IV(J); see 

Complaint , ECF No. 1, ¶ 14.) “Defense Expenses” are defined in part as “reasonable legal 

 

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 The court grants Allied’s unopposed request that the court consider the entire Policy under the 

incorporation-by-reference doctrine. (See Motion, ECF No. 17 at 3 n.1, 6; Request for Judicial 

Notice, ECF No. 18; Opposition, ECF No. 19 at 9 n.4); see also Knievel v. ESPN, 393 F.3d 1068, 

1076 (9th Cir. 2005). 

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fees and expenses incurred in the investigation, adjustment, defense, or appeal of a Claim.” 

(Complaint ¶ 14; Policy, Definitions, § IV(E).) 

 “‘Claim’ means any written notice received by any Insured that a person or entity intends 

to hold an Insured responsible for a Wrongful Act . . . .” (Policy, ECF No. 18-1, 

Definitions, § IV(C); see Complaint, ECF No. 1, ¶ 15.) 

 “‘Wrongful Act’ means: [] (1) any actual or alleged act, error or omission in the 

performance of, or any failure to perform, a Managed Care Activity by any Insured 

Entity or by any Insured Person acting within the scope of his or her duties or capacity as 

such . . . .” (Policy, ECF No. 18-1, Definitions, § IV(W)(1); see Complaint, ¶ 16.) 

 “‘Managed Care Activity’ means any of the following services or activities: Provider 

Selection; Utilization Review; advertising, marketing, selling, or enrollment for health 

care or workers’ compensation plans; Claim Services; establishing health care provider 

networks; reviewing the quality of Medical Services or providing quality assurance; 

design and/or implementation of financial incentive plans; wellness or health promotion 

education; development or implementation of clinical guidelines, practice parameters or 

protocols; triage of payment of Medical Services; and services or activities performed in 

the administration or management of health care of workers’ compensation plans.” 

(Complaint, ECF No. 1, ¶ 16; Policy, ECF No. 18-1, Definitions, § IV(K).) An 

endorsement amends the term “Managed Care Activity” to include “[c]onsumer directed 

health plans, prescription drug, behavioral health, dental, vision, long or short-term 

disability and automobile medical payment plans.” (Complaint, ECF No. 1, ¶ 17; Policy, 

ECF No. 18-1, Endorsement No. 6.) 

 “‘Provider Selection’ [one of the Managed Care Activities] means any of the following, 

but only if performed by an Insured: evaluating, selecting, credentialing, contracting with 

or performing peer review of any provider of Medical Services.” (Policy, ECF No. 18-1, 

Definitions, § IV(P); see Complaint, ECF No. 1, ¶ 18.) 

 “‘Medical Services’ means health care, medical care, or treatment provided to any 

individual. . . .” (Policy, ECF No. 18-1, Definitions, § IV(M); see Complaint, ¶ 18.) 

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3. The Altair Action 

EYEXAM and LRNA were named as defendants in two lawsuits: (1) Altair Eyewear, Inc. v. 

Luxottica Retail North America, Inc., et al., Superior Court of California, County of Sacramento, 

Case No. 34-2014-00156471; and (2) Smith v. Luxottica Retail North America, et al., United 

States District Court, Southern District of California, Case No. 14-cv-0366 JAH (BLM). 

(Complaint, ECF No. 1, ¶ 2.) Allied moves to dismiss the claims challenging its alleged failure to 

defend in the Altair lawsuit. Altair filed is complaint on January 10, 2014 against LRNA and 

EYEXAM in Sacramento County Superior Court. (Id. ¶ 20; see also Altair Complaint, ECF No. 1-

1.) Relevant allegations from that complaint are as follows. 

At all relevant times, Altair was in the commercial business of selling eyeglass frames as retail 

fashion accessories and was a competitor of LRNA. (Complaint, ECF No. 1, ¶ 21; Altair

Complaint, ECF No. 1-1, ¶ 2.) Altair alleged that it lost business because LRNA and EYEXAM 

unlawfully provided consumers with a “one-stop shopping” experience. (Complaint, ECF No. 1, ¶ 

21; Altair Complaint, ECF No. 1-1, ¶¶ 18-19, 42-45.) To create this experience: 

 LRNA provided office space at its LensCrafters stores for EYEXAM’s doctors. (Altair

Complaint, ECF No. 1-1, ¶¶ 18-19, 22, 25-26.) 

 LRNA and its LensCrafters employees actively advertised, scheduled, and furnished the 

services of EYEXAM optometrists through LRNA’s LensCrafters website, other 

advertising, and signage in its retail stores. (Id. ¶¶ 18-20.) 

 LRNA selected, approved, and paid for the optometric equipment and supplies for the 

EYEXAM doctors practicing at LRNA’s LensCrafters stores, and LRNA and EYEXAM 

jointly controlled the ownership and retention of patient optometric records. (Id. ¶¶ 18, 21.) 

 LRNA designed its LensCrafters stores to require patients to walk through the dispensary 

where LRNA frames are sold, to the back of the store for an eye exam, and if issued a 

prescription, to walk back out through the dispensary, allowing LRNA’s LensCrafters 

employees to pressure or direct the vast majority of patients to fill their prescriptions and 

purchase LRNA lenses and frames. (Id. ¶¶ 18-19, 25-26.) 

 EYEXAM paid most of its doctors by the hour, which gave LRNA and EYEXAM the 

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power to reduce or increase scheduled hours and compensation and to better control the 

doctors’ professional judgment with punishments or rewards. (Id. ¶ 27.) 

 LRNA and EYEXAM actively pursued and retained doctors who understood that 

promoting LRNA’s products to patients is an important part of their jobs. (Id. ¶ 28.) 

 LRNA and EYEXAM used “capture rates”—the frequency with which LRNA’s 

LensCrafters dispensary “captures” the business generated by EYEXAM’s doctors’ exams 

and prescriptions—to evaluate and decide whether to promote EYEXAM’s doctors. (Id. ¶¶ 

18-19, 28-31.) 

Altair alleged that LRNA’s and EYEXAM’s business practices do not comply with several 

California statutes regulating licensed optometrists and dispensing opticians. (Complaint, ECF No. 

1, ¶¶ 21-22; Altair Complaint, ECF No. 1-1, ¶¶ 7-17, 34-40.) Altair thus sued LRNA and 

EYEXAM for unfair competition in violation of California Business and Professions Code § 

17200 et seq. (Complaint, ECF No. 1, ¶ 21; Altair Complaint, ECF No. 1-1, ¶¶ 33-45.) Altair 

sought injunctive relief, private attorney general attorneys’ fees, and costs. (Complaint, ECF No. 

1, ¶ 21; Altair Complaint, ECF No. 1-1 at 13-14.) 

LRNA and EYEXAM provided timely notice and asked Darwin to pay for defense costs 

incurred in defending the Altair Action. (Complaint, ECF No. 1, ¶ 23.) Darwin denied coverage 

and refused to pay such expenses. (Id.) LRNA and EYEXAM subsequently explained to Darwin 

why its coverage position was incorrect and provided further information demonstrating that the 

Altair Action was covered under the Policy. (Id.) More than once, LRNA and EYEXAM asked 

Darwin to reconsider its position, but Darwin responded by confirming its denial of coverage. (Id.) 

The Superior Court dismissed the Altair Action on December 5, 2014. (Complaint, ECF No. 1, 

¶ 20.) 

4. Relevant Procedural History 

On August 10, 2015, the plaintiffs LRNA and EYEXAM filed this lawsuit against the 

defendants Darwin and Allied for wrongfully denying coverage and refusing to pay the defense 

expenses incurred for the Altair Action and the Smith Action. (See generally Complaint, ECF No. 

1.) Allied moved to dismiss the claims relating to the Altair Action on the ground that the Altair

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Action was not a “Claim” covered under the Policy. (See Motion, ECF No. 17.) The claims 

relating to the Altair Action are claims one, two, and five: 1) claim one is for declaratory relief to 

establish the duty to pay; 2) claim two is for breach of contract for failing to pay defense expenses; 

and 3) claim five is for breach of the covenant of good faith and fair dealing. (Id. ¶¶ 36-56.) 

The court held a hearing on the motion on November 12, 2015. (Minute Order, ECF No. 37.) 

GOVERNING LAW 

1. Rule 12(b)(6) 

A complaint must contain a “short and plain statement of the claim showing that the pleader is 

entitled to relief” to give the defendant “fair notice” of what the claims are and the grounds upon 

which they rest. See Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 

(2007).” A complaint does not need detailed factual allegations, but “a plaintiff’s obligation to 

provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a 

formulaic recitation of the elements of a cause of action will not do. Factual allegations must be 

enough to raise a claim for relief above the speculative level....” Id. (internal citations omitted). 

To survive a motion to dismiss, a complaint must contain sufficient factual allegations, 

accepted as true, “‘to state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 

U.S. 662,678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when 

the plaintiff pleads factual content that allows the court to draw the reasonable inference that the 

defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a 

‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted 

unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). “Where a complaint pleads facts that are 

‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and 

plausibility of “entitlement to relief.”’” Id. (quoting Twombly, 550 U.S. at 557). 

If a court dismisses a complaint, it should give leave to amend unless the “the pleading could 

not possibly be cured by the allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. Northern 

California Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). 

2. The Interpretation of Insurance Agreements 

In MacKinnon v. Truck Insurance Exchange, the California Supreme Court summarized the 

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principles for interpreting insurance policies: 

Interpretation of an insurance policy is a question of law and follows the general 

rules of contract interpretation. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal. 

4th 1, 18, 44 Cal. Rptr. 2d 370, 900 P.2d 619 (Waller).) “The fundamental rules of 

contract interpretation are based on the premise that the interpretation of a contract 

must give effect to the ‘mutual intention’ of the parties. ‘Under statutory rules of 

contract interpretation, the mutual intention of the parties at the time the contract is 

formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if 

possible, solely from the written provisions of the contract. (Id., § 1639.) The “clear 

and explicit” meaning of these provisions, interpreted in their “ordinary and popular 

sense,” unless “used by the parties in a technical sense or a special meaning is given 

to them by usage” (id., § 1644), controls judicial interpretation. (Id., § 1638.)’ 

[Citations.] A policy provision will be considered ambiguous when it is capable of 

two or more constructions, both of which are reasonable. [Citation.] But language 

in a contract must be interpreted as a whole, and in the circumstances of the case, 

and cannot be found to be ambiguous in the abstract.” (Id. at p. 18, 44 Cal. Rptr. 2d 

370, 900 P.2d 619.) 

Moreover, insurance coverage is “‘“interpreted broadly so as to afford the 

greatest possible protection to the insured, [whereas] . . . exclusionary clauses are 

interpreted narrowly against the insurer.”’” (White v. Western Title Ins. Co. (1985) 

40 Cal. 3d 870, 881, 221 Cal. Rptr. 509, 710 P.2d 309.) . . . The burden is on the 

insured to establish that the claim is within the basic scope of coverage and on the 

insurer to establish that the claim is specifically excluded. (Aydin Corp. v. First 

State Ins. Co. (1998) 18 Cal. 4th 1183, 1188, 77 Cal. Rptr. 2d 537, 959 P.2d 1213.) 

31 Cal. 4th 635, 647-48 (Cal. 2003). 

3. An Insurer’s Duty to Defend 

In Scottsdale Insurance Company v. MV Transportation, the California Supreme Court 

summarized the principles relating to an insurer’s duty to defend as follows: 

An insurer must defend its insured against claims that create a potential for 

indemnity under the policy. (Montrose Chemical Corp. v. Superior Court (1993) 6 

Cal. 4th 287, 295, 24 Cal. Rptr. 2d 467, 861 P.2d 1153 (Montrose ); Gray v. Zurich 

Insurance Co. (1966) 65 Cal. 2d 263, 275, 54 Cal. Rptr. 104, 419 P.2d 168 (Gray ).) 

The duty to defend is broader than the duty to indemnify, and it may apply even in 

an action where no damages are ultimately awarded. (Horace Mann Ins. Co. v. 

Barbara B. (1993) 4 Cal. 4th 1076, 1081, 17 Cal. Rptr. 2d 210, 846 P.2d 792.) 

Determination of the duty to defend depends, in the first instance, on a 

comparison between the allegations of the complaint and the terms of the policy. 

(Montrose, supra, 6 Cal. 4th 287, 295, 24 Cal. Rptr. 2d 467, 861 P.2d 1153.) But 

the duty also exists where extrinsic facts known to the insurer suggest that the claim 

may be covered. (Ibid.) Moreover, that the precise causes of action pled by the 

third-party complaint may fall outside policy coverage does not excuse the duty to 

defend where, under the facts alleged, reasonably inferable, or otherwise known, the 

complaint could fairly be amended to state a covered liability. (Gray, supra, 65 Cal. 

2d 263, 275-276, 54 Cal. Rptr. 104, 419 P.2d 168; CNA Casualty of California v. 

Seaboard Surety Co. (1986) 176 Cal. App. 3d 598, 610-611, 222 Cal. Rptr. 276.) 

 

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The defense duty arises upon tender of a potentially covered claim and lasts 

until the underlying lawsuit is concluded, or until it has been shown that there is no 

potential for coverage. (Montrose, supra, 6 Cal. 4th 287, 295, 24 Cal. Rptr. 2d 467, 

861 P.2d 1153.) When the duty, having arisen, is extinguished by a showing that no 

claim can in fact be covered, “it is extinguished only prospectively and not 

retroactively.” (Buss v. Superior Court (1997) 16 Cal. 4th 35, 46, 65 Cal. Rptr. 2d 

366, 939 P.2d 766 (Buss); see also Aerojet-General Corp. v. Transport Indemnity 

Co. (1997) 17 Cal. 4th 38, 58, 70 Cal. Rptr. 2d 118, 948 P.2d 909 (AerojetGeneral).) 

On the other hand, “in an action wherein none of the claims is even potentially 

covered because it does not even possibly embrace any triggering harm of the 

specified sort within the policy period caused by an included occurrence, the insurer 

does not have a duty to defend. [Citation.] ‘This freedom is implied in the policy’s 

language. It rests on the fact that the insurer has not been paid premiums by the 

insured for [such] a defense. . . . [T]he duty to defend is contractual. “The insurer 

has not contracted to pay defense costs” for claims that are not even potentially 

covered.’ [Citation.]” (Aerojet-General, supra, 17 Cal. 4th 38, 59, 70 Cal. Rptr. 2d 

118, 948 P.2d 909, quoting Buss, supra, 16 Cal. 4th 35, 47, 65 Cal. Rptr. 2d 366, 

939 P.2d 766.) 

From these premises, the following may be stated: If any facts stated or fairly 

inferable in the complaint, or otherwise known or discovered by the insurer, suggest 

a claim potentially covered by the policy, the insurer’s duty to defend arises and is 

not extinguished until the insurer negates all facts suggesting potential coverage. On 

the other hand, if, as a matter of law, neither the complaint nor the known extrinsic 

facts indicate any basis for potential coverage, the duty to defend does not arise in 

the first instance. 

36 Cal. 4th 643, 654-55 (Cal. 2005). 

ANALYSIS 

The issue is whether the Altair lawsuit is a “Claim” under the Policy. Allied makes several 

arguments that it is not. (Motion, ECF No. 17 at 6-8; Reply, ECF No. 23 at 4-9.) 

First, Allied argues that the Altair Action does not meet the Policy’s definition of a “Claim” 

because “Claims” can be brought only by healthcare providers or plan members, and Altair “is 

neither a member (i.e., an enrollee or subscriber) nor a provider (i.e., a professional or health 

facility licensed to deliver or furnish healthcare service) of EYEXAM’s health care plan, but 

rather is alleged to be a competitor of [the p]laintiffs which has suffered economic harm as a result 

of [the p]laintiffs’ business practices in the form of loss of market share and sales.” (Motion, ECF 

No. 17 at 7-8.) But as the plaintiffs point out, nothing in the Policy says that “Claims” may be 

filed only by healthcare providers or plan members. Under the Policy, a “Claim” is “any written 

notice received by any Insured that a person or entity intends to hold an Insured responsible for a 

Wrongful Act . . . .” (Policy, ECF No. 18-1, Definitions, § IV(C) (emphasis added).) By its own 

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terms, a “Claim” is not limited to claims brought by healthcare providers or plan members. 

Second, Allied argues that the Altair Action is not a “Claim” because Altair did not try to hold 

the plaintiffs responsible for a “Wrongful Act.” (Motion, ECF No. 17 at 7.) The plaintiffs’ acts 

were not “Wrongful Acts,” Allied argues, because the “acts, errors, and omissions” that Altair 

alleged in the Altair Action do not fall within the Policy’s definition of “Managed Care Activity.” 

(Id.) 

Here, the Policy defines “Managed Care Activity,” and the definition encompasses a wide 

range of conduct. It includes: 

any of the following services or activities: Provider Selection; Utilization Review; 

advertising, marketing, selling, or enrollment for health care or workers’ 

compensation plans; Claim Services; establishing health care provider networks; 

reviewing the quality of Medical Services or providing quality assurance; design 

and/or implementation of financial incentive plans; wellness or health promotion 

education; development or implementation of clinical guidelines, practice 

parameters or protocols; triage of payment of Medical Services; and services or 

activities performed in the administration or management of health care of workers’ 

compensation plans. 

(Policy, ECF No. 18-1, Definitions, § IV(K).) It also includes “[c]onsumer directed health plans, 

prescription drug, behavioral health, dental, vision, long or short-term disability and automobile 

medical payment plans.” (Policy, ECF No. 18-1, Endorsement No. 6.) 

Allegations in the Altair Action fall within this definition. For example, Altair alleged that 

LRNA and EYEXAM actively pursued and retained doctors who understood that promoting 

LRNA’s products to patients is an important part of their jobs, used “capture rates” to evaluate and 

decide whether to promote EYEXAM’s doctors, and paid most of the doctors by the hour, which 

gave them the power to reduce or increase scheduled hours and compensation and to better control 

the doctors’ professional judgment with punishments or rewards. (Altair Complaint, ECF No. 1-1, 

¶¶ 18-19, 27-31.) These acts fall within the Policy’s definition of “Provider Selection,” which 

means “evaluating, selecting, credentialing, contracting with or performing peer review of any 

provider of Medical Services.” (Policy, ECF No. 18-1, Definitions, § IV(P).) Altair also alleged 

that LRNA provided office space at its LensCrafters stores for EYEXAM’s doctors and that 

LRNA and its LensCrafters employees actively advertised, scheduled, and furnished the services 

of EYEXAM optometrists through LRNA’s LensCrafters website, other advertising, and signage 

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in its retail stores. (Altair Complaint, ECF No. 1-1, ¶¶ 18-20, 22, 25-26.) These acts constitute 

“Managed Care Activity” because they constitute the “advertising, marketing, selling, or 

enrollment for health care or workers’ compensation plans” and “services or activities performed 

in the administration or management of health care of workers’ compensation plans.” (Policy, 

ECF No. 18-1, Definitions, § IV(K).) (See Opposition, ECF No. 19 at 11-12, summarizing 

allegations in the Altair complaint relating to “Managed Care Activity,” including design and 

implementation of financial incentive programs, development of clinical guidelines, practice 

parameters, and protocols, and services performed in the administration of health-care plans.) 

Allied does not explain how the Policy’s definition of “Managed Care Activity” can be read to 

exclude conduct that Altair alleged in its complaint. Instead, Allied relies on the Policy “as a 

whole,” arguing that it “is a Managed Care Errors & Omissions policy, not a business liability or 

Directors & Officers policy.” (Reply, ECF No. 23 at 6-7.) “The risk insured is an error or omission 

in the insured’s business as a managed care plan, not its anti-competitive activity as a purveyor of 

fashion eyewear.” (Id.) In short, Allied asserts, coverage is limited to liability for services 

provided by the managed care plan. (Id. at 9.) That, it says, is not the liability faced by the 

plaintiffs in Altair action: their liability was “neither premised on their conduct in establishing 

healthcare plan networks (e.g., a provider suing for being unfairly denied entrance into a health 

care plan network) nor for functions that involve the typical administrative and sales activities 

needed to maintain a managed care organization.” (Motion, ECF No. 17 at 8.) Instead, “Altair 

sued for unfair competition under Business & Professions Code § 17200, not for mismanagement 

of its own health care plan.” (Reply, ECF No. 23 at 5-6, emphasizing that Altair did not claim that 

it was harmed “as a user of managed care services.”) 

This argument does not change the outcome. It is true that “[t]he terms in an insurance policy 

must be read in context and in reference to the policy as a whole, with each clause helping to 

interpret the other,” Sony Computer Entm’t Am. Inc. v. Am. Home Assurance Co., 532 F.3d 1007, 

1012 (9th Cir. 2008) (citations omitted). But one cannot ignore the policy’s definitions. “If 

contractual language is clear and explicit, it governs.” Bank of the West v. Superior Ct., 2 Cal. 4th 

1254, 1264 (1992). The Policy’s definition of “Managed Care Activity” covers allegations in the 

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Altair complaint. Moreover, the Policy defines the risk that it is insuring, providing coverage for 

“any Insured Loss which the Insured is legally obligated to pay as a result of a Claim that is first 

made against the Insured during the Policy Period.” (Policy, ECF No. 18-1, Insuring Agreement, 

§ I.) A “Claim” is “any written notice received by any Insured that a person or entity intends to 

hold an Insured responsible for a Wrongful Act”; a “Wrongful Act,” includes “any actual or 

alleged act, error or omission in the performance of, or any failure to perform, a Managed Care 

Activity by any Insured Entity.” (Policy, ECF No. 18-1, Definitions, § IV(C), (W)(1).) And 

again, the Policy does not restrict coverage to “Claims” brought by healthcare providers or plan 

members. 

Third, Allied suggests that “principles” articulated by the California Supreme Court in Bank of 

the West bar coverage under the Policy for the “types of allegedly anticompetitive practices” at 

issue in the Altair Action. (Reply, ECF No. 23 at 3, 4.) In Bank of the West, the California 

Supreme Court interpreted the scope of coverage in a comprehensive general liability insurance 

policy. See 2 Cal. 4th at 1258. The court addressed whether the policy covered the “damages” the 

insured had to pay because of “advertising injury.” Id. at 1262. The policy defined “advertising 

injury” as a list of tort offenses arising in the course of advertising activities, one of which was 

“unfair competition,” which the policy did not define. Id. The court applied general principles of 

contract interpretation and concluded that the undefined term “unfair competition” referred to the 

common-law tort and not the much broader statutory definition. Id. at 1262-73. But as the 

plaintiffs point out in their sur-reply, the policy here is markedly different. Coverage is not limited 

to common-law torts, and the issue is not about construing an undefined term (such as “unfair 

competition”) in the context of other terms that give it meaning. Instead, this is a policy covering 

acts, errors, and omissions in the performance of “Managed Care Activity,” a defined term that 

covers a broad range of advertising, marketing, and administrative activities in providing health 

services or managing a health-care plan. (See Sur-Reply, ECF No. 32-1 at 7.) 

In sum, under the plain language of the Policy, and interpreting the Policy broadly to afford 

the greatest possible protection to the insured, the Altair Action is a covered “Claim.” See 

MacKinnon, 31 Cal. 4th at 648. 

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CONCLUSION 

The court denies Allied’s motion to dismiss. This disposes of ECF No. 17. 

IT IS SO ORDERED. 

Dated: November 12, 2015 ______________________________________ 

LAUREL BEELER 

United States Magistrate Judge 

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