Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca4-18-02376/USCOURTS-ca4-18-02376-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 18-2376

AFFINITY LIVING GROUP, LLC; CHARLES E. TREFZGER, JR.,

Plaintiffs – Appellants,

v.

STARSTONE SPECIALTY INSURANCE COMPANY,

Defendant – Appellee,

and

HOMELAND INSURANCE COMPANY OF NEW YORK,

Defendant.

Appeal from the United States District Court for the Middle District of North Carolina, at

Greensboro. Catherine C. Eagles, District Judge. (1:18-cv-00035-CCE-JEP)

Argued: January 30, 2020 Decided: May 26, 2020

Before KING, HARRIS, and RICHARDSON, Circuit Judges.

Vacated and remanded by published opinion. Judge Richardson wrote the opinion, in 

which Judge Harris joined. Judge King wrote a dissenting opinion. 

ARGUED: Carl Abbott Salisbury, BRAMNICK, RODRIGUEZ, GRABAS, ARNOLD & 

MANGAN, LLC, Scotch Plains, New Jersey, for Appellants. David L. Brown, 

GOLDBERG SEGALLA LLP, Greensboro, North Carolina, for Appellee. ON BRIEF: 

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Thomas W. Waldrep, Jr., Francisco T. Morales, WALDREP LLP, Winston-Salem, North 

Carolina, for Appellants. Martha P. Brown, GOLDBERG SEGALLA LLP, Greensboro, 

North Carolina, for Appellee.

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RICHARDSON, Circuit Judge:

Affinity Living Group, LLC and Charles E. Trefzger, Jr. (collectively, “Affinity”) 

were sued for allegedly submitting Medicaid reimbursement claims for services that they

never provided. Affinity then sought coverage for the suit under its insurance policy with 

StarStone Specialty Insurance Company. StarStone denied coverage because the lawsuit’s 

claims did not fall within the policy’s coverage for “damages resulting from a claim arising 

out of a medical incident.” J.A. 110. Affinity sued. Agreeing with StarStone that the 

policy did not cover the lawsuit, the district court granted judgment on the pleadings against

Affinity on a declaratory-judgment claim and a breach-of-contract claim. After Affinity 

then stipulated to the dismissal of its extra-contractual claims, it sought to appeal. 

Looking first to our own jurisdiction, we find that Affinity properly appeals from a 

“final” decision. Turning to the merits, we apply North Carolina law to hold that the

allegations in the underlying complaint fall within the insurance policy’s coverage 

provision. We thus vacate the district court’s order and remand for further proceedings.

I. Background

In 2016, Stephen Gugenheim filed a false-claims-act action against Affinity as an 

operator of adult care homes.

1

 In a false-claims-act suit, a private party brings an action 

on the government’s behalf and that party may receive a share of the recovery if successful. 

ACLU v. Holder, 673 F.3d 245, 248 (4th Cir. 2011). Gugenheim alleged that Affinity

1 An “adult care home” is an assisted living residence under North Carolina Law. 

N.C. Gen. Stat. § 131D-2.1(3). Affinity manages eighty of these facilities.

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submitted reimbursement claims for resident services that were never provided. Because 

those allegedly false claims were submitted to the government as part of the Medicaid 

program, he alleged Affinity’s actions violated the federal False Claims Act, 31 U.S.C. § 

3729, and the North Carolina False Claims Act, N.C. Gen. Stat. § 1-605.

Affinity sought coverage for the false-claims-act suit under a policy issued by

StarStone.2

 That policy provided indemnification and defense against certain claims.

StarStone denied Affinity’s request for coverage, so Affinity sued in federal court, bringing

four claims. In Count 1, Affinity asked for a declaratory judgment that StarStone breached 

its coverage obligations. Based on the same theory, Count 2 was a breach of contract claim 

for StarStone’s denial of coverage. In Counts 3 and 4, Affinity sought extra-contractual 

relief: Count 3 alleged a breach of the common law duty of good faith and fair dealing and 

Count 4 alleged a violation of North Carolina’s Unfair and Deceptive Trade Practices Act.

On Counts 1 and 2, StarStone moved for judgment on the pleadings. And Affinity 

sought partial summary judgment on whether StarStone had a duty to defend Affinity in 

the false-claims-act suit. The district court granted StarStone’s motion for judgment on the 

pleadings and denied Affinity’s motion for partial summary judgment. 

2 While no longer at issue, Affinity also sought coverage under a policy issued by 

Homeland Insurance Company of New York. Homeland’s policy served as “the first line 

of defense” while StarStone’s policy operated as the “umbrella” policy that applied “if the 

Homeland policy [was] exhausted on, or [was] inapplicable to, a covered claim.” J.A. 380–

81. The district court held that Homeland’s policy failed to provide coverage, and this 

appeal does not challenge that determination. 

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The district court determined that the insurance policy did not cover the falseclaims-act suit, so it rejected Affinity’s claim for a declaratory judgment (Count 1). And

since the policy did not require coverage, the court held that StarStone did not breach its

contract with Affinity by denying coverage (Count 2). But two claims remained against 

StarStone: Count 3 (duty of good faith and fair dealing) and Count 4 (North Carolina’s 

Unfair and Deceptive Trade Practices Act).

Affinity stipulated with StarStone that Counts 3 and 4—the only remaining counts 

in the action—“are dismissed without prejudice.” J.A. 398; see Fed. R. Civ. Pro. 

41(a)(1)(A). The stipulation explained that any amendment to Counts 3 and 4 “cannot 

revive the claims in this case, in consequence of the Court’s dismissal on summary 

judgment of Counts I and II, and this action has therefore been finally resolved on the 

merits.” Id. Affinity now appeals the dismissal of Counts 1 and 2 against StarStone.

II. Appellate Jurisdiction

Although Affinity and StarStone urge this appeal properly lays before us, “we must

assure ourselves of jurisdiction regardless of [the parties’] wishes.” Sprint Nextel Corp. v. 

Wireless Buybacks Holdings, LLC, 938 F.3d 113, 122 (4th Cir. 2019). With few 

exceptions, we may review district court judgments only once they have become “final.” 

28 U.S.C. § 1291. But what constitutes a “final” decision under § 1291 has consistently 

confused litigants and courts alike. 

Generally, a final decision disposes of all claims and “ends the litigation on the 

merits.” Catlin v. United States, 324 U.S. 229, 233 (1945). So “orders that dispose of only 

some of the claims in the lawsuit typically are not final and appealable.” Sprint Nextel 

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Corp., 938 F.3d at 122; see also Fed. R. Civ. P. 54(b). And since the district court 

dismissed only Counts 1 and 2 against StarStone—leaving Counts 3 and 4—the Parties 

faced a finality problem when planning this appeal. See Williamson v. Stirling, 912 F.3d 

154, 169 (4th Cir. 2018).

Anticipating the finality issue, Affinity and StarStone stipulated to the dismissal of 

Counts 3 and 4 without prejudice. With all counts thus dismissed, the Parties contend an 

appealable final judgment exists. But this stipulation raises a separate concern about 

whether the Parties agreed to the “voluntary dismissal[] as a subterfuge to manufacture 

jurisdiction for reviewing [an] otherwise non-appealable, interlocutory order[].” Waugh 

Chapel S., LLC v. United Food & Commercial Workers Union Local 27, 728 F.3d 354, 

359 (4th Cir. 2013). This we cannot abide. So to solve one problem, StarStone and Affinity 

may have created another.

Just three years ago, the Supreme Court addressed this concern with manufacturing 

finality through a voluntary dismissal. In Microsoft Corp. v. Baker, 137 S.Ct. 1702, 1710

(2017), consumers brought a design-defect claim on behalf of a putative class. But the 

district court struck the plaintiffs’ class allegations—thus functionally denying the class 

certification. The court’s decision did not end the case because the individual claims 

remained. But the ability to seek damages on behalf of a class, rather than the individual 

claims, motivated the case. Id. at 1711, 1711 n.7. Class certification decisions are 

“‘inherently interlocutory,’” not final under § 1291. Id. at 1706 (quoting Coopers & 

Lybrand v. Livesay, 437 U.S. 463, 470 (1978)). So to create an appealable final order on 

the class certification question, the Microsoft plaintiffs voluntarily dismissed all their 

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claims while reserving the right to revive their dismissed claims if the order striking class 

allegations was reversed on appeal. Giving finality a “practical rather than technical 

construction,” the Supreme Court found appellate jurisdiction lacking. Id. at 1712–13 

(internal quotation marks and citation omitted). The plaintiffs could not “subvert[] the 

final-judgment rule” to obtain review of the order striking their class allegations by 

dismissing their legally viable claims. Id. at 1712. They had to first “pursue their 

individual claims on the merits to final judgment, at which point the denial of class-action 

certification becomes ripe for review.” Id. at 1706. Permitting these plaintiffs to avoid the 

merits and obtain an immediate appeal of the class order would have improperly created

piecemeal litigation and subverted, for plaintiffs alone, the established scheme for 

interlocutory class-certification appeals. Id. at 1712. 

Similarly, in Keena v. Groupon, Inc., 886 F.3d 360, 362−63 (4th Cir. 2018), our 

Court applied Microsoft and rejected a plaintiff’s attempt to manufacture a final order.

Keena sought to appeal an interlocutory order staying the action and compelling arbitration 

of her claims. Id. at 362; cf. Lamps Plus, Inc. v. Varela, 139 S.Ct. 1407, 1414, 1414 n. 1–

2 (2019) (finding that an order compelling arbitration but also dismissing the claims

qualifies as a “final” decision). After the district court entered the order, Keena voluntarily 

dismissed her entire complaint. Even though Keena did so with prejudice, we held that the 

final-judgment rule would not tolerate that voluntary-dismissal tactic. Like the Microsoft

plaintiffs, Keena had to have the merits of her claims addressed in arbitration before she 

could secure a final judgment to appeal the arbitration order. In finding jurisdiction 

lacking, we noted that Keena’s tactic violated the “long-settled principle” that “‘no appeal 

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lies from a judgment of voluntary nonsuit.’” Keena, 886 F.3d at 365 (quoting Kelly v. 

Great Atlantic & Pacific Tea Co., 86 F.2d 296, 297 (4th Cir. 1936)); see also Central 

Transportation Co. v. Pullman’s Palace Car Co., 139 U.S. 24, 39 (1891); United States v. 

Evans, 9 U.S. (5 Cranch) 280, 281 (1809).

3

At first glance, it might seem the Parties here defied Microsoft and Keena—Affinity 

voluntarily stipulated to dismissing Counts 3 and 4 to appeal the court’s dismissal of 

Counts 1 and 2. And, as in Microsoft, Affinity plans to reinstate Counts 3 and 4 if we 

reverse the district court’s dismissal of Counts 1 and 2. 

Yet Microsoft and Keena are distinguishable based on the nature of the order sought 

to be appealed. In both those cases, the issues that the parties sought to appeal did not turn 

on the merits of the legal claims that they asserted. See Princeton Digital Image Corp. v. 

Office Depot Inc., 913 F.3d 1342, 1348 (Fed. Cir. 2019) (noting that Microsoft “establishes 

that a voluntary dismissal does not constitute a final judgment where the district court’s 

ruling has not foreclosed the plaintiff’s ability to prove the required elements of the cause 

of action”). The issue in Microsoft—a ruling on class allegations—“in no way touch[ed] 

the merits” of the claims. Gardner v. Westinghouse Broadcasting Co., 437 U.S. 478, 482 

(1978). And in Keena, the arbitration ruling dealt with the mode of dispute settlement, not 

the merits of the dispute. Keena, 886 F.3d at 362. 

3 Here, Affinity does not seek to appeal from its consensual dismissal of Counts 3 

and 4. Affinity seeks only to appeal the district court’s dismissal of Counts 1 and 2.

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But here, success on Counts 1 and 2 is necessary for Affinity to prevail on the merits 

of Counts 3 and 4. Without a contractual duty to provide coverage, StarStone cannot 

breach the covenant of good faith and fair dealing. See Tillis v. Calvine Cotton Mills, Inc.,

111 S.E.2d 606, 610 (N.C. 1959); Cordaro v. Harrington Bank, FSB, 817 S.E.2d 247, 257 

(N.C. Ct. App. 2018). The same is true under the North Carolina Unfair and Deceptive 

Trade Practices Act. See Heron Bay Acquisition, LLC v. United Metal Finishing, Inc., 781 

S.E.2d 889, 892 (N.C. Ct. App. 2016). So in rejecting Affinity’s contractual claims

(Counts 1 and 2), the district court—as a doctrinal matter—doomed Affinity’s extracontractual claims (Counts 3 and 4).

4

In this context, the voluntary dismissal without prejudice of claims rendered legally 

deficient by the district court’s prior ruling created a final judgment. The Parties’

stipulation of dismissal explained that “any amendment to Counts III and IV . . . cannot 

revive the claims in this case in consequence of the Court’s dismissal on summary 

judgment of Counts I and II, and this action has therefore been finally resolved on the 

merits.” J.A. 398; see Domino Sugar Corp. v. Sugar Workers Local Union 392, 10 F.3d 

1064, 1066–67 (4th Cir. 1993) (holding that dismissals without prejudice generally are not 

appealable unless the dismissal indicates that no amendment could cure the defect). In 

doing so, Affinity waived any right to later assert that Claims 3 and 4 can survive the district 

4 Because of this relationship between the contractual and extra-contractual claims, 

Affinity was unable to avail itself of certification under Rule 54(b) of the Federal Rules of 

Civil Procedure. See Braswell Shipyards, Inc. v. Beazer East, Inc., 2 F.3d 1331, 1335–39 

(4th Cir. 1993). 

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court’s interpretation of the policy. See In re GNC Corp., 789 F.3d 505, 511 n.3 (4th Cir. 

2015).

So Affinity’s case was not just practically over (as in Microsoft) but legally over—

and no legal argument could permit success on Counts 3 and 4 after the rejection of Counts 

1 and 2.5

 As a matter of law, the district court’s order on Counts 1 and 2 meant that Affinity 

lacked an essential element of the claims in Counts 3 and 4. Neither Microsoft nor Keena

prohibits parties from voluntarily dismissing legal claims that necessarily fail based on a 

district court’s prior order. See Sprint, 938 F.3d at 124 n.5; see also Princeton Digital 

Image Corp., 913 F.3d at 1349 (“[U]nless the district court has conclusively determined, 

including determined by consent, that the plaintiff has failed to satisfy a required element 

of the cause of action, a voluntar[y] dismissal lacks finality.”). All of Affinity’s claims 

were effectively disposed of and the litigation on the merits was unavoidably over in the 

district court. See Catlin, 324 U.S. at 233; see also United States v. Wallace & Tiernan 

Co., 336 U.S. 793, 794−95 n.1 (1949) (permitting appeal from a dismissal without 

prejudice based on the court’s denial of the “Government’s motions for production of 

documents essential to prove the Government’s case”). We thus find that the voluntary 

dismissal of Counts 3 and 4 based on the district court’s order dismissing Counts 1 and 2 

created a final, appealable order. 

5 Of course, we would have a different case if the district court had dismissed Counts 

3 and 4, and the Parties voluntarily dismissed Counts 1 and 2. Because legal success on 

Counts 1 and 2 does not necessarily depend on Counts 3 and 4, we may well be suspicious 

that this scenario involves an end run around the final judgment rule. Cf. West v. Louisville 

Gas & Elec. Co., 920 F.3d 499, 504–05 (7th Cir. 2019). But we do not address this

circumstance today.

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III. The Insurance Policy Coverage

Having confirmed our appellate jurisdiction, we now turn to the merits. We review

de novo the district court’s granting of StarStone’s motion for judgment on the pleadings, 

assuming the facts alleged are true and drawing all reasonable factual inferences in favor 

of the non-moving party. Burbach Broadcasting Co. of Delaware v. Elkins Radio Corp., 

278 F.3d 401, 405–06 (4th Cir. 2002). We also review de novo the denial of Affinity’s 

motion for partial summary judgment. Variety Stores, Inc. v. Wal-Mart Stores, Inc., 888 

F.3d 651, 659 (4th Cir. 2018). And we apply North Carolina law in interpreting the

insurance policy de novo. See Wells v. Liddy, 186 F.3d 505, 521 (4th Cir. 1999); Fortune 

Insurance Co. v. Owens, 526 S.E.2d 463, 466 (N.C. 2000).

Affinity seeks insurance coverage for the false-claims-act suit filed against it.6

 That

suit seeks damages for Medicaid claims that Affinity submitted for personal-care services 

for residents of Affinity’s adult-care homes. Those claims, the false-claim-act complaint 

alleges, were false because Affinity failed to provide the residents with the claimed

personal-care services. 

6 StarStone has a duty to defend “any suit for damages which are payable under this 

Policy.” J.A. 197. This duty to defend, under North Carolina law, depends on the 

allegations in the complaint. Pennsylvania National Mutual Casualty Insurance Co. v. 

Associated Scaffolders & Equipment Co., 579 S.E.2d 404, 407 (N.C. Ct. App. 2003). Here, 

the relevant pleading is the false-claim-act complaint. In North Carolina, “[w]hen the 

pleadings [in the underlying lawsuit] state facts demonstrating that the alleged injury is 

covered by the policy, then the insurer has a duty to defend, whether or not the insured is 

ultimately liable.” Ames v. Cont’l Cas Co., 340 S.E.2d 479, 486 (N.C. App. 1986). 

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StarStone’s policy covers “damages resulting from a claim arising out of a medical 

incident.” J.A. 187.7 Affinity argues that the false-claims-act action is covered under this 

provision because its damages “aris[e] out of a medical incident.” J.A. 187. A “[m]edical 

incident” is an “act, error or omission in [Affinity’s] rendering or failure to render medical 

professional services [i.e., ‘the health care services or the treatment of a patient’].” J.A. 

205.8 And the parties agree that rendering, or failing to render, personal-care services 

qualifies as a “medical incident.” 

But the false-claims-act complaint does not seek damages for rendering or failing 

to render the personal-care services. It instead seeks damages for submitting false 

Medicaid reimbursement claims for resident services that Affinity never provided. And 

StarStone rightly argues that billing Medicaid for reimbursement is not itself a “medical 

incident.” Instead, medical incidents focus on providing services or treatment to a patient. 

J.A. 205. And they do not include submitting Medicaid reimbursement claims.9

7 While the policy includes bolded language (in this provision, bolding “damages,”

“claim,” and “medical incident” to reflect that those words are defined elsewhere in the 

policy), we have omitted the emphasis throughout this opinion to improve readability.

8 J.A. 205 (“Medical Incident means an alleged or actual act, error or omission in 

the insured’s rendering or failure to render medical professional services. . . . Medical 

Professional Services mean the health care services or the treatment of a patient including 

medical, surgical, dental, nursing, psychiatric, osteopathic, chiropractic or other health care 

professional services; furnishing or dispensing of prescription drugs, blood, blood 

products, medical, surgical or dental supplies; furnishing of food or beverage in connection 

with such treatment; and the providing of counseling or social services in connection with 

such treatment of care. Medical professional services includes the insured’s committee 

activities for accreditation, quality assurance, peer review, and standards review.”). 9 A “medical incident” is defined to include some administrative tasks—

“committee activities for accreditation, quality assurance, peer review, and standards 

review,” J.A. 205—but nothing that would include submitting reimbursement claims.

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Even though seeking Medicaid reimbursement is not itself a “medical incident,”

Affinity argues that the Medicaid claims do “aris[e] out of” a medical incident. The policy 

does not itself define the phrase, “arising out of.” And although we have encountered this 

phrase in other contexts, see Keith v. Aldridge, 900 F.2d 736, 740 (4th Cir. 1990) (claim 

preclusion); Sue & Sam Manufacturing Co. v. B-L-S Construction Co., 538 F.2d 1048, 

1050 (4th Cir. 1976) (compulsory counterclaims), we must apply the law of North Carolina 

in interpreting the meaning of “arising out of” in StarStone’s policy. 

For insurance policy provisions, North Carolina courts interpret “arising out of” 

broadly to include only a causal connection when used in a provision extending coverage

but interpret the phrase more narrowly to require proximate causation when used in a 

provision excluding coverage. State Capital Insurance Co. v. Nationwide Mutual 

Insurance Co., 350 S.E.2d 66, 72 (N.C. 1986). In State Capital, the owner of a pick-up 

truck spotted a deer and reached into the back of his truck to retrieve his rifle. Id. at 67. In 

doing so, the rifle discharged, striking a passenger in the leg. Id. at 68. The driver held

two insurance policies, an automobile policy and a homeowner’s policy. Id. The 

automobile policy provided coverage for damages “arising out of the ownership, 

maintenance or use” of the truck. Id. In construing this policy, the court followed the rule

that insurance policy provisions extending coverage “must be construed liberally, so as to 

provide coverage, whenever possible by reasonable construction.” Id. at 68. Based on this 

rule, the court held that the phrase “arising out of” required only some causal connection 

between the use of the automobile and the accident, not that the use of the automobile was 

the proximate cause of the accident. Id. at 69. As the transport and unloading of firearms 

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is an ordinary use of a truck, the court held that an accidental discharge during that use was

covered by the automobile policy. Id. at 70.

Having found coverage under the automobile policy, the court turned to the driver’s 

homeowner’s policy. That policy excluded damages “arising out of the ownership, 

maintenance, use, loading, and unloading” of a motor vehicle. Id. The insurance company 

argued that, if this same language (“arising out of”) extended coverage in the automobile 

policy, then it must exclude coverage for the homeowner’s policy. Not so. Applying its

corollary rule of construction that requires the strict construction of terms limiting 

insurance coverage, the court held that “arising out of” required more than a mere causal 

connection; it required “proximate cause.” Id. at 74. Given this narrow interpretation, the 

court determined that negligent mishandling of a rifle could constitute the proximate cause 

of the passenger’s injury and so the homeowner’s policy might also apply. Id.10 

Applying the broad conception of “arising out of” for a policy provision extending 

coverage, the court in City of Greenville v. Haywood, 502 S.E.2d 430 (N.C. App. 1998),

held that a police officer’s sexual assault after an investigation concluded was a wrongful 

act “arising out of” the performance of law enforcement activities. Id. at 434–35. Giving

a “liberal construction” to this policy provision that extends coverage, as the Supreme 

10 North Carolina courts are not alone in applying different rules of construction 

when interpreting insurance policy provisions that extend coverage and those that exclude 

coverage. See Crossett Paper Mills Emps. Fed. Credit Union v. Cumis Ins. Soc’y, Inc., 

476 F.3d 578, 581 (8th Cir. 2007) (“[T]he Arkansas Supreme Court would construe the 

necessary ‘arising out of the use’ of an automobile causal connection in an exclusion of 

coverage situation as narrowly as it construed this term broadly in a coverage situation [, 

so] . . . only if the bodily injury’s sole proximate cause is the use of an automobile will this 

exclusion apply and coverage be denied.”).

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Court of North Carolina had done in State Capital, the court held that the officer’s sexual 

assault arose out of his law enforcement duties because “‘but for’” his role as an officer, 

he “would not have had an opportunity to enter Ms. Haywood’s home, conduct a partial 

investigation of the reported break-in, and later sexually assault her.” Id. at 434. All that 

was required was a “causal nexus between [the officer’s] law enforcement duties and the 

resultant unlawful conduct.” Id.11

Here, the term “arising out of” falls within a provision extending coverage and so 

must be interpreted broadly to require only some “causal connection” between the conduct 

defined in the policy and the injury for which coverage is sought. State Capital, 350 S.E.2d 

at 69. There is no connection if the injury “was directly caused by some independent act 

or intervening cause wholly dissociated from, independent of, and remote from” the 

conduct defined in the policy. Id. 

11 More recently, the North Carolina Supreme Court found that an insurance policy 

provided no coverage for claims against a city police officer for sexual assault. Young v. 

Great Am. Ins. Co. of N.Y., 602 S.E.2d 673, 674 (N.C. 2004) (adopting the dissent from 

the North Carolina Court of Appeals, 590 S.E.2d 4 (N.C. Ct. App. 2004) (Hunter, J., 

dissenting)). As in Haywood, the Young policy covered claims that “aris[e] out of the 

performance of the Insured’s duties to provide law enforcement activities.” 590 S.E.2d at 

6 (internal quotation marks and citation omitted). But, unlike Haywood, the policy in 

Young went a step further, covering only claims for “wrongful acts,” which were defined 

as “actual or alleged errors, misstatement or misleading statement, act or omission, or 

negligent act or breach of duty by an Insured while performing law enforcement duties.” 

Id. The court relied on this narrow definition of “wrongful acts” to hold that the policy did 

not cover the assault. Id. at 8. And the court noted that the general liability policy also 

excluded coverage for the officer’s intentional sexual assaults. Id.

StarStone’s policy, like that in Young, enumerates coverage exclusions. And 

StarStone made various arguments below for why the lawsuit was excluded from coverage. 

Having resolved the threshold question that the lawsuit did not fall within the coverage 

provision, the district court declined to reach StarStone’s alternative arguments against 

coverage. J.A. 391. And we do not reach those arguments now.

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StarStone contends that billing for personal-care services is “wholly disassociated 

from, independent of, and remote from” the personal-care services. Id. Here, the falseclaims-act complaint alleges that Affinity billed Medicaid for personal-care services that 

were not performed. This allegedly false billing does not arise in a vacuum. The personalcare-services billing is false, and thus gives rise to a claim for damages, because Affinity 

failed to provide the personal-care services to its residents. See J.A. 103. In other words, 

but for the failure to provide the services, no claim for damages exists.

The “failure to render” services is a covered “medical incident” under the policy. 

J.A. 205. And that alleged failure made the Medicaid claims false, giving rise to potential 

damages in the false-claims-act suit. So while the alleged false billing was not itself a 

“medical professional service,” the failure to “render medical professional services” bears 

a causal relationship to the billing. J.A. 205.

12 Thus, under North Carolina’s caselaw, the 

false-claims-act action falls within the coverage provision in the StarStone insurance 

policy.

12 The Tenth Circuit has held that, under Colorado law, fraudulent Medicaid billing 

is not covered by a policy encompassing claims “caused by” a medical incident. Zurich 

Am. Ins. Co. v. O’Hara Regional Ctr. for Rehabilitation, 529 F.3d 916, 921–926, 919 n. 3, 

5 (10th Cir. 2008). It did so only after adopting Colorado’s narrow causation requirement 

between the injury and the covered activity. The Supreme Court of North Carolina adopts 

a much broader causal link for policy provisions extending coverage based on the phrase 

“arising out of.” Compare State Capital, 350 S.E.2d at 69 (“arising out of” is “much 

broader” than “caused by” and is understood to mean “incident to” or “having connection 

with”), with Zurich, 529 F.3d at 925 (noting that the billing was “incidental” to operating 

the nursing home and thus the injury was not “caused by” medical services). 

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* * *

Affinity properly appealed the district court’s order dismissing its contractual claims 

after voluntarily dismissing extra-contractual claims that were necessarily precluded by the

order. And we agree with Affinity that the district court should not have rejected the 

contractual claims as it did. Applying North Carolina’s precedents on interpreting 

insurance policies, we find that the false-claims-act action “arises out of” a medical 

incident as required to fall under the coverage provision of StarStone’s policy. So we 

vacate the district court’s order granting StarStone’s motion for judgment on the pleadings 

and vacate the order denying Affinity’s motion for partial summary judgment. We express 

no opinion on StarStone’s alternative arguments that the district court did not consider. 

And we remand for further proceedings.

VACATED AND REMANDED

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KING, Circuit Judge, dissenting:

I would dismiss this appeal for lack of appellate jurisdiction because the district 

court has not rendered a “final decision[]” within the meaning of 28 U.S.C. § 1291. The 

Supreme Court made clear in its 2017 Microsoft Corp. v. Baker decision that a party may 

not manufacture § 1291 final decision jurisdiction through a voluntary dismissal. See 137 

S. Ct. 1702, 1706-07. Our Court faithfully applied that directive in Keena v. Groupon, 

Inc., when we ruled that the appellant’s voluntary dismissal of her claims in the district 

court could not “transform an otherwise interlocutory order into a § 1291 final decision.” 

See 886 F.3d 360, 364 (4th Cir. 2018). Other federal courts of appeals have rendered 

similar jurisdictional decisions when a plaintiff has voluntarily dismissed a claim in an 

attempt to create appellate jurisdiction under § 1291. See, e.g., Galaza v. Wolf, 954 F.3d 

1267, 1272 (9th Cir. 2020); West v. Louisville Gas & Elec. Co., 920 F.3d 499, 504-06 (7th 

Cir. 2019); Marshall v. Kansas City S. Ry. Co., 378 F.3d 495, 499-500 (5th Cir. 2004).

In these proceedings, Plaintiffs Affinity Living Group, LLC, and Charles E. 

Trefzger, Jr. (together, “Affinity”), along with Defendant StarStone Specialty Insurance 

Co., did precisely what Baker and Keena forbid. That is, they strove to make appealable 

under § 1291 an interlocutory order that resolved only half of Affinity’s claims (the 

“contractual claims”) by way of a stipulated voluntary dismissal of the balance of Affinity’s 

claims (the “extra-contractual claims”).1

 And the voluntary dismissal of the extra1 Rule 41(a) of the Federal Rules of Civil Procedure governs the voluntary dismissal 

of an “action.” Under that rule, the parties stipulated to the voluntary dismissal of the extracontractual claims alleged against StarStone. See Fed. R. Civ. P. 41(a)(1)(A)(ii) (providing 

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contractual claims was without prejudice, potentially permitting Affinity to revive those 

claims after testing the appellate waters for the contractual claims. Notably, the language 

of the stipulated voluntary dismissal demonstrates that the purpose thereof is to 

manufacture appellate jurisdiction under § 1291.

In seeking to concoct § 1291 final decision jurisdiction, the parties attempt to 

perform an end run around the procedural rules governing their circumstances — just as in 

Baker (where the plaintiff sought to avoid Rule 23(f) of the Federal Rules of Civil 

Procedure) and as in Keena (where the plaintiff sought to avoid 9 U.S.C. § 16(b)). For 

example, pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, Affinity could 

have sought the entry of final judgment on the contractual claims — even if the probability 

of prevailing on that request was low — and then appealed if successful. See West, 920 

F.3d at 506. In the alternative, Affinity could have pursued an interlocutory appeal from 

the district court’s ruling on the contractual claims, pursuant to 28 U.S.C. § 1292(b). Id. 

Affinity did neither.2

 Instead, Affinity — along with StarStone — endeavored to contrive

for stipulated voluntary dismissals). By accepting the stipulated dismissal as effective, my 

good colleagues in the majority must assume that Rule 41(a) can be utilized to dismiss 

specific claims against one defendant — as opposed to an entire lawsuit. Without staking 

my dissent on the issue, I simply observe that some of our sister circuits disagree. See 

Perry v. Schumacher Grp. of La., 891 F.3d 954, 958 (11th Cir. 2018); Berthold Types Ltd. 

v. Adobe Sys., Inc., 242 F.3d 772, 777 (7th Cir. 2001); Philip Carey Mfg. Co. v. Taylor, 

286 F.2d 782, 785 (6th Cir. 1961).

2 Affinity might also have asked for reconsideration of the district court’s judgment 

on the contractual claims and identified the overlapping nature of the extra-contractual 

claims with the resolved contractual claims. Or Affinity could have moved for leave to 

amend its complaint to withdraw the extra-contractual claims after the district court entered 

judgment on the contractual claims. Another possibility: after noticing this appeal, 

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finality under § 1291 through voluntary dismissal. Id. (criticizing an appellant for his 

efforts “to fabricate a final judgment” and “circumvent section 1291”).

Although the panel majority’s jurisdictional ruling may very well be motivated by 

pragmatism, today’s decision further complicates the already complex topic of federal 

appellate jurisdiction. As I see it, the majority conjures up an immaterial and somewhat 

confusing distinction between this matter, on the one hand, and the Baker and Keena cases, 

on the other. At bottom, I believe that the precedents of the Supreme Court and this Court 

require us to discourage litigants from manufacturing § 1291 appellate jurisdiction by way 

of voluntary dismissals. Because I would dismiss this appeal based on those precedents, I 

respectfully dissent.

Affinity might have asked the district court to help it cure the jurisdictional problem. See

Doe v. Pub. Citizen, 749 F.3d 246, 258 (4th Cir. 2014) (explaining that, after the filing of 

a notice of appeal, a federal district court is divested of jurisdiction to rule on matters 

related to the appeal unless such rulings “aid[] the appellate process”).

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