dc healthcare systems inc. v. lexington insurance company

8/17/2019 DC Healthcare Systems Inc. v. Lexington Insurance Company

1/87

-1-4810-5187-8192

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

D.C. HEALTHCARE SYSTEMS, INC.,

1101 Pennsylvania Avenue, NW, 7th FloorWashington, D.C. 20004,

Plaintiff,

v.

LEXINGTON INSURANCE COMPANY,100 Summer StreetBoston, Massachusetts 02110,

Defendant.

Case No. _____________

JURY TRIAL DEMANDED

COMPLAINT

NATURE OF THE ACTION

1. This is an action by Plaintiff D.C. Healthcare Systems, Inc. (“DCHSI”) against

Lexington Insurance Company (“Lexington”) seeking damages for Lexington’s breach of its

obligations under an insurance policy it issued in which it agreed to provide insurance coverage

to DCHSI. DCHSI asserts claims herein against Lexington for breach of contract, declaratory

judgment, and breach of Lexington’s implied covenant of good faith and fair dealing.

2. In return for a substantial premium, Lexington issued a liability insurance policy

that provided defense and indemnity coverage for DCHSI, among others, in the event a claim

was made against DCHSI as a result of certain acts, errors, or omissions.

3.

DCHSI was sued in the Superior Court for the District of Columbia, and

requested that Lexington defend and indemnify it pursuant to the terms of the insurance policy it

sold. Lexington denied DCHSI’s claim on the basis of a misconstruction of its policy language

that ignores the plain terms of the policy it drafted, as well as a mischaracterization of the key

Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 1 of 10


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allegations set forth in the underlying lawsuit. Lexington has breached the Policy by denying

coverage and refusing to defend DCHSI, and has also breached its implied covenant of good

faith and fair dealing owed to DCHSI.

PARTIES

4. Plaintiff DCHSI is incorporated, and has its principal place of business, in the

District of Columbia.

5. Upon information and belief, Defendant Lexington, an American International

Group (AIG) company, is incorporated in Delaware, and has its principal place of business in

Boston, Massachusetts.

JURISDICTION

6. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332(a), as

this action is between citizens of different states and the amount in controversy exceeds $75,000,

exclusive of interest and costs. This Court also has jurisdiction to award declaratory relief

pursuant to 28 U.S.C. § 2201. Further, Lexington has submitted to this Court’s jurisdiction by

virtue of a “Service of Suit Condition” included in an endorsement to the policy which states, in

relevant part, “[i]n the event of our failure to pay any amount claimed to be due hereunder, we, at

your request, will submit to the jurisdiction of a court of competent jurisdiction within the United

States.”

7. Venue in this Court is appropriate pursuant to 28 U.S.C. § 1391(b), as a

substantial part of the events or omissions giving rise to the claim occurred within this judicial

district, and, additionally, Lexington resides within this judicial district for purposes of venue

because it is subject to this Court’s personal jurisdiction with respect to this action.



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FACTUAL BACKGROUND

The Lexington Insurance Policy

8. Lexington issued a Managed Care Risk Solutions Claims Made liability insurance

policy, policy number 35848309, effective March 15, 2013 through March 15, 2014, providing

$6 million in insurance coverage per claim, subject to a $25,000 self-insured retention (the

“Policy”). A copy of the Policy is attached hereto as Exhibit A. The Policy was extended, for a

substantial additional premium, through March 15, 2017 via an “Optional Extended Reporting

Period.” The Policy was issued to DCHSI’s subsidiary, D.C. Chartered Health Plan, Inc. (“D.C.

Chartered”), as the “Named Insured,” and provided coverage for D.C. Chartered’s directors,

officers, employees, and certain other individuals. By endorsement, the Policy extends coverage

to DCHSI as an “Additional Insured.”

9. The Policy broadly provides coverage for claims “resulting from an act, error, or

omission in the performance of: (1) any health care or managed care financial, management or

insurance service you perform in your business, (2) the design, development and marketing of

any such service, and (3) your vicarious liability for the conduct of others performing any such

service on your behalf.”

10.

The Policy obligates Lexington to defend such claims “even if the allegations are

groundless, false or fraudulent.” The Policy also obligates Lexington to pay “reasonable and

necessary claims expenses incurred in the defense of the claim,” and in turn defines “claims

expenses” to include, inter alia, “all reasonable and necessary fees and expenses incurred in the

investigation and defense of any claim, including all fees and expenses incurred in complying

with court mandated electronic discovery,” and “all costs awarded against you and prejudgment

interest awarded against you on that part of the judgment we pay.” The Policy covers, inter alia,



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compensatory damages for tortious conduct, breach of contract, breach of duty, violation of civil

statute, ordinance or regulation, and attorneys’ fees of another party awarded against an insured.

11. The Policy defines “Claim” as “a written communication received by a Named

Insured’s Risk Management or Legal Department seeking damages or other civil, administrative

or injunctive relief, or threatening suit or arbitration, including service of suit or institution of

arbitration proceedings.”

12. The Policy covers claims first made against a covered entity or person and

reported to Lexington during the period the Policy is in effect, or within 90 days following its

termination.

13. DCHSI has performed its obligations under the Policy in good faith, and has

complied with, or has caused to be complied with, all Policy conditions.

The Underlying Rehabilitator Lawsuit Against DCHSI and Thompson

14. On January 13, 2015, William P. White, Commissioner (“Commissioner White”

or the “Rehabilitator”) of the District of Columbia Department of Insurance, Securities and

Banking (“DISB”), in his capacity as court-appointed Rehabilitator of D.C. Chartered, filed an

Amended Complaint in the Superior Court for the District of Columbia against, among others,

DCHSI (the “Rehabilitator Suit”). A copy of the Rehabilitator Suit is attached hereto as Exhibit

B.

15. The Rehabilitator Suit alleges that D.C. Chartered is a health maintenance

organization (“HMO”) regulated by the DISB, and that D.C. Chartered is required under the

D.C. Code to maintain a certain minimum amount of capital. The Rehabilitator Suit alleges that

D.C. Chartered’s capital fell below the statutory minimum and, as a result of financial troubles,

D.C. Chartered adopted a resolution consenting to its rehabilitation under D.C. Code.



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16. The Rehabilitator Suit alleges that, in October 2012, Commissioner White filed a

petition for order of rehabilitation, and that the Superior Court granted the petition the same day,

appointing Commissioner White as D.C. Chartered’s Rehabilitator. The Rehabilitator Suit states

that the Rehabilitator filed the suit following an investigation into D.C. Chartered’s books and

records. In the Rehabilitator Suit, the Rehabilitator expressly alleges that he brought the suit in

his capacity as Rehabilitator, and on behalf of D.C. Chartered, pursuant to the October 2012

Court order of rehabilitation.

17. The Rehabilitator Suit includes, among others, the following allegations:

a.

That in 2011, D.C. Chartered made improper cash transfers of $1.15 million

to affiliated entities, including at least $925,000 to DCHSI.

b. That DCHSI owes approximately $4 million to D.C. Chartered relating to

excess estimated tax payments.

c. That as a condition to DCHSI obtaining a line of credit from Cardinal Bank,

D.C. Chartered was required to, and did, execute a guaranty of payment and

a pledge agreement to secure D.C. Chartered’s performance under the

guaranty and DCHSI’s repayment of the line of credit. The Rehabilitator

Suit alleges that one of DCHSI’s principals agreed to indemnify D.C.

Chartered for any loss it may incur under the guaranty and pledge

agreement. The Rehabilitator Suit alleges that, in April 2013, Cardinal

Bank cited events of default and, in May 2013, liquidated the assets pledged

by D.C. Chartered and, as a result, D.C. Chartered is obligated to be

indemnified in the amount of approximately $12 million.



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18. The Rehabilitator Suit asserts six causes of action: (1) breach of fiduciary duty;

(2) unjust enrichment; (3) conversion; (4) breach of contract; (5) indemnification; and (6)

violation of statutory duty to cooperate under D.C. Code § 31-1305.

19. The Rehabilitator Suit is a “claim” within the scope of coverage provided under

the terms of the Policy.

20. DCHSI has incurred, and will continue to do so in the future, substantial amounts

in defense of the Rehabilitator Suit, and faces the potential of substantial liability as a result of

the claims set forth in the Rehabilitator Suit.

Lexington’s Denial of Coverage

21. DCHSI provided timely notice to Lexington of the Rehabilitator Suit, and

requested that Lexington defend and indemnify it in connection with the Rehabilitator Suit.

22. Lexington failed to timely respond and, when it did, it denied its coverage

obligations, including its duty to defend DCHSI, in connection with the Rehabilitator Suit.

23. Lexington acknowledged that DCHSI is an Additional Insured, and did not

dispute that there was coverage for the Rehabilitator Suit within the terms of the Policy’s

Insuring Agreement. But, ignoring the plain language of the Policy it drafted, and the fact that

the Rehabilitator Suit was brought by the Rehabilitator (and not the Policy’s Named Insured,

D.C. Chartered), Lexington wrongly contended that coverage was barred by an exclusion in the

Policy relating to disputes between an “Insured” and its “officers, directors, employees, trustees,

subsidiaries or affiliated entities.” Among other things, Lexington ignored the fact that the

exclusion on which it based its denial is prefaced by the words “We will neither defend you nor

pay any claim arising out of . . .” (emphasis added), and in turn “you” is defined in the Policy as

being limited to an “Insured.” Thus, under the terms of the Policy that Lexington drafted,



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Lexington’s defense obligation as to an “Additional Insured” is not impacted by the exclusion on

which Lexington based its denial.

24. DCHSI responded to Lexington’s coverage denial, pointing out the error in

Lexington’s construction of the Policy, and requested that Lexington withdraw its denial and

provide a defense for DCHSI. When it did respond, rather than acknowledging the plain terms

of its Policy, Lexington raised new additional arguments that were not supported by the Policy

language and, if applied, would render coverage illusory. The plain terms of the Policy compel

that DCHSI is entitled to coverage for the Rehabilitator Suit; at the very least, the Policy is

ambiguous and as a matter of law is to be construed against its drafter, Lexington.

25. DCHSI has satisfied, or caused to be satisfied, all conditions precedent to

coverage under the Policy.

CAUSES OF ACTION

Count I – Breach of Contract

26. DCHSI repeats and incorporates by reference the allegations in the preceding

paragraphs as if fully set forth herein.

27. The Policy is a valid and enforceable contract, under which Lexington agreed to

provide insurance coverage pursuant to the Policy’s terms.

28. The Rehabilitator Suit constitutes a claim against DCHSI within the scope of

coverage provided under the terms of the Policy, thereby triggering Lexington’s coverage

obligations under the Policy.

29. Lexington breached its obligations under the Policy by, among others, wrongfully

denying coverage and refusing to defend DCHSI and/or reimburse DCHSI’s defense costs and

claim expenses.



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30. DCHSI thus has been forced to defend itself in the Rehabilitator Suit at its own

cost, and has sustained substantial damages as a direct result of Lexington’s breach, in excess of

$75,000.

31. DCHSI is entitled to payment from Lexington of, among others, all “claims

expenses” it has incurred, and will incur in the future, in defense of the Rehabilitator Suit.

Count II – Declaratory Judgment



33.

The Policy is a valid and enforceable contract, under which Lexington agreed to

provide insurance coverage pursuant to the Policy’s terms.

34. The Rehabilitator Suit constitutes a claim against DCHSI within the scope of

coverage provided under the terms of the Policy, thereby triggering Lexington’s coverage

obligations under the Policy, including Lexington’s obligation to defend DCHSI and indemnify

DCHSI for any liabilities arising out of such claims, and to reimburse it for all fees and expenses

incurred in connection with such claims.

35. Lexington has failed to honor its contractual obligations under the Policy by

wrongfully denying coverage in connection with the Rehabilitator Suit.

36. An actual and justiciable controversy exists between DCHSI and Lexington with

respect to Lexington’s duties and obligations under the Policy in connection with the

Rehabilitator Suit.

37. DCHSI is entitled to a declaration that Lexington is required under the terms of

the Policy to provide coverage to DCHSI for all the costs and liabilities it will incur in



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connection with the Rehabilitator Suit, including Lexington’s duties to defend, reimburse

DCHSI’s “claims expenses,” and indemnify.

Count III – Breach of Implied Covenant of Good Faith and Fair Dealing



39. Lexington has an implied duty to deal fairly and in good faith with its

policyholders. Lexington has a duty to do nothing to injure, frustrate, or interfere with its

policyholders’ rights to receive the benefits of their insurance policies.

40.

Lexington has breached its implied covenant of good faith and fair dealing to

DCHSI in a number of respects, including, but not limited to, the following:

a. Construing its policy language in a manner that is contrary to the Policy’s

plain terms in an effort to avoid its coverage obligations, including, but not

limited to, taking the position that an “Additional Insured” is within the

Policy’s definition of “Insured.”

b.

Mischaracterizing the nature of the Rehabilitator Suit in an effort to avoid its

coverage obligations, including, but not limited to, taking the position that

the suit was brought by the Named Insured under the Policy so as to

purportedly trigger a Policy exclusion, although the complaint in the

Rehabilitator Suit expressly states that it was brought by the Rehabilitator.

c. Denying DCHSI’s insurance claim without reasonable basis.

41. DCHSI has sustained substantial damages as a result of Lexington’s breach of its

implied covenant of good faith and fair dealing.



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PRAYER FOR RELIEF

42. WHEREFORE, DCHSI respectfully requests that this Court order:

a. Lexington to pay compensatory damages in an amount to be determined for

DCHSI’s defense costs and claims expenses incurred in connection with the

Rehabilitator Suit;

b. That Lexington has a duty to defend an indemnity DCHSI in connection

with the Rehabilitator Suit, and that DCHSI is entitled to coverage under the

Policy with respect to the Rehabilitator Suit, including as to its defense costs

and claims expenses and any liability that may be imposed;

c. Lexington to pay damages in an amount to be determined as a result of its

breach of its implied covenant of good faith and fair dealing;

d. Lexington to pay prejudgment interest and DCHSI’s costs and attorneys’

fees incurred in connection with this action;

e. Such other and further relief as the Court deems just and proper.

DEMAND FOR JURY TRIAL

DCHSI demands a trial by jury on all issues so triable.

Respectfully submitted,

PILLSBURY WINTHROP SHAW PITTMAN LLP

/s/ James P. BobotekJames P. Bobotek (D.C. Bar No. 458375)1200 Seventeenth Street, NW

Washington, D.C. 20036-3006Telephone: 202.663.8930 [email protected]

Counsel for Plaintiff DCHSI

Dated: May 10, 2016



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CIVIL COVER SHEET

JS-44{Rev. 3/16 DC)

I. a) PLAINTIFFS

DEFENDANTS

D.C. Healthcare Systems, Inc.

Lexington Insurance Company

(b) COUNTY

OF

RESIDENCE

OF

FIRST LISTED PLAINTIFF

11

001

(EXCEPT IN U.S.

PLAINTIFF CASES::-)'---'--- --' '--'-----

COUNTY OF RESIDENCE OF FIRST LISTED DEFENDANT

-- 8 - 8 - 8 - 8,_,8=


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0

G.

Habeas Corpus/

0

H

Employment

0

I.

FOIA Privacy

ct

0

J

Student Loan

2255

Discrimination

0 530 Habeas Corpus

-General

0

442 Civil Rights- Employment

0 895 Freedom of Information Act

1 5 2

Recovery of Defaulte

0 510 Motion/Vacate Sentence

(criteria: race, gender/sex,

0 890

Other

Statutory Actions

Student Loan

0

463 Habeas

Corpus-

Alien

national origin,

(if Privacy Act)

(excluding veterans)

Detainee

discrimination, disability, age,

religion, retaliation)

*(If pro se, select this deck)*

*(If pro se, select this deck)*

0

K

Labor/ERISA

0

L

Other Civil Rights

a

M

Contract

0

N.

Three-Judge

(non-employment)

(non-employment) Court

[R]

110 Insurance

7 1

Fair Labor

Standards Act

4 4 1 Voting (if not Voting Rights

0120Marine

0 441 Civil Rights- Voting

7 2

Labor/Mgmt. Relations

Act)

0 130 Miller Act

(if Voting Rights Act

0 740

Labor

Railway Act

0 443 Housing/Accommodations

0 140 Negotiable Instr ument

7 5 1 Family and Medical

4 4 Other

Civil Rights

0 150 Recovery of Overpayment

Leave Act

4 4 5 Americans w/Disabilities-

& Enforcement of

7 9

Other

Labor

Litigation

Employment

Judgment

7 9 1

Empl. Ret. Inc. Security Act

4 4 6

Americans w/Disabilities-

0 153 Recovery

of

Overpayment

Other

of Veteran s Benefits

0 448 Education

0 160 Stockholder s Suits

0 190

Other

Contracts

0

195 Contract Product Liability

0 196 Franchise

V.

ORIGIN

0 Original 02Removed 0 3 Remanded from

0 4 Reinstated

or 0

5 Trans ferred from 0 6 Multi-district

7

Appeal to

Proceeding

from State Appellate

Court

Reopened

another district

Litigation District Judge

Court

(specify) from Mag. Judg

VI. CAUSE

OF

ACTION

(CITE

THE

U.S. CIVIL STATUTE UNDER

WHICH

YOU ARE FILING AND WRITE A BRIEF STATEMENT

OF

CAUSE.)

28 U.S.C. 1332(a). This is

an

insurance coverage action.

VII. REQUESTED IN

CHECK IF THIS IS A CLASS

DEMAND Excess of 75,000

Check

YES

only

if

demanded in complain

ACTION UNDER F.R.C.P. 23

YES NO

OMPLAINT

JURY

DEMAND:

VIII.

RELATED CASE(S)

See

instruction)

YESO

~ ~ ~

If

yes, please complete related case fonn

IF

ANY

__.. ..

DATE:

May 10, 2016

I IGNATURE OF ATTORNEY OF RECORD

t f f ~

INSTRUCTIONS

FOR

COMPLETING CIVIL COVER SHEET JS-44

Authority for Civil Cover Sheet

The JS-44 civil cover sheet and the information contained herein neither replaces nor supplements the filings and services of pleadings or other papers as required

by law, except as provided

by

localmles of comt. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the

Clerk

of

Comt for the purpose of initiating the civil docket sheet. Consequently, a civil cover sheet is submitted to the Clerk of Court for each civil complaint filed.

Listed below are tips for completing the civil cover sheet. These tips coincide with the Roman Numerals on the cover sheet.

I. COUNTY

OF

RESIDENCE

OF

FIRST LISTED PLAINTIFF/DEFENDANT (b) County

of

residence: Use

1100

I

to

indicate plaintiff

if

resident

of

Washington, DC, 88888

if

plaintiff

is

resident

of

United States but not Washington,

DC,

and 99999

if

plaintiff

is

outside the United States.

III

CITIZENSHIP OF PRINCIPAL PARTIES: Tllis section is completed

Q 1 y if

diversity

of

citizenship was selected

as

the Basis

of

Jurisdiction

under Section

II.

IV. CASE ASSIGNMENT

AND

NATURE

OF SUIT:

The assignment of a judge to your case will depend on the categ01y you select that best

represents the primmy cause of action found in your complaint. You may select only one categ01y. Youmust also select .QlJJl corresponding

nature

of

suit found under the categ01y

of

the case.

VI. CAUSE

OF

ACTION: Cite the U.S. Civil Statute under wllich you are filing and write a brief statement

of

the primmy cause.

VIII . RELATED CASE(S), IF

ANY: If

you indicated that there is a related case, you must complete a related case fonn, winch may be obtained from

the Clerk s Office.

Because of the need for accurate and complete information, you should ensure the accuracy

of

the information provided prior to signing the fonn.

Case 1:16-cv-00882-CRC Document 1-1 Filed 05/10/16 Page 2 of 2


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AO 440 (Rev. 06/12) Summons in a Civil Action

U NITED STATES DISTRICT COURTfor the

__________ District of __________

)

)))))))))))

Plaintiff(s)

v. Civil Action No.

Defendant(s)

SUMMONS IN A CIVIL ACTION

To: (Defendant’s name and address)

A lawsuit has been filed against you.

Within 21 days after service of this summons on you (not counting the day you received it) — or 60 days if you

are the United States or a United States agency, or an officer or employee of the United States described in Fed. R. Civ.P. 12 (a)(2) or (3) — you must serve on the plaintiff an answer to the attached complaint or a motion under Rule 12 of the Federal Rules of Civil Procedure. The answer or motion must be served on the plaintiff or plaintiff’s attorney,whose name and address are:

If you fail to respond, judgment by default will be entered against you for the relief demanded in the complaint.You also must file your answer or motion with the court.

CLERK OF COURT

Date:Signature of Clerk or Deputy Clerk


District of Columbia

D.C. HEALTHCARE SYSTEMS, INC.,

1101 Pennsylvania Avenue, NW, 7th FloorWashington, D.C. 20004,

LEXINGTON INSURANCE COMPANY,100 Summer Street

Boston, Massachussetts 02110,

LEXINGTON INSURANCE COMPANY,100 Summer StreetBoston, Massachussetts 02110,

James P. BobotekPillsbury Winthrop Shaw Pittman LLP1200 Seventeenth Street NWWashington, DC 20036-3006


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AO 440 (Rev. 06/12) Summons in a Civil Action (Page 2)

Civil Action No.

PROOF OF SERVICE

(This section should not be filed with the court unless required by Fed. R. Civ. P. 4 (l))

This summons for (name of individual and title, if any)

was received by me on (date) .

’ I personally served the summons on the individual at (place)

on (date) ; or

’ I left the summons at the individual’s residence or usual place of abode with (name)

, a person of suitable age and discretion who resides there,

on (date) , and mailed a copy to the individual’s last known address; or

’ I served the summons on (name of individual) , who is

designated by law to accept service of process on behalf of (name of organization)

on (date) ; or

’ I returned the summons unexecuted because ; or

’ Other (specify):

.

My fees are $ for travel and $ for services, for a total of $ .

I declare under penalty of perjury that this information is true.

Date:Server’s signature

Printed name and title

Server’s address

Additional information regarding attempted service, etc:


0.00


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EXHIBIT A



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POLICYHOLDER NOTICE

Thank you for purchasing insurance from the Chartis companies. Chartis insurancecompanies generally pay compensation to brokers and independent agents, and may havepaid compensation in connection with your policy. You can review and obtain informationabout the nature and range of compensation paid by Chartis insurance companies tobrokers and independent agents in the United States by visiting our website at

www.chartisinsurance.com/producercompensation or by calling 1-800-706-3102.

91222 (12/09)



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LEXINGTON INSURANCE COMPANYAdministrative Office: 100 Summer Street, Boston, MA 02110-2103

MANAGED CARE RISK SOLUTIONS SM

DECLARATIONS

NOTICE: THIS IS A CLAIMS MADE AND REPORTED POLICY. COVERAGE IS ONLY PROVIDED FORCLAIMS FIRST MADE AGAINST THE INSURED AND REPORTED TO US DURING THE POLICY PERIOD OREXTENDED REPORTING PERIOD, IF APPLICABLE.

NOTICE: CLAIMS EXPENSES (WHICH INCLUDE ALL ATTORNEY FEES) ARE INCLUDED WITHIN ANDREDUCE THE APPLICABLE LIMIT OF LIABILITY. CLAIMS EXPENSES ARE INCLUDED WITHIN ANDREDUCE THE DEDUCTIBLE OR SELF INSURED RETENTION, WHICHEVER IS APPLICABLE.

Policy Number: 35848309 Renewal of Number: New

Item 1 Named Insured: D.C. CHARTERED HEALTH PLAN, INC.

d/b/a D.C. CHARTERED HEALTH PLAN, INC.

Item 2 Address: 7527 12th Street NW

WASHINGTON DC 20005-2601

Item 3 Retroactive Date: 01/01/1996

Item 4 Policy Period: From: 03/15/2013 To: 03/15/2014At 12:01 a.m. Standard Time at you mailing address shown above.

Item 5 Limits of Liability:

Aggregate Limit: $8,000,000Per Claim Limit: $6,000,000

Item 6: Self Insured Retention $25,000

Item 7 Premium: $120,823

Item 8 Minimum Earned Premium: 25%

Item 9 Optional Extended Reporting Period: 36 Months at 150% of Total Annual Premium

Item 10 Forms and Endorsements – Attached at Policy Inception:

Item 11 Producer Name and Address:

D.H. Lloyd & Associates, Inc.Donna M. Snyder1625 K. St. N.W., Ste 400Washington DC 20006

By

95229 (8/07)Authorized Representative

Insured eCopy



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FORMS SCHEDULE

Named Insured: D.C. CHARTERED HEALTH PLAN, INC.D/B/A D.C. CHARTERED HEALTH PLAN, INC.

Policy Number: 35848309 Effective Date: 03/15/2013

Form Number Edition Date Title

Cover Broker Letter CovernoteCover Policy Covernote91222 1209 Policyholder Notice95229 0807 Managed Care Risk Solutions95230 0709 Managed Care Risk Solutions Claims Made Policy96691 1107 Additional Insured Endorsement96697 1107 Retroactive Date Amendatory Endorsement96699 1107 Terrorism Premium EndorsementPRG2023 0705 Service of Suit Condition89644 0705 Coverage Territory Endorsement



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Lexington Insurance CompanyMANAGED CARE RISK SOLUTIONSSM

CLAIMS MADE POLICY

In consideration of the premium and in reliance on the representations made in theApplication provided to us, which will be considered part of this Policy and incorporatedherein by reference, Lexington Insurance Company (hereinafter “we”, “us” or “our”) andeach Insured (hereinafter “you” or “your”) agree as follows:

I. INSURING AGREEMENT

This is a claims made and reported insurance policy. It affords coverage for claims firstmade against you and reported to us in writing during the period that this Policy is ineffect or within ninety (90) days following its termination. Terms appearing in boldfacetype shall have the meanings set forth in the Section II, DEFINITIONS. Our mutualobligations under this Policy are at all times subject to the Limits of Liability and all of the

other terms and conditions set forth below.

This Policy covers:

All claims made against you by any person, entity or governmental agency resulting froman act, error, or omission in the performance of: (1) any health care or managed carefinancial, management or insurance service you perform in your business, (2) the design,development and marketing of any such service, and (3) your vicarious liability for theconduct of others performing any such service on your behalf.

If a claim falls within the foregoing, we will defend you, and we will also pay:

A. all compensatory damages for any tortious conduct, breach of contract or breach of

duty;B. all compensatory damages for the violation of any civil statute, ordinance or

regulation;

C. all compensatory damages for any civil antitrust activity;

D. all compensatory damages for the failure to protect the confidentiality of any medicalinformation;

E. a part of punitive, multiple and exemplary damages where punitive, multiple andexemplary damages are insurable under the law of the most favorable jurisdiction;that part will be calculated by dividing the amount of compensatory damages payable

under this policy by the total amount of compensatory damages determined in asettlement we agree to or by final adjudication, whichever is applicable, subject to thelimits of liability under this policy; and

95230 (07/09) Page 1 of 13

Copyright Chartis Inc.All Rights Reserved.



20/87

F. all attorneys fees of another party awarded against you.

Although we will defend you, we will not pay:

G. any amount you owe under any contract, insurance policy, benefit plan or provideragreement;

H. any amount you wrongfully withhold or are obligated to disgorge, or any profit oradvantage to which you are not legally entitled;

I. any taxes, sanctions or fines;

J. any amount necessary to comply with any declaratory, equitable, injunctive oradministrative relief, or to correct any error or to modify any of your practices,policies or procedures; or

K. any cost or expense incurred in pursuing any claim, counterclaim, cross-claim or otherproceeding brought or maintained by you or on your behalf.

II. DEFINITIONS

A. Antitrust activity means any actual or alleged price fixing, price discrimination,predatory pricing, monopolization, restraint of trade, unfair competition, unfair ordeceptive trade practice, or violation of any federal or state antitrust law;

B. Application means all applications, including all attachments, and all other writteninformation and material submitted to us in applying for this Policy;

C. Claim means a written communication received by an Named Insured’s RiskManagement or Legal Department seeking damages or other civil, administrative orinjunctive relief, or threatening suit or arbitration, including service of suit orinstitution of arbitration proceedings;

All claims arising out of the same act, error, omission, course of conduct or transaction

shall constitute a single claim and shall be deemed to have been made at the time thefirst such claim is made against any Insured;

D. Claims expenses means:

1. all reasonable and necessary fees and expenses incurred in the investigation anddefense of any claim, including all fees and expenses incurred in complying withcourt mandated electronic discovery; but excluding any loss of income, earnings orrevenue, or the salaries, fees, costs, expenses or overhead or your employees,officers or directors;

2. all costs awarded against you and prejudgment interest awarded against you on thatpart of the judgment we pay; and,

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3. All interest on the amount of any judgment we pay that accrues after entry of the

judgment and before we have paid, offered to pay, or deposited in court the part ofthe judgment we pay subject to the applicable Limit of Liability, and;

4. all premiums on appeal bonds required to be furnished in any suit.

E. Insured means the Named Insured, each of its present or former directors, trustees,

officers, medical directors, committee persons, volunteers, interns, employees, or anyother individual duly authorized to perform a service covered under the InsuringAgreement on behalf of the Named Insured but only while acting in such capacity, and,in the event of death or incapacity, the estate, heirs, or legal representatives of any ofthem; and any other person or entity added to this policy as an Insured byendorsement;

F. Medical service means any medical, surgical, mental health, dental, nursing orchiropractic examination, treatment or therapy, the furnishing or dispensing of blood,drugs or medical, surgical, dental, or chiropractic supplies or appliances, or thehandling of, or performing post-mortem examination on, a human body;

G. Most favorable jurisdiction means the jurisdiction where either the act, error oromission giving rise to liability took place, the relief was awarded, you areincorporated or have your principal place of business, or we are incorporated or haveour principal place of business; and

H. Vicarious liability means liability imposed upon you under a theory of agency,ostensible agency, apparent agency or respondeat superior.

III. CLAIMS THAT ARE EXCLUDED

We will neither defend you nor pay any claim arising out of:

A. any act, error or omission which the Named Insured’s Risk Management or Legal

Department knew or reasonably should have known was likely to lead to a claim, orwas reported to another insurer, prior to the commencement of the policy period ofthe earliest consecutive policy issued by us immediately preceding this Policy;

B. the insolvency, receivership, bankruptcy, liquidation or financial inability to pay of anyInsured;

C. any dishonest, fraudulent, criminal or malicious act, error or omission committed byyou or at your direction; provided, however, that our obligations under this Policy shallapply to any allegation otherwise within the scope of this exclusion until your liabilityhas been admitted or finally adjudicated, at which time all of our obligations underthis Policy with respect to such claim shall cease. For the purposes of this exclusion,

no act of any Insured shall be imputed to any other Insured;

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D. any dispute between you and any of your officers, directors, employees, trustees,

subsidiaries or affiliated entities; provided, however, that this exclusion will not applyto any claim arising out of any service you perform as described in the Applicationmade by an individual who is a recipient of that service;

E. any act, error or omission in the conduct of any partnership or joint venture that is not

designated in the Declarations;F. any act, error or omission in your performance of a medical service; provided,

however, that our obligations under this Policy will apply until such time as we havedetermined that the medical service in question was performed by a health careprofessional who, at the time of the performance of the medical service, was anInsured. At that time, all of our obligations under this Policy with respect to suchclaim shall cease. This exclusion will not apply, however, to the voluntaryperformance of an emergency medical service by an Insured without receipt orexpectation of remuneration;

G. any act, error or omission occurring before the Retroactive Date shown in theDeclarations;

H. the licensing, infringement, misappropriation or misuse of any patent, copyright,trademark, service mark, trade name, computer software, trade dress, or otherintellectual property or trade secret; or

I. the unauthorized use or destruction of any computer data, software, hardware,system, or network. This exclusion will not apply to claims arising out of (1) thefailure to protect the confidentiality of medical information obtained in theperformance of health care or managed care services and (2) information you maintainfor purposes of credentialing, selecting, or deselecting providers of medical services.

IV. LIMITS OF LIABILITY

Regardless of the number of (1) Insureds, (2) persons or entities that make a claim, or (3)claims that are made under this Policy, our liability under this Policy and all other partsand endorsements to this Policy combined, except as expressly provided therein, is limitedas follows:

A. AGGREGATE LIMIT:

Our total monetary obligation for all settlements, judgments and claims expenses as aresult of all claims for which coverage is afforded under this Policy shall not exceedthe Limit of Liability stated in the Declarations to be the Aggregate Limit.

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B. PER CLAIM LIMIT:

Subject to the foregoing provision concerning the Aggregate Limit, the Limit of Liabilitystated in the Declarations to be applicable to each claim shall be the total limit of ourliability for all settlements, judgments and claims expenses as a result of any oneclaim for which coverage is afforded under this Policy.

C. DEDUCTIBLE OR SELF INSURED RETENTION:

As set forth in the Declarations, you have elected to make the per claim Limit ofLiability under this Policy subject either to a Deductible or a Self Insured Retention.

If you have selected a Deductible, the amount designated in the Declarations as theDeductible will be deducted first from the Limit of Liability applicable to each coveredclaim. You will reimburse us promptly for any portion of the Deductible we advance inpayment of judgments, settlements or claims expenses resulting from each suchclaim.

If you have selected a Self Insured Retention, you will pay that amount toward alljudgments, settlements or claims expenses resulting from each covered claim. Ourobligation under this Policy to pay judgments, settlements or claims expenses appliesonly to amounts in excess of the Self Insured Retention, and we will not be obligated topay any amount under this Policy until you have paid the full amount of the SelfInsured Retention. No portion of the Self Insured Retention may be insured withoutour prior written consent. Irrespective of whether there may be insurance available tofund any portion of the Self Insured Retention, you will be responsible for the fullamount of the Self Insured Retention. Your bankruptcy, insolvency, inability to pay,failure to pay, or refusal to pay the Self Insured Retention will not alter or increase ourobligations under this Policy.

V. HOW A CLAIM WILL BE DEFENDED

If you have selected a Deductible, we will have the right and the duty to defend you evenif the allegations are groundless, false or fraudulent. We will pay all reasonable andnecessary claims expenses incurred in the defense of the claim, and we will have theright to appoint defense counsel.

If you have selected a Self Insured Retention, until the Self Insured Retention has beenfully exhausted it is your obligation to pay all judgments, settlements and claimsexpenses, including, reimbursing us for any amount we have advanced on your behalf.You may settle or compromise any claim without our consent so long as the amount of thesettlement or compromise, together with the amount of all claims expenses, does notexceed the Self Insured Retention or otherwise result in any cost to us. If, in our sole

discretion, we determine that a claim, including claims expenses, may ultimately exceedthe Self Insured Retention, we will have the right to appoint defense counsel. When youhave paid the full amount of the Self Insured

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Retention, we will then have the right and the duty to defend the claim even if theallegations are groundless, false or fraudulent; and we will pay all reasonable andnecessary claims expenses incurred in the defense of the claim. You may not incur anycost or claims expense or settle any such claim that would involve payment in excess ofthe Self Insured Retention without our prior written consent.

Irrespective of whether the Per Claim Limit of Liability is subject to a Deductible or a Self

Insured Retention, we will have the right to investigate any claim and you will beobligated to cooperate with us as provided below. We will not settle or compromise anyclaim without obtaining your prior consent. If, however, you refuse to consent to asettlement or compromise we recommend and elect to continue legal proceedings, thenour liability for the claim shall not exceed the amount for which the claim could havebeen settled, plus claims expenses incurred up to the date of the refusal, subject to theLimits of Liability.

We will not be obligated to make any payment under this Policy after the Limits ofLiability have been exhausted by the payment of judgments, settlements or claimsexpenses. If the Aggregate Limit of Liability is exhausted, we notify you of all outstandingclaims so that you can assume control of the defense of all such claims.

VI. CONDITIONS

A. YOUR DUTIES IN THE EVENT OF A CLAIM:

It is a condition precedent to this insurance and any Extended Reporting Period thatyou must do all the following:

1. As soon as practicable, and in no event later than ninety (90) days after your RiskManagement or Legal Department becomes aware of a claim, forward to LexingtonInsurance Company, 100 Summer Street, Boston, MA 02110, to the attention of theManaged Care Claims Unit, a copy of the claim together with any summons or otherprocess received, full information concerning the claimant, the date, place and

circumstances of the event(s) complained of, and the names and addresses of allknown participants and available witnesses;

2. Cooperate with us in the defense of the claim;

3. Promptly provide us with information we request;

4. Attend hearings, depositions, arbitrations, mediations and trials;

5. Assist us in effecting settlement;

6. Secure and provide us with evidence to support the defense of the claim, andobtain the attendance of witnesses; and,

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7. Provide written statements to our representatives and meet with them for thepurpose of investigation or defense, and, if requested, submit to examination underoath.

Except as otherwise required by law, you may not enter into any tolling agreement oragree to, or reject, arbitration or mediation without our written consent.

B. POTENTIAL CLAIMS REPORT:

If, during the effective period of the Policy or any Extended Reporting Period, youbecome aware of any act, error or omission that may be reasonably likely to give riseto a claim for which coverage may be afforded under this Policy, and if youimmediately give us written notice of (1) the specific act, error or omission, (2) theresulting damages, if known, (3) how, when, and where the act, error, or omission tookplace and (4) the names and addresses of all known participants and availablewitnesses, then any claim that may subsequently be made arising out of that act, erroror omission will be deemed to have been made on the last day of the effective periodof the Policy; provided, however, that the act, error or omission must have occurredafter the Retroactive Date stated in the Declarations and before the termination of this

Policy.C. SUBROGATION:

To the extent of all payments we make under this Policy, we will be subrogated to yourrights of recovery against any person or entity. You must execute and deliver suchinstruments and papers and do whatever else may be necessary to secure such rights,and do nothing following the act, error or omission to prejudice those rights.

D. INSUREDS’ REPRESENTATIVE:

It is understood that the first Named Insured identified in the Declarations isauthorized and agrees to act on behalf of all Insureds for all purposes in connection

with this Policy, including the giving and receiving of notice of any claim orcancellation, the payment of premiums and the receipt of any return premiums thatmay become due under this Policy. A communication by us to the first Named Insuredwill be deemed a communication to all Insureds unless you advise us otherwise inwriting.

E. ACTION AGAINST US:

No action shall be brought against us unless as a condition precedent thereto thereshall have been full compliance with all of the terms and conditions of this Policy andnot until the amount of your obligation to pay has been finally determined whether byjudgment against you after actual trial or by written agreement between you and theclaimant consented to by us. No person or

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organization will have any right under this Policy to join or implead us as a party to anyaction against you.

F. APPLICATION:

By acceptance of this Policy, you agree that the statements in the Application are yourtrue representations, that they shall be deemed material, that this Policy is issued in

reliance upon the truth of those representations and that this Policy embodies allagreements existing between you and us, or any of our respective representatives,relating to this insurance.

G. ASSIGNMENT:

This Policy will be void if assigned or transferred without our prior written consent.

H. FALSE OR FRAUDULENT CLAIM:

If you refer any claim to us which any Insured knows to be false or fraudulent, allinsurance hereunder shall be immediately forfeited.

I. CHANGES:

Notice to our authorized representative or knowledge possessed by any broker or otherperson shall not effect a waiver or a change of any provision of this Policy or estop usfrom asserting any right under the terms of this Policy, nor shall the terms of thisPolicy be waived or changed except by endorsement issued to form a part of thisPolicy.

J. INSPECTION:

We will be permitted, but not obligated, to inspect your property and operations at anytime. Neither our right to make inspections, nor the making thereof, nor any reportthereon shall constitute an undertaking on your behalf or for your benefit, or that ofothers, to determine or warrant that such property or operations are safe or healthful,or are in compliance with any law, rule, regulation or professional standard. We mayreview your books and records at any time during the effective period of this policy orany Extended Reporting Period, or within three years thereafter, as far as they relateto the subject matter of this insurance.

K. PREMIUM:

All premiums for this Policy shall be computed in accordance with our rules and ratesapplicable to such insurance. You must maintain records of such information as isnecessary for premium computation, and must send copies of such records to us at theend of the effective period of this Policy as we may direct.

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L. CANCELLATION:

You may cancel this Policy by surrendering it to us or by mailing written notice to usstating when thereafter the cancellation will be effective. If you cancel the Policy, wewill retain the customary short rate proportion of the premium, subject to theMinimum Earned Premium set forth in the Declarations.

We may cancel the Policy by mailing written notice to you at the address shown in theDeclarations stating when, not less than ninety (90) days thereafter, the cancellationwill be effective. However, if we cancel the Policy because you have failed to pay apremium or Deductible when due, we may cancel by mailing a written notice ofcancellation stating when, not less than ten (10) days thereafter, the cancellation willbe effective. The mailing of notice will constitute notice and the effective date ofcancellation stated in the notice shall become the end of the effective period of thisPolicy.

Delivery of written notice by either of us as described shall be equivalent to mailing. Ifwe cancel, the earned premium shall be computed pro rata. Premium adjustment maybe made at the time cancellation is effected or as soon as practicable thereafter.

M. OTHER INSURANCE:

This insurance is excess of any other insurance whether provided on a primary,contingent, excess, or any other basis, unless such other insurance is written to bespecifically excess of this policy. When this insurance is excess, we will have no dutyto defend any claim until all such other insurance has been exhausted in accordancewith its terms and conditions.

N. POLICY TERRITORY:

The policy territory is the United States, its territories and possessions and Puerto Rico.

Payment of loss under this Policy shall only be made in full compliance with all UnitedStates of America economic or trade sanction laws or regulations, including, but notlimited to, sanctions, laws and regulations administered and enforced by the U.S.Treasury Department’s Office of Foreign Assets Control (“OFAC”).

O. MERGERS, ACQUISITIONS, OR NEWLY CREATED ENTITIES:

If, during the effective period of this Policy you form, acquire or merge with anotherentity such that after the effective date of the transaction you hold a majorityownership interest in the newly formed, acquired or merged entity, then for a periodof ninety (90) days after the effective date of the transaction or so long as this Policyremains in effect, whichever is less, the newly formed, acquired or merged entity will

be included within the definition of Insured with

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respect to any claim arising solely out of acts, errors or omissions occurring after theeffective date of the transaction. Thereafter, all coverage under this Policy will ceaseunless prior to the cessation of coverage:1. you provide us with such information regarding the transaction and the newly

formed, acquired or merged entity as we request; and

2. we agree by written endorsement to this Policy to provide coverage, and you acceptany terms, conditions, exclusions or limitations, including payment of additionalpremium, as we, in our sole discretion, impose on continued coverage.

P. SALE OR DISSOLUTION OF INSURED ENTITIES; CESSATION OF BUSINESS:

If, during the Policy Period:

1. any person or any entity that is not an Insured obtains:

a. the right to elect or appoint more than fifty percent (50%) of an Insured entity’sdirectors, trustees or member managers, as applicable; or

b. more than fifty percent (50%) of an Insured entity’s equity or assets; or

2. you cease to do business for any reason;

then so long as this Policy remains in effect thereafter, there will be no coverage underthis Policy with respect to any claim arising out of any act, error or omission youcommit on or after the date thereof unless prior to any transaction stated inSubparagraphs 1 or 2 above, you provide us with such information regarding thetransaction and any surviving entity as we may request, and we agree by writtenendorsement to this Policy to provide coverage subject to terms, conditions, exclusionsor limitations, including payment of additional premium, as we may, in our solediscretion, impose on such coverage.

Q. AUTOMATIC EXTENDED REPORTING PERIOD

1. If this Policy is canceled or not renewed for any reason other than non-payment ofpremium or failure to comply with the terms and conditions of the Policy, and if theOptional Extended Reporting Period Endorsement is not purchased, we will providean Automatic Extended Reporting Period of ninety (90) days commencing at the endof the Policy Period. During the Automatic Extended Reporting Period, any claimfirst made against an Insured resulting from an act, error or omission that tookplace on or after the Retroactive Date in the Declarations but before the end of thePolicy Period will be deemed to have been first made on the last day of the PolicyPeriod.

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2. The Automatic Extended Reporting Period does not extend the Policy Period, nor

alter the Limits of Liability or any other term or condition of this Policy.

3. The Automatic Extended Reporting Period will not be effective if any otherinsurance provides coverage to the Insured whether the other insurance applies ona primary, excess, contingent, or any other basis.

4. Our offer of terms, conditions or premium different from the expiring Policy will notbe considered a refusal or failure to renew this insurance.

R. OPTIONAL EXTENDED REPORTING PERIOD

1. If this Policy is canceled or not renewed for any reason other than non-payment ofpremium or failure to comply with the terms and conditions of the Policy, the firstNamed Insured may purchase an Optional Extended Reporting Period Endorsementcommencing at the end of the Policy Period. The additional premium for, and theperiod of, the Optional Extended Reporting Period Endorsement will be as stated inthe Declarations.

2. During the Optional Extended Reporting Period, any claim first made against anInsured resulting from an act, error or omission that took place on or after theRetroactive Date in the Declarations but before the end of the Policy Period will bedeemed to have been first made on the last day of the Policy Period. The OptionalExtended Reporting Period does not extend the Policy Period, nor alter the Limits ofLiability or any other term or condition of this Policy.

3. To obtain an Optional Extended Reporting Period Endorsement, the Named Insuredmust make a request in writing within ninety (90) days after the end of the PolicyPeriod and pay the premium due. The premium will be fully earned and theOptional Extended Reporting Period Endorsement cannot be canceled.

4. The insurance provided under the Optional Extended Reporting Period Endorsement

will be excess of any other insurance providing coverage to the Insured, whetherthe other insurance applies on a primary, excess, contingent, or any other basis.

5. Our offer of terms, conditions or premium different from the expiring Policy will notbe considered a refusal or failure to renew this insurance.

S. ARBITRATION:

In the event of a disagreement as to the interpretation of this policy (except withregard to whether this policy is void or voidable), it is mutually agreed that the disputeshall be submitted to binding arbitration before a panel of three arbitrators consistingof two party-nominated (non-impartial) arbitrators and a

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third (impartial) arbitrator (hereinafter “umpire”) as the sole and exclusive remedy.

The party desiring arbitration of a dispute shall notify the other party, including thename, address and occupation of the Arbitrator nominated by the demanding party.The other party shall, within 30 days following receipt of the demand, notify in writingthe demanding party of the name, address and occupation of the arbitrator nominatedby it. The two arbitrators so selected shall, within 30 days of the appointment of thesecond arbitrator, select an umpire. If the arbitrators are unable to agree upon anumpire, the selection of the umpire shall be submitted to the Judicial Arbitration andMediation Services (hereinafter, “JAMS”). The umpire shall be selected in accordancewith Rule 15 (as may be amended from time to time) of the JAMS ComprehensiveArbitration Rules and Procedures for the selection of a sole arbitrator.

The parties shall present their respective cases to the panel by written and oralevidence at a hearing time and place selected by the umpire. The panel shall berelieved of all judicial formality, shall not be obligated to adhere to the strict rules oflaw or of evidence, shall seek to enforce the intent of the parties hereto and may referto, but are not limited to, relevant legal principles. The decision of at least two of the

three panel members shall be binding and final and not subject to appeal except forgrounds of fraud or gross misconduct by the arbitrators. The award will be issuedwithin 30 days of the close of the hearings. Each party shall bear the fees andexpenses of its designated arbitrator and shall jointly and equally share with the otherthe fees and expenses of the umpire and the arbitration.

The arbitration proceeding shall take place in the vicinity of Boston, Massachusetts orsuch other place as may be mutually agreed by you and us. The procedural rulesapplicable to this arbitration shall, except as provided otherwise herein, be inaccordance with the JAMS Comprehensive Arbitration Rules and Procedures.

T. SERVICE OF SUIT:

Subject to the provisions of Condition S, ARBITRATION, if we fail to pay any amountdue under this policy, at your request we will submit to the jurisdiction of a court ofcompetent jurisdiction within the United States. Nothing in this Condition constitutesor should be understood to constitute a waiver by us of any right to commence anaction in any court of competent jurisdiction in the United States, to remove an actionto a United States District Court or to seek a transfer of a case to another court withinor outside of a jurisdiction as permitted by the laws of the United States or of any statein the United States. It is further agreed that service of process in such suit may bemade upon Counsel, Legal Department, Lexington Insurance Company, 100 SummerStreet, Boston, Massachusetts, 02110. We will abide by the decision of such court orof any appellate court in the event of any appeal.

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We designate the Superintendent, Commissioner or Director of Insurance, or otherofficer specified for that purpose under any statute of any state, territory, or districtof the United States which makes provision therefor, as our attorney upon whom anylawful process in any action, suit, or proceeding instituted by or on your behalf or anybeneficiary hereunder arising out of this Policy, may be served and also herebydesignate the above named Counsel as the person to whom the officer is authorized to

mail the process.

By signing below, the President and the Secretary of the Insurer agree on behalf of the Insurerto all the terms of this Policy.

/

Secretary President

This Policy shall not be valid unless signed at the time of issuance by an authorizedrepresentative of the Insurer, either below or on the Declarations page of the policy.

Authorized Representative

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ENDORSEMENT #

This endorsement, effective 12:01 A.M., 03/15/2013Forms a part of Policy No.: 35848309d/b/a: D.C. CHARTERED HEALTH PLAN, INC.Issued to: D.C. CHARTERED HEALTH PLAN, INC.

By: LEXINGTON INSURANCE COMPANY

ADDITIONAL INSURED ENDORSEMENT

This endorsement modifies insurance provided by the Policy: 35848309

SCHEDULE

1.Chartered Family Health Center,P.C. Retroactive Date:

DC

2. RapidTrans, Inc. Retroactive Date:

3. D.C. Healthcare Systems, Inc. Retroactive Date:

The entity(ies) shown in the above Schedule are added as Additional Insured(s) to this Policy, but only

for claims arising out of the acts, errors or omissions committed by the Named Insured on or after theRetroactive Date corresponding to the additional insured shown in the above Schedule.

Any claim made by any additional insured against any other insured or additional insured is excludedfrom coverage.

All other terms and conditions of the Policy remain the same.

AUTHORIZED REPRESENTATIVE

96691 (11/07)Dated:Boston, MA



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ENDORSEMENT #

This endorsement, effective 12:01 A.M., 03/15/2013Forms a part of Policy No.: 35848309Issued to: D.C. CHARTERED HEALTH PLAN, INC.D/B/A: D.C. CHARTERED HEALTH PLAN, INC.


RETROACTIVE DATE AMENDATORY ENDORSEMENT

This endorsement modifies insurance provided by the policy:

Item 3., Retroactive Date of the Managed Care Risk SolutionsSM Declarations page is deleted andreplaced with the following:

ITEM 3. Retroactive Date:

01/01/1996 Applies to $1,000,000 Per Claim and$3,000,000 Aggregate Limit of Liability

07/11/2005 Applies to Next $5,000,000 Per Claim and$5,000,000 Aggregate Limit of Liability

All other terms and conditions of the policy remain the same.


96697 (11/07)Dated: 03/15/2013Boston, MA



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ENDORSEMENT #

This endorsement, effective 12:01 A.M., 03/15/2013Forms a part of Policy No.: 35848309Issued to: D.C. CHARTERED HEALTH PLAN, INC.D/B/A: D.C. CHARTERED HEALTH PLAN, INC.


TERRORISM PREMIUM ENDORSEMENT

In consideration of the premium surcharge shown below which is included in Item 7. Premium of theDeclarations, it is hereby understood and agreed that this Policy is issued without the TerrorismExclusion Endorsement currently in use by the Company.

SURCHARGE: $1,196

All other terms and conditions of the Policy remain the same.


96699 (11/07)Dated: 03/15/2013Boston, MA



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ENDORSEMENT #

This endorsement, effective 12:01 A.M., 03/15/2013Forms a part of Policy No.: 35848309Issued to: D.C. CHARTERED HEALTH PLAN, INC.By: Lexington Insurance Company

SERVICE OF SUIT CONDITION

This endorsement modifies insurance provided under the policy:

The following condition is added to this policy:

In the event of our failure to pay any amount claimed to be due hereunder, we, at your request,will submit to the jurisdiction of a court of competent jurisdiction within the United States.Nothing in this condition constitutes or should be understood to constitute a waiver of our rightsto commence an action in any court of competent jurisdiction in the United States to remove an

action to a United States District Court or to seek a transfer of a case to another court aspermitted by the laws of the United States or of any state in the United States. It is furtheragreed that service of process in such suit may be made upon Counsel, Legal Department,Lexington Insurance Company, 100 Summer Street, Boston, Massachusetts 02110 or his or herrepresentative, and that in any suit instituted against us upon this Policy, we will abide by thefinal decision of such court or of any appellate court in the event of any appeal.

Further, pursuant to any statute of any state, territory, or district of the United States whichmakes provision therefor, we hereby designate the Superintendent, Commissioner or Director ofInsurance, or other officer specified for that purpose in the statute, or his or her successors inoffice, as our true and lawful attorney upon whom may be served any lawful process in anyaction, suit, or proceeding instituted by you or on your behalf or any beneficiary hereunder arising

out of this Policy of insurance, and hereby designates the above named Counsel as the person towhom the said officer is authorized to mail such process or a true copy thereof.

Authorized Representative

PRG 2023 07/05



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THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

ENDORSEMENT #

This endorsement, effective 12:01 A.M. 03/15/2013

Forms a part of Policy No.: 35848309

Issued to: D.C. CHARTERED HEALTH PLAN, INC.

D/B/A: D.C. CHARTERED HEALTH PLAN, INC.

By: Lexington Insurance Company

COVERAGE TERRITORY ENDORSEMENT

This endorsement modifies insurance provided under the following:

Payment of loss under this policy shall only be made in full compliance with all United States ofAmerica economic or trade sanction laws or regulations, including, but not limited to, sanctions, lawsand regulations administered and enforced by the U.S. Treasury Department’s Office of Foreign AssetsControl (“OFAC”).

______________________________AUTHORIZED REPRESENTATIVE

89644 (7/05)



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ENDORSEMENT #

This endorsement, effective 12:01 A.M., 03/15/2013Forms a part of Policy No.: 35848309Issued to: D.C. CHARTERED HEALTH PLAN, INC.D/B/A: D.C. CHARTERED HEALTH PLAN, INC.By: LEXINGTON INSURANCE COMPANY

MANAGED CARE RISK SOLUTIONSSMCLAIMS MADE POLICY

OPTIONAL EXTENDED REPORTING PERIOD ENDORSEMENT

I. In consideration of the additional premium of $ 181,235.00 we shallextend the reporting period for all claims made after 03/15/2014 and prior to03/15/2017

Such coverage will be provided according to the applicable terms, conditions and exclusions ofthe MANAGED CARE RISK SOLUTIONsm CLAIMS MADE POLICY PROVISIONS AND CONDITIONS,

II. The Aggregate Limits described in Section IV. LIMITS OF LIABILITY of the MANAGED CARE RISKSOLUTIONSsm CLAIMS MADE POLICY will not be increased or reinstated for claims made duringthis Optional Extended Reported Period.

III. In no event shall coverage offered by this Endorsement apply to any loss, claim or suit reportedto a prior insurance carrier nor shall coverage apply to any loss, claim or suit of which anyInsured had knowledge prior to the effective date of this Endorsement.

IV. Premium for this Optional Extended reporting Period is fully earned by us on the effective dateof this Endorsement.

V. This endorsement is non-cancelable except for non-payment of premium. Notice ofcancellation will be in accordance with the cancellation provisions of the Policy.

Any other terms not included herein shall apply in accordance with the Optional Extended ReportingCoverage clause of the Policy.

All other terms and conditions of the policy remain the same.


96700 (11/07)



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ENDORSEMENT NO. 3

This endorsement, effective 12:01 A.M. 03/15/2013Forms part of policy no.: 35848309issued to: D.C. CHARTERED HEALTH PLAN, INC.

D/B/A: D.C. CHARTERED HEALTH PLAN, INC.By: LEXINGTON INSURANCE COMPANY

IN CONSIDERATION OF AN ADDITIONAL PREMIUM OF $ 181,235.00, IT IS HEREBY UNDERSTOOD ANDAGREED THAT The Optional Extended Reporting Period endorsement is added to the policy

ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS OF THIS POLICY REMAIN UNCHANGED.

Authorized Representative orCountersignature (in states where Applicable)



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78713 05/13

ADDENDUM TO THE DECLARATIONS

By signing below, the President and the Secretary of the Insurer agree on behalf of the Insurer to all the

terms of this Policy.

Jeremy Johnson Denis M. Butkovic

PRESIDENT SECRETARY

This policy shall not be valid unless signed at the time of issuance by an authorized representative of the

Insurer, either below or on the Declarations page of the policy.

Ethan D. Allen




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EXHIBIT B



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1

SUPERIOR COURT FOR THE DISTRICT OF COLUMBIA

Civil Division

D.C. Chartered Health Plan, Inc. (inRehabilitation),

Plaintiff,

v.

Jeffrey E. Thompson, et al.

Defendants.

Civil Action No.: 2013 CA 003752 B

Judge: Hon. John M. Mott

Calendar No.: II

Next Event: Status Hearing

January 16, 2015, 10:30 a.m.

AMENDED COMPLAINT

D.C. Chartered Health Plan, Inc. (in Rehabilitation), by and through counsel, and

pursuant to SCR-Civil 15(a), files this Amended Complaint against Defendants, Jeffrey E.

Thompson and D.C. Healthcare Systems, Inc., and for causes of action states:

Preliminary Statement

1. This civil action, filed on behalf of D.C. Chartered Health Plan, Inc. (in

Rehabilitation) (“Chartered”), seeks over $16 million in damages from Defendants Jeffrey E.

Thompson (“Thompson”) and D.C. Healthcare Systems, Inc. (“DCHSI”) for breach of fiduciary

duty, unjust enrichment, conversion, breach of contract, indemnification, and violation of

statutory duties in connection with: (1) unsupported cash transfers from Chartered, (2) unpaid

contractual obligations under a Tax Allocation Agreement, and (3) the loss of Chartered assets

that secured a line of credit for DCHSI. After reasonable investigation, and on information and

belief, Chartered alleges as follows:



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Background – Chartered’s Financial Distress

2. Chartered is a health maintenance organization (“HMO”) under D.C. Code §§ 31-

3401 et seq. (2012 Repl.). As an HMO, Chartered is regulated by the District of Columbia

Department of Insurance, Securities and Banking (“DISB”).

3. The District of Columbia, like every state in the nation, regulates insurance

companies and health maintenance organizations (and similar risk-bearing entities) operating

within its borders. The principal purpose of insurance regulation is to protect policyholders,

enrollees, providers, other creditors, and the public from financial and other harm. See Couch,

Cyclopedia of Insurance Law § 2:27 (citing minimum capital, surplus, and reserve requirements

enacted by legislatures to protect policyholders and creditors by ensuring that insurers are

solvent and able to pay claims as they come due). See also Solvency Modernization Initiative

(E) Task Force, The U.S. National State-Based System of Insurance Financial Regulation and the

Solvency Modernization Initiative, National Association of Insurance Commissioners (“NAIC”)

§ 1, ¶ 12 (Aug 14, 2013), available at http://www.naic.org/documents/index_committees_white_

paper_ us_nat_system.pdf.

4. Chartered is therefore subject to various provisions of the D.C. Code, including

D.C. Code §§ 31-3851.01 et seq. (2012 Repl.) (the “Health Organization RBC Act”) which, in

order to protect enrollees, medical providers, and the general public, requires HMOs such as

Chartered to maintain a minimum amount of capital to support its overall business operations in

consideration of its size and risk profile. Insurer capital requirements are measured in terms of

“risk-based capital” (“RBC”), calculated using a mathematical formula that incorporates various

standards for quantifying risks. District law identifies various RBC action levels at which



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company or regulatory action is required to address an insurer’s financial deficiencies. See D.C.

Code §§ 31-3851.03 to 31-3851.06 (2012 Repl.).

5. Under District law, when an HMO’s RBC level falls below 200 percent of the

Authorized Control Level RBC amount, one of four action levels may be triggered. Id. These

are, from least to most serious:

(a) Company Action Level: 200% RBC – where the HMO is required to submit a

detailed financial recovery plan to DISB. D.C. Code §§ 31-3851.01(6), 31-

3851.03 (2012 Repl.);

(b)

Regulatory Action Level: 150% RBC – where the HMO is required to prepare

and file an RBC report and DISB is required to issue a corrective order. D.C.

Code §§ 31-3851.02, 31-3851.04 (2012 Repl.);

(c) Authorized Control Level: 100% RBC – where, among other things, DISB

could place the HMO under regulatory control. D.C. Code §§ 31-3851.01(3),

31-3851.05 (2012 Repl.);

(d)

Mandatory Control Level: 70% RBC – where DISB is required to place the

HMO under regulatory control, with discretion to allow up to 90 days for the

HMO to remedy its financial condition and RBC level. D.C. Code §§ 31-

3851.01(13), 31-3851.06 (2012 Repl.).

6. Historically, Chartered’s sole source of revenue was a Medicaid contract with the

District of Columbia Department of Health Care Finance, under which Chartered provided

Medicaid coverage to over 100,000 District residents. Chartered’s Medicaid contract expired on

April 30, 2013.



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7. As early as December 31, 2009, however, Chartered’s financial condition had

deteriorated to below the Company Action Level, requiring Chartered to submit a detailed

financial recovery plan to the DISB Commissioner. See D.C. Code §§ 31-3851.01(6), 31-

3851.03 (2012 Repl.).

8. Chartered never emerged from this impaired financial condition. As determined

by auditors in the fall of 2012, as early as October, 2011, Chartered’s RBC level had fallen to

well below the Mandatory Control Level prescribed by the District of Columbia’s Insurance

Code. See D.C. Code §§ 31-3851.01(13), 31-3851.06 (2012 Repl.).

9.

Chartered’s Board of Directors tried for much of 2012 to find a solution to

Chartered’s financial distress, without success. In April, 2012, Chartered’s auditor, KPMG,

resigned. Five months later, Chartered’s new auditors had found, among other things, that

Chartered’s December 31, 2011 financial statements had misreported Chartered’s true financial

condition, that Chartered’s capital and surplus was at Mandatory Control Level as of December

31, 2011, and that there were irregular or unsupported related-party transfers between Chartered

and DCHSI. Adding to the company’s struggles, on October 1, 2012, Chartered informed DISB

that its chief financial officer and controller had been dismissed due to matters discovered by

Chartered’s new auditors.

10. Unable to obtain additional capital or to find a buyer to rescue the company,

Chartered’s Board of Directors adopted a resolution on October 16, 2012, consenting to

Chartered’s rehabilitation under D.C. Code §§ 31-1301 et seq. (2012 Repl.).

Chartered As A Regulated Insurance Entity

11. In addition to the Health Organization RBC Act, Chartered is subject to the

Holding Company System Act of 1993, D.C. Code §§ 31-701 et seq. (2012 Repl.). See D.C.



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Code § 31-3408.01. As a wholly-owned subsidiary of DCHSI, Chartered is part of an insurance

holding company system, defined by statute as “an arrangement which consists of 2 or more

affiliated persons, one or more of whom is an insurer.” Id. at § 31-701(4).

12. The Holding Company System Act is designed to protect insurance companies

registered in the District from among other things, having their assets raided by inappropriate

transfers to parent companies or affiliates. The provisions of the NAIC Model Holding

Company Act—adopted by the District in 1993—requiring prior approval of affiliate

transactions grew directly out of regulators’ experience with massive insurer insolvencies. “The

regulators’ experience with . . . recent insolvencies had indicated that after-the-fact reporting of

interaffiliate transactions was far too late for regulators to prevent or cure inappropriate holding

company transactions.” L. Marema, Holding Company Regulation after Baldwin-United:

Amendments to the NAIC Model Holding Company Act, 21 Tort & Insurance Law Journal 321,

339 (1985-86).

13. As a regulated insurance entity, Chartered is, therefore, more than just an ordinary

corporation; and its transactions with its parent company are not simply subject to the common

law generally governing parent-subsidiary company relationships. Rather, its transactions with

its affiliates, including its parent DCHSI, are subject to regulatory scrutiny and a comprehensive

regulatory framework that is designed to prevent a parent entity or controlling shareholder from

diverting the insurance company’s assets to the detriment of policyholders, healthcare providers,

and the public. See D.C. Code §§ 31-701 et seq.; §§ 31-3851.01 et seq. (2012 Repl.).

14. The Holding Company System Act requires that, for all transactions within an

insurance holding company system, “[t]he books, accounts, and records of each party to all the



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transactions shall be so maintained as to clearly and accurately disclose the nature and details of

the transactions . . . .” See D.C. Code § 31-706(a)(1)(D) (2012 Repl.).

15. Specifically, for transactions between an insurer and its affiliates, the Act

requires—irrespective of a transaction’s materiality—that

(A) terms be fair and reasonable;

(B) fees for services be reasonable;

(C) expenses incurred and payments received be allocated consistent with

insurance accounting practices;

(D) books, accounts, and records of each party to all the transactions be so

maintained as to clearly and accurately disclose the nature and details of the

transactions, including any accounting information necessary to support the

reasonableness of the charges or fees to the respective parties; and

(E) the insurer’s surplus after any dividends or distributions to shareholder

affiliates be reasonable in relation to the insurer’s outstanding liabilities and

adequate to its financial needs.

D.C. Code § 31-706(a)(1) (2012 Repl.).

16.

Thus, the Holding Company System Act regulates the movement of funds from

an insurer or HMO to its affiliates, including its parent. Under the Act, there are only two

legitimate ways for funds to move to an affiliate or parent: the first is through a documented

inter-affiliate transaction that meets the requirements of D.C. Code section 31-706(a)(1); the

second is through a dividend or distribution, that must also comply with section 31-706(a) and

(b). None of these requirements was met here.



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17. Indeed, Chartered’s annual statement for 2011, filed well before Chartered

entered rehabilitation, specifically states that Chartered “did not declare or pay dividend during

2011.”

18. Given Chartered’s deteriorating financial condition in 2011, any dividends or

other distributions would have been unreasonable and therefore prohibited under D.C. Code

§ 31-706(a)(1)(E).

Chartered’s Rehabilitation

19. By 2012, with Chartered’s RBC level below 70% RBC and thus triggering a

Mandatory Control Level Event, DISB was required to place Chartered under regulatory control

in a conservation, rehabilitation, or liquidation proceeding. D.C. Code § 31-3851.06 (2012

Repl.) mandates:

If a Mandatory Control Level Event occurs, the Commissioner shall take

such actio

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