A company that faced significant legal fees stemming from a whistleblower lawsuit that was ultimately dismissed does not have coverage under its Hiscox Insurance Co. directors and officers liability policy, a federal appeals court said Friday in affirming a lower court ruling.

Louisville, Kentucky-based Springstone Inc., which provides behavioral health services in several facilities, was sued in July 2016 in whistleblower litigation that alleged it had violated the False Claims Act by obtaining reimbursement from Medicare and Medicaid for medically unnecessary services it provided to patients, according to the ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Springstone Inc. v. Hiscox Insurance Co.

The whistleblower suit was dismissed in 2019, according to the ruling. However, in the meantime, Springstone had incurred  “substantial” legal fees in the matter, which included those associated with a subpoena issued by the Department of Health and Human Services’ Office of the Inspector General seeking documents related to its patient treatment and management practices.

Hiscox refused to reimburse the company for its legal fees, and Springstone filed suit against it in the U.S. District Court in London, Kentucky, charging the insurer with claims including breach of contract and bad faith.

The district court ruled in Hiscox’s favor and was unanimously affirmed by a three-judge appeals court panel. 

“Springstone alleges that the (whistleblower) action and the government subpoena triggered coverage under its D&O Policy,” the ruling said.

“But we must apply the plain meaning of the Policy’s terms.  And under the plain meaning of the Policy, Hiscox could deny coverage for three reasons.

“First, the (whistleblower suit) was not filed during the policy period. Second, Springstone failed to indemnify any individual as required” by the policy. “Third, non-monetary relief is excluded” from the policy, the ruling said in affirming the lower court decision.

Attorneys in the case had no comment or did not respond to a request for comment.

Earlier this month, a federal appeals court affirmed a lower court ruling in favor of units of Allied World Assurance Company Holdings Ltd., Intact Insurance Group USA LLC and Travelers Cos. Inc. in litigation filed by a prescription benefits manager over their refusal to indemnify it under their errors and omissions and directors and officers liability insurance coverages.