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Allion Healthcare, Inc. v. Arch Insurance Co.

United States District Court, E.D. New York

September 23, 2014

ALLION HEALTHCARE, INC., MOMS PHARMACY, INC. and MOMS PHARMACY OF BROOKLYN, INC., Plaintiffs,
v.
ARCH INSURANCE COMPANY, and ARCH SPECIALTY INSURANCE COMPANY, Defendants.

PATRICK W. BEGOS, ESQ., BEGOS BROWN & GREEN LLP, Southport, Connecticut, Attorneys for Plaintiff.

JOSEPH A. OLIVA, ESQ., JILL C. OWENS, ESQ., GOLDBERG SEGALLA LLP, New York, New York. Attorneys for Defendants.

MEMORANDUM AND ORDER

LEONARD D. WEXLER, District Judge.

Before the Court is Defendants' motion to dismiss Plaintiffs' Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon which relief may be granted. Plaintiffs oppose the motion. For the following reasons, Defendants' motion is denied.

BACKGROUND

Plaintiff, Allion Healthcare, Inc. ("Allion"), is a national provider of specialty pharmacy and disease management services who, through its subsidiaries, Plaintiff MOMS Pharmacy, Inc. ("MOMS") and Plaintiff MOMS Pharmacy of Brooklyn, Inc. ("MOMS Brooklyn"), sold HIV/AIDS medications, ancillary drugs and nutritional supplies. (Compl. ¶¶ 1-4.) Both MOMS and MOMS Brooklyn were dissolved in late 2013. (Compl. ¶¶ 2-3.) Allion is now known as Biomed Healthcare Holdings, Inc. (Compl. ¶ 1.)

Defendants Arch Insurance Company and Arch Specialty Insurance Company (collectively, "Arch") issued to Allion "Corporate Canopy Policy Private Company Management Liability & Crime Insurance, " which was subsequently renewed, with policy periods from February 1, 2011 to February 1, 2013 (the "Corporate Canopy Policies"). (Compl. ¶ 10.) The Corporate Canopy Policies included coverage for Directors, Officers & Organization Liability (the "D&O Part"), Employment Practices Liability, Fiduciary Liability and Crime (the "Crime Part"), with limits of liability ranging from $5, 000, 000 to $10, 000, 000. (Compl. ¶ 12.)

Arch also issued to Allion a liability policy, which was subsequently renewed, with policy periods from August 5, 2010 to January 13, 2013 (the "Liability Policies"), which included coverage for Healthcare Professional Liability and Healthcare General Liability. (Compl. ¶¶ 13-14.) The limits of liability under these policies were $6, 000, 000. (Compl. ¶ 14.)

This action arises out of a dispute over insurance coverage for crimes allegedly perpetrated by a former employee of Allion, Glenn Schabel ("Schabel"), which included, inter alia, the diversion of prescription pharmaceuticals and for which Schabel was arrested and indicted in April 2012, following an investigation by the New York State Attorney General. (Compl. ¶¶ 15-18.) In a First Amended Complaint dated April 4, 2012 (the "AG Complaint"), the New York Attorney General named fourteen criminal defendants, including Schabel, and ten civil defendants, including Allion, MOMS and MOMS Brooklyn and alleged that Schabel had purchased more than $250, 000, 000 in pharmaceuticals on behalf of Allion that had been "diverted" or obtained outside legitimate streams of commerce. (Compl. ¶ 22.) The AG Complaint further alleged that Schabel would then dispense the diverted prescription medications to customers of Allion, the majority of whom are Medicaid recipients. (Compl. ¶ 25.) The AG Complaint asserted claims against Allion for, inter alia, claiming and or obtaining reimbursement from Medicaid for the diverted pharmaceuticals that were allegedly ineligible for reimbursement because they were obtained outside legitimate streams of commerce. (Compl. ¶ 28.)

In connection with the New York Attorney General's investigation, the New York State Supreme Court for Suffolk County in January 2012 issued a search warrant for Allion's premises in Melville, New York, as well as a temporary restraining order preventing Allion from transferring any real or personal property and an ex parte order of attachment in the amount of $155, 344, 818. (Compl. ¶ 19.) During the execution of the search warrant, the New York Attorney General seized from Allion several million dollars in pharmaceuticals and served grand jury subpoenas on Allion. (Compl. ¶ 20.)

Beginning in February 2012, Allion provided Arch with notice and a proof of claim regarding Schabel's crimes and the New York Attorney General's action, requesting coverage, defense and/or indemnification under both the Corporate Canopy Policies and the Liability Policies. (Compl. ¶ 30.) Arch rejected Allion's claims, asserting that neither the Corporate Canopy Policies nor the Liability Policies provided any coverage, defense or indemnification. (Compl. ¶ 31.)

In or about June 2012, Allion entered into an agreement with the New York Attorney General whereby substantially all assets of MOMS and MOMS Brooklyn were sold on an expedited basis at an amount substantially less than they were worth, with a significant portion of the proceeds from the sale paid to the New York Attorney General. (Compl. ¶¶ 32-33.) As part of the agreement, the New York Attorney General released Allion from any claims, including those alleged in the AG Complaint, and agreed that it would not prosecute Allion for any alleged criminal conduct related to its investigation. (Compl. ¶ 34.)

Allion commenced the within diversity action on January 8, 2014, alleging claims for breach of contract by Arch under both the Corporate Canopy Policies and the Liability Policies. Allion further asserts a claim for breach of Arch's duty to defend Allion. Arch now moves to dismiss Allion's Complaint on the ...


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