Insurance Company Alleges Fraud against CEO and HMS
By Frost McGahey
Investigative Reporter
Dan Otero, CEO of HMS[Editor's Note: Names of other victims have been changed to protect their privacy.]
Summary: Philadelphia Insurance's lawsuit alleged that CEO Dan Otero falsely claimed that he knew of no potential lawsuits against HMS when he requested the limits of insurance be increased from $1 million to $2 million.This is despite knowing that Ms. Mary Hathaway and Dr. Linda Garcia were in the process of suing.
Philadelphia Insurance's Lawsuit:
Philadelphia Insurance issued a claims-made Commercial Lines Policy to HMS with an effective date of October 1, 2016 to October 10, 2017 ("the Policy").
When the Policy was bound on September 26, 2016, the initial Limit of Liability on the Declarations page was $1,000,000. Philadelphia changed the Policy limits from $1,000,000 to $2,000,000 on February 6, 2017, based exclusively on statements from Otero.
The endorsement regarding the additional limits makes clear that the additional coverage will not be available for claims "based upon, attributable to or arising out of any 'Wrongful Act' which occurred prior to 10/01/16 if on such date the 'Insured' knew or could have reasonably foreseen that such a 'Wrongful Act' could give rise to a 'Claim.'"
The request for the additional coverage was initiated on November 14, 2016 at precisely 7:00 am, when Otero sent an email to Jim Hoy, Chief Financial Officer, to discuss D&O insurance coverage. ( Hathaway was on administrative leave from HMS, which she alleged was due to her refusing Otero's sexual advances.)
Later that day, Hoy emailed Dan Dolan, the insurance agent for HMS, to set-up a call to discuss Otero's email request. On November 15, 2016, Dolan had a phone call with Joe Mendicelli, Senior Underwriter for Philadelphia.
Per their discussion, Mendicelli provided Dolan a ball park premium to increase Policy Limits from $2 million and $3 million. On November 17, 2016, Dolan emailed Mendicelli to see if Philadelphia would "consider increasing the limits now", that he "expected HMS would really like to increase coverage to 2MM", that "due to a slight disconnect between the board, the CEO/CFO and on renewal review, this was missed," that he should have proposed $2 million to the board, and that "at any rate I am 100% positive they are not buying because of knowledge of something around the corner and can have a no known loss letter signed."
Mendicelli, the senior underwriter, responded via email to Dolan that an increase in policy limits would have to be reviewed and considered by upper management at Philadelphia and would require at minimum a current "No Known Loss Letter". (It's a letter stating that Otero and HMS know of no action that would result in a claim being filed.)
On January 30, 2017, CEO Otero emailed Dolan, the insurance agent, a Statement of Known NO Losses dated January 12, 2017 and asked, "when can we complete this increase of coverage?" Dolan emailed the Statement of No Known Losses to the insurance underwriter on January 31, 2017 who forwarded the document to upper management on the same day.
In that document, Otero warranted that no one at HMS was aware of any "fact, circumstance or situation which he or she may have reason to believe might give rise to a future claim…."
Otero sent the document to the agent on February 6, 2017, which was forwarded to Philadelphia Insurance.
Philadelphia relied upon Otero's avowals, and agreed to provide HMS with additional aggregate limits of coverage on February 6, 2017. A week after the Limits of Liability was increased from $1,000,000 to $2,000,000. Hathaway filed her EEOC charge against Otero and HMS. In reality, Otero and/or HMS were well aware that Hathaway already had threatened to make a claim against HMS.
The majority of Hathaway's claims for sexual harassment all include allegations of conduct that commenced in February 2016 when Otero was hired.
On November 15, 2016, a day after being placed on leave, Hathaway called HMS board member Priscilla Perea (Human Resources) and made threatening remarks to the effect of: "if they want to do something, I am not going away quietly."
HMS and Otero were aware that Hathaway contacted Perea because they issued a Second Notice of Paid Administrative Leave & Written Warnings on December 13, 2016 for this and other communications Hathaway had with HMS board members and employees.
By November 16, 2016, Otero's biggest concern was that "the suspended employee ( Hathaway) would file a whistleblower claim." That date was months before Otero signed the form in which he avowed to Philadelphia that he was unaware of any circumstances that might give rise to a claim.
Furthermore, on January 3, 2017, before Otero signed the No Known Loss Letter, Hathaway left a voicemail that stated: "Vero [unidentified] is taking HMS to court. She's bringing up old shit that has to do with $2.5 Mil., that's gonna cause some shit."
Otero and/or HMS knew or could have reasonable foreseen a "Wrongful Act" claim prior to October 2016 and certainly before Otero signed the No Known Loss Letter based on the allegations of sexual harassment, gender discrimination and retaliation claims of Hathaway and/or Garcia.
That date was months before Otero signed the form in which he swore to Philadelphia that he was unaware of any circumstances that might give rise to a claim.
In their lawsuit, Philadelphia claimed Otero and HMS should have notified them of the Hathaway and Garcia claims.
According to court documents, Philadelphia made clear that only the $1,000,000 liability limits of the Policy were available for use in resolving the Hathaway and Garcia claims. The settlement of those two claims might exceed the $1,000,000 liability limits of the Policy. The $2,000,000 limit was invalid because Philadelphia claimed the No Known Losses Letter was false.
Philadelphia wanted the judge to declare that their Policy did not obligate Philadelphia to indemnify HMS in excess of $1,000,000 for the Hathaway and Garcia claims. Dated "this 18th day of December, 2018."
The case was terminated on April 22, 2019. While the specific details of the resolution are not publicly available, a report indicated that Hidalgo Medical Services consented to the amount of the settlement. (Only the $1million limit.)
District Court, D. New Mexico
Docket Number: 2:18-cv-01190
Citation: Philadelphia Indemnity Insurance Company v. Hidalgo Medical Services, 2:18-cv-01190, (D.N.M. Dec 18, 2018) ECF No. 1
Date Filed: December 18, 2018
