Dc Healthcare Systems Inc. V. Lexington Insurance Company 523q

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

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA D.C. HEALTHCARE SYSTEMS, INC., 1101 Pennsylvania Avenue, NW, 7th Floor Washington, D.C. 20004, Plaintiff,

Case No. _____________

v.

JURY TRIAL DEMANDED

LEXINGTON INSURANCE COMPANY, 100 Summer Street Boston, Massachusetts 02110, Defendant. 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 , 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 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 of the policy it drafted, as well as a mischaracterization of the key

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

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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Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 3 of 10

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 , 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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Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 4 of 10

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, istrative 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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Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 5 of 10

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 d 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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Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 6 of 10

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 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 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 d 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 of the Policy that Lexington drafted,

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Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 7 of 10

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 of its Policy, Lexington raised new additional arguments that were not ed by the Policy language and, if applied, would render coverage illusory. The plain 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 . 28.

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

coverage provided under the 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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Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 8 of 10

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 32.

DCHSI repeats and incorporates by reference the allegations in the preceding

paragraphs as if fully set forth herein. 33.

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

provide insurance coverage pursuant to the Policy’s . 34.

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

coverage provided under the 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 of

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

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Case 1:16-cv-00882-CRC Document 1 Filed 05/10/16 Page 9 of 10

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 38.

DCHSI repeats and incorporates by reference the allegations in the preceding

paragraphs as if fully set forth herein. 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 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. 41.

Denying DCHSI’s insurance claim without reasonable basis.

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

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. Bobotek James P. Bobotek (D.C. Bar No. 458375) 1200 Seventeenth Street, NW Washington, D.C. 20036-3006 Telephone: 202.663.8930 [email protected] Counsel for Plaintiff DCHSI Dated: May 10, 2016

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4810-5187-8192

Case 1:16-cv-00882-CRC Document 1-1 Filed 05/10/16 Page 1 of 2 CIVIL COVER SHEET JS-44{Rev. 3/16 DC)

I. (a) PLAINTIFFS

DEFENDANTS

D.C. Healthcare Systems, Inc.

Lexington Insurance Company

11 001

COUNTY OF RESIDENCE OF FIRST LISTED DEFENDANT --"'8'-"8'-"8"-'8,_,8=<------(IN U.S. PLAINTIFF CASES ONLY)

(b) COUNTY OF RESIDENCE OF FIRST LISTED PLAINTIFF (EXCEPT IN U.S. PLAINTIFF CASES::-)'---'---"--''--'-----

NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE TRACT OF LAND INVOLVED

(c) ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER)

ATTORNEYS (IF KNOWN)

James P. Bobotek Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street, NW Washington, DC 20036 III. CITIZENSHIP OF PRINCIPAL PARTIES (PLACE AN x IN ONE BOX FOR

II. BASIS OF JURISDICTION (PLACE AN x IN ONE BOX ONLY)

0 Q

0

1 U.S. Government Plaintiff

0

2 U.S. Government Defendant

3 Federal Question (U.S. Govemment Not a Party) 4 Diversity (Indicate Citizenship of Parties in item III)

PLAINTIFF AND ONE BOX FOR DEFENDANT) FOR DIVERSITY CASES ONLY! PTF DFT

Citizen of this State

01

01

Citizen of Another State

Oz

Oz

Citizen or Subject of a Foreign Country

03

03

Incotporated or Principal Place of Business in Tllis State Incorporated and Principal Place of Business in Another State Foreign Nation

PTF

DFT

04 Os

06

IV. CASE ASSIGNMENT AND NATURE OF SUIT (Place an X in one category, A-N, that best represents your Cause of Action and one in a corresponding Nature of Suit)

0

A. Antitrust

0 B. Personal Injury/

0 C. istrative Agency

Malpractice 0

410 Antitrust

0 E.

Review

O O O

310 Ah·plane 315 Airplane Product Liability 320 Assault, Libel & Slander 0 330 Federal Employers Liability 0340Marine O 345 Marine Product Liability 0 350 Motor Vehicle O 355 Motor Vehicle Product Liability 0 360 Other Personal Injury 0 362 Medical Malpractice 0 365 Product Liability O 367 Health Care/Pharmaceutical Personal Injury Product Liability O 368 Asbestos Product Liability

General Civil (Other)

Real Property 0210 Land Condemnation 0 220 Foreclosure 0 230 Rent, Lease & Ejectment 0 240 Torts to Land 0 245 Tort Product Liability 0 290 All Other Real Property Personal Property 0 370 Other Fraud 0371 Truth in Lending 0380 Other Personal Property Damage 0 385 Property Damage Product Liability

0

151 Medicare Act

Social Security 0 861 HIA (1395ff) O 862 Black Lung (923) 0 863 DIWC/DIWW (405(g)) 0 864 SSID Title XVI 0 865 RSI (405(g)) Other Statutes O 891 Agricultural Acts 0 893 Environmental Matters O 890 Other Statutory Actions (If istrative Agency is Involved)

OR

0

Bankruptcy 0 422 Appeal 27 USC 158 0 423 Withdrawal28 USC 157 Prisoner Petitions 535 Death Penalty D 540 Mandamus & Other D 550 Civil Rights D 555 Prison Conditions D 560 Civil Detainee- Conditions of Confinement

Federal Tax Suits 0 870 Taxes (US plaintiff or defendant) D 871 IRS-Third Party 26 USC 7609

D. Temporary Restraining Order/Preliminary Injunction

Any nature of suit from any category may be selected for this category of case assignment. *(If Antitrust, then A governs)*

F. ProSe General Civil Forfeiture/Penalty 0 625 Drug Related Seizure of Property 21 USC 881 0690 Other

D

Property Rights D 820 Copyl'ights 0830Patent D 840 Trademark

0

Other Statutes D 375 False Claims Act 0376 Qui Tam (31 USC 3729(a)) 0 400 State Reapportionment D 430 Banks & Banldng D 450 Commerce/ICC Rates/etc. 0 460 Deportation 0 462 Naturalization Application 0 465 Other Immigration Actions

0470 Racketeer Influenced & Corrupt Organization 0480 Consumer Credit 0490 Cable/Satellite TV 0 850 Securities/Commodities/ Exchange 0896 Arbitration 0899 istrative Procedure Act/Review or Appeal of Agency Decision 0950 Constitutionality of State Statutes 0890 Other Statutory Actions (if not istrative agency review or Privacy Act)

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

0

0 G. Habeas Corpus/ 2255 0 0

0

0

530 Habeas Corpus -General 510 Motion/Vacate Sentence 463 Habeas Corpus- Alien Detainee

H. Employment Discrimination

0 I. FOIA!Privacy Act

0

442 Civil Rights- Employment (criteria: race, gender/sex, national origin, discrimination, disability, age, religion, retaliation)

0 0

0152 Recovery of Defaulted Student Loan (excluding veterans)

*(If pro se, select this deck)*

*(If pro se, select this deck)*

0

0

K. Labor/ERISA (non-employment)

L. Other Civil Rights (non-employment)

0441 Voting (if not Voting Rights Act) 0 443 Housing/Accommodations 0440 Other Civil Rights 0445 Americans w/DisabilitiesEmployment 0446 Americans w/DisabilitiesOther 0 448 Education

0710 Fair Labor Standards Act 0720 Labor/Mgmt. Relations 0 740 Labor Railway Act 0751 Family and Medical Leave Act 0790 Other Labor Litigation 0791 Empl. Ret. Inc. Security Act

895 Freedom of Information Act 890 Other Statutory Actions (if Privacy Act)

J. Student Loan

a

0 N. Three-Judge

M. Contract

Court

[R] 110 Insurance 0120Marine 0 130 Miller Act 0 140 Negotiable Instrument 0 150 Recovery of Overpayment & Enforcement of Judgment 0 153 Recovery of Overpayment of Veteran's Benefits 0 160 Stockholder's Suits 0 190 Other Contracts 0 195 Contract Product Liability 0 196 Franchise

0

441 Civil Rights- Voting (if Voting Rights Act)

V. ORIGIN

0

1 Original Proceeding

02Removed from State Court

0

3 Remanded from Appellate Court

0 4 Reinstated or Reopened

0

5 Transferred from another district (specify)

0

6 Multi-district Litigation

07 Appeal to District Judge from Mag. Judge

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 COMPLAINT

CHECK IF THIS IS A CLASS ACTION UNDER F.R.C.P. 23

VIII. RELATED CASE(S) IF ANY

(See instruction)

May 10, 2016

DATE:

I

DEMAND$ Excess of $75,000 JURY DEMAND: YESO

SIGNATURE OF ATTORNEY OF RECORD

~~~

Check YES only if demanded in complaint YES NOD

00

If yes, please complete related case fonn

__..,..

tfNf~

II

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 g the fonn.

Case 1:16-cv-00882-CRC Document 1-2 Filed 05/10/16 Page 1 of 2 AO 440 (Rev. 06/12) Summons in a Civil Action

UNITED STATES DISTRICT COURT for the

District of Columbia __________ District of __________ D.C. HEALTHCARE SYSTEMS, INC., 1101 Pennsylvania Avenue, NW, 7th Floor Washington, D.C. 20004, Plaintiff(s)

v. LEXINGTON INSURANCE COMPANY, 100 Summer Street Boston, Massachussetts 02110, Defendant(s)

) ) ) ) ) ) ) ) ) ) ) )

Civil Action No.

SUMMONS IN A CIVIL ACTION To: (Defendant’s name and address) LEXINGTON INSURANCE COMPANY, 100 Summer Street Boston, Massachussetts 02110,

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: James P. Bobotek Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street NW Washington, DC 20036-3006

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

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

.

Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 1 of 25

EXHIBIT A

Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 2 of 25

POLICYHOLDER NOTICE Thank you for purchasing insurance from the Chartis companies. Chartis insurance companies generally pay compensation to brokers and independent agents, and may have paid compensation in connection with your policy. You can review and obtain information about the nature and range of compensation paid by Chartis insurance companies to brokers 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)

Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 3 of 25

LEXINGTON INSURANCE COMPANY

istrative 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 FOR CLAIMS FIRST MADE AGAINST THE INSURED AND REPORTED TO US DURING THE POLICY PERIOD OR EXTENDED REPORTING PERIOD, IF APPLICABLE. NOTICE: CLAIMS EXPENSES (WHICH INCLUDE ALL ATTORNEY FEES) ARE INCLUDED WITHIN AND REDUCE THE APPLICABLE LIMIT OF LIABILITY. CLAIMS EXPENSES ARE INCLUDED WITHIN AND REDUCE THE DEDUCTIBLE OR SELF INSURED RETENTION, WHICHEVER IS APPLICABLE. Policy Number: Item 1 Item 2

35848309

Renewal of Number:

New

Named Insured:

D.C. CHARTERED HEALTH PLAN, INC.

d/b/a

D.C. CHARTERED HEALTH PLAN, INC.

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: 03/15/2014 At 12:01 a.m. Standard Time at you mailing address shown above.

Item 5

Limits of Liability: Aggregate Limit: Per Claim Limit:

$8,000,000 $6,000,000

Item 6:

Self Insured Retention

$25,000

Item 7

:

Item 8

Minimum Earned :

Item 9

Optional Extended Reporting Period: 36

Item 10

Forms and Endorsements – Attached at Policy Inception:

Item 11

Producer Name and Address: D.H. Lloyd & Associates, Inc. Donna M. Snyder 1625 K. St. N.W., Ste 400 Washington DC 20006

$120,823 25% Months at

150%

of Total Annual

By Authorized Representative

95229 (8/07) Insured eCopy

Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 4 of 25

FORMS SCHEDULE Named Insured: D/B/A

D.C. CHARTERED HEALTH PLAN, INC. D.C. CHARTERED HEALTH PLAN, INC.

Policy Number:

35848309

Effective Date: Edition Date

Form Number Cover Broker Letter Cover Policy 91222 95229 95230 96691 96697 96699 PRG2023 89644

1209 0807 0709 1107 1107 1107 0705 0705

03/15/2013

Title

Covernote Covernote Policyholder Notice Managed Care Risk Solutions Managed Care Risk Solutions Claims Made Policy Additional Insured Endorsement Retroactive Date Amendatory Endorsement Terrorism Endorsement Service of Suit Condition Coverage Territory Endorsement

Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 5 of 25

Lexington Insurance Company MANAGED CARE RISK SOLUTIONSSM CLAIMS MADE POLICY

In consideration of the and in reliance on the representations made in the Application provided to us, which will be considered part of this Policy and incorporated herein by reference, Lexington Insurance Company (hereinafter “we”, “us” or “our”) and each 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 first made against you and reported to us in writing during the period that this Policy is in effect or within ninety (90) days following its termination. appearing in boldface type shall have the meanings set forth in the Section II, DEFINITIONS. Our mutual obligations under this Policy are at all times subject to the Limits of Liability and all of the other and conditions set forth below. This Policy covers: All claims made against you by any person, entity or governmental agency 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. 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 medical information; E. a part of punitive, multiple and exemplary damages where punitive, multiple and exemplary 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 a settlement we agree to or by final adjudication, whichever is applicable, subject to the limits of liability under this policy; and 95230 (07/09)

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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 provider agreement; H. any amount you wrongfully withhold or are obligated to disgorge, or any profit or advantage to which you are not legally entitled; I. any taxes, sanctions or fines; J. any amount necessary to comply with any declaratory, equitable, injunctive or istrative 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 other proceeding 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 or deceptive trade practice, or violation of any federal or state antitrust law; B. Application means all applications, including all attachments, and all other written information and material submitted to us in applying for this Policy; C. Claim means a written communication received by an Named Insured’s Risk Management or Legal Department seeking damages or other civil, istrative or injunctive relief, or threatening suit or arbitration, including service of suit or institution 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 the first such claim is made against any Insured; D. Claims expenses means: 1. 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; but excluding any loss of income, earnings or revenue, 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 that part 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 of the judgment we pay subject to the applicable Limit of Liability, and; 4. all s 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 any other individual duly authorized to perform a service covered under the Insuring Agreement 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 of them; and any other person or entity added to this policy as an Insured by endorsement; F. Medical service means any medical, surgical, mental health, dental, nursing or chiropractic examination, treatment or therapy, the furnishing or dispensing of blood, drugs or medical, surgical, dental, or chiropractic supplies or appliances, or the handling of, or performing post-mortem examination on, a human body; G. Most favorable jurisdiction means the jurisdiction where either the act, error or omission giving rise to liability took place, the relief was awarded, you are incorporated or have your principal place of business, or we are incorporated or have our 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, or was reported to another insurer, prior to the commencement of the policy period of the earliest consecutive policy issued by us immediately preceding this Policy; B. the insolvency, receivership, bankruptcy, liquidation or financial inability to pay of any Insured; C. any dishonest, fraudulent, criminal or malicious act, error or omission committed by you or at your direction; provided, however, that our obligations under this Policy shall apply to any allegation otherwise within the scope of this exclusion until your liability has been itted or finally adjudicated, at which time all of our obligations under this 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 d entities; provided, however, that this exclusion will not apply to any claim arising out of any service you perform as described in the Application made by an individual who is a recipient of that service; E. any act, error or omission in the conduct of any partnership or t 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 have determined that the medical service in question was performed by a health care professional who, at the time of the performance of the medical service, was an Insured. At that time, all of our obligations under this Policy with respect to such claim shall cease. This exclusion will not apply, however, to the voluntary performance of an emergency medical service by an Insured without receipt or expectation of remuneration; G. any act, error or omission occurring before the Retroactive Date shown in the Declarations; H. the licensing, infringement, misappropriation or misuse of any patent, copyright, trademark, service mark, trade name, computer software, trade dress, or other intellectual 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) the failure to protect the confidentiality of medical information obtained in the performance of health care or managed care services and (2) information you maintain for 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 parts and endorsements to this Policy combined, except as expressly provided therein, is limited as follows: A. AGGREGATE LIMIT: Our total monetary obligation for all settlements, judgments and claims expenses as a result of all claims for which coverage is afforded under this Policy shall not exceed the 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 Liability stated in the Declarations to be applicable to each claim shall be the total limit of our liability for all settlements, judgments and claims expenses as a result of any one claim 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 of Liability 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 the Deductible will be deducted first from the Limit of Liability applicable to each covered claim. You will reimburse us promptly for any portion of the Deductible we advance in payment of judgments, settlements or claims expenses resulting from each such claim. If you have selected a Self Insured Retention, you will pay that amount toward all judgments, settlements or claims expenses resulting from each covered claim. Our obligation under this Policy to pay judgments, settlements or claims expenses applies only to amounts in excess of the Self Insured Retention, and we will not be obligated to pay any amount under this Policy until you have paid the full amount of the Self Insured Retention. No portion of the Self Insured Retention may be insured without our prior written consent. Irrespective of whether there may be insurance available to fund any portion of the Self Insured Retention, you will be responsible for the full amount 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 our obligations 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 even if the allegations are groundless, false or fraudulent. We will pay all reasonable and necessary claims expenses incurred in the defense of the claim, and we will have the right to appoint defense counsel. If you have selected a Self Insured Retention, until the Self Insured Retention has been fully exhausted it is your obligation to pay all judgments, settlements and claims expenses, 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 the settlement or compromise, together with the amount of all claims expenses, does not exceed 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 exceed the Self Insured Retention, we will have the right to appoint defense counsel. When you have paid the full amount of the Self Insured 95230 (07/09)

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Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 10 of 25 Retention, we will then have the right and the duty to defend the claim even if the allegations are groundless, false or fraudulent; and we will pay all reasonable and necessary claims expenses incurred in the defense of the claim. You may not incur any cost or claims expense or settle any such claim that would involve payment in excess of the 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 be obligated to cooperate with us as provided below. We will not settle or compromise any claim without obtaining your prior consent. If, however, you refuse to consent to a settlement or compromise we recommend and elect to continue legal proceedings, then our liability for the claim shall not exceed the amount for which the claim could have been settled, plus claims expenses incurred up to the date of the refusal, subject to the Limits of Liability. We will not be obligated to make any payment under this Policy after the Limits of Liability have been exhausted by the payment of judgments, settlements or claims expenses. If the Aggregate Limit of Liability is exhausted, we notify you of all outstanding claims 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 that you must do all the following: 1. As soon as practicable, and in no event later than ninety (90) days after your Risk Management or Legal Department becomes aware of a claim, forward to Lexington Insurance Company, 100 Summer Street, Boston, MA 02110, to the attention of the Managed Care Claims Unit, a copy of the claim together with any summons or other process received, full information concerning the claimant, the date, place and circumstances of the event(s) complained of, and the names and addresses of all known 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 the defense of the claim, and obtain the attendance of witnesses; and,

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Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 11 of 25 7. Provide written statements to our representatives and meet with them for the purpose of investigation or defense, and, if requested, submit to examination under oath. Except as otherwise required by law, you may not enter into any tolling agreement or agree 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, you become aware of any act, error or omission that may be reasonably likely to give rise to a claim for which coverage may be afforded under this Policy, and if you immediately give us written notice of (1) the specific act, error or omission, (2) the resulting damages, if known, (3) how, when, and where the act, error, or omission took place and (4) the names and addresses of all known participants and available witnesses, then any claim that may subsequently be made arising out of that act, error or omission will be deemed to have been made on the last day of the effective period of the Policy; provided, however, that the act, error or omission must have occurred after 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 your rights of recovery against any person or entity. You must execute and deliver such instruments 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 is authorized 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 or cancellation, the payment of s and the receipt of any return s that may become due under this Policy. A communication by us to the first Named Insured will be deemed a communication to all Insureds unless you advise us otherwise in writing. E. ACTION AGAINST US: No action shall be brought against us unless as a condition precedent thereto there shall have been full compliance with all of the and conditions of this Policy and not until the amount of your obligation to pay has been finally determined whether by judgment against you after actual trial or by written agreement between you and the claimant consented to by us. No person or 95230 (07/09)

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organization will have any right under this Policy to or implead us as a party to any action against you. F. APPLICATION: By acceptance of this Policy, you agree that the statements in the Application are your true 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 all agreements 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, all insurance hereunder shall be immediately forfeited. I. CHANGES: Notice to our authorized representative or knowledge possessed by any broker or other person shall not effect a waiver or a change of any provision of this Policy or estop us from asserting any right under the of this Policy, nor shall the of this Policy be waived or changed except by endorsement issued to form a part of this Policy. J. INSPECTION: We will be permitted, but not obligated, to inspect your property and operations at any time. Neither our right to make inspections, nor the making thereof, nor any report thereon shall constitute an undertaking on your behalf or for your benefit, or that of others, 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 may review your books and records at any time during the effective period of this policy or any Extended Reporting Period, or within three years thereafter, as far as they relate to the subject matter of this insurance. K. : All s for this Policy shall be computed in accordance with our rules and rates applicable to such insurance. You must maintain records of such information as is necessary for computation, and must send copies of such records to us at the end 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 us stating when thereafter the cancellation will be effective. If you cancel the Policy, we will retain the customary short rate proportion of the , subject to the Minimum Earned set forth in the Declarations. We may cancel the Policy by mailing written notice to you at the address shown in the Declarations stating when, not less than ninety (90) days thereafter, the cancellation will be effective. However, if we cancel the Policy because you have failed to pay a or Deductible when due, we may cancel by mailing a written notice of cancellation stating when, not less than ten (10) days thereafter, the cancellation will be effective. The mailing of notice will constitute notice and the effective date of cancellation stated in the notice shall become the end of the effective period of this Policy. Delivery of written notice by either of us as described shall be equivalent to mailing. If we cancel, the earned shall be computed pro rata. adjustment may be 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 be specifically excess of this policy. When this insurance is excess, we will have no duty to defend any claim until all such other insurance has been exhausted in accordance with its 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 United States of America economic or trade sanction laws or regulations, including, but not limited to, sanctions, laws and regulations istered 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 another entity such that after the effective date of the transaction you hold a majority ownership interest in the newly formed, acquired or merged entity, then for a period of ninety (90) days after the effective date of the transaction or so long as this Policy remains in effect, whichever is less, the newly formed, acquired or merged entity will be included within the definition of Insured with 95230 (07/09)

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respect to any claim arising solely out of acts, errors or omissions occurring after the effective date of the transaction. Thereafter, all coverage under this Policy will cease unless 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 accept any , conditions, exclusions or limitations, including payment of additional , 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’s directors, 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 under this Policy with respect to any claim arising out of any act, error or omission you commit on or after the date thereof unless prior to any transaction stated in Subparagraphs 1 or 2 above, you provide us with such information regarding the transaction and any surviving entity as we may request, and we agree by written endorsement to this Policy to provide coverage subject to , conditions, exclusions or limitations, including payment of additional , as we may, in our sole discretion, 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 of or failure to comply with the and conditions of the Policy, and if the Optional Extended Reporting Period Endorsement is not purchased, we will provide an Automatic Extended Reporting Period of ninety (90) days commencing at the end of the Policy Period. During the Automatic Extended Reporting Period, any claim first made against an Insured resulting from an act, error or omission that took place on or after the Retroactive Date in the Declarations but before the end of the Policy Period will be deemed to have been first made on the last day of the Policy Period.

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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 other insurance provides coverage to the Insured whether the other insurance applies on a primary, excess, contingent, or any other basis. 4. Our offer of , conditions or different from the expiring Policy will not be 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 of or failure to comply with the and conditions of the Policy, the first Named Insured may purchase an Optional Extended Reporting Period Endorsement commencing at the end of the Policy Period. The additional for, and the period of, the Optional Extended Reporting Period Endorsement will be as stated in the Declarations. 2. During the Optional Extended Reporting Period, any claim first made against an Insured resulting from an act, error or omission that took place on or after the Retroactive Date in the Declarations but before the end of the Policy Period will be deemed to have been first made on the last day of the Policy Period. The Optional 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. To obtain an Optional Extended Reporting Period Endorsement, the Named Insured must make a request in writing within ninety (90) days after the end of the Policy Period and pay the due. The will be fully earned and the Optional 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, whether the other insurance applies on a primary, excess, contingent, or any other basis. 5. Our offer of , conditions or different from the expiring Policy will not be 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 with regard to whether this policy is void or voidable), it is mutually agreed that the dispute shall be submitted to binding arbitration before a of three arbitrators consisting of 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 the name, 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 writing the demanding party of the name, address and occupation of the arbitrator nominated by it. The two arbitrators so selected shall, within 30 days of the appointment of the second arbitrator, select an umpire. If the arbitrators are unable to agree upon an umpire, the selection of the umpire shall be submitted to the Judicial Arbitration and Mediation Services (hereinafter, “JAMS”). The umpire shall be selected in accordance with Rule 15 (as may be amended from time to time) of the JAMS Comprehensive Arbitration Rules and Procedures for the selection of a sole arbitrator. The parties shall present their respective cases to the by written and oral evidence at a hearing time and place selected by the umpire. The shall be relieved of all judicial formality, shall not be obligated to adhere to the strict rules of law or of evidence, shall seek to enforce the intent of the parties hereto and may refer to, but are not limited to, relevant legal principles. The decision of at least two of the three shall be binding and final and not subject to appeal except for grounds of fraud or gross misconduct by the arbitrators. The award will be issued within 30 days of the close of the hearings. Each party shall bear the fees and expenses of its designated arbitrator and shall tly and equally share with the other the fees and expenses of the umpire and the arbitration. The arbitration proceeding shall take place in the vicinity of Boston, Massachusetts or such other place as may be mutually agreed by you and us. The procedural rules applicable to this arbitration shall, except as provided otherwise herein, be in accordance 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 amount due under this policy, at your request we 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 by us of any right to 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 within or outside of a jurisdiction as permitted by the laws of the United States or of any state in the United States. It is further agreed that service of process in such suit may be made upon Counsel, Legal Department, Lexington Insurance Company, 100 Summer Street, Boston, Massachusetts, 02110. We will abide by the decision of such court or of any appellate court in the event of any appeal. 95230 (07/09)

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We designate the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose under any statute of any state, territory, or district of the United States which makes provision therefor, as our attorney upon whom any lawful process in any action, suit, or proceeding instituted by or on your behalf or any beneficiary hereunder arising out of this Policy, may be served and also hereby designate the above named Counsel as the person to whom the officer is authorized to mail the process. By g below, the President and the Secretary of the Insurer agree on behalf of the Insurer to all the of this Policy.

/ Secretary

President

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.

Authorized Representative

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ENDORSEMENT # This endorsement, effective 12:01 A.M., 03/15/2013 Forms a part of Policy No.: 35848309 d/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 the Retroactive 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 excluded from coverage. All other 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., 03/15/2013 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

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 and replaced 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 and conditions of the policy remain the same.

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

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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

TERRORISM ENDORSEMENT In consideration of the surcharge shown below which is included in Item 7. of the Declarations, it is hereby understood and agreed that this Policy is issued without the Terrorism Exclusion Endorsement currently in use by the Company.

SURCHARGE:

$1,196

All other and conditions of the Policy remain the same.

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

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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. 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 rights to 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 as permitted by the laws of the United States or of any state in the United States. It is further agreed 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 her representative, and that in any suit instituted against us upon this Policy, we will abide by the final 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 which makes provision therefor, we hereby designate the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his or her successors in office, as our true and lawful attorney upon whom may be served any lawful process in any action, 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 to whom the said officer is authorized to mail such process or a true copy thereof.

Authorized Representative

PRG 2023 07/05

Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 22 of 25

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 of America economic or trade sanction laws or regulations, including, but not limited to, sanctions, laws and regulations istered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). ______________________________ AUTHORIZED REPRESENTATIVE

89644 (7/05)

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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

MANAGED CARE RISK SOLUTIONSSM CLAIMS MADE POLICY OPTIONAL EXTENDED REPORTING PERIOD ENDORSEMENT I.

In consideration of the additional of $ 181,235.00 extend the reporting period for all claims made after 03/15/2014 03/15/2017

and

we prior

shall to

Such coverage will be provided according to the applicable , conditions and exclusions of the 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 RISK SOLUTIONSsm CLAIMS MADE POLICY will not be increased or reinstated for claims made during this Optional Extended Reported Period.

III.

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

IV.

for this Optional Extended reporting Period is fully earned by us on the effective date of this Endorsement.

V.

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

Notice of

Any other not included herein shall apply in accordance with the Optional Extended Reporting Coverage clause of the Policy. All other and conditions of the policy remain the same.

AUTHORIZED REPRESENTATIVE 96700 (11/07)

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ENDORSEMENT NO. 3 This endorsement, effective 12:01 A.M. 03/15/2013 Forms 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 IN CONSIDERATION OF AN ADDITIONAL OF $ 181,235.00, IT IS HEREBY UNDERSTOOD AND AGREED THAT The Optional Extended Reporting Period endorsement is added to the policy

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

Authorized Representative or Countersignature (in states where Applicable)

Case 1:16-cv-00882-CRC Document 1-3 Filed 05/10/16 Page 25 of 25

ADDENDUM TO THE DECLARATIONS

By g below, the President and the Secretary of the Insurer agree on behalf of the Insurer to all the of this Policy.

Jeremy Johnson PRESIDENT

Denis M. Butkovic 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

AUTHORIZED REPRESENTATIVE

78713 05/13

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EXHIBIT B

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SUPERIOR COURT FOR THE DISTRICT OF COLUMBIA Civil Division D.C. Chartered Health Plan, Inc. (in Rehabilitation), Plaintiff,

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.

v. Jeffrey E. Thompson, et al.

Defendants.

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) uned 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 its overall business operations in consideration of its size and risk profile. Insurer capital requirements are measured in 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), 313851.03 (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 §§ 313851.01(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), 313851.03 (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 uned 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. 4

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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 d 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

ed in the District from among other things, having their assets raided by inappropriate transfers to parent companies or s.

The provisions of the NAIC Model Holding

Company Act—adopted by the District in 1993—requiring prior approval of 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 inter 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 s, 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, s, 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 s, the Act

requires—irrespective of a transaction’s materiality—that (A) be fair and reasonable; (B) fees for services be reasonable; (C) expenses incurred and payments received be allocated consistent with insurance ing practices; (D) books, s, 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 ing information necessary to the reasonableness of the charges or fees to the respective parties; and (E) the insurer’s surplus after any dividends or distributions to shareholder s 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 s, including its parent. Under the Act, there are only two legitimate ways for funds to move to an or parent: the first is through a documented inter- 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 action as is necessary to place the health organization under regulatory control . . . . In such event, the Mandatory Control Level Event shall be sufficient reason for the Commissioner to take action under Chapter 34 of this title [Health Maintenance Organization] or Chapter 13 of this title [Insurers Rehabilitation and Liquidation Procedures]. In such event, the Commissioner shall have the rights, powers, and duties with respect to the health organization as are set forth in Chapter 34 of this title and Chapter 13 of this title. 20.

The receivership proceedings authorized by Title 31 of the D.C. Code expressly

apply to Chartered, which is incorporated in the District and served the District’s Medicaid population. See D.C. Code § 13-1302(1) (2012 Repl.) (“The proceedings authorized by this 7

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chapter may be applied to: (1) All insurers who are doing, or have done, an insurance business in the District, and against whom claims arising from that business may exist now or in the future….”). Rehabilitation, liquidation, or conservation of HMOs are conducted under chapter 13 of Title 31. See D.C. Code § 31-3420(a). 21.

Under the applicable statutory scheme, DISB was therefore mandated to compel

Chartered’s rehabilitation (or liquidation), making Chartered’s Board of Directors’ consent istratively accommodating, but statutorily unnecessary. 22.

In light of Chartered’s financial condition and consent resolution, on October 19,

2012, William P. White, then Commissioner of DISB (“Commissioner”), filed an Emergency Consent Petition for an Expedited Order of Rehabilitation Pursuant to D.C. Code §§ 31-1310, 31-1311, 31-1312 and 31-3420(a) on or Before October 23, 2012 (“Petition”) in the Superior Court for the District of Columbia, Civil Action No. 2012 CA 008227. 23.

The Superior Court granted the Petition that same day and appointed the

Commissioner and his successors as Chartered’s Rehabilitator in an Emergency Consent Order of Rehabilitation (a true and accurate copy of which is attached as Exhibit A).

The

Commissioner in turn appointed Daniel L. Watkins as Special Deputy to the Rehabilitator. 24.

The Rehabilitator examined Chartered’s books and records and, based on the

investigation to date, filed this action against Thompson and DCHSI. 25.

All conditions precedent to the claims stated in this Amended Complaint have

been performed, have occurred, or have been excused. Parties 26.

Chartered is incorporated and has its principal place of business in the District of

Columbia. 8

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27.

Chartered has been in Rehabilitation since October 19, 2012, with DISB’s

Commissioner serving as Chartered’s Rehabilitator and Daniel L. Watkins serving as Special Deputy to the Rehabilitator.

The Commissioner and his Special Deputy are referred to

interchangeably herein as the “Rehabilitator.” 28.

The Rehabilitator brings this action both (a) in his capacity as Rehabilitator and

(b) on behalf of Chartered pursuant to D.C. Code § 31-1312(d) (2012 Repl.) and pursuant to the October 19, 2012 Emergency Consent Order of Rehabilitation issued by the District of Columbia Superior Court that authorizes the Rehabilitator to “pursue all appropriate claims and legal remedies on behalf of Chartered.” 29.

Thompson is a resident of the District of Columbia and the sole shareholder of

DCHSI, Chartered’s parent company.

At all times relevant to the allegations concerning

Thompson’s actions in the Amended Complaint, Thompson controlled Chartered as Chairman of its Board of Directors, and as DCHSI’s sole shareholder. 30.

DCHSI is incorporated in the District of Columbia and is the parent and sole

shareholder of Chartered. 31.

Chartered and DCHSI are d persons within an insurance holding company

system under D.C. Code §§ 31-701 et seq. (2012 Repl.). Jurisdiction and Venue 32.

The Court has subject matter jurisdiction over this case pursuant to D.C. Code

§§ 31-1303(c)(3), (4) & (5) (2012 Repl.). 33.

The Court has personal jurisdiction over Thompson and DCHSI pursuant to D.C.

Code § 13-422 (2012 Repl.) because Thompson is domiciled in the District of Columbia and because DCHSI is organized under the laws of and maintains its principal place of business in 9

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the District. The Court also has personal jurisdiction over Thompson and DCHSI pursuant to D.C. Code § 13-423, and venue is proper in this Court, because they have committed acts within the District of Columbia that give rise to the claims in this Complaint. Statement of Facts Chartered’s s 34.

Chartered Family Health Center, P.C. (“CFHC”) was a former of

Chartered.

CFHC operated a medical clinic in the District that treated patients, including

individuals enrolled in a Medicaid managed care plan istered by Chartered. 35.

Chartered and CFHC entered into contractual agreements under which CFHC

could use certain of Chartered’s fixed assets and periodically would pay Chartered for istrative services, and Chartered agreed to reimburse CFHC for its actual costs incurred in providing services to Chartered after deducting revenues collected from third-party payors. 36.

Thompson controlled CFHC and was the only person with g authority on

CFHC’s bank (s). 37.

Chartered, CFHC, DCHSI and Thompson were all “s” within the meaning

of D.C. Code § 31-701(1) (2012 Repl.) and thus were an “insurance holding company system” under D.C. Code § 31-701(4) (2012 Repl.). 38.

Thompson, as Chairman of Chartered’s Board of Directors, owed fiduciary duties

to Chartered as a director of the company under D.C. Code §§ 31-3405(a) and §§ 29-306.30(a), (b) (Repl. 2012). 39.

In February, 2011, CFHC sold substantially all of its assets, closed its medical

practice operations, and ceased active business operations. Thompson, however, continued to 10

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exercise financial control over CFHC’s s and corporate entity which, on information and belief, remained intact until December, 2011. The Cash Transfers 40.

After CFHC ceased operations in February, 2011, a total of $2.7 million dollars

was transferred from Chartered to CFHC that year.

Nearly all of those funds were then

transferred from CFHC to Chartered’s parent, DCHSI, in most instances immediately upon receipt of the transfers from Chartered. On information and belief, at least $850,000 of these 2011 transfers to CFHC, and at least $625,000 of that amount which was subsequently transferred to DCHSI, were improperly transferred, as detailed below. 41.

Through the transactions detailed below, Thompson sought to evade the District’s

insurance regulatory scheme which was purposefully designed to prohibit an insurer’s parent or , such as DCHSI, from stripping the assets of the insurer, thereby leaving the insurer unable to meet its obligations to enrollees, healthcare providers, and the public. 42.

In particular, starting in or about September, October, and November, 2011,

Thompson caused Chartered to make the following transfers of cash, totaling $850,000, to CFHC: (a) $300,000 from Chartered to CFHC on September 28, 2011; (b) $300,000 from Chartered to CFHC on October 5, 2011; and (c) $250,000 from Chartered to CFHC on November 2, 2011. 43.

In addition, Thompson caused CFHC to make the following transfers of cash,

totaling $625,000, to DCHSI: (a) $250,000 from CFHC to DCHSI on September 28, 2011; (b) $250,000 from CFHC to DCHSI on November 2, 2011; and 11

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(c) $125,000 from CFHC to DCHSI on November 9, 2011. 44.

All of the transfers described in paragraphs 42 and 43 were initiated and approved

by Thompson, who had sole signatory authority on the s. 45.

Thompson authorized the transfers, in some instances by way of g funds

transfer memoranda with his initials. Thompson, however, did not create or provide Chartered with any documentary for the transfers described in paragraphs 42 and 43 when they were made, such as would reflect that (a) the transactions were properly recorded in the journals and ledgers of the respective d entities, (b) source documents existed to substantiate the basis and justification for the transfers, and (c) books and records of the d entities established agreement between the independently maintained records of the same transactions. 46.

Moreover, Chartered had no contractual or financial reason or basis to send any

further funds to CFHC in the fall of 2011—when the transfers identified in paragraph 42 occurred—given that CFHC had ceased operations in February, 2011 and upon information and belief Chartered’s records indicated that all Chartered payables due CFHC had been satisfied through various other transactions in mid-2011. 47.

Indeed, Chartered initially carried the amounts from the transfers identified in

paragraph 42 on its books as receivables from CFHC, but wrote the receivables off as bad debts in its 2011 unaudited financial statements filed with DISB. 48.

As set forth in paragraph 43 above, CFHC’s bank statements and general ledger

show that at least $625,000 of the $850,000 that Thompson caused Chartered to send to CFHC as set forth in paragraph 42 was then transferred directly and in some cases immediately to DCHSI. Again, the transfers were initiated and approved by Thompson, who had sole signatory authority on the . 12

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49.

In addition to the transfers described above, on or about December 20, 2011,

Thompson caused Chartered to transfer another $300,000 directly to DCHSI, purportedly for the payment of federal income taxes.

But Chartered was experiencing an operating loss of

approximately $10 million for that year and therefore had no basis to justify a federal tax liability. 50.

Moreover, DCHSI had no rights to amounts from Chartered for federal income

taxes unless they were required by the Chartered-DCHSI Tax Allocation Agreement dated November 8, 2006. The Tax Allocation Agreement required no amounts from Chartered, as discussed in paragraphs 56 through 61 below. 51.

As of December, 2011, when Thompson caused the additional $300,000 to be

transferred from Chartered to DCHSI, no record existed that any calculation of Chartered’s potential tax obligations under the Tax Allocation Agreement had been prepared by DCHSI with respect to the taxable year ending April 30, 2011 or estimated for the taxable year ending April 30, 2012. 52.

Indeed, to date, DCHSI has not filed federal income tax returns for itself or its

d entities for those periods, even though it was required to do so by the Internal Revenue Code and underlying regulations, and by the Tax Allocation Agreement. 53.

Therefore, the $300,000 that Thompson took from Chartered in December, 2011,

and transferred to DCHSI, ostensibly to pay Chartered’s share of federal incomes taxes, was not owed to DCHSI and was never remitted to the IRS by DCHSI or Thompson. 54.

In October, 2012, Maynard G. McAlpin, Chartered’s then president and chief

executive officer, demanded that DCHSI provide satisfactory documentation for, or reimbursement of, the transfers described above. In January, 2013, the Rehabilitator made a 13

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separate demand for satisfactory documentation for, or reimbursement of, these transfers. DCHSI provided nothing sufficient to explain or justify the transfers of cash out of Chartered and to its non-regulated entities. To date, DCHSI has not reimbursed Chartered for these transfers. 55.

Thompson thus caused Chartered to (a) engage in certain improper transactions

with its s, and (b) maintain books and records that did not “clearly and accurately disclose the nature and details of the transactions.” On information and belief, the transfers described above in paragraphs 42, 43 and 49 violated the District of Columbia’s statutory scheme governing insurers and insurance holding companies, deprived Chartered of needed resources, and unjustly enriched DCHSI and, in turn, Thompson, DCHSI’s sole shareholder. The Tax Allocation Agreement 56.

As referenced above, on or about November 8, 2006, DCHSI and Chartered

entered into a Tax Allocation Agreement (“TAA,” a true and accurate copy of which is attached hereto as Exhibit B). The TAA expressly contemplated that DCHSI would pay the income tax liability of its d corporations, including Chartered, and charge each with an amount equal to that ’s separate tax liability. See Ex. B. 57.

Pursuant to the TAA, DCHSI and Chartered agreed that (a) the two entities

constituted an “d group” under section 1504(a) of the Internal Revenue Code and, as such, would in the filing of consolidated federal income tax returns; (b) if requested by DCHSI, each “Member” of the d group would make periodic “Estimated Tax Payments” to DCHSI (or direct to the relevant taxing authority) equal to the estimated tax payments that would be payable by such Member individually; (c) each Member would make a “Balance Payment” to DCHSI equal to the tax payment that would be payable by such Member 14

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individually each year; and (d) DCHSI would pay to each Member the excess, if any, of the sum of the Estimated Tax Payments paid by such Member over such Member’s “Separate Tax Liability” within sixty (60) days after the due date of the d group’s tax return each year (taking into any extensions). See Ex. B, TAA §§ 1, 2. 58.

Chartered’s records reflect that, as of December 31, 2011, DCHSI owed

Chartered approximately $4 million under the TAA. Indeed, Chartered carried this $4 million receivable from DCHSI as an asset on its books as reported in its annual financial statement filed with DISB in May, 2012. 59.

The TAA did not expressly provide for DCHSI to continue to charge Chartered

for additional amounts for taxes when DCHSI itself owed Chartered for substantial tax overpayments. Moreover, DCHSI’s 2011 tax year did not end until April, 2012, making an even proper transfer of funds for tax payments strikingly premature given that DCHSI’s IRS tax filings would not be due until some 10 months later. 60.

In December, 2014, the Rehabilitator filed federal tax returns solely on

Chartered’s behalf. As a result, the Rehabilitator has confirmed that Chartered has no significant income tax liabilities to offset the approximately $4 million owed by DCHSI to Chartered, and Chartered may become entitled to additional amounts under the TAA due to potential refunds or credits associated with operating losses or other tax attributes. 61.

The Rehabilitator has demanded that DCHSI pay Chartered amounts owed under

the TAA. DCHSI has not complied. The Asset Pledge and Indemnification Agreement 62.

As set forth in paragraphs 11 through 15 above, Chartered is part of an insurance

holding company system and is subject to the Holding Company System Act of 1993. See D.C. 15

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Code §§ 31-701 et seq. (2012 Repl.). The Act is designed to protect insurance companies ed in the District from, among other things, risks associated with the d entities within their holding company structure. 63.

On or about October 10, 2008, Cardinal Bank made available to DCHSI a line of

credit in the maximum principal amount of $12 million. DCHSI in turn provided Cardinal Bank with a promissory note for the line of credit amount. 64.

As conditions precedent to extending the line of credit to DCHSI, Cardinal Bank

required that (a) Chartered and Thompson, tly and severally, execute and deliver a Guaranty of Payment to Cardinal Bank (“Guaranty”), and (b) Chartered enter into a Pledge, Assignment and Security Agreement (“Pledge Agreement”) to secure Chartered’s full and prompt performance under the Guaranty and DCHSI’s repayment of the line of credit. Thompson therefore caused Chartered to execute the Pledge Agreement and to pledge securities to Cardinal Bank as collateral for the line of credit to DCHSI. (A true and accurate copy of the Pledge Agreement is attached hereto as Exhibit C.) 65.

Thompson also executed an Indemnification and Holds Harmless Undertaking

(the “Indemnification Agreement,” a true and accurate copy of which is attached hereto as Exhibit D). 66.

The Indemnification Agreement irrevocably and unconditionally holds Chartered

harmless and indemnifies Chartered for any moneys it is or may be obligated to pay in the event Cardinal Bank exercises its rights against the collateral under the Pledge Agreement, including any liquidation of the collateral. The Indemnification Agreement further states that Thompson “waives any rights or defenses he has or may have under any statute, common law or equitable

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theory which has or may have the effect of enabling him to avoid, restrict or impair any liability or obligation that arises from or is incident to this Undertaking.” 67.

Chartered was released from the Guaranty in 2012, as a result of changes to

statutory ing principles.

Nevertheless, under the Pledge Agreement, Cardinal Bank

continued to hold Chartered assets as collateral and Chartered could not use those assets for its own purposes. 68.

On or about April 26, 2013, Cardinal Bank cited events of default and accelerated

the outstanding amount due from DCHSI. 69.

On or about May 16, 2013, Cardinal Bank liquidated the assets pledged by

Chartered as collateral to pay off the outstanding balance that DCHSI owed under its line of credit. As a result, Chartered lost approximately $12 million. 70.

Under the of the Indemnification Agreement, there is no obligation to

provide any notice or demand as a predicate for Thompson’s liability and Thompson now owes Chartered the sums lost due to Cardinal Bank’s liquidation of Chartered’s pledged assets.

CAUSES OF ACTION Count I – Breach of Fiduciary Duty (against Thompson) 71.

The Rehabilitator incorporates by reference the allegations in paragraphs 1

through 70. 72.

As Chair of Chartered’s Board of Directors, Thompson owed fiduciary duties to

the company under common law and D.C. Code §§ 31-701 et seq., § 31-3405(a), and §§ 29306.30(a), (b) (2012 Repl.). 17

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 19 of 48

73.

Thompson breached his fiduciary duties owed to Chartered by acting to further

his own interests and those of DCHSI to the detriment of Chartered, its enrollees, medical providers, and the general public, by improperly transferring cash from Chartered without adequate justification or documentation, in violation of his duties under common law and under D.C. Code §§ 31-701 et seq., § 31-3405(a), and §§ 29-306.30(a), (b) (2012 Repl.). 74.

Specifically, Thompson removed funds from Chartered at a time when

Chartered’s financial condition, per D.C. Code § 31-706(a)(1)(E) (2012 Repl.), prohibited such activity. 75.

Further, Thompson failed to ensure creation and maintenance of documentation

and proper ing records, as required for all transactions under the District’s insurance laws, see D.C. Code § 31-706(a)(1)(D) (2012 Repl.). 76.

Chartered has been damaged as a proximate result of Thompson’s breaches of his

fiduciary duties. Count II – Unjust Enrichment (against DCHSI) 77.

The Rehabilitator incorporates by reference the allegations in paragraphs 1

through 76. 78.

At least $925,000 of Chartered’s cash was transferred to DCHSI, including

$625,000 in indirect transfers through CFHC as described in paragraph 43 and $300,000 in direct transfers from Chartered as described in paragraph 49. DCHSI knew of the transfers, but accepted and retained the cash despite demands for its return. DCHSI has been unjustly enriched by the cash transfers.

18

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79.

DCHSI has retained approximately $4 million owed to Chartered for tax

obligations, despite demands for payment. DCHSI has been unjustly enriched by retaining these amounts. 80.

The Holding Company System Act prohibits transfers where, as here, the

distribution is not reasonable in relation to Chartered’s outstanding liabilities and adequate to its financial needs, see D.C. Code § 31-706(a)(1)(E) (2012 Repl.). Because Chartered is a regulated insurance entity and subject to the Holding Company System Act, DCHSI was statutorily prohibited from transferring funds from Chartered to itself to the detriment of Chartered’s enrollees, healthcare providers, and the general public. 81.

Chartered has been damaged as a proximate result of DCHSI’s unjust enrichment. Count III – Conversion (against Thompson and DCHSI)

82.

The Rehabilitator incorporates by reference the allegations in paragraphs 1

through 81. 83.

DCHSI and Thompson have unlawfully exercised dominion and control over

Chartered’s assets for their own use and benefit, in denial of Chartered’s rights to those assets. 84.

The Holding Company System Act proscribes DCHSI’s and Thompson’s

conversion of Chartered’s assets. Dividends and other distributions are permitted only when they are reasonable in relation to Chartered’s outstanding liabilities and adequate to its financial needs. See D.C. Code § 31-706(a)(1)(E) (2012 Repl.). Under D.C. law, DCHSI was therefore not entitled to Chartered’s property, but was statutorily prohibited from transferring funds from Chartered to itself to the detriment of Chartered’s enrollees, healthcare providers, and the general public. 19

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 21 of 48

85.

Chartered has been damaged as a proximate result of DCHSI’s and Thompson’s

conversion. Count IV – Breach of Contract (against DCHSI) 86.

The Rehabilitator incorporates by reference the allegations in paragraphs 1

through 85. 87.

The TAA is a valid and enforceable contract.

88.

DCHSI has breached its obligations to Chartered under the TAA.

89.

Chartered has been damaged as a proximate result of DCHSI’s breach. Count V – Indemnification (against Thompson)

90.

The Rehabilitator incorporates by reference the allegations in paragraphs 1

through 89. 91.

Thompson has a contractual duty to indemnify Chartered under the

Indemnification Agreement for the loss of the assets liquidated by Cardinal Bank. 92.

Thompson has not satisfied his contractual duty and Chartered has been damaged

as a result. Count VI – Violation of Statutory Duty to Cooperate Under D.C. Code § 31-1305 (against Thompson and DCHSI) 93.

The Rehabilitator incorporates by reference the allegations in paragraphs 1

through 92. 94.

Under D.C. Code § 31-1305 (2012 Repl.), DCHSI and Thompson are obligated to

cooperate with the Rehabilitator by, among other things, responding promptly to inquiries and 20

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making available any books, s, documents, and other records or information of or pertaining to Chartered that are within their possession or custody or under their control. 95.

DCHSI and Thompson have not cooperated with the Rehabilitator as they are

obligated to do under D.C. Code § 31-1305 (2012 Repl.). WHEREFORE, the Rehabilitator requests a) judgment against Thompson under Count I for Chartered’s damages, plus allowable interest and costs according to proof; b) judgment against DCHSI under Count II for Chartered’s damages or, in the alternative, ordering restitution, plus allowable interest and costs according to proof; c) judgment against Thompson and DCHSI under Count III for Chartered’s damages, plus allowable interest and costs according to proof; d) judgment against DCHSI under Court IV for Chartered’s damages, plus allowable interest and costs according to proof; e) judgment against Thompson under Count V for Chartered’s damages, plus allowable interest and costs according to proof; f) judgment against Thompson and DCHSI under Count VI for Chartered’s damages, plus fines or civil penalties, allowable interest and costs according to proof; g) declaratory and injunctive relief against DCHSI and Thompson (i) declaring that they are obligated to cooperate with the Rehabilitator as set forth in D.C. Code § 31-1305 (2012 Repl.), and (ii) ordering them to respond to the Rehabilitator’s inquiries and to make available to the Rehabilitator all books, s, 21

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 23 of 48

documents, and other records or information of or pertaining to Chartered that are within their possession or custody or under their control; and h) all other relief as the Court deems just and appropriate under the circumstances.

RESPECTFULLY SUBMITTED, s/ Richard E. Hagerty Richard E. Hagerty, Bar Number 411858 Troutman Sanders LLP 1850 Towers Crescent Plaza, Suite 500 Tysons Corner, VA 22182 (703) 734-4326 (703) 734-6520 (facsimile) [email protected] Attorneys for the Plaintiff

Of Counsel: David Herzog (itted pro hac vice) Faegre Baker Daniels LLP 300 N. Meridian Street, Suite 2700 Indianapolis, IN 46204-1750 (317) 237-0300 [email protected]

22

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CERTIFICATE OF SERVICE I hereby certify that on January 13, 2015, a true and accurate copy of the foregoing Amended Complaint was sent by first class U.S. mail., postage prepaid, to: Deborah J. Israel Joshua D. Greenberg Womble Carlyle Sandridge & Rice, LLP 1200 Nineteenth Street, NW, Suite 500 Washington, DC 20036 [email protected] Attorneys for Defendants /s/ Richard E. Hagerty Richard E. Hagerty

23

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 25 of 48

SUPERIOR COURT FOR THE DISTRICT OF COLUMBIA Civil Division DISTRICT OF COLUMBIA, Department of Insurance, Securities and Banking, 810 First Street, NE, Suite 701 Washington, DC 20002

Civil Action No.: P1/01 Judge: Calendar No.:

Petitioner, v. DC CHARTERED HEALTH PLAN, INC., 1205 15th Street, NW Washington, D. C. 20005,

-;ti

051'

Respondent.

EMERGENCY CONSENT ORDER OF REHABILITATION Upon consideration of the Emergency Consent Petition for an Expedited Order of Rehabilitation pursuant to D.0 Official Code §§ 31-1303, 1310 -1312 and 3420 and the entire record herein, it is, by the Court, this

day of October 2012,

ORDERED: That the Emergency Consent Petition for an Expedited Order of Rehabilitation be, and is hereby, GRANTED; and it is FURTHER ORDERED: That the Commissioner, and his successors in office, are appointed Rehabilitator of Chartered pursuant to D.C. Official Code § 31-1311 (2001 ed.); and it is FURTHER ORDERED: That the Commissioner, and his successors in office, shall be vested with all appropriate and necessary powers provided under chapter 13 of Title 31 of the D.C. Official Code, including:

EXHIBIT A

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 26 of 48

(i)

All powers of the directors, officers and managers of Chartered, whose authority is suspended except as may be re-delegated by the Rehabilitator.

(ii)

Authority to take possession and control of Chartered's assets and ister them under the general supervision of the Court.

(iii)

Authority to take such action as deemed necessary or appropriate to reform and revitalize Chartered.

(iv)

Authority to pay claims.

(v)

Authority to petition courts for stay of litigation pending against Chartered.

(vi)

Authority to accept new or renewal business or extension of Chartered's contracts.

(vii)

Authority to accept, direct, manage and pay employees and pay all other expenses necessary to the rehabilitation.

(viii) Authority to appoint and compensate from Chartered's assets one or more special deputies (who shall have all the powers and responsibilities of the Rehabilitator granted under the statute) and to engage and compensate counsel, consultants, financial advisors, clerks, and assistants deemed necessary to the rehabilitation. (ix)

Authority to pursue all appropriate claims and legal remedies on behalf of Chartered.

(x)

Authority to avoid fraudulent transfers under D.C. Official Code §§ 31-1324 & 1325.

(xi)

Authority to en any person from interfering with the Rehabilitator in possession and control of the property, books, records and all other assets of Chartered.

FURTHER ORDERED: That title of all assets of Chartered is vested in the Rehab i I i tator by operation of law. FURTHER ORDERED: That the Rehabilitator shall seek Court approval of any compromise or settlement of Chartered's claim pending before the District of Columbia's Contract Appeals Board and the contemplated claim regarding capitation rates for the Alliance Program. 2

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 27 of 48

a FURTHER ORDERED: That officers, directors, employees, agents and others are directed to cooperate with the Rehabilitator as provided by D.C. Official Code § 311305. FURTHER ORDERED: That the Rehabilitator may seek to en the initiation of lawsuits, dissipation of bank s, obtaining of preferences, or any other interference with the Rehabilitator. FURTHER ORDERED: That the Rehabilitator file periodic ings with the Court, no less frequently than semi-annually. FURTHER ORDERED: That the Rehabilitator submit a plan of rehabilitation of Chartered for Court approval, if one is feasible. If the Rehabilitator determines that a rehabilitation plan is not feasible, the Rehabilitator shall submit a report to the Court which states the basis for such determination. FURTHER ORDERED: That entry of this Order of Rehabilitation shall not constitute an anticipatory breach of any contracts of Chartered nor shall it be grounds for retroactive revocation or retroactive cancellation of any contracts of Chartered, unless the revocation or cancellation is done by the Rehabilitator pursuant to D.C. Official Code § 31-1312. FURTHER ORDERED: That this Court retains jurisdiction in this matter during Chartered's rehabilitation, and for purposes of granting such other and further relief as this cause and the interest of the policyholders, creditors, or the public may require.

t I ROI" perior Court 3

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 28 of 48

Copies to: E. Louise R. Phillips Assistant Attorney General Office of the Attorney General 441 Fourth Street, N.W., Ste. 650N Washington, D.C. 20001

William P. White, Commissioner do Adam H. Levi DISB, Office of the General Counsel 810 First St., NE, Suite 701 Washington, D. C. 20002

Mr. Maynard G. McAlpin President and CEO DC Chartered Health Plan, Inc. 1025 15th Street, NW Washington, DC 20005

A. Scott Bolden, Esquire Reed Smith, LLP 1301 K Street, NW Suite 1100, East Tower Washington, DC 20005

4

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 29 of 48

DC HEALTHCARE SYSTEMS, INC. AND SUBSIDIARY TAX ALLOCATION AGREEMENT

Am S *Iv

THIS AGREEMENT is entered into as of , 2006, by and between DC Healthcare Systems, Inc. (herein referred to as "DCHSP) and DC Chartered Health Plan, Inc. ("atartered") its wholly-owned subsidiary. WHEREAS, DCHSI is the parent of an "d group" of corporations (herein referred to as the "DCHSI Group"), as defined in section 1504(a) of the Internal Revenue Code of 1985, as =tended (herein referred to as the "Code") (Chartered in the DCHSI Group herein referred to individually as a "Member' and collectively as the '"); WHEREAS, the DCHSI Group s in the filing of a consolidated federal income tax return and whereas under section 1501 of the Code and applicable Treasury Regulations, the are required to be included in such consolidated return with the result that the tax liability of the DCHSI Group has been and, will be determined by consolidating the income, expense, gains, losses and credits of all ; and

.

WHEREAS, the DCHSI and Chattered desire to document their agreement to provide that DCHSI shall pay the income tax liability of the DCHSI Group arid, concurrently therewith, -Vs-detned — eleargeitte-Membcu-with-an-atneunt-equal-tcrweh.-Member 11 as determiiiirm this Agreement. NOW, THEREFORE, the DCHSI and Chartered hereby agree effective as of the tax year beginning April, 30, 2001 and thereafter as follows: 1.

SEPARATE TAX umarry

eT lab 1.1 ' of each Member for For purposes of this Agreement, the " each taxable year, or part thereof, during which such Member is a member of the DCHSI Group shall be computed as if such Member were not included in the DCHSI Group but instead filed a separate federal income tax return for such year, provided that certain items of income, gain, deduction, loss and credit of each Member shall be taken into by reference to Suction 1502 of the Code and applicable Treasury Regulations promulgated thereunder, without treating each Member as filing such a separate return. A Member's Separate Tax Liability shall take into , among other things, all carryovers and carrybacks of net operating losses, arising in connection with the sustaining of its separate company net operating loss or the earning of any applicable credits, provided that the amount of each Member's net operating loss carryovers or carrybacks for any taxable year shall be reduced by the amount of each payment such Member received pursuant to Paragraph 3 with respect to the immediately preceding year. 2.

TALI , <1_ 13Xa . NTS

A. Estimated. Talc Payrrsen . If requested by DCHSI, each Member shall make periodic payments ('''..mated booms Tax Payments") to DCHSI (or directly to the relevant taxing authority for the benefit of DCHSI) in such amounts as shall be equal to the estimated tax payments that would be payable by such Member if it were not included in the DCHSI Group but instead filed a separate federal income tax return for each year based on such 812339 2

EXHIBIT B

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 30 of 48

Member's Separate Tax Liability. Each Estimated Tax Payment shall be due no later than five (5) days prior to the respective date on which such. payment would be due from suet,. Merel,er if it were not included in the DCHSI Group. B. BalAAcelm . as q.. Each Member shat pay to DCHSI an amount equal to the tax payment that would be payable by such Member if it were not included in tl,e DCHSI Group but instead filed a separate federal income tax return for each year with respect to such Member's Separate Tax Liability (a "Balance Payment"). Each Balance Payment shall be due and payable within sixty (60) days. I1 DCHSI shall pay to each Member the excess, if any, of C..ceas_taameA. (1) the sum of the Estimated Income Tax Payments paid by such Member during each taxable year pursuant to Paragraph 2(A), over (ii) the amount of such Member's Separate 'Tax Liability for such taxable year (an "Excess Payment"). Each Excess Payment shall be due within sixty (60) days after the due date of the relevant DCHSI Group consolidated return for each respective taxable year (taking into any extensions). 3.

LOSSES

If a Member's Separate Tax Liability for any taxable year reflects a net o►crating ng..carryovera-an -cam•aelo-(fe-rax— loss-rea.pitaa-lo Attributes"), in each case determined by reference to Section 1552(a)(2) of the Code ad Treasury Regulation Section 1.1502.-33(d)(3), which DCHSI reasonably determines is actually utilized in DCHSI Group's consolidated return, then, within, sixty (60) days after the due date of the relevant DCHSI Group consolidated return for such taxable year (taking into any extensions), DCFISI shall pay to such Member an amount equal to the current tax savings or tax benefit actually realized by the DCHSI. Group with respect to the use of such Member's Tax Attributes. 4.

FAX ADRISZHEIITS

In the event that the DCHSI Group's consolidated federal income tax return is adjusted for any period or periods for which this Agreement is effective, whether by means of an amended return, claim for refund, determination by the Internal Revenue Service or otherwise, the liability of the pursuant to this Agreement shall be =determined to give effect to any such adjustment as if it had been made as part of the original computation of tax liability, and any resulting payment thereby required to or from the pursuant to this Agreement shall be made within sixty (60) days after the payment or receipt (or crediting) of such attustment.

S.

FORDIQN, STATE AND LOCAL INCOME TAXES

In the case of foreign, state or local taxes based on or measured by the net income of the DCHSI Group on a combined, consolidated or unitary basis, the provisions of this Agreement shall apply with equal force to such foreign, state or local tax.

-2-

-

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 31 of 48

mrrExtEsT

6,

Any payment required to be made under this Agreement which is not timely made shall bear interest from the date such payment was required to be made at the rate ree 'e the manner provided in the Code for interest on underpayments and overpayments, respeetivoiy, for federal income tax. 7.

pikyNENT OF GROUP ttkX

All payments of federal income tax owed by the DCHSI Group shall be paid to the Internal Revenue Service by DCHSI (unless a Member is directed by DCIISI to make Judi paymeats directly to the Internal Revenue Service on behalf of the DCHSI Group). 8.

PRIORITY OF A..G_RE ME

The provisions of this Agreement shall fix the liability of each Member to the other as to the matters covered herein, notwithstanding that such provisions are not controlling for tax or other purposes, including, but not limited to, the computation of earnings and profits for federal income tax purposes, and notwithstanding whether DCHSI and other corporations which are now, or which from time to time may become, of the DCHSI Group enter . into other arm me t ion of a potion-o€the-tette-teqt-liabil,3 -13 --Group-wbich-is-allocable-to-tirelcrdifebe 7e— s. 9.

DURATIM

This Agreement shall remain in effect as to each Member for so long as such Member is a member of the DCHSI Group and the DCHSI Group files a consolidated income tax return. Thereafter, each Member shall be entitled to receive and be obligated to pay, my amounts subsequently determined to be refundable or owing pursuant to this Agreement as of the date of termination. 10.

AMENDMENT„ This Agreement may only be amended by the mutual consent of the undersigned

. 11.

11 .2/2r1WMENTS

The hereby consent and agree to the termination of any prior agreements relating to allocation of taxes as of the effective date of this Agreement. 12.

IAM

The parties hereto recognize that from time to time other companies may become of the DCHSI Group and hereby agree that such new may become parties to this Agreement (and hence, "", as defined for purposes of this Agreement) by executing a. copy of this Agreement.

3

-

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13.lisl kM:gKIFECT This Agreement shall bind and in= to the respective successors and as.-.11.ps of the parties hereto, provided that no assignment shall relieve any party's obligations hereunder without the written consent of the other patty. 14. This Agreement is made under the laws of the District of Columbia, which shall be controlling in all matters relating to interpretation, construction or enforcement hereof. 15.

HEADINGS

The headings in this Agreement are inserted for convenience only and shall not be deemed for any purposes to constitute a part or to affect the interpretation of this Agreement. 16.

gCit.IttaRraLS.

This Agreement or any amendment hereto may be signed in any number of counterpa.tts, each of which shall be an original, but all of which. taken together shall constitute on agreement or amendment, as the case maybe. [REMAINDER OF PAGE IN

LEFT BLANK]

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 33 of 48

INTENDING TO BE LEGALLY BOUND, each party to this Agreement hasca` this Agreement to be executed by its duly authorized officer as of the date fast above virit“.A. DC 'HEALTHCARE SYSTEMS, INC.

DC CHARTERED BE earria PLAN, INC.

-5 -

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PLEDGE. ASSIGNMENT AND SECURITY AGREEMENT TH1SPLEDGE,ASSIGNIYIBIT AND SECURITY AGREEMENT (this "Agreement") is made this itYm—day of t9e..463.4.r- , 2008 by D.C. CHARTERED HEALTH PLAN, INC., a District of Columbia corporation (the 'Assignor) for the benefit of CARDINAL BANK, Its successors and assigns (the "Lender"). RECITALS A. Concurrently with this Agreement, the Lender is •rnaking a line of credit(the "Loan") available to D.C. Healthcare Systems, Inc., a Disbict of Columbia corporation (the 'Borrower) in the maximum principal amount of Twelve Million and No/100 Dollars ($12,000,000.00), which Loan Is evidenced by that certain Credit Line Promissory Note dated of even date herewith made by the. Borrower payable to the order of the Lender (as amended, modified, restated, substituted, extended and renewed at any time and from time to time, the "Note"). • B. The disbursement of the Loan proceeds will benelltthe Assignor and, to inducethe Lender to make the Loan, the Assignor has agreed to.execute and deliver to the Lender a certain Guaranty of Payment of even date herewith made by the Assignorand Jeffrey E. Thompson (tly and severally, the "Guarantor") for the benefit of the Lender (as amended, modified, restated or substituted at any time and from time to time, the "Guaranty"). C. It is .a Condition precedent, among others, to the Lender's agreement to make the Loan that the Assignor:enter into this Agreement lri orderto secure the full and prompt performance of the Assignor of all of the obligations of the Assignor underthe Guaranty and all of-the other Loan Documents (the 'Obligations"). 6GREEMENTS NOW, THEREFORE, in consideration of the Lender's making the Loan and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Assignor hereby agrees as follows: SECTION 1. SECURITY. 1.1 The Collateral. As security for the prompt and full performance of the Obligations, and as security for.the prompt and full performance of all obligations of the Assignor under this Agreement and all, If any, other obligations of the Assignor or Borrower to the Lender underthe Loan Documents, all of the foregoing, whether nowin existence or hereafter created and whether t, several, or both, primary, secondary, direct, contingent in otherwise, the. Assignor hereby pledges. assigns and grants to the Lender a security interest in the following property of the Assignor (collectively, the "Collaterar), whether noW existing or here.afteroreated or arising: (a) Subject to the limitations set forth in Section 1.2 of this Agreement, all of the Assignor's right, title and interest in that_certain held in'the Assignor's name at Cardinal Trust and Investments (CT1") and managed by Wilson/Bennett Capital Management, inc. (Wilson') (CT1 and Wilson shall hereinafter be referred,to collectively as *Manager) as no. 1050002002 (the -Accounr) and, all contents and proceeds thereof, including without limitation all those securities beneficially owned by the Assignor in the . and all replacements or

SACardlnallOC Healthcaret2008 LoarilSecudges Pledge Agml, Cdoe

EXHIBIT C

Case 1:16-cv-00882-CRC Document 1-4 Filed 05/10/16 Page 35 of 48

substitutions therefor and any securities held at any time and from time to time in the (collectively, the "Securities'); (b) Any substitutes for or additions to the. Securities, together with any interest, bond rights, rights to subscribe, bond dividends, dividends paid in bonds, liquidating dividends, all other or additional (or less) stock or other securities or property (including cash) paid or distributed in respect of the Securities by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement, all other or additional stock or other securities or property (Including cash) which may be paid or distributed in respect of the Securities by reason of any consolidation, merger, exchange.f stock, conveyance of assets, liquidation or similar corporate reorganization, new securities and other property (exclusive of cash dividends)to which the Assignor may become entitled by reason of the ownership of the Securities during the existence of this Agreement (the °Proceeds"); and (c) all contents of the , including without limitation, bonds, money market funds and cash; and (d) all proceeds (both cash and non-cash) of the foregoing, whether now or hereafter arising under the foregoing. 12 Net Worth. Until such time as the Loan is Wily repaid and Lender has no further obligations to make any advances thereunder, Assignor shall maintain a total net worth (the °Required Collateral Value) such that the Loan to value of the Collateral shall not exceed ninety percent (90%), as determined by the Lender. If atany tinie the value of the Collateral falls below the Required Collateral Value (Le., the Loan to value of the Collateral exceeds ninety percent (90%), as determined by'the Lender). the:Assignor shall cure such default within five (5) business days after notice to Assignor, by, of Assignor's option, making a principal curtailment under the Loan and/or depositing addffional cash or securities in the in an amount sufficient to reduce the loan to value ratio of the Loan to the value of the Collateral to ninety percent (90%), as determined by Lender. Assignor's failure to so ouresuch default within five (5) business days after notice shall constitute an. Event of Default hereunder. So long as no uncured default under the Loan Documents exists beyond the expiration of any applicable notice andlor cure period and Assignor maintains a total net worth of at least the Required Collateral Value, the. Assignor may: (I) substitute other securities for the securities comprising a part of the Collateral, (Ii) sell or redeem any of the Securities or (GI) traneer any Securities to another or s provided that the Collateral remaining in the meets the Required Collateral Value. Notwithstanding the above. Assignor shall not cause or permit any change in the type of Securities held in the from REPO U.S. Treasury without limp/larva-Men consent of the Lender, which may be withheld or conditioned in the Lender's sole discretion. Furthermore, any such:change in the type of Securities must comply with all federal, state and local regulatory requirements and all contractual requirements applicable to Assignor, including without limitation, requirements that the type of Securities be restricted to REPO U.S. Treasury, FDIC insured assets or government secured assets. 1.3 Riohts of the Lender in the Collateral. The Assignor agrees that with respect to the Collateral the Lender shall have all the rights and remedies of a secured party under the Uniform Commercial Code, as well as those provided by applicable law and/or in this Agreement

2 SACardinaltDC HealthcareI2008 LoanISecurlties Pledge Agmt &dot

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1.4 Rights of the Assignor in the Collateral. So long as no Event of Default (as that term is defined in SECTION 4 below) is continuing, the Assignor shall be entitled to receive all dividends and other distributions which may be paid on the Collateral. Any cash dividend or distribution payable in respect of the Collateral which represents, in whole or in part a return of capital or is in violation of this Agreement shall be received by the Assignor:in trust for the Lender, shall be paid immediately to the Lender and shall be retained by the Lender as part of the Collateral, unless the value of the other Collateral is at least the Required Collateral Value. SECTION 2. REPRESENTATIONS AND WARRANTIES To induce the Lender to advance sums to the Borrower under the Loan, the Assignor represents and warrants to the Lender, as follows: 2.1 Binding Agreements. This Agreement and the other Loan Documents executed and delivered by the Assignor have been;properly executed and delivered and constitute the valid and legally binding obligations of the Assignor and are fully enforceable against the Assignor in accordance with their respective , subject to (a) the effect of bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting the rights and remedies of creditors generally and (b) the effect ofgenerat principles of equity, whether applied by a court of law or equity, 12 No Conflicts Neither the execution, delivery and performance of the of this Agreement or of any of the other Loan Documents executed and delivered by the Assignor nor the consummation of the transactions contemplated;by this.Agreement will conflict with, violate or be prevented by (a) any existing mortgage, indenture, or agreement binding on the Assignor or affecting its property, (b) any applicable laws, (c) the organizational documents of the Assignor, or (d) any restrictions on Assignor's use of the Collateral or any part thereof. 13 Organization. The Assignor is a corporation duly organized, validly existing and in good standing under the lavvs of the District of Columbia with full power and authority to execute, deliver and perform the covenants and obligations set forth in this Agreement and the other Loan Documents; and this Agreement and the Loan Documents have been duly authorized, executed and delivered by the Assignor. 2.4 Comonarlee with Laws. The Assignor is not in violation of any applicable laws (including, without limitation, any laws relating to employment practices, to environmental, occupational and health standards and controls) or order, writ, injunction, decree or demand:of any court, arbitrator, or any governmental authority affecting the Assignor or any of its properties, the violation of which could adversely affect the authority of the Assignor to enter into, or the ability of the Assignor to perform under, this Agreement or any of the other Loan Documents executed by the Assignor.

2.5 titiciation. There are no proceedings, actions or investigations pending or, so far as the:Assignor knows, threatened against Assignor or its property before or by any court, arbitrator any governmental authority which could reasonably be expected to adversely affect the authority of the Assignor to enter into, or the ability of the Assignor to perform under, this Agreement or any of the other Loan Documents executed and delivered by the Assignor.

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2.6 Title to Collateral. The Assignor has good and marketable title to the Collateral. The Assignor has legal, enforceable and uncontested rights to use freely such Securities and other Collateral, except as noted on Assignor's financial statements. The Assignor is the sole owner of the Collateral, free and clear of all security interests, pledges, voting trust& agreements, liens, claims and encumbrances whatsoever, other than the ,security interest, assignment and lien granted under this Agreement. The interests assigned as Collateral are subject to no outstanding options, voting trusts, shareholders agreement, or other requirements or restrictions with respect to such interests, except as noted on Assignor's financial statements. 2.7 Perfection and Priority of Collateral The Lenderhas, or upon execution and recording of this Agreement and the Loan Documents will have, and will continue to have as security for the Obligations and the other obligations secured by this Agreement a valid and perfected lien on and security interest in all Collateral, free of all other liens, claims and rights of third parties whatsoever. 2.8 Business Informatlen. The Information contained In EXHIBIT A. which is attached to and a part of this Agreement is complete and correct. SECTION 3. COVENANTS Until payment in full and the performance of all of the Obligations and all of the obligations of the Assignor hereunder or secured hereby, the Assignor covenants and agrees with the Lender as follows: 3.1 Delivery of Collateral. Assignor shall authorize the Manager. (a) to send to Lender, an original confirmation reflecting Lenders interest in the Collateral, (b) to enter Into that certain Restricted (Blocked) Agreement:by and among Lender, DC Chartered. Cardinal Trust and Investments and Wilson/BennettCapital Management, Inc. (the "Control Agreement') and (c) by book-entry or otherwise, identify on its books and records that the Collateral Is subject to the security interest of the Lender. 3.2 Defense ofTitle and Further Assurances. The Assignor will do or cause to be done all things necessary to preserve and to keep in full force and effect its interests in the Collateral, and shall defend, at Its sole expense, the title to the Collateral and any part thereof. Further, the Assignor shall promptly, upon request by the Lender, execute, acknowledge and deliver any financing statement, endorsement, renewal, affidavit, assignment, continuation statement security agreement, certificate or other document as the Lender may reasonably require in order to perfect, preserve. maintain, protect, continue, realize upon, and/or extend the lien and security interest of the Lender under this Agreement and the priority thereat The Assignor shall pay to the Lender upon demand all taxes, costs and expenses (including but not limited to reasonable attorney's fees) Incurred by the Lender in connection with the preparation, execution, recording and filing of any such document or Instrument mentioned aforesaid. Assignor hereby further authorizes Lender to file UCC-1 Financing Statements and/or continuation statements with respect to the Collateral without the signature of Assignor. 3.3 Compliance with Laws. The Assignor shall comply with all applicable laws and observe the valid requirements of governmental authorities, the noncompliance with or the nonobservance of which might have a material adverse effect on the ability of the Assignor to

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perform its obligations under this Agreement or any of the Loan Documents to which the Assignor Is a party or on the value of, or the ability of the Lender to realize upon, the Collateral. 3.4 Protection of Collateral The Assignor agrees that the Lender may at any time take such steps as the Lender deems reasonably necessary to protect the Lender's interest in, and to preserve the Collateral. The Assignor agrees to cooperatefully with the Lender's efforts to preserve the Collateral and Will take such actions to preserve the Collateral as the Lender may in good faith direct. All of the Lender's expenses of preserving the Collateral, Including, without limitation, reasonable attorneys fees, shall be part of the Obligations. 3.5 Certain Notices. The Assignor will promptly notify the Lender in writing of any Event of Default of which Assignor is aware and:of any litigation, regulatory proceeding, or other event of which Assignor is aware which could reasonably be;expected to materially and adversely affect the value of the Collateral. the ability of the ASsignor or the Lender to dispose of the Collateral, or the rights and remedies of the Lender in relation thereto. Locations. 3.6 The Assignor shall give the Lender not less than thirty (30) days' prior written notice of any change to the information set forth on EXHIBIT A. 3.7

Books and Records: Information. 3.7.1 The Assignor shall cause the Manager to execute the Control

Agreement. 3.7.2 Each quarter, the Assignor shall deliver to Lender, and/or shall authorize the Manager to send to the Lender, at the same time it Is sent to the Assignor, a copy of a current statement for the . 3.73 It is the express intention of: the Assignor and the Lender that arty permitted replacement or substitution of Securities or other Collateral with other Securities or property as Collateral or the purchase of Secuties or other property with the proceeds of Securities held as part.of the Collateral shall constitute a supplement to, and be oonsidered and construed as part of this Agreement such that`this Agreement and all confirmations thereof shall constitute one agreement. Notwithstanding the above, any change in the type of Securities held in the shall be subject to the prior written consent of the Lender, which may be withheld or conditioned in the Lender's discretion. Liens. The Assignor will not create, incur, assume or suffer to exist any lien 3.8 upon any of the Collateral or the , other than liens in favor of the Lender. Minimum Collateral Value The Assignors shall maintain with regard to the 3.9 Collateral a value at all times not less than the Required Collateral Value as determined by Lender pursuant to the of Section 1.2 of this Agreement. 3.10 Survival. All representations and warranties contained in or made under or In connection with this Agreement and the other Loan Documents shall survive the making of any advance under the Loan and the incurring of any other Obligations and the other obligations secured by this Agreement.

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SECTION 4. DEFAULT AND RIGHTS AND REMEDIES 4.1 Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" under the provisions of this Agreement 4.1.1 Default under Loan Documents. An Event of Default (as that term Is defined in the Note) shall occur under the Note or any other Loan Document. 4.1.2 Default under this Agreement If the Assignor shall fail to duly perform, comply with or observe any of the , conditions or covenants of this Agreement provided, however, that if the Assignor fail to maintain the Required Collateral Value with regard to the Collateral, the Assignor may cure such default by causing Borrower to make a principal repayment under the Loan and/or depositing additional cash or securities in the in an amount sufficient to reduce the ratio of the Loan to the value of the Collateral to ninety percent (90%) within three (3) business days after notice to Borrower or Assignor. 4.1.3 Breach of Representations and Warraeties. Any representation or warranty made in this Agreement or in any report, statement, schedule, certificate, opinion (including any opinion of counsel for the Assignor), financial statement or other document furnished by the Assignor or his agents or representatives in connection with this Agreement, any of the other Loan Documents, orthe Obligations or the other obligations secured by this Agreement, shall prove to have been false or misleading when made (or, if applicable, when reaffirmed) in any material respect. 4.1.4 Receiver. Bankruptcy. The Assignor shall (a) apply for or consent to the appointment of a receiver, trustee or liquidator of any of its property, (b) it in writing its inability to pay his debts as they mature, (c) make a general assignment for the benefit of creditors, (d) be adjudicated a bankrupt or insolvent, (e) file a voluntary petition in bankruptcy or a petition or an answer seeking or consenting to reorganization or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law.or statute, or an answer itting the material allegations of a petitionfiled against him in any proceeding under any such law, or (f) by any act indicate its consent to, approval of or acquiescence in any such proceeding or the appointment of any receiver of or trustee for any of its property, or suffer any such receivership, trusteeship or proceeding to continue undischarged fora period of sixty (60) days, or (g) by any act indicate its consent to., approval of or acquiescence:in any order, judgment or decree by any court ofcompetent jurisdiction or any governmental authority ening or otherwise prohibiting the operation of a material portion of the Assignor's business or the use or disposition of a material portion of the Assignor's assets. 4.1.5 involuntary Banicru any. etc. (a) An order for relief shall be entered In any involuntary case brought against the Assignor under the United States Bankruptcy Code or any other bankruptcy, insolvency, debtor relief, or similar law now or hereafter in effect or (b) any such case shall be commenced against the Assignor and shall not be dismissed within sixty (60) days after the filing of the petition, or (c) an order, judgment or decree under any other law is entered by any court of competent jurisdiction or by any other governmental authority on the applicaton of a; governmental authority or of a person otherthan the Assignor (I) adjudicating the Assignor bankrupt or insolvent, or (ii) appointing a receiver, trustee or ilquidator of a material portion of the Assignor's assets, or (iii) ening, prohibiting or otherwise limiting the operation of a material portion of the Assignor's business or the use or disposition of a material porfion of the Assignor's assets, and such order, judgment or decree continues unstayed and in effect fora period of sixty {60) days from the date entered. 6 SACordlnanDC Haallhcare12005 LormASecudges Pledge Agent 5.doc

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4.1.6 Control Agreegket. The termination of or notice of termination of the Control Agreement and the failure of the Borrower or Assignor to provide an executed control agreement, satisfactory to the Lender, with another Intermediary with respect to a replacement held with such intermediary and having a net worth valued at least the Required Collateral Value, within fifteen (1.5) days prior to the termination of such Control Agreement 4.2 Remedies. During the continuance of any Event of Default, the Lender may at any time thereafter exercise any one or more of the following rights, powers or remedies: 4.21 Uniform Cornmerclat Code. The Lender shall have all of the rights and remedies of a secured party under the applicable Uniform Commercial Code and other applicable laws. Upon demand by the Lender, the Assignorshalf assemble the Cefiateral and make it available to the Lender, at a place designated by the Lender. The Lender or Its agents may without notice from time to time take possession of the Collateral, to remove it, or otherwise to prepare it for sale, or to sell or otherwise dispose of it 4.2.2 Sate or Other Disoesition of Collateral. The Lender may cause the Manager to sell or redeem the Collateral, or any part thereof, in one or more sales, at public or private sale, conducted by any officer or agent of, or auctioneer or attorney for, the Lender, at the Lenders place of business or elsewhere, for cash, upon credit or futune delivery, and at such price or prices as the Lender shaft, in Its commercially reasonable discretion, determine, and the Lender may be the purchaser of any or all of the Collateral so sold. Further: Any written notice of the sale, disposition or other Intended action by the Lender well respect to the Collateral which is sent pursuant to the provisions of Section 5,1 of this Agreement, at least ten (10) days prior to such sale, disposition or other action, shall constitute commercially reasonable notice to the Assrgnor. The Lender may alternatively or additionally give such notice in any other commercially reasonable manner. Nothing in this Agreement shall require the Lender to give any notice not required by applicable laws. The foregoing notwithstanding, if the Lender reasonably determines the Collateral is rapidly declining in value, the Lender shall not be required to give the Assignor advance notice of such sale. If any consent, approval, or authorization of any governmental authority or any person having any Interest therein, should be necessary to effectuate any Sale or.other disposition of the Collateral, the Assignor agree to execute ail such applications and other instruments, and to take all other action, as may be required in connection with securing any.such consent, approval or authorization. The Assignor recognizes that the Lender may be unable to effect a public sale of all or a part of the Collateral consisting of Securities by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and other applicablefederal and state laws. The Lender Wray, therefore, in its discretion, take such steps as It may deem appropriate to comply with such laws and may, for example, at any sale of the Collateral consisting of Securities restrict the prospective bidders or purchasers as to their number, nature of business and investment Intention, Including, without firnitaticrn, a requirement that the persons making such purchates represent and agree to the satisfaction of the Lender that they are purchasing such Securities for their , for investment, and not with a view to the distribution or resale of anylhereck The Assignor covenants and agrees to do or cause to be done promptly all such acts and things as the Lender may request 7 SACertErneADC Heeltheate12008 LoardSecudges Pledge Agmt 5.dix

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from time to time and as may be necessary to offer and/or sell the Securities or any part thereof In a manner which is valid and binding and in conformance with ail applicable laws. 4.2.3 Specific Riohts With Renard to Collateral. In addition to all other rights and remedies provided hereunder or as shall exist at law:orin equity from time to time, the Lender may (but shall be under no obligation to), without notice to the Assignor, and the Assignor hereby irrevocably appoints the Lender as his attomey-in-fact, during the continuance of an Event of Default to, with power of substitution, In the name of the Lender or in the name of the Assignor or otherwise, for the use and benefit of the Lender, but at the cost and expense of the Assignor and without notice to the Assignor (a) compromise, extend or renew any of the Collateral or deal with the same as it may deem advisable; (b) make exchanges, substitutions or surrenders of all or any part of the Collateral; (c) copy, transcribe, or remove from any place of business of the Assignor all books, records, ledger sheets, correspondence, invoices and documents, relating to or evidencing any of the Collateral or without cost or expense to the Lender, (d) demand, collect, receipt for and give renewals, extensions, discharges and releases of any of the Collateral; (e) institute and prosecute legal and equitable proceedings to enforce collection of, or realize upon, any of the Collateral; (f) settle, renew, extend, compromise, compound, exchange or adjust claims in respect of any of the Collateral or any legal proceedings brought In respect thereof, (g) endorse or sign the name of the Assignor upon any items of payment, certificates of title, Instruments, Securities, powers, documents, documents of title, or other writing relating to or part of the Collateral and on any Proof of Claim in Bankruptcy against an debtor; and (h) take any other action necessary or beneficial to realize upon or dispose of the Collateral. 42A Application of Prtmeeds. Any proceeds of sale or other disposition of the Collateral will be applied by the Lender to the payment of its costs and expenses associated with such sale, and any balance of such proceeds will be applied by the Lender to the payment of the balance of the Obligations and the other obligations secured by this Agreement in such order and manner of application as the Lender may from time to time in its sole and absolute discretion determine. If the sale or other disposition of the Collateral fails to fully satisfy the Obligations and the other obligations secured by this Agreement, the Assignor shall remain liable to the Lenderfor any deficiency. 4.2.5 perfonnance by Lender. If the Assignor shall fall to perform, observe or comply with any of the conditions, covenants , stipulations oragreements contained in this Agreement or any of the other Loan Documents, the Lender without notice to or demand upon the Assignor, except as may be specifically required herein or In the other Loan Documents with respect to such event, and without waiving or releasing any of the Obligations or any default or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the and at the expense of the Assignor, and the Assignor hereby irrevocably appoints the Lender as his attorney-th-factto do so, with power of substitution, In the name of the Lender or In the name of the Assignor or otherwise, for the use and benefit of the Lender, but at the cost and expense of the Assignor and-without notice to the Assignor. All sumsso paid or advanced by the Lender together with Interest thereon from the date of payment, advance or

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incurring until paid in full and all costs and expenses, shall be paid by the Assignor to the Lender on demand, and shall constitute and become a part of the Obligations. 4Z6 Other Remedies.. The Lender may from time to time proceed to protect or enforce its rights by an action or actions at law or in equity or by any other appropriate proceeding, whether for the specific performance of any of the covenants contained in this Agreement or in any of the other Loan Doeument% or for an Injunction against the violation of any of the of this Agreement or any of the other Loan Documents, or in aid of the exercise or execution of any right, remedy or power granted in this Agreement, the Loan Documents, and/or applicable laws. 43 Costs and Evenses. The Assignor shall pay on demand all costs and expenses (including reasonable attorney's fees), all of which shall be deemed part of the Obligations, incurred by and on behalf of the Lender incident to any collection, servicing, sale, disposition or other action taken by the Lenderwith respect to the Collateral or any portion thereof. 4.4 Receipt Sufficient Discharge to Purchaser. Upon any sale or other disposition of the Collateral or any part thereof, the receipt.of the Lender or other person making the sale or disposition shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obligated to see to the application thereof.

4.5 Remedies. etc. Cumulative. Each right, power and remedy of the Lender as provided for in this Agreement or in any of the other Loan Documents min any related instrument or agreement or now or thereafter existing at law or inequity.or by statute or otherwise shall be cumulative and concurrent and shall be In addition to every other right, power or remedy provided for in this Agreement or In the other Loan Documents or in any related document, instrument or agreement or now or hereafter existing at taw or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Lender of any one or more of such rights, powers or remedies shalt not preclude the simultaneous or later exercise by the Lender of any or all such other rights, powers or remedies. 4.6 No Waiver. etc. No failure or delay by the Lenderto insist upon the strict performance of any term, condition, covenant or agreement of this.Agreement or of any of the other Loan Documents:or of any related documents, instruments or agreements, or.to exercise any right, power or remedy consequent upon a breach thereof, shall constitute a waiver of any such term, condition, covenant or agreement or of any such breach, or preclude the Lender from exercising any such right, power or remedy at any later time or times. By accepting payment after the due date of any amount payable under this Agreement or under any of the other Loan Documents or under any related document, instrument or agreement, the Lender shall not be deemed to waive the right either to require prompt payment when due of all other amounts payable under this Agreement or under any other of the Loan Documents, or to declare a default for failure to effect such prompt payment of any such other amount SECTION 5.

MISCELLANEOUS

Notices. All notices, requests, demands and other communications with respect 5.1 hereto shall be in writing and shall be delivered by hand, sent via teleoopier, sent prepaid by Federal Express (or a comparable overnight delivery service) or sent by the United States first-class mail, certified, postage prepaid, return receipt requested, to the following addresses:

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If to the Lender, to: Cardinal Bank 1776 K Street, N.W. Washington, DC 20006 Attn: Kathryn R. Speakman Vice President Telecopler No.: (202) 659-6589 with a copy to: Friedlander, !Osier, PLLC 1101 - 17th Street, KW, Suite 700 Washington, D.C. 20036-4704 Attn: Leonard A. Sloan, Esq. Telecopier No.: (202) 857-8343 if to Assignor, to: D.C. Chartered Health Plan, Inc. 1025 15d' Street, NW Washington, D.C. 20005 Attn: Gabriel J. Hanna, CFO Telecopler No.: (202) 289-6642 Any notice, request, demand orother communication delivered or sent in the manner aforesaid shall be deemed given or made (as the case may be) upon the earliest of (a) the date it is actually received, (b) on the business day after the day on which it is delivered by hand, (c) on the business day after the day on which it Is properly delivered by Federal Express (or 'a comparable overnight delivery service), or (d) on the third (3rd) business day after the day on which It is deposited in the United States mall Any party may change such party's address by notifying the other parties of the new address in any manner pennitted by this Section. 5.2 Amendments: Waivers. This Agreement and the other Loan Documents may not be amended, modified, or changed in any respect except by an agreement In writing signed by the Lender and the Assignor. No waiver of any provision of this Agreement or of any of the other Loan Documents, nor consent to any departure by the Assignor therefrom, shall in any event be effective unless the same shall be in writing. No course of dealing between the Assignor and the Lender and no act or failure to act from time to time on the part of the Lender shall constitute a waiver, amendment or modification of any provision of this Agreement or any of the other Loan Documents or any right or remedy under this Agreement, under any of the other Loan Documents or under applicable Laws. 5.3 jrnniallyetiemtits. The rights, powers and remedies provided in this Agreement.and in the other Loan Documents are cumulative, may be exercised concurrently or separately, may be exercised from time to.time and in such order`as the Lender shall determine and are in addition to, and not exclusive of, rights, powers and remedies provided by existing or future applicable Laws. In order• to entitle the Lender to exercise any remedy reserved to it In this Agreement, It shall not be necessary to give any notice, other than such notice as may be expressly required in this Agreement. Without limiting the generality of the foregoing, the Lender may: 10 SACardlnanDC Healthcare12008 LoellSecwItles Pledge Agmt 5.doc

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(a) proceed against the Collateral with or without proceeding against the Borrower, Assignor or any other person who may be liable for all or any part of the Obligations: (b) proceed against the Collateral with or without proceeding under any of the other Loan Documents or against any other collateral and security for all or any part of the Obligations; (c) without notice, release or compromise with any other person liable for all or any part of the Obligations under the Loan Documents or otherwise; and (d) without reducing or impairing the obligations of the Assignor and without notice thereof. (I) fall to perfect the lien in any or all'Collateral or to release any or ail of the Collateral or to accept substitute collateral, go waive any provision ofthis Agreement or.the other Loan Documents. (ill) exercise or fail to:exercise rights of set-off or other rights, or (v) accept partial payments or extend from time to time the maturity of ail or any part of the Obligations, 5.4 Severe_billty. In case ere or more provisions, or part thereof, contained in this Agreement or in the other Loan Documents shall be Invalid, illegal or unenforceable in any respect under any law, then without need for any further agreement, notice or action, the validity, legality and enforceability of the remaining provisions shall remain effective and binding on the parties thereto and shall not be affected or impaired thereby. 5.5 Successors and Assigns. This Agreement and all other Loan Documents shall be binding upon and Inure to the benefit of the Assignor and the Lender and their respective personal representatives, heirs, successors and assigns, except that the Assignor shall not have the right to assign his rights hereunder or any interest herein without the priorwritten consent of the Lender.

5.6

Applicable Law Jurisdiction. 5.6.1 This Agreement, shall be governed by the laws of the Commonwealth

of Virginia. 5.6.2 The Assignor irrevocably submits to the jurisdiction of any state or federal court sitting In the Commonwealth of Virginia over any suit, action:or proceeding arising out of or relating to this Agreement or any of the other Loan Documents. The Assignor irrevocably waives. to the fullest extent permitted by law, any:objection that 11 may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought In any such court and any claim that any such suit, action or proceecrmg brought in any such court has been brought in an inconvenient forum. Final judgment in any such suit, action or proceeding brought in anysuchcourt shall be conclusive and binding upon the Assignor and may be enforced In any court in which the Assignor is subject to jurisdiction, bye suit upon'such judgment, provided that service of process is effected upon the Assignor In one of lbe manners specified in this Section or as otherwise permitted by applicable laws_ Entire Agreement This Agreement is intended by the Lender and the 5.7 Assignor to be a complete, exclusive and final expression of the agreements contained herein. Neither the Lender nor the Assignor shall hereafter have any rights under any prior agreements but

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shall look solely to this Agreement for definition and determination of all of their respective rights, liabilities and responsibilities under this Agreement. 5.10 Waiver of Trial by Jury. THE ASSIGNOR AND, BY ACCEPTING THIS AGREEMENT, THE LENDER HEREBY TLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE ASSIGNOR AND THE LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE LOAN DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. 5.11 Liablifiv of Lender, Except for gross negligence or willful misconduct, the Lender shall:be under no liability for, and the Assignor hereby releases the Lende.rfrom, all claims for loss or damage caused by (a) the Lender's failure to perform or collect any of the Collateral, or (b) the Lender's failure to preserve or protect any rights of the Assignor under the Collateral IN WITNESS WHEREOF, the Assignor has caused this Agreement to be executed, sealed and delivered, as of the day and year first written above. WITNESS:

ASSIGNOR: D.C. CHARTERED HEALTH PLAN NC.

A District Golitrn

'ehlitoer-V7a4a,,,viiteJs.-4) Print Name:An/4,o tits 6, Ktv4.74&.-cin

Y For al Ado 4001r

[CORPORATE SEAL]

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" .0r; • •

iiipplIPP-

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EXHIBIT A The Assignor further represents and warrants to the Lender as follows: 1_

The exact legal name and jurisdiction of organization of Assignor are as stated in the initial paragraph to the foregoing Agreement.

2.

The Assignor's Tax Identification Number Is: 52-1492499

3.

(a)

The Assignor's mailing address is: D.C. Chartered Health Plan, Inc. 1025 15th Street, NW Washington, D.C. 20005 Attn: Gabriel J. Hanna. CFO

(b)

the Assignor in fact manages the main part of its business operations from that address; and

(c)

it is at that address that persons dealing with the Assignor would normally look for credit information.

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INDEMNIFICATION AND HOLDS HARMLESS UNDERTAKING Loan from Cardinal Bank to VC. Healthcare Svstems Inc.for the Settlement of District of Columbia v. D.C. Chartered Health Plan, Inc. et al. 2008 CA 0001976 B JEFFREY E. THOMPSON, an individual and resident of the District of Columbia, (referred to as Thompson) and D.C. CHARTERED HEALTH PLAN, INC., (referred to as the Corporation), shall each guarantee the above referenced Loan in the principal amount of Twelve Million Dollars (S12,000,000.00) from Cardinal Bank (referred to as Lender) to D.C. Healthcare Systems, Inc., the sole shareholder of the Corporation. The guaranty of the Corporation is limited to a pledge of its right, title and interest in a certain No. 1050002002 held in the name of the Corporation at Cardinal Trust and Investments and managed by Wilson/Bennett Capital Management, Inc. The is held as collateral (referred to as Collateral) for the Loan. The rights of Lender with respect to the Collateral are set forth in and subject to a Pledge and Security Agreement and Guaranty each of which is dated October 10, 2d08 and executed by the Corporation. Subject to the of this Undertaking, l'fqh'etendertduly-exercises its rights against the Collateral under the Pledge and Security Agreement and Guaranty, Thompson shall irrevocably and unconditionally hold the Corporation completely harmless and indemnify the Corporation for any monies that the Corporation is or may be obligated to pay in connection with any such exercise of rights by the Lender, including but not limited to any liquidation of the Collateral. Thompson waives any rights or defenses he has or may have under any statute, common law or equitable theory which has or may have the effect of enabling him to avoid, restrict or impair any liability or obligation that arises from or is incident to this Undertaking. This Undertaking is intended to be and shall be construed as an assumption of the primary liability that the Corporation has or may have under the Pledge and Security Agreement and the Guaranty. The Corporation shall not be obligated to provide any notice or demand as a condition to or a predicate for the liability of Thompson in connection with this Undertaking. This Undertaking takes effect when the Loan closes and remains in full force and effect for so long as the Loan or any sums owed under the Loan remain due and owing. Dated: October 10, 2008

District of Columbia :ss.

EXHIBIT D

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1, JEFFREY E. THOMPSON, a resident of the District of Columbia and over the age of 18 years, being duly sworn, affirm and that the foregoing Undertaking is my voluntary act and deed and that. I understand the obligations I have incurred in connection with the Undertaking.

Subscribed and sworn before me this 10th Columbia.

day of October 2008 the District of

otary Public My commission expires:

Maureen Smith Mahn Aiblio District of Columbia MY Commission Expires 7N14/20/2