PSG-Mid Cities Medical Center LLC v. Jarrell

• Court: District Court, N.D. Texas
• Decided: December 17, 2020
• Docket: 3:20-cv-02477
• Status: Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

PSG-MID CITIES MEDICAL CENTER, LLC § D/B/A SAINT CAMILLUS MEDICAL CENTER, § § Plaintiff, § § v. § Civil Action No. 3:20-CV-02477-E § RICK JARRELL, MHBT, INC., MARSH & § MCCLENNAN AGENCY, LLC, and § CONTINENTAL CASYALTY COMPANY, § § Defendants.M EMORANDUM OP§I NION AND ORDER

Before the Court is the Motion to Remand filed by plaintiff PSG-Mid Cities Medical Center, LLC d/b/a Saint Camillus Medical Center (Saint Camillus) (Doc. 9). Having carefully considered the motion, the parties’ briefing, and applicable law, the Court finds there is no reasonable basis for the Court to predict that Saint Camillus may be able to recover against 1 non-diverse defendants Rick Jarrell, MHBT, Inc. (MHBT), and Marsh & McClennan Agency, LLC (Marsh) (collectively, brokers), and, thus, the brokers were improperly joined. Accordingly, the Court disregards their citizenship, resulting in complete diversity betDwEeNeYn Saint Camillus and defendant Continental Casualty Company (Continental), and must the motion to remand.

1 A recently-filed SuggMesatniognu noof Dv.e Partuhd ienndtiicaal tPerso Jpa.r &re Clla hsa. Isn psa. Cssoe.d away (Doc. 13). To determine if jurisdiction is present for removal, however, the Court “consider[s] the claims in the state court petition as they existed a1t the time of removal.” , 276 F.3d 720, 723 (5th Cir. 2002). BACKGROUND

The following is taken from Saint Camillus’s First Amended Original Petition (petition) (Doc. 1-8).

Saint Camillus is a private hospital in Hurst, Texas; all of the surgical procedures performed at Saint Camillus are elective. Saint Camillus obtained a commercial property insurance policy issued by Continental through MHBT, an insurance-brokerage firm that is a Marsh company. Jarrell, MHBT’s senior vice president, was Saint Camillus’s direct contact. Beginning in March 2020, in accordance with government orders instituted to limit the spread of the SARS-CoV-2 virus (COVID 19), Saint Camillus was unable to schedule elective surgical procedures. On April 14, 2020, Saint Camillus emailed MHBT to report an insurance claim for the pandemic-related business interruption. Jarrell responded, also by

email, “Unfortunately, your insurance policy, like 99.9% of policies, excludes coverage for a business interruption by a virus that causes infection or disease. This exclusion has been standard on policies for approximately 15 years (going back to the SARS outbreak).” According to Saint Camillus, the email contained a material misrepresentation because (1) the Continental policy has no virus exclusion and (2) the word “virus” appeared in the policy only with reference to computer viruses. Despite Jarrell’s response, Saint Camillus pursued the insurance claim, providing additional information in May 2020. On June 30, 2020, Continental denied coverage for the

claim based upon the lack of “direct physical loss of or damage to” property and citing the policy’s exclusions for loss caused by contaminants or pollutants, microbes, and consequential loss. 2 Saint Camillus brought this action in state court on July 21, 2020 and filed the petition 2 on July 23, 2020 (Docs. 1-5, 1-8). In addition to claims against Continental, Saint Camillus asserts claims for breach of the duty of good faith and fair dealing, gross negligence or malice, and violation of the Texas Prompt Payment Act against the brokers and additional claims of violation of the Texas Insurance Code, negligence, and negligent misrepresentation against MHBT and Jarrell. On August 21, 2020, Continental removed this action based upon diversity of citizenship and the improper joinder of the brokers (Doc. 1). The brokers consented to the removal (Doc. 1-18). On August 28, 2020, the brokers filed a Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6), and, on September 20, 2020, Saint Camillus filed its 3 Motion to Remand (Doc. 9). The Court granted a joint motion to extend Saint Camillus’s deadline for responding to the motion to dismiss until after the motion to remand is resolved (Docs. 6 & 8). LEGAL STANDARD

A defendant may remove “any civil action brought in a State court of which the district courts of the United States have original jurisdiction” to the district court where such action is pending. 28 U.S.C. §§ 1441(a). Federal district courts have original jurisdiction where the matter in controversy exceeds $75,000 and is between “citizens of different States.” 28 U.S.C. § 1332(a). SLeincctoiolnn P1r3o3p2. C(ao). vr.e Rqoucihrees “complete diversity” between all plaintiffs and all

defendants. , 546 U.S. 81, 89 (2005).

2 Against Continental, Saint Camillus asserts claims for breach of contract, breach of the duty of good faith and fair dealing, gross negligence or malice, and violation of the Texas Prompt Payment Act. 3 3 The brokers have joined in the response (Doc. 12). The doctrine oMf ciDmopnraol pve. rA bjobiontdt eLra b“cso. nstitutes a narrow exception to the rule of complete diversity.” , 408 F.3d 177, 183 (5th Cir. 2005). If a non- diverse defendant has been improperly joined, a district court “may disregard the citizenship

of that defendant, dismiss the non-diverse defendant from Ftlhaeg gc avs. eS,t raynkde re Cxeorrcpi.se subject matter jurisdiction over the remaining diverse defendant.” , 819 F.3d 132, 136 (5th Cir. 2016) (en banc). Davidson v. Georgia T-Phaec pifaicr,t yL a.Lll.Ceg. ing improper joinder has a “heavy” burden of persuasion. , 819 F.3d 758, 765 (5th Cir. 2016). Improper joinder may be established in two ways: (1) actual fraud in the pleading of jurisdictional facts; or (2) inability oTfr athvies pv.l aIirnbtyiff to establish a cause of action against the non-diverse party in state court. , 326 F.3d 644, 646–47 (5th Cir. 2003). “[T]he test for improper joinder ‘is

whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant’” or, stated differently, “there is noF rleaagsgonable basis for thSem daislltwriocot dco vu. rIltl .t oC epnrte. dRi.c Ct oth. at the plaintiff might be able to recover.” , 819 F.3d at 136; , 385 F.3d 568, 573 (5th Cir. 2004). Fifth Circuit courts apply a “1I2d.(b)(6)-type analysis” to determine whether a plaintiff has a reasonable basis of recovery. The court resolves all disputed questions of fAacllte ann vd. aWlla almmabritg uSittoierse si, nL tLhCe controlling state law in favor of the non-removing party. , 907 F.3d 170, 183 (5th Cir. 2018). Although “detailed factual

allegations” are not required, the federal pleading standard requires a plaintiff to provide “more than labels andB ceolln cAltulasinotnics , Caonrdp .a vf.o Trmwuomlaibcl yrecitation of the elements of a cause of action will not do.” , 550 U.S. 544, 555 (2007) (citations 4 see Int'l Energy Ventures Mgm’t L.L.C. v. United Energy Group, Ltd. omitted); , 818 F.3d 193, 200 (5th Cir. 2016) (internal quotations omitted) (“To pass muster under Rule 12(b)(6), [a] complaint must have contained enough facts to state a claim for relief that is plausible on its

face.”). “Factual allegations must be enough to raise a right to relief above a speculative level, oTnw tohmeb alsysumption that all the allegations in the complaint are true (even if doubtful in fact).” , 550 U.S. at 555. ANALYSIS

There is no dispute that the brokers’ presence as defendants in this action destroys diversity jurisdiction. And, because there is no allegation of fraud in the pleadings, the Court Smeues Ftl daegtgermine whether Saint Camillus has “no possibility of recovery” against the brokers. 1. Violat,i o8n1s9 o Ff .t3hde aTte 1x3as6 .I n surance Code

In its Motion to Remand, Saint Camillus first asserts it pleaded a plausible claim for violations of sections 541.051 and 541.061 of the Texas Insurance Code against Jarrell and MHBT. In doing so, Saint Camillus relies on Jarrell’s email response that the Continental policy excluded “coverage for a business interruption by a virus that causes infection or disease.” ASe pe laintiff insured may assert a chapter 541 claim against an insurance broker or agent. T,E X. INS. CODE ANN. § 541.002(2). Sections 541.051 and 541.061 prohibit, among

other things misrepresenting the terms of a policy or misrepresenting a policy by making untrue statements of material facts, leaving out material facts, or making a statement in a 5 way that would lead a reasonably prudent person to a false conclusion about a material fact. TEX. INS. CODE ANN. §§ 541.051, 541.061. To establish a claim under section 541.051 or 541.061, a plainIdtiff must showN uthnant va.

mStaistree Fparermse nMtautti. oAnu wtoa. sIn as .p Croo.ducing cause of damage to the plaintiff. . § 541P.1r5o1vi;d ent Am. Ins. v. Castañeda, , 729 F. Supp.2d 801, 813–14 (N.D. Tex. 2010). 988 S.W.2d 189, 193 (Tex. 1998). “[T]he essential components of producing cause [are] that (1) the cause must be a substantial cause of the event in issue and (2) itN muunsnt be a but-for cause, namely one witFhoorud tM wohtoicrh C oth. ve. Leevdeenstm waould not have occurred.” , 729 F. Supp.2d at 813–14 (quoting , 242 S.W.3d 32, 46 (Tex. 2007)). With respect to the chapter 541 claims, the petition alleges that, because of Jarrell’s misrepresentation, Saint Camillus “was forced to retain the services of an attorney and law

firm to represent it and has suffered damages as outlined herein.” In its Motion to Remand, but not the petition, Saint Camillus asserts it “had to incur costs involved in seeking legal representation to investigate the situation as a result of Jarrell and MHBT making the blatant misrepresentations” (Doc. 9, p. 16). The petition, however, alleges no facts to show Saint Camillus conducted an investigation as a result of Jarrell’s email. “[A]n insured normally canWno. tT ebxrains gA gar impliesxr ev.p Mreisde-Cnotanttiionne nct lCaaims. Cfoo.r any alleged representations made after a loss.” , No. 5:03-CV- 199-C, 2004 WL 1515122, at *13 (N.D. Tex. July 7, 2004). And, in this case, Saint Camillus

specifically pleaded that, despite the alleged misrepresentation in Jarrell’s email, it continued to pursue its claim for coverage under the Continental policy. Accordingly, Saint Camillus has alleged no facts to show that the misrepresentation resulted in reliance or was a 6 See, e.g., Partain v. Mid-Continent Specialty Ins. pSerrovdsu., cIinncg. cause of harm to Saint Camillus. aff’d sub nom. Graper v. Mid- Continent C, a8s3. C8o .F. Supp.2d 547, 558–59 (S.D. Tex. 2012), , 756 F.3d 388 (5th Cir. 2014).

Further, the legal fees Saint Camillus incurred are not recoverable as actual damages under chapter 541. Under TexasI nltaewrc, oan tpinaretnyt acla Gnrnpo. tP ’rsehcipo vve. Kr Bit Hs oamtteo rLnoenye’ sS tfaere sL .Pu.nless authorized by contract or statusteee. also Structural Metals, Inc. v. S & C Elec. Co. , 295 S.W.3d 650, 653 (Tex. 2009); , 590 F. App’x 298, 304 (5th Cir. 2014). Chapter 5S4ee1 requires recovery of actual damages before an award of attorney’s fees is permissible. TEX. INS. CODE ANN. § 541.152(a)(1) (authorizing an award of “the amount of actual damages, plus court costs and reasonable and necessary attorney’s fees.”). Saint Camillus’s legal fees in pursuing its claim are not “actual damages”

under the statute and do nSoete iOnrdteizp evn. Sdteantetl yF asrump pLoloryt das claim under chapter 541 in the absence of actual damages. , 589 S.W.3d 127, 135 (Tex. 2019) (Texas law is clear that attorney’s fees and costs incurred in the prosecution or defense of a claim, although “compensatory in that they help make a claimant whole,” are not damages, and chapter 541 requires a claimant toG upirdervya ivl. oEnn tvhtel. uPnrodceerdlyuirnegs ,c lIanicm and recover damages in order to recover attorney’s fees); ., 388 S.W.3d 845, 860 (Tex. App.—Houston [14th Dist.] 2012, pet. denied) (reversing award of attorney’s fees under Texas Insurance Code where there was no evidence to support award of actual

damages for broker’s misrepresentation of policy). Because Saint Camillus alleges, at most, that it retained the services of an attorney and law firm to represent it as a result of the Jarrell’s representation, it cannot show that the 7 representation was a producing cause of recoverable actual damages. Accordingly, the Court finds Saint Camillus does not have a possibility of recovery against the brokers for violations o2f. thNee gTleigxaens tI nMsiusrraepnrcees Cenotdaet.i on, Negligence

Also relying on Jarrell’s alleged misrepresentation, Saint Camillus next asserts it pleaded plausible claims for negligent misrepresentation and negligence against Jarrell and MHBT. The elements of a claim for negligent misrepresentation are: (1) a representation is made by a defendant in the course of his business, or in a transaction in which he has a pecuniary interest; (2) the defendant supplies “false information” for the guidance of others in their business; (3) the defendant did not exercise reasonable care or competence in obtaining or communicating the informatMiocnC; aamndis h(4, )M tahret ipnl,a Binrotiwffn s u&f fLeoresf fpleerc uvn. Fia.Ery. A lopspsli nbgy

jIunstetirfeiastbsly relying on the representation. see also Miller v. CitiMortgage, Inc., , 991 S.W.2d 787, 791 (Tex. 1999); 970 F. Supp.2d 568, 585 (N.D. Tex. 2013). To maintain a negligence claim, a plaintiff must show “a legal duty owed by one Npaerbsoorns tDor ailnliontgh, eUr,. Sa. Ab.r, eIancch. ov.f tEhsacto dtouty, and damages proximately caused by the brDe.a Hchou.”s t on, Inc. v. Love , 288 S.W.3d 401, 404 (Tex. 2009) (quoting , 92 S.W.3d 450, 454 (Tex. 2002)). With respect to the negligent misrepresentation claim, the petition alleges Saint Camillus did not know Jarrell’s representation was false, relied to its detriment on the

representation, and suffered a financial loss due to its justifiable reliance on the representation. As discussed above, though, Saint Camillus alleges no facts to show it relied on the representation or, as a result, that the representation caused it any harm. To the 8 contrary, it alleges that it pursued its claim, and it continues to do so in this action, despite receiving Jarrell’s email. Accordingly, the Court finds Saint Camillus does not have a possibility of recovery against the brokers for its negligent misrepresentation claims against

them. With respect to the negligence claim, the petition alleges that Jarrell and MBHT breached their “duty to accurately advise [Saint Camillus] as to the terms of the [policy].” Texas courts recognize that an insurance agent owes common law duties to a client for whom the agent “undertakes to procure insurance: (1) to use reasonable diligence in attemptinMg atoy pv.l aUcnei ttehde Sreeqrvuse. sAtsesd’n insurance; and (2) to inform the clienMt opororem vp. tWlyh ifi tunneayb-Vlea ktoy dInos s. oA.g” e ncy , 844 S.W.2d 666, 669 (Tex. 1992); , 966 S.W.2d 690, 692 (Tex. App.—San Antonio [14th Dist.] 1998, no pet.) (recognizing

negligence causes soefe a acltsioo nW aegsati Hnsotu isn. sAuirrpanorcte, Iangce. nvt. Mwihlloe nfaniilus mto I pnlsa. cAeg iennscuyr, aInncc.e the agent’s client requested); , 349 S.W.3d 748, 754 (Tex. App.—Houston [14th Dist.] 2011, pet. denied) (finding insurance broker does not have duty to disclose coverage limitations under comprehensive general liability policy unless inclusion of limitation renders policy non-compliant with coverage requested by client). Here, Saint Camillus has not alleged any facts, or complained of any conduct, related to procuring the insurance. Because Saint Camillus has not alleged facts to show that Jarrell or MHBT breached any duty owed to it under Texas law (other than a duty not to

misrepresent the terms of the policy, which the Court has addressed above), the Court finds there is no reasonable basis to predict that Saint Camillus might be able to recover on its negligence claim. 9 Even if there were a breach of a recognized duty that caused damages, Saint Camillus has not alleged damages that are recoverable. The petition alleges that, as a proximate result of Jarrell’s and MHBH’s negligence, Saint Camillus has suffered “physical loss of the insured

property, and alternatively damage to the insured property and suspension of its business that is covered under the business income loss (and extra expense) provisions of the [p]olicy.” But Saint Camillus cannot recover frSoeme Vthaen bderolakye Hrso aspm. oGurpn.t Ls Pth da/tb i/t ab eHliuedvseosn s Hhoouuslde hv.a Tvhee b Ceiennc ipnanidat ui nIndse. rC toh.,e e Ct oanl.tinental policy. , No. 3:20-CV-1348-D, 2020 WL 4784717, at *6 (N.D. Tex. Aug. 18, 2020) (plaintiff’s claim against broker for “amount of coverage” was not valid claim for r3e. coRveemraabinlein dga Cmlaaigmess for negligent misrepresentation).

Saint Camillus’s motion to remand does not specifically address its remaining claims against the brokers for breach of good faith and fair dealing, gross negligence, and violation of the Prompt Payment Act. The Court, however, finds that there is no reasoSneeabSlme ablalwsioso tdo predict that Saint Camillus might be able to recover on these state law claims. , 385 F.3d at 573. First, under Texas law, there is no basis for an insured’s breach of good faith and fair dealing against an agent unless there is a contractual relSaetieoNnsahtiivpi dbaedtw ve. Aenle xthsiesm, and Saint Camillus has alleged no such contract with the brokers. , 875 S.W.2d

695, 698 (Tex. 1994) (insurer, not agent, owes insured a duty of good faith and fair dealing because of “special relationship” created by contract between insurer and insured; “[t]his duty is non-delegable”). 10 With respect to its gross negligence claim, Saint Camillus alleges “[d]efendants’ breach of the duty of good faith was malicious and/or grossly negligent.” ASes ed iidscussed above, the brokers do not owe a duty of good faith and fair dealing to Plaintiff. . Further, the

petition alleges no facts to show, as required to support a gross negligence claim, that the conduct complained of involved “an extreme degree of risk” or the defendants had “actual, subjective awareness of the risk involved, but neverthSeeele Uss-H paruolc Ienetd’l[, eIndc] . wv. iWtha cldornispc, ious indifference to the rights, safety, or welfare of others.” 380 S.W.3d 118, 137 (Tex. 2012). Finally, Saint Camillus’s claims against the brokers for vioSlaeteio Bna orbf athrae TTeecxhass. PCroormp. pvt. SPtaayt eA cFta arrme nLolot yvdisable because the Act applies only to insurers. , 589 S.W.3d 806, 812 (Tex. 2019) (Texas Prompt Pay Act “imposes

procedural requirements and deadlines on insurance companies to promote the prompt payment of insurance claims”); TEX. INS. CCO OD NE C LAUN SN IO. §N 542.060.

In sum, the Court finds that Saint Camillus does not have a possibility of recovery under any of the state law claims it has asserted against the brokers in its petition. Accordingly, Continental has met its heavy burden of establishing improper joinder. Because the Court need not consider the citizenship of the brokers, there is complete diversity of citizenship between Saint Camillus and Continental and this Court has subject matter

jDuEriNsdIEicDti. on over this action. Saint Camillus’s motion to remand must be and is hereby

11 ORDERED SO ; signed December 17, 2020.

_______________________________________ ADA BROWN UNITED STATES DISTRICT JUDGE