PSG-Mid Cities Medical Center LLC v. Jarrell

• Court: District Court, N.D. Texas
• Decided: May 11, 2021
• 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 CASUALTY COMPANY, § § Defendants.M EMORANDUM OP§I NION AND ORDER

Before the Court is Defendant Continental Casualty Company’s Motion to Dismiss Plaintiff’s First Amended Original Petition (Doc. 22). Having considered the motion, the parties’ briefing, and applicable law, the BCAoCuKrGt RfiOnUdNsD the motion to dismiss should be granted.

The following is taken from the First Amended Original Petition (petition) filed by plaintiff PSG-Mid Cities Medical Center, LLC d/b/a Saint Camillus Medical Center (Saint Camillus) (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 defendant Continental Casualty Company (Continental). Under the policy, Continental agreed to indemnify Saint Camillus for losses, including but not limited to, business interruption losses at its insured property. 1 Beginning in March 2020, in accordance with government orders instituted to limit 1 the spread of the SARS-CoV-2 virus (COVID 19), Saint Camillus was unable to schedule elective surgical procedures. In April 14, 2020, Saint Camillus emailed its insurance broker to report an insurance claim for the pandemic-related business interruption and, in May 2020, provided information about its operations and copies of the relevant government orders to Continental. On June 30, 2020, Continental sent a letter to Saint Camillus denying its claim. According to the letter, Saint Camillus “ha[d] not reported any ‘direct physical loss of or damage to’ its Real or Business Personal Property.” It also stated that, because of this, the policy’s civil authority coverage did not apply. Finally, it indicated that even if there was coverage, exclusions, including one for loss caused by contaminants or pollutants, microbes, and consequential loss might bar coverage.

Saint Camillus brought this suit, asserting claims against Continental for breach of contract, breach of the common law duty of good faith and fair dealing, gross negligence and/or malice, and violations of the Texas Prompt Payment Act (Doc. 1-8). Continental moves to dismiss the claims against it, contending Saint Camillus fails to allege facts sufficient to establish a claim under the policy oLr EfoGrA La nSTy AoNfD itAsR eDxtracontractual claims.

Federal Rule of Civil Procedure 8(a) requires a complaint to include “a short and plain statement of the claim showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a). If a

1 Specifically, Saint Camillus cites (1) a March 22, 2020 Executive Order signed by Governor Abbott that, among other things, directed “all licensed health care professionals and facilities to postpone all surgeries and procedures that [were] not immediately, medically necessary,” and (2) a March 24, 202 0 “Declaration of Local Disaster due to Public Health Emergency” signed by Tarrant County Judge B. Glen Whitley that prohibited “[a]ll elective medical, surgical, and dental procedures” in Tarrant County (Doc. 1-8, pp. 7-8). 2 plaintiff fails to satisfy Rule 8(a), the defendant may file a motion to dismiss the plaintiff’s claim under Federal Rule of Civil Procedure 12(b)(6) for “failure to state a claim upon which relief can be granted.” FED. R. CIV. P. 12(b)(6).

On a Rule 12(b)(6) motion to dismiss, a court may consider only the pleadings, including attachments to the complaint, attachments to the motion if they are referred to in the complaint and central to the plaintiff’s claimIsn, calnudsi v“em Caottmermsu onf iwtiehsi cPhr ojujedcitc, iIanl cn. ovt. iLcien mcoalny bPero tpa.k Ceon. under Federal Rule of Evidence 20I1n.” r e Katrina Canal Breaches Litig. , 920 F.3d 890, 900 (5th Cir. 2019); , 495 F.3d 191, 205 (5th Cir. 2007). The court “acceptIsn arlel wKealtlr-ipnlae aCdaenda fl aBcrtse aacsh tersu Lei, tvigie.wing them in the light most favorable to the plaintiff.” , 495 F.3d at 205 (quotation marks and citation omitted).

To survive a motion to dismisBse, lal Aptlal.i nCtoirfpf m. vu. sTtw polemabdl y“enough facts to state a claim to relief that is plausible on its face.” , 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the Acoshucrrto tfot dv.r Iaqwb aal reasonable inference that the defendant is liable for the misconduct alleged.” , 556 U.S. 662, 678 (2009). “[C]onclusory Isdt.a tements” or “a legal conclusion couched as a factual assertion are not accepted as true.” A plaintiff must plead facts with enough specificity “to raise a right to relief above the speTcwuloamtibvley level” so as to “nudge their claims across the line from conceivable to plausible.” , 55I0d U.S. at 570. “[A] formulaic

recitation of the elements of a cause of action will not do.” . at 555. If the facts do not permit the Court to infer more than the mere possibIqilbitayl of misconduct, the complaint does not show the plaintiff is plausibly entitled to relief. , 556 U.S. at 678. 3 ANALYSIS

Continental moves to dismiss Saint Camillus’s breach of contract claim because Saint Camillus fails to allege, as required for coverage under the policy, physical loss of or damage

to property at a location insured under the policy or in the immediate vicinity of such locations. Under Texas law, which applies in this diversity action, the courtC mitiugsrto ucopn Isntcr.u ve. aFned i.n Isnusr. aCnoc.e policy following the general rules of contract interpretation. , 649 F.3Adm 3. 6In7t,’ l3 S7p1e (c5iatlht yC Liri.n 2e0s 1In1s).. C Ion. tve.r Rpernettaetciho nS toefe lt hLe.L p.Co.licy is a question of law for the Court. , 620 F.3d 558, 562 (T5atnhn Ceirr v. 2. N01at0i)o.n Twhidee c Mouurtt. mFirues tI ndse. tCeor.mine the parties’ intent based on the policy as written. “is worded so that it c, a2n8 9b eS .gWiv.3end o8n2l8y, o8n3e1 r(eTaesoxn. 2ab0l0e9 c)o. n s truction, it will be enforcedIf aas p wolriicttye n.” John M. O’Quinn, P.C. v. Lexington Ins. Co.

, 906 F.3d 363, 367 (5th Cir. 2018) (citation omittIedd). If it is ambiguous, the court must adopt the construction that favors the insured. . The “insured bears the initial burden of showing that there is coverage, anIdd .t he insurer bears the burden of proving the applicability of any exclusions in the poli1c.y .”C ove(rcaigtae tUionnd eorm tihtete Pdo)l.i cy 2 Saint Camillus alleges that, beca usstoep poef dt hine [Mgoavrecrhn 2m02e0n]t” oarndde rs, its “business and revenue stream for the hospital basically Continental breached

2 Id CNA Signature Policy No. 6022775191 (Doc. 22-1, p. 5). The policy was renewed and effective for the relevan4t policy period, October 1, 2019, to October 1, 2020 ( .). the policy by denying coverage for the economic losses it sustained. The policy contains the followin1g. bBuUsiSnIeNsEs SinS tIeNrTruEpRtRioUnP cTovIOerNa g(eG RprOoSvSis EioAnR: NINGS)

a . This poFliincyis hcoevde Srtso ackgainst loss resulting from necessary interruption of business caused by direct physical loLsso coaf toior ndsa mage to covered property, except , by the peril(s) insurIe.4d .a gainst and occurring during the term of this policy at covered occupied by the Insured, subject to the sublimit specified in Section of this policy.

In the event of such physical loss or damage the Company shall be liabGlreo fossr tEhaer naicntgusa l loss sustained by the Insured resulting directly from such interruption of business, but not exceeding the reduction in as set forth below less charges and expenses which do not necessarily continue during the interruption of business, for only such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair or replace such part of the property herein described as has been damaged or destroyed, commencing with the date of such dI.a5m. TagIeM oEr LdIeMstIrTuSc tion and not limited by the date of expiration of this policy, but in no event to exceed the number of months specified in Section if a Business Interruption Period of Indemnity limit is specified.

(Doc. 22-1, p. 21). The policy also provides extra expense coverage, which allows an insured to recover reasonable and necessary expenses incurred to continue operations after “direct physical loss of or damage to covered property” during the time to “rebuild, repair or replace” the damaged property (Id., pp. 25-26). Finally, the policy provides civil authority coverag1e0 a. sD fEoNlloIAwLs :O F ACCESS BY CIVIL AUTHORITY AND INGRESS-EGRESS I.5. I.4. This policy is extended to cover for up to the time limit specified in Section but not exceeding the sublimit shown in Section of this policy, the actual alo. ss sustained: Location

during the period of time while access to the Insured’s is prohibited by order of civil authority, but only when such order is given as a direct result of physical loss or damage to property of the type insured 5 Location from a peril insured against occurring at or in the immediate vicinity of Id said , ....

( ., p. 24). The parties dispute the meaning of the phrase “physical loss of or damage to covered property.” Continental asserts the plain, ordinary meaning of the word “physical” requires that the loss or damage at issue must be “tangible” or “material” (Doc. 22, p. 17). Saint Camillus disagrees, and argues that the loss of access to or habitability of a property, including loss of its essential functionality, constitutes a “physical loss of or damage to covered property” (Doc. 28, pp. 16, 22). Although the policy does not define it, the Fifth Circuit has construed H“pahrytfsoicrdal I lnoss. sC oof. oofr dMaimdwaegset tvo.” Mtoi srseisqsuipirpei “Vsaolmleey pGhayss iCcoa.l manifestation of loss or damage.” , 181 F. App’x 465, 469–70 (5th Cir. 2006) (“The requirement that the loss be ‘physical’ … is widely held to ... preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.” (quoting 10A COUCH ON INS. § 148:46 (3d ed. 2005)). And, although the Fifth Circuit has yet to address whether economic loss as a result of the COVID-19 pandemic and related civil authority orders constitutes a physical loss of or damage to property under propeSretye iDniseuserla nBcaer bpeorlsichioeps,, dLiLsCtr vic. tS ctaotuer tFsa irnm th Lilso Cyidrscuit consistently have found that it does not. , 479 F. Supp.3d 353, 359–60 (W.D. Tex. 2020) (while some courts in other circuits “have found physical loss even without tangible destruction to the covered property,” in the Fifth Circuit “the loss needs to havIleio bs ePerno da. ‘distinct, demonstrable, physical alteration of the property’”) (citation omitted); 6 Design, LLC v. Cincinnati Ins. Co., Inc. Selery Fulfillme, nNt,o I. n1c:.2 v0.- cCvo-l8o5n7y- LInYs,. 2C0o2.1 WL 1381148, at *10 (W.D. Tex. Apr. 12, 2021); Steiner Steakhouse, L, LNCo v. .4 A:2m0c-oC IVn-s8. 5C3o,. 2021 WL 963742, at *6–7 (E.D. Tex. Mar. 15, 2021); Sultan Hajer d, /Nbo/.a 1 :R2u0g-

COVu-t8le5t 8v-. LOYh,i o2 0S2ec0. IWnsL. C8o8.79041, at *3–4 (W.D. Tex. Dec. 30, 2020); , --- F. Supp. 3d ----, 2020 WL 7211636, at *2 (E.D. Tex. Dec. 7, 2020). This Court likewise finds that the policy term “physical loss of or damage to” is unambiguous and requires a “distinct, demonstrable, physical alteration” of anS eine sSutereinde’sr pStreoapkehrotyu steo trigger coverage under the policy’s business interruption provision. , 2020 WL 8879041, at *3. This finding is further supported by the fact that, under the provision, there is only coverage for “such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair or replace such part of the property

herein described as has been damaged or destroyed, commencing with the date of such damage of destruction” (Doc. 22-1, p. 21). That the provision contemplates property Sdeaem, ea.gge., rAegqguieir Iinnvge rsetmbueinldtsi,n Lg.,L r.Cep. va.i Cr,o onrt irneepnlatacle Cmaesnuta ilntyd Cicoa.,tes the damage must be tangible. Selery Fulfillment No. 4:21-CV-0013, 2021 WL 1550479, at *4 (E.D. Tex. Apr. 20, 2021); , 2021 WL 963742, at *6–7. Saint Camillus does not allege there was any “distinct, demonstrable, physical alteration” to its insured property – only that government orders stopped its business operations there for a time. Accordingly, Saint Camillus has not alleged a direct physical loss

of or damage to its covSeeree,d e .gp.r, oSpteeirnteyr tShtaeta kthriogugseers coverage under the policy’s business interruption provision. , 2020 WL 8879041, at *4. 7 Coverage under the policy’s civil authority provision also is triggered only if there is physical loss or damage to property, either at or in the immediate vicinity of the insured’s property (Doc. 22-1, p. 24). As discussed above, Saint Camillus has not alleged physical loss

or damage at its insured property. Nor does it allege physical loss or damage in the immediate vicinity of that property. Further, Saint Camillus complains the government orders prohibited it from performing business operations (Doc. 1-8, p. 9), but the civil authority provision “reqHuairjeers the physical damage to psreoem aplsto tShtee iancetr oSft ecaivkihl oauustehority, not the other way around.” , 2020 WL 7211636 at *4; , 2020 WL 8879041, at *5 (in order to trigger civil authority coverage, “the damage to property must precede the action of civil authority, which is ‘taken in response to’ the damage”) (citation omitted). Accordingly, Saint Camillus fails to allege facts to show coverage was triggered

under the policy’s civil authority provision. Because the Court finds there is no coverage under either the business interruption provision or the civil authority provision, Saint Camillus fails to state a breach of contract claim fo2r. whicEhx rterlaie-Cf ocnatnr abcet guraal nCtleadim. s

Continental also seeks dismissal of Saint Camillus’s remaining claims, asserting the claims fail as a matter of law because Saint Camillus fails to state a plausible breach of contract claim. The Court agrees.

Generally, “there can be no claJiAmW f oTrh be aPdo fianitteh, Lw.Lh.eCn. va. nL einxsinugrteorn h Ianss p. Croom. ptly denied a claim that is in fact not covered.” , 460 S.W.3d 597, 602 (Tex. 2015). Such a claim exists only if the insured demonstrates that the insurer’s 8 Id. conduct was extreme and resulted in damages unrelated to policy claim. In support of its bad faith claim, Saint Camillus alleges only “misrepresentations” regarding “what was and was not covered” under the policy. Because it alleges no injury independent of Continental’s

denial of coverage, and there is no coverage, the Court finds Saint Camillus’s bad faith, gross negligence, and malice claims must be dismissed. And, because “[t]here can be no liabilsietye Punrodgerre s[sthivee PCrnotmy. pMtu Pt.a Iynms. eCnot. vA. cBt]o yifd the insurance claim is not covered by the policy,” , 177 S.W.3d 919, 922 (Tex. 2005); TEX. INS. CODE ANN. § 542.060, the Court finds Saint Camillus’sC sOtNatCuLtUoSrIOy Nclaim also must be dismissed. GRANTS For the foregoing reasons, the Court the motion to dismiss. (Doc. No 22). Saint Camillus requests that it be granted leave to amend its petition. However, the

Court, having found the policy as written precludes Saint Camillus from alleging its loSsesee,s e f.agl.l, wTeirthryin B tlahcek p'so Bliacryb’se ccuoeveLrLaCge v,. aSltsaot ef iAnudtso t. hMaut taunayl Iantst.e Cmopt to amend would be futile. , ., --- F. Supp.3d ---, 2021 WDELN 7I3E5D1246, at *10 (W.D. Tex. Jan. 21, 2021). Accordingly, the motion for leave to amenDd IiSsM ISSED w. ith prejudSicaein.t Camillus’s claims against Continental in this action are hereby O RDERED So ; signed May 11, 2021.

_______________________________________ ADA BROWN UNITED STATES DISTRICT JUDGE 9