Conifer Health Solutions, LLC et al v. QBE Specialty Insurance Company
Filing
46
MEMORANDUM OPINION AND ORDER. It is therefore ORDERED that Plaintiffs' Motion for Summary Judgment (Dkt. # 10 ) is DENIED, Defendant's Motion for Summary Judgment and Brief in Support (Dkt. # 11 ) is GRANTED, Defendant's Supplemental Motion for Summary Judgment and Brief in Support (Dkt. # 16 ) is GRANTED, and Plaintiffs' Motion to Strike Exhibit C to Defendant's Motion for Summary Judgment (Dkt. # 17 ) is DENIED as moot. Signed by District Judge Amos L. Mazzant, III on 9/26/2018. (rpc, )
United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
CONIFER HEALTH SOLUTIONS, LLC,
CONIFER REVENUE CYCLE
SOLUTIONS, LLC,
v.
QBE SPECIALTY INSURANCE
COMPANY.
§
§
§ Civil Action No. 4:17-CV-00664
§ Judge Mazzant
§
§
§
§
MEMORANDUM OPINION AND ORDER
The present action is an insurance coverage dispute over Defendant’s duty to defend claims
against Plaintiffs. The Court will consider the parties’ arguments as set forth in Plaintiffs’ Motion
for Summary Judgment (Dk. #10), Defendant’s Motion for Summary Judgment (Dkt. #11),
Defendant’s Supplemental Motion for Summary Judgment (Dkt. #16), and Plaintiffs’ Motion to
Strike Exhibit C to Defendant’s Motion for Summary Judgment (Dkt. #17). Having examined
the motions, the parties’ briefings, and the relevant pleadings, the Court finds that the insurance
policy’s Contract Exclusion bars coverage of all claims. Accordingly, the Court finds that
Plaintiffs’ motion for summary judgment should be denied, Defendant’s motion for summary
judgment should be granted, Defendant’s supplemental motion for summary judgment should be
granted, and Plaintiffs’ motion to strike should be denied moot.
BACKGROUND
Plaintiff Conifer Health Solutions, LLC and its subsidiary, Plaintiff Conifer Revenue
Cycles Solution, LLC (collectively “Conifer”), provide health management services to hospitals,
health systems, and physician groups. On August 15, 2016, Reid Hospital & Health Care Services,
Inc. (“Reid”) sent Conifer a correspondence (the “August 2016 Letter”) alleging breach of
contract, breach of warranty, willful misconduct, and fraud relating to revenue cycle services that
Conifer provided the hospital between November 2012 and September 2014. (Dkt. #10, Ex. 4).
The August 2016 Letter threatened litigation unless Reid and Conifer entered into a tolling
agreement or mediated their dispute.
On November 15, 2016, Reid sent Conifer a second correspondence (the “Novermber 2016
Letter”) that alleged:
On April 28, 2011, Reid outsourced its entire revenue cycle management to
Dell Marketing, LP (“Dell”) pursuant to a 77-page Master Agreement for Revenue
Cycle Outsourcing (“The Agreement”). On November 5, 2012, Conifer Health
Solutions (“Conifer”) assumed all of Dell’s duties and obligations under The
Agreement. Therefore, starting in November, 2012, Conifer was responsible for
Reid’s entire revenue cycle. These responsibilities included prequalifying patients,
case management services, coding, medical records, timely billing for Reid’s
services, timely responding to requests for additional information from third party
payors (i.e. insurers, Medicaid and Medicare), timely appealing and pursuing
denials, and ultimately collecting all sums due Reid for its services.
....
. . . Conifer chose to understaff its personnel at Reid, causing $35,606,730 in
damages to Reid. . . . Conifer’s decision to understaff the Reid project was
motivated by Conifer’s desire to cut costs due to its inability to tum a profit on the
Reid project. Conifer's conduct constitutes willful misconduct and Gross
Negligence, sufficient to render the damages limitations described in Section 14.1
of The Agreement inapplicable.
(Dkt. #10, Ex. 5 at pp. 2, 19). The November 2016 Letter demanded $30,000,000 to settle Reid’s
claims.
On May 4, 2017, Reid brought action against Conifer in the United States District Court
for the Southern District of Indiana asserting causes of action for breach of contract, breach of
express warranty, unjust enrichment, and gross negligence/willful and wanton misconduct.
(Dkt. #10, Ex. 1-D). On May 24, 2017, Reid amended its complaint to add Conifer (parent
company) to the suit and realleged the earlier factual allegations. (Dkt. #10, Ex. 1-D). On
September 13, 2017, Reid filed a second amended complaint, once more restating the factual
2
allegations of the preceding complaints but omitting all causes of action except for breach of
contract (the original, first amended, and second amended complaints are collectively referred to
as the “Underlying Reid Lawsuit”). (Dkt. #16, Ex. 3).
Defendant QBE Specialty Insurance Company (“QBE”) is a surplus lines insurer. QBE
issued Commercial Lines Policy No. QPL0097524 (the “Policy”) to Conifer, which was made
effective for claims made between July 1, 2016, and July 1, 2017 (the “Policy Period”). The
Policy’s General Terms and Conditions provided that “the Insurer shall have the right and duty to
defend any Claim, unless otherwise specifically stated in a particular Liability Coverage Part . . .
even if any of the allegations in such Claim are groundless, false or fraudulent.” (Dkt. #10,
Ex. 3 at p. 6). Conifer submitted the claims in the August 2016 Letter, November 2016 Letter,
and Underlying Reid Lawsuit (collectively the “Submitted Matters”). QBE acknowledged that
Conifer’s subsidiary was covered as an Insured under the Policy but argued that multiple Policy
exclusions barred its duty to defend the Submitted Matters. Relevant portions of the Policy
provide:
General Terms and Conditions
....
VII. ALLOCATION
If in any Claim, the Insureds who are afforded coverage for a Claim incur
Loss that is covered by this Policy and loss that is not covered by this
Policy because such Claim includes both covered and uncovered
matters, 100% of Defense Costs incurred by such Insured shall be covered
Loss, and all loss other than Defense Costs shall be allocated
between
covered Loss and uncovered loss based upon the relative legal
exposures of the parties to such matters.
VIII. TREATMENT OF RELATED CLAIMS
All Related Claims shall be deemed a single Claim first made during the
policy period in which the earliest of such Related Claims was either first
made or deemed to have been first made in accordance with Section V.
REPORTING above.
....
XXII. GLOSSARY
....
3
O.
Related Claims means all Claims based upon, arising out of or
resulting from the same or related, or having a common nexus of,
facts, circumstances or Wrongful Acts.
....
The Solution for Error and Omissions Liability
Coverage Part Declarations
....
I.
II.
INSURING CLAUSE
The Insurer shall pay, on behalf of an Insured, Loss on account of a Claim
first made during the Policy Period.
EXCLUSIONS
In addition to the Exclusions set forth in Section II. EXCLUSIONS of the
GTC, no coverage shall be provided under this Coverage Part for Loss on
account of that portion of a Claim:
....
B.
....
V.
....
Contract - for any liability in connection with any contract,
agreement, warranty or guarantee to which an Insured is a party,
provided that this Exclusion B shall not apply to Loss to the extent
that such Insured would have been liable for such Loss in the
absence of such contract, agreement, warranty or guarantee
GLOSSARY
B.
Claim means any:
1.
written demand for monetary or non-monetary (including
injunctive) relief, including a demand for arbitration,
mediation or waiving or tolling of a statute of limitations;
and
2.
civil proceeding, evidenced by the service of a complaint or
similar pleading;
against an Insured for a Wrongful Act, including any appeal
therefrom. The time when a Claim shall be deemed first made for
the purposes of this Coverage Part shall be the date on which the
Claim is first made against, served upon or received by the Insured.
K.
Loss means the amount that an Insured becomes legally obligated
pay on account of any Claim including: . . .
4. Defense Costs;
....
to
....
The Solution for Errors and Omissions –
Miscellaneous Professional Services
Coverage Sub-Part
....
I.
....
GLOSSARY
4
B.
Wrongful Act means any error, misstatement, misleading
statement, act, omission, neglect or breach of duty committed,
attempted or allegedly committed or attempted by an Insured, or by
any other person or entity for which the Insured is legally liable, in
the performance of or failure to perform Miscellaneous
Professional Services on or after the Retroactive Date and prior to
the end of the Policy Period.
(Dkt. #10, Ex. 3 at pp. 6–16)
QBE contends that (1) the Submitted Matters relate to claims that Reid first made before
the Policy’s inception period in a correspondence dated September 2013 (the “September 2013
Letter”) (the “Related Claims Exclusion”); (2) the Submitted Matters arise out of a contract—the
Master Agreement (the “Contract Exclusion”); and (3) Conifer knew or should have known about
Reid’s claims prior to executing the application for the Policy (the “Prior Knowledge Exclusion”).
On September 19, 2017, Conifer filed an Original Complaint (Dkt. #1) in the United States
District Court for the Eastern District of Texas for a declaratory judgment that QBE has a duty to
defend the claims asserted in the August 2016 Letter, November 2016 Letter, and Reid’s original
complaint and amended complaints. On February 9, 2018, Conifer filed a motion for summary
judgment (Dkt. #10), and QBE filed its motion for summary judgment (Dkt. #11). QBE alleges
that on March 9, 2018, it became aware of Reid’s second amended complaint and filed a
supplemental motion for summary judgment (Dkt. #16) requesting that the Court consider Reid’s
latest pleading under the same arguments of preclusion. On March 23, 2018, Conifer filed its First
Amended Complaint (Dkt. #24) also addressing Reid’s live pleading.
LEGAL STANDARD
The purpose of summary judgment is to isolate and dispose of factually unsupported claims
or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). Summary judgment is proper
under Rule 56(a) of the Federal Rules of Civil Procedure “if the movant shows that there is no
5
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). A dispute about a material fact is genuine when “the evidence is such that
a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby Inc.,
477 U.S. 242, 248 (1986). Substantive law identifies which facts are material. Id. The trial court
“must resolve all reasonable doubts in favor of the party opposing the motion for summary
judgment.” Casey Enters., Inc. v. Am. Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981).
The party seeking summary judgment bears the initial burden of informing the court of its
motion and identifying “depositions, documents, electronically stored information, affidavits or
declarations, stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials” that demonstrate the absence of a genuine issue of
material fact. FED R. CIV. P. 56(c)(1)(A); Celotex, 477 U.S. at 323. If the movant bears the burden
of proof on a claim or defense for which it is moving for summary judgment, it must come forward
with evidence that establishes “beyond peradventure all of the essential elements of the claim or
defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Where the nonmovant
bears the burden of proof, the movant may discharge the burden by showing that there is an absence
of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 325; Byers v. Dall. Morning
News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the
nonmovant must “respond to the motion for summary judgment by setting forth particular facts
indicating there is a genuine issue for trial.” Byers, 209 F.3d at 424 (citing Anderson, 477 U.S. at
248–49). A nonmovant must present affirmative evidence to defeat a properly supported motion
for summary judgment. Anderson, 477 U.S. at 257. Mere denials of material facts, unsworn
allegations, or arguments and assertions in briefs or legal memoranda will not suffice to carry this
burden. Rather, the Court requires “significant probative evidence” from the nonmovant to dismiss
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a request for summary judgment. In re Mun. Bond Reporting Antitrust Litig., 672 F.2d 436, 440
(5th Cir. 1982) (quoting Ferguson v. Nat’l Broad. Co., 584 F.2d 111, 114 (5th Cir. 1978)). The
Court must consider all of the evidence but “refrain from making any credibility determinations or
weighing the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.
2007).
ANALYSIS
Cross-Motions for Summary Judgment
Conifer moves for the Court to declare that QBE has a duty to defend the claims asserted
in the August 2016 Letter, November 2016 Letter, and Underlying Reid Lawsuit. QBE responds
with a cross-motion for summary judgment arguing that it has no duty to defend the Submitted
Matters because: (1) the Policy’s Contract Exclusion precludes coverage; (2) the Policy’s Prior
Knowledge Exclusion precludes coverage; (3) the Policy’s Related Claims provision deems the
Submitted Matters not “first made” in the Policy Period; and (4) the fortuity doctrine bars coverage.
The parties do not dispute that the Submitted Matters are claims under the Policy and have
applied across-the-board arguments to each of the matters. The Court finds that the Submitted
Matters1 all contain that same factual allegations and will consider them together. Because the
1
Conifer briefs the Submitted Matters as five separate claims. Conifer contends that the complaints, though separate
claims, are deemed to be one single related claim and request that the Court declare that QBE has a duty to defend
September 2016 Letter, November 2016 Letter, and Underlying Reid Lawsuit as independent and distinct claims.
QBE also presents Reid’s second amended complaint and the Underlying Reid Lawsuit as distinct from each other.
The parties concede that the iterations of Reid’s complaint contain the same factual allegations. The Court notes that,
notwithstanding the parties’ classifications, the Submitted Matters are likely one claim. The Policy defines a “Claim”
as a “written demand for monetary or non-monetary (including injunctive) relief, including a demand for arbitration,
mediation or waiving or tolling of a statute of limitations; and . . . [a] civil proceeding, evidenced by the service of a
complaint or similar pleading; against an Insured for a Wrongful Act, including any appeal therefrom.” (Dkt. #10, Ex.
3 at pp. 14). The Policy also deems all Related Claims “a single Claim first made during the policy period in which
the earliest of such Related Claims was either first made,” and claims are related if they are “based upon, arising out
of or resulting from the same or related, or having a common nexus of, facts, circumstances or Wrongful Acts.”
(Dkt. #10, Ex. 1-A at pp. 8, 11). The Submitted Matters all arise from Conifer’s alleged failure to perform under the
Master Agreement. The August 2016 Letter was a demand to toll or mediate the dispute; the November 2016 Letter
was a letter offering to settle the dispute; and the Underlying Reid Lawsuit was the natural litigation that ensued. The
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Court concludes that the Contract Exclusion bars coverage of the Submitted Matters, it chooses
not to address QBE’s arguments based the fortuity doctrine defense and other Policy exclusions.
I.
The Policy
The Court must “apply Texas law as interpreted by Texas state courts.” Gilbane Bldg. Co.
v. Admiral Ins. Co., 664 F.3d 589, 593 (5th Cir. 2011) (quoting Mid–Continent Cas. Co. v. Swift
Energy Co., 206 F.3d 487, 491 (5th Cir. 2000)). Under Texas law, “insurance policies are
construed according to common principles governing the construction of contracts, and the
interpretation of an insurance policy is a question of law for a court to determine.” Am. Int’l
Specialty Lines Ins. Co. v. Rentech Steel LLC, 620 F.3d 558, 562 (5th Cir. 2010). The Court must
interpret the policy to discern the intention of the parties as it is expressed in the policy. Id.
Whether a contract is ambiguous is also a question of law. Id. (citing Kelley–Coppedge, Inc. v.
Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998)). An ambiguity is not present simply because
the parties advance conflicting interpretations but exists “only if the contractual language is
susceptible to two or more reasonable interpretations.” Id. (citing Am. Mfrs. Mut. Ins. Co. v.
Schaefer, 124 S.W.3d 154, 157 (Tex. 2003)). “Effectuating the parties’ expressed intent is [the
Court’s] primary concern.” Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23
(Tex. 2008). “No one phrase, sentence, or section [of the policy] should be isolated from its setting
and considered apart from the other provisions.” Id. A policy’s terms should be given their plain
meaning, without inserting additional provisions in the contract. Id.
“Under Texas law, an insurer may have two responsibilities relating to coverage—the duty
to defend and the duty to indemnify.” Gilbane, 664 F.3d at 594 (citing D.R. Horton–Tex., Ltd. v.
Markel Int’l Ins. Co., 300 S.W.3d 740, 743 (Tex. 2009)). The duties to defend and indemnify are
Court assumes that the Submitted Matters were briefed as separate claims to invoke the Policy’s $500,000 Per Claim
Retention Provision. The Court, however, does not need to rule on this issue.
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distinct, and one may exist without the other. Id.; see also Colony Ins. Co. v. Peachtree Const.,
Ltd., 647 F.3d 248, 253–54 (5th Cir. 2011). An insurer’s duty to defend is determined by the
application of the “eight-corners rule.” GuideOne Elite Ins. Co. v. Fielder Road Baptist Church,
197 S.W.3d 305, 308 (Tex. 2006). “The rule takes its name from the fact that only two documents
are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of
the third-party claimant.” Id. (citing King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002)).
“[T]he duty to defend does not rely on the truth or falsity of the underlying allegations; an insurer
is obligated to defend the insured if the facts alleged in the petition, taken as true, potentially assert
a claim for coverage under the insurance policy.” Colony, 647 F.3d at 253 (citing GuideOne, 197
S.W.3d at 308). All doubts regarding the duty to defend are resolved in favor of the duty, and the
pleadings are construed liberally. Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex.
2008). If a complaint potentially includes a covered claim, the insurer must defend the entire suit.
Id. (citation omitted).
In determining whether an insurer has a duty to defend, the policyholder “bears the initial
burden of showing that the claim [in the underlying action] is potentially within the insurance
policy’s scope of coverage.” Harken Expl Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th
Cir. 2001) (citation omitted). “However, it is the insurer that carries the burden of establishing
that ‘the plain language of a policy exclusion or limitation allows the insurer to avoid coverage of
all claims, also within the confines of the eight corners rule.’” Regency Title Company, LLC v.
Westchester Fire Ins., No. 4:11–cv–390, 2013 WL 6054820, at *4 (E.D. Tex. Nov. 15, 2013)
(quoting Northfield Ins., 363 F.3d at 528). In addition, “[e]xclusions [in the insurance policy] are
narrowly construed, and all reasonable inferences must be drawn in the insured’s favor.” Gore
Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 370 (5th Cir. 2008). An
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exclusion is ambiguous only if it is clearly susceptible to multiple reasonable interpretations.
Regency Title Co, 2013 WL 6054820, at *4 (citing Carolina Cas. Ins. Co. v. Sowell, 603 F. Supp.
2d 914, 923 (N.D. Tex. 2009)). “[The] rules favoring the insured . . . are applicable only when
there is an ambiguity in the policy; if the exclusions in question are susceptible to only one
reasonable interpretation, the [the rules favoring the insured] do not apply.” Id. (citing Am. States
Ins. Co. v. Bailey, 133 F.3d 363, 369 (5th Cir.1998)). “Courts should not strain to find an
ambiguity, if, in doing so, they defeat the probable intentions of the parties, even though the insured
may suffer an apparent harsh result as a consequence.” Ohio Cas. Group of Ins. Companies v.
Chavez, 942 S.W.2d 654, 658 (Tex. App.–Houston [14th Dist.] 1997, writ denied). “Furthermore,
if a policy provision is susceptible to only one reasonable interpretation, the court is obligated to
give the words their ‘plain meaning’ even if this means coverage is denied.” Regency Title Co.,
2013 WL 6054820, at *4 (citing Evanston Ins. Co. v. Legacy of Life, Inc., 645 F.3d 739, 744–45
(5th Cir. 2011)).
“There are two traditional types of insurance policies: occurrence policies and claims-made
policies.” Munsch Hardt Kopf & Harr P.C. v. Executive Risk Specialty Ins. Co., No. 3:06–cv–
01099, 2007 WL 708851, at *3 (N.D. Tex. Mar. 8, 2007) (citing Matador Petrochemical Corp. v.
St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 658–59 (5th Cir. 1999)). “Coverage under an
occurrence policy is based on the triggering event.” Id. “However, under a claims-made policy,
notice to the insurer is the triggering event and is a condition precedent to coverage.” Id. “The
notice provisions of such policies are therefore strictly construed; otherwise, the insured would
receive coverage that was not bargained for.” Id.; see also Komatsu v. U.S. Fire Ins. Co., 806
S.W.2d 603, 607 (Tex. App.—Fort Worth 1991, writ denied).
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Conifer has shown, and QBE does not dispute, that the Submitted Matters are potentially
within the coverage of the Policy. To avoid its duty to defend, QBE has the burden to show that
the plain language of one or more of the policy’s exclusions bar coverage. QBE maintains that the
Submitted Matters arise out of the Master Agreement and are precluded from coverage under the
Policy’s Contract Exclusion. Conifer argues that the Contract Exclusion does not apply because
the Submitted matters never alleged that it was a party to the Master Agreement, and to the extent
that the term “party” is ambiguous, the Court must construe the exclusion in its favor. Conifer
also avers that the Submitted Matters allege Wrongful Acts that are not in connection to the Master
Agreement, which obligates Conifer to defend all claims. Lastly, Conifer maintains that the
exception to the Contract Exclusion applies because the Submitted Matters seek to hold Conifer
liable for Wrongful Acts committed before it assumed the Master Agreement.2
II.
Contract Exclusion
The Contract Exclusion precludes coverage of “any liability in connection with any
contract, agreement, warranty or guarantee to which an Insured is a party, provided that this
Exclusion B shall not apply to Loss to the extent that such Insured would have been liable for such
Loss in the absence of such contract, agreement, warranty or guarantee.” (Dkt. #10, Ex. 3 at pp.13).
Conifer first argues that the Submitted Matters fail to allege that Conifer was a party and, instead,
describe Conifer to have assumed the agreement’s full duties and obligations through an
assignment or transfer. Conifer contends that an “assignee” or “transferee” is legally distinct from
a party and the Court must narrowly construe the Contract Exclusion in its favor. QBE argues that
2
Conifer also argues that OBE did not assert the Contract Exclusion as an affirmative defense in its original answer
and thereby waived the argument. QBE’s original answer, however, has been superseded. On March 23, 2018,
Conifer filed an amended complaint (Dkt. #24), and QBE filed its answer to Conifer’s amended complaint (Dkt. #31)
and raised the Contract Exclusion as an affirmative defense to the Submitted Matters.
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there is no meaningful difference between someone who assumes all the duties and obligations
under a contract and a “party” to the contract. The Court agrees.
Conifer cites Viacom and Chushka to support its reading of the Contract Exclusion. See
Viacom Int’l, Inc. v. Tandem PNods., Inc., 526 F.2d 593, 598 (2nd Cir. 1975); Chuska Energy Co.
v. Mobil Expl. & Producing, Inc., 854 F.2d 727 (5th Cir. 1988). These cases are distinguishable
and both attempt to ascertain the scope of the rights, duties, and obligations of assignors and
assignees in partial assignments. The Second Circuit in Viacom determined that an assignor that
partially assigned the value of its rights in a contract was not thereafter relieved of its contractual
obligations. See Viacom, 526 F.2d at 598. In Chuska, in a breach of assignment dispute, the Fifth
Circuit noted that an assignee was not allowed to raise a defense that would require the assignor
to prove the legality of a contract in which the assignee had no duties or obligations. See Chuska,
854 F.2d at 730. These cases neither hold nor suggest that an assignee is not a party to a contract
in which it has duties, obligations, and rights—let alone full duties and obligations. The cases
were, however, consistent with a fundamental Texas contract law principle that “an assignee
generally stands in the shoes of his assignor.” Holy Cross Church of God in Christ v. Wolf, 44
S.W.3d 562, 574 (Tex. 2001); see also In re Travelers Property Casualty Company of America,
485 S.W.3d 921 (Tex.—App. Dallas 2016) (explaining that when an insurance claim is assigned,
an assignee is treated legally identical). Conifer does not argue that Dell was not a party to the
Master Agreement before the assignment. The Submitted Matters allege that Conifer assumed all
duties and obligations under the Master Agreement; regardless of whether the vehicle was an
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assignment or transfer, Conifer was undoubtedly a party under its ordinary meaning and under the
Policy’s Contract Exclusion.3
Conifer alternatively argues that the term party renders the Contract Exclusion ambiguous.
“Whether a contract is ambiguous is [also] a question of law.” Id. (citing Kelley-Coppedge, 980
S.W.2d at 464.
Ambiguity is not present simply because the parties advance conflicting
interpretations but exists “only if the contractual language is susceptible to two or more reasonable
interpretations.” Id. (quoting Am. Mfrs. Mut. Ins., 124 S.W.3d at157. “Effectuating the parties’
expressed intent is [the Court’s] primary concern.” Don’s Bldg., 267 S.W.3d at 23. “Courts should
not strain to find an ambiguity, if, in doing so, they defeat the probable intentions of the parties,
even though the insured may suffer an apparent harsh result as a consequence.” Ohio Cas. Group
of Ins. Cos. v. Chavez, 942 S.W.2d 654, 658 (Tex. App.—Houston [14th Dist.] 1997, writ denied)
(citing Vest v. Gulf Ins. Co., 809 S.W.2d 531, 533 (Tex. App.—Dallas, writ denied)). Conifer has
not demonstrated that the provision is susceptible to more than one reasonable interpretation and
a plain reading of the Contract Exclusion does not present any ambiguity.
Even if the Court determined that the Contract Exclusion was ambiguous, Conifer fails to
offer a reasonable, or any, interpretation for the Court to adopt. Conifer only argues that the
exclusion requires one to be a party and that it was not. Essentially, Conifer’s interpretation is that
one who assumes all duties and obligations under of a contract is not a party to the contract. For
the reasons stated above, the Court cannot accept this as reasonable.
Conifer next argues that the Submitted Matters contain allegations of Wrongful Acts that
that are independent of the Master Agreement. Specifically, gross negligence, unjust enrichment
3
The Court notes that the Submitted Matters interchangeably refer to the transaction as a full assignment, transfer,
and assumption. There is no indication that the parties were limited in their duties, obligations, and rights under the
Master Agreement.
13
through the miscalculation of Conifer’s incentive fees, and simple negligence because of
inadequate training and incompetence. If true, this would require QBE to defend the Submitted
Matters en masse. QBE responds that the allegations all concern Conifer’s conduct in relation to
the Master Agreement and are not separate theories of liability.
The Policy states that “[i]f in any Claim, the Insureds who are afforded coverage for a
Claim incur Loss that is covered by this Policy and loss that is not covered by this Policy because
such Claim includes both covered and uncovered matters, 100% of Defense Costs incurred by such
Insured shall be covered Loss. . . .” (Dkt. #10, Ex. 3 at pp. 8). The Court must focus its inquiry on
the alleged facts and not “the asserted legal theories.” See Northfield, 363 F.3d at 528. The
Submitted Matters allege that “Conifer’s failures . . . result from Conifer’s willful and grossly
negligent misconduct in choosing to understaff the Reid project.” (Dkt. #16, Ex. 3). As to the
allegations of unjust enrichment, Reid states that “as a result of [failing to accurately calculate its
Incentive Fees in accordance with the terms of the Master Agreement], Reid overpaid Conifer’s
Incentive Fees.” (Dkt. #16, Ex. 3 at p 29). And finally, the Submitted Matters allege that Conifer
did not have a sufficient number of qualified employees and “mismanaged the clinical
documentation improvement system (CDI).” (Dkt. #16, Ex. 3 at pp. 22). Conifer’s argument here
is also unconvincing. The fact that the allegations of simple negligence, gross negligence, and
unjust enrichment may or may not be sound in tort does not change the fact that they are based in
connection with the Master Agreement. See Carolina, 603 F. Supp. 2d at 931 (citing King, 171
S.W.3d at 228–29 (holding that breach of fiduciary duty claim fell within contract exclusion
because it related to contractual obligations)).
Lastly, Conifer argues the Submitted Matters allege that it failed to meet performance
standards between July 2012 and September 2012—before the Master Agreement was assumed.
14
By this, Conifer contends, the exception to the Contract Exclusion applies to the extent that Reid
seeks to hold it liable for loss in the absence of the Master Agreement. This argument confuses
the language of the exception. The Policy states that the Contract Exclusion “shall not apply to
Loss to the Extent that such Insured would have been liable for such Loss in the absence of such
contract, agreement, or warrant or guarantee.” (Dkt. #10, Ex. 3 at p. 8). The proper inquiry is
whether, taking away the Master Agreement, the Submitted Matters seek to hold Conifer liable for
failing to meet performance standards. Failure to meet performance standards is a way in which
the Submitted Matters allege that Conifer breached the Master Agreement. It is not a stand-alone
theory of liability. Conifer has not shown that without the Master Agreement in place, it would be
liable for failing to meet performance standards that it is not obligated to. Conifer’s argument
speaks to damages and the merits of the allegations.
The Court must interpret the Policy’s provisions with respect to the intentions of the parties.
Doubts regarding a duty to defend are resolved in favor of the duty; the Court, however, is not
inclined to create doubt where none exists. The Policy’s Contract Exclusion limits QBE’s duty to
defend claims that are made in connection to a contract or an agreement. It is clear from the eightcorners that the Submitted Matters arise solely in connection with the Master Agreement.
Plaintiffs’ Objections to Defendant’s Summary Judgment Evidence
Conifer moves to strike Exhibit C to QBE’s Supplemental Motion for Summary Judgment
(Dkt. #17) (the “September 2013 Letter”) arguing that it is extrinsic evidence not within the eightcorners of the Submitted Matters and Policy. Further, Conifer contends that, even if not extrinsic,
the September 2013 Letter is inadmissible as irrelevant under the Federal Rules of Evidence. See
FED. R. EVID. 401; 402. QBE responds that the September 2013 Letter is a “Claim” under the
Policy and goes to the threshold issue of coverage, thus not subject to the eight-corners rule.
15
Further, QBE argues that the Underlying Reid Lawsuit incorporates the September 2013 Letter by
reference and, if deemed extrinsic, falls within an exception to the eight-corners rule.
The Court recognizes the very limited application of exceptions to the stringent eightcorners rule. See GuideOne, 197 S.W.3d at 308 (acknowledging that “courts have drawn a very
narrow exception, permitting the use of extrinsic evidence only when relevant to an independent
and discrete coverage issue, not touching on the merits of the underlying third-party claim.”). As
well as the limited case law on whether documents referenced in the underlying claims are deemed
to be incorporated by reference and not extrinsic. The present action does not require the Court to
engage these issues. The factual allegations in the September 2013 Letter are present on the face
of the Submitted Matters as follows:
21.
On or about April 28, 2011, Reid outsourced its entire revenue cycle
management to Dell Marketing, LP (“Dell”) pursuant to the 77-page Master
Agreement for Revenue Cycle Outsourcing (the “Master Agreement”).
....
23.
On November 5, 2012, Conifer assumed all of Dell's duties and
obligations under the Master Agreement.
....
54.
On September 9, 2013, Reid's President and CEO, Craig Kinyon,
sent Conifer's president a letter expressing Reid's concerns with Conifer's failure to
meet the above-referenced Performance Metrics and Reid's broader concerns that
Conifer was failing to perform its contractual obligations, generally.
55.
In his letter of September 9, 2013, Mr. Kinyon wrote, “The failure
to meet [Conifer's] minimum performance standards is likely the result of Conifer's
reduction of staff and the failure to perform all the base services delegated to
Conifer under the Master Agreement.” (Emphasis added).
(Dkt. #16, Ex. 3 at pp. 5–6, 14).
Moreover, QBE offered the September 2013 Letter as summary judgment evidence to
support its arguments premised on the Related Claims Exclusion and Prior Knowledge Exclusion,
which the Court has found futile to discuss. It is unnecessary to, and the Court did not, consider
the September 2013 Letter in finding that QBE has no duty to defend the Submitted Matters.
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Accordingly, Conifer’s Motion to Strike Exhibit C to QBE’s Motion for Summary Judgment
(Dkt. #17) is denied as moot.
CONCLUSION
It is therefore ORDERED that Plaintiffs’ Motion for Summary Judgment (Dkt. #10) is
DENIED, Defendant’s Motion for Summary Judgment and Brief in Support (Dkt. #11) is
GRANTED, Defendant’s Supplemental Motion for Summary Judgment and Brief in Support
(Dkt. #16) is GRANTED, and Plaintiffs’ Motion to Strike Exhibit C to Defendant’s Motion for
.
Summary Judgment (Dkt. #17) is DENIED as moot. Accordingly, Defendant did not owe a duty
to defend as a matter of law. All of Plaintiffs’ claims are based on the duty to defend, and as such,
all of Plaintiffs’ claims fail as a matter of law. Therefore, Plaintiffs' claims are DISMISSED
WITH PREJUDICE.
SIGNED this 26th day of September, 2018.
___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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