Westfield Insurance Company v. Records Imaging & Storage, Inc. et al

Filing 58

MEMORANDUM OPINION & ORDER granting Westfield Insurance Co.'s 49 MOTION for Summary Judgment; the court declares that the Policy, identified in the record as "Policy No.: BOP 0882391", does not provide coverage for the defense and indemnification of Records Imaging & Storage, Inc. or Camden-Clark Memorial Hospital Corp. for the claims asserted against each of them in the Underlying Complaint, and Westfield has no duty to defend or indemnify RIS or the Hospital for those claims. Signed by Judge John T. Copenhaver, Jr. on 4/16/2015. (cc: counsel of record) (taq)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
WESTFIELD INSURANCE CO.,
Plaintiff,
v.

Civil Action No. 2:14-18854

RECORDS IMAGING & STORAGE, INC.
and CAMDEN-CLARK MEMORIAL HOSPITAL CORP.,
and JAMES F. SMITH and JOHN E. SMITH
as co-executors and on behalf of
the estate of Donald E. Smith,
Defendants.

MEMORANDUM OPINION & ORDER

Pending is a motion for summary judgment, filed by
Westfield Insurance Co. (“Westfield”) on January 5, 2015.
motion is not contested.

The

Only one defendant, Camden-Clark

Memorial Hospital Corp. (the “Hospital”), filed a response; but
the Hospital’s response does not meaningfully engage with
Westfield’s arguments for summary judgment.

I. Background

Westfield seeks a declaration that it is not required
to defend or indemnify Records Imaging & Storage, Inc. (“RIS”)
or the Hospital from claims asserted against each of them in a
class action pending in the Circuit Court of Wood County, West
Virginia, pursuant to a complaint referred to herein as the

“Underlying Complaint.”
A. The Underlying Complaint
In February of 2012, the Hospital entered into a
Hospital Service Agreement (the “Agreement”) with RIS.

See

generally Plaintiff’s Motion for Summary Judgment (“Pl.’s
Mot.”), Ex. B [hereinafter “Agreement”].

Under the terms of the

Agreement, RIS was to “assist [the] Hospital with [the] release
of patient health information” by “account[ing] for requests for
health information” and “reproducing and forwarding the health
information to requesters.”

Agreement § 1.1.

The Agreement

specified that RIS was “solely responsible for the collection of
fees due from requesting parties for the fulfillment of health
information requests,” but admonished that “[a]ll fees and
invoices for payment submitted directly to requesting parties
[were to] comply strictly with [West Virginia] Code § 16-29-1,
et seq.”

Id. § 4.1; see also id. § 2.5 (“RIS agrees that in

performing Services pursuant to this Agreement, RIS and RIS
Staff shall at all times act in accordance with all applicable
state and federal law, regulations and requirements and with the
applicable standards of any accreditation organization or
Government Agency[.]”).
RIS agreed to two conditions for the Hospital’s
protection.

First, the Agreement directed RIS, at its “sole
2

cost and expense,” to “obtain, keep in force, and maintain . . .
: (a) Error and Omission coverage in an amount not less than
$1,000,000 per occurrence and $1,000,000 annual aggregate
covering all losses, claims, damages or liabilities, joint or
several, arising out of the provision of Services by RIS to the
Hospital under th[e] Agreement and naming the Hospital as an
additional insured on a primary basis[;] (b) Commercial General
Liability Insurance in the amount of not less than $1,000,000
per occurrence and $1,000,000 annual aggregate covering personal
injury and property damage and naming the Hospital as an
additional insured on a primary basis[; and] (c) Commercial
General Liability Umbrella Insurance of not less than $1,000,000
per occurrence and $1,000,000 annual aggregate covering personal
injury and property damage and naming the Hospital as an
additional insured on a primary basis[.]”

Id. § 2.3(a)-(c).

Second, RIS agreed to “indemnify and hold [the] Hospital
harmless from and against any and all actions, causes of action,
losses, claims, suits, expenses, damages and costs and expense
of every type whatsoever, including attorney fees and fines,
arising out of or related to any act or omission by RIS or
arising out of the failure of RIS to comply with any federal,
state or local law, rule or regulation with respect to the
services rendered or arising out of any duty or responsibility
of RIS under th[e] Agreement.”

Id. § 6.4.
3

In March of 2014, James F. Smith and John E. Smith
(the “Smiths”), acting as co-executors and on behalf of the
estate of their father, Donald E. Smith, filed a class action
complaint (the Underlying Complaint) against the Hospital and
RIS in the Circuit Court of Wood County, West Virginia.
Pl.’s Mot., Ex. A.

See

The Smiths alleged that RIS (as the

Hospital’s delegate) charged an unreasonable fee for processing
their requests for their father’s medical records, and that the
amount charged bore no relationship to the actual expenses
incurred in producing the requested records.
Complaint ¶¶ 23-32.

See Underlying

More specifically, they charged that the

Hospital and RIS were “able to produce patient medical records
via electronic format for a more reasonable cost than the cost
of producing paper records,” but “engaged in [a] scheme and
artifice to misrepresent . . . the availability of a more
reasonable cost of receiving the[] medical records” that caused
the Smiths to suffer “damages by being forced to pay more than
the amount permitted by statute to obtain their medical
records.”

Id. ¶¶ 31, 36, 38-39, 42, 48, 55.
The Underlying Complaint sought a declaration that the

rates could not exceed “the reasonable expenses actually
incurred in producing the records, plus a $10.00 search fee”
(Count V), and also requested money damages for violations of

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West Virginia Code § 16-29-1, et seq. (Count I), fraud and
violations of the West Virginia Consumer Credit and Protection
Act (Count II), “violations of the public policy of” West
Virginia (Count III), and breach of implied contract (Count IV),
all arising from the allegedly exorbitant rates that RIS charged
for fulfilling records requests.

Id. ¶¶ 18-61.

The proposed

class consisted of “former patients or patient representatives
who requested copies of medical records from [the Hospital] at
any time during the five (5) years preceding the filing of [the
Underlying Complaint] and paid the fees charged by [the Hospital
and RIS] to obtain their medical records.”

Id. ¶ 10.

On April 15, 2014, the Hospital wrote to RIS demanding
a defense and indemnification from the claims asserted in the
Underlying Complaint.
¶¶ 21-22.

Pl.’s Compl. ¶¶ 21-22; Hospital’s Answer

RIS apparently turned to its insurer, Westfield.

See

Pl.’s Compl. ¶ 20. 1
B. The Policy
From the documents in the record, it appears that
Westfield’s policy (the “Policy”) with RIS ran from December 25,
2013 to December 25, 2014, and included four forms of coverage
1

RIS never answered Westfield’s declaratory judgment complaint,
and the Hospital lacked any basis to admit or deny that RIS
actually sought defense and indemnification from Westfield, as
alleged in the complaint.
5

or “Coverage Parts”: (1) a “Businessowners Coverage Part”, (2) a
“Commercial Auto Coverage Part”, (3) a “Commercial Umbrella
Coverage Part”, and (4) “Terrorism Insurance Coverage”.

Pl.’s

Mot., Ex. C at 27 [hereinafter the “Policy”].
The Businessowners Coverage Part and Commercial
Umbrella Coverage Part are relevant here.

Each provides

liability coverage for “bodily injury,” “property damage,” or
“personal and advertising injury,” and imposes on Westfield a
duty to defend against any “suit” seeking those damages.
Policy at 92, 164, 169-70.

See

The Policy applies to bodily injury

or property damage only if caused by an “occurrence,” id. at 92,
164, which is defined as “an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions.”

Id. at 107, 180.

The “personal and advertising injury” coverage applies
to claims “caused by an offense arising out of [RIS’s]
business.”

Id. at 92, 170.

More specifically, the Policy

defines a “personal and advertising injury” as an “injury,
including consequential ‘bodily injury’, arising out of one or
more of the following offenses:”
•

“False arrest, detention or imprisonment”;

•

“Malicious prosecution”;

6

•

“[W]rongful eviction”;

•

“Oral or written publication . . . that slanders or libels
a person or organization or disparages a person’s or
organization’s goods, products or services”;

•

“Oral or written publication . . . of material that
violates a person’s right of privacy”;

•

“The use of another’s advertising idea in [the insured’s]
‘advertisement’”; or

•

“Infringing upon another’s copyright, trade dress or slogan
in [the insured’s] ‘advertisement’.”

Id. at 107, 180.
In sum, a “suit” that Westfield must defend is defined
as a “civil proceeding in which damages because of ‘bodily
injury’, ‘property damage’, or ‘personal and advertising injury’
to which [the Policy] applies are alleged.”

Id. at 108, 181.

C. This Action
Westfield initiated this action on June 19, 2014,
seeking a declaration (1) that the Policy does not provide
coverage for the defense or indemnification of RIS or the
Hospital for the claims asserted in the Underlying Complaint,
and (2) that Westfield has no duty to defend or indemnify RIS or
the Hospital.

Pl.’s Compl. at Prayer for Relief.

The court has

diversity-of-citizenship jurisdiction inasmuch as Westfield is
an Ohio corporation with its principal place of business in that
state, RIS and the Hospital are West Virginia corporations with
7

their principal places of business in West Virginia, the Smiths
are West Virginia citizens, and the amount in controversy
exceeds the jurisdictional threshold.
Westfield now moves for summary judgment, asserting
that the Underlying Complaint alleges no “occurrence” and seeks
no damages for “bodily injury,” “property damage,” or
“advertising or personal injury,” as those terms are defined by
the Policy.

Neither the Smiths nor RIS have responded.

The

Hospital presents no arguments in opposition to Westfield’s
interpretation of the Policy, noting only that, to “the extent
that no coverage is found under Westfield’s policy, and RIS has
no other commercial general liability policy for the applicable
time period[,] . . . such finding by the court is tantamount to
a finding that RIS is in breach of its contract with [the
Hospital].”

See Camden-Clark Memorial Hospital Corporation’s

Response to Plaintiff’s Motion for Summary Judgment (“Hospital’s
Resp.”) at 1.

II. Applicable Standards

Summary judgment is appropriate “if the movant shows
that there is no 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); T-Mobile N.E. LLC v. City Council of City of
8

Newport News, Va., 674 F.3d 380, 385 (4th Cir. 2012).

Because

the case is here based on the diversity of the parties, the law
governing the interpretation of the Policy is dictated by West
Virginia’s choice-of-law rules.

Atl. Marine Constr. Co., Inc.

v. U.S. Dist. Ct., 134 S. Ct. 568, 582 (2013).

And because the

Policy was made by a West Virginia company, RIS, through and
with an insurance agency located in West Virginia, presumably
acting on Westfield’s behalf, the court applies West Virginia
law.

Joy Techs., Inc. v. Liberty Mut. Ins. Co., 421 S.E.2d 493,

496-97 (W. Va. 1992).

III. Discussion

There is no dispute about the fact that RIS and the
Hospital have been sued in state court.

The allegations charged

against them in the Underlying Complaint are not ambiguous.

To

refresh, the Smiths claim that RIS and the Hospital violated the
State’s public policy as embodied in two separate statutes,
engaged in fraud, and breached an implied contract because they
were “able to produce patient medical records via electronic
format for a more reasonable cost than the cost of producing
paper records,” but “engaged in [a] scheme and artifice to
misrepresent . . . the availability of a more reasonable cost of
receiving the[] medical records” that caused the Smiths to
suffer “damages by being forced to pay more than the amount
9

permitted by statute to obtain their medical records.”
Underlying Complaint ¶¶ 31, 36, 38-39, 42, 48, 55.

See

The pure

question of law raised by Westfield’s motion for summary
judgment is whether the Policy creates a duty to defend and
indemnify RIS and the Hospital against those allegations.
“[T]he duty of an insurer to defend an insured is
generally broader than the obligation to provide coverage”; “if
part of the claims against an insured fall within the coverage .
. . the insurer must defend all of the claims[.]”

State

Bancorp., Inc. v. U.S. Fidelity & Guar. Ins. Co., 483 S.E.2d
228, 233 (W. Va. 1997) (per curiam) (quotation marks and
citations omitted).

On the other hand, “a liability insurer

need not defend a case against the insured if the alleged
conduct is entirely foreign to the risk insured against.”
(quotation marks and citation omitted).

Id.

Thus, to determine

whether a claim triggers the duty to defend, the court “must
examine the provisions of” the Policy and “determine whether any
of the allegations in the [Underlying Complaint] are reasonably
susceptible of an interpretation that the claim may be covered
by the terms of the insurance policy.”

Id. at 234 (internal

quotation marks and citation omitted).
Westfield maintains that the conduct alleged in the
Underlying Complaint creates no duty to defend or indemnify
10

because the Smiths have not accused RIS and the Hospital of
inflicting an injury covered by the Policy -- that is, an
“occurrence” resulting in bodily injury or property damage, or
one of the delineated offenses giving rise to advertising or
personal injury.

The court agrees.

A. No Bodily Injury or Property Damage Coverage
The Policy provides coverage for bodily injury or
property damage caused by an “occurrence.”

That term, as

earlier noted, is defined as “an accident, including continuous
or repeated exposure to substantially the same general harmful
conditions.”

The word “accident” is not defined by the Policy,

but West Virginia caselaw makes clear that an accident, in the
context of a commercial liability insurance instrument such as
the Policy, is “an event occurring by chance or arising from
unknown causes[.]”

Id. at 234 (quotation marks and citation

omitted; alteration in the original).

“[A]n ‘occurrence’ does

not include actions which are intended by the insured.”
235 (emphasis in the original).

Id. at

In other words, “the

circumstances giving rise to the claimed damages or injuries
must not have been ‘deliberate, intentional, expected, desired,
or foreseen’ by the insured,” when viewed from the perspective
of the insured.

Cherrington v. Erie Ins. Prop. & Cas. Co., 745

S.E.2d 508, 520 (W. Va. 2013); see also Syl. Pt. 1, Columbia
11

Cas. Co. v. Westfield Ins. Co., 617 S.E.2d 797, 797 (W. Va.
2005) (“In determining whether under a liability insurance
policy an occurrence was or was not an ‘accident’ -- or was or
was not deliberate, intentional, expected, desired, or foreseen
-- primary consideration, relevance, and weight should
ordinarily be given to the perspective or standpoint of the
insured whose coverage under the policy is at issue.”).
The supreme court of appeals’ decision in State
Bancorp illustrates the distinction, and it is particularly
instructive here.

In that case, homeowners sued for breach of

contract, outrage, civil conspiracy, and violations of state
banking laws, alleging that their bank and several officials
conspired to defraud them by making “a bad loan . . . ‘contrary
to accepted credit and banking standards, . . . forcing [the
homeowners] into bankruptcy and misleading the bankruptcy court
for the purpose of acquiring . . . [the homeowners’] property.’”
See 483 S.E.2d at 235.

The defendants in turn sought a defense

and indemnification from their insurer under a policy, like the
one at issue here, that provided coverage for “damages because
of ‘bodily injury’ or ‘property damage’ . . . caused by an
‘occurrence.’”

Id. at 234.

The supreme court first observed

that “a breach of contract . . . is not an event that occurs by
chance or arises from unknown causes,” and was, therefore, “not

12

an ‘occurrence[,]’” covered by the policy in issue.
35.

Id. at 234-

And the supreme court similarly reasoned that the claims

based on fraud, outrage, conspiracy, and violations of state
banking laws were also not “occurrences” because the “common
theme” of the complaint accused the defendants of “engag[ing] in
an intentional, outrageous scheme . . . [for] personal gain.”
Id. at 235-36 (emphasis in the original).
The same is true here.

The Underlying Complaint

alleges that RIS, the insured, engaged in fraud and breach of
contract, and violated state law by overcharging the members of
the class for paper copies of medical records, while concealing
the fact that cheaper electronic records were available.

There

is no suggestion that RIS was unaware of the availability of the
less expensive electronic records, or that RIS simply failed to
proactively offer the electronic option.

See Underlying

Complaint ¶¶ 38-40 (alleging that RIS “concealed, suppressed,
and omitted material facts” -- those facts presumably being the
availability of electronic records).

Instead, the Underlying

Complaint claims that RIS’s decision to provide the records in
paper, rather than electronic form, was part of a deliberate
scheme designed to permit RIS to charge -- and thus to receive - more for its work than was reasonable under the circumstances.
See Underlying Complaint ¶¶ 31-34, 38-40 (accusing RIS of

13

“engag[ing] in [a] scheme and artifice to misrepresent . . . the
availability” of “electronic copies [that] were able to be
provided at a more reasonable cost”).

As in State Bancorp., the

“common theme” of the Underlying Complaint is deliberate,
intentional conduct leading to an expected, desired, or
foreseeable result, rather than a chance occurrence arising from
unknown causes.

Accordingly, the Underlying Complaint does not

allege an “occurrence” within the meaning of the Policy, and the
bodily injury and property damage coverages do not apply.
B. No Personal and Advertising Injury Coverage
The Policy’s coverage for “personal and advertising
injury” is also inapplicable.

The alleged fraud, breach of

contract, and violations of state law alleged in the Underlying
Complaint are simply not “reasonably susceptible” of being
interpreted as claims for false arrest, malicious prosecution,
wrongful eviction, slander, libel, invasion of privacy, or
copyright infringement.

Accordingly, because the personal and

advertising injury coverage under the Policy is limited to
damages arising from those enumerated offenses, it does not
apply to the claims alleged in the Underlying Complaint.
C. No Duty to Defend
The Policy imposes a duty on Westfield to defend RIS
14

against any suit seeking damages for bodily injury, property
damage, or personal and advertising injury to which the Policy
applies.

And if Westfield defends RIS against such a suit, it

will, under certain conditions, also defend an indemnitee of
RIS. 2

But for the reasons discussed above, the Policy does not

apply to the claims alleged in the Underlying Complaint, and it
is therefore not a “suit” that Westfield is obligated to defend.

IV. Conclusion

The Policy provides coverage for injuries caused by an
occurrence or by certain specified offenses, and requires
Westfield to defend suits seeking to recover for such injuries.
But the Underlying Complaint does not allege an occurrence
within the meaning of the Policy or plead one of the specified
offenses.

As a result, the Policy does not cover the claims

alleged in the Underlying Complaint and Westfield has no duty to
defend RIS.

And because Westfield has no duty to defend RIS, it

follows that Westfield is not required to defend the Hospital.
Accordingly, it is ORDERED that the plaintiff’s motion

2

The Policy specifies that if Westfield “defend[s] an insured
against a ‘suit’ and an indemnitee of the insured is also named
as a party to the ‘suit’, [Westfield] will defend that
indemnitee if,” among other things, the suit “seeks damages for
which the insured has assumed the liability of the indemnitee”
and “the insurance applies to such liability[.]” Pl.s’ Mot.,
Ex. C at 94, 172-73.
15

for summary judgment is granted.

The court declares that the

Policy, identified in the record as “Policy No.: BOP 0882391”,
does not provide coverage for the defense and indemnification of
RIS or the Hospital for the claims asserted against each of them
in the Underlying Complaint, and Westfield has no duty to defend
or indemnify RIS or the Hospital for those claims.
The Clerk is directed to transmit copies of this order
to all counsel of record.
DATED: April 16, 2015

John T. Copenhaver, Jr.
United States District Judge

16