INSURED HAD NO POSSIBILITY OF RECOVERY ON CLAIMS AGAINST BROKERS, U.S. DISTRICT COURT DISMISSES CLAIMS AND DENIES REMAND TO STATE COURT
Last week, the United States District Court for the Northern District of Texas concluded that the insured had no possibility of recovery on its claims against the insurance brokers and, therefore, the court dismissed the insured’s claims and denied remand. In PSG-Mid Cities Med. Cntr. v. Jarrell et. al, No. 3:20-CV-02477-E, 2020 WL 7398782 (N.D. Texas [Dallas Division], Dec. 17, 2020), Plaintiff Saint Camillus, a private hospital, ceased performing elective surgical procedures in compliance with the COVID-19 shut-down orders. Consequently, Saint Camillus made an insurance claim for the pandemic-related business interruption with its insurer, Continental Casualty Company (“Continental”), via email to the brokerage firm and its vice president (the “brokers”). In response, the brokers advised Saint Camillus that its “insurance policy excluded coverage for a business interruption by a virus that causes infection or disease.” Nevertheless, Saint Camillus further pursued its claim, which was ultimately denied by Continental based upon the lack of “physical loss.”
Saint Camillus subsequently filed suit in state court against Continental and the brokers. Saint Camillus asserted claims for violation of the Texas Insurance Code, negligent misrepresentation, negligence, breach of the duty of good faith and fair dealing, and violation of the Texas Prompt Pay Act against the brokers. According to Saint Camillus, the brokers’ response contained a material misrepresentation because the Continental policy had no virus exclusion and the word “virus” appeared in the policy only with reference to computer viruses.
Continental subsequently removed the action to federal court based upon alleged improper joinder of the brokers. Then, Saint Camillus file a motion to remand.
The Northern District concluded that Saint Camillus had “no possibility of recovery” on its claims against the brokers. Regarding the claims of violation of the Texas Insurance Code (misrepresentation) and negligent misrepresentation, the court concluded that Saint Camillus alleged “no facts to show that the misrepresentation resulted in reliance or was a producing cause of harm to Saint Camillus.” The court reasoned that Saint Camillus continued to pursue its claim for coverage despite the alleged misrepresentation by the brokers.
Regarding the claim of negligence, the Northern District began its analysis by noting that insurance agents owe common law duties to a client for whom the agent “undertakes to procure insurance: (1) to use reasonable diligence in attempting to place the requested insurance; and (2) to inform the client promptly if unable to do so.” However, because Saint Camillus did not allege any facts related to procuring the insurance, Saint Camillus did not allege facts to show that the brokers breached any duty owed to Saint Camillus (other than a duty not to misrepresent the terms of the policy, which the court dismissed as discussed above).
Regarding the claim of breach of the duty of good faith and fair dealing, the Northern District recognized that there is no basis for such a claim by an insured against an agent unless there is a contractual relationship between the insured and agent, which was not the case with Saint Camillus and the brokers.
Lastly, regarding the claim of violation of the Texas Prompt Pay Act, the Northern District recognized that such a claim was not viable against the brokers because the Act applies only to insurers.