Hca, Inc. v. American Protection Ins. Co.

CourtSupreme Court of Tennessee
Writing for the CourtWilliam B. Cain, J.
Citation174 S.W.3d 184
PartiesHCA, INC. v. AMERICAN PROTECTION INSURANCE COMPANY & Industrial Risk Insurers, et al.
Decision Date24 January 2005
174 S.W.3d 184
HCA, INC.
v.
AMERICAN PROTECTION INSURANCE COMPANY & Industrial Risk Insurers, et al.
Court of Appeals of Tennessee, at Nashville.
September 10, 2004 Session.
January 24, 2005.

Page 185

COPYRIGHT MATERIAL OMITTED

Page 186

H. Lee Barfield, L. Wearen Hughes and Tara L. Swafford, Nashville, Tennessee, for the appellant, HCA, Inc.

Michael G. Zanic, Peter N. Flocos, Pittsburgh, Pennsylvania, of Counsel.

Rebecca Levy-Sachs, Sarasota, Florida, and Andrée Sophia Blumstein, Nashville, Tennessee, for the appellees, American Protection Insurance Company and Industrial Risk Insurers, et al.

Patricia Head Moskal, Nashville, Tennessee, and Anthony J. Russo, Tampa, Florida, for the appellee, Winterthur.

OPINION

WILLIAM B. CAIN, J., delivered the opinion of the court, in which FRANK G. CLEMENT, JR., J., joined. WILLIAM C. KOCH, JR., P.J., M.S., filed a concurring opinion.


HCA, Inc. appeals the action of the trial court in granting summary judgment to the insurer/ defendants based upon an "inventory exclusion" provision in the policies of insurance. We reverse the action of the trial court and remand the case for further proceedings.

I. The Parties — the Insurance Policies and the Language of the Inventory Exclusion Clause

Plaintiff HCA, Inc. is the parent company of a number of subsidiaries and other

Page 187

affiliates that operate over 200 proprietary hospitals and a variety of other health care facilities throughout the United States. The claims which are involved in this appeal arise from the daily operation of 105 of these hospitals and 20 other surgical facilities.

Defendants are American Protection Insurance Company ("Kemper"), and various insurance companies which may be divided into two groups. First are the Winterthur defendants collectively consisting of Winterthur International America Insurance Company (now known as XL Insurance Global Risk), Lexington Insurance Company, RLI Insurance Corporation, General Star Indemnity Company, Commonwealth Insurance Company, Continental Insurance Company, Sirius Insurance Corporation, Zurich Reinsurance Company, Royal Indemnity Company, and Employer's Insurance of Wausau. The second group of insurers, (collectively the "IRI defendants") are Allianz Insurance Company, The Travelers Indemnity Company of Illinois, certain underwriters of Lloyds, London, and IRI.

The policies of insurance in issue are what is known in the industry as "all-risk" policies. All of the policies contained deductible clauses providing: "All losses, damages, or expenses arising out of any one occurrence shall be adjusted as one loss, and from the amount of such adjusted loss shall be deducted the sum of U.S. $250,000."

Each of the policies also contained an "inventory exclusion" clause providing:

This Policy does not insure against:

A. Loss or damage caused by infidelity or dishonesty of the Insured; embezzlement of the Insured's property by any of the Insured's employees; nor loss or damage resulting from the Insured voluntarily parting with title or possession of any property if induced to do so by any fraudulent scheme, trick, device or false pretense; nor any unexplained loss, mysterious disappearance, or loss or shortage disclosed on taking inventory, except this exclusion does not prohibit proving the amount of any loss otherwise provable by inventory;

In describing an all-risk policy the trial court stated:

Unlike typical property loss policies which are structured to cover specified losses for which the parties contract, an all-risk policy automatically covers any loss unless the policy contains a provision expressly excluding the loss from coverage. As explained by Couch in his insurance treatise, "In recent years, so-called `all-risk' insurance policies have been used with increasing frequency. An `all-risk' policy creates coverage of a type not ordinarily present under other types of insurance, and recovery is allowed for fortuitous losses unless the loss is excluded by a specific policy provision. . . ." Couch on Insurance 3d § 147:50 (3d ed.1998).

The effect of an all-risk policy is to broaden coverage. A policy of insurance insuring against all risks creates a special type of insurance "extending to risks not usually contemplated, and recovery under the policy will be generally allowed, at least for all losses of a fortuitous nature, in the absence of fraud or other intentional misconduct of the insured unless the polic[y] contains a specific provision expressly excluding the loss from coverage." Lyons Diecasting Co. v. NEC, Inc., 1990 WL 51809, at *5 (Tenn.Ct.App. April 27, 1990). Under an all-risks policy the plaintiff need only prove that a fortuitous event caused the loss. Persian Galleries, Inc. v. Transcontinental Insurance Co., 38 F.3d 253,

Page 188

257 (6th Cir.1994). A fortuitous event is "an event which so far as the parties to the contract are aware, is dependant upon chance." Persian Galleries, 38 F.3d at 257. A fortuitous event may be beyond the power of any human to bring the event to pass or it may be within the control of third persons or even be a past event provided the fact is unknown to the parties. Id. It is not necessary for the plaintiff to show how the property came to be lost or the methods or means by which the property came to be lost. It is sufficient if the plaintiff shows the property is lost and covered by the physical loss provision of the contract of insurance. Id.

Since we cannot improve on this statement by the chancellor we adopt it.

At the outset we must acknowledge and applaud the skill and industry of all counsel in this case. The briefs and the appendices to briefs filed in this court are in the highest tradition of superlative appellate practice. No effort, however laborious and tedious, has been spared by counsel in deep and comprehensive analysis of this complex case and in exposition of applicable case law. This court is much appreciative of such efforts.

II. The History of the Case

In the day-to-day operation of its 105 separate hospitals and 20 surgical centers, HCA uses massive quantities of linens including bed sheets, pillow slips, and surgical gowns. Laundering, maintenance, and constant supply to the various facilities is a major undertaking. On January 22, 1996, HCA entered into a contract with FDR Services Corporation whereby FDR agreed to provide services including but not limited to laundering of linens, supplying of linens to various HCA medical facilities, and management of the linen inventory, including the ordering of additional linen as needed. FDR operated pursuant to this contract from January 22, 1996 until May 1, 1998 when the contract was assigned by FDR to Tartan Textiles, Inc. In September of 1998, HCA conducted a physical inventory of linen stocks in its surgical and medical facilities. Thereafter HCA determined that during the period of its contractual relations with FDR it had suffered a loss of linen stock at a value of somewhere between eight and twelve million dollars which it determined to result from mismanagement of inventory by FDR and other acts of misfeasance and malfeasance on the part of FDR.

Following the September 1998 inventory HCA demanded payment of its losses under the various "all-risk" policies issued by the defendant insurance companies. All of the insurance companies declined to pay the alleged loss, and HCA filed suit.

III. Issues Drawn by the Pleadings

By its third amended complaint, HCA asserts claims against all of the insurance company defendants for breach of contract in that they failed to pay for losses allegedly occurring between January 22, 1996 and May 1, 1998, for the value of linens "either lost or stolen while in the possession or care of FDR" which were no longer physically available to HCA. HCA alleged the loss, notice to the insurers, proper proof of loss, demand for payment, and refusal of the insurers to pay. The complaint further sought relief under the Tennessee Uniform Declaratory Judgments Act. See Tenn.Code Ann. §§ 29-14-101, et seq. Plaintiff demanded a jury of twelve to try the case and sought declaratory judgment adjudging the rights and obligations of the parties, a judgment against the insurers together with prejudgment interest, attorney's fees, costs, expenses and post-judgment interest.

Page 189

The defendants answered the complaint admitting the issuance of their various policies but denying that the policies were in effect at the time of the alleged losses. The defendants denied that a single loss had occurred but asserted instead that if losses had occurred they were plural losses resulting from separate "occurrences." The companies generally denied liability and that either a loss or losses had occurred within the meaning of their various policies.

Defendants asserted twenty separate affirmative defenses, six of which are relevant to the issues on appeal:

Third Affirmative Defense

62. Loss or shortage disclosed on taking inventory. The policies exclude from coverage losses caused by certain perils. One such exclusion is loss or shortage disclosed on taking inventory. A shortage of linen was disclosed when HCA conducted a system-wide inventory of its linen in September 1998. The alleged losses associated with this shortage disclosed on taking an inventory, and are therefore excluded.

Fourth Affirmative Defense

63. Unexplained loss or mysterious disappearance. The policies exclude from coverage losses caused by certain perils. One such exclusion is for "any unexplained loss, mysterious disappearance." HCA, Inc. is unable to explain how the linen in its asserted "linen loss claim" came to be lost when any of this linen was allegedly lost, or the cause of any of this asserted loss. The losses are therefore "unexplained," and constitute a "mysterious disappearance" as those terms are used in the law. Therefore, the asserted "linen loss claim" is excluded by the IRI policies.

Fifth Affirmative Defense

64. Loss by...

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12 practice notes
  • In re Idleaire Technologies Corporation, Case No. 08-10960(KG) (Bankr.Del. 2/18/2009), Case No. 08-10960(KG).
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    ...Minnesota Mut. Lif Ins. Co., 937 S.W.2d 809, 810 (Tenn. 1996); Ragsdale, 2006 WL 2516391, at *4; HCA, Inc. v. American Prot. Ins. Co., 174 S.W. 3d 184, 199 (Tenn. Ct. App. 2005); Allstate Ins. Co. v. Watson, 2005 WL 457846, at *3 (Tenn. Ct. App. Feb. 25, 2005)("We adopt the reasonable expec......
  • St. Paul Fire & Marine Ins. Co. v. Britt, 1140423.
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    ...; Widder v. Louisiana Citizens Prop. Ins. Corp., 82 So.3d 294, 296 (La.Ct.App.2011) ; HCA, Inc. v. American Prot. Ins. Co., 174 S.W.3d 184, 187 (Tenn.Ct.App.2005) ; and Hartford Cas. Ins. Co. v. Evansville Vanderburgh Pub. Library, 860 N.E.2d 636, 645 (Ind.Ct.App.2007).4 See Caldwell v. St.......
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    ...Ct. App. 1992) (quoting Croley v. Matson Navigation Co. , 434 F.2d 73, 77 (5th Cir. 1970) ); see also HCA, Inc. v. Am. Prot. Ins. Co. , 174 S.W.3d 184, 193 (Tenn. Ct. App. 2005) (quoting Charbonnages de France v. Smith , 597 F.2d 406, 414 (4th Cir. 1979) ) (stating that summary judgment "is......
  • King's Palace, Inc. v. Certain Underwriters At Lloyd's, London & Vanguard Claims Admin., Inc., Case No. 2:20-cv-02629-JTF-cgc
    • United States
    • United States District Courts. 6th Circuit. Western District of Tennessee
    • September 1, 2021
    ...an all-risks policy the plaintiff need only prove that a fortuitous event caused the loss." HCA, Inc. v. Am. Protection Ins. Co. , 174 S.W.3d 184, 187 (Tenn. Ct. App. 2005). "It is sufficient if the plaintiff shows the property is lost and is covered by the physical loss provision of the co......
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  • In re Idleaire Technologies Corporation, Case No. 08-10960(KG) (Bankr.Del. 2/18/2009), Case No. 08-10960(KG).
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    • U.S. Bankruptcy Court — District of Delaware
    • February 18, 2009
    ...Minnesota Mut. Lif Ins. Co., 937 S.W.2d 809, 810 (Tenn. 1996); Ragsdale, 2006 WL 2516391, at *4; HCA, Inc. v. American Prot. Ins. Co., 174 S.W. 3d 184, 199 (Tenn. Ct. App. 2005); Allstate Ins. Co. v. Watson, 2005 WL 457846, at *3 (Tenn. Ct. App. Feb. 25, 2005)("We adopt the reasonable ......
  • St. Paul Fire & Marine Ins. Co. v. Britt, 1140423.
    • United States
    • Supreme Court of Alabama
    • January 29, 2016
    ...; Widder v. Louisiana Citizens Prop. Ins. Corp., 82 So.3d 294, 296 (La.Ct.App.2011) ; HCA, Inc. v. American Prot. Ins. Co., 174 S.W.3d 184, 187 (Tenn.Ct.App.2005) ; and Hartford Cas. Ins. Co. v. Evansville Vanderburgh Pub. Library, 860 N.E.2d 636, 645 (Ind.Ct.App.2007).4 See Caldwell v. St.......
  • TWB Architects, Inc. v. Braxton, LLC, No. M2017-00423-SC-R11-CV
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    ...Ct. App. 1992) (quoting Croley v. Matson Navigation Co. , 434 F.2d 73, 77 (5th Cir. 1970) ); see also HCA, Inc. v. Am. Prot. Ins. Co. , 174 S.W.3d 184, 193 (Tenn. Ct. App. 2005) (quoting Charbonnages de France v. Smith , 597 F.2d 406, 414 (4th Cir. 1979) ) (stating that summary judgment &qu......
  • King's Palace, Inc. v. Certain Underwriters At Lloyd's, London & Vanguard Claims Admin., Inc., Case No. 2:20-cv-02629-JTF-cgc
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    • United States District Courts. 6th Circuit. Western District of Tennessee
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    ...an all-risks policy the plaintiff need only prove that a fortuitous event caused the loss." HCA, Inc. v. Am. Protection Ins. Co. , 174 S.W.3d 184, 187 (Tenn. Ct. App. 2005). "It is sufficient if the plaintiff shows the property is lost and is covered by the physical loss provision......
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