Jackson, Key & Assocs., LLC v. Beazley Ins. Co., CASE NO. 1:18-CV-00322-KD-C

CourtUnited States District Courts. 11th Circuit. United States District Court of Southern District of Alabama
Docket NumberCASE NO. 1:18-CV-00322-KD-C
Decision Date30 November 2018


CASE NO. 1:18-CV-00322-KD-C


November 30, 2018


This cause is before the Magistrate Judge for issuance of a report and recommendation, pursuant to 28 U.S.C. § 636(b), on the Complaint (doc. 1), motion to dismiss and incorporated brief (doc. 7) filed by Defendant Beazley Insurance Company, Inc. ("Beazley"), the response to motion to dismiss (doc. 16) filed by Plaintiff Jackson, Key and Associates, LLC ("Plaintiff"), and the reply in support of motion to dismiss (doc. 18) filed by Beazley. Upon consideration of the foregoing and oral arguments by counsel, the Magistrate Judge RECOMMENDS that Beazley's motion to dismiss (doc. 7) be GRANTED and that the Complaint be dismissed, with prejudice.

I. Background

Plaintiff is a software development and data hosting company that provides programming and software development services largely to the medical industry. (Doc. 1. at ¶¶ 9-12). A third-party data hosting firm engaged Plaintiff to provide assistance in converting certain electronic medical records for Elk River Heath Services, Inc. ("Elk River") from one platform to another in July and August 2015. (Id. at ¶¶ 17-21).

Almost two years later an Elk River patient ("Grissom") sued Elk River and certain Elk River medical practitioners (collectively "Elk River") for medical malpractice (the "Medical

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Malpractice Action"). (Id. at ¶ 22). Grissom alleged that he was incorrectly prescribed an ACE inhibitor medication, Lisinopril, which caused him severe physical injuries, including septic shock, respiratory failure, and renal injury, among others. (Id.; Doc. 7-1 at ¶¶ 8-15).1

Subsequently, within the Medical Malpractice Action, Elk River asserted a third-party claim against Plaintiff and certain other third-parties for contribution and indemnification (the "Third-Party Indemnity Claim"). (Doc. 1 at ¶ 23). Therein Elk River asserted that Plaintiff improperly converted Elk River's electronic medical records by failing to export and/or omitting key patient information for Grissom directly and proximately causing Grissom's medical injuries. (Id.). Accordingly, Elk River asserted that if it was found liable to Grissom for medical malpractice for injuries he sustained due to his ingestion of Lisinopril, Elk River was entitled to contribution and indemnification from Plaintiff for that portion of any recovery by Grissom against Elk River for which Plaintiff was determined to be responsible. (Id. at ¶¶ 23-24; Doc. 7-2, at ¶¶ 25-30).

Plaintiff tendered the Third-Party Indemnity Claim to Beazley for coverage under AFB Media Tech Policy No. V17AAA180401 (the "Policy"). (Doc. 1 at ¶¶ 13, 25). The Policy generally provides claims-made coverage for negligent acts, errors and omissions in the rendering of professional and technology-based services by Plaintiff during the January 21, 2018 to January 21, 2019 policy period during which the Third-Party Indemnity Claim was made. (Id.

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at ¶¶ 14-15, 19; Doc. 7-3 at 2-3). The Policy contains several exclusions, two of which are applicable here. The first is the Medical Services Exclusion, which states that:

1. The coverage under this insurance does not apply to Damages or Claims Expenses in connection with or resulting from any Claim:

a. based on or arising out of medical professional malpractice including, but not limited to, the rendering o[r] failure to render medical professional services, treatment or advice;

(Doc. 1. at ¶ 16; Doc. 7-3 at 22). The second is the Physical Injury Exclusion, which states that:

The coverage under this insurance does not apply to any Claim or Loss: ...

D. For or arising out of or resulting from:

1. physical injury, sickness, disease or death of any person, including any mental anguish or emotional distress that results from such physical injury, sickness, disease or death; ...

(Doc. 7-3 at 31).2

Beazley, through counsel, informed Plaintiff of Beazley's determination that the Policy provided no coverage for the Third-Party Indemnity Claim. (Doc 1. at ¶ 26). This was because the Third-Party Indemnity Claim was directly based on and arose out of allegations of medical malpractice and seeks contribution and indemnification for Elk River's liability for Grissom's physical injuries. (Id.). Plaintiff's counsel requested that Beazley reconsider its coverage determination and Beazley, again through counsel, confirmed that the Policy did not cover the Third-Party Indemnity Claim. (Id. at ¶¶ 27-28).

Plaintiff then filed this lawsuit against Beazley wherein it asserts three claims for relief. The first claim is for a declaratory judgment and seeks a declaration that the Policy obligates

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Beazley to defend and indemnify Plaintiff against the Third-Party Indemnity Claim. (Id. at ¶¶ 30-32). The second claim is for breach of contract and asserts that Beazley breached the Policy by refusing to defend Plaintiff against the Third-Party Indemnity Claim and failing to pay covered Claims Expenses. (Id. at ¶¶ 33-37). The third claim is for bad faith and asserts that Beazley had no arguable or legitimate reason for denying coverage for the Third-Party Indemnity Claim. (Id. at ¶¶ 38-42).

Beazley moved to dismiss (doc. 7) each of Plaintiff's claims with prejudice under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted on the basis that the Third-Party Indemnity Claim is excluded from coverage under the Policy. The undersigned addresses Beazley's motion herein.

II. Legal Standard

In deciding a motion to dismiss under Rule 12(b)(6) for "failure to state a claim upon which relief can be granted," the Court must construe the complaint in the light most favorable to the Plaintiff, "accepting all well-pleaded facts that are alleged therein to be true." Miyahira v. Vitacost.com, Inc., 715 F.3d 1257, 1265 (11th Cir. 2013). "Under Rule 10(c) Federal Rules of Civil Procedure, [copies of written instruments that are exhibits to a pleading] are considered part of the pleadings for all purposes, including a Rule 12(b)(6) motion." Solis-Ramirez v. U.S. Dep't of Justice, 758 F.2d 1426, 1430 (11th Cir. 1985) (per curiam). "Fed. R. Civ. P. 8(a)(2) requires that a pleading contain 'a short and plain statement of the claim showing that the pleader is entitled to relief' in order to give the defendant fair notice of what the claim is and the grounds upon which it rests." Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1288 (11th Cir. 2010) (quotation omitted). "'While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of

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a cause of action will not do.'" Id. at 1289 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964-65, 167 L.Ed. 2d 929 (2007)). A complaint's "'[f]actual allegations must be enough to raise a right to relief above the speculative level ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact).'" Id. (quoting Twombly, 550 U.S. at 555). "[T]o survive a motion to dismiss, a complaint must now contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570). While this "plausibility standard is not akin to a 'probability requirement' at the pleading stage, ... the standard 'calls for enough fact to raise a reasonable expectation that discovery will reveal evidence' of the claim." Id. (quoting Twombly, 550 U.S. at 556).

Moreover, "'the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.'" Id. at 1290 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Under the plausibility standard, "'where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not "show[n]"—"that the pleader is entitled to relief."' " Id. (quoting Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2))). Iqbal "suggested that courts considering motions to dismiss adopt a 'two-pronged approach' in applying these principles: 1) eliminate any allegations in the complaint that are merely legal conclusions; and 2) where there are well-pleaded factual allegations, 'assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.'" Id. (quoting Iqbal, 556 U.S. at 679). "Importantly, ... courts may infer from the factual allegations in the complaint 'obvious alternative explanation [s],' which suggest lawful conduct rather than the unlawful conduct the plaintiff would ask the court to infer." Id. (quoting Iqbal, 556 U.S. at 679 (quoting Twombly, 550 U.S. at 567)).

III. Analysis

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A. Breach of Contract

In Alabama, "[g]eneral rules of contract law govern an insurance contract." Safeway Ins. Co. of Ala., Inc. v. Herrera, 912 So. 2d 1140, 1143 (Ala. 2005). "In the absence of statutory provisions to the contrary, insurance companies have the same right as individuals to limit their liability, and to impose whatever conditions they please upon their obligations not inconsistent with public policy; and the courts have no right to add anything to their contracts or to take anything from them." Upton v. Miss. Valley Title Ins. Co., 469 So. 2d 548, 554 (Ala. 1985) (quoting Life & Cas. Ins. Co. v. Whitehurst, 226 Ala. 687, 148 So. 164 (1933) (internal quotations omitted)).

However, Alabama courts have held that an insurance policy "shall be construed liberally in favor of the insured and strictly against the...

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