Metro Hospitality Partners, Ltd. v. Lexington Ins. Co.

• Decision Date: 29 January 2015
• Docket Number: Civil Action No. H–11–3569.
• Citation: 84 F.Supp.3d 553
• Parties: METRO HOSPITALITY PARTNERS, LTD. d/b/a Crowne Plaza Hotel, Plaintiff, v. LEXINGTON INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Texas

84 F.Supp.3d 553

METRO HOSPITALITY PARTNERS, LTD. d/b/a Crowne Plaza Hotel, Plaintiff

v.LEXINGTON INSURANCE COMPANY, Defendant.

Civil Action No. H–11–3569.

United States District Court, S.D. Texas, Houston Division.

Signed Jan. 29, 2015.

Ruben Alcantara, San Antonio, TX, Spencer Edward Dunn, The Law Office of Spencer E. Dunn, Houston, TX, for Plaintiff.

Richard Rogge Dunn, Clouse Dunn, Dallas, TX, for Defendant.

MEMORANDUM AND OPINION

LEE H. ROSENTHAL, District Judge.

Metro Hospitality Partners, LTD. owns and operates a Crowne Plaza Hotel located near the Astrodome in Houston, Texas. In August 2010, one of the hotel's air-conditioning chillers broke down. The hotel remained open while a temporary operational chiller, then a long-term replacement unit, were installed. Nine months after the chiller breakdown, and eight months after the replacement was installed, Metro submitted a $600,000 claim supported by invoices for the replacement costs and some internal hotel labor related to the replacement work. Those invoices totaled $115,077.93. The insurer, Lexington Insurance Company, promptly paid the invoices Metro submitted, less the deductible, for a total of $90,077.93. Although Metro had demanded far more, it had neither specified the added losses nor submitted documents supporting them.

Metro took the money but advised Lexington that it did not accept the $90,077.93 payment as fully satisfying the claim. Metro then filed this suit, alleging breach of the insurance contract and unfair settlement practices under the Texas Insurance Code. After removal, Metro filed an amended complaint that for the first time asserted a business-interruption loss claim. Metro's counsel has acknowledged that the only issue in the litigation is the business-interruption loss claim and damages.

Lexington has moved for summary judgment, arguing that Metro lacks evidence to support the business-interruption losses and damages it claims and that the causes of action fail as a matter of law. (Docket Entry No. 78). Metro responded, and Lexington replied. (Docket Entry Nos. 80, 82). The court held a hearing and counsel presented argument on the motion.

Based on the motion, the briefs, the arguments, the pleadings, the record, and the applicable law, the court grants Lexington's motion for summary judgment. Final judgment is separately entered. The reasons are explained below.

I. Background

Lexington issued Metro a commercial-property insurance policy effective from December 2009 to December 2010. (Docket Entry No. 79–1, at 57). Lexington, in turn, had an equipment-breakdown reinsurance policy issued by The Hartford Steam Boiler Inspection and Insurance Company (“HSB”). As Lexington's equipment-breakdown reinsurer on Metro's policy, HSB was responsible for investigating and determining coverage for claims involving the hotel's boiler machinery.

On August 20, 2010, Metro contacted HSB to report the August 15 chiller breakdown. Metro told HSB's claims manager that the chiller had malfunctioned, reported that some customers had left, cutting their reservations short, and expressed concern about a big event scheduled for the next weekend. (Docket Entry No. 80–2, at 13). There is no indication of later reports from Metro about customers or event planners cancelling reservations until after this suit was filed.

Metro reported the chiller breakdown to its insurance agent at Lexington on August 23. Two days later, on August 25, Metro signed an agreement with an engineering company to replace the chiller by September 20. Neither HSB nor Lexington received a copy of that agreement until after Metro filed this suit.

On September 3, 2010—19 days after the loss and 14 days after Metro reported it to Lexington—Metro sent HSB a repair estimate. HSB promptly responded, accepting liability for the property loss and asking Metro for repair or replacement quotes, invoices, and contracts. Despite HSB's repeated follow-up inquiries, Metro did not respond with the requested documents or information for nine months. On June 10, 2011, Metro sent HSB a letter claiming $600,000 plus $15,000 in attorney's fees, asserting property loss, internal labor costs associated with the chiller breakdown, and “intangible”—and unquantified—“reputation” damages. (Docket Entry No. 79–1, at 21). Metro listed several Texas Insurance Code provisions prohibiting untimely payment and unfair settlement practices. The only detailed information and supporting documents Metro provided were the invoices totaling $115,077.43 for the replacement work and related internal labor costs. (Docket Entry No. 79–1, at 19–35). Neither Metro's letter nor invoices mentioned business-interruption losses.

HSB did not pay the $600,000 demanded because the property-loss claim and the invoices submitted showed only a covered loss of $115,077.43, less the $25,000 deductible. HSB approved the specific losses Metro claimed and told Metro that it authorized Lexington to issue a $90,077.43 check “as full and final payment on this claim.” (Id., at 36–37). Metro took the money but stated that it was not accepted as full and final payment. Metro still made no reference to business-interruption losses. (Id., at 191).

In September 2011, Metro sued Lexington in Texas state court, alleging wrongful denial of insurance coverage for the losses from the chiller's breakdown. Metro still did not mention any business-interruption claim or losses. Lexington timely removed based on diversity of citizenship.

In an initial scheduling conference held under Rule 16 of the Federal Rules of Civil Procedure, counsel for Metro stated for the first time that it was seeking business-interruption losses. In its first amended complaint, Metro alleged that Lexington had “wrongfully denied [Metro's] claim for damages of business interruption, extra expense, and service interruption.” (Docket Entry No. 20, at 2). The amended complaint alleged six claims: (1) breach of contract; (2) breach of the duty of good faith and fair dealing; (3) violation of the Texas Insurance Code's prompt-payment statutes; (4) violation of the Texas Insurance Code's unfair settlement practices statute; (5) statutory fraud in violation of the Texas Deceptive Trade Practices Act, § 17.46(b); and (6) common-law fraud. (Docket Entry No. 20).

Metro filed its expert designations after the court's deadline and without the written expert reports required by Fed.R.Civ.P. 26. Lexington moved to exclude Metro's designated experts under Fed.R.Civ.P. 37. (Docket Entry Nos. 22, 23, 24). Before the court could rule, the parties stipulated to an agreement under which Metro de-designated its damages experts. (Docket Entry Nos. 31, 32). Metro then produced its president and principal, Bob Yazdani, to testify in a deposition as its corporate representative, including on losses and damages. (Docket Entry No. 76). Yazdani's testimony was stricken after he was unresponsive and combative in his deposition. Metro then designated another employee, William Daniel Parra, as its corporate representative and as the witness to testify on damages. Parra was the hotel's Director of Human Resources during the relevant time and has since become the Executive Housekeeper.

After deposing Parra, Lexington moved for summary judgment on all of Metro's claims. Lexington argues that Parra lacks personal knowledge or other foundation necessary to testify on losses and damages, and that based on the record evidence, Metro's claims for Lexington's failure to pay a covered loss fail as a matter of law. (Docket Entry No. 78). Lexington also sought attorney's fees for a groundless suit. (Id. ); see also Tex. Bus. Comm.Code § 17.50(c) ; Tex. Ins.Code § 541.153. Metro responded, (Docket Entry No. 80), and Lexington replied, (Docket Entry No. 82).

The arguments and responses are analyzed below under the applicable legal standards.

II. The Summary Judgment Standard

Summary judgment is appropriate if the moving party “shows that there is no genuine dispute as to any material fact” and that it “is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine[dispute] of material fact.” Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir.2005) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322–25, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). If the burden of proof at trial lies with the nonmoving party, the movant may satisfy its initial burden by “ ‘showing’—that is, pointing out to the district court—that there is an absence of evidence to support the nonmoving party's case.” Celotex, 477 U.S. at 325, 106 S.Ct. 2548. Although the party moving for summary judgment must demonstrate the absence of a genuine dispute as to any material fact, it does not need to negate the elements of the nonmovant's case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir.2005) (citation omitted). A dispute “is material if its resolution could affect the outcome of the action.' ” DIRECTV, Inc. v. Robson, 420 F.3d 532, 536 (5th Cir.2005) (quoting Weeks Marine, Inc. v. Fireman's Fund Ins. Co., 340 F.3d 233, 235 (5th Cir.2003) ). “If the moving party fails to meet its initial burden, the motion for summary judgment must be denied, regardless of the nonmovant's response.” Quorum Health Res., L.L.C. v. Maverick Cnty. Hosp. Dist., 308 F.3d 451, 471 (5th Cir.2002) (citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc)).

When the moving party has met its Rule 56(a) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings. “[T]he nonmovant must identify specific evidence in the record and articulate the manner in which that evidence supports that party's claim.” Johnson v. Deep E. Tex. Reg'l Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th Cir.2004) (citation omitted). “This burden is not satisfied with ‘some metaphysical doubt as to...