Ochsner Clinic Found. v. Lexington Ins. Co.

• Decision Date: 03 January 2017
• Docket Number: CIVIL ACTION NO. 15–2313
• Citation: 226 F.Supp.3d 658
• Parties: OCHSNER CLINIC FOUNDATION v. LEXINGTON INSURANCE COMPANY
• Court: U.S. District Court — Eastern District of Louisiana

226 F.Supp.3d 658

OCHSNER CLINIC FOUNDATION

v.LEXINGTON INSURANCE COMPANY

CIVIL ACTION NO. 15–2313

United States District Court, E.D. Louisiana.

Signed January 3, 2017

Harold J. Flanagan, Anders F. Holmgren, Ann Koppel, Brandon C. Briscoe, Camille E. Gauthier, Charles–Theodore N. Zerner, Sean Patrick Brady, Flanagan Partners, LLP, Meghan F. Grant, Krebs, Farley & Pelleteri, LLC, New Orleans, LA, Edward M. Joyce, Jones Day, New York, NY, for Ochsner Clinic Foundation.

Robert I. Siegel, Alistair Ward, Christopher R. Teske, Jonathan S. Ord, Gieger, Laborde & Laperouse, LLC, New Orleans, LA, Andrew J. Sloniewsky, James E. Rocap, III, Osvaldo Vazquez, Roger E. Warin, Shannen Wayne Coffin, Steptoe & Johnson, LLP, Washington, DC, for Lexington Insurance Company.

ORDER

SECTION: "G"(2)

NANNETTE JOLIVETTE BROWN, UNITED STATES DISTRICT JUDGE

In this litigation, Plaintiff Ochsner Clinic Foundation ("Ochsner") alleges that Defendant Lexington Insurance Company ("Lexington") breached its insurance policy by failing to pay additional amounts owed to Ochsner, and that Lexington acted in bad faith during the adjustment process.¹ Pending before the Court is Lexington's "Motion for Summary Judgment on All or Certain Portions of Plaintiff's Claim for Business Interruption Damages."² Having reviewed the motion, the memoranda in support, the memorandum in opposition, the record, and the applicable law, the Court will deny the motion.

I. Background

A. Factual Background

In this case, Ochsner alleges that Lexington sold a Certificate of Property Facultative Reinsurance ("certificate") to Ochsner for the term of May 31, 2011, through May 31, 2012.³ The certificate made Lexington the reinsurer of Ochsner System Protection Company's ("OSPC") all-risks Commercial Property Policy ("insurance policy").⁴ The insurance policy covered a former warehouse located at 1401 Jefferson Highway that Ochsner was repurposing to serve as an expanded internal medicine practice.⁵ On June 10, 2011, construction on the building began and was scheduled to be completed by June 2012.⁶ On August 24, 2011, a portion of the building's roof collapsed during the renovation, causing property damage and delaying the clinic's opening.⁷

Afterwards, Ochsner made a claim under the insurance policy for indemnification of the losses it alleges to have suffered as a result of the roof collapse.⁸ According to Ochsner, on September 23, 2011, Lexington informed Ochsner that it was taking "full control of the investigation, defense, adjustment, and settlement of any claim."⁹ Ochsner states that by doing so, OSPC did not have any role in handling Ochsner's insurance claim, and that Lexington became, "for all practical and legal purposes, the direct insurer of Ochsner."¹⁰

Ochsner argues that Lexington's subsequent tactics, disputes, and arguments regarding the insurance policy coverage unnecessarily delayed work on the collapsed building, increased the cost of the repurposing project, and caused Ochsner to suffer further business interruption losses.¹¹ In particular, Ochsner seeks more than $29.5 million in business interruption losses it allegedly suffered as a result of the 17–month delay caused by the collapse, and contends that Lexington has only paid approximately $1 million on Ochsner's business interruption claim.¹² Ochsner alleges that Lexington has still not paid the full amount of Ochsner's property damage claim or business interruption losses claim.¹³ Accordingly, Ochsner argues that Lexington has breached its obligations under the insurance policy.¹⁴ Moreover, Ochsner asserts that Lexington's actions, such as allegedly prolonging the investigation, adjustment, and payment process, amount to bad-faith conduct in violation of La. Rev. Stat. § 22:1892 and La. Rev. Stat. § 22:1973.¹⁵ Lexington, by contrast, asserts that it timely investigated, adjusted, and paid undisputed amounts of losses in Ochsner's claim as soon as Lexington learned of the claim.¹⁶ Lexington contends that it consistently worked with Ochsner to resolve any disputes over the scope of coverage while continuing to make payments throughout the adjustment process.¹⁷

B. Procedural Background

On June 26, 2014, Ochsner filed a Petition for Damages in the 24th Judicial District Court for the Parish of Jefferson, State of Louisiana.¹⁸ On June 25, 2015, Lexington removed the case to this Court after Ochsner voluntarily dismissed the only non-diverse defendant, OSPC, and the parties stipulated that Lexington is the proper defendant in this matter.¹⁹ On August 30, 2016, Lexington filed the instant motion.²⁰ On September 6, 2016, Ochsner filed its opposition.²¹ On September 27, 2016, Lexington filed a reply.²² On October 26, 2016, the Court held oral arguments on all of the parties' motions for partial summary judgment.²³

II. Parties' Arguments

A. Lexington's Arguments in Support of the Motion

In this motion, Lexington contends that Ochsner seeks more than $29.5 million in business interruption losses it alleged suffered as a result of delays caused by the collapse of the building by using "incurably flawed" methodology.²⁴ Lexington asserts that it has already paid approximately $1 million on Ochsner's business interruption claim, and seeks summary judgment on the remaining amount.²⁵ Lexington states that the insurance policy covers business interruption losses, defined as "the actual loss sustained" by Ochsner during the "period of interruption" between the original anticipated date of substantial completion had no loss occurred and the actual date of completion.²⁶ However, Lexington argues that Ochsner's business interruption loss claim seeks to recover far more than what Ochsner is entitled to under the insurance policy.²⁷

1. Ochsner's "Downstream Revenue" Theory

First, Lexington asserts that 95% of Ochsner's business interruption losses were calculated using an allegedly flawed "downstream revenue" theory.²⁸ According to Lexington, Ochsner avers that primary care physicians act as business generators for the entire Ochsner system by seeing patients for routine exams or minor medical issues and referring them to specialists elsewhere in the Ochsner system on referral (e.g. , oncologists, cardiologists, etc.).²⁹ Lexington states that it is Ochsner's position that this specialist-generated "downstream revenue" should be attributed to the primary care physicians at the new clinic.³⁰ However, Lexington argues that Ochsner's downstream theory is too speculative, and that the policy itself allows for only actual losses and excludes "[i]ndirect, remote, or consequential loss or damage."³¹ Therefore, Lexington states that summary judgment is appropriate on 95% of Ochsner's business interruption claim.³²

Lexington argues that Ochsner has no evidence that its patients would not have visited an Ochsner specialist but for an earlier visit to an Ochsner primary care physician.³³ Lexington avers that Ochsner's methodology rests on the presumption that every time a patient sees an Ochsner specialist after visiting a primary care physician, that specialist-revenue should be attributed to the primary care physician.³⁴ Lexington contends that this conflates correlation with causation, and is too speculative and flawed to submit to a jury.³⁵ Without more evidence establishing the causation link, Lexington argues that Ochsner cannot claim the revenues for "downstream" specialist visits.³⁶ For example, Lexington states that a patient may be referred to a specialist by a friend or family member, another specialist, or through an insurer's preferred provider director.³⁷ There is no evidence, Lexington avers, that Ochsner's specialists are "entirely dependent on Ochsner [primary care physicians] for the patients they see, if a [primary care physician] sees the patient first."³⁸ According to Lexington, it is "[m]ere common sense" that Ochsner's specialists would still see many patients if the expanded clinic was never built, and Lexington points out that Michael Hulefeld of Ochsner admitted that patients pick specialists "through many gateways."³⁹

Moreover, Lexington contends that Ochsner's methodology allows it to count revenues from specialist visits up to three years after the visit to the primary care physician, and to attribute visits to heart specialists out of a standard flu shot; but, Lexington argues, to say that a June 2015 specialist visit was "caused by" a September 2012 primary care physician visit or that unrelated prior primary care visits created specialist revenue is "completely speculative."⁴⁰ Thus, Lexington alleges that Ochsner has not demonstrated that there was any "actual loss sustained" as required by the insurance policy.⁴¹

2. Ochsner's "Period of Interruption" Time Frame Comparison

Second, Lexington asserts that Ochsner came up with its business interruption claim by comparing the period of interruption time frame of when the clinic would have been opened if not for the roof collapse (Timeframe 1: September 2012–February 2014) to the first 17 months after the new clinic opened (Timeframe 2: February 2014–June 2015).⁴² However, Lexington states that Ochsner has not shown how these two periods and their market conditions are comparable, and does not account for other explanations for why net revenue might have increased after the clinic opened.⁴³ For example, Lexington avers that other external factors in Timeframe 2, such as the implementation of the Affordable Care Act in 2014, changes in the reimbursement rates, differences in healthcare services demands, and growth in patient care, make a comparison of two 17 month periods at a hospital system "speculative at best."⁴⁴ Moreover, Lexington contends that Ochsner is excluding the "large volume of patients" who saw a primary care physician before the collapse and was seen by a specialist during Timeframe 1.⁴⁵ In particular, Lexington states that Ochsner's Timeframe 2 counts all specialist visits if a primary care physician had seen the patient first at any point in Timeframe ...