Rx.Com Inc. v. Hartford Fire Ins. Co.
| Citation | 426 F.Supp.2d 546 |
| Decision Date | 29 March 2006 |
| Docket Number | No. Civ.A. H-04-2645.,Civ.A. H-04-2645. |
| Parties | RX.COM INC., Plaintiff, v. HARTFORD FIRE INSURANCE CO., Defendant. |
| Court | U.S. District Court — Southern District of Texas |
James L. Cornell, Jr., Cornell & Pardue, Patrick L. Hughes, Haynes Boone LLP, Houston, TX, for Plaintiff.
Christine Kirchner, Steven Jon Knight, Chamberlain Hrdicka et al, Houston, TX, for Defendant.
Plaintiff, Rx.com, sued its insurer, the Hartford Fire Insurance Co., for breach of contract and violations of Articles 21.21 and 21.55 of the Texas Insurance Code. Rx.com alleges that Hartford breached its commercial general liability insurance policy when it refused to pay all the fees Rx.com was billed by the law firm it chose to defend it in an underlying suit. Rx.com insisted on retaining that law firm for approximately a year after Hartford agreed to provide a defense, declining Hartford's choice of counsel, on the ground that Hartford had maintained a reservation of rights as to coverage. Hartford's chosen counsel ultimately assumed Rx.com's defense and shortly thereafter the case was settled with no payment by Rx.com or the individual defendants.
In a previous Memorandum and Order, this court denied Hartford's motion to dismiss the Article 21.55 claim. (Docket Entry No. 26). Rx.com has now moved for summary judgment that as a matter of law, Hartford breached the insurance policy by refusing to pay all the invoiced amounts and that those amounts were reasonable and necessary. (Docket Entry No. 29). Hartford has responded, asserting that a number of fact issues preclude summary judgment. Those fact issues include whether Rx.com, which has changed its ownership and organization, is the same entity that was billed for the fees; whether Rx.com paid or is legally obligated to pay most of the invoiced fees; whether those invoiced fees were reasonable and necessary; and whether those invoiced fees include amounts for services outside the policy's coverage. Hartford also crossmoved for summary judgment on the ground that limitations bars the Article 21.55 claim. (Docket Entry No. 41). Rx.com has replied, asserting that whether it paid or remains liable to pay the invoiced legal fees is irrelevant, as long as when they were invoiced, Rx.com was "legally obligated to pay." Rx.com also asserts that whether Hartford found the invoiced legal fees to be reasonable or necessary is irrelevant because the policy provided no audit right to the insurer. (Docket Entry No. 49, 58). Hartford has surreplied, asserting that the summary judgment evidence shows that Rx.com specifically agreed to allow Hartford to audit the invoiced legal fees and that after the audit, Hartford paid reasonable and necessary fees for services within the policy's coverage. (Docket Entry No. 53, 59).1
Both parties have filed objections to the summary judgment evidence and responses to the objections. (Docket Entry Nos. 40, 48, 57). Hartford has moved for leave to file an amended answer, (Docket Entry No. 42), to which Rx.com has objected, (Docket Entry No. 44), and Hartford has replied, (Docket Entry No. 55). Hartford has filed a motion for issuance of letters rogatory, (Docket Entry Nos. 64, 65), to which Rx.com has objected, (Docket Entry No. 67), and Hartford has replied, (Docket Entry No. 68). Rx.com has filed a motion for a protective order and a motion to quash notice of a deposition, (Docket Entry No. 69), and a motion for a status conference and a stay, (Docket Entry No. 70), which Hartford has opposed and responded by filing a motion for a protective order and a motion to compel, (Docket Entry No. 71, 72).
After reviewing the motions and responses, the record, and the applicable law, this court denies the motions for summary judgment, grants in part and denies in part the motions to strike, grants Hartford's motion for leave to file an amended answer, denies Rx.com's motion to stay discovery as moot, and grants Rx.com's motion for a status conference. This court will hold a status conference on April 14, 2005, at 4:00 p.m. to address the outstanding discovery disputes and to enter a scheduling order.
The reasons for these decisions are explained below.
Rx.com is a Delaware corporation with its principal place of business in Texas. Hartford is a Connecticut corporation with its principal place of business in that state. .Rx.com obtained a comprehensive general liability (CGL) policy from Hartford with effective dates between October 28, 1999 and October 28, 2000. Joe. Rosson, Rx.com's founder, and parties related to him sued Rx.com and certain of its officers, directors, and investors in Texas state court in May 2000, alleging that the defendants had forced Rosson out of the company. Rx.com provided Hartford timely notice of the suit. Hartford promptly acknowledged that it received the notice of Rx.com's loss, but refused to indemnify or defend Rx.com because the petition did not allege covered losses. Rx.com retained the law firm of Brobeck, Phleger & Harrison — which no longer exists — to defend it in the underlying suit. After the petition in the underlying suit was amended to include allegations for defamation and privacy right violations — within the policy's coverage for "personal and advertising injury," Hartford agreed to defend Rx.com under a reservation of rights agreement. Hartford told Rx.com that it intended to assign the defense to another law firm, Chamberlain, McHaney, which had significantly lower billing rates than Brobeck. Rx.com refused Hartford's proffered counsel and insisted that it would continue to be represented by Brobeck. Rx.com asserted that Hartford's reservation of rights created "a conflict of interest entitling Rx.com to select its own counsel at the expense of and to be paid by the carrier." Hartford denied that the basis of its reservation of rights created any conflict that would allow Rx.com to choose its own counsel and require Hartford to pay whatever that counsel billed.
Hartford and Rx.com continued to discuss the counsel issue. Brobeck lawyers worked on the suit and invoiced Rx.com for the time and expenses. From June 2000 to June 2001, Brobeck sent Rx.com, and Rx.com sent Hartford, invoices for legal fees and expenses. By April 2001, Brobeck had billed over $350,000. On May 1, 2001, after discussions between David Clement, a Hartford claim specialist, and Rx.com's general counsel, Christopher Meakin, Hartford offered to audit the past Brobeck bills and pay a "reasonable" rate for the work performed and tendered $100,000 as "partial payment." Hartford asserts that it agreed to have Brobeck remain on the case until certain discovery occurred and a summary judgment motion was filed. Hartford asserts that Rx.com agreed to this arrangement. On July 9, 2001, Brobeck withdrew and Chamberlain, McHaney filed a notice of appearance. The underlying suit was ultimately settled, with no payment by Rx.com or the individual defendants.
In this suit, Rx.com claims that Hartford is liable for the amounts Brobeck invoiced for the legal services performed to defend Rx.com in the underlying suit from June 2000 to June 2001, totaling $603,919.97. Rx.com asserts that it paid Brobeck $289,463.50 directly. After motions and briefs were exchanged, Rx.com agrees that Hartford paid $191,639.00 of the fees Brobeck invoiced. Rx.com moves for summary judgment that Hartford is liable for the remaining invoiced amounts. Rx.com has submitted affidavits from lawyers at Brobeck and others opining that the amounts billed were both reasonable and necessary. Hartford challenges the affidavits and responds that Rx.com is seeking a "windfall" by asking to be paid for amounts it was billed but did not pay and is not liable to pay. Hartford also argues that the Brobeck invoices include amounts for services not covered by the policy, including defense costs incurred before the duty to defend was triggered, costs for prosecuting counterclaims, and costs for representing individual defendants and that the invoices include unreasonable amounts. Hartford denies that it was obligated to pay for Brobeck's services after Hartford agreed to provide Rx.com a defense and assigned counsel of its own choosing. Hartford also challenges Rx. corn's ability to insist on payment given the change in the company's ownership and challenges Rx.com's ability to assert a claim under Article 21.55 given the delay in filing the suit.
The "coverage" provision of the Hartford CGL policy reads:
We will pay up to the applicable Legal Liability — Building Limit of Insurance stated in the Declarations for those sums that you become legally obligated to pay as damages because of direct physical loss or damage, including loss of use, to Covered Property caused by accident and arising out of any Covered Cause of Loss. We will have the right and duty to defend any "Suit" seeking those damages. However, we have no duty to defend you against a "Suit" seeking damages for direct physical loss or damage to which this insurance does not apply. We may investigate and settle any claim or "Suit" at our discretion. But our right and duty to defend ends when we have used up the Limit of Insurance in the payments of judgments or settlements.
(Docket Entry No. 29, Ex. 1 at HART 46).
The "Insuring Agreement" under "Coverage A. Bodily Injury and Property Damage Liability," reads:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "oc...
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