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American Construction Benefits Group, LLC v. Zurich American Insurance Company

April 29, 2013

AMERICAN CONSTRUCTION BENEFITS GROUP, LLC,
PLAINTIFF,
v.
ZURICH AMERICAN INSURANCE COMPANY,
DEFENDANT.



The opinion of the court was delivered by: Sidney A. Fitzwater Chief Judge

MEMORANDUM OPINION AND ORDER

In this action by plaintiff American Construction Benefits Group, LLC ("ACBG") against defendant Zurich American Insurance Company ("Zurich") to recover under a claims-made policy and on related extracontractual claims under the Texas Insurance Code, Zurich moves to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim on which relief can be granted, and under Rule 12(c) for judgment on the pleadings. For the reasons explained, the court grants Zurich's Rule 12(b)(6) motion, does not reach the Rule 12(c) motion, and grants ACBG leave to replead.

I

Zurich insured ACBG under a claims-made policy (the "Policy") that covered losses incurred by ACBG because of claims made against it for wrongful acts committed by directors, officers, or employees.*fn1 The insurance claim at issue relates to a loss that ACBG alleges was incurred because of wrongful acts by ACBG President Steven J. Heussner ("Heussner").

ACBG provided reinsurance to its member company, J.D. Abrams, L.P. ("Abrams"). ACBG obtained this reinsurance from Presidio Excess Insurance Services, Inc. ("Presidio"). During ACBG's policy-renewal negotiations with Presidio, Heussner accepted a coverage exclusion for the cost of a heart transplant operation incurred in the treatment of the child of an Abrams employee. Presidio thus declined to provide reinsurance coverage for the transplant claim. ACBG alleges that Heussner's actions relating to the coverage exclusion, which resulted in ACBG's paying the costs of the heart transplant, constitute a "wrongful act" that is covered under the Policy.

In August 2011 ACBG filed a claim with Zurich for approximately $1.2 million, the amount of the loss incurred in paying the transplant claim. Within a few days, Zurich acknowledged receipt of the claim. ACBG submitted documentation and, over the next few months, attempted to discuss the claim with Zurich. The parties finally spoke for the first time in April 2012. Over the next few months, ACBG periodically inquired about when Zurich would make its coverage decision. Zurich responded each time that it hoped to have a decision within one week, but it allegedly still has not notified ACBG of its coverage decision.

ACBG now sues Zurich for breach of contract based on its failure to pay the claim. It also alleges that Zurich engaged in unfair settlement practices and other violations of the Texas Insurance Code.*fn2 ACBG seeks actual damages for the unpaid claim, and interest, treble damages, and attorney's fees under the Insurance Code. Zurich moves to dismiss all claims under Rule 12(b)(6), and seeks judgment on the pleadings under Rule 12(c).*fn3

II

In deciding Zurich's Rule 12(b)(6) motion, the court evaluates the sufficiency of ACBG's amended complaint by "accept[ing] all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff." In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)) (internal quotation marks omitted). To survive Zurich's motion, ACBG must plead enough facts "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.; see also Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level[.]"). "[W]here 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 'shown'-'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (alteration omitted) (quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Although "the pleading standard Rule 8 announces does not require 'detailed factual allegations,'" it demands more than "'labels and conclusions.'" Id. at 678 (quoting Twombly, 550 U.S. at 555). And "'a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Twombly, 550 U.S. at 555).

III

The court first considers whether ACBG has stated a breach of contract claim on which relief can be granted.

ACBG alleges that Zurich breached "Insuring Clause D" of the Policy. This provision states that "[Zurich] shall pay on behalf of [ACBG] all Loss for which [ACBG] becomes legally obligated to pay on account of any Claim first made against [ACBG] during the Policy Period . . . for a Wrongful Act taking place before or during the Policy Period." Am. Compl. Exh. A at [16]*fn4 (emphasis omitted). ACBG maintains that this provision covers the loss it incurred in paying the Abrams transplant claim, because the loss resulted from Heussner's wrongful acts. The court disagrees.*fn5

As applicable here, the Policy defines "wrongful act" as "any error, misstatement, misleading statement, act, omission, neglect, or breach of duty actually or allegedly committed or attempted [by any director, officer, or employee]." Id. at [5]; see also id. at [6]. But Abrams' claim against ACBG was not a claim for a wrongful act committed by Heussner. Abrams sought coverage under its reinsurance contract with ACBG regardless of Heussner's actions. ACBG's notice of potential loss to Zurich, which is attached to the amended complaint, states, in pertinent part: "The insurance policy between ACBG and Abrams[] states that ACBG will provide 'coverage' and not that it would only provide coverage to the extent there was available 'reinsurance' [for ACBG]." Am. Compl. Exh. B at [4] (bracketed material added). The letter also states that, "under the ACBG policy issued to Abrams, ACBG is obligated to assume the gap in coverage from Heussner's failure to obtain [Presidio's] funding for the cost of the Abrams Transplant Claim." Id. Although Heussner's actions may have caused the loss incurred by ACBG, Abrams' claim against ACBG was not for these actions.

The amended complaint alleges only that Heussner committed wrongful acts that resulted in a loss to ACBG. But as Zurich points out in its motion to dismiss, "ACBG is attempting to transform its D&O liability policy into a first-party policy to provide coverage for its own loss." D Br. 1 (emphasis in original). As pleaded, ACBG is not alleging that Abrams made a claim against ACBG for injury caused by Heussner's wrongful act. Instead, ACBG is alleging that it was injured because Heussner ...


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