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Total RX Care LLC v. Great Northern Insurance Co.

United States District Court, N.D. Texas, Dallas Division

April 14, 2017

TOTAL RX CARE, LLC, Plaintiff,



         Defendant Great Northern Insurance Company has filed a Motion to Abate [Dkt. No. 8] this lawsuit until Plaintiff Total Rx Care, LLC has fully complied with the conditions precedent, as spelled out in Total Rx's insurance policy with Great Northern. See Dkt. No. 8 at 1-2. Total Rx filed a response, see Dkt. No. 16, and Great Northern filed a reply, see Dkt. No. 19.

         United States District Judge Jane J. Boyle referred the motion to the undersigned United States magistrate judge for hearing, if necessary, and recommendation or determination. See Dkt. No. 40.

         The Court DENIES Great Northern's motion for the reasons explained below.


         On December 26, 2015, a tornado caused damage to Total Rx's pharmacy facility (the “Pharmacy”). Total Rx notified its insurer, Great Northern, of the damage. Total Rx's policy with Great Northern (the “Policy”) covers losses due to tornado damage, including up to $25 million of Business Income and Extra Expense coverage.

         Throughout January 2016, Great Northern requested and received information from Total Rx, including its financial information.

         Great Northern also retained a forensic accounting firm, Hagen, Streiff, Newton & Oshiro, Accountants, PC (“HSNO”), to estimate the amount of Business Income Total Rx lost due to the tornado. HSNO prepared reports in January and March 2016 to determine Total Rx's Business Income loss. Both reports concluded that Total Rx's Business Income Loss exceeded $35 million through June 2016.

         While adjusting the claim, Great Northern learned that Total Rx lost its ability to process prescriptions insured through Blue Cross/Blue Shield (“BC/BS”). Total Rx's contract with BC/BS accounted for 50% of Total Rx's income in 2015.

         Great Northern subsequently asked to conduct an examination under oath (“EUO”) of Steve Solomon to help it process the claim. In a letter to Mr. Solomon and Total Rx's then-CEO, Michael Nguyen, Great Northern argued that Total Rx was required to make Mr. Solomon and Mr. Nguyen available because the Policy allows it to take an EUO of any “insured.” Mr. Solomon is an outside consultant who advises Total Rx with the preparation and adjustment of the claim at issue and has a financial interest in the resolution of the claim. At the time that the tornado hit, he also owned an interest in Messorio Healthcare Services, LLC, which was the sole owner of Total Rx, and was more involved in processing the claim.

         Total Rx elected to make its current CEO, Kevin Kuykendall available for an EUO instead. His EUO took place on September 9, 2016. There, Mr. Kuykendall explained that the revenue from BC/BS would be easily replaced and that anticipated 2016 revenues would not diminish from 2015. See Dkt. No. 16 at 10 (citing Dkt. No. 16-7 at 29). He then explained that, to his knowledge, Total Rx's 2016 projected revenues did not deduct the revenue it received from BC/BS - although he conceded that Mr. Solomon was “[p]robably” the better person to ask. See Id. at 16.

         During and after the EUO, Great Northern also requested a copy of BC/BS's termination letter, “all documents that reflect how Total Rx planned to replace the revenue from [BC/BS] that it had lost, ” and “all documents that support the financial summaries produced [by Total Rx] on September 8, 2016.” Dkt. No. 8 at 8. It contends that the Policy also requires Total Rx to turn over these documents. The Policy provides that, in the event of loss or damage, the insured must “[p]ermit [Great Northern] to inspect the property and [the insured's] books and records.” Id. at 5.

         Total Rx filed this lawsuit before fully complying with Great Northern's requests. It explains that “[t]he only requested information that has not been produced to Great Northern is confidential in nature and requires a Protective Order” - either because those documents are subject to a confidentiality clause or because they contain third-party protected health information (“PHI”) that is protected by the Health Insurance Portability and Accountability Act (“HIPAA”).

         Total Rx had asked Great Northern to enter into a Protective Order, but Great Northern refused. Total Rx then filed a motion for a protective order governing the production of confidential information in the case, see Dkt. No. 7, which the Court has granted, see Dkt. Nos. 22 & 23.

         Through its Motion to Abate, Great Northern asks “the Court to abate this lawsuit until 45 days after Total Rx has made available for examination under oath Steve Solomon and anyone else whose examination is reasonably required and after Total Rx provides any and all documents reasonably requested by Great Northern.” Dkt. No. 19 at 6-7. It argues that Total Rx was obligated to do so as a condition precedent to filing this lawsuit, pursuant to Total Rx's Policy.

         Total Rx disagrees. It contends that it has already satisfied the conditions precedent to filing this lawsuit, which do not include either making Steve Solomon available for an EUO or producing the documents at issue without a protective order.

         The Court now concludes that Great Northern's Motion to Abate should be denied for the reasons explained below.

         Legal Standards

          Insurance policy provisions that set out conditions precedent to sustaining a suit on the policy are valid. See Wofford v. Allstate Ins. Co., No. 3:04-cv-2699-M, 2005 WL 755761, at *3 (N.D. Tex. April 4, 2005) (citing State Farm General Ins. Co. v. Lawlis, 773 S.W.2d 948, 949 (Tex. App.- Beaumont. 1989)). As such, “the proper remedy for failure to satisfy an insurance policy's conditions precedent is abatement of the lawsuit.” Id.

         While “[a] ‘motion to abate' is not expressly authorized by federal statute or rule, ” “federal courts have authority to entertain such preliminary motions.” PJC Bros., LLC v. S&S Claims Servs., Inc., 267 F.R.D. 199, 200 n.2 (S.D. Tex. 2010). The decision to abate an action is “largely a matter of judicial discretion, ‘which must be exercised in light of the policy against unnecessary dilatory motions.'” Id. (quoting 5C Wright & Miller, Fed. Prac. & Proc. § 1360 (3d ed. 2004); see also 28 U.S.C. § 2105 (precluding appellate reversal for error in ruling upon matters in abatement which do not involve jurisdiction).

         In deciding whether Total Rx has complied with the conditions precedent under the Policy, the Court is guided by Texas' rules of interpretation. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994) (“Interpretation of insurance contracts in Texas is governed by the same rules as interpretation of other contracts.”). “[T]he [C]ourt's primary concern is to give effect to the written expression of the parties' intent.” Id. The Court will consider the entire instrument so that none of the provisions will be rendered meaningless. R & P Enters. v. LaGuarta, Garvel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980). “When a contract is unambiguous [the Court] will enforce it as written.” Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 862 (Tex. 2000) (citing Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996)). But if a contract is ambiguous - that is, if it is reasonably susceptible to conflicting interpretations - the ambiguity is “construed against the drafter.” Liberty ...

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