for Senior Help, LLC v. Westchester Fire Ins. Co.

451 F.Supp.3d 837

FOR SENIOR HELP, LLC, Plaintiff,

v.WESTCHESTER FIRE INSURANCE COMPANY, Defendant.

NO. 3:19-cv-00126

United States District Court, M.D. Tennessee, Nashville Division.

Filed March 31, 2020

Gregory H. Oakley, Oakley Law PLLC, Nashville, TN, for Plaintiff.

Lynsie G. Rust, Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, Louisville, KY, for Defendant.

MEMORANDUM

WILLIAM L. CAMPBELL, JR., UNITED STATES DISTRICT JUDGE

Pending before the Court Defendant's Motion for Summary Judgment (Doc. No. 15). Plaintiff filed a Response (Doc. No. 19) and Defendant filed a Reply (Doc. No. 23). In Support of the Motion, Defendant filed a Statement of Undisputed Material Facts (Doc. No. 15-12), to which Plaintiff responded (Doc. No. 21).¹

For the reasons discussed below, Defendant's Motion for Summary Judgment (Doc. No. 15) is DENIED .

I. BACKGROUND

The case arises out of dispute over insurance coverage. Plaintiff For Senior Help, LLC ("FSH") alleges Defendant Westchester Fire Insurance Co. ("Westchester") wrongfully denied insurance coverage for an arbitration award in favor of FSH. FSH bring claims for breach of the insurance contract, bad faith refusal to pay, and bad faith failure to settle within policy limits. (Compl., Doc. No. 1).

The following facts are taken from Defendant's Statement of Undisputed Material Facts as responded to by Plaintiff (Doc. No. 21), and the Final Award issued by the American Arbitration Association (Doc. No. 1-5).

A. The Underlying Claim

On February 27, 2015, FSH entered into a franchise agreement with Medex Patient Transport Services, LLC ("Medex"),² a franchisor for the operation of businesses that provide non-emergency transportation and related patient-care services. FSH paid Medex a franchise fee of $78,363.15 and an additional $70,000 for an Area Developer Agreement ("ADA"). The ADA gave FSH the right to solicit, qualify, train, and assist other franchises within an exclusive territory and to receive a percentage of royalties paid by franchises within the covered area.

Pursuant to the franchise agreement, FSH paid Medex a 10% operations fee for "Outsourced Operations Support," which including call center support, centralized dispatch, route management, certain office functions, and billing. Medex did not provide the operations support as required by the contract and FSH began providing some of its own operations support functions. On April 6, 2016, FSH sent Medex a formal notice of its material breaches of the franchise agreement. Medex responded by terminating the franchise agreement and the ADA on May 25, 2016. As reason for the termination, Medex alleged FSH materially breached the franchise agreement by, among other things, providing its own call center intake, dispatch, and route management. Medex also claimed FHS misused its trademark by creating "unauthorized return call cards." (See Notice of Termination, Doc. No. 19-1). The same day it received the notice of termination from Medex, FSH sent its own notice of termination citing Medex's failure to cure the defaults contained in the Notice of Default. (Arbitration Claim, Doc. No. 19-3, ¶ 73).

FSH brought suit against Medex in state court alleging various claims of fraud and breach of contract.³ In March 2017, after initial litigation in Chancery Court for Davidson County, Tennessee, FSH filed an arbitration demand with the American Arbitration Association. (See Doc. No. 19-2). The arbitration statement of claim alleged the following against Medex: (1) fraud in the inducement; (2) breach of the franchise agreement; (3) breach of the ADA; (4) violation of the Tennessee Consumer Protection Act; (5) slander; and (6) civil conspiracy. (See Statement of Claim, Doc. No. 27-2).

B. The Arbitration Award

The arbitrator ruled in favor of FSH on the claims of breach of the franchise agreement, breach of the ADA, fraud in the inducement, intentional misrepresentation, and violation of the Tennessee Consumer Protection Act and denied recovery on the claims for slander and civil conspiracy. (Award, Doc. No. 1-5).

The arbitrator found that Medex materially breached the franchise agreement by failing to provide operational support as required by the agreement and by wrongfully terminating the franchise agreement without cause. The arbitrator also found that Medex breached and wrongfully repudiated the ADA.

The arbitrator found that Medex made material misrepresentations regarding the availability and quality of the operations support services to be provided under the contract and that Medex "knew they were false at the time they were made and did not intend to perform as represented." The arbitrator found that not only did Medex make knowingly false statements about the level and quality of operations support to induce FSH to enter into the franchise agreement, it continued to make false statements to induce FSH to continue to perform. The arbitrator stated:

Prior to FSH signing the Agreement, [Medex] minimized or blamed any problems on the franchisees with whom FSH has spoken, or stated that they had been fixed when they had not, evidencing [Medex's] knowledge of the problems with its operations, failures to disclose the deficiencies in Medex's "outsourced operations support" and the continuation of those problems and deficiencies for months which is evidence of [Medex's] intention not to provide the products and services they represented to FSH at the time FSH signed the Agreement and continued to do so to induce FSH to perform and generate money for Medex.

(Doc. No. 1-5, ¶ 19). In sum, the arbitrator concluded that "Respondents breached and wrongfully repudiated and terminated the Agreement and ADA and defrauded Claimant by intentional and knowing conduct causing damages to claimant." (Id. , ¶ 12).

The arbitrator awarded $120,461.00 for breach of the franchise agreement, and $452,065.00 for breach of the ADA. For fraud, misrepresentation, and violation of the Tennessee Consumer Protection Act, the arbitrator awarded $613,702.00,⁴ jointly and severally against Medex and Medex's owners, Kyle and Klein Calvert. The arbitrator held: "The awards for violation of the Tennessee Consumer Protection Act and for fraud and misrepresentation represent damages for the same conduct, and thus the awards are not cumulative." (Award, Doc. No. 1-5, ¶ 47). The arbitrator also awarded Plaintiff attorneys’ fees, expenses, and costs of $244,718.00 and arbitration costs of $34,200.01, jointly and severally against Medex, Kyle Calvert, and Klein Calvert.

Davidson County Chancery Court confirmed the arbitration award and entered final judgment on February 18, 2019. (Doc. No. 19-3).

C. The Professional Liability Policy

Westchester issued a Miscellaneous Professional Liability Policy to Medex (the "Policy") effective May 27, 2015 to May 27, 2016. (Doc. No. 1-1). The Policy includes the following relevant provisions:

The Company will pay on behalf of the Insured all sums in excess of the Retention that the Insured shall become legally obligated to pay as Damages and Claims Expenses because of a Claim first made against the Insured and reported to the Company during the Policy Period by reason of a Wrongful Act committed on or subsequent to the Retroactive Date and before the end of the Policy Period .

"Wrongful Act" is defined as follows:

Wrongful Act means any actual or alleged negligent act, error, omission, misstatement, misleading statement or Personal Injury Offense committed by the Insured or by any other person or entity for whom the Insured is legally liable in the performance of or failure to perform Professional Services .⁵

The policy also contained a "Franchisors Endorsement" which amended the definition of "wrongful act" to add:

Wrongful Act also means any actual or alleged plagiarism, piracy or misappropriation of ideas, neglect or breach of duty by the Insured in their capacity as such ... in the performance or failure to perform Professional Services and which arises out of or involve one or more of the following: ...

4. the failure to comply with any federal or state law or regulation or the terms of the Franchise Contract, affecting the renewal or termination of the relationship of the parties to a Franchise Contract;

5. the failure of the franchisor to provide services, training, advertising, or other support to the franchisees as required under the terms of a Franchise Contract or disclosed to franchisees in an offering circular or other distributed disclosure document;

The Policy provides for a number of exclusions. Westchester asserted the following as grounds for non-payment of the arbitration award related to the breach of contract claims:⁶

The Company shall not be liable for Damages or Claims Expenses on account of any Claim:

D. alleging, based upon, arising out of, or attributable to any dishonest, fraudulent, criminal or malicious act or omission, or any intentional or knowing violation of the law by an Insured , however, this exclusion shall not apply to Claims Expenses or the Company's duty to defend any such Claim unless and until there is an adverse admission by, finding of fact, or final adjudication against any Insured as to such conduct, as which time the Insured shall reimburse the Company for all Claims Expenses incurred;

(Id. at PageID# 16). The "Franchisors Endorsement" added the following exclusions:⁷

• alleging, based upon, arising out of or attributable to any assurance, promise, warrant or guarantee of potential sales, earnings, profitability or economic value;

• alleging, based upon, arising out of or attributable to ... unfair business practices including, but not limited to, territorial infringement by either the franchisor or franchisee where such Claim arises out of or is alleged to arise out of, or be connected with, the commission of a fraudulent, dishonest, criminal, intentional or malicious act, error, or omission.

• alleging, based upon, arising out of or attributable to the recovery by a franchisee of actual sums paid to the Insured

...