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Essex Insurance Co. v. Lutz

March 20, 2007

ESSEX INSURANCE COMPANY, PLAINTIFF,
v.
DENNIS LUTZ, INDIVIDUALLY AND AS LIQUIDATION AGENT, SAINT ELIZABETH MEDICAL CENTER, AND SISTERS OF DIVINE PROVIDENCE, D/B/A SAINT ELIZABETH HEALTH SERVICES, DEFENDANTS.



The opinion of the court was delivered by: Herndon, District Judge

MEMORANDUM and ORDER

I. Introduction and Background

Now before the Court is Defendants' motion to dismiss Counts I through IV of the Complaint (Doc. 14). Specifically, Defendants argue that the Court should dismiss these Counts pursuant to Federal Rule of Civil Procedure 12(b)(6) because Plaintiff's Complaint fails to state a claim. Plaintiff opposes the motion (Doc. 23). Based on the following, the Court GRANTS in part and DENIES in part Defendants' motion to dismiss.

On February 7, 2006, Essex Insurance Company ("Essex") filed a four count complaint against Dennis Lutz, Saint Elizabeth Medical Center and Sisters of Divine Providence, dba Saint Elizabeth Health Services based on diversity jurisdiction, 28 U.S.C. § 1332 (Doc. 1). Count I is a claim for breach of contract; Count II is a claim for breach of fiduciary duty; Count III is a claim for conversion and Count IV is a claim for declaratory relief. The Complaint alleges the following.

Essex issued and Defendants agreed to pay a premium for a Locum Tenens/Physician Staffing Services Professional Liability Insurance Policy, Policy No. MM-802793 ("Policy" ) for the period of March 1, 2001 to March 1, 2002. The Policy insured certain emergency room physicians of Defendants. Defendants were parties to agreements with the doctors pursuant to which the Defendants were contractually required to provide this insurance. Defendants also agreed to pay a per claim deductible of $500,000, with an aggregate deductible of $2,500,000.00. At that time, Lutz was the agent of Defendants St. Elizabeth Medical Center and the Sisters of Divine Providence involved in negotiating and purchasing the Policy and was the Chief Financial Officer of Saint Elizabeth Medical Center.

On December 14, 2001, Granite City Hospital Company, LLC, pursuant to an Asset Purchase Agreement, purchased substantially all of Saint Elizabeth Medical Center's assets.

Effective January 4, 2002, at Defendants' request, Essex cancelled the Policy. However, on that same date, again at Defendants' request, Essex issued a Purchased Optional Extension Period ("OEP") pursuant to the contractual terms of the Policy. The OEP applies to claims made during the period January 4, 2002 to January 4, 2005, but only with respect to Malpractice or Personal injury which happened between March 1, 2001 and January 4, 2002. The OEP has the same $500,000 cost and expense deductible per claim, with an aggregate deductible of $2,500,000.00.

On February 21, 2003, Saint Elizabeth Medical Center filed Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Southern District of Illinois, Case No. 03-30712. After this time, Lutz served as an officer and director of Saint Elizabeth Medical Center and became its Liquidation Agent. Saint Elizabeth Medical Center did not provide notice of the filing of the Chapter 11 proceedings to Essex. Saint Elizabeth Medical Center's schedules of liabilities and assets did not list Essex as a creditor.

On March 6, 2003, the Bankruptcy Court entered its Order Setting Claims Bar Date for the Filings of Proofs of Claim establishing June 26, 2003 as the deadline for all persons that assert a claim against the Debtor that arose on or prior to February 21, 2003. Neither Saint Elizabeth Medical Center nor Lutz served the Claims Bar Date Order on Essex. On July 3, 2003, the Bankruptcy Court entered its Confirmation Order approving Saint Elizabeth Medical Center's Amended Plan of Liquidation. Pursuant to the Plan, Lutz was appointed as Liquidation Agent to liquidate and distribute Saint Elizabeth Medical Center's assets. Under this Plan, Lutz was required to withhold reserves for known and/or disputed claims against Saint Elizabeth Medical Center. Neither Saint Elizabeth Medical Center nor Lutz served the Disclosure Statement, the Plan or the Confirmation Order on Essex.

On August 1, 2003 and September 25, 2003, two lawsuits were filed against certain emergency room physicians covered under the Policy. The lawsuits relate to alleged medical malpractice that occurred in 2001. On August 15, 2003, Saint Elizabeth Medical Center and Lutz's lawyers wrote a letter to Essex tendering the defense of the emergency room physicians in one of the lawsuits. The letter did not mention that Saint Elizabeth Medical Center had filed , that it had recently obtained the Confirmation Order or that distribution of all assets was commencing. Pursuant to the Policy, Essex assumed the defense of the emergency room physicians in the lawsuit. After the defenses commenced, Essex attempted to have Saint Elizabeth Medical Center and Sisters of Divine Providence pay the $500,000 deductible. Essex's claim specialist, Tomas Rae, contacted Lutz in June of 2004. In response, Lutz left Rae a voicemail stating that he would contact the appropriate counsel to provide Essex with contact information for payments.

On July 15, 2004, an attorney for Lutz and Saint Elizabeth Medical Center called Rae and stated that there was money set aside to handle the affairs and obligations of Saint Elizabeth Medical Center. Essex sent the attorney a follow-up letter demanding payment on July 21, 2004. On November 16, 2004, Rae sent another letter to the attorney demanding payment. Defendants' attorney did not respond. Again in January 2005, Essex contacted the attorney demanding payment.

Thereafter on January 28, 2005, Saint Elizabeth Medical Center filed a Notice to Creditors Regarding Debtor's Confirmed Plan of Liquidation Dated May 16, 2003, as Amended. In the Notice, Saint Elizabeth Medical Center stated it had received $2,048,279.22 on January 4, 2005 from the escrow established pursuant to the December 12, 2001 Asset and Purchase Agreement. The Notice also stated that on January 7, 2005, $2,000,000 was transferred to the Retirement Plan for distribution to retirees by the Retirement Plan Administrators. Again, Defendants failed to give Essex notice. Essex sent another demand letter. No response was sent.

Essex settled one of the malpractice lawsuits. Essex continues to defend the other malpractice ...


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