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Jackson, Key and Associates, LLC v. Beazley Insurance Co., Inc.

United States District Court, S.D. Alabama, Southern Division

November 30, 2018

JACKSON, KEY AND ASSOCIATES, LLC, Plaintiff,
v.
BEAZLEY INSURANCE COMPANY, INC., Defendant.

          REPORT AND RECOMMENDATION

          WILLIAM E. CASSADY, UNITED STATES MAGISTRATE JUDGE

         This cause is before the Magistrate Judge for issuance of a report and recommendation, pursuant to 28 U.S.C. § 636(b), on the Complaint (doc. 1), motion to dismiss and incorporated brief (doc. 7) filed by Defendant Beazley Insurance Company, Inc. (“Beazley”), the response to motion to dismiss (doc. 16) filed by Plaintiff Jackson, Key and Associates, LLC (“Plaintiff”), and the reply in support of motion to dismiss (doc. 18) filed by Beazley. Upon consideration of the foregoing and oral arguments by counsel, the Magistrate Judge RECOMMENDS that Beazley's motion to dismiss (doc. 7) be GRANTED and that the Complaint be dismissed, with prejudice.

         I. Background

         Plaintiff is a software development and data hosting company that provides programming and software development services largely to the medical industry. (Doc. 1. at ¶¶ 9-12). A third-party data hosting firm engaged Plaintiff to provide assistance in converting certain electronic medical records for Elk River Heath Services, Inc. (“Elk River”) from one platform to another in July and August 2015. (Id. at ¶¶ 17-21).

         Almost two years later an Elk River patient (“Grissom”) sued Elk River and certain Elk River medical practitioners (collectively “Elk River”) for medical malpractice (the “Medical Malpractice Action”). (Id. at ¶ 22). Grissom alleged that he was incorrectly prescribed an ACE inhibitor medication, Lisinopril, which caused him severe physical injuries, including septic shock, respiratory failure, and renal injury, among others. (Id.; Doc. 7-1 at ¶¶ 8-15).[1]

         Subsequently, within the Medical Malpractice Action, Elk River asserted a third-party claim against Plaintiff and certain other third-parties for contribution and indemnification (the “Third-Party Indemnity Claim”). (Doc. 1 at ¶ 23). Therein Elk River asserted that Plaintiff improperly converted Elk River's electronic medical records by failing to export and/or omitting key patient information for Grissom directly and proximately causing Grissom's medical injuries. (Id.). Accordingly, Elk River asserted that if it was found liable to Grissom for medical malpractice for injuries he sustained due to his ingestion of Lisinopril, Elk River was entitled to contribution and indemnification from Plaintiff for that portion of any recovery by Grissom against Elk River for which Plaintiff was determined to be responsible. (Id. at ¶¶ 23-24; Doc. 7-2, at ¶¶ 25-30).

         Plaintiff tendered the Third-Party Indemnity Claim to Beazley for coverage under AFB Media Tech Policy No. V17AAA180401 (the “Policy”). (Doc. 1 at ¶¶ 13, 25). The Policy generally provides claims-made coverage for negligent acts, errors and omissions in the rendering of professional and technology-based services by Plaintiff during the January 21, 2018 to January 21, 2019 policy period during which the Third-Party Indemnity Claim was made. (Id. at ¶¶ 14-15, 19; Doc. 7-3 at 2-3). The Policy contains several exclusions, two of which are applicable here. The first is the Medical Services Exclusion, which states that:

         1. The coverage under this insurance does not apply to Damages or Claims Expenses in connection with or resulting from any Claim:

a. based on or arising out of medical professional malpractice including, but not limited to, the rendering o[r] failure to render medical professional services, treatment or advice;

(Doc. 1. at ¶ 16; Doc. 7-3 at 22).

         The second is the Physical Injury Exclusion, which states that:

The coverage under this insurance does not apply to any Claim or Loss: …
D. For or arising out of or resulting from:
1. physical injury, sickness, disease or death of any person, including any mental anguish or emotional distress that results from such physical injury, sickness, disease or death; …

(Doc. 7-3 at 31).[2]

         Beazley, through counsel, informed Plaintiff of Beazley's determination that the Policy provided no coverage for the Third-Party Indemnity Claim. (Doc 1. at ¶ 26). This was because the Third-Party Indemnity Claim was directly based on and arose out of allegations of medical malpractice and seeks contribution and indemnification for Elk River's liability for Grissom's physical injuries. (Id.). Plaintiff's counsel requested that Beazley reconsider its coverage determination and ...


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