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Coryell Memorial Hospital files complaint against contractor, insurance company

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Posted at 6:11 PM, Jan 29, 2019
and last updated 2019-01-30 17:29:13-05

The Coryell Memorial Hospital has filed a complaint against the contractor and the insurance company involved in the explosion last June.

According to the complaint, the hospital is seeking non-monetary relief and monetary relief of over $1 million.

The hospital is filling against Zurich American Insurance Company and AP Gulf States Inc.   

In August 2016, as part of the hospitals ongoing efforts to maintain the state-of-the-art facilities, Coryell Memorial contracted with AP to complete significant additions and renovations to the hospital.

As part of the project, Zurich issued a “Master Builders Risk” insurance policy to AP and Coryell Memorial. The certificate period coverage was Oct. 16 2016, to Aug. 16, 2018. The policy covered up to $28,909,988 per occurrence for “physical damage to insured property” as well as other types of specified coverage subject to various sublimits, according to the complaint.

The complaint said AP designated itself as the “sole and irrevocable agent” of Coryell Memorial and under the policy “for the purpose of giving and receiving notices from Zurich, giving instruction to or agreeing with Zurich as respects policy alteration, for making or receiving payments of premium or adjustments to premium and as respects the payment for claims.”

Coryell Memorial is not a signatory to the policy, and it never agreed to or consented to this agency authorizing AP to act as its agent for acceptance of payments under the policy.

In June 2018, one of AP’s subcontractors was involved in the explosion at Coryell Memorial. The explosion resulted in three deaths and serious injuries to several workers.

Following the explosion, Zurich confirmed to AP that it was extending its coverage under the policy for the damages sustained to the portion of the project at Coryell Memorial.

Zurich did not communicate directly with Coryell Memorial about its coverage decision, according to the complaint.

Zurich and AP failed to disclose to Coryell Memorial AP’s original “notice of loss.” All other material communications between Zurich and AP did not involve Coryell Memorial, despite the substantial loss from the project explosion, according to the complaint.

AP’s purported loss under the policy is mystifying, given the fact that Coryell is the owner of the facility that AP’s subcontractor blew up.

During the fall of 2018, Zurich primarily communicated with AP concerning Coryell Memorial’s losses under the policy and related policy coverage, that was predicted on Zurich’s and AP’s belief that AP would perform the reconstruction work for Coryell Memorial’s project.

During that time, Zurich advanced to AP for $2 million for alleged “demolition and reconstruction work” related to the project. Neither Zurich nor AP provided Coryell Memorial any advance notice of the advance under the policy.

Coryell Memorial still does not have information concerning the purpose of the advance to AP or actual expenditures.

In December 2018, Zurich presented AP and Coryell Memorial an “undisputed settlement offer” of $9,139,966.58 for the project and reconstruction work. The reflected net amount of the offer was just over $7.1 million, with the $2 million advance included from AP.

Both Zurich and AP failed to provide any material details of information to Coryell Memorial of the advance, according to the complaint.

In mid-January 2019, AP formally took the position that it had no duty to provide any such accounting to Coryell Memorial. In a Jan. 16 letter Coryell Memorial demanded the disclosure of such information, including communications between Zurich and AP concerning the policy and claim.

Coryell Memorial observed AP’s purported agency role under the policy and reminded AP of its fiduciary duties owed to Coryell Memorial to:

  • Fully disclose to Coryell Memorial all material information known to AP that might affect the hospital’s rights concerning the subject matter of the agency
  • To refrain from self-dealing in connection with the agency

Coryell Memorial also asked Zurich not to engage in any action to interfere with AP’s fulfillment of any fiduciary duty owed to the hospital, according to the complaint.

Zurich advised AP and Coryell Memorial that it intended to remit a claim payment to AP, not Coryell Memorial, in the amount of $6,820,885.58 (the “claim payment”). It was a deduction from the $7.1 million with a new deduction of $309,081 for an unexplained “A&P Fee of 3.5 percent.”

Zurich also said it would make the payment to AP but would be made payable to AP and Coryell Memorial.

Coryell Memorial then informed AP and Zurich that it did not intend to have AP perform the repair and reconstruction work. It also said AP had no right to any claim payment by Zurich for any advance or work to be performed in the future, according to the complaint.

Coryell Memorial then demanded that Zurich deliver the claim to the hospital as the sole and exclusive payee. Also, demanded to the extend that AP received the claim payment, AP would hold and maintain those funds in escrow for the hospital’s benefit.

Neither AP or Zurich responded to Coryell Memorial’s request.

To resolve this controversy, Coryell Memorial seeks a judicial declaration of:

  • Coryell Memorial never agreed to AP to act as the hospital’s agent under the policy
  • Any agency relationship between Coryell Memorial and AP created by the police is null and void and of no legal force or effect
  • Any actions taken by Zurich and AP in reliance on the purported agency relationship are null and void
  • AP has no right, title or interest in the claim payment

According to the complaint, Coryell Memorial disputes the validity of any agency relationship between it and AP. It also states that AP owed fiduciary duties to the hospital.

It states AP has breached the fiduciary duties by failing to disclose to Coryell all the material information affecting Coryell Memorial’s rights under the policy, accepting the $2 million advance from Zurich and encouraging Zurich to tender the claim payment directly to AP.

As a result of the breaches, Coryell Memorial seeks:

  • Disgorgement of all consideration paid to AP under the policy
  • An imposition of a constructive trust over all such benefits received by or generated by AP through its fiduciary duty breaches
  • Revocation or judicial termination of any agency relationship between AP and Coryell Memorial

According to the complaint, Coryell Memorial has a viable claim against Zurich under the policy and Zurich has proper notice of the claim, and is liable for it.

It says Zurich violated Chapter 542 of the Texas Insurance Code by not timely paying the claim.

Coryell Memorial now seeks a temporary injunction.

According to the complaint, Coryell has a probable right to recover on its affirmative causes of action.

If a temporary injunction is not granted, Coryell Memorial will suffer imminent and irreparable harm, for which it has no adequate remedy at law.

In particular, Zurich’s failure to immediately tender the undisputed claim payment directly to Coryell Memorial will prevent the hospital’s ability to obtain the necessary funds to rebuild their project.

AP has no right or interest in those funds because Coryell Memorial intends to supplement the reconstruction and repair the damages with another contractor, not AP.

The continued delay of the claim payment will cause further delay in engaging in the necessary construction of the projects. It will also further frustrate Coryell Memorial’s ability to provide full and complete patient care to residents of Coryell County and surrounding areas.

It will otherwise deprive the hospital of the financial and other benefits associated with the complete additions and renovations, according to the complaint.

AP’s continued reliance upon the alleged agency relationship with Coryell and its refusal to disclose material information affecting the rights under the policy are depriving the hospital of:

  • Its ability to fully protect its rights as an additional named insured under the policy
  • Its right to communicate directly with Zurich concerning the settlement of its claim under the policy

Coryell Memorial, upon hearing, seeks a temporary injunction for:

  • Compelling AP and Zurich to immediately tender the claim payment to the hospital
  • Restraining AP from any further expenditure or use of any funds previously advanced or received from Zurich under the policy
  • Compelling AP to immediately remit to Coryell of any existing funds previously advanced or received under the policy
  • Compelling AP and Zurich to provide Coryell with all material documentation affecting the hospital’s rights under the policy
  • Restraining AP from acting on Coryell’s behalf as its agent for purposes of claim adjustment, payment or any act or omission in connection with the policy.

According to the complaint, Coryell requests that Zurich and AP be cited to appear and answer. Also to grant Coryell the equitable relief and other relief to which it may be entitled to.

AP has made a statement after the complaint was filed by Coryell Memorial.

The statement was made on Monday:

Since the June 26 explosion, we closely partnered with Coryell Health to reach a resolution that would allow us to rebuild the impacted area and complete the expansion project. In fact, over six months ago, Coryell requested that AP evaluate two alternate central utility plant designs which were substantially different than the original design.

Since that time, we have diligently worked to develop the project scope, pricing, and phasing and were told the hospital would select its desired option. We would then commence construction and complete the rebuild which has been our stated desire and contractual right from the onset.

Therefore, we are surprised and disappointed Coryell suddenly changed course and opted to pursue a litigation strategy instead.

AP disagrees with Coryell’s allegation that our team breached any of its contractual duties. In fact, AP was forced to issue a “stop work” notice on October 4 for non-payment of millions of dollars. The parties are required to arbitrate all matters and AP filed its demand to arbitrate in December. As of today, AP, its subcontractors and suppliers are owed more than $3.5 million for work completed for Coryell Health, much of which is unrelated to the central utility plant explosion.

Coryell is holding these earned funds despite the fact that the insurance carrier has agreed to pay for the rebuilding of the central utility plant, the portion of the work that was most impacted by the explosion.

Coryell’s actions are an attempt to circumvent the contract, which was negotiated and agreed to by all parties and to further delay its obligation to pay AP and its subcontractors and suppliers. Coryell has now delayed decisions regarding the selection of the design required to commence the rebuild – an effort AP was prepared to start on September 12 had the original design been approved by Coryell.

This was a sensitive and complex situation and we are very proud of how our team responded. This has been further validated by the OSHA investigation and report confirming AP had no direct responsibility for the accident.

We remain committed to doing what’s best for Coryell and the community and hope this matter can be resolved quickly, so we can complete the work.

- Corbett Nichter, President, Gulf States Region, Adolfson & Peterson Construction.

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