Opinion
CIVIL ACTION NO. 4:20-CV-1644
2022-08-16
PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff, v. MEGALOMEDIA, INC., et al., Defendants.
Matthew Rigney, Stephen A. Melendi, Tollefson Bradley Ball Mitchell, LLP, Dallas, TX, for Plaintiff. Stephen Edward McConnico, Anthony Frank Arguijo, Santosh Shankaran Aravind, Stephanie Clair Kover, Scott Douglass & McConnico LLP, Austin, TX, for Defendants Megalomedia, Inc., Megalomedia Studios, LLC, Mansfield Films, LLC. Stephen Edward McConnico, Santosh Shankaran Aravind, Scott Douglass and McConnico LLP, Austin, TX, for Defendant Megalomedia, LLC.
Matthew Rigney, Stephen A. Melendi, Tollefson Bradley Ball Mitchell, LLP, Dallas, TX, for Plaintiff. Stephen Edward McConnico, Anthony Frank Arguijo, Santosh Shankaran Aravind, Stephanie Clair Kover, Scott Douglass & McConnico LLP, Austin, TX, for Defendants Megalomedia, Inc., Megalomedia Studios, LLC, Mansfield Films, LLC. Stephen Edward McConnico, Santosh Shankaran Aravind, Scott Douglass and McConnico LLP, Austin, TX, for Defendant Megalomedia, LLC. ORDER Alfred H. Bennett, United States District Judge
Before the Court is Plaintiff Philadelphia Indemnity Insurance Company's Motion for Summary Judgment (the "Motion," Doc. #68), Defendant's Response (Doc. #76), and Plaintiff's Reply (Doc. #78). Having reviewed and considered the parties' arguments and applicable legal authority, the Court grants and denies the Motion in part.
I. Background
Defendants Megalomedia, Inc., Megalomedia Studios, LLC, Mansfield Films, LLC, and DBA Holdings, LLC (collectively "Megalomedia") have filed amended counterclaims against Plaintiff Philadelphia Indemnity Insurance Company ("Philadelphia Indemnity") alleging: (1) fraudulent inducement, (2) violations of Chapter 541, Subchapter B of the Texas Insurance Code (hereinafter the "Insurance Code"), and (3) violations of the Texas Deceptive Trade Practices Act (hereinafter the "DTPA"). Doc. #50. Philadelphia Indemnity has moved for summary judgment on all of Megalomedia's counterclaims. Doc. #68.
a. Factual Background
Megalomedia is a television production studio based in Austin, Texas, and is responsible for the production of shows such as Shipping Wars, Heavy, and My 600-lb Life. Doc. #76 at 6. In 2010, Philadelphia Indemnity issued Megalomedia a series of commercial package insurance policies providing general liability, commercial property, and commercial inland marine coverage (collectively, the "Policy"). Doc. #68 at 4, 5; Doc. #76 at 6. In June of 2011, Megalomedia approached Philadelphia Indemnity and requested additional coverage for a new show in production, Cartel City. Doc. #68 at 5; Doc. #76 at 3. A few days later, Philadelphia Indemnity informed Megalomedia that it would not cover the show because it "sound[ed] more like a reality show than a documentary." Doc. #76, Ex. 7 at 2 and Ex. 8 at 3. On that same date, Philadelphia Indemnity amended the Policy, adding language that reads:
Similarly, in 2013, Megalomedia's new production, Fugitive Recovery, was denied coverage for similar reasons—the "element of danger" associated with the show. Doc. #76 at 9; Doc. #76, Ex. 14 at 3.
(hereinafter, the "Reality TV Exclusion"). Doc. #21, Ex. 11 at 139 (emphasis added). What constitutes a "reality show" is not defined in the policy. See Id.
EXCLUSION - DESIGNATED ONGOING OPERATIONS
This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART
SCHEDULE
Description of Designated Ongoing Operation(s):
Excludes the production of, filming or distribution of pornographic materials. Excludes any/all reality shows. Excludes rental/loan of insureds equipment or equipment leased by the insured to 3rd party[.]
Megalomedia contested Philadelphia Indemnity's denial of coverage, arguing that Cartel City was a documentary covered under the Policy. See Doc. #76, Ex. 8 at 2. Philadelphia Indemnity responded that its denial of coverage was justified based on lack of protection for the film crew, potential destruction of property, and potential damage of equipment. Doc. #76, Ex. 8 at 2. Philadelphia Indemnity emphasized that it was "okay with the other work that [Megalomedia was] doing, just not this particular project." Id. At the time of this representation, Philadelphia Indemnity was still providing Megalomedia coverage for its other productions, including Heavy, the precursor to My 600-lb Life. See Doc. #76, Ex. 10 at 3, 4. Each year since the inception of coverage, Megalomedia has renewed the Policy with the Reality TV Exclusion included. Doc. #68, Ex. 2 at 62, 63. And each year, Philadelphia Indemnity has approved the coverage of additional Megalomedia television productions under the Policy, excluding two: Cartel City and Fugitive Recovery. See, e.g., Doc. #76, Ex. 2 at 14; Ex. 5 at 8, 9; and Ex. 11 at 2.
In 2012, Megalomedia requested Philadelphia Indemnity add another production to the Policy, My 600-lb Life. Doc. #76, Ex. 16 at 13, 14. In its application, Megalomedia described My 600-lb Life as a "Reality Based TV Show," and described its overall production as a "Reality TV & Documentaries." Id. Philadelphia Indemnity subsequently reviewed and approved coverage for My 600-lb Life based on this description. Doc. #7619. In 2020, former participants of My 600-lb Life filed various tort claims against Megalomedia, which were consolidated into one lawsuit in Harris County District Court (the "Bonner Lawsuit"). Doc. #76 at 11; Doc. #21 at 8. Megalomedia sought defense and indemnification from Philadelphia Indemnity for the Bonner Lawsuit. Doc. #76 at 11; Doc. #68 at 8. Philadelphia Indemnity refused, arguing that My 600-lb Life was not covered under the Policy by reason of the Reality TV Exclusion. Doc. #68 at 7; Doc. #76 at 12.
My 600-lb Life is the sequel to Heavy, an existing Megalomedia production for which coverage under the Policy was approved even after the addition of the Reality TV Exclusion.
b. Procedural Background
On May 11, 2020, Philadelphia Indemnity filed this lawsuit seeking a declaratory judgment that it had no duty to defend or indemnify Megalomedia against the claims asserted in the Bonner lawsuit. Doc. #1 at 1. After Philadelphia Indemnity moved for summary judgment, Judge Vanessa D. Gilmore granted the motion on May 28, 2021 and rendered final judgment on June 1, 2021. Doc. #21; Doc. #32; and Doc. #33. Later that month, Judge Gilmore vacated the June 1st final judgment upon Megalomedia's motion. Doc. #35; Doc. #37. On July 14, 2021, Megalomedia filed its Amended Counterclaim against Philadelphia Indemnity. Doc. #50. Due to Judge Gilmore's retirement, the case was reassigned to Judge Alfred H. Bennett on December 9, 2021. Doc. #63.
Philadelphia Indemnity now moves for summary judgment as to Megalomedia's amended counterclaims, arguing that: (1) the statute of limitations has expired on Megalomedia's claims, (2) Megalomedia cannot satisfy an essential element of its claims of fraudulent inducement, Insurance Code, and DTPA because Megalomedia has not provided evidence of a false misrepresentation, and (3) Megalomedia's attempt to recover damages under the Insurance Code and DTPA should be dismissed since Megalomedia has not pled a Stowers claim and because there is no evidence in the record suggesting independent injury. Doc. #68.
II. Legal Standard
Summary judgment is proper if the movant demonstrates that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56. "A genuine dispute as to a material fact exists if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Rogers v. Bromac Title Services, L.L.C., 755 F.3d 347, 350 (5th Cir. 2014). If the movant does not bear the burden of proof at trial and shows the absence of evidence in the record, "the burden shifts to the nonmovant to show that the motion should not be granted. To do so, the nonmovant must identify specific evidence in the record and articulate the precise manner in which that evidence supports his or her claim." Carr v. Air Line Pilots Ass'n, Int'l, 866 F.3d 597, 601 (5th Cir. 2017). "The evidence and all inferences must be viewed in the light most favorable to the non-movant." Rose v. Select Portfolio Servicing, Inc., 945 F.3d 226, 228-29 (5th Cir. 2019). However, "[u]nsubstantiated assertions" and "conclusory allegations are not competent summary judgment evidence and are insufficient to overcome a summary judgment motion." Hugh Symons Grp., PLC v. Motorola, Inc., 292 F.3d 466, 468 (5th Cir. 2002).
III. Analysis
a. Statute of Limitations
First, Philadelphia Indemnity argues that all of Megalomedia's counterclaims fail as a matter of law because the statute of limitations has expired. Doc. #68 at 10-18. The statute of limitations on fraud, including fraudulent inducement, is four years. TEX. CIV. PRAC. REM. CODE § 16.004(a)(4). DTPA and Insurance Code claims have two-year limitation periods. TEX. INS. CODE § 541.162; TEX. BUS. & COMM. CODE § 17.565. Under Texas law, the discovery rule provides a "very limited exception to the statute of limitations." Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996). The discovery rule exception defers accrual of the statutory limitation period "until such time as the claimant discovers, or in exercising reasonable diligence should have discovered, facts that indicate he has been injured." Id. at 455; Colonial Penn Ins. Co. v. Market Planners Ins. Agency Inc., 157 F.3d 1032, 1034 (5th Cir. 1998); Khoei v. Stonebridge Life Ins. Co., No. H-13-2181, 2014 WL 585399, at *4 (S.D. Tex. Feb. 14, 2014). The discovery rule applies where the claimant's injury was "inherently undiscoverable, i.e., where the plaintiff did not and could not know of the injury." Colonial Penn Ins. Co., 157 F.3d at 1034. Along with the discovery rule, Texas employs the doctrine of fraudulent concealment. Id. at 1035. Fraudulent concealment defers the limitations period "until the claimant discovers or with reasonable diligence should have discovered the fraud." Computer Assocs., 918 S.W.2d at 455; Colonial Penn Ins. Co. 157 F.3d at 1035. There are two possible discoveries that may start the limitations period in fraudulent concealment cases: (1) when the claimant actually deduces that he has a cause of action, or (2) as soon as the claimant knows the facts that, upon further examination, would prove to underlie a cause of action. Borderlon v. Peck, 661 S.W.2d 907 (Tex. 1983); see also, e.g., Nichols v. Smith, 507 S.W.2d 518, 519 (Tex. 1974).
Here, Megalomedia did not and could not have discovered any of the alleged violations in 2011, as Philadelphia Indemnity argues, because ambiguity arises from Philadelphia Indemnity's first approving then later denying coverage for My 600-LB Life. See Computer Assocs., 918 S.W.2d at 455. Philadelphia Indemnity explained its denial of coverage for Cartel City based on the project "sound[ing] more like a reality show than a documentary." Doc. #76, Ex. 8 at 3. Yet, the following year, Philadelphia Indemnity approved coverage under the Policy for My 600-lb Life, even after the show was described as a "Reality Based TV Show." Doc. #76, Ex. 16 at 13, 14. Philadelphia Indemnity's representations and initial approval of coverage for My 600-lb Life support Megalomedia's contention that the alleged fraud was "inherently undiscoverable" until 2020 when its coverage request for the Bonner Lawsuit was rejected. Colonial Penn Ins. Co., 157 F.3d at 1034. As such, the discovery rule applies to Megalomedia's Insurance Code and DTPA claims. Similarly, the fraudulent concealment rule applies to Megalomedia's fraudulent inducement claim. Therefore, the limitations period on Megalomedia's claims is deferred to when Megalomedia "discovered, or should have discovered" the violations. Accordingly, Philadelphia Indemnity's argument on statute of limitations grounds is rejected.
b. Fraudulent Inducement
Philadelphia Indemnity next argues that Megalomedia's fraudulent inducement claim fails because Megalomedia's evidence does not a create a fact issue for all the essential elements. Doc. #68 at 18-25. To succeed on a fraudulent inducement claim under Texas law, Megalomedia must prove: "(1) a material misrepresentation; (2) that is false; (3) the defendant knew when it made the representation that it was false or made the statement without any knowledge of its truth; (4) the defendant intended the plaintiff to rely on the representation, and the plaintiff actually relied on the representation; and (5) the defendant's actions caused an injury." Kevin M. Ehringer Enters., Inc. v. McData Servs. Corp., 646 F.3d 321, 325 (5th Cir. 2011); Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998).
Philadelphia Indemnity argues that Megalomedia cannot establish a genuine dispute that a material misrepresentation was false. Doc. #68 at 19, 23. "A promise to do an act in the future is actionable fraud when made with the intention, design and purpose of deceiving and with no intention of performing the act." Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986). A false promise can be the contract itself. Id. Philadelphia Indemnity approved coverage for My 600-lb Life, which was described as a "Reality Based TV Show" in the application for additional coverage. Philadelphia Indemnity then denied the production ever being included under the Policy years later. Doc. #76, Ex. 7 at 2. When viewed in the light most favorable to Megalomedia, the record establishes a genuine dispute of material fact regarding Philadelphia Indemnity's intention to cover My 600-Lb Life under the Policy. Therefore, Philadelphia Indemnity's Motion is denied as to Megalomedia's fraudulent inducement claim.
c. Insurance Code and DTPA Violations
Third, Philadelphia Indemnity moves for summary judgment on Megalomedia's Insurance Code and DTPA claims, arguing that Megalomedia cannot prove that Philadelphia Indemnity made a false misrepresentation. Doc. #68 at 19-24. Under Texas law, fraudulent misrepresentations regarding insurance coverage are addressed under the Insurance Code and the DTPA. See Brown & Brown of Tex., Inc. v. Omni Metals, Inc., 317 S.W.3d 361, 381 (Tex. App.—Houston [1st Dist.] 2010, pet. denied). Section 541.051 of the Insurance Code "creates a cause of action when the insurer misrepresents the terms and coverage of an insurance policy." TEX. INS. CODE § 541.051. Similarly, the DTPA creates a cause of action where the defendant engages in "[f]alse, misleading, or deceptive acts or practices in the conduct of any trade or commerce." TEX. BUS. & COMM. CODE § 17.46(a); see also Khoei, No. H-13-2181, 2014 WL 585399, at *4. As discussed above, the record before the Court establishes a genuine dispute of material fact as to whether Philadelphia Indemnity made false representations regarding the scope of coverage under the Policy. Therefore, Philadelphia Indemnity's Motion is denied as to Megalomedia's Insurance Code and DTPA violation claims.
d. Extracontractual Damages
Lastly, Philadelphia Indemnity argues that Megalomedia's claim to recover damages arising from extracontractual violations—Insurance Code and DTPA violations—fails as a matter of law because (1) Megalomedia has not alleged breach of a settlement agreement under Stowers, and (2) there is no evidence of an independent injury. Doc. #68 at 25, 26. "Under Stowers, an insurer defending an insured in a lawsuit on a covered claim, when faced with a settlement offer within policy limits, must accept the offer on behalf of its insured when an ordinarily prudent insurer would do so in light of the reasonably apparent likelihood and degree of that insured's potential exposure to a valid judgment in the suit [is] in excess of policy limits." Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761, 764 (5th Cir. 1999). Philadelphia Indemnity's Stowers argument is a red herring as the record has not established any evidence of settlement discussions, nor has Megalomedia alleged counterclaims falling within the Stowers context. See e.g., Rocor Int'l, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 77 S.W.3d 253, 256 (Tex. 2002).
And as to Philadelphia Indemnity's independent injury rule argument, the Texas Supreme Court, in USAA Texas Lloyds Company v. Menchaca, recognized two paths to establishing damages caused by an insurer's violation of the Insurance Code: (1) where there is "a right to receive benefits under the Policy" or (2) where the insured suffers "an injury independent of a right to benefits." 545 S.W.3d 479, 500 (Tex. 2018); Garza v. Allstate Fire & Cas. Ins. Co., 466 F. Supp. 3d 705, 712 (S.D. Tex. 2020). For an insured to establish an independent injury under this framework, it must be shown that the insurer "committed some extreme act" independent of the policy claim. Menchaca, 545 S.W.3d at 499; Northwinds Abatement, Inc. v. Emps. Ins. of Wausau, 258 F.3d 345, 353 (5th Cir. 2001). Both the Texas Supreme Court and the Fifth Circuit have declined to speculate on what exactly constitutes "extreme" conduct. However, there remains no doubt that success on a claim under the independent injury rule is a rarity. Menchaca, 545 S.W.3d at 499-500; Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 340-41 (Tex. 1995).
Here, Megalomedia has claimed damages in the form of (1) policy premiums, (2) compensation for reputational damages, (3) attorney's fees, (4) settlements, and (5) other damages resulting from cancellation of My 600-lb Life and loss of post-production facility. Doc. #76 at 26. Philadelphia Indemnity argues that these damages are not the result of "extreme conduct" or "truly independent of the policy benefits." Doc. #68 at 26. This Court, in the absence of an illustrative precedent, does not consider Philadelphia Indemnity's denial of coverage for My 600-lb Life (after receiving premiums under the Policy) as "extreme" conduct. Doc. #76, Ex. 7 at 2 and Ex. 16. The Court finds there is no genuine question of material fact as to whether the conduct by Philadelphia Indemnity was "extreme." Menchaca, 545 S.W.3d at 499. Therefore, Megalomedia's extracontractual Insurance Code and DTPA claims fail as a matter of law and Philadelphia Indemnity's Motion is granted as to those claims.
IV. Conclusion
In conclusion, the Court finds that Philadelphia Indemnity has failed to demonstrate an absence of genuine material fact dispute for Megalomedia's fraudulent inducement, Insurance Code, and DTPA claims. However, Philadelphia Indemnity has demonstrated that there is no genuine dispute of material fact as to Megalomedia's extracontractual DTPA and Insurance Code claims. For the foregoing reasons, the Motion is hereby GRANTED as to Megalomedia's extracontractual damage claims and DENIED as to the rest of Megalomedia's claims.
It is so ORDERED.