Tower Group Companies v. Ozark Housing Development, Inc. et al

Filing 37

MEMORANDUM OPINION AND ORDER the above-style case is DISMISSED with leave to re-file upon resolution of the underlying state court action. Consistent with the Consent Judgment 27 previously entered by the Court, all claims against OHD are DISMISSED with prejudice. Tower Group's motion to strike 29 is DENIED as moot. Signed by Honorable Judge Mark E. Fuller on 11/22/2013. (Attachments: # 1 Civil Appeals Checklist)(jg, ) TERMINATED: Non-Jury Trial 12/02/2013

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
SOUTHERN DIVISION

TOWER GROUP COMPANIES,
Plaintiff,
v.
OZARK HOUSING DEVELOPMENT
INC., et al.,
Defendants.

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CASE NO. 1:12-cv-0493-MEF
(WO – Publish)

MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
Plaintiff Tower Group Companies (“Tower Group”) brings this declaratory judgment
action against Defendants Ozark Housing Development (“OHD”) and Clarissa Smith,
Individually and as mother and next friend of T.S.S., the Estate of J.K.S. and J.S., and Mary
Parker, Administrator of the Estate of J.K.S. and J.S. (collectively, the “Tort Plaintiffs”),
seeking a declaration as to whether Tower Group is obligated to defend and to indemnify
OHD with regard to an underlying state lawsuit brought by the Tort Plaintiffs against OHD.
Tower Group also seeks a declaration as to whether the commercial general liability policy
issued to OHD covers any claims filed in the underlying suit and, consequently, whether the
Tort Plaintiffs are entitled to any benefits or proceeds under that policy. This cause is now
before the Court on Tower Group’s Motion for Summary Judgment. (Doc. #21.) The Court
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has reviewed the submissions of the parties and finds that, for the reasons set forth below,
the above-styled action is due to be DISMISSED with leave to re-file.
II. JURISDICTION AND VENUE
The Court has diversity jurisdiction over this matter pursuant to 28 U.S.C. § 1332,
based upon the parties’ diversity of citizenship1 and an amount of controversy exceeding
$75,000, exclusive of interest and costs. The parties contest neither personal jurisdiction
nor venue, and the Court finds adequate grounds to support both.
III. FACTS
This case involves a dispute over whether an endorsement in the insurance policy
issued by Tower Group to OHD precludes coverage for claims currently pending in state
court. On November 8, 2011, three minor children died in a fire that spread quickly through
the Peachburg Apartment complex in Union Springs, Alabama. The Tort Plaintiffs attributed
the children’s deaths to the failure of several smoke detectors in the building. On February
15, 2012, the Tort Plaintiffs brought suit in the Circuit Court of Bullock County, Alabama
against, among others2, OHD, a non-profit entity they allege was responsible for inspecting
and maintaining the smoke detectors. The Tort Plaintiffs alleged that OHD had a duty to

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Tower Group is a Delaware corporation with its principal place of business in New York. OHD
is an Alabama corporation with its principal place of business in Alabama. Clarissa Smith, Mary Parker, and
the estates of J.K.S. and J.S. are all residents of Alabama. (Doc. #1.)
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The Tort Plaintiffs also brought suit against South Central Alabama Regional Housing Authority
and The Housing Authority of the City of Union Springs, the complex’s operator and managers, and UTC
Fire & Safety Americans Corporation, Inc. d/b/a/ Kidde and United Technology Corporation, the smoke
alarms’ designer and manufacturers. Because these entities are not involved in the insurance coverage dispute
pending before this Court, claims against them will not be addressed herein.

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provide the children with a safe living environment and that they (1) negligently and/or
wantonly failed to provide adequate safety devices in the apartment to detect and/or
extinguish the fire, (2) negligently and/or wantonly failed to ensure the detectors were
installed in a manner that would allow early detection of a fire, and (3) negligently and/or
wantonly failed to properly install, test, inspect, repair, and/or maintain the smoke detectors.
The Tort Plaintiffs further allege that those failures by OHD proximately caused the deaths
of the children. The Tort Plaintiffs seek both compensatory and punitive damages.
According to the parties, the underlying state suit remains pending in Bullock County,
Alabama as Civil Action No. CV-2011-000045, the discovery process is underway, and the
suit has not yet been resolved.
On June 11, 2013, more than 16 months after the underlying state tort action was filed,
Tower Group filed its Complaint for Declaratory Judgment (Doc. #1) naming OHD and the
Tort Plaintiffs as defendants. In the suit before this Court, Tower Group seeks a judicial
declaration of its rights and obligations with respect to an insurance policy it issued
previously to OHD. Specifically, Tower Group seeks a declaration that it has no duty to
defend or to indemnify OHD with respect to the underlying state lawsuit and that the Tort
Plaintiffs are not entitled to any benefits under the policy. As a basis for this declaration,
Tower Group argues that, although the policy covered losses incurred on the date of the fire,
there was an endorsement that precludes coverage for any claims arising out of inspection
services provided by OHD. Because the facts in the underlying state suit unequivocally
show that OHD did nothing more than inspect the smoke detectors, Tower Group contends
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that the endorsement was triggered and that the policy affords no coverage to OHD. At the
time the complaint in this lawsuit was filed, Tower Group was furnishing OHD a defense in
the underlying state tort action under a reservation of rights. Tower Group has not been
joined as a defendant in the underlying state tort action. As a result, the insurance coverage
issues are not pending before the Bullock County Circuit Court.
OHD filed its answer in this lawsuit on July 23, 2012, and the Tort Plaintiffs filed
their answers on August 30, 2012. Almost a year later, on August 1, 2013, Tower Group and
OHD filed a Joint Stipulation of Consent Judgment (Doc. #20) in which Tower Group and
OHD agreed that the Tower Group policy excludes coverage for any and all claims arising
out of the underlying state suit and that OHD is not entitled to a defense or indemnification
under the policy. The next day, Tower Group filed its motion for summary judgment (Doc.
#21) on its declaratory judgment action as to both OHD and the Tort Plaintiffs. The Tort
Plaintiffs filed no response to Tower Group’s motion for summary judgment. On October
7, 2013, the Court entered a Consent Judgment according to the terms of Tower Group and
OHD’s Joint Stipulation. (Doc. #27.) The Consent Judgment resolved all claims for a
declaratory judgment between Tower Group and OHD. The only remaining claims currently
pending before the Court involve Tower Group’s request for a declaration that the Tort
Plaintiffs are not entitled to benefits or proceeds under the policy Tower Group issued to
OHD should the Tort Plaintiffs prevail against OHD in the underlying state court action.
On October 11, 2013, a status conference was held with Tower Group and the Tort
Plaintiffs. The purpose of this status conference was to address the pending motion for
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summary judgment filed by Tower Group to which the Tort Plaintiffs did not respond. At
this conference, counsel for the Tort Plaintiffs argued that the declaratory judgment action
pending against them would not be ripe until the state court issued a judgment against OHD
and, therefore, the Court should dismiss or stay the action. Tower Group countered that
because the Tort Plaintiffs had failed to respond to its motion for summary judgment, and
because the facts alleged therein must be considered undisputed for purposes of its motion,
the action was ripe and summary judgment was due in its favor. Alternatively, Tower Group
argued that summary judgment should be granted in its favor because there was no chance
circumstances in the underlying state court action could change such that the Tower Group
policy would extend coverage to OHD.
At the conclusion of the telephone conference, the Court requested that the parties
submit a short letter brief addressing the following issue: whether granting summary
judgment on the facts before the Court in this action would bar subsequent suit by the Tort
Plaintiffs against Tower Group in a direct action should new evidence arise triggering
coverage. Neither party found authority addressing this issue. In their letter brief, the Tort
Plaintiffs reiterated their arguments that the matter would not be ripe until after a state court
judgment was issued. In response, Tower Group filed an Objection and Motion to Strike
Portions of Defendants’ Letter Brief. (Doc. #29). As grounds for this motion, Tower Group
argues that the Tort Plaintiffs are impermissibly using the letter brief as a vehicle to assert
arguments that they should have presented in response to its motion for summary judgment
and that the Tort Plaintiffs waived the right to make ripeness arguments at this point in the
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litigation as a result of their failure to file a response to Tower Group’s summary judgment
motion. Another status conference was held on November 7, 2013, at which time the Court
gave the parties notice of its intent to dismiss the case based on its discretionary power under
the Declaratory Judgment Act.
IV. LEGAL STANDARD
A motion for summary judgment looks to “pierce the pleadings and to assess the proof
in order to see whether there is a genuine need for trial.” Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986). A court should grant summary judgment
when the pleadings and supporting materials show that no genuine dispute exists as to any
material fact and the moving party deserves judgment as a matter of law. Fed. R. Civ. P.
56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The party moving for
summary judgment “always bears the initial responsibility of informing the district court of
the basis for its motion, and identifying” the relevant documents that “it believes demonstrate
the absence of a genuine [dispute] of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986) (alteration to original). To shoulder this burden, the moving party can present
evidence to this effect. Id. at 322–23. Or it can show that the non-moving party has failed
to present evidence in support of some element of its case on which it ultimately bears the
burden of proof. Id.
If the moving party meets its burden, the non-movant must then designate, by
affidavits, depositions, admissions, or answers to interrogatories, specific facts showing the
existence of a genuine dispute for trial. Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590,
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593–94 (11th Cir. 1995). A genuine dispute of material fact exists when the non-moving
party produces evidence that would allow a reasonable fact-finder to return a verdict in his
or her favor. Waddell v. Valley Forge Dental Assocs., 276 F.3d 1275, 1279 (11th Cir. 2001).
Thus, summary judgment requires the non-moving party to “do more than simply show that
there is some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586.
Indeed, a plaintiff must present evidence demonstrating that she can establish the basic
elements of her claim, Celotex, 477 U.S. at 322, because “conclusory allegations without
specific supporting facts have no probative value” at the summary judgment stage. Evers v.
Gen. Motors Corp., 770 F.2d 984, 986 (11th Cir. 1985).
A court ruling on a motion for summary judgment must believe the non-movant’s
evidence. Anderson, 477 U.S. at 255. It also must draw all justifiable inferences from the
evidence in the non-moving party’s favor. Id. After the non-moving party has responded
to the motion, the court must grant summary judgment if there exists no genuine dispute of
material fact and the moving party deserves judgment as a matter of law. See Fed. R. Civ.
P. 56(a).
V. DISCUSSION
Because OHD’s liability has not been established in the underlying state court action,
the Court declines to decide whether the Tort Plaintiffs are entitled to benefits and proceeds
under the Tower Group policy issued to OHD should they succeed with their claims against
OHD at trial.

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Tower Group brings this case pursuant to the Declaratory Judgment Act, 28 U.S.C.
§ 2201, and Rule 57 of the Federal Rules of Civil Procedure. The Declaratory Judgment Act
provides that “[i]n a case of actual controversy within its jurisdiction, . . . any court of the
United States . . . may declare the rights and other legal relations of any interested party
seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. §
2201. Under the Declaratory Judgment Act, federal district courts still must abide by the
constitutional requirement that there be an actual case or controversy between the parties.3
See Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 272 (1941); Aetna Life Ins.
Co. v. Haworth, 300 U.S. 227, 239–41 (1937); United States Fire Ins. Co. v. Caulkins
Indiantown Citrus, 931 F.2d 744, 747 (11th Cir. 1991). Whether such a controversy exists
sufficient to confer jurisdiction in a declaratory judgment action is determined on a case-bycase basis. See Atlanta Gas Light Co. v. Aetna Cas. & Sur. Co., 68 F.3d 409, 414 (11th Cir.
1995) (citations omitted). In this context, the Court must determine “whether the facts
alleged, under all the circumstances, show that there is a substantial controversy, between
parties having adverse legal interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.” Maryland Cas., 312 U.S. at 273; see also GTE
Directories Publi’g Corp. v. Trimen Am. Inc., 67 F.3d 1563, 1567 (11th Cir. 1995). Where

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It is well established that a federal court is obligated to assess whether it has subject matter
jurisdiction sua sponte whenever it may be lacking. See Univ. of So. Ala. v. Am. Tobacco Co., 168 F.3d 405,
410 (1999) (citations omitted); see also Atlanta Gas Light Co. v Aetna Cas. & Sur. Co., 68 F.3d 409 (11th
Cir. 1995) (“Any time doubt arises as to the existence of federal jurisdiction, [the Court] is obliged to address
the issue before proceeding further.”) (alterations to original). Because the Court is obligated to examine
whether it has subject matter jurisdiction on its own accord, Tower Group’s Motion to Strike (Doc. #29) is
DENIED as moot.

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the existence of an actual controversy is lacking, the district court lacks subject matter
jurisdiction and must dismiss the case.
However, even if an actual controversy exists,4 the Court has discretion over whether
it will hear a declaratory judgment action. See Brillhart v. Excess Ins. Co. of Am., 316 U.S.
491, 494 (1942) (“Although the District Court had jurisdiction of the suit under [the
Declaratory Judgment Act], it was under no compulsion to exercise that jurisdiction.”);
Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) (“By the [Act], Congress sought to place
a remedial arrow in the district court’s quiver; it created an opportunity rather than a duty,
to grant a new form of relief . . .”); Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328,
1330 (11th Cir. 2005) (the Declaratory Judgment Act “only gives the federal courts
competence to make a declaration of rights, it does not impose a duty to do so”). District
Courts are vested with such broad discretion “because facts bearing on the usefulness of the
declaratory judgment remedy, and the fitness of the case for resolution, are peculiarly within
their grasp.” Wilton, 515 U.S. at 289.
Courts have “cautioned against” the exercise of jurisdiction in declaratory judgment
actions when the tort plaintiffs’ right to indemnification under an insurance policy may never
arise due to the absence of a judgment against the insured in the underlying suit. See Am.
Fid. & Cas. Co. v. Pa. Thresherman & Farmers’ Mut. Cas. Co., 280 F.2d 453 (5th Cir.
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The Supreme Court has strongly suggested that an actual controversy exists in a declaratory
judgment action by an insurance company against an injured tort plaintiff despite the absence of a state court
judgment holding the insured liable. See Maryland Cas., 312 U.S. at 274; see also Standard Accident Ins.
v. Meadows, 125 F.2d 422 (5th Cir. 1942); Ranger Ins. Co. v. United Hous. of New Mexico, Inc., 488 F.2d
682, 684 (5th Cir. 1974).

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2960); Edwards v. Sharkey, 747 F.2d 684, 686 (11th Cir. 1984) (citing American Fidelity).
This caution, however, has not been based on the absence of an actual “case or controversy”
under the Declaratory Judgment Act. Rather, courts have declined to hear these cases based
on “the traditional discretion of federal courts exercising jurisdiction over declaratory
judgment actions.” Sharkey, 747 F.2d at 686; see also Nationwide Mut. Fire Ins. Co. v.
Dillard House Inc., 651 F. Supp. 2d 1367, 1372 n.8 (N.D. Ga. 2009) (citations omitted)
(“American Fidelity was not a ripeness case under the Article III case or controversy
requirement or related prudential doctrines, but rather addressed the discretion afforded to
federal courts under the Discretionary Judgment Act to decline to resolve premature
questions.”). Declining jurisdiction allows a district court to sidestep the “nice and intriguing
question which today may readily be imagined, but may never in fact come to pass.” Am.
Fid., 280 F.2d at 461. District courts in the Eleventh Circuit have heeded this caution in
circumstances similar to those before this Court, declining to exercise jurisdiction as a matter
of judicial discretion. See, e.g., MacMillan-Bloedel, Inc., v. Firemen’s Ins. Co. of Newark
N.J., 558 F. Supp. 596, 600 (S.D. Ala. 1983) (declining to exercise jurisdiction over a suit
by an injured tort plaintiff “until such time as the question of the [insured’s] liability to [the
tort plaintiff] is finally determined”); Emp’rs Mut. Cas. Co. v. All Seasons Windows & Door
Mfg. Co., 387 F. Supp. 2d 1205, 1210–11 (S.D. Ala. 2005) (declining to exercise jurisdiction
over suit by insurance company against insured and tort plaintiffs in an underlying state suit,
finding that “[i]t is simply inappropriate to exercise jurisdiction over an action seeking a

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declaration of [the insurer’s] indemnity obligations absent a determination of the insured’s
liability to the [tort plaintiffs]”).
The Court chooses to proceed similarly and, therefore, declines to hear this
declaratory judgment action as a matter of discretion. Although the facts determining Tower
Group’s indemnity obligations appear to be, for all practical purposes, decided, it is not
unforeseeable that the facts could change in such a way that a declaratory judgment in this
case would be meaningless. For example, if OHD were to prevail in the underlying state
court action, the Court would never have to reach the issue of whether the Tort Plaintiffs
were entitled to benefits or proceeds under the Tower Group insurance policy. Moreover,
even if the Tort Plaintiffs were to prevail, it cannot be known on what grounds OHD would
be found liable to the Tort Plaintiffs, and thus, the Court could not determine whether Tower
Group’s duty to indemnify under the policy had been triggered. Thus, to determine whether
the Tower Group policy covers claims filed by the Tort Plaintiffs before the entry of a
judgment in state court would require this Court to delve into “nice and intriguing questions
which today may readily be imagined, but may never in fact come to pass.” See Am. Fid.,
280 F.2d at 461.

Finally, declining to entertain this suit will not prejudice Tower Group.

Tower Group is still entitled to re-file this declaratory judgment action upon a state court
judgment against OHD.5 However, entering summary judgment in Tower Group’s favor on

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Under Alabama law, the relevant statute of limitations period does not begin to run in an
indemnification action until the insured is found liable. Thus, there is no risk that a subsequent declaratory
judgment action would be time-barred at the conclusion of the state proceeding. See Emp’rs Mut., 387 F.
Supp. 2d at 1212 (citing Am. Commercial Barge Line Co. v. Roush, 793 So. 2d 726, 729 (Ala. 2000)).

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its declaratory judgment claims against the Tort Plaintiffs may very well prejudice the Tort
Plaintiffs in that it could preclude any claims brought by the Tort Plaintiffs in a subsequent
direct action against Tower Group should the Tort Plaintiffs prevail in the state court action.
See Ranger Ins., 488 F.2d at 683.
VI. CONCLUSION
For the foregoing reasons, the above-style case is DISMISSED with leave to re-file
upon resolution of the underlying state court action. Consistent with the Consent Judgment
(Doc. #27) previously entered by the Court, all claims against OHD are DISMISSED with
prejudice. Tower Group’s motion to strike (Doc. #29) is DENIED as moot.
DONE this the 22nd day of November, 2013.

/s/ Mark E. Fuller
UNITED STATES DISTRICT JUDGE

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