Thomas v. Auto-Owners Insurance Company et al

Filing 154

MEMORANDUM OPINION AND ORDER: Defendant Auto-Owners Insurance Company's 149 Motion to Partially Reconsider and/or to Certify a Question of Alabama Law is due to be and is hereby DENIED, as further set out in Order. Signed by Honorable Judge R. Austin Huffaker, Jr on 9/25/2020. (am, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
SOUTHERN DIVISION
TIMOTHY J. THOMAS,
Plaintiff,
v.
AUTO-OWNERS INSURANCE
COMPANY, et al.,
Defendants.

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CASE NO. 1:16-cv-00542-RAH-JTA
(WO)

MEMORANDUM OPINION AND ORDER
On August 17, 2020, this Court issued a lengthy opinion (see Doc. 145)
addressing the parties’ respective summary judgment motions. One of the principal
issues argued by the parties, and which this Court amply addressed in its opinion,
was the applicable standard governing Plaintiff Timothy J. Thomas’ (Thomas) thirdparty bad faith failure-to-settle claim against Defendant Auto-Owners Insurance
Company (Auto-Owners). Citing at least five decisions issued by Alabama state and
federal courts, Thomas argued for application of the “totality of the circumstances”
standard while Auto-Owners, citing one sentence in one case, argued for application
of an “arguable reason” standard similar to that used in first-party bad faith cases.
This Court, after reviewing these cases and hearing oral argument, concluded that
the totality of the circumstances standard was the appropriate standard to apply.

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Undeterred by this Court’s decision and the holdings of numerous courts
before it, on September 3, 2020, Auto-Owners filed a Motion to Partially Reconsider
And/Or To Certify A Question of Alabama Law (“Motion”). (See Doc. 149.) In its
Motion, Auto-Owners argues that the Court should “re-examine” its summary
judgment decision concerning the permissive user issue. Secondly, Auto-Owners
requests the Court to certify the following question to the Alabama Supreme Court:
“Does Alabama recognize a common law right of action in tort against a liability
insurer for bad faith failure to settle a third-party claim against its insured? And if
so, what are the elements (and defenses)?” (Doc. 149 at 1.) As to both requests,
Auto-Owners’ Motion is due to be denied.
I.

The Request to Reconsider
As to the permissive user issue, the Court previously addressed this issue in

depth in its summary judgment opinion, specifically noting that “[s]ince defense and
indemnity are no longer issues in the underlying case, neither are policy provisions
such as permissive use and cooperation.” (Doc. 145 at 45.) In its Motion, AutoOwners, without citing any precedent, argues that the Court “missed the point that
Thomas’ theft of the truck (entitling him to no insurance protection) is directly tied
to the bad faith issue” and that Auto-Owners seeks “a declaration under Alabama
law that Thomas cannot show a matter-of-law entitlement to contract coverage,
which is a baseline requirement for his bringing a bad faith claim.” (Doc. 149 at 42

5.)
“A motion to reconsider is only available when a party presents the court with
evidence of an intervening change in controlling law, the availability of new
evidence, or the need to correct clear error or manifest injustice.” Gipson v. Mattox,
511 F.Supp.2d 1182, 1185 (S.D. Ala. 2007) (internal quotes omitted).
Motions to reconsider serve a valuable but limited function. They
do not exist to permit losing parties to prop up arguments previously
made or to inject new ones, nor to provide evidence or authority
previously omitted. They do not, in short, serve to relieve a party of
the consequences of its original, limited presentation.
Nelson v. Whirlpool Corp., 668 F.Supp.2d 1368, 1379 (S.D. Ala. 2009) (internal
quotes omitted).
Here, Auto-Owners does not argue for an intervening change in controlling
law or the availability of new evidence. Instead, although not abundantly clear,
Auto-Owners argues there was clear error or manifest injustice. The Motion clearly
does not meet that standard.
First and foremost, the bad faith standard advocated by Auto-Owners involves
a question of law, yet Auto-Owners fails to cite a single case, Alabama or otherwise,
that supports its position that the Court clearly erred in how it resolved this issue.
The only two cases cited by Auto-Owners involve first party bad faith failure to pay
a direct claim, which in Alabama is an entirely different claim and concept from a
bad faith failure to settle a third party liability claim against an insured. This case is
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a third party bad faith case, and therefore the two cases cited by Auto-Owners
provide no guidance to the issue at hand.
Moreover, the instant case does not involve an insurance carrier’s refusal to
settle the underlying case because of a coverage issue involving permissive use of
the insured vehicle. If the reason that Auto-Owners refused to settle the claims
against Thomas was because Auto-Owners believed that Thomas was not a
permissive user under the insurance policy, then Thomas’ permissive use of the
vehicle has a significant degree of relevance under the totality of the circumstances
standard. But that is not the set of facts presented here. Here, Auto-Owners claims
its refusal to settle the underlying liability claims was based, not on coverage issues,
but instead on settlement and verdict valuations. It is that which is on trial, not
coverage.
Finally, the Court notes an inconsistency in Auto-Owners’ argument. While
acknowledging that the negligent failure-to-settle claim should be tried to a jury
under the totality of the circumstances standard, Auto-Owners does not argue that
the permissive user coverage issue should stand as a defense to that claim. If
coverage under the insurance policy could negate a bad faith failure-to-settle claim
under the totality of the circumstances standard as Auto-Owners currently argues,
then should not that same coverage issue constitute a defense to a negligent failureto-settle claim? Interestingly, Auto-Owners does not make such an argument. For
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the same reasons that the coverage issue has no bearing on the claim for negligent
failure to settle, it equally has no bearing on a bad faith claim that is subject to the
same totality of the circumstances inquiry. Simply put, Auto-Owners has not shown
clear error or manifest injustice and therefore Auto-Owner’s Motion, to the extent it
requests the Court to re-examine the permissive user coverage issue, is due to be
denied.
II.

Certification Issue
In the alternative, Auto-Owners asks the Court to certify the following

question to the Alabama Supreme Court: “Does Alabama recognize a common law
right of action in tort against a liability insurer for bad faith failure to settle a thirdparty claim against its insured? And if so, what are the elements (and defenses)?”
(Doc. 149 at 1-2.) In support of this request, Auto-Owners states that “this legal
question is one on which there is no controlling Alabama Supreme Court precedent”
and that the Alabama Supreme Court “has talked about a possible cause of action . .
. but it has never had occasion to consider and formally recognize such a cause of
action.” (Doc. 149 at 2.)
Rule 18 of the Alabama Rules of Appellate Procedure permits federal courts
sitting in diversity to certify to the Alabama Supreme Court questions of Alabama
law for which “there are no clear controlling precedents.” Ala. R. App. P. 18. But
where “existing Alabama law is sufficient to guide the [certifying] court,” the
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Alabama Supreme Court will decline to answer the question. Heatherwood
Holdings, LLC v. First Commercial Bank, 61 So. 3d 1012, 1026 (Ala. 2010); see
also Stewart Title Guar. Co. v. Shelby Realty Holdings, LLC, 83 So. 3d 469, 472
(Ala. 2011) (noting that the Alabama Supreme Court cannot answer a certified
question that “treads no new ground under Alabama law”).
With this guidepost, it is clear that Auto-Owners’ request for certification is
due to be denied. First, contrary to Auto-Owners’ suggestion, the Alabama Supreme
Court has recognized a cause of action for third-party bad faith failure to settle. See,
e.g., Waters v. American Casualty Co. of Reading, Pa., 73 So. 2d 524, 529 (Ala.
1954) (holding that whether an insurance company acted in bad faith in the exercise
of its settlement authority depends upon “all the facts and circumstances”). Thus,
the Court sees no reason to certify a question for which there already is an answer.
The Court also finds Auto-Owners’ claimed confusion as to elements and
burdens of proof unavailing and lacking justification to certify the requested
question. Once again, the Court points the parties to the Alabama Supreme Court
decisions in Waters, 73 So. 2d at 529, Hartford Accident & Indemnity Co. v. Cosby,
173 So. 2d 585 (Ala. 1965), and State Farm Mutual Automobile Insurance Co. v.
Hollis, 554 So. 2d 387 (Ala. 1989), and Alabama federal district court decisions in
Franklin v. National General Assurance Co., No. 2:13-CV-103-WKW, 2015 WL
350633 (M.D. Ala. Jan. 23, 2015), and Leo v. Alfa Mutual Insurance Co., No. 136

CV-1826-VEH, 2016 WL 1180108 (N.D. Ala. Mar. 28, 2016), for guidance. The
Court is confident that, with the assistance of counsel, it will be able to craft jury
charges properly reflective of Alabama law.
Moreover, the Court will not embark on uncharted territory in this endeavor
as Alabama is not alone in following the totality of the circumstances standard in
considering a third-party bad faith failure-to-settle claim. Indeed, many other states
apply this same standard, and many of them have published charges. See, e.g.,
Harris v. Government Employees Insurance Co., Case No. 3:12-cv-554-J-JRK, 2015
WL 12696100 (M.D. Fla. Feb. 25, 2015) (discussing Fla. Standard Jury Instruction
404.4 and the tort of bad faith failure to settle a third party liability claim); N.Y.
Pattern Jury Instr.-Civil 4:67.
The starting point will be easy and straightforward: Did Auto-Owners have
an opportunity to settle the underlying case against its insured within policy limits?
Did Auto-Owners fail to settle the case against its insured within policy limits? Was
there a verdict against its insured in excess of policy limits? Did Auto-Owners fail
to pay or satisfy the excess verdict against its insured? And most importantly, was
Auto-Owners’ failure to settle the case against its insured within policy limits in bad
faith based on the totality of the circumstances? From there, the totality of the
circumstances inquiry can and will include any number of case specific factors,
many of which were set forth by the Court in its summary judgment opinion. Those
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factors will be relevant to the issue of whether Auto-Owners acted in good faith, as
a prudent insurance company, or negligently or in bad faith toward its insured in
making the settlement decisions on behalf of its insured. The concept of bad faith is
not a new issue in Alabama and is easily one that can be defined to the jury at the
appropriate time.
III.

Conclusion

Accordingly, for the reasons stated herein, Defendant Auto-Owners Insurance
Company’s Motion (Doc. 149) is due to be and is hereby DENIED.
DONE, this 25th day of September, 2020.

/s/ R. Austin Huffaker, Jr.
R. AUSTIN HUFFAKER, JR.
UNITED STATES DISTRICT JUDGE

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