Franklin et al v. National General Assurance Company

Filing 19

MEMORANDUM OPINION AND ORDER directing that Defendant's 9 motion to stay isGRANTED in part and DENIED in part; the motion is granted as to Counts I, II, and III, and denied as to Count IV; further ORDERED that Plaintiffs' request for oral argument is DENIED as moot. Signed by Chief Judge William Keith Watkins on 7/25/13. (scn, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
LAURA FRANKLIN, et al.,
Plaintiffs,
v.
NATIONAL GENERAL
ASSURANCE CO.,
Defendant.

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) CASE NO. 2:13-CV-103-WKW
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MEMORANDUM OPINION AND ORDER
Before the court is Defendant National General Assurance Co.’s Motion to
Stay Proceedings (Doc. # 9), which the parties have briefed (Docs. # 14, 15, 18.)
Upon consideration, the motion is due to be granted in part and denied in part.
I. BACKGROUND
Defendant issued an automobile insurance policy under which Ms. Franklin
was named as an insured driver (the “policy”). The policy had a $50,000 coverage
limit for bodily injury. During the coverage period, Ms. Franklin and Mr. Gutierrez
were involved in a motor vehicle accident in Montgomery County, Alabama. While
driving her automobile, Ms. Franklin rear-ended the vehicle driven by Mr. Gutierrez.
As a result of this accident, Mr. Gutierrez is a paraplegic.

Mr. Gutierrez made a claim against Defendant for the policy limits, but
Defendant determined that its “insured was not legally liable for [Mr. Gutierrez’s]
loss.” (Compl. ¶ 16.) After Defendant denied Mr. Gutierrez’s repeated demands for
the policy limits, Mr. Gutierrez sued Ms. Franklin in an Alabama state court (the
“underlying action”).
During the trial court proceedings in the underlying action, Defendant defended
Ms. Franklin under a reservation of rights. The case proceeded to trial on a
negligence claim. The jury returned a verdict in favor of Mr. Gutierrez for $13
million, which the state trial judge remitted to $9 million. Ms. Franklin appealed the
verdict and moved the Alabama Supreme Court to “authorize the trial court to accept
a supersedeas bond in an amount less than described in Rule 8(a)(1) of the Alabama
Rules of Appellate Procedure.”1 (Doc. # 18-1, at 1; Doc. # 1, at 11.) The Alabama
Supreme Court granted the motion and permitted Ms. Franklin to post a supersedeas
bond in the amount of $50,000. (Doc. # 1, at 11.) Mr. Gutierrez cross-appealed.
Those appeals are pending before the Alabama Supreme Court.

1

When the judgment is for the payment of money only and exceeds $10,000, Rule 8(a)(1)
allows an appellant to obtain a stay of execution of the judgment pending appeal by posting an
approved supersedeas bond “in an amount equal to . . . 125%” of the amount of the judgment.
Ala. R. App. P. 8(a)(1).
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In this lawsuit, Mr. Gutierrez and Ms. Franklin are aligned as Plaintiffs. Ms.
Franklin brings two counts against Defendant for negligent and bad faith failure to
investigate and settle (Counts I and II). Additionally, Mr. Gutierrez, through an
assignment of rights from Ms. Franklin, brings two counts against Defendant. One
count is for breach of the insurance contract based upon Defendant’s failure to post
an appeal bond for $11,250,000, or 125% of the judgment (Count III).2 The final
count is for a declaratory judgment and specific performance (Count IV). Count IV
seeks a declaration that Defendant had a contractual obligation under the policy’s
supplementary payments provision to post an appeal bond in an amount equal to 125
percent of the judgment, as dictated by Rule 8(a)(1). Count IV further asks the court
“to compel the Defendant, via the doctrine of specific performance, to . . . post a bond
in the amount of 125% of the judgment . . . .” (Doc. # 1, ¶ 63.)

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Plaintiffs contend that the policy requires Defendant to pay the appeal bond, rather than
just the premiums on the bond. (Doc. # 1, ¶ 66 (arguing that the policy “gives no indication of
the distinction between paying the premium on an appeal bond attainable by the insured versus
[Defendant] applying for the bond itself” and that the policy “plainly indicates that [Defendant]
will obtain the bond”).) This argument goes to the merits of Count IV. At this juncture, the
court expresses no opinion on the merits; however, solely for purposes of this opinion but not as
a matter of contract interpretation, the court refers to Defendant’s policy obligation as pertaining
to the posting of appeal bonds, rather than the payment of appeal bond premiums.
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II. DISCUSSION
Defendant moves for a stay of this action pending resolution of the appeal in
the underlying action. It asserts two grounds for a stay: ripeness and the court’s
inherent power. Plaintiffs concede that a stay is appropriate as to Counts I, II, and III,
but not as to Count IV. Based upon Plaintiff’s concession, the court will stay this
action as to Counts I, II, and III without further analysis. The following discussion
addresses the arguments only with respect to Count IV.
A.

Count IV is ripe.
A declaratory judgment should not be entered unless there is a “controversy

‘ripe’ for judicial resolution.” Abbott Labs. v. Gardner, 387 U.S. 136, 148–49
(1967), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99, 105 (1977).
“A controversy, to be justiciable, must be such that it can presently be litigated and
decided and not hypothetical, conjectural, conditional or based upon the possibility
of a factual situation that may never develop.” Brown & Root, Inc. v. Big Rock Corp.,
383 F.2d 662, 665 (5th Cir. 1967).3
Defendant argues that Count IV is not ripe because the Alabama Supreme
Court could overturn the verdict and remand the underlying case for a new trial.

3

In Bonner v. City of Prichard, the Eleventh Circuit adopted as binding precedent all
decisions of the former Fifth Circuit issued prior to October 1, 1981. See 661 F.2d 1206, 1209
(11th Cir. 1981) (en banc).
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Hence, Defendant contends that absent a final determination on the issue of liability,
Count IV is merely a conjectural claim. Plaintiffs argue, however, that Count IV is
ripe because a legal interpretation of the policy’s supplementary payments provision
is not dependent upon resolution of the underlying appeal. (Doc. # 14, at 7.) For the
reasons that follow, Count IV is ripe.
As an initial matter, Defendant’s contractual obligations involving the posting
of an appeal bond fall within Defendant’s duty to defend its insured. In Burford
Equipment Co. v. Centennial Insurance Co., the court found that the insured’s
contractual obligation to pay appeal bond premiums arose from the insurer’s duty to
defend. See 857 F. Supp. 1499, 1504 (M.D. Ala. 1994). An authoritative treatise is
in accord. See 14 Russ & Segalla, Couch on Insurance § 205:44 (discussing an
insurer’s duty with respect to appeal bonds as an aspect of the insurer’s duty to
defend). Defendant has not submitted any contrary argument or authority requiring
a different conclusion.
A ripe controversy generally exists in a declaratory judgment action when an
insurer denies that it has a duty to defend its insured in an underlying suit, even where
liability in the underlying suit is unresolved. See Am. Fid. & Cas. Co. v. Pa.
Threshermen & Farmers’ Mut. Cas. Ins. Co., 280 F.2d 453, 461 (5th Cir. 1960). A
dispute about defense obligations is ripe because the insurer’s duty to defend “is a
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present obligation existing during the pendency of the suit.” White-Spunner Const.,
Inc. v. Zurich Am. Ins. Co., No. 10cv158, 2010 WL 3489956, at *1 (S.D. Ala. Aug.
30, 2012). Given the nature of the duty to defend, “the federal courts in Alabama
have repeatedly resolved the issue of an insurer’s duty to defend . . . prior to
resolution of the underlying lawsuit.” St. Paul Fire & Marine Ins. Co. v. Town of
Gurley, Ala., No. 11cv4356, 2012 WL 3637690, at *4 (N.D. Ala. Aug. 22, 2012)
(collecting cases). Defendant gives no reason why these principles, although
typically addressed to the insurer’s defense duties at the trial court level, would not
also apply to the analysis of an insurer’s defense obligations at the appellate level.
Based upon the foregoing authority, the court finds that the pendency of the
appeal in the underlying action is not an impediment to Count IV’s ripeness. Count
IV seeks a declaration that the policy obligates Defendant to post an appeal bond for
the entire judgment plus 25 percent, notwithstanding that the judgment exceeds the
policy limits, and a corresponding request for specific performance of the policy. The
controversy in Count IV involves a matter of contract interpretation with respect to
Defendant’s defense obligations to post an appeal bond. It implicates Defendant’s
existing contractual obligations, and those obligations do not depend upon the
outcome of the issues on appeal. Count IV presents, therefore, a controversy ripe for
adjudication.
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Defendant argues that Assurance Co. of America v. Legendary Home Builders,
305 F. Supp. 2d 1266 (S.D. Ala. 2001), compels a different result. (Doc. # 15,
at 8–9.) But that case is inapposite because it addressed the insurer’s duty to
indemnify. Unlike the duty to defend, “an insurer’s duty to indemnify is not ripe for
adjudication in a declaratory judgment action ‘until the insured is in fact held liable
in the underlying suit.’” Assurance Co. of Am., 305 F. Supp. 2d at 1271 (quoting
Employers Mut. Cas. Co. v. Evans, 76 F. Supp. 2d 1257, 1260 (N.D. Ala. 1999)).
Accordingly, a stay is not warranted on ripeness grounds.
B.

The court declines to exercise its inherent authority to stay Count IV.
Federal courts have the inherent power to stay an action based on the pendency

of a related proceeding in state court. “[T]he power to stay proceedings is incidental
to the power inherent in every court to control the disposition of the causes on its
docket with economy of time and effort for itself, for counsel, and for litigants.”
Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). The party moving for a stay “bears
the burden of establishing its necessity.” In re Colonial Bancgroup, Inc. Sec. Litig.,
No. 2:09cv104, 2009 WL 3110820, at *1 (M.D. Ala. Sept. 25, 2009) (citing Clinton
v. Jones, 520 U.S. 681, 708 (1997)).
Relying on Landis, Defendant contends without elaboration that a stay of
Count IV until the Alabama Supreme Court resolves the underlying appeal would be
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in the “best interests of judicial economy, efficiency, and fairness.” (Doc. # 9, at 3.)
But these considerations do not justify a stay as to Count IV.
The issue of what the policy requires concerning Defendant’s appeal bond
obligations will not arise either in Ms. Franklin’s appeal or Mr. Gutierrez’s crossappeal in the underlying action. Defendant is not a party to the underlying action, and
no coverage issues are pending before the Alabama Supreme Court. Because the
Alabama Supreme Court will not render a coverage determination as to Defendant’s
contractual obligations for posting an appeal bond, it is difficult to envision how
judicial economy and efficiency would be served by a stay.

Additionally,

Defendant’s cursory assertion that “fairness” necessitates a stay, unaccompanied by
any effort at developed argument, is inadequate to warrant consideration.
Elsewhere in its briefing, Defendant mentions that Count IV is an attempt to
“end run” the Alabama Supreme Court’s Order approving a $50,000 supersedeas
bond. (Doc. # 15, at 1–2.) It is true that the Alabama Supreme Court has
countenanced a reduced bond in the amount of $50,000. Defendant has not cited
anything, however, that shows that the Alabama Supreme Court reduced the bond
based upon its interpretation of the policy, thus, obviating concerns of duplicative
litigation. Nor, as stated, has the Alabama Supreme Court been asked to resolve
Defendant’s liabilities under the policy. Additionally, as concerns a stay, Plaintiff
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makes a seemingly valid point that a declaratory judgment on the policy’s
requirements as to Defendant’s duty to post an appeal bond would be meaningless
once the appeal is over.4 Cf. Sears, Roebuck & Co. v. Hartford Acc. & Indem. Co.,
No. 93c5467, 1994 WL 55727, at *2 (N.D. Ill. Feb. 22, 2013) (“The question of
Hartford’s duty to defend Sears should be settled promptly, rather than stayed. The
value of a duty to defend is diminished if its imposition is delayed while a case
proceeds.”).
Defendant offers no other grounds for stay. On the grounds offered, Defendant
has not met its burden of demonstrating that a stay of Count IV is necessary.
Accordingly, a stay is not warranted based upon the court’s inherent authority.

4

With that said, the court recognizes the potential for indirect federal-court interference
with the Alabama Supreme Court’s ruling on the bond issue. The practical effect of a judgment
declaring that the policy requires Defendant to post an appeal bond in the full amount of the
state-court judgment and a corresponding order directing specific performance of the insurance
policy, as Plaintiffs request, arguably would have the effect of undoing the Alabama Supreme
Court’s ruling on the appropriate bond amount. But to the extent that abstention issues are at
play, Defendant has not briefed or argued abstention or even requested it. Accordingly, without
the aid of briefing, the court declines to address whether abstention as to Count IV would be
appropriate.
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III. CONCLUSION
Based on the foregoing, it is ORDERED that Defendant’s motion to stay is
GRANTED in part and DENIED in part. The motion is granted as to Counts I, II, and
III, and denied as to Count IV.
It is further ORDERED that Plaintiffs’ request for oral argument is DENIED
as moot.
DONE this 25th day of July, 2013.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE

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