AIX Specialty Insurance Company v. H&W Tank Testing, Inc. et al

Filing 61

ORDER directing as follows: (1) granting AIX's 59 Motion for Extension of Time to File a brief in opposition to defs' objection, and its 60 brief in opposition is DEEMED timely; (2) defendant's 58 objection is OVERRULED; (3) ADOPTING 57 REPORT AND RECOMMENDATION of the Magistrate Judge; (4) plf AIX Specialty Insurance Company's 32 Motion for Summary Judgment is GRANTED, and the court DECLARES that AIX is under no duty to defend or indemnity defendants; (5) defs' 35 Motion for Summary Judgment is DENIED; (6) a final judgment will be entered separately. Signed by Chief Judge William Keith Watkins on 3/19/18. (djy, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
EASTERN DIVISION
AIX SPECIALTY INSURANCE
CO.,
Plaintiff,
v.
H&W TANK TESTING, INC.,
BOBBY SULLIVAN, and
ALLISON SULLIVAN,
Defendants.

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CASE NO. 3:16-CV-642-WKW
[WO]

ORDER
This is an insurance coverage dispute. On March 11, 2016, Defendant
Bobby Sullivan was driving a propane tanker truck when he lost control and
crashed. The propane tank was punctured, caught fire, and exploded, causing Mr.
Sullivan catastrophic burn injuries.

Mr. Sullivan and his wife, Allison, sued

Defendant H&W Tank Testing, Inc., in an Alabama state court, alleging that H&W
was negligent in its testing and inspection of the propane tanker. H&W had
insurance coverage through a commercial general liability (“CGL”) policy with
Plaintiff AIX Specialty Insurance Company.

AIX denied coverage to H&W,

invoking an exclusion in the policy for any bodily injury or property damage
arising out of “[a]n error, omission, defect or deficiency in [a]ny test performed; or

[a]n evaluation, a consultation[,] or advice given[] by or on behalf of” H&W. AIX
then brought this action seeking a declaratory judgment that its policy does not
cover the Sullivans’ claims against H&W in the underlying suit and that AIX has
no obligation to defend or indemnify H&W in that suit. (Doc. # 1, at 5.)
Before the court is the Recommendation and Order of the Magistrate Judge.
(Doc. # 57.) After briefing and oral argument on the parties’ cross motions for
summary judgment, the Magistrate Judge determined that (1) the Sullivans’ claims
fall within the insurance policy’s testing exclusion, and (2) this exclusion does not
violate Alabama law or public policy and is therefore enforceable. Accordingly,
the Magistrate Judge recommends that judgment be entered in favor of AIX. The
Sullivans object to the Magistrate Judge’s second conclusion, but not the first.
(Doc. # 58.)

Upon an independent review of the record and a de novo

determination of those issues to which the Sullivans object, the court finds that the
Magistrate Judge’s Recommendation is due to be adopted. See 28 U.S.C. § 636(b).
The Sullivans invoke the Alabama statutory scheme governing liquefied
petroleum gas as establishing a public policy of “protect[ing] the public from the
unique dangers of propane tanker explosions,” and warn that “[i]f AIX is free to
exclude the very coverage required by [Alabama law], then the Alabama citizens
would lose the very protection mandated by the legislature.” (Doc. # 58, at 3–4.)

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As the Magistrate Judge pointed out, however, the problem with this
argument is that the statutory provision at issue (1) regulates the individuals
seeking permits to work with liquefied petroleum gas, not their insurance carriers,
and (2) is silent on the requirement of the kind of coverage (or exclusion from
coverage) here at issue. The relevant Code provision provides:
An applicant for any of the 10 permits shall provide the board with
evidence of minimum insurance coverage by an insurance company or
companies licensed to do business in the state. . . . The minimum
insurance requirements are as follows:
(1) Commercial general liability insurance for all 10 permits:
a. One million dollars ($1,000,000)—each occurrence.
b. One million dollars ($1,000,000)—personal and
advertising injury.
c. One million dollars ($1,000,000)—general aggregate.
d. One million dollars ($1,000,000)—products and
completed operations aggregate.
Ala. Code § 9-17-105(d) (emphasis added). Thus, even if the CGL policy issued
by AIX did not conform to the statutory requirements, it was H&W’s responsibility
to acquire correct coverage.

The provision does not impose an affirmative

obligation on AIX to provide it.
This is in contrast to the automobile coverage cases that the Sullivans cite.
In St. Paul Fire & Marine Insurance Co. v. Elliott, 545 So. 2d 760 (Ala. 1989), for
instance, the Alabama Supreme Court found that a city ordinance requiring an
insurer to notify the city 30 days before cancelling coverage of a taxicab operator
meant that the insurer would be liable for continued coverage if it failed to do so,
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even if the insured himself was on notice that his coverage had lapsed. Id. at 762.
The court found that the “purpose and intent of the ordinance . . . is to insure the
citizens of Eutaw against tortious conduct of taxicab operators,” and concluded
that the ordinance meant what it said: that the insurer, not the taxicab operator, was
responsible for notifying the city of the cancellation of a policy. See id. at 762.
Notable is the fact that the insurance company even admitted this interpretation
and was seeking relief from the court on equitable grounds of estoppel. Id.
Hill v. Campbell, 804 So. 2d 1107 (Ala. Civ. App. 2001), also cited by the
Sullivans, is also not to the contrary. In Hill, a woman injured in a car crash
caused by a drunk driver was awarded compensatory and punitive damages, but the
driver’s insurance company denied coverage of the punitive damage award
because it was excluded from the policy. Id. at 1107–08. The Alabama Court of
Civil Appeals held that this did not violate public policy because the Alabama
Wrongful Death Act required coverage of punitive damage awards only in cases
where death resulted—where no compensatory award could make the victim
whole. Id. at 1110–11. The court then turned to the issue of whether the woman’s
own insurance company could deny her coverage of the punitive damage award
under her underinsured motorist coverage policy, which was governed by the
Alabama Underinsured/Uninsured Motorist Statute.

The court noted that the

purpose of the statute was to protect “those financially and ethically responsible
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people who obtain automobile-liability insurance[] from injuries caused by those
not so responsible,” id. at 1111 (citation omitted), and that it did this by directly
governing the issuance of insurance policies to insureds to require that policies
cover the insured for “damages from owners or operators of uninsured motor
vehicles because of bodily injury, sickness or disease, including death,” id.
(quoting Ala. Code § 32-7-23(a)). The court concluded that, even though it “might
agree with the majority of jurisdictions that an insurance company should not have
to pay punitive damages for another’s wrongful act under [underinsured motorist]
coverage when the insured has been made whole through compensatory damages,”
the court was nevertheless “bound by the words used by the legislature” in the
statute, which did not make such a distinction. Id. at 1116.
The lesson of both Hill and Elliott is that Alabama courts apply the statutory
provisions as they are written, not as they would like them to be written. See Hill,
804 So. 2d at 1116 (“It is our job to say what the law is, not what it should be.”);
see also Grimes v. Alfa Mut. Ins. Co., 227 So. 3d 475, 487 (Ala. 2017) (“This
Court has held that insurance companies have the right to limit the coverage
offered through the use of exclusions in their policies, provided that those
exclusions do not violate a statute or public policy. If an individual purchases a
policy containing an unambiguous exclusion that does not violate a statute or

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public policy, courts will enforce the contract as written.” (quoting Hooper v.
Allstate Ins. Co., 571 So. 2d 1001, 1002 (Ala. 1990) (citations omitted))).
In sum, H&W was required to procure a CGL policy so that it could apply
for a permit. The CGL policy it purchased unambiguously excluded coverage for
the unfortunate accident that harmed Mr. Sullivan. The statutory provision the
Sullivans cite governs permit applicants, not insurance companies or insurance
policies, and in any event it does not limit the exclusions that an insurance policy
may contain.
Accordingly, it is ORDERED as follows:
1.

AIX’s motion for an extension of time to file a brief in opposition to

Defendants’ objection to the Magistrate Judge’s Report and Recommendation
(Doc. # 59) is GRANTED, and its brief in opposition (Doc. # 60) is DEEMED
timely.
2.

Defendant’s objection (Doc. # 58) is OVERRULED.

3.

The Recommendation of the Magistrate Judge (Doc. # 57) is

ADOPTED.
4.

Plaintiff AIX Specialty Insurance Company’s motion for summary

judgment (Doc. # 32) is GRANTED, and the court DECLARES that AIX is under
no duty to defend or indemnity Defendants.
5.

Defendants’ motion for summary judgment (Doc. # 35) is DENIED.
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6.

A final judgment will be entered separately.

DONE this 19th day of March, 2018.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE

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