Employers Mutual Casualty Company v. Smith Construction & Development, LLC et al
MEMORANDUM OPINION. Signed by Judge Virginia Emerson Hopkins on 6/12/2013. (JLC)
2013 Jun-12 PM 05:08
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
CASUALTY COMPANY, an
insurance company incorporated in
the State of Iowa,
) Case No.: 1:11-CV-3528-VEH
SMITH CONSTRUCTION &
DEVELOPMENT, LLC; CHARLES )
L. SMITH; WILLIAM WALDRIP; )
and LAURA WALDRIP,
Before the court is the Motion for Summary Judgment (Doc. 25) filed by
Plaintiff Employers Mutual Casualty Company ("EMC"). The court has considered
the arguments made in the following documents:
EMC's "Memorandum Brief in Support of Its Motion for Final Summary
Judgment" (Doc. 26);
A Response (Doc. 30) filed by Defendants Charles Larry Smith and
Smith Construction & Development, LLC ("the Smith Defendants”);
A Response (Doc. 31) filed by Defendants William and Laura Waldrip
A Reply (Doc. 32) by EMC to the Smith Defendants; and
A Reply (Doc. 35) by EMC to the Waldrips.
For the following reasons, EMC's motion is GRANTED in part and DENIED in
I. Procedural Posture
EMC filed the present action on September 30, 2011. (Doc. 1). It seeks
declaratory judgment that it owes no insurance coverage to the Smith Defendants
under the Commercial General Liability (“CGL”) Policy it issued them. The Waldrips
and the Smith Defendants filed their respective Answers on November 16, 2011.
(Docs. 9, 10).
On September 28, 2012, EMC filed the instant motion for Summary Judgment.
(Doc. 25). It filed a supporting brief and evidentiary material on the same date.
(Docs. 26, 27). The Smith Defendants and the Waldrips each filed Response briefs
on November 19, 2012. (Docs. 30, 31). On December 10, 2012, EMC replied
separately to each brief. (Docs. 32, 35).
This court is authorized to issue declaratory judgments under the Declaratory
Judgment Act, 28 U.S.C. §§ 2201-2202 (2012), which provides in relevant part:
In a case of actual controversy within its jurisdiction . . . any court of the
United States, upon the filing of an appropriate pleading, 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. Any such
declaration shall have the force and effect of a final judgment or decree
28 U.S.C. § 2201(a) (2012). The Declaratory Judgment Act does not itself confer
subject matter jurisdiction upon the federal courts. Stuart Weitzman, LLC v.
Microcomputer Res., Inc., 542 F.3d 859, 861-62 (11th Cir. 2008) (citations omitted).
Rather, the plaintiff must allege facts showing that the controversy is within the
court’s original jurisdiction. Household Bank v. JFS Group, 320 F.3d 1249, 1253
(11th Cir. 2003) (citing 28 U.S.C. § 2201(a)). Neither party contests subject matter
jurisdiction here, which arises under the court’s “diversity of citizenship” jurisdiction.
See 28 U.S.C. § 1332(a)(1) (2012). Further, the court finds that diversity jurisdiction
is sufficiently alleged. Whether or not to exercise its authority to proceed in a
declaratory judgment action is a matter committed to the sound discretion of the
district court. See Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995) (“[D]istrict
courts' decisions about the propriety of hearing declaratory judgment actions, which
are necessarily bound up with their decisions about the propriety of granting
declaratory relief, should be reviewed for abuse of discretion.”).
III. Factual Background1
The following relevant facts are not in dispute:
On or about September 15, 2010, the Waldrips filed the underlying state
court action against the Smith Defendants (the “underlying suit” or
The underlying suit centers on the construction of the Waldrips’ singlefamily residence in Talladega County, Alabama.
That construction was to be performed according to the terms of a
contract formed between the Waldrips and the Smith Defendants on
December 17, 2007.
The Waldrips assert the following claims against the Smith Defendants
in the underlying action:
Negligence of construction;
Deceptive trade practices; and
Breach of contract.
Keeping in mind that when deciding a motion for summary judgment the court must
view the evidence and all factual inferences in the light most favorable to the party opposing the
motion, the court provides the following statement of facts. See Optimum Techs., Inc. v. Henkel
Consumer Adhesives, Inc., 496 F.3d 1231, 1241 (11th Cir. 2007) (observing that, in connection
with summary judgment, a court must review all facts and inferences in a light most favorable to
the non-moving party) (citation omitted). This statement does not represent actual findings of
fact. See In re Celotex Corp., 487 F.3d 1320, 1328 (11th Cir. 2007). Instead, the court has
provided this statement simply to place the court’s legal analysis in the context of this particular
case or controversy. Further, due to the nature of this court’s decision on summary judgment, the
foregoing statement of facts is limited in scope. More specifically, facts that are not material to
the court’s ruling on summary judgment have not been included in this background.
The underlying suit is styled Laura Waldrip, et al, v Charles L. Smith, et al, Case No.
CV-2010-900299.00. It is pending in the Circuit Court of Talladega County, Alabama.
The Waldrips specifically allege in the underlying suit that the
“abandonment of the construction of the home left the structure exposed
to the elements. As a result, [the homeowners] assert that moisture
caused deterioration of certain building components and mold growth
is present throughout the home . . .”
On February 1, 2007, EMC issued CGL Policy Number 3D5-11-83 (“the
Policy”) to the Smith Defendants.
The Policy was originally effective through February 1, 2008, but was
renewed through February 2, 2011.
The Policy was thus in force at the time the Waldrips’ claims arose.
On or about October 29, 2010, the Smith Defendants were served in the
On or about November 4, 2010, the Smith Defendants filed an Answer
and Counterclaim against the Waldrips in the underlying action.
On or about January 6, 2011, the Smith Defendants notified EMC of the
EMC is defending the Smith Defendants in state court under a full
reservation of rights.
The Insuring Agreement of the Policy provides as follows:
We [EMC] will pay those sums that the insured [Smith
Defendants] becomes legally obligated to pay as damages because
of “bodily injury” or “property damage” to which this insurance
applies. We will have the right and duty to defend the insured
against any “suit” seeking those damages. However, we will have
no duty to defend the insured against any “suit” seeking damages
for “bodily injury” or “property damage” to which this insurance
does not apply . . .
This insurance applies to “bodily injury” and “property damage”
The “bodily injury” or “property damage” is caused by an
“occurrence” that takes place in the “coverage territory”;
The “bodily injury” or “property damage” occurs during
the policy period; . . .
The Policy defines these terms as follows:
“Bodily injury” means bodily injury, sickness, or disease
sustained by a person, including death, resulting from any of these
at any time.
“Property damage” means:
Loss of use of tangible property that is not physically
injured. All such loss of use shall be deemed to occur at the
time of the “occurrence” that caused it.
Physical injury to tangible property, including all resulting
loss of use of that property. All such loss of use shall be
deemed to occur at the time of the physical injury that
caused it; or
“Occurrence” means an accident, including continuous or
repeated exposure to substantially the same general harmful
The Policy contains the following exclusions:
Exclusion 2(j). Damage to Property
The Policy excludes “property damage” to:
That particular part of real property on which you [Smith
Defendants] or any contractors or subcontractors working
directly or indirectly on your behalf are performing
operations, if the “property damage” arises out of those
That particular part of any property that must be restored,
repaired or replaced because “your work” was incorrectly
performed on it.
Paragraph (6) of this exclusion does not apply to “property damage”
included in the “products completed operations hazard.”
Fungi or Bacteria Exclusion
The insurance does not apply to:
“Bodily injury” or “property damage” which would not have
occurred in whole or in part, but for the actual, alleged, or
threatened inhalation of, ingestion of, contact with, exposure to,
existence of, or presence of, any “fungi” or bacteria on or within
a building or structure, including its contents, regardless of
whether any other cause, event, material, or product contributed
concurrently or in any sequence to such injury or damage.
Any loss, cost, or expenses arising out of the abating, testing for,
monitoring, cleaning up, removing, containing, treating,
detoxifying, neutralizing, remediating or disposing of, or in any
responding to, or assessing the effects of, “fungi” or bacteria, by
any insured or by any other person or entity.
“Fungi” means any type or form of fungus, including mold or mildew
and any mycotoxins, spores, scents or byproducts produced or released
Absolute Exclusion for Fraud, Misrepresentation, Deceit, or
Suppression or Concealment of Fraud
This insurance does not apply to any claim or lawsuit for damages
arising out of fraud, misrepresentation, deceit, suppression or
concealment of fact, whether intentional, unintentional, innocent,
negligent, willful, malicious, reckless or wanton, including, but not
limited to an action or lawsuit demanding or seeking damages or
recovery based on direct liability, vicarious liability, or agency
principles. We will not make any payment if those payments arise out of
any claim or lawsuit excluded by this endorsement. We have no duty to
defend any insured against any claim or lawsuit for damages to which
this insurance does not apply.
This exclusion applies regardless of:
Whether such operations are or were conducted by you or on your
Whether the operations are or were conducted for you or for
The Policy further requires the following conditions:
You must see to it that we are notified as soon as practicable of an
“occurrence” or an offense which may result in a claim. To the
extent possible, notice should include:
How, when, and where the “occurrence” or offense took
The names and addresses of any injured persons and
The nature and location of any injury or damage arising out
of the “occurrence” or offense.
If a claim is made or “suit” is brought against any insured, you
Immediately record the specifics of the claim or “suit” and
the date received; and
Notify us as soon as practicable
You must see to it that we receive written notice of the claim or
“suit” as soon as practicable.
You and any other involved insured must:
Immediately send us copies of any demands, notices,
summonses, or legal papers received in connection with the
claim or “suit”;
Authorize us to obtain records and other information;
Cooperate with us in the investigation or settlement of the
claim or defense against the “suit”; and
Assist us, upon our request, in the enforcement of any right
against any person or organization which may be liable to
the insured because of injury or damage to which this
insurance may also apply.
See Docs. 1 ¶¶ 1-26, 9 ¶¶ 1-26, 10 ¶¶ 1-26, 26 at 3-10, 30 at 3-6, 31 at 1-2.
IV. Standard of Review
Under Federal Rule of Civil Procedure 56, summary judgment is proper if there
is no genuine dispute as to any material fact and the moving party is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett,
477 U.S. 317, 322 (1986) (“[S]ummary judgment is proper if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.”) (internal quotation
marks and citation omitted).3 The party requesting summary judgment always bears
the initial responsibility of informing the court of the basis for its motion and
identifying those portions of the pleadings or filings that it believes demonstrate the
absence of a genuine issue of material fact. Celotex, 477 U.S. at 323. Once the
moving party has met its burden, Rule 56(e) requires the non-moving party to go
beyond the pleadings in answering the movant. Id. at 324. By its own affidavits – or
by the depositions, answers to interrogatories, and admissions on file – it must
designate specific facts showing that there is a genuine issue for trial. Id.
The underlying substantive law identifies which facts are material and which
are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All
reasonable doubts about the facts and all justifiable inferences are resolved in favor
Congress amended Rule 56 in 2007 in conjunction with a general overhaul of the Federal
Rules of Civil Procedure. The Advisory Committee was careful to note, however, that the
changes “are intended to be stylistic only.” Adv. Comm. Notes to Fed. R. Civ. P. 56 (2007
Amends.) (emphasis added). Consequently, cases interpreting the previous version of Rule 56 are
equally applicable to the revised version. E.g., Wooten v. Walley, No. 2:07-CV-701-WKW[WO],
2008 WL 4217262, at *2 n.5 (M.D. Ala. Sep. 12, 2008).
of the non-movant. Chapman, 229 F.3d at 1023 (citation omitted). Only disputes over
facts that might affect the outcome of the suit under the governing law will properly
preclude the entry of summary judgment. Anderson, 477 U.S. at 248. A dispute is
genuine “if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Id. If the evidence presented by the non-movant to rebut the
moving party’s evidence is merely colorable, or is not significantly probative,
summary judgment may still be granted. Id. at 249 (internal citations omitted).
How the movant may satisfy its initial evidentiary burden depends on whether
that party bears the burden of proof on the given legal issues at trial. Fitzpatrick v.
City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993) (citation omitted). If the movant
bears the burden of proof on the given issue or issues at trial, then it can only meet
its burden on summary judgment by presenting affirmative evidence showing the
absence of a genuine issue of material fact – that is, facts that would entitle it to a
directed verdict if not controverted at trial. Id. (citation omitted). Once the moving
party makes such an affirmative showing, the burden shifts to the non-moving party
to produce “significant, probative evidence demonstrating the existence of a triable
issue of fact.” Id. (citation omitted).
For issues on which the movant does not bear the burden of proof at trial, it can
satisfy its initial burden on summary judgment in either of two ways. Id. at 1115-16
(citation omitted). First, the movant may simply show that there is an absence of
evidence to support the non-movant’s case on the particular issue at hand. Id. at 1116.
In such an instance, the non-movant must rebut by either (1) showing that the record
in fact contains supporting evidence sufficient to withstand a directed verdict motion,
or (2) proffering evidence sufficient to withstand a directed verdict motion at trial
based on the alleged evidentiary deficiency. Id. at 1116-17 (citation omitted). When
responding, the non-movant may no longer rest on mere allegations; instead, it must
set forth evidence of specific facts. Lewis v. Casey, 518 U.S. 343, 358 (1996) (citation
omitted). The second method a movant in this position may use to discharge its
burden is to provide affirmative evidence demonstrating that the non-moving party
will be unable to prove its case at trial. Fitzpatrick, 2 F.3d at 1116. When this occurs,
the non-movant must rebut by offering evidence sufficient to withstand a directed
verdict at trial on the material fact sought to be negated. Id.
As stated, the substantive law identifies which facts are material and which are
irrelevant for summary judgment purposes. Anderson, 477 U.S. at 248. Because this
is a diversity action, state substantive law will determine whether EMC has a duty to
defend or indemnify the Smith Defendants. See Erie R.R. Co. v. Tompkins, 304 U.S.
64, 78 (1938); see also Manuel v. Convergys Corp., 430 F.3d 1132, 1139 (11th Cir.
2005) (“[A] federal court sitting in diversity will apply the choice of law rules for the
state in which it sits.”) (citation omitted). Alabama law applies the doctrine of lex loci
contractus to contract claims. Colonial Life & Accident Ins. Co. v. Hartford Fire Ins.
Co., 358 F.3d 1306, 1308 (11th Cir. 2004). The parties do not dispute that the Policy
was formed in Alabama or that Alabama was the site of the conduct giving rise to the
harms alleged in the underlying action. The court has therefore employed Alabama
law in resolving the instant action. See id. (“The doctrine [of lex loci contractus]
states that a contract is governed by the laws of the state where it is made except
where the parties have legally contracted with reference to the laws of another
jurisdiction.”) (internal quotation marks and citation omitted).
Under Alabama law, an insurer’s duties of defense and indemnity are related
but distinct and thus require separate analysis. Porterfield v. Audubon Indem. Co.,
856 So. 2d 789, 792 (Ala. 2002) (citation omitted). Specifically, an insurer’s duty to
defend is more extensive than its duty to indemnify. U.S. Fid. & Guar. Co. v.
Armstrong, 479 So. 2d 1164, 1168 (Ala. 1985) (citations omitted) (“Armstrong”). The
complaint allegations primarily govern the scope of the duty to defend. Id. (citation
omitted). If these allegations reveal a claim within the policy coverage, then the
insurer must defend, regardless of the ultimate liability of the insured. Ladner & Co.
v. S. Guar. Ins. Co., 347 So. 2d 100, 102 (Ala. 1977) (citation omitted). But an
insurer’s duty to defend is not solely determined from the facts alleged in the
complaint. Id. at 103. A court may look to facts that can be proved by admissible
evidence. Pac. Indem. Co. v. Run-A-Ford Co., 161 So. 2d 789, 795 (Ala. 1964). When
a complaint alleges both acts covered under a policy and acts not covered, the insurer
must at least defend the covered allegations. Blackburn v. Fid. & Deposit Co. of Md.,
667 So. 2d 661, 670 (Ala. 1995) (citation omitted).
The court notes the unusual allocation of evidentiary burdens in this case at this
juncture. Under Alabama law, the insured party bears the burden of proving coverage
by showing that a claim falls within the policy. See Colonial Life & Accident Ins. Co.
v. Collins, 194 So. 2d 532, 535 (1967) (citation omitted). Thus the defendants in this
case must ultimately prove that the Policy covers the Waldrips’ underlying claims.
However, as EMC is requesting summary judgment in the instant action, the burdens
are presently reversed; it bears the burden of proving non-coverage. See supra 9-12.
Specifically, because EMC does not bear the ultimate burden of proving policy
coverage at trial, it can succeed here either by (1) showing an absence of evidence in
the defendants’ case on this issue, or (2) providing affirmative evidence
demonstrating that the defendants will be unable to prove their case at trial.
Fitzpatrick, 2 F.3d at 1116 (emphasis added).
As explained below, EMC is entitled to partial summary judgment. It has
proven that it has no duty under the Policy to defend the Smith Defendants against
the Waldrips’ faulty workmanship, negligence, or misrepresentation claims. The first
two allegations do not describe an “occurrence” to which the Policy’s coverage might
apply, and the Policy absolutely excludes any misrepresentation claims from
coverage. But EMC has failed to show that it need not defend the Smith Defendants
against the Waldrips’ deceptive trade practice claims. Because it has not sufficiently
developed its argument on this issue, it does not merit summary judgment on it.
Finally, as the underlying suit is still pending in state court, this court will abstain
from ruling on EMC’s alleged duty to indemnify the Smith Defendants for any
damages they might incur there.
B. Preliminary Issue: Notice
EMC argues that the Smith Defendants’ delay in notifying them of the
underlying suit was “unreasonable” as a matter of law. Doc. 26 at 25-30. This claim,
if valid, would itself preclude any coverage, so the court must address it first. The
court finds summary judgment on this issue unwarranted. As noted, the Waldrips filed
the underlying action on September 15, 2010. Doc. 27-1 at 8. They served the Smith
Defendants on October 29, 2010. Doc. 27-8 at 4. The Smith Defendants waited until
January 6, 2011, before informing EMC of the Waldrips’ claims. Doc. 27-10 at 3-4.
The Policy required that the Smith Defendants notify EMC in writing “as soon as
practicable” of a claim or suit made against it. Doc. 27-2 at 24. It also required that
the Smith Defendants “immediately” send EMC copies of “any demands, notices,
summonses, or legal papers received in connection with the claim or ‘suit.’” Id. EMC
considers the Smith Defendants’ almost ten-week delay in performing these actions
sufficiently protracted to ask the court to deem it a contract breach.
Compliance with the notice requirements in an insurance policy is a condition
precedent to recovery. See Pharr v. Cont’l Cas. Co., 429 So. 2d 1018, 1019 (Ala.
1983). Failure of the insured to comply with notice requirements relieves the insurer
of liability. Reeves v. State Farm Fire & Cas. Co., 539 So. 2d 252, 254 (Ala. 1989)
(citations omitted). The Alabama Supreme Court has routinely construed the terms
"as soon as practicable" and "immediately" to require that notice be given "within a
reasonable time in view of all the facts and circumstances of the case." S. Guar. Ins.
Co. v. Thomas, 334 So. 2d 879, 882 (Ala. 1976) (citations and internal quotation
marks omitted) (“Thomas”). The only factors a court may consider in determining the
reasonableness of a delay in giving notice to an insurer are (1) the length of the delay
and (2) the reasons for the delay. U.S. Fid. & Guar. Co. v. Baldwin County Home
Builders Ass'n, 770 So. 2d 72, 75 (Ala. 2000) (citation omitted). Prejudice to the
insurer from any such delay is immaterial. Id.
Where facts are disputed or where conflicting inferences may reasonably be
drawn from the evidence, the question of whether a party’s delay in giving notice is
reasonable is one for the trier of fact to resolve. Id. (citation omitted). Parties may
reasonably draw such conflicting inferences where the insured justifies its delay with
mitigating evidence. Travelers Indem. Co. of Conn. v. Miller, 86 So. 3d 338, 343-44
(Ala. 2011) (citation omitted). However, if the facts are undisputed, and the insured
does not show justification for the protracted delay, the court may find the delay
unreasonable as a matter of law. Id.
EMC insinuates that notice delays surpassing a certain time window on their
own merit summary judgment under Alabama law. See Doc. 26 at 28-29 (citing Am.
Fire & Cas. Co. v. Tankersley, 116 So. 2d 579 (Ala. 1959) (“Tankersley”); Thomas;
Acceptance Ins. Co. v. Shafner, 651 F. Supp. 776 (N.D. Ala. 1986) (“Shafner”)).
None of its cited decisions support this notion. Rather, it is the intersection of a
lengthy delay and the lack of justification that warrants summary judgment. In
Tankersley, the insured party had not informed its insurer of the underlying suit until
almost nine months after the accident had occurred. 270 So. 2d at 580. The trial court
had asked the jury to decide both (1) whether the notice given was “as soon as
practicable” under the contract and (2), if so, whether the delay prejudiced the insurer.
Id. at 581. The jury had concluded that the given notice did not satisfy the contractual
language but also that the delay had not prejudiced the insurer. Id. On appeal, the
Supreme Court of Alabama held that the second instruction was superfluous. Id. at
582. It simply offered no comment on the length of delay; it ruled in favor of the
insurer only because the jury had done so on the first question. The unreasonableness
of Tankersley’s delay was thus a factual question in that case. The decision offers no
aid to EMC here.
Thomas is more relevant to the present action, but it does not make EMC’s
case. There, the insured party waited until six months after the accident to notify his
insurer. 334 So. 3d at 881. The Supreme Court of Alabama found his delay
unreasonable as a matter of law because he had no justifiable excuse. Id. at 885. It
emphasized that the injured plaintiff had written the insured a letter two weeks after
the incident (1) informing him that he intended to file suit and (2) recommending that
the insured notify his insurance carrier. Id. at 881, 884. The insured’s months-long
delay after this notice was therefore inexcusable. The Shafner court employed similar
reasoning in granting summary judgment for the insurer in that case. See 651 F. Supp.
at 777 (“Shafner did not notify his insurance carrier until approximately six months
after he received the letter from [the plaintiff] advising him to notify his insurance
carrier.”). Both cases involved insured parties who had been specifically notified by
the injured parties of an impending lawsuit. In both cases, the court found the
insured’s later delay in notifying their carrier unjustified. These facts greatly differ
from the instant case.
EMC has simply not proven that it deserves summary judgment on this issue
under Alabama law. Reasonable minds can differ on whether ten weeks is an
unreasonable delay in notifying one’s insurer of a lawsuit. Furthermore, EMC
provides no evidence that the Smith Defendants knew of the suit before they were
served in the underlying action. Unlike the defendants in Thomas and Shafner, there
is no evidence that the Smith Defendants received any direct communication from the
Waldrips suggesting that they would file suit before this service. Finally, that the
delay coincided with the winter holiday season is at least a plausible justification for
its length. See Doc. 30-1 at 4 (“Due to the Thanksgiving and Christmas holidays, I
was unable to reach the different insurance agents on my first attempt and I had to
call several times until I discovered the name of the insurance carrier who had written
my general liability policy.”). Because the court must make all reasonable inferences
in favor of the Smith Defendants as the non-moving parties, it is unwilling to rule that
their delay in notifying EMC was unreasonable as a matter of law.
C. Duty to Defend
Given that the Smith Defendants’ delay in notifying EMC of the underlying
suit was not unreasonable as a matter of law, the court must now address the scope,
if any, of EMC’s duty to defend the Smith Defendants in that suit. It concludes that
EMC has no duty to defend the Smith Defendants against the Waldrips’ faulty
workmanship, negligent abandonment, or misrepresentation claims. However, the
court will deny EMC summary judgment on the issue of whether it must defend the
Smith Defendants against the former homeowners’ deceptive trade practices claim.
In its underlying Complaint, the Waldrips advance five claims against the
Negligence of Construction
Breach of Contract
Deceptive Trade Practices
Doc. 27-1 ¶¶ 15-46. EMC maintains that it has no duty to defend the Smith
Defendants against any of these claims. The Policy it issued the Smith Defendants
only covers “property damage” and “bodily injury” caused by “occurrences.” Doc 272 at 15 (“Commercial General Liability Coverage Form”). EMC argues that none of
the Waldrips’ allegations describe an “occurrence.” Doc. 26 at 14-22.
EMC only makes its case with the first two claims above. The Policy defines
an “occurrence” as “an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.” Doc. 27-2 at 29. Under Alabama
law, the term “accident” means “an unintended and unforeseen injurious occurrence;
something that does not occur in the usual course of events or that could be
reasonably anticipated.” Hartford Cas. Ins. Co. v. Merchs. & Farmers Bank, 928 So.
2d 1006, 1011 (Ala. 2005) (“Hartford”) (citing St. Paul Fire & Marine Ins. Co. v.
Christiansen Marine, Inc., 893 So.2d 1124, 1136 (Ala. 2004)). In other words, an
accident is “something unforeseen, unexpected, or unusual.” Id. (quoting U.S. Fid.
& Guar. Co. v. Bonitz Insulation Co. of Ala., 424 So. 2d 569, 572 (Ala. 1982)
(“Bonitz”)). Indeed, the word “accident” in accident policies “means an event which
takes place without one's foresight or expectation. A result, though unexpected, is not
an accident; the means or cause must be accidental.” Am. Safety Indem. Co. v. T.H.
Taylor, Inc., No. 2:10CV48-MHT, 2011 WL 1188433, at *4 (M.D. Ala. Mar. 29,
2011) (quoting Black's Law Dictionary (9th Ed. 2009)), aff’d, No. 11-12245, 2013
WL 978804 (11th Cir. Mar. 14, 2013) (unpublished). The common factors of intent
and foreseeability thus guide the court’s analysis here.
The Waldrips’ negligence claim falls short of the Policy's definition of
"occurrence." Under Alabama law, the term “accident” does not necessarily exclude
human negligence. Moss v. Champion Ins. Co., 442 So. 2d 26, 28 (Ala. 1983)
(“Moss”) (citing Bonitz, 424 So. 2d at 571). Rather, an insured party only loses
coverage in such situations where it (1) intended to cause damage or (2) did not take
reasonable steps to prevent the damage. See Moss, 442 So. 2d at 29 (“[T]he
authorities absolve the insured where there is a lack of intent to cause damage or
where he has taken reasonable steps to prevent damage and thus could not reasonably
foresee the damage caused.”).
In Moss, a dissatisfied homeowner sued a general contractor insured under a
CGL policy. Id. at 26. The homeowner claimed that the contractor was negligent in
re-roofing her home and that his negligence allowed rainwater to enter the home and
damage it. Id. In the declaratory action filed by the insurer, the trial court ruled that
the insurer did not have to defend the contractor in the underlying action. Id. at 26-27.
The court maintained that the homeowner’s water damage was not an “occurrence”
under the policy because rain was foreseeable during that time of the year in that
region. Id. The Supreme Court of Alabama reversed the trial court. Id. at 29. It
reasoned that the contractor was not responsible for either (1) the rain, (2) his
employees’ insubordinate abandonment of the site, or (3) the resulting delays in
finishing it. Id. The court emphasized that the contractor had instructed his employees
to protect the roof from exposure. Id. He therefore did not intend the damage, nor
could he have reasonably foreseen his employees’ negligent disobedience. Id. The
resulting water damage was thus an “occurrence” under the policy. Id.
The Waldrips assert in the underlying action that the Smith Defendants were
negligent in two respects. First, they claim that the Smith Defendants were negligent
in abandoning the construction of their home and failing to secure the premises. See
Doc. 27-1 ¶ 17. This negligence allegedly subjected the home to damage by vandals
and the elements. Id. The Waldrips specifically claim that “moisture has caused
deterioration of certain building components and mold growth is present throughout
the home.” Id. ¶ 12. Further, vandals supposedly entered the home and stripped it of
valuable components, including copper wiring. Id.; Doc. 30, Ex. 4 at 462-63.
These allegations, if true, place the Smith Defendants in a different situation
than the contractor in Moss. According to the Waldrips, the Smith Defendants made
a conscious decision to leave the work site, and they did not take any steps to protect
the site from exposure. The rainwater intrusion into the construction site was thus
“reasonably foreseeable” for the same reasons it was not in Moss: one may expect
periodic rain to enter an open structure that one has not attempted to protect. This
judgment also applies to trespassing and vandalism. As EMC persuasively argues in
its brief, the Smith Defendants adopted a “deliberate course of conduct” that
jeopardized the construction site’s security. Doc. 26 at 22. They could have foreseen
the likelihood that third parties might enter such an abandoned site to commit theft.4
Such an incident does not qualify as “an unintended and unforeseen injurious
occurrence.” Hartford, 928 So. 2d at 1011 (citation omitted).
The Waldrips also claim the Smith Defendants were negligent in “failing to
construct their home in a good and workmanlike manner, according to accepted
standards and construction industry practices.” Doc. 27-1 ¶ 18. In doing so, the Smith
Defendants breached their duty to the Waldrips to provide them “with a finished
home, built in accordance with all applicable building codes, construction industry
standards, and terms of the contract, so as to minimize the damages associated with
the known inherent risks of residential construction.” Id. ¶ 16. This is essentially a
faulty workmanship claim. The Supreme Court of Alabama has recently held:
[F]aulty workmanship itself is not an occurrence but . . . [it] may lead to an
occurrence if it subjects personal property or other parts of the structure to
Mr. Waldrip, who apparently has a background in residential construction, admitted in
his October 25, 2012, deposition that such an incident is commonplace:
Q. Okay. You know, are you familiar with how thieves or people will try to obtain copper
out of abandoned buildings or buildings that are sitting vacant?
Q. Okay. I mean, you are in the building business, you have seen that before?
Doc. 30, Ex. 4, at 462. This admission strongly supports the inference that third-party theft of the
kind the Waldrips allege is a foreseeable result of abandoning a construction site.
“continuous or repeated exposure” to some other “general harmful condition”
(e.g., the rain in Moss) and, as a result of that exposure, personal property or
other parts of the structure are damaged.
Town & Country Prop., LLC, v. Amerisure Ins. Co., 111 So. 3d 699, 706 (Ala. 2011)
(citing Moss and U.S. Fid. & Guar. Co. v. Warwick Dev. Co., Inc., 446 So. 2d 1021
(Ala. 1984) (“Warwick”)) (emphasis added) (“Town & Country”). As EMC
demonstrates in its brief, there was no damage in this case to affixed personal
property or to a structure that existed before the construction commencement. Doc.
26 at 18. That is, the “work” was building a new home, rather than repairing or
modifying an existing structure. The alleged water and mold-based deterioration
occurred exclusively to this new structure. The Waldrips’ claim thus does not
characterize an “occurrence.” See Warwick, 446 So. 2d at 1023 (holding that faulty
workmanship claim did not describe “occurrence” defined under a CGL policy as “an
accident, including continuous or repeated exposure to conditions, which results in
bodily injury or property damage neither expected nor intended from the standpoint
of the Insured” ).
The defendants do not adequately rebut these arguments. Regarding the
negligent abandonment allegation, the Smith Defendants dispute that they
“abandoned” the work site. See Doc. 30 at 3 (“At no time did the [Smith Defendants]
abandon the work site after repeated pleas of the homeowners . . . nor did [they]
arbitrarily refuse to complete the construction contract.”). They clearly mean to argue
they did not unjustifiably abandon the site. They certainly left the site before finishing
the home, apparently because of monetary disputes with the Waldrips. See id. (“The
homeowners . . . failed to pay [the Smith Defendants] the necessary funds to complete
the construction project subsequent to the homeowners modifying the construction
plans increasing the size and dimensions of the structure thereby exhausting the loan
proceeds originally obtained for the purpose of constructing the residence.”). For the
purposes of this action, it is only relevant that they do not dispute leaving the site
without taking any protective action to secure it. So, they have not described a
genuine dispute over material fact that would survive summary judgment. They also
have not cited any Alabama law that calls into question the legal conclusions
The Waldrips, on the other hand, reference several Alabama precedents in
making their argument for coverage. Doc. 31 at 5-7. They specifically argue that
Moss, Bonitz, Warwick, and Town & Country legitimate their claim that the Smith
Defendants’ faulty workmanship and their failure to close the windows at the
Waldrips’ home – including the resulting water damage – amounted to an
“occurrence” under the Policy. Id. at 7. The court finds their argument unpersuasive
for the reasons discussed above. The Waldrips do not address the various material
ways their allegations differ from those made by the claimants in the cited cases. The
court accordingly finds that EMC owes no duty to defend the Smith Defendants
against the Waldrips’ negligence claim.
b. Breach of Contract
Whether the Waldrips’ contract breach claim qualifies as an occurrence is a
more ambiguous question. The Alabama Supreme Court has not ruled definitively on
the issue. See Auto-Owners Ins. Co. v. Toole, 947 F. Supp. 1557, 1563 (M.D. Ala.
1996) (“Toole”) (“There is almost no Alabama law addressing if and when events
giving rise to a contract dispute fall within the standard definition of occurrence.”)
(citing Reliance Ins. Co. v. Gary C. Wyatt, Inc., 540 So. 2d 688, 691 (Ala. 1988)
(“Reliance”)). In Reliance, the Court issued a narrow ruling against the notion. 540
So. 2d at 691. The case concerned the breach of a lease agreement where the lessee,
a construction company, failed to add the lessor, a crane company, to the CGL policy
the construction company had obtained from an insurance carrier (as the lease
agreement had decreed). Id. at 688-89. The Court ruled that this breach did not
constitute an “occurrence” under the CGL policy. Id. at 690-91. Although that policy
had language virtually identical to the Policy language in this case, the Reliance
Court did not issue a holding that would control here. See Toole, 947 F. Supp. at 1564
(“To be honest, this court cannot lift from [the Reliance Court’s] comments any
overall principle or principles that might guide the court in resolving the issue
presented in the instant case.”).
The court agrees with EMC that the Waldrips’ contract claim does not state an
“occurrence.” The Waldrips allege that the Smith Defendants breached their
agreement “by failing to complete construction of the home in a good and
workmanlike manner in accordance with all construction standards, applicable
building codes, and terms of the contract.” Doc 27-1 ¶ 45. This accusation resembles
the faulty workmanship claim analyzed above. It is not an allegation that is
particularly unusual or that could not have been reasonably anticipated when the
parties formed the contract. See Hartford, 928 So. 2d at 1011 (citation omitted); see
also Doc. 26 at 17 (“There are no unexpected, unintended or unforeseen results
alleged by [the Waldrips] . . .The [Smith Defendants] agreed in a contract to construct
a home and the underlying action here arises out of the construction and deliberate
subsequent abandonment of a home by [the Smith Defendants].”). Thus, the
allegation does not describe an “accident” under Alabama law. The purpose of
EMC’s Policy was to protect the Smith Defendants from “liability for essentially
accidental injury to person or property.” Owners Ins. Co. v. Shep Jones Constr., Inc.,
No. 08-AR-514-S, 2012 WL 1642169, at *5 (N.D. Ala. May 3, 2012). It was not
meant to be a “guarantee or a warranty” that EMC certified the “timeliness and
quality” of the Smith Defendants’ work. Id. Treating a standard contract breach as an
“accident” triggering CGL policy coverage would radically alter such insurance
The defendants do not satisfactorily refute this conclusion. The Waldrips do
not address their own contract claim specifically in their brief. To the degree they
consider it to be a “faulty workmanship” allegation, their argument that such an
allegation states an “occurrence” has already been considered and rejected. See supra
24-27. The Smith Defendants, on the other hand, summarily claim that “courts have
concluded that faulty construction is an ‘accident’ and constitutes an occurrence.”
Doc. 30 at 11. The only support they marshal for this assertion is a decision recently
issued by the Supreme Court of Texas. See id. at 12 (citing Lamar Homes, Inc. v.
Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (construing Texas law to hold
that allegations of unintended construction defects may constitute an “accident” or
“occurrence” under a CGL policy)).
The court does not find this authority persuasive in this case for the reasons
outlined above. Some of the most foreseeable incidents in the performance of a
residential construction contract are that the builders will have cost overruns, use
inadequate materials, fail to meet deadlines, or otherwise execute the project
improperly. What the Waldrips complain of – whether it is characterized as defective
construction, faulty workmanship, or contract breach – is simply the opposite of an
“accident” under Alabama law. EMC therefore does not have to defend the Smith
Defendants against this claim.
The Waldrips allege both fraudulent and innocent misrepresentation against the
Smith Defendants in the underlying action. See Doc 27-1 ¶ 31 (“Defendants’
misrepresentations were made either willfully to deceive, recklessly without
knowledge, or by mistake and innocent.”). As EMC shows in its brief, the Policy
absolutely excludes any kind of misrepresentation claim from coverage, so whether
the Waldrips’ allegations qualify as occurrences under Alabama law is irrelevant. See
Doc. 26 at 24-25 (“This insurance does not apply to any claim or lawsuit for damages
arising out of . . . misrepresentation . . . whether intentional, unintentional, innocent,
negligent, willful, malicious, reckless or wanton . . .”). Both the Smith Defendants
and the Waldrips either explicitly or implicitly concede this point. See Doc. 30 at 11;
Doc. 31 at 11 (“[E]ven should this Honorable Court find that this section applies, it
would only apply to the misrepresentation count . . .”). EMC therefore has no duty to
defend the Smith Defendants against these claims to the extent that the events giving
rise to them fall within the period the exclusion was in force.5
d. Deceptive Trade Practices
Though EMC’s motion requests summary judgment on all of the Waldrips’
claims, EMC’s brief does not present any legal argument or evidence to support a
motion for summary judgment concerning the deceptive trade practices claim. In fact,
EMC never mentions the claim in its brief’s “Argument” section. The party moving
for summary judgment bears the initial burden of presenting to a court the basis for
its motion. Celotex, 477 U.S. at 323. EMC has not met this burden, and summary
judgment is therefore due to be denied as to this claim.
“Bodily Injury” and “Property Damage”
EMC attempts to claim safe harbor in its argument on the Waldrips’ asserted
damages. Rather than address the deceptive trade practices claim directly, EMC
implies that the allegation could not qualify for coverage because the Waldrips have
not described covered injury under the Policy. As stated, for the Policy to apply, an
This exclusion only appears in the renewed Policy agreements issued by EMC to the
Smith Defendants on February 1, 2009, and February 1, 2010, respectively. See Doc. 27-4 at 68;
Doc. 27-6 at 7. It is unclear to the court whether the events giving rise to the misrepresentation
claims occurred while this version was in effect or whether those events predated this version.
The underlying Complaint filed by the Waldrips does not specify what time period they claim
these misrepresentations took place, nor does any other filed document in the present action
reveal such information. So the court will issue the limited holding described above unless and
until further relevant information is disclosed in the underlying suit that clarifies the issue.
“occurrence” must have caused “bodily injury” or “property damage.” Doc. 27-5 at
26. EMC maintains that (1) the Waldrips have not made a valid allegation of bodily
injury, and (2) the Policy excludes any possible property damage caused by the
Waldrips’ claims. See Doc. 26 at 12-14, 22-23. The court disagrees with the first
point, so there is no need to resolve the second. This conclusion is sufficient to
foreclose summary judgment.
The Policy defines “bodily injury” as “bodily injury, sickness, or disease
sustained by a person, including death, resulting from any of these at any time.” Doc.
27-2 at 27. In their underlying Complaint, the Waldrips allege that they suffered
“physical injury, mental anguish and emotional distress” as a “proximate result” of
the Smith Defendants’ actions. Doc. 27-1 ¶ 14(g). In later depositions, they
specifically cited the following injuries:
Mrs. Waldrip has had to double the dosage of Klonopin that she had
formerly taken to combat dysautonomia. Doc. 30, Ex. 3, at 12-13.
Mr. Waldrip suffers from hypertension, which he had not experienced
before the dispute with the Smith Defendants and for which he now sees
a physician. Doc. 30, Ex. 4, at 450.
Mr. Waldrip now suffers from fatigue and sleeplessness, which
aggravate his heart condition. Id. at 446-47.
Each of these asserted consequences describes a “bodily injury, sickness, or disease
sustained by a person . . .” Doc. 27-2 at 27
EMC disputes the legitimacy of these damages. See Doc 26 at 12-14. It points
to several verified answers the Waldrips gave to the Smith Defendants’
interrogatories and requests for production in the underlying suit. See id. In these
answers, the Waldrips deny that the Smith Defendants’ actions have caused them to
suffer any physical injury or emotional distress. See id. The Waldrips ascribe this
contradiction to miscomprehension of the questions asked. See Doc. 31 at 1. They
claim they did not understand that “physical injury” and “emotional distress”
encompassed the injuries cited in their later deposition answers. See generally Doc.
30, Ex. 3, at 9-13; Doc. 30, Ex. 4, at 440-452. EMC argues that this explanation is
insufficient. See Doc. 35 at 2-3. It disparages the Waldrips’ depositions, which were
taken after EMC filed summary judgment in the instant case. Id. It asserts that the
Waldrips deployed these depositions to forestall summary judgment here, and it notes
that Alabama law prevents a party from giving contradictory testimony just to avoid
this result. Id. (citing Doe v. Swift, 570 So. 2d 1209, 1214 (Ala. 1990)).
The court would find EMC’s argument more persuasive had the Waldrips not
forthrightly alleged “physical injury, mental anguish and emotional distress” in the
“Damages” portion of their Complaint. Doc. 27-1 ¶ 14(g). Under Alabama law, the
court must privilege the complaint allegations in determining whether EMC has a
duty to defend the Smith Defendants. See Am. States Ins. Co. v. Cooper, 518 So. 2d
708, 709 (Ala. 1987) (“An insurance company’s duty to defend its insured is
determined by the language of the insurance policy and by the allegations in the
complaint giving rise to the suit against the insured.”) (citing Armstrong, 479 So. 2d
at. 1167). While the court may also look to admissible factual evidence in this
scenario, see, e.g., Pacific Indemnity Corporation, 161 So. 2d at 795, the court is not
allowed to evaluate the Waldrips’ credibility at the summary judgment stage.
Anderson, 477 U.S. at 255. Finally, Rule 56 compels the court to make all reasonable
inferences in favor of the non-moving parties. Chapman, 229 F.3d at 1023 (citation
omitted). Taken together, these considerations support a finding that the Waldrips
have stated a legitimate claim for “bodily injury” in the underlying action. The court
will therefore deny summary judgment to EMC on the Waldrips’ deceptive trade
D. Duty to Indemnify
Because the underlying action is still pending in state court, the court further
concludes that the duty to indemnify issue is not yet ripe, and it will thus not rule on
the issue. See, e.g., Allstate Ins. Co. v. Employers Liab. Assurance Corp., 445 F.2d
1278, 1281 (5th Cir. 1971) (“[N]o action for declaratory relief will lie to establish an
insurer's liability . . . until a judgment has been rendered against the insured since,
until such judgment comes into being, the liabilities are contingent and may never
materialize.”)6 ; Allstate Indem. Co. v. Lewis, 985 F. Supp. 1341, 1349 (M.D. Ala.
1997) (“The duty to indemnify is not ripe for adjudication until the insured is in fact
held liable in the underlying suit”) (citation omitted). “It is simply inappropriate to
exercise jurisdiction over an action seeking a declaration of the plaintiff’s indemnity
obligations absent a determination of the insureds' liability. . .” Employers Mut. Cas.
Co. v. All Seasons Window & Door Mfg., Inc., 387 F. Supp. 2d 1205, 1211–12 (S.D.
For the reasons stated in this Memorandum Opinion, Plaintiff’s Motion for
Summary Judgment is GRANTED in part and DENIED in part. EMC has no duty
to defend the Smith Defendants against the Waldrips' negligence, contract, or
misrepresentation claims. However, the court denies EMC summary judgment on the
Waldrips' deceptive trade practices claim. It also abstains from reaching the duty to
indemnify question, as the underlying action is still pending in state court.
The court will separately enter an Order consistent with this Opinion.
DONE and ORDERED this the 12th day of June, 2013.
This authority is controlling in the Eleventh Circuit. See Bonner v. City of Prichard, Ala.,
661 F.2d 1206, 1209 (11th Cir. 1981) (holding that decisions of the former Fifth Circuit handed
down prior to the close of business on September 30, 1981, are binding in the Eleventh Circuit).
VIRGINIA EMERSON HOPKINS
United States District Judge
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