Axis Insurance Company v. Appeal Insurance Agency Inc et al

Filing 20

MEMORANDUM OPINION AND ORDER GRANTING 18 MOTION for Default Judgment as to Appeal Insurance Agency, Inc. JUDGMENT BY DEFAULT is hereby ENTERED in favor of Axis and against Appeal. The Court DECLARES that, under the policies identified in this Opinion, Axis owes no duty to defend or indemnify Appeal for any of the conduct alleged in the Sanders Complaint. Signed by Judge Virginia Emerson Hopkins on 4/28/2016. (JLC)

FILED
2016 Apr-28 PM 03:46
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
EASTERN DIVISION
AXIS INSURANCE COMPANY,
Plaintiff,
v.
APPEAL INSURANCE AGENCY,
INC., CHAD SANDERS, AND
SANDERS CABINETRY, LLC,
Defendants.

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) Case No.: 1:16-CV-82-VEH
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MEMORANDUM OPINION AND ORDER
The above-entitled civil action is before the Court on the Plaintiff’s Renewed
Motion for Default Judgment Against Defendant Appeal Insurance Agency (“Appeal”).
(Doc. 18).
I.

INTRODUCTION
The Court makes the following findings of fact from the allegations in the

Plaintiff’s Complaint and the attachments thereto.1
A.

The Sanders Lawsuit

AXIS Insurance Company (“Axis”) filed the Complaint in this action on January

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“Documents referenced in the complaint and attached thereto are considered to
constitute the initial pleading. Fed. R. Civ. P. 10(c).” United States v. Estate of Powell, No.
1:13-CV-104 WLS, 2014 WL 1572475, at *1, n. 1 (M.D. Ga. Apr. 18, 2014) (Sands, J.).

18, 2016. In its Complaint, Axis alleges that, on February 2, 2015, Chad Sanders and
Sanders Cabinetry, LLC (hereafter collectively referred to as “Sanders”) filed suit against
Appeal and others in the Circuit Court of Calhoun County, Alabama. (hereafter the
“Sanders Complaint” or the “Sanders lawsuit”). (Doc. 1 at 6, ¶ 18; doc. 1-6 (Sanders
Complaint). The Sanders Complaint alleges that, in December 2013, Chad Sanders
contracted with West Insurance, Inc. (hereinafter “West”) to purchase “dwelling fire and
commercial general liability insurance

for three (3) rental properties; that West

represented that coverage was brokered through and with Appeal; and that Appeal bound
coverage with Lloyds.” (Doc. 1 at 6, ¶ 19; Doc. 1-6 at 9, ¶¶ 9-11). The Sanders
Complaint further alleges that Lloyds issued policies to Sanders through Appeal; that
Sanders financed the premiums through Gulf Finance, LLC; that Sanders made a down
payment; and that Sanders and/or Sanders Cabinetry, LLC began making monthly
payments as they became due. (Doc. 1 at 7, ¶ 20, Doc. 1-6 at 7, ¶¶ 13-15). Sanders
further alleged that, after the policies had been in place for six (6) months, one of the
homes was vandalized and damaged. (Doc. 1 at 7, ¶ 21, Doc. 1-6 at 8, ¶¶ 16-18). The
Complaint further alleges that Sanders notified West of the damage and loss, that West
represented it would submit the claim to Lloyds for adjustment, and that weeks later
West notified Sanders that there was no policy in place for the rental houses. (Id.) Based
upon these allegations, the Sanders Complaint asserted the following claims against

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Appeal: (1) Negligent and/or Wanton Procurement of Insurance; (2) Breach of Contract;
(3) Bad Faith, Failure to Pay; (4) Fraud; (5) Conversion; (6) Outrage; and (7) Conspiracy
to Defraud. (Doc. 1 at 7, ¶ 22 and Doc. 1-6 at 9-13).
On or about April 23, 2015, Axis first received notice of the Sanders Complaint.
(Doc. 1 at 8, ¶ 23). Prior to this, Axis had not received any notice of a claim, potential
claim or lawsuit against Appeal by Sanders. (Id.) No claim, as that term is defined in the
Axis policy, had been made against Appeal by Sanders prior to filing the Sanders
Complaint. (Id.)
Appeal was already in default at the time Axis received notice of the Sanders
Complaint. (Id. ¶ 24). Axis agreed to provide a defense to Appeal under a full and
complete reservation of rights, specifically including the right to seek a judicial
determination as to its duty to defend or indemnify Appeal in this matter. (Id., Doc. 1-7
(Reservation of Rights Letter), Doc. 1-8 (Affidavit of service showing service of letter
on John Paul Kill on May 12, 2015)).
B.

The Axis Policies

Axis

issued

three

Miscellaneous

Professional Liability policies

to

Appeal

(collectively, the “Policies”) that are at involved in this action. (Doc. 1 at 10, ¶28). The
first policy issued to Appeal is Axis Miscellaneous Professional Liability policy no.
LAT001P0005192001, effective October 25, 2011 through October 25, 2012 (the

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“2011-12 Policy”). (Doc. 1 at 10, ¶28; Doc. 1-9, p.3). The second policy issued to
Appeal is Axis Miscellaneous Professional Liability policy no. LAT001P0005192002,
effective October 25, 2012 through October 25, 2013 (the “2012-13 Policy”). (Doc. 1
at 10, ¶29; doc. 1-10, p.3). The third policy issued to Appeal is Axis Miscellaneous
Professional Liability policy no. LAT001P0005192003, effective October 25, 2013
through October 25, 2014 (the “2013-14 Policy”). (Doc. 1 at 10, ¶30; doc. 1-11, p.3).
For purposes of the instant motion, all three policies contain the same relevant terms,
to wit, the insuring agreement of each policy states as follows:
The Insurer shall pay on behalf of any Insured in connection with a
Wrongful Act, committed on or after the Retroactive Date set forth in Item
5. of the Declarations of this Coverage Part and before the expiration of the
Policy Period, all Loss arising from any Claim first made against such
Insured during the Policy Period or, if applicable, Extended Reporting
Period or Runoff Period, and reported to the Insurer in writing as soon as
practicable after any Insured becomes aware of a Claim but in no event later
than ninety (90) days after the expiration of the Policy Period or, if
applicable, Extended Reporting Period or Runoff Period.
(Doc. 1 at 11, ¶31; docs. 1-9 at 20, 1-10 at 20, 1-11 at 20). The policy period for the last
policy issued to Appeal by Axis ended on October 25, 2014. (Doc. 1-11 at 3).
C.

The Instant Declaratory Judgment Action

Axis filed this Declaratory Judgment action on January 18, 2016. (Doc. 1). The
record reflects that Appeal was timely served on January 19, 2016 through personal
service on its registered agent, Jack Kill. (Doc. 7). Appeal has not filed an Answer or

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otherwise made an appearance in this case. On March 21, 2016, Axis filed a Motion for
Entry of Default against Appeal. (Doc. 13). On March 22, 2016, the Clerk entered default
against Appeal. (Doc. 14). The record reflects that the Entry of Default was mailed to
Appeal, in care of Kill, that same day.
The Plaintiff filed the instant Renewed Motion for Default Judgment on April 1,
2016. (Doc. 18). In April 4, 2016, this Court ordered Appeal to show cause why the
judgment should not be granted. (Doc. 19). Appeal has filed no response.
I.

ANALYSIS
Rule 55, Fed.R.Civ.P., provides in pertinent part:
(a) Entering a Default. When a party against whom a judgment for
affirmative relief is sought has failed to plead or otherwise defend, and that
failure is shown by affidavit or otherwise, the clerk must enter the party’s
default.
(b) Entering a Default Judgment.
*****
(2) By the Court. In all other cases, the party must apply to the court for
a default judgment. A default judgment may be entered against a minor or
incompetent person only if represented by a general guardian, conservator,
or other like fiduciary who has appeared. If the party against whom a
default judgment is sought has appeared personally or by a representative,
that party or its representative must be served with written notice of the
application at least 3 days before the hearing. The court may conduct
hearings or make referrals — preserving any federal statutory right to a jury
trial — when, to enter or effectuate judgment, it needs to:
(A) conduct an accounting;
(B) determine the amount of damages;
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(C) establish the truth of any allegation by evidence; or
(D) investigate any other matter.
Fed.R.Civ.P. 55.
Because default has been entered against Appeal, the allegations of the Plaintiff’s
complaint are taken as true and Appeal’s liability is established.

See, e.g., AutoTec,

L.L.C. v. Auction Access Auto, Inc., 2:12-cv-00896-RDP, 2012 WL 2357951, at *2
(N.D.Ala. June 18, 2012) (“Upon default, the well-pleaded allegations of a complaint are
taken as true.

Because Defendants have previously been declared in default . . . their

liability is established.”) (internal citations omitted); see also 10A Charles Alan Wright,
Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2688 (3d ed.
1998) (“If the court determines that defendant is in default, the factual allegations of the
complaint, except those relating to the amount of damages, will be taken as true.”).
The court’s analysis of the Plaintiff’s Renewed Motion for Default Judgment
involves a two-step process.

First, the court must satisfy itself that it has jurisdiction

over the parties and the subject matter of the lawsuit. See Taylor v. Appleton, 30 F.3d
1365, 1367 (11th Cir. 1994) (holding that district courts “always have an obligation to
examine sua sponte their jurisdiction before reaching the merits of any claim”). Second,
the Court must ensure that Axis has satisfied the elements of Rule 55, Fed.R.Civ.P., and
is entitled to the default judgment it seeks. See Nishimatsu Constr. Co v. Houston Nat’l

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Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)2 (explaining that “a defendant’s default does
not in itself warrant the court entering a default judgment” and that “[t]here must be a
sufficient basis in the pleadings for the judgment entered”).
A.

Jurisdiction
1.

Personal Jurisdiction

It is an elementary requirement that personal jurisdiction must be established in
every case before a court has power to render any judgment. Insurance Corp. of Ireland,
Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104,
72 L.Ed.2d 492 (1982). A court obtains personal jurisdiction over the parties when the
complaint and summons are properly served upon the defendant. Royal Lace Paper
Works v. Pest-Guard Prods., 240 F.2d 814, 816 (5th Cir. 1957). The record establishes
that defendant Appeal was served with a copy of the Summons and Complaint, on January
19, 2016, through personal service on its registered agent, Jack Kill. (Doc. 7).
Accordingly, the court finds that it has personal jurisdiction over the parties.
2.

Subject Matter Jurisdiction

This is a declaratory judgment action. It has been noted that
[28 U.S.C.] § 2201, known as the Declaratory Judgment Act, fails to
provide this Court with jurisdiction. Rather, § 2201 provides a remedy by

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All decisions of the former Fifth Circuit handed down prior to September 30, 1981,
constitute binding precedent on this Circuit. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th
Cir. 1981).
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authorizing the federal courts to issue declaratory judgments in certain
situations which are not applicable here. See, e.g., Sk elly Oil Co. v.
Phillips Petroleum Co., 339 U.S. 667, 672, 70 S.Ct. 876, 94 L.Ed. 1194
(1950) (“The Declaratory Judgment Act allowed relief to be given by way
of recognizing the plaintiffs right even though no immediate enforcement
of it was asked. But the requirements of jurisdiction ... were not impliedly
repealed or modified.”); Appling County v. Mun. Elec. Auth., 621 F.2d
1301, 1303 (5th Cir.1980) (noting that just because the Plaintiff seeks
declaratory relief under § 2201 it “does not absolve [it] of the necessity of
bringing themselves within a jurisdictional statute”); McDougald v.
Jenson, 786 F.2d 1465, 1476 (11th Cir.1986); Borden v. Katzman, 881
F.2d 1035, 1037 (11th Cir.1989).
Bank of Am., N.A. v. U.S. I.R.S., 663 F. Supp. 2d 1308, 1315 (M.D. Fla. 2009)
(Schlesinger, J.).

In this case, the Complaint alleges jurisdiction pursuant to 28 U.S.C.

§ 1332, which provides that subject matter jurisdiction exists if the suit is between
“citizens of different States” and “the matter in controversy exceeds the sum or value of
$75,000, exclusive of interests and costs. . ..” 28 U.S.C. § 1332. “Complete diversity is
an absolute requirement for a federal court to have jurisdiction under 28 U.S.C. § 1332.”
Hedge Capital Investments Ltd. v. Sustainable Growth Grp. Holdings LLC, 593 F.
App'x 937, 940 (11th Cir. 2014). “For diversity purposes, a corporation is a citizen of
both the state where it is incorporated and the state where it has its principal place of
business. 28 U.S.C. § 1332(c).” MacGinnitie v. Hobbs Grp., LLC, 420 F.3d 1234, 1239
(11th Cir. 2005).
The Complaint alleges that Axis is a corporation organized and existing under the
laws of Illinois and has its principle place of business in Illinois. (Doc. 1 at 2, ¶3). Appeal
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is a corporation organized and existing under the laws of Georgia and had its principle
place of business in Georgia. (Id. at

¶4). Sanders is a citizen of Alabama. (Id. ¶5).

Finally, Sanders Cabinetry, LLC is a limited liability company organized under Alabama
law whose sole member is Chad Sanders, and Chad Sanders is a citizen of Alabama. (Id.
¶6).

Since the Defendant has defaulted, these allegations are deemed to have been

admitted and the court therefore finds that this suit is between “Citizens of different
States.”
The Complaint alleges that the amount in controversy in this action exceeds
$75,000, exclusive of interests and costs. (Doc. 1 at 1). Since this allegation is deemed
to be admitted, the court finds that the amount in controversy exceeded $75,000.00,
exclusive of interest and costs, at the time the lawsuit was filed.
B.

Axis Is Entitled to a Default Judgment Against Appeal

Federal Rule of Civil Procedure 55(b)(2) allows the court to enter a default
judgment when the Clerk has entered default and the party seeking judgment has applied
to the court for a default judgment. To determine whether the moving party is actually
entitled to a default judgment, the court must review the sufficiency of the complaint and
its underlying merits. See Stegeman v. Georgia, 290 Fed. App’x 320, 323 (11th Cir.
2008) (citing Nishimatsu Const. Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th
Cir. 1975). The law is well-settled that “a defaulted defendant is deemed to admit the

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plaintiff’s well-pleaded allegations of fact.” Tyco Fire & Sec., 218 Fed. App’x at 863.
However, the Court has “an obligation to assure that there is a legitimate basis for any
damage award it enters.” Anheuser Busch, Inc. v. Philpot, 317 F.3d 1264, 1266 (11th
Cir. 2007). In this case, the Court finds that Axis has established that it is entitled to a
default judgment against Appeal on this action for a declaratory judgment.
The Court first notes that:
A federal court sitting in diversity, as in this case, must apply the choice of
law principles of the state in which it sits. In determining which state's law
applies in a contract dispute, Alabama follows the principle of lex loci
contractus, applying the law of the state where the contract was formed.
Cherokee Ins. Co., Inc. v. Sanches, 975 So.2d 287, 292 (Ala.2007).
St. Paul Fire & Marine Ins. Co. v. ERA Oxford Realty Co. Greystone, LLC, 572 F.3d
893, 895 n. 1 (11th Cir. 2009). Axis contends that the contract was formed in Georgia,
because Appeal was a citizen of Georgia when the contract was signed. Doc. 18 at 9).
In support of this argument, Axis cites Am. Interstate Ins. Co. v. Holliday, 376 So. 2d
701, 702 (Ala. 1979), for the proposition that “where [the] policyholder was a citizen of
Georgia at the time of issuance of policy, Georgia law controlled.” (Id.)3

3

However, in

Specifically, it states:

Here, Appeal was a corporation organized under the laws of Georgia and had its
principle place of business in Georgia when the subject AXIS policies were issued to
Appeal. Further, the addresses listed in each policy’s declarations pages are Georgia
ones. (Doc. 1-9 p.3, Doc. 1-10 p.3, Doc. 1-11 p.3). Thus, Georgia law controls.
(Id.)
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Holliday, all parties to the insurance agreement were citizens of Georgia.

For that

reason, the Alabama Supreme Court determined: “[w]e, therefore, decide the issue of the
obligation to defend, pursuant to Georgia law.” Holliday, 376 So. 2d at 702.
In the instant case the agreement was made between parties from different states.
In the absence of any allegation in the Complaint as to where the contract was formed,
or more information from Axis on this issue, the court is unable to determine under what
law the agreements at issue should be examined.4
In the motion, Axis argues:
The policy period for the last policy issued to Appeal by AXIS ended
on October 25, 2014. (Doc. 1-11, p.3). The Sanders Complaint was filed
on February 2, 2015, after the expiration of the last policy’s policy period.
(Doc. 1 ¶18, Doc. 1-6). No claim, as that term is defined in the AXIS
policy, had been made against Appeal by Sanders prior to filing the Sanders
Complaint. (Doc. 1 ¶23). Thus, Sanders did not first make a claim against
Appeal until after the expiration of the final AXIS policy. (Doc. 1, ¶38) For
this reason, there is no insurance coverage afforded to Appeal under the
policies issued by AXIS for the claims asserted in the Sanders Complaint,
and AXIS is not obligated to defend Appeal against or indemnify Appeal for
the claims asserted in the Sanders Complaint.
(Doc. 18 at 11) (emphasis added). The policy language states that Axis “shall pay on
behalf of any Insured in connection with a Wrongful Act, committed . . . before the
expiration of the Policy Period.” (Doc. 1 at 11, ¶31; docs. 1-9 at 20, 1-10 at 20, 1-11
at 20).

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It covers not only claims “first made against such Insured during the Policy

Regardless, for the reasons noted below, the motion is still due to be granted.
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Period,” but also “if applicable, Extended Reporting Period or Runoff Period.” (Id.) In
a footnote to its brief, Axis writes: “No Extended Reporting Period or Runoff Period
endorsement was purchased by Appeal or provided for in the policies. (See, 1-9, 1-10,
1-11)[.]” (Doc. 18 at 10, n. 5). This vague reference to three exhibits, which have at least
37 pages each, does not suffice to eliminate the possibility that such coverage existed.
Further, there are indications on the third page of each of these exhibits that such
coverage may have been purchased. (See docs. 1-9 at 3; doc. 1-10 at 3; doc. 1-11 at 3
(discussing “Item 4,” the “Extended Reporting Period”). Axis thus has not eliminated the
possibility that the Sanders Complaint was filed within any possible “Extended Reporting
Period,” or “Runoff Period.”
Axis also argues:
Furthermore, the claim involving Sanders was not reported to AXIS
until April 23, 2015. (Doc. 1, ¶38). April 23, 2015 is well over 90 days
after the expiration of the last AXIS policy on October 25, 2014. Thus, this
claim is also not covered under the insuring agreement of the AXIS
policies because it is not a loss arising from a claim first made against
Appeal during any of the AXIS policy periods and reported to AXIS in
writing as soon as practicable after Appeal became aware of the claim, but
in no event later than 90 days after the expiration of the final AXIS policy
period. (Doc. 1, ¶38). Because the claim was not reported to AXIS within
the ninety (90) days after the expiration of the last policy period, the
claims made in the Sanders Complaint are not covered under the AXIS
policies, and AXIS owes no duty to defend or indemnify Appeal for the
claims made in the Sanders Complaint.
(Doc. 18 at 11-12) (emphasis added).

Again, however, the applicable policy language

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required Appeal to report the claim to Axis “in writing as soon as practicable after any
Insured becomes aware of a Claim but in no event later than ninety (90) days after the
expiration of the Policy Period or, if applicable, Extended Reporting Period or Runoff
Period.” (Doc. 1 at 11, ¶31; docs. 1-9 at 20, 1-10 at 20, 1-11 at 20).

Axis has not

eliminated the possibility that Appeal’s notice to Axis fell within any “Extended
Reporting Period,” or “Runoff Period.”
Despite the foregoing, the policy language states that Axis “shall pay on behalf of
any Insured in connection with a Wrongful Act,” (doc. 1 at 11, ¶31; docs. 1-9 at 20, 1-10
at 20, 1-11 at 20).

The Complaint alleges that “[t]he actions complained of by

Appeal/Kill in the Sanders Complaint do not constitute a Wrongful Act as that term is
defined in the policies.”

(Doc. 1 at 16, ¶39).

Since this allegation is deemed to be

admitted, there is no coverage under the policies.

Axis has no duty to defend or

indemnify Appeal.5
II.

CONCLUSION
For the reasons stated herein, it is hereby ORDERED, ADJUDGED, and

DECREED as follows:
1.

The Renewed

Motion

for

Entry of Default Judgment of Axis is

GRANTED;

5

This argument was not made by Axis. The Court, after conducting an independent
review of the Complaint and motion, makes this finding.
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2.

JUDGMENT BY DEFAULT is hereby ENTERED in favor of Axis and

against Appeal; and
3.

The court DECLARES that, under the policies identified in this opinion,

Axis owes no duty to defend or indemnify Appeal for any of the conduct alleged in the
Sanders Complaint.
DONE and ORDERED this 28th day of April, 2016.

VIRGINIA EMERSON HOPKINS
United States District Judge

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