Alabama Gas Corporation v. Travelers Casualty and Surety Company et al
Filing
214
MEMORANDUM OPINION and ORDER granting dfts' motion for summary judgment 127 on pltf's bad faith claim and denying pltf's motion for summary judgment on its bad faith claim 125 . Signed by Senior Judge Inge P Johnson on 6/25/2013. (AVC)
FILED
2013 Jun-25 PM 03:21
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
ALABAMA GAS CORPORATION,
Plaintiff,
vs.
CASE NO. CV-10-J-1840-S
TRAVELERS CASUALTY AND
SURETY COMPANY, et al.,
Defendants.
MEMORANDUM OPINION and ORDER
Pending before the court are cross- motions for summary judgment filed by the
parties. Each of the claims in this case arises out of defendants’ refusal to defend or
indemnify plaintiff on a claim for which the plaintiff asserts the insurance policies in
question should provide coverage.1
As previously set forth by the court, the facts relevant to this case began before
1900. The lengthy, relevant facts are not in dispute, and the court summarizes the
same here.
The Huntsville Gas Light Company incorporated in 1856 and
manufactured gas. That company and its operations moved to the site relevant to this
action prior to 1886, under the name Hunstville Gas Light and Coke Company
(“HGLC”). See e.g., doc. 130-3 (Exhibit B) at 3. HGLC, under several different
1
Order.
The court shall address the question of coverage by separate Memorandum Opinion and
names, provided gas produced from various sources to customers until 1946. Spills,
leaks and emissions released substances classified as hazardous into the
environment.2 In 1946 the Huntsville facility was converted to a propane air system,
and then plaintiff (a corporate successor to the Huntsville company) sold the plant
and distribution system to the City of Huntsville in 1949. Depo. of Dennis Unites
(doc. 130-2), at 37-38. Although a natural gas pipeline was installed in March 1952,
ending the need for the propane system, the City of Huntsville used the site for
various utility service purposes until 1967. In 1967 ownership of the site was
transferred for purposes of constructing public housing. The plant was demolished,
and the Searcy Homes public housing project was completed in 1971, with title to the
land passing to the Huntsville Housing Authority at that time. Doc. 133-1 at 7, ¶ 9.h.
From 1947 until 1984, plaintiff alleges it was insured under liability policies
issued by various subsidiaries of defendant Travelers Casualty and Surety Company.3
In 2008 plaintiff received an “information request” letter from the EPA and a
2
More specifically, in both the coal gasification process and the carbureted gas
manufacture process, tars and oils are generated which contain polynuclear aromatic
hydrocarbons (“PAHs”), which are carcinogenic. See e.g., doc. 133-1 at 8; Unites depo. (doc.
130-2) at 38.
3
Defendants dispute that Travelers insured plaintiff continuously from 1947 until 1984
because portions of policies issued between 1947 and 1967 are missing. Defendants’ brief in
opposition (doc. 163) at 2. No evidence of any policies issued prior to 1967 has been submitted
to the court. By Opinion and Order dated February 2, 2011, this court has previously ruled that
the only proof of an insurance contract between the parties is for July 10, 1967, to July 10, 1983.
See Memorandum Opinion and Order of February 2, 2011 (doc. 66), at 2-3.
2
pollution report regarding this site. See e.g, doc. 130-20 (Exhibit N) at 3. Plaintiff
forwarded the same to the defendants along with a demand for coverage in October
2008. Id., at 1. In November 2008 defendants notified plaintiff that there was no
“formal claim” and thus there could be no coverage until “such a claim or lawsuit is
received.” Doc. 130-22 (Exhibit P). In June 2009 the plaintiff received a formal PRP
letter, which it again forwarded to the defendant. Doc. 130-21 (Exhibit O). On
February 3, 2010, the defendants informed plaintiff that there was no “suit” and hence
there was no defense obligation on its part. See Memorandum Opinion of December
7, 2010, at 8-9; see also doc. 130-23 (Exhibit Q). The plaintiff’s claims include
Declaration of Duty to Defend; Reimbursement for Defense Costs; Bad Faith;
Declaration of Duty to Indemnify; and Waiver and Estoppel. In sum, this case
concerns whether defendants’ denial of insurance coverage to plaintiff was
reasonable, and if not, whether such denial was in bad faith.
The parties dispute
whether defendant Travelers knew or should have known that its position in this case,
that being defendants’ assertion that the Potentially Responsible Party (“PRP”) Letter
the plaintiff received from the EPA was not a “suit” triggering the duty to defend, was
not fairly debatable. Plaintiff thus asserts that the court should find that defendant
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Travelers acted in bad faith as a matter of law4 (doc. 126 at 16).
Because the court found the issue of whether a PRP Letter was a suit for
purposes of triggering the duty to defend was dispositive of the bad faith claim, and
because the parties agreed that “no Alabama state court or any federal court applying
Alabama law ha[s] ever addressed whether a PRP letter from the EPA satisfies the
“suit” requirement under a liability policy,”5 the court certified this question to the
Alabama Supreme Court. See Travelers Casualty and Surety Company v. Alabama
Gas Corp.., – So.3d – , 2012 WL 6720790 (Ala.2012). Specifically, this court asked:
Under Alabama law, is a ‘Potentially Responsible Party’ (‘PRP’) letter
from the Environmental Protection Agency (‘EPA’), in accordance with
the Comprehensive Environmental Response Compensation and
Liability Act (‘CERCLA’) provisions, sufficient to satisfy the ‘suit’
requirement under a liability policy of insurance?”
Id., at 1. The Supreme Court of Alabama responded by stating “[w]e answer this
question in the affirmative.” Id. With this background, the court considers the
pending motions.
4
Under CERCLA, a PRP shall be liable for: “(A) all costs of removal or remedial action
incurred by the United States Government or a State or an Indian tribe not inconsistent with the
national contingency plan; (B) any other necessary costs of response incurred by any other person
consistent with the national contingency plan; (C) damages for injury to, destruction of, or loss of
natural resources, including the reasonable costs of assessing such injury, destruction, or loss
resulting from such a release; and (D) the costs of any health assessment or health effects study
carried out under section 9604(i).” 42 U.S.C. § 9607(a)(4).
5
Defendants’ brief in opposition to plaintiff's motion for summary judgment (doc. 162, at
12), citing to plaintiff's brief (doc. 22) at 1, 17, 19.
4
A. Plaintiff’s renewed motion for partial summary judgment on bad faith
(doc. 125); Evidentiary submissions in support of said motion (docs. 126, 136-139,
169-171); Defendants’ opposition to plaintiff’s motion (doc. 162); Plaintiff’s reply
to defendants’ opposition (doc. 181); and Evidence in support of plaintiff’s reply to
defendant’s opposition (docs. 177-178)
B.
Defendants’ motion for summary judgment seeking dismissal of
plaintiff’s claim for bad faith (Count III) (doc. 127); Defendants’ brief and evidence
in support of its own motion (doc. 129); Plaintiff’s response to defendants’ motion
for summary judgment (doc. 164); and Defendants’ reply in support of defendants’
motion for summary judgment (doc. 179)
Pursuant to the parties’ request, the court also allowed each party to submit a
short additional brief concerning the effect of the Supreme Court of Alabama’s
December 28, 2012, opinion on the pending motions. The court received additional
pleadings addressing the same (docs. 210 and 211). According to the plaintiff, the
December 28, 2012, decision “should have no material effect” on the court’s
consideration of the pending motions (doc. 210). The defendants assert the Alabama
Supreme Court’s decision confirmed that whether a PRP letter constituted a suit was
“fairly debatable” under Alabama law at the time defendants made their coverage
determination, and thus requiring that the plaintiff’s claim for bad faith must be
5
dismissed as a matter of law (doc. 211).
Defendants’ motion and supporting evidence seeks judgment in their favor and
against the plaintiff on the bad faith claim by alleging that every action taken by
defendant Travelers in investigating the plaintiff’s claim was reasonable, based on a
full investigation, and not done with a “dishonest purpose, some motive of selfinterest, or ill will.” (doc. 127 at 2).
In certifying the question to the Alabama Supreme Court, this court held:
The court finds the underlying issue for trial in this case is whether the
defendants acted reasonably in denying coverage to the plaintiff. The
defendants rely on the fact that there has been no “suit” filed against the
plaintiff. The plaintiffs counter that 44 of the 50 states have found a
PRP letter from the EPA sufficient to trigger coverage under similar
facts.
Under Alabama law, when doubt exists as to whether coverage exists
under an insurance contract, language used by the insurer must be
construed for the benefit of the insured. Associated Scrap Metal, Inc. v.
Royal Globe Insurance Co., 927 F.Supp. 432, 437 (S.D.Ala.1995)
(finding insurer had duty to provide coverage in case where scrap metal
company was notified by EPA of potential liability as PRP). See also
State Farm Mutual Auto. Insurance. Co. v. Lewis, 514 So.2d 863, 865
(Ala.1987) (stating exceptions to insurance coverage are to be
interpreted as narrowly as possible in order to provide maximum
coverage for the insured). Applying this logic to similar actions in other
states and other federal circuits, courts have held that CERCLA
administrative proceedings initiated by PRP letters constitute “suits.”
See e.g., Wells Cargo, Inc. v. Transport Insurance Co., 2011 WL
5080143 (D.Idaho 2011) (stating “[i]f the threat is clear then coverage
should be provided.”); Ash Grove Cement Co. v. Liberty Mut. Ins., Co.,
2011 WL 2470109, 3 (D.Or.2011) (“the 104(e) request for information
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the EPA sent to Ash Grove, pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. § 9604(e), constituted a “suit” under the terms
of the insurance policies ... thus triggering the insurers’ duty to defend
....”)
The court has also considered the aspect of law which states that
whether the government performs the cleanup itself or compels a PRP
to do it, the government is authorized to recover “all costs of removal or
remedial action” associated with the cleanup from such PRPs, either
through a civil action under § 107(a)(4)(A), or through an administrative
settlement under § 122(g) or § 122(h). 42 U.S.C. §§ 9607(a)(4)(A),
9622(g) & (h); Solutia, Inc. v. McWane, Inc., 726 F.Supp.2d 1316
(N.D.Ala.2010). Under CERCLA’s strict liability regime, a party that
falls within any of the four PRP categories of § 107(a) may be held
jointly and severally liable by the government for the entire cost of a
cleanup, even if the party is “innocent” in the sense that it did not
contribute to the pollution at the site. See § 9607(a), Canadyne-Georgia
Corp. v. NationsBank, N.A. (South), 183 F.3d 1269, 1275 (11th
Cir.1999); U.S. v. Atlantic Research Corp., 551 U.S. 128, 136, 127 S.Ct.
2331 (2007).
The law does not distinguish between civil actions and administrative
settlements in the manner defendants seem to assert it should. Indeed,
such a distinction would lead to the nonsensical result that PRPs would
ask the EPA to sue them rather than bring an administrative action so
insurers would then provide coverage for “suits.” Conversely, insurers
would have an incentive to lobby the EPA to bring administrative
actions. Such disparate consequences were not the intent of CERCLA
or the administrative settlement versus civil action paths provided for by
statute.
Thus, the court finds the Alabama Supreme Court has ample basis to
consider a PRP letter a “suit” sufficient to trigger insurance coverage.
However, the court also finds that the Alabama Supreme Court could
interpret an insurance contract clause such as the one relevant in this
action to actually require a “suit” as opposed to an administrative action.
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The parties agree that “no Alabama state court or any federal court
applying Alabama law ha[s] ever addressed whether a PRP letter from
the EPA satisfies the “suit” requirement under a liability policy.
Defendants’ brief in opposition to plaintiff’s motion for summary
judgment (doc. 162, at 12), citing to plaintiff’s brief (doc. 22) at 1, 17,
19.
Having considered the arguments of the parties, as well as having read
extensive briefing regarding testimony of “experts” concerning how the
Supreme Court of Alabama would rule, the court is of the opinion that
the Supreme Court of Alabama should make the determination of
whether a PRP letter from the EPA satisfies the “suit” requirement under
a liability policy.
The Eleventh Circuit instructs that “[w]here there is any doubt as to the
application of state law, a federal court should certify the question to the
state supreme court to avoid making unnecessary Erie6 ‘guesses’ and to
offer the state court the opportunity to interpret or change existing law.”
Mosher v. Speedstar Div. of AMCA Int'l, Inc., 52 F.3d 913, 916–17 (11th
Cir.1995). Rule 18, Ala.R.App.P., allows a federal district court to
certify a question of law to the Supreme Court of Alabama whenever “it
shall appear ... that there are involved in any proceeding before [the
federal court] questions or propositions of law of [Alabama] which are
determinative of said cause and that there are no clear controlling
precedents in the decisions of the supreme court of this state....” Rule 18,
Ala.R.App.P., see also Blue Cross & Blue Shield of Ala., Inc. v. Nielsen,
116 F.3d 1406, 1413 (11th Cir. 1997) (“[T]he only authoritative voice on
Alabama law is the Alabama Supreme Court ....”). Resolution in this
way avoids the unnecessary practice of guessing the outcome under state
law and offers the state court an opportunity to explicate state law.”
Jones v. Dillard's, Inc., 331 F.3d 1259, 1268 (11th Cir.2003) (citations
omitted).
Memorandum Opinion and Order of December 14, 2011 (doc. 189).
6
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
8
In order to establish a claim of bad faith refusal to pay under Alabama law, a
plaintiff must prove: “(1) the existence of an insurance contract; (2) an intentional
refusal to pay the claim; and (3) the absence of any lawful basis for refusal and the
insurer's knowledge of that fact or the insurer's intentional failure to determine
whether there is any lawful basis for its refusal.” Acceptance Ins. Co. v. Brown, 832
So.2d 1, 16 (Ala.2001). “If [the plaintiff's] evidence fails to eliminate any arguable
reason for denying payment, any fairly debatable reason on a matter of fact or a
matter of law, he cannot recover under the tort of ‘bad faith refusal [to pay].’” Nat'l
Sec. Fire & Cas. Co. v. Bowen, 417 So.2d 179, 185 (Ala.1982). A debatable or
arguable reason is “a reason that is open to dispute or question.” Koch v. State Farm
Fire & Casualty Co., 565 So.2d 226, 229 n. 4 (Ala.1990). “When a claim is ‘fairly
debatable,’ the insurer is entitled to debate it, whether the debate concerns a matter
of fact or law.” Davis v. Cotton States Mutual Insurance Co., 604 So.2d 354, 358–59
(Ala.1992) (internal quotes omitted). The burden on the plaintiff arguing the absence
of a debatable reason is so great that, “in the ‘normal’ case, a plaintiff's bad-faith
claim may not be submitted to the jury unless she shows that she is entitled to a
directed verdict on the contract claim.” Alfa Mutual Fire Insurance Co. v. Thomas,
738 So.2d 815, 822 (Ala.1999). Thus, “ ‘[i]f any one reason for denial of coverage
is at least ‘arguable,’ [a] court need not look any further,’ and a claim for bad faith
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refusal to pay will not lie.” Weaver v. Allstate Ins. Co., 574 So.2d 771, 774
(Ala.1990) (quoting McLaughlin v. Ala. Farm Bureau Mut. Cas. Ins. Co., 437 So.2d
86, 91 (Ala.1983)) (holding that to succeed at summary judgment, the defendant
insurer only has the burden of showing “that it had a legitimate or arguable basis for
the denial of the claim.”).
Applying the above law to the facts of this case, the court is of the opinion that
the plaintiff’s renewed motion for partial summary judgment on Bad Faith (doc. 125);
is due to be denied and the defendants’ motion for summary judgment seeking
dismissal of plaintiff’s claim for Bad Faith (Count III) (doc. 127) is due to be granted.
Defendants had an arguable basis for denying plaintiff’s claim, namely that they did
not believe Alabama law required a duty to defend under an insurance contract upon
an insured’s receipt of a PRP letter. “[W]here a legitimate dispute exists as to
liability, ... a tort action for bad faith refusal to pay a contractual claim will not lie.”
Bowers v. State Farm Mut. Auto. Ins. Co., 460 So.2d 1288, 1290 (Ala.1984). In fact,
no such requirement for PRP letters appeared in Alabama law until after the initiation
of this litigation and certification of that very question to the Alabama Supreme
Court. See Alabama Gas, 2012 WL 6720790 at *3 (“neither the courts of this State
nor any federal court applying Alabama law has ever addressed the issue whether a
PRP letter from the EPA satisfies the ‘suit’ requirement under a liability policy ...”).
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Having considered the foregoing, and being of the opinion the plaintiff’s
motion for summary judgment is due to be denied and the defendants’ motion is due
to be granted;
It is therefore ORDERED by the court that the defendants’ motion for
summary judgment (doc. 127) on the plaintiff’s bad faith claim is GRANTED, the
court finding no genuine issues of material fact remain and that the defendants are
entitled to judgment in their favor as a matter of law.7
It is further ORDERED by the court that, for the same reasons set forth herein,
the plaintiff’s motion for summary judgment on its bad faith claim (doc. 125) is
DENIED.
DONE and ORDERED this the 25th day of June, 2013.
INGE PRYTZ JOHNSON
SENIOR U.S. DISTRICT JUDGE
7
Defendants also argue that there could be no bad faith failure to pay because there is no
coverage under the relevant policies. Because the court has found no bad faith as set forth in this
opinion, the court does not address this further argument. The court shall consider all of the
parties’ respective arguments concerning coverage issues by separate opinion.
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