General Star National Insurance Company v. Higginbotham et al

Filing 57

MEMORANDUM OPINION. Signed by Judge L Scott Coogler on 7/16/2012. (KAM, )

FILED
2012 Jul-16 PM 01:08
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
GENERAL STAR NATIONAL
INSURANCE COMPANY,
Plaintiff,
vs.
MICHAEL D. HIGGINBOTHAM,
et al.,
Defendants.

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MEMORANDUM OF OPINION
I.

Introduction.
The Court has for consideration two motions for summary judgment. Plaintiff

General Star National Insurance Company (“General Star”) sued Defendants Michael
D. Higginbotham (“Higgenbotham”); M&R Properties, LLC; Burnett & Gilbreath
LLC d/b/a Wells Brothers Real Estate (“Wells Brothers”), Eric and Susan Gober;
Randall and Stephine Lowe; Charles and Ann Smith; Scot and Kimberly Smith; Scott
McGath; Margaret Minyon; and Lisa Meedor seeking a declaration of its rights and
obligations under two insurance policies.

(Doc. 16.)

Wells Brothers filed a

counterclaim against General Star for breach of contract, bad faith refusal to pay, and
a declaration that General Star must defend and indemnify Wells Brothers under the
Page 1 of 22

terms of a valid contract for insurance. (Doc. 22.) General Star has filed a motion for
entry of summary judgment in its favor against all Defendants. (Doc. 39.) Wells
Brothers filed a motion for summary judgment with regard to both its defense to
General Star’s claim and its claims for breach of contract and declaratory judgment
against General Star. (Doc. 37.)
Upon review of the parties submissions, the Court noted that General Star was
attempting to assert insurance exclusions against Wells Brothers that were not pled in
the Amended Complaint in relation to Wells Brothers, nor were they raised in General
Star’s Answer to Wells Brothers’ Counterclaim. (Doc. 46.) The Court gave General
Star the opportunity to seek to amend its pleadings to add these affirmative defenses
and ultimately determined that amendment was appropriate. (Doc. 51.) The Court
then granted Wells Brothers leave to file a supplement to its motion for summary
judgment, as requested (Docs. 51, 55), and allowed General Star to file a short response
(Doc. 56).
Deadlines for submissions have passed, and the issues raised in the parties’
motions for summary judgment are ripe for decision. Upon full consideration of the
legal arguments and evidence cited by the parties, it is the opinion of this Court that
General Star’s motion for summary judgment is due to be granted, and Wells
Brothers’ motion for summary judgment is due to be denied.
Page 2 of 22

II.

Facts.1
General Star issued a renewal Real Estate Errors & Omissions Liability

Insurance Policy (Policy No. NJA989155D) to Wells Brothers for the period of January
13, 2009, to January 13, 2010 (the “2009/10 Policy”). In the 2009/10 Policy, General
Star agreed to:
pay on behalf of the Insured all sums which the Insured
shall become legally obligated to pay as Damages for
Claims first made against the Insured during the Policy
Period or within sixty (60) days thereafter, arising out of
any act, error, omission or Personal Injury in the rendering
of or failure to render Professional Services by an Insured
covered under this policy;
....
The Company shall have the right and duty to defend any
Suit against the Insured seeking Damages to which this
insurance applies even if any of the allegations of the Suit
are groundless, false or fraudulent. However, the Company
shall have no duty to defend the Insured against any Suit
seeking Damages to which this insurance does not apply.
(Doc. 16-1 at 4.)
On September 11, 2009, Eric and Susan Gober; Randall and Stephine Lowe;
Charles and Ann Smith; Scot and Kimberly Smith; Scott McGath; and Margaret
1

The facts set out in this opinion are gleaned from the parties’ submissions of facts claimed
to be undisputed, their respective responses to those submissions, and the Court’s own examination
of the evidentiary record. All reasonable doubts about the facts have been resolved in favor of the
nonmoving party. See Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224 (11th Cir.
2002). These are the “facts” for summary judgment purposes only. They may not be the actual
facts. See Cox v. Adm'r U.S. Steel & Carnegie Pension Fund, 17 F.3d 1386, 1400 (11th Cir. 1994).
Page 3 of 22

Minyon (collectively, “Claimants”) filed a lawsuit styled Eric and Susan Gober, et al.
v. Michael D. Higginbotham, 08-CV-2009-900139.00, in the Circuit Court of Blount
County, Alabama, against Higginbotham, M&R, and others. On July 15, 2010,
Claimants filed a First Amended Complaint alleging the same causes of action and
adding Lisa Meedor as a party plaintiff (the “Underlying Lawsuit”)
In the Underlying Lawsuit, Claimants alleged they purchased six defective
homes in the Christina Estates development in Altoona, Alabama. Claimants
maintained that Higginbotham acted as the realtor and developer for the homes, and
M&R acted as the realty company and the developer for the homes. The Claimants
contend that they were induced to purchase the homes by Higginbotham, who
represented that the homes were of “high quality” and that the builder had performed
“superior work.” Claimants allege that, after purchase, they identified problems and
construction defects with the homes. Claimaints maintain that, despite numerous
demands for Higginbotham and M&R to correct the issues with the homes, inadequate
or insufficient repairs were made and the problems still exist. They allege that their
homes have been constructed and repaired in a manner below accepted industry
standards and in violation of recognized building codes, resulting in damages to
Claimants and their homes. The First Amended Complaint asserts causes of action

Page 4 of 22

for: negligence/wantonness (Counts One, Two and Three), fraudulent
misrepresentation and/or innocent misrepresentation (Count Four), suppression of
material facts pursuant to Ala. Code § 6-5-102 (1975) (Count Five), breach of contract
(Count Six), breach of warranties (Count Seven), nuisance (Count Eight), third-party
beneficiary to subcontracts (Count Nine), breach of the Real Estate Consumer’s
Agency and Disclosure Act, Ala. Code § 34-27-85 (1975) (Count Ten), civil conspiracy
(Count Eleven), and deceit (Count Twelve).
Higginbotham was employed as a salesperson for Wells Brothers from May of
1997 through August 2008, which covered the listing period and most sales dates of the
six alleged defective homes in the Christina Estates development. Prior to their sale,
the homes in question were owned by M&R, which acted as the developer of Christina
Estates and the subject properties. Higginbotham was a member of M&R Properties,
LLC, and had a financial stake in the company.
In a letter dated January 13, 2010, Higginbotham and M&R, through their
counsel, provided notice of the Underlying Lawsuit to General Star and demanded
coverage and defense for Higginbotham under Wells Brothers’ 2009/10 Policy. Upon
receipt of the notice, General Star opened a file and began its investigation into the
potential claim. In February 2010, Jane Sickler, a General Star claims representative,
contacted Wells Brothers seeking information regarding the properties listed in the
Page 5 of 22

Underlying Lawsuit. Within days, Wells Brothers provided information showing that
three of the subject properties had been listed by Wells Brothers and Higginbotham
was the salesperson. General Star denied coverage for Higginbotham in a letter dated
October 25, 2010. General Star promptly followed its denial with the filing of a
declaratory judgment action in this Court on November 18, 2010, against Claimants,
Higginbotham, and M&R. (Doc. 1.)2
On or around January 19, 2011, Claimants filed a Second Amended Complaint
in the Underlying Action adding Wells Brothers as a party defendant. Claimants
alleged that Wells Brothers “listed” the properties sold to Claimants. The Second
Amended Complaint omitted any specific allegation that Higginbotham was a
“realtor” for the properties or that M&R was a realty company. Instead, Claimants
alleged that Higginbotham acted as a developer and an “agent” of Wells Brothers at
the time the subject properties were sold. The Second Amended Complaint asserted
the same thirteen causes of action against all defendants as the First Amended
Complaint and requested identical damages.
Wells Brothers forwarded a copy of the Second Amended Complaint to General
Star on January 21, 2011. General Star denied coverage for Wells Brothers under the

2

General Star amended its Complaint on November 22, 2010, to reflect the addition of Lisa
Meeder as a Claimant in the Underlying Action. (Doc. 2.)
Page 6 of 22

terms of the Real Estate Errors and Omissions Liability Insurance Policy in place at the
time of Wells Brothers’ claim. The policy was effective from January 13, 2011, through
January 13, 2012 (“2011/12 Policy”), and contained exclusions for any claims “arising
out of the rendering of or failure to render any professional services related to any:
Christine Estates,” and “any negligent act, error or omission or Personal Injury in the
rendering of or failure to render Professional Services by . . . M&R Properties,”
including “any partners, directors, officers, principals or employees of” M&R
Properties. (Doc. 40-5 at 21, 23.)
While there is no dispute that coverage for the Underlying Litigation does not
exist under the 2011/12 Policy, Wells Brothers contends that it is entitled to coverage
under the 2009/10 Policy, given the interrelated claims clause contained in both
policies. The clause reads as follows:
All Claims alleging interrelated acts, errors or omissions or
Personal Injuries regardless of the number of Claims,
Insureds, or claimants are considered to be one Claim. All
such Claims are considered first made at the time the first
Claim was first made. Furthermore, an interrelated act,
error, or omission is deemed to have occurred at the time
the first interrelated act, error or omission occurred.
(Doc. 16-1 at 6.) The 2009/10 Policy defines a “Claim” as:
a demand for money, the filing of Suit or the institution of
arbitration or mediation proceedings naming the Insured
and alleging an act, error, omission or Personal Injury
Page 7 of 22

resulting from the rendering of or failure to render
Professional Services.
(Id. at 9.) “Professional Services”:
means services performed by an Insured in an Insured's
capacity as a broker, buyer’s broker, agent, appraiser of real
estate, a real estate consultant, auctioneer, counselor or
property manager, as long as such service is rendered on or
behalf of the customer or client in return for a fee,
commission, or other compensation or in the course of
solicitation of a client or customer for services which would
result in payment of a fee, commission, or other
compensation. It includes incidental services rendered by
any Insured as a notary public, title agent or as a member of
a formal accreditation committee, standards review
committee or similar board or committee.
(Id. at 11.) “Insured means any person or organization qualifying as an Insured under
SECTION II - PERSONS INSURED of this policy.” (Id. at 10.) In SECTION II -PERSONS INSURED, the 2009/10 Policy states, in relevant part:
Each of the following is an Insured under this policy to the
extent set forth below:
...
C.
If the Named Insured is designated as a partnership,
or
Limited Liability Partnership/ Corporation
in Item 5. of the Declarations Page, then the entity so
designated and any current or former partner, employee,
Salesperson, agent, Predecessor Firm or Successor in
Business of such entity is an Insured, but only while acting
on behalf of the Named Insured and within the scope of
their duties as such; or
D. If the Named Insured designated in Item 5 of the
Declarations Page is other than an Independent Contractor,
Page 8 of 22

a sole proprietorship, partnership or Limited Liability
Partnership/Corporation, then the organization so
designated and any current or former executive officer,
director or stockholder, employee, Salesperson, agent,
Predecessor Firm or Successor in Business of such
organization is an Insured, but only while acting on behalf
of the Named Insured and within the scope of their duties
as such.3
(Id. at 5.) The “Named Insured” on the Declarations Page is “Burnett & Gilbreath
LLC dba Wells Bros Real Estate.” (Id. at 1.)
General Star disputes that Wells Brothers is entitled to coverage under the
2009/10 Policy and also cites several exclusions. The 2009/10 Policy states that
insurance does not apply to:
CONTRACTING OR CONSTRUCTION ACTIVITIES
...
The insurance afforded by this policy does not apply to any
Claim(s) based on or arising out of the rendering of or
failure to render any professional services related to any
CONTRACTING OR CONSTRUCTION ACTIVITIES.
(Id. at 18.) The 2009/10 Policy also excludes claims:
based on or arising out of the actual or attempted sale,
leasing or appraisal of property by any Insured if at the time
of the act or omission giving rise to such Claim, such
Insured owned, or was the developer or constructor of, such
3

While the parties cite to provision C, the Court notes that Wells Brothers is identified as a
“Corporation” on the Declarations Page, and not a Limited Liability Corporation. Accordingly, it
appears to the Court that provision D would apply to determine whether an individual or entity is
an “Insured.” Yet, both provisions result in the same outcome for the purposes of this case.
Page 9 of 22

property. . . . 4
(Id. at 25), and:
Based on or arising out of the actual or attempted purchase
of property by, or the actual or attempted sale, leasing or
appraisal of property developed, constructed or owned by:
1.
any entity in which any Insured has a financial
interest; . . . .
(Id. at 26).

4

This provision further provides: “This exclusion does not apply to:
1. the actual or attempted sale or leasing of property that the Insured
did not construct or develop and in which the combined ownership
interest of all Insureds at the time of sale or lease was less than 10%;
2. the actual or attempted sale of Residential Property 100% owned
by an Insured if all of the following conditions are met:
i. the property was acquired by an Insured under a written
Guaranteed Sale Listing Agreement; and
ii. from acquisition to resale:
(1) the title to the property was held by an Insured for
less than twelve months; and
(2) the property was continually offered for sale by an
Insured;
3. the actual or attempted sale or leasing of Residential Property by
an Insured who is the 100% owner of such Residential Property for
more than 180 days and all the following conditions are met in
connection with such sale:
i. a written Home Inspection Report is issued by an ASHI or
CREIA member inspector;
ii. a home warranty policy was purchased prior to closing;
iii. a seller disclosure form was signed by the Insured and
acknowledged by the buyer prior to closing; and
iv. a state or local board approved standard sales contract was
utilized.
(Doc. 16-1 at 25.)
Page 10 of 22

III.

Standard.
Summary judgment is proper “if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a).5 The party moving for summary judgment “always bears
the initial responsibility of informing the district court of the basis for its motion, and
identifying those portions of [the evidence] which it believes demonstrate the absence
of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
The movant can meet this burden by presenting evidence showing that there is no
genuine dispute of material fact, or by showing that the nonmoving party has failed to
present evidence in support of some element of its case on which it bears the ultimate
burden of proof. Id. at 322-23. “If the moving party bears the burden of proof at trial,
it must demonstrate that ‘on all the essential elements of its case on which it bears the
burden of proof at trial, no reasonable jury could find for the non-moving party.’” Irby
v. Bittick, 44 F.3d 949, 953 (11th Cir. 1995) (quoting United States v. Four Parcels of Real
Property, 941 F.2d 1428, 1438 (11th Cir. 1991) (en banc)). In evaluating the arguments
of the movant, the court must view the evidence in the light most favorable to the
nonmoving party. Mize v. Jefferson City Bd. of Educ., 93 F.3d 739, 742 (11th Cir. 1996).
5

Although Fed. R. Civ. P. 56 was amended on December 1, 2010, “the standard for granting
summary judgment remains unchanged.” Fed. R. Civ. P. 56 advisory committee’s note (2010
Amendments).
Page 11 of 22

Once the moving party has met his burden, Rule 56 “requires the nonmoving
party to go beyond the pleadings and by [his] own affidavits, or by the depositions,
answers to interrogatories, and admissions on file, designate specific facts showing that
there is a genuine issue for trial.” Celotex, 477 U.S. at 324 (internal quotations
omitted); see also Fed. R. Civ. P. 56(c). “A factual dispute is genuine only if a
‘reasonable jury could return a verdict for the nonmoving party.’” Info. Sys. &
Networks Corp., 281 F.3d at 1224 (quoting United States v. Four Parcels of Real Property,
941 F.2d 1428, 1437 (11th Cir. 1991)).
If there are no genuine issues of material fact and a declaratory judgment is
sought, the district court should grant summary judgment if there is but one reasonable
conclusion under the substantive law governing the case. Silverstein v. Gwinnett Hosp.
Authority, 861 F.2d 1560, 1563 (11th Cir. 1988) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 250-52 (1986)).
IV.

Analysis.
A.

Wells Brothers.

General Star has requested summary judgment in its favor and a declaration that
it has no duty to defend or indemnify Wells Brothers in the Underlying Action. Wells
Brothers has filed its own motion for summary judgment on its counterclaim against
General Star for breach of contract. While it is undisputed that Wells Brothers is not
Page 12 of 22

entitled to insurance coverage or defense under the 2011/12 Policy, Wells Brothers
contends that the misrepresentation, suppression, and Real Estate Consumers Agency
and Disclosure Act (“RECAD”) claims in the Underlying Action fall under the
coverage of the 2009/10 Policy.
“Liability insurance coverage includes two separate duties: (1) the duty to
defend; and (2) the duty to indemnify.” Tanner v. State Farm Fire & Cas. Co., 874 So.
2d 1058, 1063 (Ala. 2003) (citing Porterfield v. Audubon Indem. Co., 856 So. 2d 789,
791-92 (Ala. 2002)). “It is well settled that [an] insurer’s duty to defend is more
extensive than its duty to [indemnify].” Id. (quotations omitted). “Whether an
insurance company owes its insured a duty to provide a defense in proceedings
instituted against the insured is determined primarily by the allegations contained in
the complaint.” Id. (citing United States Fid. & Guar. Co. v. Armstrong, 479 So. 2d
1164, 1168 (Ala. 1985)). “If the allegations of the injured party’s complaint show an
accident or an occurrence within the coverage of the policy, then the insurer is
obligated to defend, regardless of the ultimate liability of the insured.” Id. at 1063-64
(citing Ladner & Co. v. Southern Guar. Ins. Co., 347 So. 2d 100, 102 (Ala. 1977)).
However, “‘[i]f there is any uncertainty as to whether the complaint alleges facts that
would invoke the duty to defend, the insurer must investigate the facts surrounding the
incident that gave rise to the complaint in order to determine whether it has a duty to
Page 13 of 22

defend the insured.” Id. at 1064 (emphasis added) (quoting Blackburn v. Fidelity &
Deposit Co. of Maryland, 667 So. 2d 661, 668 (Ala. 1995)). “Where facts are alleged in
the complaint to support a cause of action, it is the facts, not the legal phraseology, that
determine whether an insurer has a duty to defend its insured in the action.” Hartford
Cas. Ins. Co. v. Merchants & Farmers Bank, 928 So. 2d 1006, 1012 (Ala. 2005).
In the 2009/10 Policy, General Star is obligated to:
pay on behalf of the Insured all sums which the Insured
shall become legally obligated to pay as Damages for
Claims first made against the Insured during the Policy
Period or within sixty (60) days thereafter, arising out of
any act, error, omission or Personal Injury in the rendering
of or failure to render Professional Services by an Insured
covered under this policy;
(Doc. 16-1 at 4.) Wells Brothers is the Named Insured and “and any current or former
executive officer, director or stockholder, employee, Salesperson, agent, Predecessor
Firm or Successor in Business of such organization is an Insured, but only while
acting on behalf of the Named Insured and within the scope of their duties as such.”
(Id. at 5.) “Professional Services”:
means services performed by an Insured in an Insured’s
capacity as a broker, buyer’s broker, agent, appraiser of real
estate, a real estate consultant, auctioneer, counselor or
property manager, as long as such service is rendered on or
behalf of the customer or client in return for a fee,
commission, or other compensation or in the course of
Page 14 of 22

solicitation of a client or customer for services which would
result in payment of a fee, commission, or other
compensation. It includes incidental services rendered by
any Insured as a notary public, title agent or as a member of
a formal accreditation committee, standards review
committee or similar board or committee.
(Id. at 11.)
Wells Brothers argues that it is entitled to a defense for Claimants’
misrepresentation, suppression, and RECAD claims because “[t]he Second Amended
Gober Complaint alleges that Wells Brothers listed the properties, that Mike
Higginbotham was its agent, and that Higginbotham committed misrepresentation,
suppression and violations of RECAD. (Doc. 42 at 4; see also Doc. 38 at 12.) In order
to fall within the coverage of the policy, however, the Second Amended Complaint
would need to include facts suggesting that Higginbotham committed
misrepresentation, suppression, and violations of RECAD while acting in the scope
of his duties as an agent of Wells Brothers and that the violations were committed in
Higginbotham’s capacity as a broker, buyer’s broker, agent, appraiser of real estate,
a real estate consultant, auctioneer, counselor or property manager. There are no such
facts.

The Second Amended Complaint omitted any specific allegation that

Higginbotham was a “realtor.” Claimants instead alleged that Higginbotham “acted
as the developer for Christine Estates.” (Doc. 36-4 ¶ 19.) While the Second Amended
Page 15 of 22

Complaint does state that Higginbotham was acting as an “agent” of Wells Brothers
“at the time” when Claimants purchased their homes (Id. ¶¶ 24, 34), there are no
facts showing that Higginbotham acted in the scope of his duties as an agent of Wells
Brothers or in his capacity as a broker, buyer’s broker, agent, appraiser of real estate,
a real estate consultant, auctioneer, counselor or property manager when he
committed the wrongful conduct alleged.
Even if there were sufficient facts in the Second Amended Complaint to suggest
that Higginbotham was an “Insured” and the claims at issue stem from his rendering
or failure to render “Professional Services,” the allegations indicate that insurance
coverage is precluded under Exclusion M of the 2009/10 Policy, which excludes
claims:
based on or arising out of the actual or attempted sale,
leasing or appraisal of property by any Insured if at the time
of the act or omission giving rise to such Claim, such
Insured owned, or was the developer or constructor of,
such property. . . .
(Doc. 16-1 at 25.) Claimants allege in the Second Amended Complaint that they
“entered into contracts with Defendant M&R Properties LLC[,] and Michael
Higginbotham to purchase the homes constructed by Defendants located at Christine
Estates,” and Higginbotham “acted as developer for Christine Estates.” (Doc. 36-4

Page 16 of 22

¶ 19.)
Claimants seem to argue that Wells Brothers is entitled to a defense because
they allege in the Second Amended Complaint that Wells Brothers listed the
properties at issue and listing the properties constitutes “Professional Services.”
(Doc. 41 at 7.) There are, however, no facts in the Second Amended Complaint that
suggest material misrepresentations, suppression, or lack of disclosure under RECAD
were accomplished through the real estate listing process.
Again, “it is the facts, not the legal phraseology, that determine whether an
insurer has a duty to defend its insured in the action.” Hartford Cas. Ins. Co., 928 So.
2d at 1012. There are insufficient facts in the Second Amended Complaint to show
that Claimants’ misrepresentation, suppression, and RECAD claims “aris[e] out of
any act, error, omission or Personal Injury in the rendering of or failure to render
Professional Services by an Insured.” (See Doc. 40 at 18.)
If the complaint “does not, on its face, allege a covered accident or occurrence,
but the evidence proves one, then the insurer likewise owes the duty to defend.”
Tanner, 874 So. 2d at 1065. If the evidence proves a covered accident or occurrence,
General Star would also have an obligation to indemnify Wells Brothers. It is
undisputed that Higginbotham was employed as a salesperson for Wells Brothers

Page 17 of 22

when all six alleged defective homes in the Christina Estates development were listed
and all but one were sold. Yet, Wells Brothers has not pointed the Court to any
evidence establishing that the purported violations at issue occurred in
Higginbotham’s specific capacity as a salesperson or real estate agent for Wells
Brothers. Claimants have not cited to specific portions of the record showing that
Wells Brothers violated the law in listing the homes at issue. Neither Wells Brothers
nor Claimants have alleged sufficient facts to show that the claims at issue are covered
under the 2009/10 Policy.
Even if the Court assumed that such facts existed— namely, that Higginbotham
is an “Insured” and the claims at issue arise from his rendering or failure to render
“Professional Services”6 on behalf of Wells Brothers— it is clear to the Court that
Wells Brothers is excluded from insurance coverage under Exclusion Y of the 2009/10
Policy, which omits coverage for claims:
Based on or arising out of the actual or attempted purchase
of property by, or the actual or attempted sale, leasing or
appraisal of property developed, constructed or owned by:
1.
any entity in which any Insured has a financial
6

The Court also has to assume that Wells Brothers’ January 2011 notice of claim to General
Star relates back to Higginbotham’s January 2010 notice of claim under the interrelated claims clause
so that coverage is available to Wells Brothers under the 2009/10 Policy. Because the Court finds
that Exclusion Y precludes insurance coverage, even if Higginbotham is an “Insured” and the claims
at issue arise from his rendering or failure to render “Professional Services,” it is unnecessary for
the Court to decide whether the interrelated claims clause applies.
Page 18 of 22

interest; . . . .
(Doc. 16-1 at 26). “In general, the insurer bears the burden of proving the
applicability of any policy exclusion.” Acceptance Ins. Co. v. Brown, 832 So. 2d 1, 12
(Ala. 2001) (citing Fleming v. Alabama Farm Bureau Mut. Cas. Ins. Co., 310 So. 2d 200,
202 (1975)). General Star has established that the misrepresentation, suppression, and
RECAD claims against Wells Brothers arise out of the sale of homes owned by M&R.
It is undisputed that Higginbotham was a member of M&R and had a financial stake
in the company. (Doc. 40-3 at ¶¶ 9-12.)
Wells Brothers contends that Exclusion Y is “ambiguous” and must be
construed against the insurer. Wells Brothers further argues that while Higginbotham
must be an “Insured” to establish insurance coverage, he is not an “Insured” for the
purposes of Exclusion Y because he has to be acting within the scope of his duties as
an agent of Wells Brothers. Wells Brothers proffers that owning a financial interest
in M&R was not a part of Higginotham’s duties as a Wells Brothers salesperson.
While a truly ambiguous provision in an insurance policy should be construed
against the insurer, “[a] policy is not made ambiguous by the fact that the parties
interpret the policy differently or disagree as to the meaning of a written provision in
a contract.” State Farm Mut. Auto. Ins. Co. v. Brown, 26 So. 3d 1167, 1169 (Ala. 2009)

Page 19 of 22

(citing Watkins v. United States Fid. & Guar. Co., 656 So. 2d 337 (Ala. 1994)) . “When
analyzing an insurance policy, a court gives words used in the policy their common,
everyday meaning and interprets them as a reasonable person in the insured’s position
would have understood them.” Id. (citing Western World Ins. Co. v. City of Tuscumbia,
612 So. 2d 1159 (Ala. 1992); St. Paul Fire & Marine Ins. Co. v. Edge Mem'l Hosp., 584
So. 2d 1316 (Ala. 1991)). Higginbotham qualifies as an “Insured” when the claims at
issue arise from “Professional Services” rendered in the scope of his duties as an
agent of Wells Brothers. Nothing in Exclusion Y hints that the financial interest in an
ownership entity has to be part of the Insured’s duties as an agent of Wells Brothers.
The exclusion at issue is clearly aimed at omitting coverage when a Wells Brothers
agent has an economic reason to lie or hide facts in conjunction with the purchase or
sale of property because they have a financial interest in a third-party developer or
owner of the property. The Court rejects Wells Brothers’ “strained” and “twisted
reasoning” that the financial interest has to be part of the Wells Brothers’ agent’s job
duties. See Twin City Fire Co. v. Alfa Mut. Ins. Co., 817 So. 2d 687, 692 (Ala. 2001).
Summary judgment will be entered in favor of General Star and against Wells
Brothers.

Page 20 of 22

B.

Defendants Higginbotham and M&R.

Defendants Higginbotham and M&R have not filed any opposition to General
Star’s motion for summary judgment. Upon full review of the evidence submitted,
the Court finds that General Star has met its burden of proving that neither defendant
is entitled to coverage or defense under the 2009/10 Policy. M&R is not an
“Insured” under the 2009/10 Policy. There are insufficient allegations or evidence
to show that Higginbotham is an “Insured” and the claims at issue stem from his
rendering or failure to render “Professional Services.” Defendants have not cited to
any facts, either in the underlying complaint or in the record, showing that
Higginbotham’s alleged wrongful conduct occurred in the scope of his duties as an
agent of Wells Brothers and in his capacity as a broker, buyer’s broker, agent, appraiser
of real estate, a real estate consultant, auctioneer, counselor or property manager.
Assuming the facts alleged in the underlying complaint suggested Higginbotham is an
“Insured” for purposes of a duty to defend, insurance coverage was nonetheless
precluded by Exclusion M. (Doc. 16-1 at 25.) Assuming there are sufficient facts in
the record to show that Higginbotham is an “Insured” and the underlying claims arise
from his rendering of “Professional Services,” General Star has proven that Exclusion
Y applies to preclude insurance coverage. (Doc. 16-1 at 26.) Summary judgment will

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be granted in favor of General Star with regard to these two defendants.
V.

Conclusion.
For the reasons outlined above, General Star’s motion for summary judgment

will be granted in all respects. Wells Brothers’ motion for summary judgment will be
denied. A separate order will be entered.
Done this 16th day of July 2012.

____________
L. SCOTT COOGLER
UNITED STATES DISTRICT JUDGE
139297

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