Auto-Owners Insurance Company v. Small et al
MEMORANDUM OPINION. Signed by Judge Abdul K Kallon on 3/13/17. (SMH)
2017 Mar-13 AM 11:58
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
STANLEY SMALL AND ROBERT
Civil Action Number
Auto-Owners Insurance Company (“Auto-Owners”) filed this action against
Stanley Small and Robert Boyd, asking the court for a judgment declaring that it
has no duty to defend or indemnify Small “in the underlying lawsuit designated as
Robert A. Boyd vs. Theodore Mason, et al; 2:14-cv-02290-HGD.” Doc. 1 at 11
(emphasis omitted). The court has for consideration Auto-Owners’ motion for
summary judgment, doc. 14, which is fully briefed, docs. 14-1; 17; 18; 19; 21, and
ripe for review. Upon consideration, the court concludes that the motion is due to
be granted, and a declaratory judgment entered in Auto-Owners’ favor.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 56(a), 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.” “Rule 56(c) mandates the
entry of summary judgment, after adequate time for discovery and upon motion,
against a party who fails to make a showing sufficient to establish the existence of
an element essential to that party’s case, and on which that party will bear the
burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)
(alteration in original). The moving party bears the initial burden of proving the
absence of a genuine dispute of material fact. Id. at 323. The burden then shifts to
the non-moving party, who is required to go “beyond the pleadings” to establish
that there is a “genuine issue for trial.” Id. at 324 (internal citations and quotation
marks omitted). A dispute about a material fact is “genuine” if “the evidence is
such that a reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The court must construe the evidence and all reasonable inferences arising
from it in the light most favorable to the non-moving party. Adickes v. S.H. Kress
& Co., 398 U.S. 144, 157 (1970); see also Anderson, 477 U.S. at 244 (all
justifiable inferences must be drawn in the non-moving party’s favor). Any factual
dispute will be resolved in the non-moving party’s favor when sufficient competent
evidence supports that party’s version of the disputed facts. But see Pace v.
Capobianco, 238 F.3d 1275, 1276–78 (11th Cir. 2002) (a court is not required to
resolve disputes in the non-moving party’s favor when that party’s version of
events is supported by insufficient evidence). However, “mere conclusions and
unsupported factual allegations are legally insufficient to defeat a summary
judgment motion.” Ellis v. England, 432 F.3d 1321, 1326 (11th Cir. 2005) (citing
Bald Mountain Park, Ltd. v. Oliver, 863 F.2d 1560, 1563 (11th Cir. 1989)).
Moreover, “[a] mere ‘scintilla’ of evidence supporting the opposing party’s
position will not suffice; there must be enough of a showing that a jury could
reasonably find for that party.” Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir.
1990) (citing Anderson, 477 U.S. at 252).
Robert Boyd filed a lawsuit against Stanley Small, alleging that he “is the
victim of a fraudulent investment scam(s)” perpetrated by Small and other
defendants, who “enticed Boyd to invest in an alleged foreign trading platform.”
Doc. 14-4 at 3.1 For the period at issue, Auto-Owners insured Small under a
homeowner’s insurance policy with a personal liability limit of $500,000. See
generally doc. 14-3.
Although Boyd served the summons and complaint on
October 25, 2014, see doc. 14-20 at 2, Small failed to alert Auto-Owners of the
lawsuit until August 18, 2015, see doc. 14-17 at 2. Small claims he provided late
notice because his wife suffered a stroke, followed by “124 days of
Boyd’s complaint alleges claims of racketeering in violation of 18 U.S.C. §§ 1961(4),
(5), (9) and 1962(b) (Count I); participation in a RICO Enterprise through racketeering in
violation of 18 U.S.C. §§ 1961(5), 1962(c) (Count II); conspiracy to engage in racketeering
(Count III); breach of implied covenant of good faith and fair dealing (Count IV); fraudulent
misrepresentation (Count V); negligent/wanton misrepresentation/omission (Count VI); innocent
misrepresentation (Count VII); breach of contract/fraud (Count VIII); breach of fiduciary duty
(Count IX); and civil conspiracy (Count X). See doc. 14-4 at 9–19.
hospitalization,” and that his wife required “full time care on a 24 hour-a-day
basis” until her death on June 16, 2015. See doc. 17-2 at 3–4. Auto-Owners
currently represents Small under a reservation of rights. See doc. 14-9 at 2.
Auto-Owners contends that it is entitled to summary judgment because (1)
Small failed to alert Auto-Owners of the underlying lawsuit “as soon as possible”
pursuant to the policy, and/or because (2) the policy does not cover the types of
alleged damages for which Boyd seeks recovery in the underlying suit. The court
addresses these arguments below.
A. Small had a valid reason for failing to notify Auto-Owners of the
underlying lawsuit within a reasonable time.
The policy at issue required Small to notify Auto-Owners “as soon as
possible” of the need for personal liability protection in the event of “bodily injury,
property damage, or personal injury.” Doc. 14-3 at 39. The Alabama Supreme
Court has interpreted similar notice provisions as requiring an insured to notify the
insurance company “within a reasonable time in view of the facts and
circumstances of the case.” Pharr v. Cont’l Cas. Co., 429 So. 2d 1018, 1019 (Ala.
1983). Here, the parties agree that Small informed Auto-Owners of Boyd’s lawsuit
approximately ten months after receiving notice of the suit. See doc. 17 at 19.
Auto-Owners therefore contends that “Mr. Small did not satisfy a condition
precedent to coverage,” and that it “has no duty to continue providing defense
coverage and no duty to indemnify Mr. Small under the Policy.” Doc. 14-1 at 17.
To support its contention, Auto-Owners cites Pharr v. Continental Casualty
Co., 429 So. 2d 1018, 1019–20 (Ala. 1983) (eight-month delay unreasonable as a
matter of law), and Southern Guaranty Insurance Co. v. Thomas, 334 So. 2d 879,
883 (Ala. 1976) (six-month delay unreasonable as a matter of law). Doc. 14-1 at
17. These authorities are distinguishable, however, because, in Pharr, the insured
provided no “excuse for the delay,” 429 So. 2d at 1019, and, in Thomas, the
insured claimed that he thought the policy did not provide coverage and/or that he
was not liable for the underlying accident, 334 So. 2d at 883–84. Accepting the
non-movant’s factual allegations as true, as this court must do, Small delayed
providing notice to Auto-Owners because of his wife’s stroke and his resulting
responsibility to provide constant care for her until her death. Therefore, because
the reasonableness of a delay is often a factual issue, see, e.g., Dill v. Colonial Ins.
Co., 569 So. 2d 385, 386 (Ala. 1990) (twenty-two months); State Farm Fire &
Casualty Co. v. Hartford Accident & Indem. Co., 347 So. 2d 389, 391–92 (Ala.
1977) (six months); Hackleburg Church of Christ v. Great Am. Ins. Cos., 675 So.
2d 1309, 1311 (Ala. Civ. App. 1995) (seven years), the court will not grant
summary judgment on this basis.
B. The policy does not protect Small against Boyd’s alleged damages.
Auto-Owners contends that Boyd suffered no injury for which Small would
be protected from personal liability under the plan or, alternatively, that Boyd’s
alleged injuries arose from business-related conduct described in one of the policy
exclusions. The court examines these arguments separately below.
1. Auto-Owners’ Contention that Boyd Suffered no “Bodily Injury”
or “Property Damage”
Based on the policy language stating that the policy covers “damages
because of or arising out of bodily injury or property damage,” doc. 14-3 at 32,
Auto-Owners first contends that, because Boyd’s “monetary damages do not meet
the requirement of bodily injury and/or [property damage] as outlined in the
policy,” it is “entitled to a declaration that it is under no duty to provide defense or
indemnity coverage to [Small] as a matter of law.” Doc. 14-1 at 18–19. See also
doc. 14-3 at 15 (defining “bodily injury” as “physical injury, sickness or disease
sustained by a person including resulting death of that person”); id. at 16 (defining
“property damage” as “damage to or destruction of tangible property including
resulting loss of use of that property”). Auto-Owners is correct that Boyd is
seeking damages for mental anguish and emotional distress, see doc. 19 at 5–6, and
that the policy does not explicitly address mental anguish or emotional distress.
See doc. 14-3 at 15. Still, “[i]n construing the language of insurance contracts
governed by Alabama law, tribunals have characterized mental anguish as ‘bodily
injury.’” American Economy Ins. Co. v. Fort Deposit Bank, 890 F. Supp. 1011,
1018 (M.D. Ala. 1995). For example, in Morrison Assurance Company v. North
American Insurance Corporation, this court, applying Alabama law, found that the
terms “sickness” or “disease” necessarily encompassed mental anguish even
though the policy did not specifically include that term. 588 F. Supp. 1324, 1327
(N.D. Ala. 1984). Therefore, for this opinion, the court will assume that Boyd’s
alleged mental anguish and emotional distress constitute “bodily injury.”
2. Auto-Owners’ Contention that Boyd’s Alleged Damages Resulted
from Business Activities for which the Policy Does Not Provide
Personal Liability Coverage
As its final basis for contending that it is due summary judgment, AutoOwners cites “Exclusion 2.(a.)(11)” of the policy, which precludes personal
liability coverage for “bodily injury . . . because of or arising out of a business
owned or financially controlled by an insured or by a partnership or joint venture
of which an insured is a partner or member.” Doc. 14-1 at 19 (citing doc. 14-3 at
34) (emphasis omitted). Auto-Owners contends that the underlying investment
venture that is the basis for Boyd’s lawsuit against Small constituted a “business,”
“partnership,” or “joint venture.” Id. at 18–24. The court agrees.
In his lawsuit, Boyd alleges that Small persuaded him to invest in an
“international trading platform” that “would require a front-end investment” but
would “produce significantly more money.” Doc. 14-5 at 3. After Boyd made an
initial investment, Small asked Boyd, and Boyd agreed, to make further
investments. See id. at 4–6. Boyd alleges that, despite Small’s assurances that
Boyd’s investments were safe, Small and the other defendants “have not paid one
dollar back to Boyd.” Id. at 8.
To get around the commercial nature of the dispute, Small contends that,
because the policy defines “business” as “any full or part time trade, profession or
occupation,” but does not define the terms “trade,” “profession,” or “occupation,”
these terms are purportedly “ambiguous” and must be construed in favor of
coverage. Doc. 17 at 27–30. In other words, Small asks this court to find that his
investment activities did not constitute a trade, profession, or occupation and,
consequently, that Small’s allegedly tortious conduct does not fit within the
“business exclusion” of the policy.
While Small is correct that courts must
construe insurance contracts against the insurer “that writes the policy” and in
favor of coverage, see Brown Mach. Works & Supply Co. v. Insurance Co. of N.
Am., 659 So. 2d 51, 60 (Ala. 1995), courts must also “give [an] undefined word or
phrase the same meaning that a person of ordinary intelligence would give it,”
Twin City Fire Ins. Co. v. Alfa Mut. Ins. Co., 817 So. 2d 687, 692 (Ala. 2001). See
also id. (“An undefined word or phrase in an insurance policy does not create an
inherent ambiguity.”); id. (“[A]mbiguities are not to be inserted by strained or
twisted reasoning.”). In that respect, even if the court finds that a person of
ordinary intelligence would not characterize Small’s investment ventures as a
“trade,” “profession,” or “occupation,” the other two terms — “partnership” or
“joint venture” in the exclusion, which Small fails to address, doom Small’s
contention and warrant a finding in favor of Auto-Owners. A cursory review of
Boyd’s complaint shows that Boyd repeatedly characterizes the parties’
undertaking in terms that a person of ordinary intelligence would understand as a
failed partnership or joint venture. 2 St. Paul Fire & Marine Ins. Co. v. Edge
Memorial Hosp., 584 So. 2d 1316, 1322 (Ala. 1991) (language in an insurance
policy should be given the same meaning that an ordinary person, not a lawyer,
would reasonably ascribe to the language). For example, Boyd alleges that Boyd,
Small, and others joined together to invest money presumably in an effort to
generate a profit. See generally doc. 14-5. In light of these allegations, the court is
not persuaded by Small’s contention that his “outside investments” do not equate
to a “business for purposes of Auto-Owners’ business exclusion,” doc. 17 at 30.
See, e.g., doc. 14-5 at 5 (“When Boyd eventually asked Defendant Mason about the
financials of the 406, LLC, Mason eventually told him that each individual partner would be
considered a separate investor in the trading platforms, and that the LLC was not being
utilized.”); id. at 5–6 (“Small said that Miller needed $50,000 to complete an Iron Ore deal in
Mexico. Small and Mason told Boyd that, if Boyd loaned $50,000 to Miller, then Boyd would
be repaid $75,000 within 45 days for this loan. In reliance on the repeated assurances and
representations, Boyd agreed to loan the additional $50,000 to Miller.”).
Based on Boyd’s allegations in the underlying complaint, the court finds that
Boyd’s alleged injuries arose out of a “business,” “partnership,” or “joint venture”
of which Small was an owner, partner, or member, and that the policy does not
insure Small against the type of damages Boyd alleges.
Owner’s motion for summary judgment, doc. 14, is due to be granted. The court
will enter a separate order contemporaneously with this Memorandum Opinion.
DONE the 13th day of March, 2017.
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE
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