Evanston Insurance Company v. Yeager Painting LLC et al
Filing
45
MEMORANDUM OPINION. Signed by Magistrate Judge John E Ott on 8/3/2018. (KAM)
FILED
2018 Aug-03 AM 11:00
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
EVANSTON INSURANCE CO.,
Plaintiff,
v.
YEAGER PAINTING, LLC,
CHRIS YEAGER, and WILFREDO
HERNANDEZ, a/k/a WILFREDO
ROMAN HERNANDEZ-ZAVALA,
Defendants.
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Case No. 2:16-cv-02061-JEO
MEMORANDUM OPINION1
The court has before it the January 10, 2018 motion for summary judgment
filed by Plaintiff Evanston Insurance Company against Defendants Chris Yeager
and Yeager Painting LLC.2 (Doc. 38). Pursuant to the court’s initial order (Doc.
28) and the February 7, 2018 extension (Doc. 41), the motion was under
submission as of March 1, 2018. After consideration of the briefs, evidence and
applicable case law, the court finds that the motion is due to be granted for the
following reasons.
1
The parties have consented to the exercise of dispositive jurisdiction by a magistrate judge
pursuant to 28 U.S.C. § 636(c). (Doc. 27).
2
Plaintiff did not move for summary judgment against Defendant Wilfredo Hernandez-Zavala.
(See Doc. 38).
I. BACKGROUND
Chris Yeager formed Yeager Painting, LLC (“Yeager Painting”) in 2000.
(Doc. 38-2 (“Yeager Dep.”) at 7-8).3 Yeager Painting is in the business of
sandblasting and painting. (Id. at 7). In September 2012, Yeager formed Yeager
Industrial Painting, LLC (“Yeager Industrial”). (Id. at 9-11; Doc. 38-2 at 13-19).
Although Yeager Industrial did not exist until September 2012, Yeager Painting
sometimes used the name Yeager Industrial Painting. (Yeager Dep. at 21-23, 2728).
Essex Insurance Company issued a commercial general liability policy to
Yeager Painting for the policy period March 2, 2012 to March 2, 2013. (Doc. 38-1
(“Roach Aff.”) ¶ 4; Doc. 38-1 at 5-63). Essex merged into Evanston effective June
30, 2016, and as a result of the merger, Essex ceased to exist and Evanston became
the insurer under the policy. (Roach Aff. ¶¶ 2, 5).
A. The Accident
In March 2012, the City of Pelham, Alabama, hired Walker Brothers Ltd. to
sandblast water tanks. (Yeager Dep. at 17; Doc. 38-3 at 1-4). Walker Brothers
3
All evidentiary citations refer to the document and page number provided by CM/ECF, the
court’s electronic document filing system, except for citations to depositions, which refer to the
page number provided on the deposition transcript, and affidavits, which refer to the paragraph
number in the affidavit.
2
subcontracted the work to Yeager Painting.4
(Yeager Dep. at 17).
Yeager
Painting5 then subcontracted the work to Delgado Painting. (Id. at 22-23; Doc. 382 at 24-33). There is no evidence Yeager Painting required, secured, or maintained
any certificate of insurance confirming Delgado Painting carried commercial
general liability insurance coverage with limits at least equal to the limits of the
Evanston policy and naming Yeager Painting as an additional insured.6
Wilfredo Hernandez, an employee of Delgado Painting, was injured on May
19, 2012, while working on the Pelham water tanks. (Doc. 38-7 at 4). Hernandez
was using “a man-lift basket . . . that uses a winch and cable system to travel up
and down the water tank/structure” to sandblast the tank in preparation for paint.
(Id.). The basket was anchored to the top of the water tank, and when Hernandez
was approximately 25-30 feet high and in the stop position, the breaking system of
the winch allegedly failed and Hernandez fell to the ground. (Id. at 4-5). As a
result of the fall, Hernandez alleges he suffered severe injuries including, but not
limited to, the loss of teeth, traumatic damage to the right mandible, multiple
4
There is no evidence in the record of a written agreement between Yeager Painting and Walker
Brothers. Yeager testified sometimes the agreements were made by a handshake. (Yeager Dep.
at 19).
5
The undated subcontractor agreement states it is between Delgado Painting and Yeager
Industrial Painting. (Doc. 38-2 at 24). Yeager testified the agreement was made “before the job
started” in March 2012. (Yeager Dep. at 22-23). Although Yeager Industrial Painting did not
exist until September 2012, Yeager testified he was using the Yeager Industrial name for his
Yeager Painting business. (Id. at 21-28).
6
Yeager testified he “had a certificate of insurance from” Delgado, but he did not know what
type of insurance it was. (Yeager Dep. at 24).
3
fractures to his jaw, and damage to his left arm resulting in the loss of mobility.
(Id. at 5).
B. Accident Reported to Evanston and Evanston’s Denial of Coverage
At some point after the accident, Evanston “received notice of a claim
presented by Wilfredo Hernandez for injuries allegedly sustained while working on
a bucket truck allegedly owned by Yeager Painting LLC.” (Doc. 38-9 at 1; see
also 38-1 at 52). It is unclear who notified Evanston of the accident. (Id.). On
January 30, 2013, Markel Service Inc., Evanston’s claims service manager, sent
Yeager and Yeager Painting a reservation of rights letter and hired an adjusting
firm to investigate the claim. (Doc. 38-1 at 52). After an investigation, on April
10, 2013, in a letter addressed to Chris Yeager of Yeager Painting, Markel, on
behalf of Evanston, denied coverage “due to the fact that the claim arises out of an
injury sustained to a sub-contractor which is excluded by the policy.” (Id.). The
letter concluded by instructing Yeager to contact his attorney regarding the matter,
but to immediately contact Evanston if anything changed or of he had additional
information regarding the claim. (Id.).
C. The Underlying Lawsuit
On March 12, 2014, Hernandez filed a complaint in the Circuit Court of
Shelby County, Alabama, against Yeager Industrial, Walker Brothers, and Delgado
Painting. (Doc. 38-8). The complaint asserted the following claims against all
4
three defendants: (1) claim for worker’s compensation benefits under the Alabama
Worker’s Compensation Act; (2) claim under the Alabama Employer’s Liability
Act; (3) claim entitled “unsafe work environment” alleging a duty under Alabama
Code § 25-5-1 to furnish reasonably safe employment; (4) negligence and
wantonness; (5) negligent and/or wanton hiring, training, retention and/or
supervision; and (6) spoliation of evidence/wanton destruction of evidence. (Id.).
Almost two years later, on February 16, 2016, Hernandez amended his
complaint and added Yeager Painting and Chris Yeager as defendants. (Doc. 387). The amended complaint contained the same claims as the original complaint
and asserted the claims against all defendants. (Id.). Yeager Painting and Yeager
were served with the amended complaint on February 27, 2016 and February 22,
2016, respectively. (Doc. 38-10 at 5-6).
On September 16, 2016, seven months after being served with the amended
complaint, an attorney for Yeager Painting and Yeager sent a letter to Evanston
enclosing the amended complaint and demanding “defense and indemnity” under
the policy. (Doc. 38-1 at 49). After receipt of this letter, Evanston made repeated
attempts to contact Yeager to obtain information regarding Hernandez’s lawsuit,
but Yeager did not respond or cooperate in the investigation. (Id. at 54). Based on
the allegations in the amended complaint, Evanston agreed to defend Yeager and
5
Yeager Painting against all claims in the amended complaint other than the
worker’s compensation claim under a full reservation of rights. (Id. at 52).
II. STANDARD OF REVIEW
Under Rule 56 of the Federal Rules of Civil Procedure, 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). “Rule 56[ ] 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). The moving party bears the initial burden of
proving the absence of a genuine issue of material fact. Id. at 323. The burden
then shifts to the nonmoving party, who is required to “go beyond the pleadings” to
establish there is a “genuine issue for trial.” Id. at 324 (citation and internal
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 construes 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 255 (all justifiable
6
inferences must be drawn in the non-moving party’s favor). Any factual disputes
will be resolved in favor of the non-moving party when sufficient competent
evidence supports the non-moving party’s version of the disputed facts. See Pace
v. Capobianco, 283 F.3d 1275, 1276-78 (11th Cir. 2002). “[M]ere 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 Mtn. Park, Ltd. V. Oliver, 836 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 the 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).
III. DISCUSSION
Before the court addresses the merits of the summary judgment motion, it
notes that Yeager and Yeager Painting concede Evanston does not owe coverage
for Hernandez’s worker’s compensation claim or the claim under the Alabama
Employer’s Liability Act. (Doc. 42 at 4 ¶ 10). Additionally, Yeager and Yeager
Painting failed to respond to Plaintiff’s arguments regarding Hernandez’s claim for
spoliation, punitive damages, or Evanston’s argument that even if it owes
coverage, coverage is limited to $50,000, including costs of investigation and
defense, because Yeager Painting failed to obtain a certificate of insurance from its
7
subcontractor, Delgado Painting. “Where a non-moving party fails to address a
particular claim asserted in the summary judgment motion but has responded to
other claims made by the movant, the district court may properly consider the nonmovant’s default as intentional and therefore consider the claim abandoned.” See
Powell v. Am. Remediation & Envtl., Inc., 61 F. Supp. 3d 1244, 1252, n.9 (S.D.
Ala. 2014). Because Yeager and Yeager Painting did not respond to Plaintiff’s
arguments regarding these claims, the court concludes they are abandoned and
Plaintiff is entitled to summary judgment as to these claims and the coverage
limitation issue.
Liability insurance policies impose two separate duties on the insurer: (1) a
duty to defend and (2) a 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)).7
While ordinarily the two duties must be
analyzed separately, because the duty to defend is broader, no duty to indemnify
exists where there is no duty to defend. Tanner, 874 So. 2d at 1063, 1066. For this
reason, the natural analysis begins with Evanston’s duty to defend.
7
“In determining which law applies [to the interpretation of an insurance policy], a federal
district court sitting in diversity must apply the choice of law rules of the forum state.” Clanton
v. Inter. Net Global, L.L.C., 435 F.3d 1319, 1323 (11th Cir. 2005) (quoting Trumpet Vine lnvs.,
N.V. v. Union Capital Partners I, Inc., 92 F.3d 1110, 1115 (11th Cir. 1996)). Absent a
contractual provision specifying which law governs, Alabama follows the principle of lex loci
contractus, applying the law of the state where the contract was formed. Cherokee Ins. Co. v.
Sanches, 975 So. 2d 287, 292 (Ala. 2007). It is undisputed the policy was entered into in
Alabama and Alabama law applies to its interpretation.
8
“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.” Hartford Cas. Ins. Co. v. Merchs. &
Farmers Bank, 928 So. 2d 1006, 1009 (Ala. 2005) (quotations and citations
omitted). “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. To determine
whether a claim is covered by the policy, a court must initially engage in a three
step inquiry: (1) the insured must show first that the claim is covered under the
policy’s initial grant of coverage; (2) the insurer may then show that a policy
exclusion bars coverage; and (3) the insured may thereafter establish that the
excluded claim falls under an exception to the exclusion. Town & Country Prop.,
L.L.C v. Amerisure Ins. Co., 111 So. 3d 699, 703 (Ala. 2011); Ala. Hosp. Ass’n
Trust v. Mut. Assur. Soc. of Am., 538 So. 2d 1209, 1216 (Ala.1989). If the
allegations in the complaint do not constitute a covered accident or occurrence, the
court may look to admissible evidence to establish a duty to defend. Hartford, 928
So. 2d at 1009-10.
Further, “[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 defend the insured.” Id. (quoting
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Blackburn v. Fid. & Deposit Co. of Md., 667 So. 2d 661, 668 (Ala. 1995)).
Finally, if the allegations in the complaint or the evidence presented include both
covered and uncovered acts, the insurer must defend at least the claims covered by
the policy. Id. (citing Blackburn, 667 So. 2d at 670).
A. Timely Notice of an Occurrence or Suit
Evanston contends it does not have a duty to defend or indemnify Yeager
and Yeager Painting because they breached the policy by failing to provide timely
notice of a potential occurrence or lawsuit. (Doc. 38 at 24-28). Compliance with
the notice requirements in an insurance policy is a condition precedent to recovery.
Employers Mut. Cas. Co. v. Smith Const. & Develp., LLC, 949 F. Supp. 2d 1159,
1169 (N.D. Ala. 2013) (citing Pharr v. Cont’l Cas. Co., 429 So. 2d 1018, 1019
(Ala. 1983)).
The policy provides, in pertinent part, as follows:
2. Duties in the Event of an Occurrence, Offense, Claim
or Suit
a. 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.
...
b. If a claim is made or “suit” is brought against any
insured, you must:
(1) Immediately record the specifics of the claim or
“suit” and the date received; and
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(2) Notify us as soon as possible.
You must see to it that we receive written notice of
the claim or “suit” as soon as practicable.
c. You and any other involved insured must:
(1) Immediately send us copies or any demands,
notices, summonses or legal papers received in
connection with the claim or “suit” . . . .
(Doc. 38-1 at 25-26).
The notice provisions under the contract set out two separate notice
requirements. The first obligates Yeager Painting to notify Evanston “as soon as
practicable” about an “occurrence” that “may result in a claim.” (Doc. 38-1 at 25).
The second imposes a duty on Yeager Painting to notify Evanston “as soon as
practicable” after a lawsuit has been filed. (Id. at 26).
Under Alabama law, the phrase “as soon as practicable” is construed to
require notice “within a reasonable time in view of the facts and circumstances of
the case.” Pharr , 429 So. 2d at 1019. The court should consider only two factors
“in determining the reasonableness of a delay in giving notice to the insurer: the
length of the delay and the reason for the delay.” Southern Guar. Ins. Co. v.
Thomas, 334 So. 2d 879, 882-83 (Ala. 1976). Prejudice to the insurer is not a
factor.
Id.
“Where facts are disputed or where conflicting inferences may
reasonably be drawn from the evidence, the question of the reasonableness of a
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delay in giving notice is a question of fact for the jury.” Id. at 882 (citation
omitted). That being said, however, where the insured unduly delays in giving
notice and “fails to show a reasonable excuse or the existence of circumstances
which would justify a protracted delay, the [c]ourt should as a matter of law hold
that there has been a breach of the condition as to notice.” Southern Guar. Ins. Co.
v. Thomas, 334 So. 2d 879, 882-83 (Ala. 1976); see also Pharr, 429 So. 2d at
1019-20.
The accident occurred on May 19, 2012. (Doc. 38-7 at 4). There is no
evidence in the record as to the exact date Yeager Painting notified Evanston of the
accident.8 Although there is evidence that Markel sent a reservations of rights
letter to Yeager Painting and opened an investigation on January 30, 2013, (Doc.
38-1 at 52), this letter does not give the court any idea as to when Yeager Painting
actually notified Evanston of the accident.
Without such evidence, the court
cannot make a decision as to whether Yeager Painting’s initial notification was “as
soon as practicable” as required by the policy.
Regardless of whether Yeager Painting’s first notification was timely, the
second was not. Hernandez amended his lawsuit to include Yeager and Yeager
Painting on February 16, 2016, and both were served with the amended complaint
by February 27, 2016. (Doc. 38-7; Doc 38-10 at 5-6). Yeager Painting waited
8
Although it is not entirely clear, it seems that it may have been Hernandez’s attorney who
notified Evanston about the accident. (Doc. 38-9 at 1, 5).
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until September 16, 2016, to forward the amended complaint to Evanston. (Doc.
38-1 at 49). The approximate seven month delay between the amendment to the
complaint and the demand letter to Evanston is unreasonable as a matter of law
under the circumstances. See Nationwide Mut. Fire Ins. Co. v. Estate of Files, 10
So. 3d 533, 535-36 (Ala. 2008) (five month delay without explanation or
justification is unreasonable); Thomas, 334 So. 2d at 882-83 (six month delay
unreasonable in light of insured’s justifications).
Yeager and Yeager Painting do not offer a legitimate excuse for the delay.
Instead, Yeager points to Evanston’s April 10, 2013 letter denying coverage after it
was notified about the accident. (Doc. 42 at 8-9). That letter concluded by stating
Evanston “must disclaim coverage to you for this loss and will not be handling this
claim on your behalf. We will not be able to pay any claims nor provide a defense
or respond to any awards that might be rendered. You should contact your own
attorney to address these matters.” (Doc. 38-9 at 5). Yeager and Yeager Painting
contend they did not notify Evanston because Yeager could not find a lawyer to
represent them. (Doc. 42 at 8-9; Doc. 38-5 at 1).
This excuse is not objectively reasonable. Yeager and Yeager Painting did
not need an attorney to notify Evanston of the lawsuit against them. This is
especially true when two paragraphs later, the letter states for Yeager to “contact
us immediately” if the information is incorrect or there is any additional
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information which may impact coverage or if he has any questions to please
contact them at the given phone number. (Doc. 38-9 at 5). The letter certainly
does not imply only an attorney could contact Evanston.
Because Yeager and Yeager Painting offer no reasonable excuse for their
seven month delay in notifying Evanston of the amended complaint naming them
as defendants, Evanston’s obligations under the policy were not triggered. Yeager
and Yeager Painting did not satisfy a condition precedent to coverage, and, as
such, Evanston does not have a duty to defend or to indemnify Yeager or Yeager
Painting under the policy. Therefore, Evanston’s motion for summary judgment is
due to be granted.
B. The Injuries to Subcontractor Employees Exclusion
Even if Yeager did timely notify Evanston, Evanston does not have a duty to
defend or indemnify under the policy because the injuries to subcontractor
employees exclusion applies. The policy states as follows:
1. The coverage under this policy does not apply to “bodily injury”
. . . or any injury, loss or damage:
...
(e) Arising out of, caused or contributed to
by any injury sustained by any contractor, selfemployed contractor, and/or subcontractor, or an
“employee”, “leased worker”, “contract worker”,
“temporary worker” or “volunteer worker” of same
hired by you or on your behalf. The exclusion
applies to any obligation to share damages with or
14
repay someone else who must pay damages
because of the injury, as well as liability assumed
under any “insured contract.”
(Doc. 38-1 at 39).
Walker Brothers hired Yeager Painting to work on the water tank job.
(Yeager Dep. at 17-18). Yeager Painting subcontracted this work to Delgado
Painting.9 (Id. at 21-23). It is undisputed Hernandez was employed by Delgado
Painting at the time of the accident. (Id. at 38; Doc. 42 at 2 ¶ 4). As such,
Hernandez was an employee of a subcontractor of Yeager Painting, and the
exclusion bars coverage.10 Therefore, Evanston does not have a duty to defend or
indemnify Yeager or Yeager Painting in the underlying lawsuit.
9
The court rejects Yeager and Yeager Painting’s argument that there is a question of fact as to
when the subcontractor agreement was signed. (See Doc. 42 at 6-7). Although undated, Yeager
testified the subcontractor agreement “would have been signed before the job started.” (Yeager
Dep. at 23). Additionally, Yeager’s answers to Evanston’s interrogatories also demonstrate the
subcontractor agreement was in place when the accident occurred. (See Doc. 38-4 at 2; Doc. 385 at 6; Doc. 38-2 at 23-24).
10
Yeager and Yeager Painting also argue in the summary section of the responsive brief that
there is a question of material fact as to whether the contract was between Delgado Painting and
Yeager Industrial Painting or Yeager Painting LLC. (Doc. 42 at 10). They argue that “[i]f it is
determined by the trier of fact that the subcontract is not on behalf of Chris Yeager and Yeager
Painting, LLC, then Hernandez would not be classified as a worker for a subcontractor of the
insured,” and the claim would not be excluded. (Id.). The problem with this argument is that
there is not a factual dispute on this issue. The record is clear that at the time of the incident,
Yeager Industrial Painting did not exist. It was formed on September 4, 2012, almost five
months after the accident. (Yeager Dep. at 9-12; Doc. 38-2 at 13-19). Additionally, under the
relevant policy (doc. 38-1 at 1), Yeager Painting, not Yeager or Yeager Industrial Painting, is the
insured.
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IV.
CONCLUSION
For the foregoing reasons, Plaintiff Evanston Insurance Company is entitled
to judgment as a matter of law on all the claims asserted against Defendants Chris
Yeager and Yeager Painting, LLC.
As such, Plaintiff’s motion for summary
judgment (Doc. 38) is due to be granted. A separate order will be entered.
DATED this 3rd day of August, 2018.
_________________________________
JOHN E. OTT
Chief United States Magistrate Judge
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