Acadia Insurance Company v. SouthernPointe Group Inc et al

Filing 32

MEMORANDUM OPINION and ORDER granting in part denying in part 12 MOTION to Dismiss; granting 17 MOTION to Amend the Motion to Dismiss; as stated within SouthernPointe moved to amend its motion to seek dismissal under Rule 12(b)(6), 17 , That motion is GRANTED; As further stated within, Acadia's request for a declaration that it has no duty to indemnify SoutherPointe is insufficiently ripe for adjudication, and, as to the duty to indemnify claim, SouthernPointe's motion to dismiss is GRANTED and that claim is dismissed without prejudice; Based on the allegations in the underlying lawsuit, Acadia's complaint asserts at least on alternative ground for finding that the policy does not require it to defend SouthernPoi nte in the underlying proceedings, and SouthernPointe has not provided any basis for rejecting that ground at this stage; Therefore, because the language of the policy plausibly supports Acadia's position that it is not required to defend SouthernPointe against the underlying plaintiff's lawsuit, as to the duty to defend claim, SouthernPointe's motion to dismiss, 12 , is DENIED. Signed by Judge Abdul K Kallon on 11/29/2017. (KBB)

FILED
2017 Nov-29 AM 09:55
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
ACADIA INSURANCE COMPANY, )
)
Plaintiff,
)
)
vs.
)
)
SOUTHERNPOINTE GROUP,
)
INC., et al.,
)
Defendants.
)

Civil Action Number
2:17-cv-01368-AKK

MEMORANDUM OPINION AND ORDER
Acadia Insurance Company brings this declaratory judgment action to
determine its rights under a Commercial Liability Policy it issued to
SouthernPointe Group, Inc. (SouthernPointe)1 with respect to a lawsuit recently
filed against SouthernPointe in state court. SouthernPointe has filed a Motion to
Dismiss, doc. 12, contending that, as a matter of law, Acadia is obligated to
provide coverage for the claims asserted in the underlying litigation.2 That motion
is now fully briefed, docs. 15; 16, and ripe for decision. After carefully reviewing

1

Two of SouthernPointe’s corporate officers, Robert and Beverly Donlon, are also covered
under the Policy. Although they are individually named as defendants in this suit, the court will
treat SouthernPointe as the sole defendant for ease of reference.
2
SouthernPointe originally moved to dismiss Acadia’s complaint pursuant to Federal Rule of
Civil Procedure 12(b)(1). Doc. 12 at 1. However, because Rule 12(b)(1) applies to motions to
dismiss for lack of subject-matter jurisdiction rather than for failure to state a claim,
SouthernPointe moved to amend its motion to seek dismissal under Rule 12(b)(6). Doc. 17.
That motion is GRANTED.

the complaint and the parties’ briefs, SouthernPointe’s motion is due to be denied
in part and granted in part.
I.

STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain “a

short and plain statement of the claim showing that the pleader is entitled to relief.”
“[T]he pleading standard Rule 8 announces does not require ‘detailed factual
allegations,’ but it demands more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

Mere “‘labels and

conclusions’” or “‘a formulaic recitation of the elements of a cause of action’” are
insufficient. Id. (quoting Twombly, 550 U.S. at 555). “Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Id. (quoting Twombly, 550 U.S. at 557).
Federal Rule of Civil Procedure 12(b)(6) permits dismissal when a
complaint fails to comply with Rule 8(a)(2) or does not otherwise state a claim
upon which relief can be granted. When evaluating a motion under Rule 12(b)(6),
the court accepts “the allegations in the complaint as true and construe[s] them in
the light most favorable to the plaintiff.” Hunt v. Aimco Props., L.P., 814 F.3d
1213, 1221 (11th Cir. 2016).

However, “[t]o survive a motion to dismiss, a

complaint must . . . ‘state a claim to relief that is plausible on its face.’” Iqbal, 556
2

U.S. at 678 (quoting Twombly, 550 U.S. at 570). A complaint states a facially
plausible claim for relief “when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.”

Id.

The complaint must establish “more than a sheer

possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S.
at 555 (emphasizing that “[f]actual allegations [included in the complaint] must be
enough to raise a right to relief above the speculative level”). Ultimately, the line
between possibility and plausibility is a thin one, and making this determination is
a “context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679.
In the context of an action seeking declaratory relief, the Declaratory
Judgment Act provides that “[i]n a case of actual controversy within its jurisdiction
. . . any court of the United States . . . may declare the rights and other legal
relations of any interested party seeking such declaration, whether or not further
relief is or could be sought.” 28 U.S.C. § 2201(a). Thus, as the Supreme Court has
explained, “the question in each case is whether the facts alleged, under all the
circumstances, show that there is a substantial controversy, between parties having
adverse legal interests, of sufficient immediacy and reality to warrant the issuance
of a declaratory judgment.” Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270,
273 (1941). Significantly, “the requirements of [a] case or controversy are met
3

where payment of a claim is demanded as of right . . . but where the involuntary or
coercive nature of the exaction preserves the right to recover the sums paid or to
challenge the legality of the claim.” Altvater v. Freeman, 319 U.S. 359, 365
(1943); see also MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007)
(concluding that there was no requirement that the plaintiff terminate a license
agreement before seeking a declaratory judgment that the patent underlying the
agreement was invalid, unenforceable or not infringed).
II.

FACTS
Acadia issued a Commercial Liability Policy (the Policy),3 naming

SouthernPointe as an insured, covering a year-long period beginning on March 10,
2014. Docs. 1 at 2; 1-1 at 5. Among other things, the Policy provides insurance
coverage for “bodily injury and property damage . . . caused by an occurrence.”
Doc. 1-1 at 11. The Policy defines property damage as “[p]hysical injury to
tangible property, including all resulting loss of use of that property.” Id. at 25.
An “occurrence,” for purposes of the Policy, means “an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions.” Id. at 24. The Policy, however, fails to include a definition for the
term “accident.”

3

This action specifically concerns the Commercial General Liability Coverage Part of that
policy. Doc. 1 at 2.
4

The Policy also contains specific exclusions precluding coverage for certain
types of property damage. These exclusions include damages that are “expected or
intended from the standpoint of the insured,” damages to “[p]ersonal property in
the care, custody or control of the insured,” damages based on the insured’s
assumption of liability in a contract or agreement, and non-physical damages
arising out of the insured’s “delay or failure . . . to perform a contract or agreement
in accordance with its terms.” Id. at 12, 14–15.
During the coverage period, SouthernPoint entered into an agreement with
Luther S. Pate, IV and Encore Tuscaloosa, LLC (collectively Encore) to develop
Wintzell’s Oyster House restaurant locations in and around Jefferson County,
Alabama. Docs. 1 at 3; 1-4 at 2–4. Encore contributed significant capital to
develop these properties, but the business relationship between the parties quickly
soured. Doc. 1-4 at 3–5. In February 2016, Encore sued SouthernPointe in the
Circuit Court of Jefferson County, Alabama asserting, among other things, claims
for breach of contract, fraud, and breach of fiduciary duty all primarily arising out
of SouthernPointe’s alleged misuse of funds that Encore contributed toward the
development of the restaurant properties.

Id. at 1, 3–7.

Acadia is currently

defending SouthernPointe against these allegations in state court, but it has
reserved its right to ultimately deny coverage under the Policy. Doc. 1 at 16.
Consistent with this reservation of right, Acadia now seeks a declaration from this
5

court that it has no obligations under the Policy related to the underlying lawsuit.
SouthernPointe has now moved to dismiss the action under Rule 12(b)(6) for
failure to state a claim. Doc. 12.
III.

DISCUSSION
SouthernPointe’s motion focuses on the threshold question of whether the

business dispute that is the subject of the underlying state court lawsuit qualifies as
an “occurrence” under the Policy. The Policy broadly defines an “occurrence” as
an “accident,” but provides no further interpretative guidance. Doc. 1-1 at 24.
According to SouthernPointe, Alabama law provides that, in the absence of
contrary contractual language, the question of whether an accident has occurred in
the insurance context is exclusively determined via reference to the subjective
intent of the insured. SouthernPointe contends that it did not anticipate its business
relationship with Encore to end in failure and that Encore’s complaint in state court
is silent with respect to SouthernPointe’s subjective intentions.

Therefore,

SouthernPointe avers that the business dispute at the heart of the underlying
lawsuit qualifies as an “occurrence” under the Policy and that Acadia is obliged to
defend and indemnify it as a matter of law.
Under Alabama law, which the parties agree governs Acadia’s obligations
under the Policy, an insurer’s twin duties to defend and indemnify its insured are
distinct, and “must be analyzed separately.” United States Fid. & Guar. Co. v.
6

Armstrong, 479 So. 2d 1164, 1167 (Ala. 1985). An insurer’s duty to defend “is
more extensive than its duty to [indemnify],” and is primarily determined by the
allegations contained in the underlying complaint. Id. at 1168. Indeed, the duty to
defend exists only if “the original complaint alleges a state of facts within the
coverage of the policy.” Id. However, “the court is not limited to the bare
allegations of the complaint in the action against [the] insured but may also look to
facts which may be proved by admissible evidence.” Pac. Indem. Co. v. Run-AFord Co., 161 So. 2d 789, 795 (Ala. 1964). “[I]f a complaint alleges both acts
covered under the policy and acts not covered, the insurer is under a duty to at least
defend the allegations covered by the policy.” Blackburn v. Fid. & Deposit Co. of
Md., 667 So. 2d 661, 670 (Ala. 1995).4
4

On the other hand, whether a duty to indemnify exists depends “on the facts adduced at the trial
of the action [against the insured].” Hartford Cas. Ins. Co. v. Merchs. & Farmers Bank, 928 So.
2d 1006, 1013 (Ala. 2005). Indeed, “[t]he duty to indemnify does not rise out of the existence of
a duty to defend.” Ala. Gas Corp. v. Travelers Cas. & Sur. Co., 990 F. Supp. 2d 1163, 1167
(N.D. Ala. 2013). Thus, “a determination of the duty to indemnify cannot be made at a
preliminary stage in the [underlying] proceedings, when it is still possible for the plaintiff in the
underlying lawsuit to change the theory of liability and assert a claim that is covered by the
policy at issue.” Auto-Owners Ins. Co. v. Toole, 947 F. Supp. 1557, 1565 (M.D. Ala. 1996); see
also Emp’rs Mut. Ins. Co. v. All Seasons Window & Door Mfg., Inc., 387 F. Supp. 2d 1205,
1211–12 (S.D. Ala. 2005) (explaining that “[i]t is simply inappropriate to exercise jurisdiction
over an action seeking a declaration of the [insurer’s] indemnity obligations absent a
determination of the insureds’ liability” in the underlying suit). Here, there has been no
determination of the liability of the insured in the underlying proceeding, and deciding the claim
would force this court to engage in unfounded speculation. Moreover, withholding adjudication
until a determination of the insured’s liability is reached does not harm the parties who remain
free to litigate the issue at the appropriate time. See Ex parte Stonebrook Dev., L.L.C., 854 So.
2d 584, 591 (Ala. 2003) (noting that under Alabama law the limitations period for an
indemnification action begins to run only after the liability at issue becomes fixed). Therefore,
Acadia’s request for a declaration that it has no duty to indemnify SouthernPointe is
insufficiently ripe for adjudication, and, as to the duty to indemnify claim, SouthernPointe’s
7

It is undisputed that the Policy only provides coverage for property damage
caused by an “occurrence,” defined as “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” Doc. 1-1
at 24. While the Policy fails to define the term “accident,” Alabama law has
previously defined the word in a substantively identical context as “‘[a]n
unintended and unforeseen injurious occurrence; something that does not occur in
the usual course of events or that could be reasonably anticipated.’” Hartford Cas.
Ins. Co. v. Merchs. & Farmers Bank, 928 So. 2d 1006, 1011 (Ala. 2005) (quoting
Accident, BLACK’S LAW DICTIONARY 15 (7th ed. 1999)). In other words, an
accident is “something unforeseen, unexpected, or unusual.” U.S. Fid. & Guar.
Co. v. Bonitz Insulation Co. of Ala., 424 So. 2d 569, 572 (Ala. 1982). “‘A result,
though unexpected, is not an accident; the means or cause must be accidental.’”
Emp’rs Mut. Cas. Co. v. Smith Constr. & Dev., LLC, 949 F. Supp. 2d 1159, 1171
(N.D. Ala. 2013) (quoting Am. Safety Indem. Co. v. T.H. Taylor, Inc., No.
2:10CV48-MHT, 2011 WL 1188433 at *4 (M.D. Ala. Mar. 29, 2011)).
Whether a particular result is unexpected, however, turns on the subjective
intent of the insured.

See, e.g., Universal Underwriters Ins. Co. v. Stokes

motion to dismiss is GRANTED and that claim is dismissed without prejudice. See Toole, 947
F. Supp. at 1566–67; Am. Fid. & Cas. Co. v. Pa. Threshermen & Farmers’ Mut. Cas. Ins. Co.,
280 F.2d 453, 461 (5th Cir. 1960) (affirming district court’s decision to dismiss an insurer’s
request for a declaration that it had no duty to indemnify the insured before the insured’s liability
was fixed and declaring the district court “was well within its considered judicial discretion to
decline to express legal opinions on academic theoreticals which might never come to pass”).
8

Chevrolet, Inc., 990 F.2d 598, 603 (11th Cir. 1993) (explaining that “Alabama
courts have consistently construed . . . [substantively identical language in
commercial insurance policies] as precluding coverage only where the insured
subjectively intended or expected its action to cause injury”); Ala. Plating Co. v.
U.S. Fid. & Guar. Co., 690 So. 2d 331, 333 (Ala. 1996) (explaining that the “the
focus of the definition of ‘occurrence’ is whether the insured . . . expected or
intended . . . [to] cause . . . property damage . . . [measured via] a subjective test”);
Ala. Farm Bureau Mut. Cas. Ins. Co. v. Dyer, 454 So. 2d 921, 925 (Ala. 1984)
(holding that “a purely subjective standard governs the determination of whether
the insured . . . either expected or intended to inflict . . . injury”). Alabama law
further provides that an injury is intended “if the insured possessed the specific
intent to cause . . . injury,” and an injury is expected “if the insured subjectively
possessed a high degree of certainty that . . . injury . . . would result from . . . [an]
act.” Dyer, 454 So. 2d at 925.5
SouthernPointe contends that the underlying complaint does not include any
allegations bearing on its intent to damage Encore’s property, and that it expected
its business dealings with Encore to end in success.
5

Instead, according to

The court notes that “Alabama courts have indicated some willingness to presume that an
intentional tortfeasor intends or expects injury by its actions.” Stokes Chevrolet, 990 F.2d at 603;
see also Hartford Cas., 928 So. 2d at 1008, 1011–13 (interpreting identical contract language
and finding that although the insured “may have made a mistake of fact and/or an error in
judgment . . . it at all times acted in a deliberate and purposeful manner” and that this did not
constitute an “occurrence” for purposes of insurance coverage) (quotation omitted).
9

SouthernPointe, Encore backed out of the parties’ agreement unexpectedly,
creating an unforeseen circumstance resulting in property damage and thereby
meeting the Policy’s definition of an “occurrence.” Therefore, SouthernPointe
argues, the underlying lawsuit falls within the general coverage provision of the
Policy and the court should dismiss this lawsuit as a matter of law. The court is
not convinced.
The fact that the underlying complaint does not contain factual allegations
directly related to SouthernPointe’s subjective intent to damage Encore’s property
does not end the inquiry. Instead, the court may look beyond the allegations in the
underlying complaint to outside facts bearing on those allegations “which may be
proved by admissible evidence.” Run-A-Ford, Co., 161 So. 2d at 795. Moreover,
while there is no specific evidence of intent before the court at this stage of the
proceeding, Acadia’s complaint alleges, in part, that the underlying suit contains
fraud and breach of contract claims, as well as claims arising from the alleged
violation of various Alabama commercial laws. Doc. 1-4 at 1, 5–7. These claims
all plausibly require purposeful conduct on the part of SouthernPointe, and indeed
the complaint alleges that SouthernPointe took specific actions solely for its own
benefit while ignoring its obligations toward Encore. Id. at 3–7. Based on these
allegations, the court cannot find, on a motion to dismiss, that a lawsuit arising
from deliberate business decisions purportedly disregarding contractual and legal
10

obligations qualifies as accidental conduct that warrants a finding at this juncture
that Acadia must provide coverage to SouthernPointe. See Hartford Cas., 928 So.
2d at 1013 (explaining that “a series of purposes and deliberate acts [preclude the
insured from showing] an unexpected, unintended, or unforeseen result from its
course of action”).
The court acknowledges that some of the claims in the underlying complaint
sound in negligence, or otherwise do not necessarily require intentional conduct on
the part of SouthernPointe to create liability. Doc. 1-4 at 6–7; See Bonitz, 424 So.
2d at 571 (explaining that “the term ‘accident’ does not necessarily exclude human
fault called negligence”). But, even granting that this is so, no adequate ground to
dismiss Acadia’s request for declaratory relief exists as to even those claims. In
fact, Acadia’s complaint asserts several alternative grounds for finding that the
Policy does not require it to defend SouthernPointe in the underlying proceedings,
and SouthernPointe has not provided any legal basis for rejecting those grounds at
this stage. Specifically, Acadia contends that the term “property damage,” which
the policy defines as “[p]hysical injury to tangible property, including all resulting
loss of use of that property,” doc. 1-1 at 25, does not encompass the economic

11

losses asserted as the primary basis for the underlying plaintiffs’ claims in state
court.6
A review of Encore’s lawsuit shows that Encore’s numerous claims all
fundamentally arise out of a failed business relationship with SouthernPointe.7
Encore alleges that although it contributed the agreed upon amount of capital to the
project, SouthernPointe “squandered and/or misappropriated funds” and then
“repaid only a fraction of the money that [Encore had] contributed.” Doc. 1-4 at
4–5. Moreover, Encore’s claims based on these allegations uniformly involve
purely economic injuries rather than damage to tangible property that is “capable
of being handled [or] touched.” Martin, 662 So. 2d at 248. In short, Encore seeks
to receive the economic benefits it anticipated accruing through its relationship
with SouthernPointe and to recover its lost investment in that relationship. These

6

Indeed, in the insurance context, Alabama courts have opined that “[tangible] property . . . is
property that is capable of being handled, touched, or physically possessed,” Am. States Ins. Co.
v. Martin, 662 So. 2d 245, 248 (Ala. 1995), and that “strictly economic losses like lost profits,
loss of an anticipated benefit of a bargain, and loss of an investment, do not constitute damage or
injury to ‘tangible’ property,” id. at 249. SouthernPointe’s attempts to distinguish Martin are
unavailing. The commercial insurance policy at issue in Martin contains identical language to
the policy at issue in this case with respect to the definition of property damage. The Alabama
Supreme Court interpreted that language as foreclosing coverage for economic losses because
such losses do not result from “damage to ‘tangible property.’” Martin, 662 So. 2d at 249. Just
as in Martin, the allegations here involve the loss of invested capital and future benefits flowing
from that investment, property that is not subject to “physical damage or destruction.” Id.
Simply because this decision was rendered in response to a certified question does not impair its
precedential value and SouthernPointe cites no case law to the contrary.
7
The court may refer to the underlying lawsuit without converting SouthernPointe’s motion to
dismiss into a motion for summary judgment because “[e]xhibits attached to the complaint are
treated as part of the complaint for Rule 12(b)(6) purposes.” Page v. Postmaster Gen. & Chief
Exec. Officer of U.S. Postal Serv., 493 F. App’x 994, 995 (11th Cir. 2012).
12

allegations are sufficient, at this stage, to plausibly state a claim that the damages
at issue in this case fall outside of the “physical injury to tangible property” insured
by the Policy. Doc. 1-1 at 25.
IV.

CONCLUSION AND ORDER
Based on the allegations in the underlying lawsuit, Acadia’s complaint

asserts at least one alternative ground for finding that the policy does not require it
to defend SouthernPointe in the underlying proceedings, and SouthernPointe has
not provided any basis for rejecting that ground at this stage. Therefore, because
the language of the policy plausibly supports Acadia’s position that it is not
required to defend SouthernPointe against the underlying plaintiff’s lawsuit—
which is all Acadia’s complaint needs to plead, as to the duty to defend claim,
SouthernPointe’s motion to dismiss, doc. 12, is DENIED.
DONE the 29th day of November, 2017.

_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE

13