Monroe Guaranty Insurance Company et al v. Pinnacle Manufacturing LLC et al

Filing 21

MEMORANDUM OPINION AND ORDER - Based on the foregoing, Smiths motion to dismiss (doc. 12) is DENIED, and Smith is DIRECTED to answer the complaint by February 22, 2018. To the extent Smith requests this action be stayed because of the Underlying Action, that request is DENIED WITHOUT PREJUDICE, as he provides no specific explanation why a stay is needed in this case. Signed by Magistrate Judge John H England, III on 2/8/2018. (KEK)

FILED
2018 Feb-08 PM 03:09
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
MONROE GUARANTY INSURANCE
COMPANY, et al.,
Plaintiffs,
v.
PINNACLE MANUFACTURING, LLC, et
al.,

)
)
)
)
)
)
)
)
)

Case No.: 2:17-cv-01630-JHE

Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiffs Monroe Guaranty Insurance Company and FCCI Insurance Company
(collectively “Plaintiffs”) filed this declaratory judgment action against Pinnacle Manufacturing,
LLC (“Pinnacle”), Jason Satterfield, Joby Satterfield, and Zach Smith seeking a declaration that
Plaintiffs have no obligation to provide Pinnacle or the Satterfields a defense or indemnity
coverage in an underlying state court action filed by Zach Smith. (Doc. 1). Defendants Pinnacle
and the Satterfields filed an answer wherein they “admit[]” the material averments of the complaint
and that “neither the CGL Policy nor the Umbrella Policy affords any coverage to them for the
claims asserted in the Underlying Action . . . .” (Doc. 9 at ¶¶ 1-2). Defendant Smith has moved
to dismiss, arguing he is not a proper party in this action because he is not an insured under the
policies and a duty to indemnify claim is not ripe, depriving the court of subject matter jurisdiction.
(Doc. 12). Plaintiffs oppose the motion to dismiss, arguing it is appropriate for insurers (such as
Plaintiffs) to name tort claimants (such as Smith) as parties to a declaratory judgment action filed
against the insurers. (Doc. 16 at 2). The motion is ripe for review. As explained below, the motion
to dismiss is DENIED.

The coverage issue in this declaratory judgment action is based on an employment dispute
between Smith and Pinnacle that is the subject of a lawsuit filed in the Circuit Court of Blount
county, Alabama (Zach Smith v. Pinnacle Manufacturing, LLC, et al., Civil Action No. CV-201790009 (“Underlying Action”)). (Doc. 1 at ¶ 10; see doc. 1-1). The Underlying Action is generally
premised on Pinnacle’s termination of Smith as an independent sales agent and his alleged
economic damages that flow from that termination. (Doc. 1 at ¶ 11; see doc. 1-1).
Plaintiffs offer a string of cases showing that (1) both federal and Alabama case law hold
that a tort claimant is an indispensable party to a declaratory judgment action; and that, (2)
otherwise, the coverage decision would have no binding effect on the tort claimant, who may file
a direct action against the insurer as a judgment creditor. See McDaniel v. Harleysville Mut. Ins.
Co., 84 So. 3d 106, 112-13 (Ala. Civ. App. 2011) (recognizing that a declaratory judgment issued
by federal court was not binding on the state court tort claimants because they were not parties to
the federal declaratory judgment action); see also Guideone Elite Ins. Co. v. Old Cutler
Presbyterian Church, Inc., 420 F.3d 1317 (11th Cir. 2005) (appeal of a declaratory judgment
including insurers, insured, and victims); Am. Safety Cas. Ins. Co. v. Condor Assocs., 129 Fed.
Appx. 540, 542 (11th Cir. 2005) (affirming dismissal of a declaratory judgment action based on
failure to join indispensable party because the tort claimants were indispensable parties; Andalusia
Enters., Inc. v. Evanston Ins. Co., 487 F. Supp. 2d 1290, 1293-94 (N.D. Ala. 2007) ("[A]n alleged
tort victim [has] an interest, actual or theoretical, in whatever finding will ultimately be made on
the coverage question, whether against [the plaintiffs] or in their favor. [He is] therefore an
indispensable party in the state court action pursuant to § 6-6-227 [of Alabama's Declaratory
Judgment Act]."). Because the potential for inconsistent judgments is not favored, the preferred
practice in Alabama, including Alabama federal courts, is for the insurance company to include

2

the person or entity claiming coverage under the policy as well as the underlying tort claimant as
parties to the declaratory judgment action.
Ignoring the foregoing case law, Smith argues the court lacks subject-matter jurisdiction
over any claim against him because such a claim is not ripe for adjudication. (See doc. 12). This
argument is unpersuasive because this is a declaratory judgment action seeking a declaration
regarding insurance coverage. (See doc. 1). Liability insurance policies (such as those at issue
here) impose two separate duties on the insurer: the duty to defend and 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)). While ordinarily whether those two
duties apply to a specific occurrence or claim "must be analyzed separately," id. at 1066 (quoting
U.S. Fid. & Guar. Co. v. Armstrong, 479 So. 2d 1164, 1167 (Ala. 1985)), because the duty to
defend is broader, no duty to indemnify exists where there is no duty to defend, id. at 1063. See
also Employers Mut. Cas. Co. v. Evans, 76 F. Supp. 2d 1257 (N.D. Ala. 1999). Thus, both the
issue of whether Plaintiffs owe a duty to defend and the question of whether Plaintiffs owe a duty
to indemnify can be adjudicated here, as they are ripe for adjudication. Smith has a potential
interest in the resolution of the duty to indemnify issue because if Smith were successful in his
state court lawsuit and whether Plaintiffs have a duty to indemnify impacts whether Smith can
collect from the insurer as a judgment creditor. The existence of Alabama’s direct action statute
does not change this result. Instead, the direct action statute provides a cause of action for the tort
claimant to collect any judgment against the insured from the insurer if there is a duty to indemnify.
See ALA. CODE § 27-23-2 (1975). At issue in this lawsuit is whether there is a duty to indemnity,
and the Plaintiffs’ inclusion of Smith so that he would be bound to the outcome in this case is
proper.

3

Based on the foregoing, Smith’s motion to dismiss (doc. 12) is DENIED, and Smith is
DIRECTED to answer the complaint by February 22, 2018. To the extent Smith requests this
action be stayed because of the Underlying Action, that request is DENIED WITHOUT
PREJUDICE, as he provides no specific explanation why a stay is needed in this case.
DONE this 8th day of February, 2018.

_______________________________
JOHN H. ENGLAND, III
UNITED STATES MAGISTRATE JUDGE

4