Smith Lake Marina & Resort LLC v. Auto-Owners Insurance Company
MEMORANDUM OPINION and ORDER re 18 MOTION for Summary Judgment filed by Auto-Owners Insurance Company; As to the breach of contract claim this matter is SET for a Final Pretrial Conference on 10/25/2017 at 9:00 AM at the Federal Court house, Huntsville, AL before Judge Abdul K Kallon; and Jury Trial on 11/27/2017 at 9:00 AM at the US Post Office & Courthouse, Decatur, AL before Judge Abdul K Kallon; as set out within Auto-Owners' motion for summary judgment, 18 , is DENIED as to the breach of contract claim and GRANTED as to the bad faith claim; The bad faith claim, count II, is DISMISSED WITH PREJUDICE. Signed by Judge Abdul K Kallon on 09/20/2017. (KBB)
2017 Sep-20 AM 09:01
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SMITH LAKE MARINA &
Civil Action Number
MEMORANDUM OPINION AND ORDER
This case involves a dispute over an insurance claim. Plaintiff Smith Lake
Marina & Resort LLC (“the Marina”) filed a claim for damage to its property
resulting from a storm in late 2015. After investigating the claim, Defendant AutoOwners Insurance Company denied it based on a water damage exclusion in the
policy. The Marina sued in state court alleging breach of contract and bad faith,
and Auto-Owners timely removed the case to this court on diversity grounds. Doc.
1. Presently before the court is Auto-Owners’ motion for summary judgment.
Doc. 18. After reading the briefs and considering the relevant law, the court denies
the motion as to the breach of contract claim and grants the motion as to the bad
faith claim. As to the breach of contract claim, this matter is SET for a pretrial
conference at 9:00am on October 25, 2017 at the federal courthouse in Huntsville,
AL, and for a trial at 9:00am on November 27, 2017 at the federal courthouse in
LEGAL STANDARD FOR SUMMARY JUDGMENT
Under Rule 56(a) 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. “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) (alteration in original). 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 that 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
On summary judgment motions, 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 255. Any factual disputes will be resolved in the non-moving party’s
favor when sufficient competent evidence supports the non-moving party’s version
of the disputed facts. See Pace v. Capobianco, 283 F.3d 1275, 1276, 1278 (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) (per curiam) (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 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)).
On Christmas day, 2015, a storm descended upon Smith Lake in northern
Alabama. According to weather data from the National Oceanic and Atmospheric
Association, that day had the strongest maximum winds reported of any day that
month. Doc. 18-3 at 25-26. Relevant here, the storm caused damage to the
Marina’s swimming pier, fishing dock, and gangway. Docs. 1-1 at 2; 18 at 7; 22 at
In light of the damage it sustained, the Marina timely filed a claim with
Auto-Owners. Docs. 18 at 7; 22 at 7. As part of its investigation, Auto-Owners
retained independent adjusters, United Storm Adjusters, and instructed them to
inspect the damage. Docs. 18 at 7; 22 at 7. An adjuster from United conducted an
initial inspection and reported to Auto-Owners that there may be a coverage issue.
Docs. 18 at 8; 22 at 7. Auto-Owners then instructed United to retain engineers to
further inspect the damage. Docs. 18 at 8; 22 at 7. United hired PT&C/LWG
Forensic Consultants, who in turn inspected the property and concluded that the
damage to the gangway and fishing dock was caused by a rise in lake elevation and
that the damage to the swimming pier was caused by wave action. Docs. 18-2; 183. As a result, because the policy excludes damage caused “directly or indirectly
by . . . [f]lood, surface water, waves (including tidal wave and tsunami), tides, tidal
water, overflow of any body of water, or spray from any of these,” including water
damage “driven by wind (including any storm surge),” doc. 18-1 at 50-51, AutoOwners denied the claim.
Auto-Owners asks the court to enter summary judgment in its favor on both
claims. Doc. 18. The court considers each claim in turn, and, in doing so, because
this action is based on diversity jurisdiction, the court applies Alabama’s
substantive law. Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
A. Breach of Contract Claim
Under Alabama law, insurance policies are construed liberally in favor of
the insured. Ladner & Co. v. S. Guar. Ins. Co., 347 So. 2d 100, 103 (Ala. 1977);
Pac. Indem. Co. v. Run-A-Ford Co., 161 So. 2d 789, 791 (1964); Perkins v.
Hartford Ins. Grp., 932 F.2d 1392, 1395 (11th Cir. 1991). “But, where there is no
ambiguity in the terms of the contract, it must be enforced as written, for a court
has no authority to make a new contract for the parties.” Colonial Life & Acc. Ins.
Co. v. Collins, 194 So. 2d 532, 535 (1967). The insured bears the burden of
proving coverage, id., but the insurer bears the burden of proving the applicability
of an exclusion. Fleming v. Alabama Farm Bureau Mut. Cas. Ins. Co., 310 So. 2d
200, 202 (1975). “Policy exclusions are to be narrowly interpreted, and, when an
ambiguity exists in the language of an exclusion, the exclusion will be construed so
as to limit the exclusion to the narrowest application reasonable under the
wording.” Mid-Continent Cas. Co. v. Advantage Med. Elecs., LLC, 196 So. 3d
238, 244 (Ala. 2015) (internal quotations omitted).
The Marina has offered proof that it timely filed a claim for insured property
and that Auto-Owners denied the claim. The Marina has therefore met its prima
facie burden on its breach of contract claim, and Auto-Owners bears the burden to
show the applicability of the water exclusion.
Fleming, 310 So. 2d at 202.
Accordingly, to succeed on its motion, Auto-Owners must demonstrate that there is
no genuine issue of material fact as to whether the water exclusion applies and that
it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56.
Auto-Owners’ sole argument in support of its motion is that the deposition
testimony of Ronnie Reid and Lonnie Gonzalez, who testified that they witnessed
the fishing pier fall on its side,1 docs. 18 at 15; 22 at 4, is inadmissible and that,
without this testimony, the Marina cannot rebut Auto-Owners’ expert testimony.
Doc. 18 at 16-17. Specifically, Auto-Claims contends that, because neither Reid
nor Gonzales “observed [the piers] immediately prior to [their] loss,” only an
expert – such as an engineer or someone with formal training in physics, fluid
dynamics, or weather analysis – is qualified to testify as to what caused the damage
to the piers that day. Doc. 18 at 16-17. In support of this argument, Auto-Owners
cites a federal district court opinion about a case involving water damage to a
home 2 and an opinion from the Court of Appeals of North Carolina involving a
house where the second floor had dropped several inches. 3 According to AutoOwners, these cases stand for the proposition that “the testimony of a lay person as
When asked if he actually saw the fishing pier lift up and come out of the water or if he
only saw it after it was already on its side, Gonzalez answered “I saw it on its side.” Doc. 18-6 at
13. When asked a similar question, Reid answered that the first time he saw the pier, it was “up
in the air.” Doc. 18-7 at 9. The Marina asserts that these statements indicate that both witnesses
saw the wind flipping the pier over, doc. 22 at 8, a contention that Auto-Owners disputes, doc. 27
Ware v. Nationwide Ins. Co., No. 7:11-CV-4272-LSC, 2013 WL 1680514, at *1 (N.D.
Ala. Apr. 12, 2013).
Guyther v. Nationwide Mut. Fire Ins. Co., 428 S.E.2d 238, 239 (1993).
to causation is inadmissible when such causation is not within the ordinary
experience of jurors.” Doc. 18 at 18.
Even assuming that Auto-Owners is correct that a lay witness is unqualified
to testify as to causation, this fact does not help Auto-Owners because Reid and
Gonzalez have not offered any opinions on causation in their depositions. Rather,
both testified only about wind and water conditions that day. See docs. 18-6 at 12
& 18; 18-7 at 9 & 15. Perceptions of wind and current conditions are well within
the scope of testimony allowed by lay witnesses under the Federal Rules of
Evidence. See Fed. R. of Evid. 701. Therefore, because juries, not experts, are the
ultimate arbiters of causation, see, e.g., Sentilles v. Inter-Caribbean Shipping
Corp., 361 U.S. 107 (1959), and a jury is free to consider witness perceptions
(along with all the evidence) when determining causation, the court rejects the
argument that the testimony of Reid and Gonzalez would be inadmissible at trial.
The court is also not persuaded by Auto-Owners’ contention that the
statements of Gonzalez and Reid “speak only to the damage to the fishing pier”
and that “[t]he findings of the experts retained by Auto-Owners are thus
undisputed with regards to the swim dock and the marina gangway.” Doc. 18 at
15. If a jury finds their testimony credible, it could reasonably infer from that
testimony and other evidence that wind strong enough to blow over a fishing pier
also had enough strength to blow over a swim dock and a marina gangway.
In addition to the testimony of Reid and Gonzalez, other material facts in
dispute include the lake level that day and whether the property in question is
located in an “eddy” away from the main current of the lake. See docs. 22 at 6; 27
at 1-2. Therefore, because there are genuine issues of material fact as to whether
wind or water caused the damage at issue, and in light of the directive that courts
construe policy exclusions narrowly, see Mid-Continent Cas. Co., 196 So. 3d at
244, Auto-Owners’ motion on the breach of contract claim is due to be denied.
B. Bad Faith Claim
Bad faith is a tort that arises where an insurer refuses to pay an insurance
claim. 4 As a preliminary matter, a bad faith claim generally cannot succeed “if the
evidence produced by either side creates a fact question with regard to the [breach
of] contract claim.” Thomas v. Principal Fin. Grp., 566 So. 2d 735, 745 (Ala.
1990). As explained in Part III.A, supra, there are several fact questions related to
the merits of the breach of contract claim. The Marina therefore must clear a high
A “normal” bad faith claim requires proof of: 1) an insurance contract and a breach
thereof by the defendant; 2) an intentional refusal to pay the insured’s claim; 3) the absence of
any reasonably legitimate or arguable reason for that refusal; and 4) the insurer’s actual
knowledge of the absence of any legitimate or arguable reason. Alfa Mut. Fire Ins. Co. v.
Thomas, 738 So. 2d 815, 822 (Ala. 1999). In “abnormal” cases, a plaintiff may prove bad faith
by proving that the insurer did one of the following: (1) intentionally or recklessly failed to
investigate the plaintiff’s claim; (2) intentionally or recklessly failed to properly subject the
plaintiff’s claim to a cognitive evaluation or review; (3) created its own debatable reason for
denying the plaintiff’s claim; or (4) relied on an ambiguous portion of the policy as a lawful
basis to deny the plaintiff’s claim. State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 306–07
hurdle to prove its bad faith claim through the “normal” method. Here, AutoOwners denied the claim under the policy’s water exclusion and based this denial
on a report from two independent engineers. Docs. 18-2; 18-3. These two reports
qualify as a “reasonably legitimate or arguable reason” for denying the Marina’s
claim. See Thomas, 738 So. 2d at 822. Therefore, the Marina cannot prove its
claim through the “normal” method of proof.
The Marina also cannot demonstrate any “abnormal” circumstances, such as
failure to investigate, to prove bad faith. The Marina’s contention that AutoOwners’ failure to interview the eyewitnesses constitutes a bad faith failure to
investigate, see doc. 22, is unavailing. Under Alabama law, a plaintiff still must
prove the “absence of [a] legitimate reason for denial . . . at the time of the denial”
for a bad faith claim based on a failure to investigate. See State Farm Fire & Cas.
Co. v. Brechbill, 144 So. 3d 248, 258 (Ala. 2013). And where an “investigation
establishe[s] a legitimate or arguable reason for refusing to pay,” a bad faith claim
must fail. Weaver v. Allstate Ins. Co., 574 So. 2d 771, 774 (Ala. 1990). Here,
even viewing the evidence in the light most favorable to the Marina, Auto-Owners’
investigation, which included the reports of multiple independent engineers,
established an arguable reason for denying the claim, namely that water, not wind,
caused the damage. Id.; see also docs. 18-2; 18-3. Accordingly, the “abnormal”
bad faith claim based on a purposeful failure to investigate also fails.
Brechbill, 144 So. 3d at 258.
CONCLUSION AND ORDER
Consistent with this opinion, Auto-Owners’ motion for summary judgment,
doc. 18, is DENIED as to the breach of contract claim and GRANTED as to the
bad faith claim.
The bad faith claim, count II, is DISMISSED WITH
DONE the 20th day of September, 2017.
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE
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