Phillips v. National Union Fire Insurance Company of Pittsburg, PA
MEMORANDUM OPINION. Signed by Judge L Scott Coogler on 10/30/2013. (MSN)
2013 Oct-30 AM 10:27
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
CHARLES D. PHILLIPS,
NATIONAL UNION FIRE
INSURANCE COMPANY OF
MEMORANDUM OF OPINION
Plaintiff Charles D. Phillips (“Phillips” or “Plaintiff”) brought this action
claiming that Defendant National Union Fire Insurance Company (“NUFIC”)
breached an insurance contract between the parties and, further, that NUFIC acted
in bad faith. Before the Court is Phillips’s motion for summary judgment on the
breach of contract claim, as well as NUFIC’s motion for summary judgment on both
claims. For the reasons stated below, both motions for summary judgment on the
breach of contract claim are due to be DENIED. NUFIC’s motion for summary
judgment on the abnormal bad faith claim is due to be DENIED. NUFIC’s motion for
summary judgment on the normal bad faith claim is due to be GRANTED.
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I. Factual Background1
Plaintiff Charles Phillips worked as a truck driver for many years. For much of
his career, he was an owner-operator who owned his equipment and leased it to
trucking companies that assigned him loads. Most recently, he leased a 1985
Freightliner tractor and two trailers to Southeast Logistics. Phillips used this
equipment primarily to haul loads from a shipper called Tubular Products in Pinson
Valley, Alabama. Occasionally, he picked up loads from other locations or for other
Phillips usually received his dispatch instructions directly from Tubular
Products rather than from Southeast Logistics. The Shipping Manager at Tubular
Products called him each day at approximately 3:00 p.m. to tell him when and where
he would load and unload the following day. According to Plaintiff, he did not work a
set schedule; there were days when no loads were available and days when he would
haul loads for other customers. NUFIC states that Plaintiff essentially worked a
standard five-day work week for Tubular Products.
In addition to his tractor and trailers, Phillips also owned a 1992 GMC Sierra,
Because there are cross-motions for summary judgment, the Court takes care to note the
differences in each side’s view of the facts where they exist. Each summary judgment motion must
be evaluated independently, with the facts read in the light most favorable to the non-moving
party. Griffis v. Delta Family-Care Disability, 723 F. 2d 822, 823-24 (11th Cir. 1984).
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which he claims was operated solely as a work truck. Phillips states that he kept oil and
tools for working on his tractor in the GMC. He also kept his trucking paperwork in
the GMC and often drove it to turn in paperwork or pick up his paycheck at the
Birmingham office of Southeast Logistics. Plaintiff owned another pickup truck that
he used for personal purposes. NUFIC claims that the GMC cannot be a work truck
because it was not used to haul loads, and that Plaintiff used it to drive “back and forth
to work” at Tubular Products. (Doc. 18 at 1.)
For several years prior to the accident at the center of this litigation, Phillips
usually kept his tractor and trailers parked at Tubular Products as a way to save on
diesel fuel. On February 16, 2009, the Shipping Manager at Tubular Products called
Phillips and informed him of a load that needed to leave Tubular Products at 8:00 a.m.
the next day. The next morning, Plaintiff traveled in his GMC from his home in
Cordova, Alabama, to the location of his tractor and trailer at Tubular Products. While
Plaintiff characterizes his trip as “en route to pick up a load” (Doc. 11 at 5),
Defendant contends that Plaintiff “was on his way to pick up his tractor, which he
would then use to pick up a load.” (Doc. 18 at 2.)
In any case, Phillips never made it to Tubular Products that morning because
he was struck head on by another driver. In the accident, he broke his hand in several
places and suffered a fracture of his neck. Phillips has been unable to work as a truck
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driver since the accident.
When he leased his equipment to Southeast Logistics, Plaintiff purchased an
insurance policy known as “Trucker’s Occupational Accident Insurance” from the
Defendant. This policy included coverage for temporary and continuous disability
benefits “if injury to the insured person” results in either temporary or permanent
disability. “Injury” is a defined term in the policy:
Injury means bodily injury to an Insured Person caused by an
Occupational accident while coverage is in force under this policy,
which results directly from and independently of all other causes in a
Covered Loss. All injuries sustained by an Insured Person in any one
accident shall be considered a single Injury.
(Doc. 1 at 35.) Two other terms defined in the policy are central to this case. First,
Occupational is defined as follows:
Occupational means, with respect to an activity, accident, incident,
circumstance or condition involving an Insured, that the activity,
accident, incident, circumstance, or condition occurs or arises out of
or in the course of the Insured performing services within the course
and scope of contractual obligations for the Policyholder, while under
Dispatch. Occupational does not encompass any period of time during
the course of everyday travel to and from work.
Id. Secondly, Dispatch is also a defined term:
Dispatch means the period of time during which an Insured operates
his or her vehicle, while being en route to pick up a load, picking up a
load, en route to deliver a load, and unloading a load.
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Id. The Court notes that “vehicle,” as used in the definition of “Dispatch,” and
“work,” as used in the definition of “Occupational,” are not defined in the policy.
After his accident, Phillips submitted a claim under this policy, and NUFIC
originally approved it, paying temporary disability benefits to Phillips for more than
one year. During this time NUFIC sent Phillips to at least two “Independent Medical
Examinations” to assess his level of disability and determine whether he was entitled
to benefits. (Doc. 13 at 8.) It also obtained a statement from Plaintiff about the
On October 4, 2010, NUFIC informed Plaintiff that he was not entitled to
Occupational Accident Benefits, including both the temporary disability benefits it had
already paid Phillips and the continuous disability benefits Phillips sought. Plaintiff
brought this suit alleging that this denial breached the contract. He also alleges that
NUFIC committed bad faith in its refusal to pay benefits.
II. Standard of Review
Summary judgment is proper “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
This statement or report is the subject of much disagreement between the parties, as
well as Plaintiff’s motion to strike it as evidentiary material. The Court will address Plaintiff’s
motion to strike below.
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there is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The party moving for
summary judgment "always bears the initial responsibility of informing the district
court of the basis for its motion, and identifying those portions of [the evidence] which
it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986). The movant can meet this burden by presenting
evidence showing that there is no genuine dispute of material fact, or by showing that
the nonmoving party has failed to present evidence in support of some element of its
case on which it bears the ultimate burden of proof. Celotex, 477 U.S. at 322-23. In
evaluating the arguments of the movant, the court must view the evidence in the light
most favorable to the nonmoving party. Mize v. Jefferson City Bd. of Educ., 93 F.3d 739,
742 (11th Cir. 1996).
Once the moving party has met his burden, Rule 56(e) "requires the nonmoving
party to go beyond the pleadings and by her own affidavits, or by the 'depositions,
answers to interrogatories, and admissions on file,' designate 'specific facts showing
that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324 (quoting Fed. R. Civ.
P. 56(e)). "A factual dispute is genuine only if a 'reasonable jury could return a verdict
for the nonmoving party.'" Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220,
1224 (11th Cir. 2002) (quoting United States v. Four Parcels of Real Property, 941 F.2d
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1428, 1437 (11th Cir. 1991)).
The fact that there are cross-motions for summary judgment in this particular
case does not change the standard. Even though both sides allege that no genuine issue
of material fact exists, the Court must still evaluate each motion under the Rule 56
standard, determining whether either party has established that it is entitled to
judgment as a matter of law. See Griffis v. Delta Family-Care Disability, 723 F.2d 822,
824 (11th Cir. 1984). The Court has considered each motion in the light most
favorable to the opposing party in order to determine whether the Rule 56 standard has
been met. See Mize, 93 F.3d. at 742.
A. Plaintiff’s Motion to Strike Defendant’s Investigative Report
Plaintiff moves to strike an investigation report prepared from a NUFIC
employee’s interview with Phillips. The report consists of an employee’s summary of
the interview, and Plaintiff contends that it is inadmissible “double hearsay.” (Doc.
15.) Under the Federal Rules of Evidence, an out of court statement offered for the
truth of the matter asserted is hearsay, and hearsay cannot be admissible unless
another rule or federal statute deems it so. Fed. R. Evid. 801; 802. Evidence that is not
offered for the truth of the matter asserted can never be hearsay. Fed. R. Evid. 801.
The report clearly constitutes an out of court statement. In Defendant’s
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response to the motion to strike, it concedes that the report is not offered at this time
as evidence of the truth of the assertions therein. (Doc. 21.) Thus the Court need not
address whether any hearsay exception in the rules would allow it be admitted for that
purpose. However, the report can serve as admissible non-hearsay evidence that an
investigation was conducted, which is relevant to Plaintiff’s bad faith claims.
Therefore, the Court will not consider the substance of the report with respect to the
breach of contract claim, but the existence of the report remains viable evidence of an
investigation with respect to the bad faith claims.
B. The Breach of Contract Claim
Alabama law governs this diversity action, and the Court must determine the
questions before it according to how it believes the Alabama Supreme Court would
rule. See Martin v. Travelers Indem. Co., 450 F. 2d 542, 546 (5th Cir. 1971). A breach of
contract action has the same basic elements when the contract is one for insurance: the
Plaintiff must show “1) the existence of a valid contract binding the parties in the
action, (2) his own performance under the contract, (3) the defendant’s
nonperformance, and (4) damages.” State Farm Fire & Cas. Co. v. Slade 747 So. 2d 293,
303 (Ala. 1999) (quoting Southern Medical Health Systems, Inc. v. Vaughn, 559 So. 2d
98, 99 (Ala. 1995)).
Here, the parties had a valid insurance contract, and NUFIC does not dispute
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that Phillips paid his premiums under that contract. The question is whether the
defendant failed to perform under the contract. Defendant alleges that the plain
meaning of the contract did not obligate it to perform. In determining the meaning of
an insurance contract, the Alabama Supreme Court has repeatedly held that such
contracts are to be strictly construed against the insurer. See e.g., Roberts v. Am. Nat.
Prop. & Cas. Co., 976 So. 2d 1005, 1007 (Ala. 2007). Any ambiguous provisions in the
policy are “construed most strongly against the insurer and in favor of the insured.”
Id. (quoting Twin City Fire Ins. Co. v. Alfa Mut. Ins. Co., 817 So. 2d 687, 695 (Ala.
The ambiguity (or lack thereof) of an insurance provision is a question of law
that must be decided by the Court. Slade, 747 So. 2d at 308. In determining whether
there is ambiguity in the terms, the Court asks not what the insurer intended them to
mean but how a reasonably prudent buyer of insurance would interpret them.
Nationwide Ins. Co. v. Rhodes, 870 So. 2d 695, 697 (Ala. 2003). From this perspective,
contract terms are ambiguous only if they are “reasonably susceptible to two or more
constructions or there is reasonable doubt or confusion as to their meaning.” Slade,
747 So. 2d at 308-309. In interpreting the language of any contract, Alabama law
strictly applies the plain meaning rule; contract terms should be given their “clear and
plain meaning” and “the parties are presumed to have intended what the terms clearly
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state.” State v. Lorillard Tobacco Co., 1 So. 3d 1, 7 (Ala. 2008) (quoting H & S Homes,
LLC v. Shaner, 940 So. 2d 981, 988 (Ala. 2006)). In the present case, both parties
argue that the plain meaning of the policy favors their position, but this does not
automatically mean the policy is ambiguous. Watkins v. United States Fid. & Guar. Co.,
656 SO. 3d 337, 339 (Ala. 1994) (“the fact that the parties interpret the provisions of
an insurance contract differently does not necessarily mean the contract is
NUFIC’s failure to define two words used in the definitions section of its policy
leads this Court to determine that the policy is ambiguous as to the terms “Dispatch”
and “Occupational.” First, the policy definition of “Occupational” excludes
“everyday travel to and from work,” but it fails to define the term “work.” There are
multiple potential locations that could be Plaintiff’s place of work. First, he could be
deemed to work at Southeast Logistics, the entity to which he had leased his tractor
and trailers and from which he received his pay. Plaintiff had to visit the Southeast
Logistics office in Birmingham on a regular basis to turn in paperwork and be paid.
Secondly, Plaintiff’s place of work could be Tubular Products, where he normally
picked up loads and from which he usually received his dispatch instructions. (On rare
occasions, Plaintiff received dispatch instructions from Southeast Logistics.)
Plaintiff’s place of work at any particular time could also be the current location
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of the vehicle he used for work. In some ways this construction makes sense. The
problem with defining “work” as Plaintiff’s “vehicle,” however, is that the policy
does not define “vehicle.” Plaintiff claims that he owns more than one vehicle that he
used solely for work, including the GMC that he was driving at the time of the
accident. NUFIC seeks to define “vehicle” either according to the lease agreement
between Phillips and Southeast Logistics or as a vehicle capable of hauling the loads
that are assigned to the insured. However, the insurance policy mentions the lease
agreement only in defining the personal eligibility of the insured and never mentions
the tractor or trailers involved in the lease agreement.
The plain meaning of the term “vehicle” favors the Plaintiff’s reading because
the GMC, is, in fact, a vehicle. Plaintiff used this vehicle for work purposes by keeping
tools and fluids in it for working on his Freightliner and by using it to travel to
locations such as the Southeast Logistics office. He could have driven his Freightliner
on all of these occasions, but it was to the benefit not only of himself, but also to
Tubular Products and Southeast Logistics that he not do so. A reasonably prudent
buyer of insurance could believe that the policy covered him when he was responding
to dispatch instructions in a vehicle that he used solely for work.
The definition of “Occupational” in the policy requires the insured to be
performing services for Southeast Logistics and to be under dispatch. If Phillips really
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uses the GMC only in performing services for Southeast Logistics, and if, as is
undisputed, he had received dispatch instructions to report to Tubular Products at a
certain time on the morning of the accident, these aspects of the definition of
“occupational” could be satisfied. Because the term “work” is not defined, reasonable
minds may differ on whether the final sentence of the definition of “occupational”
applies, excluding “everyday travel to an from work.” Therefore, the Court finds that
“Occupational” is an ambiguous term in the contract because it is “reasonably
susceptible to two or more constructions . . . .” Slade, 747 So. 2d at 308-309.
The policy definition of “Dispatch” is likewise ambiguous because the policy
does not define the word “vehicle.” A driver is under dispatch when he is operating
his vehicle en route to pick up a load or is picking up, transporting, or delivering that
load. Because “vehicle” is undefined, a prudent buyer of insurance could believe that
he was en route to a pick up a load in the circumstances Phillips was in on the date of
the accident. NUFIC argues that Plaintiff was actually en route to pick up the vehicle
in which he would pick up the load, but its failure to define “vehicle” in the policy it
drafted renders the term ambiguous. NUFIC could easily have limited the policy to
cover insured persons only while they were driving, loading, unloading, or repairing
the equipment leased to Southeast Logistics. It could also have inserted a definition
of “vehicle” that either limited the policy to tractor-trailers or to vehicles capable of
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hauling the loads assigned by Southeast Logistics.
The Court believes that NUFIC intended the policy to cover only those injuries
suffered while plaintiff was driving his Freightliner while under dispatch. It created the
policy for truck drivers and included “Truckers” in the title. Alabama law, however,
makes it clear that this Court should not interpret the policy according to what the
insurance company intended. Rhodes 870 So. 2d at 697; see also Am. Res. Ins. Co. v. H
& H Stephens Const., Inc., 939 So. 2d 868 (Ala. 2006). Rather, the Court must interpret
the terms as a reasonably prudent buyer of insurance would, and must also construe
them against the insurance company. Rhodes, 870 So. 2d at 697; Roberts, 976 So. 2d at
1007. Because the Court believes that a reasonably prudent buyer of insurance, and
thus a reasonable juror, could interpret the policy in favor of either party in this case,
summary judgment is not appropriate. Therefore, both parties motions for summary
judgment on the breach of contract claim are due to be denied.
C. The Normal Bad Faith Claim
Alabama law recognizes two types of bad faith claim against insurers. Plaintiff
brings both “normal” and “abnormal” bad faith claims. “In the normal bad-faith case,
the plaintiff must show the absence of any reasonably legitimate or arguable reason for
denial of a claim.” Jones v. Alfa Mut. Ins. Co., 1 So. 3d 23, 32-33 (Ala. 2008) (quoting
Slade, 747 So. 2d at 306). “For a ‘normal’ bad-faith claim to be submitted to the jury,
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the underlying contract claim must be so strong that the plaintiff would be entitled to
a preverdict judgment as a matter of law.” Id. at 32 (quoting Shelter Mut. Ins. Co. v.
Barton, 822 So. 2d 1149, 1155 (Ala. 2001)).
The Court has already found that the insurance contract in this case could
reasonably be interpreted to deny coverage. Therefore, the Plaintiff would not be
entitled to a preverdict judgment as a matter of law on the breach of contract claim.
Without a showing that he is entitled to such a judgment, Plaintiff cannot present his
normal bad faith claim to the jury. Barton, 822 So. 2d at 1155. Thus, Defendant’s
motion for summary judgment on the normal bad faith claim is due to be granted.
D. The Abnormal Bad Faith Claim
An abnormal bad faith claim can proceed to the jury without the requirement
of a preverdict judgment as a matter of law. White v. State Farm Fire & Cas. Co., 953
So. 2d 340, 348 (Ala. 2006). A plaintiff can survive summary judgment on an abnormal
bad faith claim if he produces “substantial evidence showing that the insurer (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.” Slade, 747 So. 2d at 306-07.
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Plaintiff does not allege that NUFIC failed to investigate the claim, making this
case different from most of the abnormal bad faith claims brought before Alabama
courts. See, e.g., State Farm Fire and Cas. Co. v. Brechbill, ---- So. 3d ----, 2013 WL
5394444 (Ala. Sept. 27, 2013). Here, the only question is whether NUFIC “relied on
an ambiguous portion of the policy . . . to deny the plaintiff’s claim.” Slade, 747 So. 2d
at 306-07. Alabama courts have repeatedly stressed that insurers may not rely on an
ambiguous policy term to deny coverage. See e.g., Blackburn v. Fid. & Deposity Co., 667
So. 2d 661, 669 (Ala. 1995); Employees’ Benefit Ass’n v. Grissett, 732 So. 2d 968, 976-77
(Ala. 1998). The oft-cited reason for this rule is that “if an insurer’s subjective
interpretation of an insurance policy could create the fairly debatable reason needed
to defend a bad faith claim, then insurers would be encouraged to write ambiguous
insurance policies.” Blackburn, 667 So. 2d at 669.
The absence of a reasonable or debatable reason for denial of coverage remains
an element of the tort of bad faith even in the abnormal case. Brechbill, 2013 WL at *9.
However, an insurer cannot rely on an ambiguous policy term to negate this element.
Grissett, 732 So. 2d at 977 (“The absence of a debatable reason not to pay a claim
cannot be grounded on the vagaries of construction of an ambiguity”). An insurer
cannot claim that an ambiguity gives it a debatable reason to deny coverage, because
the law makes clear that an ambiguous term must be construed against it. Twin City,
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817 So. 2d at 695 (“Ambiguous provisions of an insurance policy will be construed
most strongly against the insurer and in favor of the insured”). Because this Court
found the term “under dispatch” ambiguous, Alabama law requires the abnormal bad
faith claim to go to the jury. Summary judgment is due to be denied.
Both parties’ motions for summary judgment on Plaintiff’s breach of contract
claim are due to be denied, as is Defendant’s motion for summary judgment on
Plaintiff’s abnormal bad faith claim. Defendant’s motion for summary judgment on
Plaintiff’s normal bad faith claim is due to be granted. A separate order reflecting this
opinion will be entered.
Done this 30th day of October 2013.
L. SCOTT COOGLER
UNITED STATES DISTRICT JUDGE
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