Assurance Company of America v. Admiral Insurance Company et al
ORDER granting 26 Motion for Summary Judgment filed by Admiral Insurance Company. Signed by Judge Callie V. S. Granade on 5/18/2011. (mab)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
ASSURANCE COMPANY OF
COMPANY and SCOTTSDALE
Civil Action No. 10-0117-CV-C
This matter comes before the court on the motion for summary judgment filed
by defendant, Admiral Insurance Company (“Admiral”) (Doc. 26). For the reasons
set forth herein, the motion is due to be GRANTED.
Facts and Procedural History
Plaintiff, Assurance Company of America (“Assurance”), and defendants,
Admiral and Scottsdale Insurance Company (“Scottsdale”), all issued general
liability policies to Byrd Homes, Inc. (“Byrd Homes”), each for different coverage
periods. Assurance covered Byrd from May 11, 1997, to May 11, 1999. Scottsdale
issued a policy for the period May 11, 1999, to October 13, 1999. Finally, Admiral’s
policy covered Byrd from October 13, 1999, to October 13, 2000.
In 1997, Byrd Homes, as general contractor, constructed a home for Lester
Welch (“Welch”). The contract for construction was signed on March 21, 1997.
Construction was completed and the parties closed in October of that year.
At some point one to two years after completion of construction, Welch began
noticing problems with his home. He then began attempts to contact Byrd Homes.
It took Welch five or six calls over a year or year and a half to make contact. Collie
Byrd of Byrd homes made two or three visits to the home, and finally told Welch
that Byrd would take no corrective action because the one-year contractor’s
warranty had expired on the home.
Admiral was notified of a claim by Welch against Byrd Homes on September
11, 2002. Admiral sent a reservation of rights letter to Byrd Homes dated October
2, 2002. (Doc. 28-5). That letter acknowledged receipt of a claim by Byrd Homes
and noted that a lawsuit had not been yet been filed against Byrd Homes. Admiral
then requested that, in the event suit was filed, Byrd Homes promptly forward it a
copy. Admiral also advised that it would be investigating the claim “subject to a
reservation of our rights to dispute and/or deny coverage . . . ,” and had hired a
company to investigate Welch’s claims.
There followed, in December 2002 and February 2003, correspondence
between Admiral’s investigator and counsel for Welch concerning the claim. The
investigator’s December 2, 2002, letter noted that Assurance had retained an
adjuster in connection with the claim. The letter also advised that Welch had
apparently been directed by his counsel not to discuss his claim. Finally, the letter
asks for a copy of a report from a structural engineer that had apparently been
prepared which dealt with damages and scope of repairs for the Welch home. The
Admiral file contains no response to this letter, nor any engineering report. The
February 20, 2003, correspondence from Welch’s counsel threatened litigation if the
claim was not resolved in seven days. Also in February 2003, Admiral was
informed by its investigator that another insurance carrier had settled Welch’s
claim. Admiral closed its file on the matter in May 2004 when it had no further
contact from Welch or Byrd Homes.
Welch filed suit against Byrd Homes on April 13, 2003, in Clarke County,
Alabama, Circuit Court. In that suit, Welch alleged causes of action for breach of
contract, breach of the implied warranties of fitness and habitability, and
fraudulent misrepresentation. The defects in the home alleged in the complaint
included water damage to the floors, improper preparation of the lot, improper
construction of the structural support system, and improper carpet installation.
Assurance assumed the defense of Byrd Homes.
Assurance claims that the next correspondence received by Admiral in
connection with this claim was a letter dated September 22, 2006, from a case
manager for Assurance. The letter noted that Assurance had been defending the
claim since September 2002, and demanded that Admiral and Scottsdale participate
in the defense and indemnity of Byrd. While there is no explicit reference to the
lawsuit filed by Welch against Byrd in April 2003,1 that a lawsuit was pending
certainly may be inferred from the tone of the letter and the reference to “pleadings”
in the last sentence. Admiral states that this letter was not found in their claim file
for this matter, but admits that it was correctly addressed to one of its employees.
On the day of trial, August 5, 2008, the Welch lawsuit was settled. The
settlement was finalized on September 10, 2008, and involved the payment of the
sum of $650,000.00 from Assurance. Over a year later, on October 5, 2009, counsel
for Assurance submitted a letter to Admiral advising it of the settlement. The letter
also advised that Assurance incurred $82,738.00 in defense costs and expenses, for
which it requested reimbursement from Admiral. There has been no
correspondence or evidence of correspondence produced indicating that Admiral was
advised of pending settlement negotiations or that its consent was sought prior to
settlement. It appears that the first indication of a settlement received by Admiral
and Scottsdale was the October 5, 2009, letter.
Assurance filed the instant lawsuit in Clarke County, Alabama, Circuit Court
on February 8, 2010 (Doc. 1), and it was removed to this court by defendants
Admiral and Scottsdale on March 9, 2010. (Id.). The complaint consists of a single
count for breach of contract. Assurance, claiming to be the subrogee of Byrd Homes,
alleges that Admiral breached its insurance policy with Byrd Homes. Assurance
The letter does mention that Admiral and Scottsdale were placed on notice
of a lawsuit in September 2002, but that clearly refers to the notice of the claim as
the lawsuit was not filed until seven months later.
seeks recovery from Admiral for amounts it paid to defend and indemnify Byrd
Homes in the lawsuit arising from the construction of Welch’s home.
Summary Judgment Standard
Federal Rule of Civil Procedure 56(c) provides that summary judgment shall
be granted “if the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” The trial court=s function is not
“to weigh the evidence and determine the truth of the matter but to determine
whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 249 (1986). The basic issue before the court on a motion for summary
judgment is “whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a
matter of law.” See Anderson, 477 U.S. at 251-252. In evaluating the argument of
the moving party, the court must view all evidence in the light most favorable to the
non-moving party, and resolve all reasonable doubts about the facts in its favor.
Burton v. City of Belle Glade, 178 F.3d 1175, 1187 (11th Cir. 1999). “If reasonable
minds could differ on the inferences arising from undisputed facts, then a court
should deny summary judgment.” Miranda v. B&B Cash Grocery Store, Inc., 975
F.2d 1518, 1534 (11th Cir. 1992) (citing Mercantile Bank & Trust v. Fidelity &
Deposit Co., 750 F.2d 838, 841 (11th Cir. 1985)).
Where the burden of proof at trial is on the non-moving party, the movant
can meet the summary judgment standard by submitting affirmative evidence
negating an essential element of the non-movant's claim, or by demonstrating that
the non-moving party's evidence itself is insufficient to establish an essential
element of his claim. Id. at 1437-1438; Celotex, 477 U.S. at 322.
The burden then shifts to the non-moving party to make a showing sufficient
to establish the existence of all essential elements to his claims, and on which he
bears the burden of proof at trial. Id. To meet this burden, the non-moving party
cannot rest on the pleadings, but must by affidavit or other appropriate means, set
forth specific facts showing there is a genuine issue for trial. Id. at 324, 106 S.Ct. at
2553. A dispute of material fact “is ‘genuine’ ... if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson, 477
U.S. at 248. Where the parties' factual statements conflict or inferences are
required, the court will construe the facts in the light most favorable to the
nonmovant. Barnes v. Southwest Forest Industries, 814 F.2d 607, 609 (11th Cir.
Admiral submits a number of arguments in support of summary judgment.
However, the court finds it necessary to address only the issues of voluntary
payment and lack of notice, as they are dispositive of the entire action.
A. Voluntary Payment
Admiral claims that the payment of the settlement amount in the underlying
case was a voluntary act and, as such, renders any subrogation claim by Assurance
moot. The court agrees.
Admiral cites the case of Allstate Ins. Co. v. Amerisure Ins. Co., 603 So.2d
961 (Ala. 1992), in support of its argument. In Allstate, an employee of a
construction company, was involved in an auto accident resulting in personal
injuries to the occupant of another vehicle. Id. at 962. The injured party sued both
the employee and his employer. Id. Allstate, who insured the employee, then filed
a declaratory judgment action against Amerisure, the employer’s insurer. Id.
Allstate obtained a summary judgment holding that it owed no coverage to the
employee for the accident. Id. Amerisure appealed the summary judgment, but
while its appeal was pending, settled the personal injury case. Id. After settlement,
the summary judgment in the declaratory judgment action was reversed on appeal,
with a finding that Allstate did have coverage. Id. Amerisure then filed a
counterclaim against Allstate claiming that it was entitled to reimbursement from
Allstate for the settlement of the personal injury case. Id. at 962-963.
On appeal from a summary judgment in favor of Amerisure, the Alabama
Supreme Court reversed, finding that Amerisure’s payment of the settlement
amount was a voluntary act for which it could not seek either indemnity or
equitable subrogation from Allstate. Id. at 965 and 966. The court noted that
Amerisure gave notice of the settlement to Allstate, but did not provide notice that
it would attempt to hold Allstate liable for the amount of the settlement. The court
found that while Amerisure properly settled the personal injury suit, it failed to
preserve its right to proceed against Allstate either by giving Allstate notice of such
an intent to do so or by postponing the settlement until after the court ruled on the
declaratory judgment appeal. Id. at 965. The Allstate court also found that, with
respect to an equitable subrogation cause of action, Amerisure was subject to the
term of the Allstate policy which prohibited voluntary payments by the
policyholder. Id. at 966.
Also relevant is Mt. Airy Ins. Co. v. Doe Law Firm, 668 So.2d 534 (Ala. 1995).
In that case, the Doe law firm represented an accident victim and failed to timely
refile a complaint that had previously been dismissed. Id. at 535. As a result, a
judgment in favor of the accident victim was overturned on appeal. Id. The firm
placed Mt. Airy, its malpractice carrier on notice of a potential claim. Id. In
response, Mt. Airy filed a declaratory judgment action in federal court, seeking a
declaration that there was no coverage for the claim. Id. at 535-536. Thereafter,
the accident victim offered to settle with the firm. Id. at 536. The firm advised Mt.
Airy of the offer, indicated its consent to it and demanded that the carrier pay the
settlement amount, less the firm’s deductible. Id. Mt. Airy agreed to pay, but
demanded an agreement from the firm indicating that payment of the settlement
amount would not be a waiver of the right of the carrier to seek reimbursement
from the firm if it prevailed in the declaratory judgment action. Id. The firm
refused the nonwaiver agreement, but Mt. Airy paid the settlement amount
anyway, and amended its declaratory judgment action to include a declaration that
it was entitled to reimbursement from the Doe firm for the settlement amount. Id.
The law firm moved for a summary judgment on the reimbursement count. Id. The
federal court certified to the Alabama Supreme Court the question of whether the
carrier’s payment was voluntary and precluded reimbursement. Id.
The Alabama Supreme Court, in deciding the Mt. Airy case, noted first that
the case did not involve subrogation, because the money paid by Mt. Airy “is not
paid to compensate the firm for an injury caused by a third party; the policy
benefits were paid to the Doe law firm to settle a third party’s claim against the
firm” Id. at 537. Accordingly it was “clear that the doctrine of subrogation is not
applicable . . . .” Id. The effect of this finding was that certain avenues of recovery
of a prior payment were not available to the carrier. Id. at 536-537.
The Mt. Airy court went on to analyze the circumstances of the carrier’s
payment. It found the fact that Mt. Airy provided notice to the law firm that it
disputed the claim and intended to file a legal action to recover it did not render the
payment involuntary. Id. at 538 (citing National Bank of Boaz v. Marshall County,
157 So. 444, 446 (Ala. 1934) (the mere fact that the payment was paid under protest
will not render it involuntary)). The court also found that the threat of bad faith
litigation was also not sufficient to characterize the payment as involuntary. Id.
(Alabama law recognizes that the mere threat of legal proceedings is insufficient to
constitute the duress needed to make the payment of money involuntary.) The Mt.
Airy court found the settlement payment to be voluntary and, thus, that the insurer
was not entitled to seek reimbursement from the law firm.
In the instant case, it is undisputed that Admiral was not notified in advance
that Assurance would be settling the Welch lawsuit against Byrd Homes. The first
notice that Admiral did, in fact, receive came more than a year after settlement was
consumated. It is clear that Admiral was not provided an opportunity to participate
in settlement negotiations, nor was it given an opportunity to consent to the
settlement itself. It is also clear that Admiral was not advised prior to settlement
that Assurance would look to it for reimbursement or subrogation as to any
settlement payment. There is also no indication that Assurance sought a
declaration that Admiral’s policy provided coverage for the claim, nor that it sought
any stay of proceedings in the underlying case to pursue any action with respect to
Admiral. Finally, it is noteworthy that Assurance had over a month from the initial
settlement of the underlying case until that settlement was finalized. Yet during
that time, there was apparently no attempt by Assurance to get Admiral involved in
any way. Under all of these circumstances, the court finds, as a matter of law, that
Assurance’s payment of the settlement was voluntary, and that it is not entitled to
reimbursement from Admiral.2
In response to Admiral’s argument, Assurance claims, for the first time, that
its action is one for contribution rather than subrogation. According to Assurance,
this renders Allstate and Mt. Airy inapplicable. Assurance explicitly labeled its suit
as one based in subrogation. No mention is made in the complaint of a right to
contribution. Assurance has not sought leave to amend its complaint, and cannot
now seek to do so in response to a summary judgment motion. Gilmour v. Gates,
Because of this holding, the court need not reach the issue of whether,
under Mt. Airy, Assurance can even bring a subrogation action.
McDonald & Co., 382 F.3d 1312, 1315 (11th Cir. 2004) (a plaintiff may not amend
its complaint through argument in a brief opposing summary judgment).
The determination of a voluntary payment is supported by the terms of the
Admiral policy itself. Assurance, in its capacity as subrogee of Byrd Homes, steps
into the shoes of Byrd Homes and is subject to all policy defenses applicable to that
insured. Allstate Ins. Co. v. Amerisure Ins. Cos., 603 So.2d 961, 966 (Ala. 1992).
According to the Admiral policy “ [n]o insured will, except at that insured’s own
cost, voluntarily make a payment, assume any obligation, or incur any expense,
other than for first aid, without our consent.” (Doc. 27-3, p. 14). There is no
disputing the fact that Admiral’s consent was not sought by Byrd Homes or
Assurance before settling the Welch lawsuit, thus making the subsequent payment
a voluntary one for which Admiral bears no liability.
In addition, the Admiral policy contains requirements regarding notice:
SECTION IV – COMMERCIAL GENERAL LIABILITY CONDITIONS
* * *
Duties In The Event Of Occurrence, Offense, Claim or Suit
You must see to it that we are notified as soon as
practicable of an “occurrence” or an offense which may result in
If a claim is made or “suit” is brought against any insured
Notify us as soon as practicable
You must see to it that we receive written notice of the
claim or “suit” as soon as practicable.
You and any other involved insured must:
Immediately send us copies of any demands,
notices summonses or legal papers received in connection
with the claim or “suit”;
Cooperate with us in the investigation or
settlement of the claim or defense against the “suit”;
(Doc. 27-3, p. 14).
Here, it is undisputed that, while Admiral was placed on notice of a claim in
September 2002, this was before the underlying lawsuit was filed by Welch. That
suit was filed in February 2003, but, even accepting Assurance’s version of the facts,
Admiral’s first notice of the pendency of the suit came in September 2006, more
than three years after it was filed. This is a clear breach of Byrd Homes’ obligation
to timely notify Admiral of the filing of a lawsuit. The next notice received by
Admiral was that the case had settled, and this notice came more than a year after
the actual settlement. This is both a breach of the insured’s obligation to forward
copies of all legal papers to Admiral as well the prohibition against making
voluntary payments without Admiral’s consent.
The Admiral policy at issue required that Byrd Homes notify Admiral “as
soon as practicable” of a suit against it, provide Admiral written notice “as soon as
practicable,” and “immediately” forward any demands, notices, summonses or legal
papers received in connection with the lawsuit. Notice requirements in insurance
policies such as “as soon as practicable” have been interpreted in Alabama to mean
that an insured must give notice within a reasonable time under the circumstances
of the case. Alabama Plating Co. v. United States Fid. & Guar. Co., 690 So.2d 331,
338 (Ala. 1996) (citing CIE Serv. Corp v. Smith, 460 So.2d 1244 (Ala. 1984)). To
determine whether any delay in giving notice of an occurrence is reasonable, a court
must consider the length of the delay and any reasons for the delay. Id. Mitigating
evidence offered by the insured can create a question of fact as to whether the notice
was reasonable. Id. (citing Watson v. Ala. Farm Bureau Mut. Cas. Ins. Co., 465
So.2d 394 (Ala. 1985)).
In this case, Byrd Homes was placed on notice of a potential claim against it
sometime in 1998 or 1999, when Welch made contact with Collie Byrd about the
water damage to the floor around the French doors. Admiral did not receive notice
of a claim until September 2002. More importantly, suit was filed against Byrd
Homes in April 2003. Admiral’s first notice that suit had been filed against its
insured was provided in September 2006, well over three years from the filing of the
lawsuit. Assurance has had plenty of opportunity to submit competent evidence to
the court that additional notice had been provided to Admiral. Assurance has been
either unwilling or unable to do so, so the court must presume that such evidence
does not exist, and that earlier notice was, in fact, not given.3
The only excuse offered by Assurance, on behalf of Byrd Homes, is Byrd
Homes’ subjective belief that it was not liable because any defects occurred outside
In its response to Admiral’s summary judgment motion, “Assurance asserts
that Admiral also had notice of the suit, but ignored suit.” Assurance’s assertion is
meaningless because there is absolutely no factual basis provided for it.
the one-year contractor’s warranty period. This reason may arguably justify a delay
in notifying Admiral of the initial claim, however it has no validity when it comes to
the over three-year delay between the filing of the lawsuit and the first notice to
Admiral of the suit. Whether or not Byrd Homes believed it had any liability is
irrelevant once an actual suit is filed, especially where, as here, the insurer has a
duty to defend the insured as well as to indemnify it for any losses.
Finally, the failure to provide reasonable or timely notice to an insurer
relieves the insurer of the obligations imposed by the insurance policy, including the
duty to defend the insured. Watts v. Preferred Risk Mut. Ins. Co., 423 So.2d 171,
173 (Ala. 1982).4 The purpose of these notice provisions is to afford the insured an
opportunity to control the litigation. Id. Admiral never had an opportunity to
control the litigation once the lawsuit was filed, nor was it given an opportunity to
participate in the settlement process. Therefore, Admiral had no obligation to
defend the Welch lawsuit. See Id.
In summary, the court finds that the settlement payment made to conclude
the Welch lawsuit was a voluntary payment which relieves Admiral of any
responsibility therefore. In addition, Admiral is also entitled to relief from payment
responsibility due to the insured’s breach of the policy provisions governing notice to
the insurer. Admiral, therefore is relieved of any obligation to defend or indemnify
The policy at issue in Watts is an auto liability policy, but its reasoning applies with
equal force to a commercial general liability policy.
Byrd Homes. By extension, Admiral has no liability to Assurance, as Byrd’s
subrogee. Accordingly, Admiral’s motion for summary judgment (Doc. 26) is
DONE and ORDERED this 18th day of May, 2011.
/s/ Callie V. S. Granade
UNITED STATES DISTRICT JUDGE
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