Assurance Company of America v. Admiral Insurance Company et al
ORDER granting 30 Motion for Summary Judgment of Scottsdale 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-CG-C
This matter comes before the court on the motion for summary judgment filed
by defendant, Scottsdale Insurance Company (“Scottsdale”) (Doc. 30). 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,
Scottsdale and Admiral Insurance Company (“Admiral”), all issued general liability
policies to Byrd Homes, Inc. (“Byrd Homes”), each for different coverage periods.
Assurance covered Byrd from May 11, 1992, 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, built 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, owner of Byrd homes, made two or three visits to the home, and finally told
Welch that Byrd Homes would take no corrective action because the one-year
contractor’s warranty had expired on the home.
Scottsdale was notified of a claim by Welch against Byrd on September 27,
2002. Scottsdale responded on October 29, 2002, and stated that it “will directly
defend you or will contribute and share in the cost of defending you with any and all
appropriate insurance carriers in this matter.” (Doc. 30-8, p.1). The agreement to
defend was made subject to a reservation of rights. Scottsdale specifically reserved
its “right to withdraw the defense at any time in the event that it is determined
there is no coverage.” (Doc. 30-8, p. 13).
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.
On May 12, 2003, Scottsdale sent a letter to Byrd Homes which referenced
the complaint number of the Welch lawsuit. (Doc. 30-10). In the letter, Scottsdale
states that it had determined that there was no coverage under its policies. This
denial of coverage was based on the policy definitions of “occurrence” and “property
damage.” Nevertheless, Scottsdale did say that it would provide a courtesy defense
to Byrd Homes, and identified the attorney and law firm which had been assigned.
However, upon learning that Assurance had assumed the defense of Byrd Homes,
Scottsdale no longer provided courtesy counsel. Assurance alleges that on
September 22, 2006, it sent correspondence to Scottsdale requesting that the
insurer provide coverage benefits to Byrd Homes. Scottsdale denies receipt of this
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 to Welch.
Assurance filed the instant lawsuit in the Circuit Court of Clarke County,
Alabama, on February 8, 2010 (Doc. 1), and it was removed to this court by 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 Scottsdale breached its insurance policy by failing to defend and indemnify
Byrd Homes. Assurance seeks recovery from Scottsdale for amounts it paid to
defend and indemnify Byrd Homes in the lawsuit arising from the construction of
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
Under Alabama law, which governs this case, the insured, in this case
Assurance, bears the burden of establishing coverage by demonstrating that a claim
falls within the insurance policy. Jordan v. National Accident Ins. Underwriters,
Inc., 922 F.2d 732, 735 (11th Cir. 1991) (citing Colonial Life & Accident Ins. Co. v.
Collins, 194 So.2d 532, 535 (Ala. 1967)), The insurer, Scottsdale, bears the burden
of proving the applicability of any policy exclusions. Universal Underwriters Ins.
Co. v. Stokes Chevrolet, 990 F.2d 598, 605 (11th Cir. 1993) (citing United States
Fid. & Guar. Co. v. Armstrong, 479 So.2d 1164, 1168 (Ala. 1985)); see also Jordan,
922 F.2d at 735.
A. Whether Assurance is a Subrogee of Byrd
Scottsdale claims that Assurance is not a proper subrogee of Byrd, and
therefore has no right to pursue claims against it. “Subrogation” is an equitable
doctrine intended to prevent the insured from recovering twice for a single injury
and to reimburse the insurer for payments it made that should in fairness be borne
by another. International Underwriters/Brokers, Inc. v. Liao, 548 So.2d 163, 164
(Ala. 1989). In Alabama, subrogation is not a matter of strict right but is an
equitable principle that is dependent on the particular facts of a case. Zeigler v.
Blount Brothers Construction Co., 364 So.2d 1163 (Ala. 1978). The theory behind
the principle is to prevent the unjust enrichment of one party at the expense of
another through contribution. Smith v. Alabama Medicaid Agency, 461 So.2d 817,
819 (Ala. Civ. App. 1984). “The legal principal of subrogation is a fluid concept
depending upon the particular facts and circumstances and based on natural justice
of placing the burden of bearing a loss where it ought to be, without the form of a
rigid rule of law.” 16 Couch on Insurance 3d § 222:24.
Scottsdale quotes from a 1998 case from a California appeals court in an
attempt to support its position. The quoted portion states that an insured who has
recovered the full amount of his loss cannot recover against insurers who have not
contributed to the recovery of that loss, and the corollary proposition that those
insurers who have not contributed have no remaining liability to the insured.
Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 65 Cal.App. 4th 1279, 1295 (Cal.
App. 1st Dist. 1998). However, the cited passage is found in a discussion about
equitable contribution as distinguished from equitable subrogation, and is
immediately followed by the statement that those non-contributing insurers
“remain liable, however, for contribution to those insurers who have already paid on
the loss or for the insured’s defense.” Id. The passage quoted by Scottsdale clearly
has nothing to do with a subrogation cause of action.
The Fireman’s Fund case does, however, contain a discussion of equitable
subrogation and lists the elements of that cause of action:
The essential elements of an insurer's cause of action for equitable
subrogation are as follows: (a) the insured suffered a loss for which the
defendant is liable, either as the wrongdoer whose act or omission
caused the loss or because the defendant is legally responsible to the
insured for the loss caused by the wrongdoer; (b) the claimed loss was
one for which the insurer was not primarily liable; (c) the insurer has
compensated the insured in whole or in part for the same loss for
which the defendant is primarily liable; (d) the insurer has paid the
claim of its insured to protect its own interest and not as a volunteer;
(e) the insured has an existing, assignable cause of action against the
defendant which the insured could have asserted for its own benefit
had it not been compensated for its loss by the insurer; (f) the insurer
has suffered damages caused by the act or omission upon which the
liability of the defendant depends; (g) justice requires that the loss be
entirely shifted from the insurer to the defendant, whose equitable
position is inferior to that of the insurer; and (h) the insurer's damages
are in a liquidated sum, generally the amount paid to the insured.
Id. at 1292. It is clear from this description that Fireman’s Fund cannot
stand for the proposition advanced by Scottsdale that a cause of action for equitable
subrogation is extinguished by the payment of the claim by the insurer.
B. Whether there was coverage under the Scottsdale Policy
As the alleged subrogee of Byrd Homes, Assurance steps into the shoes of
Byrd Homes and is subject to all of the policy defenses that would be available to
Scottsdale in an action by Byrd Homes. Allstate Ins. Co. v. Amerisure Ins. Cos., 603
So.2d 961, 966 (Ala. 1992). Accordingly, Scottsdale claims that it cannot be liable
for a breach of contract because there was no coverage under the terms of its policy
with Byrd Homes. Assurance has the burden of proving that there was coverage
under the policy. Scottsdale must prove whether any policy exclusions apply.
1. Whether there was an “occurrence”
Scottsdale claims that there was not an “occurrence” as defined in the policy.
In order for there to be coverage, the Scottsdale policy requires that property
damage be caused by an “occurrence.” Occurrence is defined as “an accident,
including continuous or repeated exposure to substantially the same general
harmful conditions.” (Doc. 30-3, p. 25).
Scottsdale asserts that damages to the work of Byrd Homes caused by faulty
workmanship is not an “occurrence” under the policy, and cites the case of United
States Fid. & Guar. Corp. v. Warwick Dev. Co., 446 So.2d 1021 (Ala. 1984), in
support. Warwick, like the instant case, involved an underlying lawsuit against a
builder alleging unworkmanlike construction and misrepresentations of material
facts. Id. at 1022. The insurance policy at issue contained the identical definition of
“occurrence” as the policy at issue here. Id. at 1023. The insurer claimed, inter
alia, that there was no occurrence which would trigger coverage. Id. The Warwick
court specifically held that the homeowners’ reliance upon the misrepresentations
made by the builder did not constitute an “occurrence” under the policy. The
decision in Warwick however makes no mention of the claim for unworkmanlike
Similarly, in the declaratory judgment action of Hermitage Ins. Co. v.
Champion, 2010 WL 1711049 (M.D. Ala. April 27, 2010), the underlying case was
one in which homeowners sued their homebuilder, alleging various causes of action
including fraudulent misrepresentation. Id at *4. The insurance policy at issue
was a commercial general liability policy which contained an identical definition of
“occurrence” as the policies in Warwick and the instant case. Id. at *2. The
Champion court held that fraudulent misrepresentation was not an “occurrence”
and was therefore not covered by the policy. Id. at *4-*5. Noting that the policy
was clearly designed to protect the insured from liability for accidental injury to
another person or property damage to another’s possessions, the court stated that
“the policy would be stretched beyond its reasonable interpretation if the alleged
fraud were found to be an ‘occurrence.’” Id. at *5.
Accordingly, the court finds that in the instant case there is no coverage
under the Scottsdale policy for count three of the underlying complaint which
alleged fraudulent misrepresentation. Fraudulent misrepresentation cannot be
considered an “occurrence” involving accidental injury or property damage.
2. Whether there was an “occurrence” within the Policy Period
Scottsdale next argues that if there has been an “occurrence” as defined by its
policy, it did not occur within the policy period. Scottsdale essentially states that
the evidence is undisputed that any “occurrence” that led to damages to Welch took
place either before May 11, 1999, or after October 13, 1999. Under Alabama law, as
a general rule, the time of an “occurrence” of an accident within the meaning of an
indemnity policy is not the time the wrongful act is committed but the time the
complaining party was actually damaged. American States Ins. Co. v. Martin, 662
So.2d 245, 250 (Ala. 1995) (citing Warwick, 446 So.2d at 1024).
Based on the evidence submitted by the parties, the court finds that
Scottsdale has not met its summary judgment obligation on this issue. There are
clearly questions of fact as to when Welch was actually damaged with respect to the
defects listed in his complaint in the underlying lawsuit. As an example, there is a
clear dispute as to when any actual damage from any settlement of the house
occurred. There is also a dispute about when the water damage around the French
doors was first manifested. According to Welch’s “rough guess,” it was between
October 1998 and October 1999. On the other hand, one of the expert witnesses in
the Welch lawsuit testified that, judging by the nature and extent of the damage,
such damage must have begun to occur within one year of completion of the house.
There are simply no definitive dates from which a conclusion about a date of
occurrence can be drawn. For the remainder of the alleged defects, there is no
evidence of record about any date of occurrence.
The evidence submitted does not negate Assurance’s claim that Welch’s
damages could have occurred during defendant’s policy period. In addition,
Assurance has provided evidence supporting its claim that the damages occurred
during the policy period. There thus remains a question of fact as to when Welch
was actually damaged. Welch testified that he first noticed damage in the area of
his back door sometime between one year and two years after his home was
completed. This would mean Welch was damaged, and there was an occurrence, as
defined by the Scottsdale policy, between May 1999 and October 1999. Thus the
court cannot exclude the defendant from coverage obligation based on the
C. Whether Policy Exclusions Apply
1. Whether the Work Product Exclusion Applies
Scottsdale claims that it is not obligated to defend and indemnify Byrd due to
the operation of the work product exclusions set forth in its policy. These policy
provisions exclude coverage for:
Damage to Property
“Property Damage” to:
(5) That particular part of real property on which you or
any contractors or subcontractors working directly or
indirectly on your behalf are performing operations, if the
property damage arises out of those operations; or
(6) That particular part of any property that must be
restored, repaired or replaced because “your work” was
incorrectly performed on it.
Paragraph (6) of the exclusion does not apply to “property
damage” included in the “products-completed operations
Damage to Your Work
“Property damage” to “your work” arising out of it or any
part of it and included within the “products completed
This exclusion does not apply if the damaged work or the
work out of which the damage arises was performed on
your behalf by a subcontractor.
(Doc. 30-3, p. 17).
On its face, exclusion j(5) does not apply, since neither Byrd nor any
subcontractors were performing any operations when Welch suffered his damages.
Exclusion j(6) would be directly applicable because the damages claimed by Welch
involve the repair, restoration or replacement of property allegedly caused by the
incorrect performance of work by Byrd. However j(6) does not apply to property
damage that is included in the “products completed operations hazard,” which is
defined as including “damage which occurs away from premises you (the insured)
own or rent and arising out of “your product” or “your work.” Finally, exclusion l
purports to exclude from coverage property damage included within the products
completed operations hazard. This exclusion is not applicable if the damaged work
or the work out of which the damage arises was performed on the insured’s behalf
by a subcontractor.
There is at least a question of fact as to what construction work was
performed directly by Byrd and what was performed by subcontractors and others.
Auto-Owners Ins. Co. v. L. Thomas Dev., Inc., 2010 WL 2308190 (M.D. Ala. June 9,
2010), cited by Scottsdale as an example of the application of the work product
exclusion, actually supports Assurance’s position. While the court in Auto-Owners
found that there was no insurance coverage for the damages in that case, the
decision indicates that the insured contractor built the foundation at issue, rather
than through a subcontractor. Id. at *4. The Auto-Owners court noted that its
finding was “in line with a pervasive legal understanding of general-liability
insurance, the purpose of which is to protect the insured against accidents,
unforeseen disasters, and the misfeasance of others, such as sub-contractors; it is
not intended to make the insurance company a guarantor of the insured's work.”
Id. In the instant case, the facts before the court do not permit a finding that the
work that led to the damages alleged by Welch was performed solely by Byrd and
not by a subcontractor.
2. Whether the Subsidence Exclusion Applies
Scottsdale also argues that the subsidence exclusion in its policy applies to
deny coverage in this case. This provision excludes coverage for
any claim of liability for Bodily Injury or Property Damage
caused by, resulting from, attributable or contributed to, or
aggravated by the subsidence of land as a result of landslide,
mudflow, earth sinking or shifting, resulting from operations of
the named insured or any subcontractor of the named insured.
(Doc. 30-3, p. 32). Scottsdale’s argument is based upon the use of the words
“settling” and “settlement” by various experts in the Welch lawsuit. Scottsdale
apparently conflates settlement with subsidence. It is clear from the materials
provided to the court that those witnesses who discuss settlement do not equate it
with subsidence of land. The evidence submitted for the court’s consideration
indicates that while the Welch house has in fact settled, the settlement is more
likely caused by improper construction of the foundation itself rather that the
subsidence of land under the foundation. In any event, Scottsdale has not carried
its burden of demonstrating the absence of any question of fact on this issue.
3. Whether the Contractual Liability Exclusion Applies
Scottsdale also claims that policy coverage is excluded by its contractual
liability exclusion. This policy provision states that there is no insurance coverage
for “‘[b]odily injury’ or ‘property damage’ for which the insured is obligated to pay
damages by reason of the assumption of liability in a contract or agreement.” (Doc.
30-3, p. 14). Scottsdale thus argues that it would have no liability for the breach of
contract claim asserted by Welch in the first cause of action in his lawsuit against
Byrd Homes, Inc. (Doc. 30-9).
In United States Fid. & Guar. Co. v. Nat’l Tank and Mach. Works, Inc., 402
So.2d 925 (Ala. 1981), the Alabama Supreme Court recognized the applicability of a
similar contractual liability exclusion in a comprehensive general liability policy.1
In that case, the insured was a swimming pool supplier who entered into a
subcontract to provide lifehooks to a swimming pool contractor who was building a
city pool. Id. at 926. Subsequently, an individual drowned when a lifehook came
apart during a rescue attempt. Id. The decedent’s administratrix brought suit
The policy provision in Nat’l Tank excluded coverage for “liability assumed
by the Insured under any contract or agreement.”
against the supplier and the contractor claiming, inter alia, that the wrong type of
lifehook was provided and that this constituted negligent or wanton conduct which
resulted in the drowning. Id. at 927. While the court in Nat’l Tank determined that
the underlying complaint at issue alleged a tort rather than a contract cause of
action, the court necessarily recognized that the policy provision would operate to
exclude a contract cause of action from coverage. Id. at 927. 2
Carter v. Cincinnati Ins. Co., 435 So.2d 42 (Ala. 1983), involved a declaratory
judgment action in which one count of the underlying complaint alleged a breach of
an implied contractual duty to furnish the plaintiff with a safe place in which to
live. Id. at 45. The insurance policy at issue contained a contractual liability
exclusion identical to the one in Nat’l Tank. Id. The court, citing its decision in
Nat’l Tank, held that the count fell “squarely within the clear and unambiguous
provisions of the exclusionary terms of the insurance policy.” Id.
Applying the foregoing law to this case, the court finds that count one of the
underlying Welch complaint, which alleges breach of contract, falls squarely with
the contractual liability exclusion of the Scottsdale policy because it plainly arises
from the assumption of liability in a contract. Carter, 435 So.2d at 45; Champion,
2010 WL 1711049 at *3. Therefore, there is no coverage under the policy for count
In Nat’l Tank, there was no contractual relationship between National Tank
and the decedent.
This leaves count two of the underlying complaint, which is a cause of action
for breach of the implied warranty of fitness and habitability. Implied warranties
are terms that are implied by law in a contract and would not exist apart from that
contract. See, e.g. Ala. Code 1975 § 7-2-314 (“a warranty that the goods shall be
merchantable is implied in a contract for their sale….”) Actions for their breach
therefore sound in contract as opposed to tort. The implied warranty at issue here
would not exist were it not for the construction contract between Byrd Homes and
Welch. American Nat’l Prop. & Cas. Co. v. Blocker, 165 F.Supp.2d 1288, 1299 (S.D.
Ala. 2001). Coverage for count two is therefore also excluded by operation of the
contractual liability exclusion of the Scottsdale policy. See Blocker, 165 F.Supp.2d
at 1299 (contractual liability exclusion provision in homeowners’ liability policy
precluded coverage for express and implied warranty claims.)
Based on the foregoing, the court finds that there is no coverage provided by
the Scottsdale policy for the claims set forth in the underlying lawsuit brought by
Welch against Byrd Homes. Counts one and two are contract claims and are thus
excluded by the contractual liability exclusion of the insurance policy issued by
Scottsdale to Byrd Homes as they both arise out of liability assumed in a contract.
Coverage for count three, alleging fraudulent misrepresentation, is precluded
because Welch’s reliance on alleged misrepresentations of Byrd Homes cannot
constitute an “occurrence” as defined in the policy. Because there is no coverage for
the complaint, Byrd Homes had no cause of action against Scottsdale for claims
related to the insurance policy. Therefore, Assurance has no right to subrogation
against Scottsdale. Accordingly, Scottsdale’s motion for summary judgment is
DONE and ORDERED this 18th day of May, 2011.
/s/ Callie V. S. Granade
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?