Nationwide Mutual Fire Insurance Company v. D. R. Horton, Inc. - Birmingham

Filing 80

MEMORANDUM OPINION AND ORDER, GRANTING IN PART and DENYING IN PART 60 Motion for Summary Judgment filed by Nationwide; DENYING Nationwide's motions to strike (Docs. 69 & 74 ); and finding Nationwide's 59 motion to preclude evidence to be MOOT. Signed by Senior Judge Callie V. S. Granade on 10/6/2016. (mab)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
NATIONWIDE MUTUAL FIRE
INSURANCE COMPANY,
Plaintiff,
v.
D.R. HORTON, INC.—
BIRMINGHAM,
Defendants.

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Civil Action No. 15-351-CG-N

MEMORANDUM OPINION AND ORDER
This matter is before the Court on Plaintiff Nationwide Mutual Fire
Insurance Company’s (“Nationwide”) Motion for Summary Judgment (Doc.
60), brief in support (Doc. 61), Defendant D.R. Horton, Inc.—Birmingham’s
(“DRHI-B”) response in opposition (Doc. 71), and Nationwide’s reply (Doc. 73).
The Court simultaneously considers Nationwide’s motion to preclude
evidence of counterclaim plaintiff’s contract-related damages (Doc. 59),
DRHI-B’s response (Doc. 68), and the reply (Doc. 70); Nationwide’s motion to
strike affidavit (Doc. 69), DRHI-B’s response (Doc. 72), and the reply (Doc.
75); and finally Nationwide’s motion to strike affidavit filed in response to
motion for summary judgment (Doc. 74), DRHI-B’s response (Doc. 76), and
the reply (Doc. 77). For the reasons set forth herein, Plaintiff’s motion for
summary judgment is due to be GRANTED IN PART and DENIED IN
PART. Upon review of the record and the parties’ arguments, the Court also

finds it proper to DENY both motions to strike the affidavit. As such,
Nationwide’s motion to preclude evidence is found to be MOOT.
I. BACKGROUND
This action seeks a declaratory judgment as to Nationwide’s rights,
obligations, and duties, if any, to provide a defense and indemnity1 coverage
to DRHI-B pursuant to a commercial general liability insurance policy issued
by Nationwide to Olmedo Construction Co., Inc. (“Olmedo”) with respect to an
action pending in the Circuit Court of Baldwin County, Alabama. (Doc. 1, ¶
28). In response to Nationwide’s seeking declaratory judgment, DRHI-B has
counterclaimed for breach of contract and bad faith and has pled the
affirmative defense of estoppel. (Doc. 7, ¶¶ 2–3, 33, 42).
A. The Relationship Between Olmedo and DRHI-B
On September 7, 2006, Olmedo entered into a contract with DRHI-B2
to become an independent contractor for framing, concrete, brick, and roofing
labor on a blanket basis. (Doc. 1, Ex. 5, p. 1, 6). In this contract, Olmedo
agreed to the following provisions:
Because the underlying suit filed in Alabama state court is not yet finalized,
this Court will only address Nationwide’s duty to defend; the question of its
obligation or duty to indemnify DRHI-B is NOT RIPE. See Assurance Co. of
Am. v. Legendary Home Builders, Inc., 305 F.Supp. 2d 1266, 1270 (S.D. Ala.
2003) (“First, with regard to the issue of ripeness, the other district courts in
this Circuit have held that an insurer's duty to indemnify is not ripe for
adjudication in a declaratory judgment action ‘until the insured is in fact held
liable in the underlying suit.’”) (citations omitted).
1

While the parties initially contested the identity of the party to the contract,
DRHI-B indicates that “DRH, Inc.” was a shorthand used to indicate “D. R.
Horton, Inc.—Birmingham” in contracts at the time. (Doc. 60, Ex. 13).
2

2

11.1 General Liability. Contractor [Olmedo] agrees to
carry a Broad Form Commercial General Liability
Insurance on an Occurrence Form (“the CGL Policy”),
with completed operations coverage which contains a per
occurrence limit of no less than One Million Dollars
($1,000,000.00), and an aggregate limit of no less than
Two Million Dollars ($2,000,000.00) protecting against
bodily injury, broad form property damage, and personal
injury claims arising from the exposures of: (i) premisesoperations; (ii) products and completed operations
including materials designed, furnished, and/or modified
in any way by Contractor (with a separate aggregate limit
at least equal to the general aggregate limit); (iii)
independent subcontractors; (iv) contractual liability risk
covering the indemnity obligations set forth in this
Agreement; and (v) where applicable, property damage
resulting from explosion, collapse, or underground (x, c, u)
exposures. The CGL Policy shall not exclude from
coverage the type of, or nature of, the Work or limit the
type of structure on which the Work is to be performed.
The CGL policy shall not contain a deductible or self
insured retention of more that $25,000.00. Contractor
shall continuously maintain a commercial general
liability policy covering completed operations for any
applicable statute of repose for commencing lawsuits
associated with the Work. [. . .]
11.3 General Requirements Applicable to All
Required Insurance. Contractor shall add Owner
[DRHI-B] as an Additional Insured on the CGL Policy or
policies required above covering both on-going and
completed operations (equivalent to form CG20101185 or
CG2037). [. . .]
11.4 Proof on Insured Status. Contractor shall provide
evidence that all required insurance is in full force by
furnishing Owner with a Certificate of Insurance, or
certified copies of the required policies. Each Certificate of
Insurance or policy shall contain an unqualified clause to
the effect that the policy shall (i) not be subject to
cancellation, non-renewal, adverse change, or reduction of
amounts of coverage without thirty (30) days’ prior
written notice to owner, (ii) be carried continuously from
the date of commencement of the Work until expiration of
the period of the Contractor’s warranty provided in this
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Agreement, (iii) specifically identify Owner as an
Additional Insured, and (iv) indicate that coverage applies
in the state where the Work is being performed. [. . .]
(Doc. 1, Ex. 5, p. 5). Olmedo then obtained a commercial general liability
insurance policy from Plaintiff Nationwide through its captive agent Kilgro &
Associates, Inc. (“Kilgro & Associates”). (See Doc. 73, p. 2–3; Doc. 71, Ex. 10).
Beginning in 2009, Kilgro & Associates sent DRHI-B Certificates of
Insurance and copies of the policy endorsements as proof of Olmedo’s policy
coverage and DRHI-B’s status as an additional insured. (See Doc. 71, Exs. 7,
23–26, 28–29, 31).
B. The Underlying Suit
On May 16, 2013, Olmedo employee Roberto Campos Leco worked on a
house being built on Lot 109, located at 9621 Cumbria Road, Daphne,
Alabama, as a member of the framing crew. (Doc. 1, Ex. 3, p. 3). The truss
system on the job site collapsed, causing Mr. Leco to fall to his death. Id. Mr.
Leco’s personal representative brought an action in Alabama state court
against Olmedo and others for acts and/or omissions allegedly causing Leco’s
death.3 (See Doc. 1, Ex. 2). In May 2014, the underlying plaintiff amended the
complaint to add D.R. Horton, Inc. as a defendant. (Doc. 1, Ex. 3, p. 2). The
complaint was further amended to correct the party name to DRHI-B. (Doc. 1,
Ex. 4). In the Saddler complaint, the plaintiff alleges the following:
40.
[DRHI-B] was the owner of the Lot 109 house and
served as the general contractor for the construction of
Saddler et. al v. Mega Constr. Co., Inc., et. al, CV 3013-901074-REW (Cir.
Ct. Baldwin Cnty.).
3

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the Lot 109 house. In that dual capacity, [it] had the right
and authority to direct its subcontractors on the means
and methods of completing the framing work on the Lot
109 house. Because of its right of control over the means
and methods of framing and construction, [DRHI-B] had a
duty to provide its subcontractors with a reasonably safe
place to work and with the tools and materials needed to
perform the work safely. As the owner-general contractor
[DRHI-B] also had a duty to coordinate among those
responsible for the house design, the truss system design,
the truss system fabrication and, most importantly, the
framing crews, to make sure that the framers were
familiar with those instructions and had a plan to follow
the instructions by installing appropriate permanent and
temporary bracing.
41.
[DRHI-B] negligently or wantonly failed to provide
a safe place for Olmedo employees to work and
negligently failed to coordinate among those responsible
for the truss system design and installation because: (a) it
did not require the presence of the truss system bracing
plan on site or in the building plans; (b) it did not
coordinate and communicate with the house and truss
system designers to make sure that a bracing plan was
provided to the subcontractors, (c) it did not require its
subcontractors to be trained in how to properly brace and
support truss systems; (d) it did not provide the
equipment and means for subcontractors to properly
protect their employees from falls; (e) it did not inspect
and supervise the work to insure that the truss systems
were properly braced; and (f) it did not warn it[s]
subcontractors to stop work in windy conditions.
(Doc. 1, Ex. 4, p. 10–11). In addition, the complaint alleges DRHI-B
“negligently or wantonly hired [Olmedo] to perform framing and supervisory
services on the Lot 109 house.” Id. at 12. As a basis for claiming Olmedo was
“unqualified,” the complaint states,
[Olmedo]: (a) did not employ trained employees and
supervisors who could communicate in the English
language; ([b]) did not employ employees who knew the
safe way to brace truss systems; (c) did not provide
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adequate fall protection training and equipment for its
framers; (d) had no formal fall protection program; (e) did
not insure that proper truss system bracing instructions
were provided by [DRHI-B] or the vendors supplying the
truss systems; and (f) was not licensed as a general
contractor, home builder or framer.
Id.
After being joined as a defendant, DRHI-B notified Nationwide of the
underlying suit and requested defense under Olmedo’s policy. (See Doc. 60,
Ex. 1, p. 33–34) (Thomas deposition testimony stating that Nationwide
received notice of the underlying suit in June 2014); (Doc. 71, Ex. 4) (e-mail
from DRHI-B’s counsel to Nationwide dated July 2, 2014).4 Nationwide,
however, argues DRHI-B delayed in giving notice of the suit until September
2014 and, thus, failed to comply with the notification requirement in
Olmedo’s policy. (Doc. 1, ¶ 25).
Between June 2015 and the filing of the instant action in July 2016,
Nationwide never tendered a defense to DRHI-B. (See Doc. 61, Ex. 13; Doc. 7,
¶¶ 18–22).
C. The Insurance Policy in Effect
Nationwide claims it issued policy ACP GLGO 2324496714 to Olmedo
with effective dates of August 5, 2012 through August 5, 2013 (the “232

DRHI-B also claims to have sent a letter via facsimile and U.S. mail to
Nationwide through its captive agent Kilgro & Associates in June 2013. See
Doc. 71, Ex. 32; Doc. 7, ¶ 12. Although this letter predates the addition of
DRHI-B to the underlying suit, it nonetheless requests a defense and
indemnity in anticipation of a suit. Nationwide claims Kilgro & Associates
never received this communication and has no record of DRHI-B’s request in
June 2013. See Doc. 71, Ex. 33, p. 6, 10.
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Policy”). (Doc. 1, Ex. 1 at 2). According to Nationwide, this policy listed DRHIB as an additional insured only for completed operations, with the project site
listed as “2900 US Hwy 98, Bld A, Ste 202, Daphne, AL 36526.”5 (Doc. 1, Ex.
1 at 37) (capitalization omitted). Because the occurrence in the underlying
suit transpired during an ongoing project at a site that differs from that
listed on the endorsement, Nationwide contends it owes neither defense nor
indemnification to DRHI-B. (Doc. 62, p. 20–21). Nationwide also cites other
policy exclusions, such as the “Employer’s Liability” and “Worker’s
Compensation And Similar Laws” sections, as evidence it does not owe
defense or indemnification to DRHI-B under the 232 Policy. (Doc. 1, ¶ 27).
DRHI-B, however, argues Nationwide erroneously deleted ongoing
operations coverage, which was included Olmedo’s original policy, during a
2009 rewrite.6 DRHI-B contends that agent Kilgro requested to add
completed operations coverage, which triggered a rewrite of the policy. When
the new policy was issued, Nationwide mistakenly replaced the ongoing
operations coverage with completed operations rather than merely adding the
completed operations coverage. Nationwide, however, argues that the
rewritten policy is in accord with agent Kilgro’s request and maintains that
only completed operations coverage is available in the 232 Policy. (See Doc.
71, Ex. 1, p. 425–27, 525).

This address corresponds to DRHI-B’s corporate address for its South
Alabama operations. (Doc. 60, Ex. 1, p. 126).
6 See, infra, Section II.D for a further explanation of the request for
completed operations coverage and the rewrite of Olmedo’s policy.
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DRHI-B further posits Nationwide is estopped from relying solely on
the 232 Policy as a basis for excluding coverage because Nationwide, through
its captive agent, issued Certificates of Insurance and copies of the policy
endorsements indicating DRHI-B’s status as an additional insured for both
completed and ongoing operations without geographical limitations. (Doc. 71,
p. 1–2). Kilgro & Associates prepared and sent the Certificates of Insurance
to DRHI-B through its insurance vendor Ebix. (Doc. 71, Ex. 18, p. 101–02).
According to Nationwide, Kilgro & Associates could not have created the
endorsements with a policy number; these endorsements necessarily would
have come from Nationwide’s underwriting department through its computer
system. Id. Thus, Kilgro & Associates merely attached the endorsements
available with the policy in Nationwide’s system at the time to the
Certificates of Insurance. (Doc. 71, Ex. 1, p. 396–404). DRHI-B further
contends Nationwide is estopped from excluding coverage under the 232
Policy because it failed to deliver a copy of the policy pursuant to Ala. Code. §
27–14–19 (1975). (Doc. 7, ¶¶ 24, 41). The parties do not dispute that DRHI-B
did not request a copy of the policy from Nationwide prior to the initiation of
this suit. (Doc. 62, p. 11; Doc. 71, p. 5).
In December 2012 Kilgro & Associates responded to DRHI-B’s request
for proof of insurance and sent a Certificate of Insurance along with copies of
the relevant endorsements. (Doc. 71, Ex. 31). The Certificate of Insurance
states the policy number as ACP GLGO 2304496714 with effective dates of

8

August 5, 2012 through August 5, 2013.7 Id. Additionally, the Certificate of
Insurance describes the attached endorsements: “Below named certificate
holder is also named as Additional Insured (Form ACP0013 attached) as
respects to above. [. . .]” Id. The attached endorsements, which reflect the
policy number stated on the Certificates, indicated coverage for both
completed operations at “All Locations” and for on-going operations (Form
ACP-0013). Id. The Certificate of Insurance contains a disclaimer, stating:
THIS CERTIFICATE IS ISSUED AS A MATTER OF
INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS
CERTIFICATE DOES NOT AFFIRMATIVELY OR
NEGATIVELY AMEND, EXTEND OR ALTER THE
COVERAGE AFFORDED BY THE POLICIES BELOW.
THIS CERTIFICATE DOES NOT CONSTITUTE A
CONTRACT BETWEEN THE ISSUING INSURER(S),
AUTHORIZED REPRSENTATIVE OR PRODUCER,
AND THE CERTIFICATE HOLDER.
***
IMPORTANT: If the certificate holder is an
ADDITIONAL INSURED, the policy(ies) must be
endorsed. [. . .] A statement of this certificate does not
confer rights to the certificate holder in lieu of such
endorsement(s).
Id.8 (capitalization in original).
D. Nationwide’s Investigation of DRHI-B’s Coverage Claim
In September 2014 Nationwide began investigating whether DRHI-B
was covered under Olmedo’s policy and informed DRHI-B that it was not
This Certificate of Insurance also lists the 2013 calendar year as the
effective date for Workers’ Compensation and Employer’s Liability coverage.
8 The Court uses the certificates found in DRHI-B’s response, Doc. 71, Ex. 31
because that document states the coverage period relative to the date of loss.
The other certificates produced in discovery contain the same, or
substantially the same, disclaimer. See Doc. 60, Ex. 8.
7

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covered under the 232 Policy. (Doc. 61, Ex. 12). Nationwide contends the
policy number stated on the Certificates of Insurance DRHI-B submitted
corresponds to Olmedo’s policy from August 2010 through August 2011 and
that “it appears the policy number and dates on the certificate of insurance
do not match up.”9 Id.
Upon further investigation, Nationwide discovered that Olmedo’s
original policy from 2008 listed DRHI-B as an additional insured for ongoing
operations. (Doc. 71, Ex. 15; Ex. 10). In 2009, agent Kilgro requested that
DRHI-B be added to the policy as an additional insured for completed
operations (form CG-7160). (Doc. 71, Ex. 15). Suzanne Shore, a senior
commercial underwriter at Nationwide, indicated that Olmedo’s policy would
have to be re-written as “a PR policy” to include the completed operations
endorsement. Id. She stated, “I have approval to add this endorsement once
the policy is rewritten. [. . .]” Id. In her 2014 investigation of the 2009 policy
rewrite, claims agent Cynthia Thomas found that the “[ongoing] ops
[operations] endorsement for the PR policy, CG2010, was never added for
either of the AIs [additional insureds] on this re-write.” Id. She further
inquired, “Did the agent’s request to add DR Horton via CG 7160 / completed
ops ask that DR Horton only be written as AI for completed ops, and not to
write DR Horton as AI for ops anymore? Or did we drop the ball and just

DRHI-B submitted a copy of its contract with Olmedo, a copy of the
underlying complaint, a Certificate of Insurance for August 2013 through
August 2014 listing policy number ACP GLGO 2304496714, and copies of the
attached endorsements. (Doc. 71, Ex. 4).
9

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missed that endorsement on the re-write?” Id. (emphasis in the original). In
response, Jan Aguilar, a commercial underwriting specialist for Nationwide,
stated, “I found two emails on file from 2009 under the existing PCIO policy
regarding the re-write and that DR Horton had been added with the CG 7160
per the agents [sic] request. However, there is no mention of continuing them
under the AC corresponding endorsement CG 2010.” Id.; see also Doc. 71, Ex.
1, p. 424–32.
After its review of the 232 Policy, Nationwide determined it did not
owe a defense. In her deposition Thomas explained,
We never made a decision to not extend a defense. We just
never got proof of the information that we needed in order
to—well, we didn’t decide not to extend a defense. We
didn’t believe we owed a defense, but we knew you guys
[DRHI-B] felt differently. So we actually just decided to
file the declaratory judgment action and let a judge
decide.
(Doc. 71, Ex. 1, p. 40).
E. DRHI-B’s Claim for Damages
DRHI-B seeks compensatory damages for its attorneys’ fees and
related costs—including as yet undetermined indemnity costs—it incurred in
defending the underlying suit.10 (Doc. 7, p. 10, 12). As of March 2016, DRHI-B

DRHI-B repeatedly reminds the Court and Nationwide that the underlying
suit is not resolved. While it was scheduled for trial beginning August 15,
2016, the parties settled on August 13. That settlement has not yet been
finalized. As such, DRHI-B does not—and cannot—yet know what its total
damages are. (See Doc. 71, p. 5; Doc. 68, p. 6). On September 19, 2016, the
parties entered a Joint Stipulation of Dismissal resolving all claims and
stating that each party will bear its own costs. (Saddler et. al v. Mega Constr.
Co., Inc., et. al, CV 3013-901074-REW, Doc. 1024 (Cir. Ct. Baldwin Cnty.
10

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claims it has expended $380,294.89 in this pursuit.11 (Doc. 61, Ex. 14). DRHIB further acknowledges it reached a settlement agreement with a third party
insurance company to cover one-third of the costs of defending the underlying
suit, as well as the receipt of a lump sum settlement from an additional third
party. (Doc. 71, p. 5; Doc. 60, Ex. 4, p. 56–57). DRHI-B admits these
payments or credits do not appear on the invoices or billing statements it
provided to Nationwide during discovery. Id. Nationwide contends the
evidence of DRHI-B’s expenditures is insufficient to determine the hourly
rate(s), the nature of the tasks performed, the time billed, and other factors
relevant to determining the reasonableness of the attorneys’ fees. (See Doc.
62, p. 32–33; Doc. 59, p. 4, 8–11).
In its motion to preclude evidence of DRHI-B’s breach of contract
damages (Doc. 59), Nationwide contends DRHI-B failed to produce any
evidence, except for the monthly billing statements, relating to its claimed
damages. (Doc. 59, p. 8–9). It further argues DRHI-B’s failure to submit
attorney testimony, including expert testimony, as to the necessity and
reasonableness of the hours spent and the hourly rate merits a finding of
summary judgment. Id. at 9–11. Furthermore, Nationwide asks this Court to
limit DRHI-B’s evidence of its contract damages to the monthly billing

Sept. 19, 2016)).
11 In an affidavit submitted along with its response to Nationwide’s motion
for summary judgment, DRHI-B updated its accounting of the expenses and
fees it has occurred. It states it has spent a total of $420,041.34 on fees and
expenses as of the end of June 2016. Doc. 71, Ex. 35, p. 3). This affidavit is
the subject of Nationwide’s motions to strike and will be discussed below.
12

statements produced during discovery. (Doc. 70, p. 4).
In response to the motion for summary judgment and the motion to
preclude evidence (Docs. 71, Ex. 35; 68, Ex. 2), DRHI-B submitted the
affidavit of J. Burris (“Buzzy”) Riis, one of its attorneys for the underlying
suit. This affidavit is the subject of Nationwide’s two motions to strike (Docs.
69, 74). In this affidavit, Riis provides testimony and opinions regarding
DRHI-B’s legal bills in the underlying suit, including the hours expended, the
hourly rates of the different attorneys and paralegals, and the fact that the
bills reflect only the fees and expenses charged for the underlying action (and
not inclusive, for example, of secondary but related litigation, including the
instant matter). (See Doc. 68, Ex. 2). DRHI-B admits that it failed to include
Riis in its initial and ongoing discovery disclosure as a witness but maintains
that its discovery disclosures (the monthly billing statements and evidence of
payment) are sufficient evidence to withstand summary judgment; it also
argues that its failure to disclose Riis is harmless under Fed. R. Civ. P. 37(c)
and, therefore, that his affidavit should not be stricken. See Docs. 68, p. 7–16;
72, p. 2, 5–13).
Moreover, DRHI-B rejects Nationwide’s claims that it had no prior
knowledge of Riis, that it could not have anticipated this type of evidence, or
that it did not have an opportunity during discovery to develop a record
against the claim for attorneys’ fees. (See Docs. 69, p. 2–4; 72, p. 2–7). DRHIB asserts that it disclosed, during the discovery window, the monthly invoices
from its counsel (Doc. 59, Ex. 2), evidence of payment (id.), and responses to
13

interrogatories regarding calculation of its damages and its representation in
the underlying suit (Doc. 59, Ex. 4, p. 12–13). Notably, in its response to
Nationwide’s interrogatories, DRHI-B specifically answered, “[A]t all times
[DRHI-B] has been represented by Bradley Smith, Buzzy Riis[,] and the law
firm of Hand Arendall in the underlying action. [DRHI-B] is responsible for
the payment of all fees and expenses with one-third of those fees and
expenses being reimbursed by Essex as the insurer for Mega Construction,
subject to a negotiated agreement.” (Doc. 59, Ex. 4, p. 12–13). Notably, these
responses were submitted to Nationwide on February 18, 2016. (Id. at 16). As
the record indicates, discovery initially closed on April 29, 2016 but was
extended through July 1, 2016. (See Docs. 20 & 51).

II. ANALYSIS
Nationwide moves this Court for summary judgment as to both its
declaratory judgment complaint and DRHI-B’s counterclaims for breach of
contract and bad faith. Before addressing summary judgment, this Court will
turn its attention to Nationwide’s motions to strike and its motion to preclude
evidence.
A. Motions to Strike and Motion to Preclude Evidence
Nationwide’s motions to strike (Docs. 69, 74) challenge the propriety of
Riis’s affidavit and request that it be stricken because DRHI-B never
identified Riis as a witness in its initial disclosures or any amendments
thereto; Nationwide further claims it is “obvious[ly]” harmed by the belated
14

admission of Riis’s affidavit because DRHI-B denied Nationwide the ability to
collect evidence regarding the fees and expenses during the discovery window
prior to the submission of its motion for summary judgment. (See Doc. 69, p.
6; Doc. 75, p. 6). Its motion to preclude evidence (Doc. 59) asks this Court to
limit the evidence regarding DRHI-B’s contract-related damages to the
monthly billing statements and evidence of payment submitted during
discovery.
1. Legal Standard
Under Rule 26(a)(1)(A), Fed. R. Civ. P., a litigant in federal court must
provide initial disclosures including “the name and, if known, the address
and telephone number of each individual likely to have discoverable
information that the disclosing party may use to support its claims or
defenses, unless solely for impeachment, identifying the subjects of the
information.” Id. The Rule 16(b) Scheduling Order (Doc. 20) obligated the
parties to exchange initial disclosures on or before April 29, 2016, and the
Amended Scheduling Order (Doc. 51) reopened discovery until July 1, 2016.
By rule, the disclosure obligation is continuing, such that a party must
supplement its disclosures “at appropriate intervals . . . if the party learns
that in some material respect the information disclosed is incomplete or
incorrect and if the additional or corrective information has not otherwise
been made known to the other parties during the discovery process or in
writing.” Rule 26(e)(1), Fed.R.Civ.P. Magistrate Judge Nelson ordered the

15

parties to make Rule 26(e) supplementation “‘at appropriate intervals’ and
‘seasonably.’” (Doc. 20, ¶ 8.)
If a party without substantial justification fails to disclose required
information, then that party “is not, unless such failure is harmless,
permitted to use as evidence at a trial, at a hearing, or on a motion any
witness or information not so disclosed.” Rule 37(c)(1); see also Cooper v.
Southern Co., 390 F.3d 695, 728 (11th Cir. 2004) (“it was within the sound
discretion of the trial judge to sanction plaintiffs for their failure to disclose
by enforcing the unambiguous terms of Rule 37(c)”). In evaluating whether
the failure to disclose a witness is harmless, the Eleventh Circuit considers
“(1) the importance of the testimony; (2) the reason for the appellant's failure
to disclose the witness earlier; and (3) the prejudice to the opposing party if
the witness had been allowed to testify.” Bearint ex rel. Bearint v. Dorell
Juvenile Group, Inc., 389 F.3d 1339, 1353 (11th Cir. 2004). The nonproducing party has the burden of showing that its actions were substantially
justified or harmless. Stallworth v. E-Z Serve Convenience Stores, 199
F.R.D. 366, 368 (M.D. Ala. 2001) (citing Burney v. Rheem Mfg. Co., 196
F.R.D. 659, 691 (M.D. Ala. 2000)).
This Court’s jurisdiction is based on diversity, and Alabama is the
forum state; therefore, the court applies the law of the State of Alabama to
resolve disputes as to the reasonableness of attorneys’ fees. Kearney v. AutoOwners Ins. Co., 713 F.Supp.2d 1369, 1373 (M.D. Fla. 2010) (citing Trans
Coastal Roofing Co., Inc. v. David Boland, Inc., 309 F.3d 758, 760 (11th Cir.
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2002) (“Since Boland’s claim for attorney’s fees sounds in state law and
reaches up by way of federal diversity jurisdiction, we apply the substantive
law of Florida, the forum state.”) (citing Erie R.R. Co. v. Tompkins, 304 U.S.
64 (1938)).
It is well-settled that Alabama law permits the recovery of attorneys’
fees “incurred as a proximate result of . . . [a] refusal to defend” as an element
of damages in a breach of contract suit. Green v. Standard Fire Ins. Co. of
Ala., 477 So. 2d 333, 335 (Ala. 1985). “[The claimant] is entitled to recover
attorneys’ fees only ‘to the extent that they are necessarily incurred and
reasonable in amount.’” Id. (quoting Highlands Underwriters Ins. Co. v.
Elegante Inns, Inc., 361 So. 2d 1060, 1066 (Ala. 1978)). “The determination of
whether an attorney fee is reasonable is within the sound discretion of the
trial court.” Kiker v. Probate Court of Mobile County, 67 So. 3d 865, 867 (Ala.
2010) (citations omitted). In contemplating the reasonableness of the fees
requested,
Alabama courts consider non-exclusive list of criteria,
including: “(1) [T]he nature and value of the subject
matter of the employment; (2) the learning, skill, and
labor requisite to its proper discharge; (3) the time
consumed; (4) the professional experience and reputation
of the attorney; (5) the weight of his responsibilities; (6)
the measure of success achieved; (7) the reasonable
expenses incurred; (8) whether a fee is fixed or contingent;
(9) the nature and length of a professional relationship;
(10) the fee customarily charged in the locality for similar
legal services; (11) the likelihood that a particular
employment may preclude other employment; and (12)
the time limitations imposed by the client or by the
circumstances.”

17

(Stewart v. Continental Cas. Co., 2015 WL 225290, *2 (S.D. Ala. Jan. 16,
2015) (quoting Pharmacia Corp. v. McGowan, 915 So. 2d 549, 552–53
(Ala.2004)). While “[t]he fee charged by counsel . . . is not conclusive on the
count of reasonableness of the fee to be awarded as damages,” Highlands
Underwriters Ins. Co., 361 So. 2d at 1066, the trial court “may calculate the
award based on its own experience, knowledge, and observations” when “ the
rates of hours claimed seem excessive or lack the appropriate
documentation.” Rhodes v. Davis, 2010 WL 4260048, *5 (S.D. Ala. Oct. 25,
2010) (citing Norman v. House Auth. of the City of Montgomery, 836 F.2d
1292, 1303 (11th Cir. 1988). Generally, attorney affidavits detailing the
hourly rates and the reasonableness of the time expended are accepted. See
id.12 The Alabama Supreme Court has also accepted a client’s trial testimony
of the amounts paid to her attorney and the checks proving those payments
as sufficient evidence of compensatory damages for legal expenses in a duty
to defend and bad faith claims. See Acceptance Ins. Co. v. Brown, 832 So. 2d
1, 20–21 (Ala. 2001).
2. Discussion
As this Court has noted, “Discovery in federal court is not a game of
hide the ball[.]” Hosea v. Langley, 2006 WL 314454, *5 (S.D. Ala. Feb. 8,

In Rhodes, the party seeking fees also submitted a “detailed time sheet” to
back up the attorneys’ affidavits. While no time sheets have been submitted
in the instant case, the Court, as discussed below, finds this issue to be
MOOT because of the impossibility of determining, with any specificity, the
damages until the underlying case is fully resolved.
12

18

2006). While the Court denounces DRHI-B’s lackadaisical approach to
submitting evidence regarding its damages, it cannot ignore Nationwide’s
complacency. As to Riis, “[counterclaim] defense counsel failed to take steps
reasonably available to them to secure depositions or statements in a timely
manner. Rather than being proactive in attempting to obtain the requisite
discovery, [counterclaim] defense counsel was content to express indignation
at [counterclaim] plaintiff[’s] course of conduct, then sit back and do nothing
until [the] declaration[ was] filed.” Id. As the record demonstrates,
Nationwide had ample notice of Riis’s involvement in the underlying suit. His
name was submitted in response to its interrogatory asking for information
regarding DRHI-B’s representation in the underlying suit and also appears
on numerous documents related to the underlying suit. (See Doc. 59, Ex. 4, p.
12; Doc. 60, Ex. 7, p. 11). Further, it is unclear that Nationwide asked to
depose defense counsel W. Bradley Smith specifically for the purpose of
seeking information relating to DRHI-B’s damages.13 While Nationwide
clearly asked for dates in order to depose Smith (see Doc. 59, Ex. 5), DRHIB’s response does not indicate that it would use no one from Hand Arendall
as a witness (see id.). It simply stated it would not call Smith as a witness,
which it has not done. Id. The entire line of correspondence regarding Smith’s
availability, in fact, fails to mention the purpose for deposing him or any
request for discoverable information regarding DRHI-B’s calculation of
In fact, the parties’ recounting of the oral conversations regarding
Nationwide’s request for Smith’s deposition are completely divergent.
Compare Doc. 59, p. 6 with Doc. 68, p. 5–6.
13

19

damages. Id.14
Moreover, the appearance of Riis’s name in the interrogatory responses
submitted well before the close of discovery indicates that Nationwide had
the opportunity to ask to depose him and chose not to do so.15 Nationwide did
not file a motion to compel a witness regarding DRHI-B’s damages or take
further action to obtain discoverable evidence regarding them. The record
further evidences that DRHI-B answered the discovery requests timely,
included the information available to it regarding the legal fees and expenses
it had paid, and disclosed settlement agreements with other parties to the
underlying suit. As such, the Court finds that DRHI-B’s omission of Riis from
the witness list was harmless “because (a) [DRHI-B] did reveal [Riis’s]
identity [months] before the close of discovery, and (b) [Nationwide] failed to
avail [itself] of procedural and investigative tools reasonably available to
them to arrange [Riis’s] deposition prior to the close of discovery despite

The Court further considered Nationwide’s notice of deposition of DRHI-B’s
corporate representative, which included a request for the person “most
knowledgeable about the damages claimed.” (Doc. 59, Ex. 3, p. 2). While
DRHI-B’s corporate representative could or did not answer specific questions
about its attorneys’ billing rates, hours worked, or the exact nature of the
work done, he did answer Nationwide’s questions about the third party
contributions and other questions related to damages. Moreover, he testified
that the monthly billing statements were the only damages DRHI-B had
incurred as of that date. Id. at Ex. 1, p. 63. It is clear to the Court that the
total amount of damages is unknown as the underlying matter has yet to be
resolved.
15 The Court notes the interrogatory responses were submitted on February
18, 2016. (Doc. 59, Ex. 4, p. 16). Nationwide requested dates to depose Smith
on March 9, 2016, approximately three weeks after it had acquired Riis’s
name. (Id. at Ex. 5, p. 1). The record does not show any time where
Nationwide requested to depose Riis or was otherwise denied access to him.
14

20

ample time for them to do so.” Hosea, 2006 WL 414454 at *5; see also
Northstar Marine, Inc. v. Huffman, 2014 WL 6454940, *1–2 (S.D. Ala. Nov.
13, 2014) (denying a motion to strike evidence produced after the close of
discovery because the evidence was produced “a month before trial (such that
defendant has had sufficient time to tailor its trial strategy and trial
presentation to account” for it). The Court further finds Riis’s affidavit
testimony is harmless, despite his nonappearance on any witness list,
because Nationwide “should not [be] surprised by this witness” because
attorneys’ fees stemming from the underlying suit have been a part of DRHIB’s damages claim since the beginning of this proceeding, and Riis’s role as
counsel for the underlying suit for three or so years certainly qualifies him “to
testify as to the amount and value of his, his firm’s, legal services.” See
McSweeney v. Kahn, 347 Fed.App’x. 437, 442 (11th Cir. 2009) (Ga.)
(unpublished). For these reasons, the Court DENIES both motions to strike
((Docs. 69, 74) Riis’s affidavit.
Because this Court denies the motions to strike Riis’s affidavit, it finds
Nationwide’s motion to preclude evidence of counterclaim plaintiff’s contractrelated damages (Doc. 59) MOOT. Riis’s affidavit, while untimely, presents
no harm to Nationwide’s motion for summary judgment. Additionally, a final
calculation for DRHI-B’s damages will be impossible to determine until the
underlying matter is completely resolved. As such, the evidence supporting or
refuting those claims will be revisited at the appropriate juncture.
B. The Summary Judgment Standard
21

Federal Rule of Civil Procedure 56(a) instructs that “[t]he court shall
grant summary judgment 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.” The trial court’s mission is to “determine whether there is a
genuine issue for trial” and not to “weigh the evidence.” See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
The burden is on the moving party to show that there is no genuine
dispute as to any material fact. Id. at 256. In conducting its summary
judgment analysis, the Court must construe all evidence “in the light most
favorable to the party opposing the motion.” United States v. Diebold, Inc.,
369 U.S. 654, 655 (1962).
After the movant meets its burden, the burden shifts to the nonmoving
party “to make a showing sufficient to establish the existence of an element
essential to that party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986). If the nonmoving party fails to do so, the “complete failure of proof
concerning an essential element of the nonmoving party’s case necessarily
renders all other facts immaterial.” Id. at 323. Further, Rule 56 “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.” Id. at 324
(internal quotation marks omitted). There is no genuine issue for trial
“[w]here the record taken as a whole could not lead a rational trier of fact to
find for the non-moving party.” Matsushita Elec. Indus. Co. v. Zenith Radio
22

Corp., 475 U.S. 574, 587 (1986).
C. Nationwide’s Claim for Declaratory Judgment
Under Alabama law, the insured bears the burden of establishing
coverage by demonstrating that a claim falls within the policy, see Colonial
Life & Accident Ins. Co. v. Collins, 194 So.2d 532, 535 (Ala. 1967), while the
insurer bears the burden of proving the applicability of any policy exclusion.
See U.S. Fidelity & Guar. Co. v. Armstrong, 479 So.2d 1164, 1168 (Ala.1985).
If an insurance policy is ambiguous in its terms, the policy must be construed
liberally in favor of the insured, and exceptions to coverage must be
interpreted as narrowly as possible in order to provide maximum coverage to
the insured. Altiere v. Blue Cross & Blue Shield, 551 So.2d 290, 292 (Ala.
1989).
The Court notes that an “insurer's duty to defend is more extensive
than its duty to [indemnify].” Porterfield v. Audubon Indem. Co., 856 So.2d
789, 791 (Ala. 2002) (quoting United States Fid. & Guar. Co. v. Armstrong,
479 So.2d 1164, 1168 (Ala. 1985)). Generally, an insurer’s obligations with
respect to providing a defense to its insured in an action brought by a third
party are determined by the allegations contained in the third party’s
complaint. Ladner and Company, Inc. v. Southern Guaranty Ins. Co., 347
So.2d 100, 102 (Ala. 1977) (citations omitted). “If the allegations of the
injured party's complaint show an accident or occurrence which comes within
the coverage of the policy, the insurer is obligated to defend regardless of the
ultimate liability of the insured.” Id. (citing Goldberg v. Lumber Mutual
23

Casualty Ins. Co., 297 N.Y. 148, 77 N.E.2d 131 (1948)). Thus, if there is any
potential for coverage arising out of the allegations, then Nationwide would
have at least a duty to defend.
However, a court is not constrained to consider only the
allegations of the underlying complaint, but may
additionally look to facts which may be proved by
admissible evidence. Tanner [v. State Farm Fire & Cas.
Co., 874 So.2d 1058, 1064 (Ala.2003)]; see also Hartford
Cas. Ins. Co. v. Merchants & Farmers Bank, 928 So.2d
1006, 1010 (Ala.2005) (in deciding whether the allegations
of the complaint show a covered accident or occurrence,
“the court is not limited to the bare allegations of the
complaint ... but may look to facts which may be proved
by admissible evidence”) (citations omitted). The test,
ultimately, is this: “The insurer owes no duty to defend
only if neither does the complaint against the insured
allege a covered accident or occurrence nor does the
evidence in the litigation between insurer and insured
prove a covered accident or occurrence.” Tanner, 874
So.2d at 1065.
Essex Ins. Co. v. Foley, 2011 WL 1706214, *3 (S.D. Ala. May 5, 2011). If both
covered claims and non-covered claims are pleaded, then the insurer's duty to
defend extends at least to those covered claims. Tanner, 875 So.2d at 1065.
In the instant action, Nationwide contends it owes no coverage to
DRHI-B under the 232 Policy because (1) the underlying suit alleges only
DRHI-B’s negligence and (2) the 232 Policy only offers completed operations
endorsement with a project site that differs from the accident site. DRHI-B,
however, counters that Nationwide (1) erroneously deleted DRHI-B’s ongoing
operations coverage as an additional insured in the 2009 re-write and (2) is
estopped from denying coverage (a) based on the representations it made on
the Certificate of Insurance and the attached endorsements it received from
24

2010 through 2013 and (b) because it failed to deliver a copy of the policy
pursuant to Alabama law.
After reviewing the evidence and considering the facts in the light
most favorable to DRHI-B, this Court finds that Nationwide is precluded
from denying coverage under the 232 Policy based on the questions of
material fact as to the exclusion of DRHI-B’s ongoing operations endorsement
in the 2009 rewrite and because of misrepresentations made in the
Certificate of Insurance and the attached endorsements. As such, summary
judgment as to its declaratory judgment claim is due to be denied.
1. The 2009 Rewrite Request
Nationwide asserts that the 232 Policy provides only a completed
operations endorsement for DRHI-B with a project site listed as its South
Alabama headquarters on Highway 98. Yet Nationwide’s only documented
authority for deleting DRHI-B’s ongoing operations endorsement from
Olmedo’s policy is two e-mails from the underwriting department, one of
which purports “to add this [completed operations] endorsement once the
policy is rewritten[.]” (Doc. 71, Ex. 15) (emphasis added).
To justify this interpretation, Aguilar stated, “there is no mention of
continuing [the ongoing operations endorsement] under the AC corresponding
endorsement CG 2010.” Id. The Court finds a question of material fact as to
whether the underwriter was authorized merely to add the completed
operations endorsement to the rewritten policy or to replace ongoing
operations coverage with the completed operations endorsement.
25

Nationwide’s insistence that the rewritten policy accurately reflected the
agent’s request cannot stand on its own: Aguilar testified in deposition that
she did not specifically determine whether the agent’s request was to replace
ongoing coverage with completed coverage or simply to add completed
coverage. (Doc. 71, Ex. 1, p. 425–27). A fact finder could determine
Nationwide erroneously rewrote the 2009 policy to exclude ongoing
coverage—whether, to adopt Thomas’s language, Nationwide “dropp[ed] the
ball and just missed [the ongoing operations] endorsement on the re-write.”
(Doc. 71, Ex. 15). Looking at the record as a whole, it is unclear whether the
232 Policy’s exclusion of the ongoing operations endorsement was properly
executed or documented in Nationwide’s own system. The ample evidence
provided by the Certificates of Insurance with ongoing operations
endorsements for the years surrounding—and including—the May 2013
occurrence creates a question of fact for the fact finder to resolve. See Ex
parte Clarke, 728 So. 2d 135, 141 (Ala. 1998) (finding “a factual dispute as to
whether the endorsement was part of the Clarkes' insurance policy” and
determining, “Allstate was not entitled to a summary judgment based on its
assertion that the Clarkes' had failed to comply with the ‘examination under
oath’ provision and with the provision requiring the insureds' cooperation.”).
2. DRHI-B’s Estoppel Argument
DRHI-B argues Nationwide is estopped from denying coverage based
upon the misrepresentations made by Kilgro & Associates on the Certificates
of Insurance and the attached endorsements DRHI-B received beginning in
26

2010 through 2013. (See Doc. 71, Exs. 4, 23, 25, 26, 31). It further claims
Nationwide is precluded from denying coverage based on its failure to deliver
a copy of the policy pursuant to Ala. Code § 27–14–19 (1975). Because this
Court finds the first argument persuasive, it will not reach the second
argument.
Both parties rely heavily on Ala. Elec. Coop., Inc. v. Bailey Constr. Co.,
Inc., 950 So. 2d 280 (2006), for the proposition that Nationwide either is or is
not estopped from denying coverage. In that case, the Alabama Supreme
Court determined that an additional insured cannot rely on certificates of
insurance alone as proof of coverage and further determined that the
insurance policy is the controlling document. Id. at 285. Specifically, the
Alabama Supreme Court found:
Where an entity requires another to procure insurance
naming it an additional insured, that party should not
rely on a mere certificate of insurance, but should insist
on a copy of the policy. A certificate of insurance is not
part of the policy—if it states that there is coverage but
the policy does not, the policy controls.
Id. (internal citations omitted). In the instant case, however, DRHI-B did not
rely solely on certificates of insurance. Rather, it requested and received
copies of the endorsements, which are a part of the policy, that provided it
with coverage for ongoing operations. The Alabama Supreme Court
addressed this scenario in its next sentence: “A developer or general
contractor generally should demand more proof [than just a certificate of
insurance], including a specific additional insured endorsement, to confirm

27

their additional insured status.” Id. While a certificate of insurance, complete
with its disclaimer, cannot override a policy that contradicts it, an
endorsement alters the policy in question. Id. at 285–86. The Alabama
Supreme Court thus indicated that an additional insured’s possession of a
certificate plus the actual, specific endorsements would be indicative of its
reasonable belief that the documents granted coverage. Id.
This difference between DRHI-B’s actions and those of Alabama
Electric Cooperative, Inc.’s (“AEC”) actions significantly impacts the analysis
under Ala. Elec. Coop., Inc., 950 So. 2d.16 In that case, the Alabama Supreme
Court found that AEC did not
actually attempt[] to obtain a copy of the policies or the
additional-insured endorsements that would have existed
had AEC been named as an additional insured on the
policies. [. . .] Based on the facts of this case, we hold that
AEC and its insurers have not presented substantial
evidence indicating that it was reasonable for AEC to rely
on the certificates of insurance indicating that it was an
additional insured in awarding [defendant] the
[construction] contract.
Id. at 286. Conversely, DRHI-B’s request for and possession of the certificates
plus the endorsements issued by Nationwide’s captive agent indicates it
reasonably relied on those documents—and not merely the certificates—as
proof of its status as an additional insured for ongoing operations.

Also of note is the contractual relationship between AEC’s subcontractor as
compared to DRHI-B’s relationship with Olmedo. AEC’s contract with its
subcontractor did not expressly require that the subcontractor name AEC as
an additional insured. DRHI-B’s contract with Olmedo, however, expressly
required additional insured coverage for both ongoing and completed
operations as well as delivery of certificates of insurance. See Doc. 71, Ex. 8.
16

28

Furthermore, the West Virginia Supreme Court case cited in Ala. Elec.
Coop., Inc. favors an estoppel argument to prevent an insurance company’s
denying coverage when a certificate of insurance misrepresents coverage:
In the instant case we focus our analysis on the
first exception, whether the insurer or its agent made a
misrepresentation by issuing a certificate of insurance at
the inception of coverage which resulted in the Board not
having the coverage it desired. Our research indicates
that “[i]t is well settled that an insurer may be equitably
estopped from denying coverage where the party for
whose benefit the insurance was procured reasonably
relied upon the provisions of an insurance certificate to
that party's detriment.” Lenox v. Excelsior Ins. Co., 255
A.D.2d 644, 645, 679 N.Y.S.2d 749, 750 (1998) (citations
omitted). See also, Zurich Ins. Co. v. White, 221 A.D.2d
700, 633 N.Y.S.2d 415 (1995) (insurer was estopped from
asserting deductibles to liability coverage when certificate
of insurance represented there were no deductibles);
Criterion Leasing Group v. Gulf Coast Plastering &
Drywall, 582 So.2d 799 (Fla.App.1991) (under doctrine of
promissory estoppel, insurer was prevented from denying
workers' compensation coverage to subcontractor's
employee when subcontractor was named as a “coinsured”
on certificate of insurance); Bucon, Inc. v. Pennsylvania
Mfg. Assoc. Ins. Co., 151 A.D.2d 207, 547 N.Y.S.2d 925
(1989) (insurer estopped from denying the existence of
plaintiff's coverage after issuing certificate of insurance
identifying the plaintiff as an “additional insured”). “A
Certificate of Insurance is an insurance company's
written statement to its customer that he has insurance
coverage, and the insurance company is estopped from
denying coverage that the Certificate of Insurance states
is in effect.” Blackburn, Nickels & Smith, Inc. v. National
Farmers Union Property and Cas. Co., 482 N.W.2d 600,
603 (N.D.1992).
We therefore hold that a certificate of insurance is
evidence of insurance coverage, and is not a separate and
distinct contract for insurance. However, because a
certificate of insurance is an insurance company's written
representation that a policyholder has certain insurance
coverage in effect at the time the certificate is issued, the
29

insurance company may be estopped from later denying
the existence of that coverage when the policyholder or
the recipient of a certificate has reasonably relied to their
detriment upon a misrepresentation in the certificate.
Marlin v. Wetzel Cty. Bd. of Educ., 569 S.E.2d 462, 472–73 (2002). In the
instant case, both the certificates and the endorsements issued by Kilgro &
Associates represented that DRHI-B was an additional insured with ongoing
operations coverage. While the certificate clearly states it “does not constitute
a contract” between Nationwide and DRHI-B, it also clearly indicates that
the certificate holder is an additional insured when the policy is endorsed.
(See Doc. 71, Ex. 31) (certificate of insurance stating that “[i]f the certificate
holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed.”). As
such, a fact finder may find it reasonable for DRHI-B to have relied on the
certificate and the accompanying endorsements as proof of coverage as an
additional insured for ongoing operations.
Moreover, Nationwide’s assertion that its issued Certificates of
Insurance do not accurately reflect the policy information does not overcome
DRHI-B’s estoppel argument. (See Doc. 61, Ex. 12) (Thomas’s e-mail to
DRHI-B’s counsel stating “it appears the policy number and dates on the
certificate of insurance do not match up”); see also Doc. 1, Ex. 1 (the 232
Policy) & Doc. 62, p. 7–9 (Nationwide’s brief in support of summary judgment
claiming that DRHI-B’s certificates and endorsements reflect the incorrect
policy number). As previously discussed, DRHI-B did not rely solely on the
Certificates of Insurance; it also secured copies of the specific additional

30

insured endorsement as evidence of its coverage. In American and Foreign
Ins. Co., Inc. v. Tee Jays Mfg. Co., Inc., 699 So. 2d 1226 (Ala. 1997), the
Alabama Supreme Court found that an insurer’s error of including coverage
for which a premium has not been paid must be construed against the
insurer. Am. and Foreign Ins. Co., Inc. v. Tee Jays Mfg. Co., Inc., 699 So. 2d
1226, 1228 (Ala. 1997) (“Here, the policy, on its face, clearly provides business
loss coverage for Tee Jays, and any mistake in including this coverage in the
policy must be construed against A & F.”). Additionally, Alabama courts have
held that clerical errors do not invalidate an endorsement or nullify an
insurer’s obligation to honor the endorsement. See id.; see also Waikar v.
Royal Ins. Co. of Am., Inc., 765 So. 2d 11, 15 (Ala. Civ. App. 1999) (holding
that a clerical error in an endorsement does not automatically invalidate the
endorsement). As such, Nationwide cannot hide behind its own error to deny
coverage.
This Court finds that the inconsistencies between the 232 Policy
and DRHI-B’s Certificate of Insurance and the endorsements attached
thereto constitute an ambiguity as to the terms of the coverage provided. As
such, the written instruments must be construed against Nationwide, the
drafting party. Tee Jays Mfg. Co., Inc., 699 So. 2d at 1228. In construing the
facts in the light most favorable to DRHI-B, the Court finds a material issue
of genuine fact as to the coverage afforded to DRHI-B; it also finds
Nationwide is estopped from denying coverage based on the
misrepresentations in the Certificates of Insurance and the endorsements
31

attached thereto. Summary judgment is, therefore, inappropriate.
D. DRHI-B’s Counterclaim for Breach of Contract
The elements for a breach of contract claim are: “(1) the existence of
a valid contract binding the parties in the action, (2) [plaintiff’s] own
performance under that contract, (3) the defendant’s nonperformance, and (4)
damages.” Southern Med. Health Sys., Inc. v. Vaughn, 669 So.2d 98, 99 (Ala.
1995) (citations omitted). Because there is a material question of fact as to
whether Nationwide erroneously omitted DRHI-B’s ongoing operations
endorsement in the 2009 re-write, see, supra Part II.B.1, the Court
necessarily finds a material question of fact as to the existence of a valid
contract binding the parties and as to Nationwide’s nonperformance. For this
reason, summary judgment must be denied as to DRHI-B’s breach of contract
claim.
E. DRHI-B’s Counterclaim for Bad Faith
The tort of bad faith refusal to pay a claim requires evidence to support
the following elements:
(a) a breach of insurance contract, (b) the refusal to pay claim,
(c) the absence of arguable reason, (d) the insurer's knowledge of
such absence—with a conditional fifth element: “(e) if the
intentional failure to determine the existence of a lawful basis is
relied upon, the plaintiff must prove the insurer's intentional
failure to determine whether there is a legitimate or arguable
reason to refuse to pay the claim.”
EMCASCO Ins. Co. v. Knight, 2014 WL 5020044, *15 (N.D. Ala. Oct. 7, 2014)
(quoting National Sec. Fire & Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala.

32

1982)). “The plaintiff asserting a bad-faith claim bears a heavy burden.”
Shelter Mut. Ins. Co. v. Barton, 822 So.2d 1149, 1154 (Ala. 2001) (citing
LeFevre v. Westberry, 590 So.2d 154, 159 (Ala. 1991)). “[A] finding of bad
faith based upon rejection of an insurer's legal argument should be reserved
for extreme cases.” Id. (quoting Safeco Ins. Co. of America v. Sims, 435 So.2d
1219, 1226 (Ala. 1983) (Jones, J., concurring specially)). “The right of an
insurer to deny a claim on any arguable legal issue is to be as zealously
guarded as is its right to decline benefits on any debatable issue of fact, the
test of reasonableness being the same.” Id. (quoting Safeco, supra).
“To defeat a bad faith claim, the defendant does not have to show that
its reason for denial was correct, only that it was arguable.” Liberty Nat. Life
Ins. Co. v. Allen, 699 So.2d 138, 143 (Ala. 1997). “No matter how badly the
insurer acted in investigating and evaluating the claim, if there was a
debatable reason for refusing to pay the claim, when payment was refused,
the insured was not entitled to prompt payment.” State Farm Fire & Cas. Co.
v. Balmer, 672 F.Supp. 1395, 1406 (M.D. Ala. 1987) (italics and citation
omitted). “[P]roof of mere negligence or mistake is not sufficient to support a
claim of bad faith; there must be a refusal to pay, coupled with a conscious
intent to injure.” Peachtree Cas. Ins. Co., Inc. v. Sharpton, 2001 WL 286919,
*5 (M.D. Ala. March 20, 2001) (citation omitted).
“Ordinarily, if the evidence produced by either side creates a fact issue
with regard to the validity of the [insurance] claim and, thus, the legitimacy
of the denial thereof, the [bad faith] tort claim must fail and should not be
33

submitted to the jury.” Nat. Sav. Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362
(Ala.1982). To make out a prima facie case of bad faith refusal to pay, the
insured must generally show that he is entitled to a directed verdict on the
contract claim. Id.
DRHI-B argues that Nationwide failed to investigate agent Kilgro’s
dissemination of certificates of insurance with accompanying endorsements
(complete with policy numbers) that contradict Nationwide’s records and
staunchly relied only on the information available in its own system. (Doc. 71,
p. 26–28). To support these contentions, it points to Thomas’s testimony that
she limited her investigation to Olmedo’s policies issued for 2010–11, 2011–
12, and 2012–13 and ignored DRHI-B’s assertions that it should have had
ongoing operations coverage on the date of loss. See Doc. 71, Ex. 18, p. 313–
17. In her investigation, Thomas asked Aguilar “why [DRHI-B] would NOT
have been an additional insured for [ongoing] operations?” (Doc. 71, Ex. 12)
(emphasis in original). In response, Aguilar stated, “No other request for
[DRHI-B] was made as I believe they assumed the CG 2010 [ongoing
operations endorsement] was added back when it was re-written to the PR
under the legacy platform.” Id. During the course of her investigation,
Thomas had reason to question why the 2009 re-written policy did not
include ongoing operations coverage for DRHI-B, and the evidence indicates
that she made surface-level inquiries but did not examine the endorsements
Kilgro & Associates issued or other evidence relating to DRHI-B’s claim that
it was still covered by an ongoing operations endorsement.
34

As previously explained, even if the investigation was lacking, if there
is a debatable reason for refusing to pay the claim, the insured cannot be held
liable for bad faith. Balmer, 672 F.Supp. at 1406. “[P]roof of mere negligence
or mistake is not sufficient to support a claim of bad faith; there must be a
refusal to pay, coupled with a conscious intent to injure.” Sharpton, 2001 WL
286919 at *5 (citation omitted). Where there was an arguable reason to deny
the claim, “[t]he insurer's ‘subpar’ investigation cannot in and of itself sustain
a tort action for bad faith.” Balmer, 672 F.Supp. at 1405. Nationwide argues
that DRHI-B’s disagreement with the results of its investigation is not
enough to carry a bad faith claim. See Doc. 71, p. 13. This Court finds,
however, that a reasonable fact finder could interpret Nationwide’s refusal to
acknowledge the certificates of insurance and the attached endorsements
that contradicted its internal information as more than “mere negligence or
mistake” but as an attempt to avoid coverage. See Doc. 71, Ex. 33, p. 36
(Nationwide log notes stating, “I also noted that [Alabama] has NO antiindemnity statutes, so depending on if we have a properly executed contract,
and what it states in terms of indemnity, may have a huge bearing on
exposure/liability on this claim.”); id. at p. 43 (“Basic litigation strategy:
Confirm no cov[erage] and address accordingly.”).
In light of the above, the Court finds a reasonable fact finder could
determine Nationwide acted in bad faith in denying DRHI-B a defense in the
underlying suit. Accordingly, summary judgment is precluded.
F. Damages from DRHI-B’s Counterclaims
35

The parties appear to agree that the basic language of the general
commercial liability insurance policy controls Nationwide’s duty to defend.
While the parties disagree on the inclusion or exclusion of certain
endorsements, they do not suggest that the basic terms and definitions
provided in the 232 Policy would change. As such, this Court looks to the
general provisions and definitions to determine when Nationwide’s duty to
defend, if found to apply in this case, began.
The 232 Policy states, “We [Nationwide] will pay those sums that the
insured [or additional insured] becomes legally obligated to pay as damages
because of ‘bodily injury’ or ‘property damage’ to which this insurance
applies. We will have the right and duty to defend the insured against any
‘suit’ seeking those damages.” (Doc. 1, Ex. 1, p. 12). The policy defines “suit”
as, “a civil proceeding in which damages because of ‘bodily injury’, ‘property
damage’ or ‘personal and advertising injury’ to which this insurance applies
are alleged.” (Id. at p. 26). Under this definition, Nationwide’s duty to defend
would not be triggered until a civil proceeding (or similar) is initiated. In the
instant case, DRHI-B has submitted evidence for damages incurred
beginning in May 2013, but the underlying suit against it was not opened
until May 2014. (See Doc. 71, Ex. 4). DRHI-B was not owed any defense until
it became a named party to the underlying suit. As such, this Court finds
that its claimed damages from May 2013 through April 30, 2014 are
improper, and summary judgment is to be GRANTED as to these attorneys’
fees and expenses. The Court will therefore reduce DRHI-B’s amount of
36

claimed damages, as to date, from $420,041.34 to $366,794.44 ($420,041.34 –
50,568.35 = $366,794.44).17 The Court declines to grant summary judgment
as to the attorneys’ fees and expenses incurred beginning in May 2014 to the
present date for the underlying suit.
III. CONCLUSION
For the reasons stated above, Nationwide’s motion for summary
judgment (Doc. 60) is GRANTED IN PART as to DRHI-B’s damages, to the
extent that Nationwide is not obligated to pay any attorneys’ fees and
expenses incurred before May 2014, but is DENIED as to Nationwide’s claim
for declaratory judgment and as to DRHI-B’s counterclaims for breach of
contract and bad faith. Furthermore, Nationwide’s motions to strike (Docs. 69
& 74) are both DENIED, and its motion to preclude evidence of counterclaim
plaintiff’s contract-related damages (Doc. 59) is MOOT.
DONE and ORDERED this 6th day of October, 2016.
/s/ Callie V. S. Granade
SENIOR UNITED STATES DISTRICT JUDGE

The Court has reduced the claimed attorneys’ fees by $47,889.80 (the
amount billed and paid from May 2013 through April 30, 2014) and the
expenses by $2,678.55 (the amount billed and paid in that same timeframe).
The fees and expenses incurred before DRHI-B was named as a defendant in
the underlying suit totals $50,568.35.
17

37