The Charter Oak Fire Insurance Company v. City of Fairhope, Alabama et al
Filing
29
MEMORANDUM OPINION AND ORDER, GRANTING 21 Motion for Summary Judgment of Plaintiff/Counterclaim Defendant as to duty to defend and indemnification; and DENYING the 24 countermotion by Defendant/Counterclaimant. Signed by District Judge Terry F. Moorer on 8/11/2020. (mab) (Main Document 29 replaced on 8/11/2020) (mab).
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
THE CHARTER OAK FIRE
INSURANCE COMPANY,
)
)
)
)
)
)
)
)
)
)
)
Plaintiff,
v.
THE CITY OF FAIRHOPE,
ALABAMA, et al.
Defendants.
CIV. ACT. NO. 1:19-cv-117-TFM-B
MEMORANDUM OPINION AND ORDER
Now pending before the Court is a Motion for Summary Judgment filed by the
Plaintiff/Counterclaim Defendant (Doc. 21, filed 10/24/19) and a Motion for Partial Summary
Judgment filed by the Defendant/Counterclaimant (Doc. 24, filed 10/24/19). The Court has
reviewed all the written pleadings, motions, responses, and replies, and other filings in the case,
and the relevant law. The parties have not requested a hearing, and the Court finds a hearing is
unnecessary in this instance. Accordingly, the motions are ripe for review. For the reasons
discussed below, the Court GRANTS summary judgment in favor of Plaintiff/Counterclaim
Defendant as to duty to defend and indemnification and DENIES the countermotion by
Defendant/Counterclaimant.
I.
JURISDICTION AND VENUE
The parties assert this action pursuant to this Court’s diversity jurisdiction under 28 U.S.C.
§ 1332. The Court previously determined that diversity jurisdiction exists in this case. See Doc.
3. Neither party contests venue and adequate support exists to support that venue is proper.
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II.
BACKGROUND AND PROCEDURAL HISTORY
This case centers on a series of insurance policies issued by the plaintiff, The Charter Oak
Fire Insurance Company (“Charter Oak”), to the City of Fairhope, Alabama (“Fairhope”), a
defendant. Specifically, the crux of the case is whether those policies create for Charter Oak a
duty to defend and indemnify Fairhope in a still-pending state court action filed against Fairhope
in Baldwin County Circuit Court in 2013 by developer Charles K. Breland, Jr., and Breland
Corporation (collectively, “Breland”). See Charles K. Breland, Jr., et al. v. City of Fairhope, No.
05-CV-2013-901096.00 (28th Jud. Cir. of Ala.) (“the Breland action”).
A.
The Breland action
The state court case underlying this lawsuit concerns Breland’s attempts to develop
approximately 65 acres of land purchased in 1999 in the Battles Wharf community outside
Fairhope’s city limits but within its police jurisdiction. Doc. 23-2 ¶ 5. In his first amended
complaint, filed in the Circuit Court of Baldwin County on August 13, 2013, Breland asserts that
he initiated a permitting process in 2001 with the U.S. Army Corps of Engineers (the “Corps”) and
the Alabama Department of Environmental Management (“ADEM”) to fill about 10 acres of
wetlands on the property. Id. ¶ 6. Fairhope lodged written protests with the Corps during the
application’s public comment period. Id. ¶ 7. Nevertheless, in 2002 Breland received a permit
from the Corps authorizing him to fill approximately 10.5 acres of wetlands on his property, and
a corresponding water quality certification permit from ADEM. Id. ¶¶ 7-8 As part of the
permitting requirements, Breland purchased mitigation credits in 2003 for $144,000 and conveyed
39 acres of property to an organization for conservation in 2007. Id. ¶¶ 9-11.
Breland began to fill the wetlands in March 2008, but Fairhope issued a stop-work order
on March 27, 2008, and notified Breland that he was required to obtain a land-disturbance permit
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from Fairhope in order to conduct the filling. Id. ¶¶ 12-13. Breland asserts that he was in
compliance with existing city ordinances in March 2008, nevertheless, he applied for a landdisturbance permit on April 15, 2008. Id. ¶¶ 15-20. Breland asserts that Fairhope intentionally
shelved his permit application and, instead, enacted Ordinance 1363 on June 9, 2008, imposing a
moratorium on the issuance of all land-disturbance permits. Id. ¶¶ 21-23. Breland further asserts
that, on October 13, 2008, Fairhope enacted Ordinance 1370, establishing a comprehensive plan
for wetlands-filling activities that required, among other things, a permit from Fairhope to fill any
wetlands that was applicable both inside Fairhope’s municipal boundaries and within the city’s
permitting jurisdiction. Id. ¶ 24. Breland alleges that Fairhope drafted and enacted these new
ordinances in a “targeted attempt” to prevent him from filling the wetlands on his property. Id. ¶
25. Breland negotiated with Fairhope to purchase his property from 2008 to 2011, but negotiations
stalled when “it became clear to Breland that the City had no real intention of purchasing the
Property.” Id. ¶¶ 27-28. Breland resumed filling the wetlands in November 2011. Id. ¶ 29.
Fairhope again issued a stop-work order, and also issued a criminal citation and instructed Breland
to apply for a land-disturbance permit. Id. ¶ 29. On January 10, 2013, Breland notified Fairhope
of his claims against the city. Id. ¶ 37.
Breland alleges six (6) causes of action in his 2013 amended complaint. In Count One,
Breland seeks a temporary restraining order and preliminary injunction to enable him to fill the
wetlands prior to the expiration of his Corps permit. Counts Two, Three, Four, and Six seek
various declaratory judgments in relation to Breland’s entitlement to fill the property and
Fairhope’s actions preventing him from doing so. Count Five alleges negligence and seeks money
damages.
Page 3 of 20
B.
The present action
Fairhope initiated this action against Charter Oak in Baldwin County Circuit Court on
January 7, 2019, seeking a declaratory judgment under Alabama’s Declaratory Judgment Act,
ALA. CODE §§ 6-6-220 through 232, that Charter Oak owes duties to defend and indemnify
Fairhope in the Breland action (Count One).1 The Complaint also alleges that Charter Oak
breached an enhanced duty of good faith that it owed to Fairhope under Alabama common law
(Count Two). Specifically, as to Count Two, Fairhope alleges that Charter Oak elected to defend
Fairhope in the Breland action pursuant to a reservation of rights, thereby incurring an enhanced
duty of good faith to Fairhope. Fairhope alleges that Charter Oak breached that duty by (1) failing
to conduct a thorough investigation of the claims against the City; (2) failing to give Fairhope
timely notice that Charter Oak would assert a reservation-of-rights defense; (3) failing to keep
Fairhope informed of developments related to its insurance coverage; (4) acting in a manner
evidencing a greater concern for its own financial gain than for Fairhope’s risk; and (5) failing to
bifurcate its own claims file from the coverage file and using information gleaned from its claims
file in the course of defending Fairhope as a basis for denying coverage. From Count Two,
Fairhope seeks unspecified damages. Charter Oak removed the case to federal district court on
January 11, 2019. Fairhope moved to remand the case to state court on January 14, 2019. 19-cv9 Docket, Doc. 5. This Court denied Fairhope’s motion to remand on July 1, 2019. Doc. 3.
On October 24, 2018, before Fairhope initiated this action in state court, Charter Oak filed
a Chapter 11 adversary proceeding in the U.S. Bankruptcy Court for the Southern District of
Alabama seeking a declaration of its rights and obligations, if any, under the insurance policies
1
Fairhope’s action initially was docketed in this Court as Civ. Act. No. 1:19-cv-9-TFM-N (“19cv-9 Docket”). It was subsequently transferred to this docket.
Page 4 of 20
noted above.
See In re Charles K. Breland, Jr., No. 16-02272 (Bankr. S.D. Ala. 2016)
(“Bankruptcy Case”), Doc. 2. On January 7, 2019, Charter Oak moved to withdraw the reference
to bankruptcy and transfer its case to this Court. See id., Doc. 1 at 4. On March 11, 2019, this
Court granted Charter Oak’s motion to withdraw the reference and ordered the Bankruptcy Case
transferred to the U.S. District Court. See id., Doc. 1 at 28. Accordingly, the Bankruptcy Case
was transferred to this Court’s docket and consolidated with the 19-cv-9 Docket.2 The Court
established Charter Oak’s petition for declaratory judgment as the operative complaint and
Fairhope’s complaint—which includes an additional allegation of breach of good faith—as a
counterclaim. Doc. 3. The Court stayed the claims for indemnification and breach of good faith
on July 1, 2019 pending a final outcome in the underlying Breland action.3
Now, the parties have filed cross-motions for summary judgment in this consolidated case.
In its motion for summary judgment (Doc. 21), Charter Oak argues that neither the Commercial
General Liability (“CGL”) part nor the Public Entity Management Liability (“PEML”) provisions
of the insurance policies issued to Fairhope provide coverage for defense against the Breland
action. It also argues that, because the duty-to-defend issue is due to be decided in its favor, the
issue of indemnity, too, is ripe for a decision in its favor despite the stay imposed by the Court.
Charter Oak’s motion for summary judgment does not address Fairhope’s additional count of
Charter Oak’s Motion to Withdraw the Reference was docketed in this Court as Case No. 1:19mc-4-TFM. Once the Court granted the motion, the case was transferred to the civil docket. See
Bankruptcy Case. Charter Oak is the Plaintiff in the Bankruptcy Case, and the defendants are
Fairhope, Charles K. Breland, Jr., A. Richard Maples, Jr., and Breland Corporation.
2
3
Fairhope filed supplements with this Court on January 29, 2019 and April 3, 2020, disclosing
that the state court, following an ore tenus bench trial, ruled in its favor on all counts in the Breland
action, and that the decision was appealed to the Alabama Supreme Court. 19-cv-9 Docket, Docs.
7, 11. As the Court has received no subsequent notices from the parties, the matter appears to
remain pending in the state supreme court.
Page 5 of 20
breach of good faith. In Fairhope’s partial motion for summary judgment, it argues that Charter
Oak has a duty to defend Fairhope in the underlying Breland action. Fairhope’s partial summary
judgment motion does not address the issues of indemnification or breach of good faith.
III.
STANDARD OF REVIEW
Summary judgment is proper where the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P.
56(a). A factual dispute alone is not enough to defeat a properly pleaded motion for summary
judgment; only the existence of a genuine issue of material fact will preclude a grant of summary
judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2510, 91 L.
Ed. 2d 202 (1986). “[T]he substantive law will identify which facts are material.” Id. at 248, 106
S. Ct. at 2510. At the summary judgment stage, the court does not “weigh the evidence and
determine the truth of the matter,” but merely “determine[s] whether there is a genuine issue for
trial.” Id. at 249, 106 S. Ct. at 2511.
The moving party bears the initial burden of showing the court, by reference to materials
on file, that there are no genuine issues of material fact that should be decided at trial. Celotex
Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). “When a
moving party has discharged its burden, the non-moving party must then ‘go beyond the
pleadings,’ and by its own affidavits, or by ‘depositions, answers to interrogatories, and admissions
on file,’ designate specific facts showing that there is a genuine issue for trial.” Jeffery v. Sarasota
White Sox, Inc., 64 F.3d 590, 593-94 (11th Cir. 1995) (citing Celotex, 477 U.S. at 324, 106 S. Ct.
at 2553). The court must view facts and draw all reasonable inferences in favor of the nonmoving
party. Moore v. Reese, 637 F.3d 1220, 1231 (11th Cir. 2011) (citing Rosario v. Am. Corrective
Counseling Servs., Inc., 506 F.3d 1039, 1043 (11th Cir. 2007)).
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Fed. R. Civ. P. 56(e) provides that:
[i]f a party fails to properly support an assertion of fact or fails to properly address
another party’s assertion of fact as required by Rule 56(c), the court may:
(1) give an opportunity to properly support or address the fact;
(2) consider the fact undisputed for purposes of the motion;
(3) grant summary judgment if the motion and supporting materials—including
the facts considered undisputed—show that the movant is entitled to it; or
(4) issue any other appropriate order.
FED. R. CIV. P. 56(e).
Whether an insurer has a duty to defend its insured in proceedings initiated against the
insured is determined primarily by the allegations set out in the complaint. Hartford Cas. Ins. Co.
v. Merchs. & Farmers Bank, 928 So. 2d 1006, 1009 (Ala. 2005) (citing U.S. Fid. & Guar. Co. v.
Armstrong, 479 So. 2d 1164, 1168 (Ala. 1985)). “The provisions of an insurance policy must be
construed in light of the interpretation that ordinary [people] would place upon the language used
in the policy.” Edwards Dodge, Inc. v. Pa. Nat’l Mut. Cas. Ins. Co., 510 So. 2d 225, 226 (Ala.
1987) (quoting Newman v. St. Paul Fire & Marine Ins. Co., 456 So. 2d 40 (Ala. 1984)). Any
ambiguity in a policy is to be construed liberally in favor of the insured. Hartford Cas. Ins. Co.,
928 So. 2d at 1011.
“If the allegations of the injured party’s complaint show an accident or an occurrence
within the coverage of the policy, then the insurer is obligated to defend, regardless of the ultimate
liability of the insured.” Id. at 1009. When a complaint alleges acts covered under the policy and
acts not covered, the insurer has a duty to defend, at the least, the allegations covered by the policy.
Id. at 1010 (citing Blackburn v. Fid. & Deposit Co. of Md., 667 So. 2d 661, 668 (Ala. 1995)).
If the complaint against the insured alleges a covered occurrence, “the insurer owes the
duty to defend even though the evidence may eventually prove that the gravamen of the complaint
was not” a covered occurrence. Id. Additionally, “if the complaint against the insured does not,
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on its face, allege a covered accident or occurrence, but the evidence proves one, then the insurer
likewise owes the duty to defend.” Id. In other words, the Court first must determine whether the
allegations in the complaint state an occurrence within the meaning of the policy. If an occurrence
is alleged, the inquiry ends. If it does not, the Court must determine whether the “facts which may
be proved by admissible evidence state an occurrence.” Id. at 1011 (quoting Pac. Indem. Co. v.
Run-A-Ford Co., 161 So. 2d 789, 795 (Ala. 1964)). An insurer owes no duty to defend where
there is neither an allegation of a covered occurrence in the complaint nor evidence of one in the
litigation itself. Id. at 1010.
IV.
A.
DISCUSSION AND ANALYSIS
The insurance policies
As relevant background, Charter Oak issued the following insurance policies to Fairhope:
(1)
(2)
(3)
(4)
Policy #GP09315949 running for the period January 9, 2011 to January 9, 2012;
Policy #ZPP1-14P162221-12-PB for the period January 9, 2012 to January 9, 2013;
Policy #ZLP-145T87598-13-PB, for the period January 9, 2013 to January 9, 2014; and
Policy #ZLP-14T87598-14-PB, for the period January 9, 2014 to January 9, 2015.
The policies provide CGL coverage of up to $3,000,000 for each covered “occurrence,”
and PEML coverage of up to $2,000,000 per wrongful act. Doc. 11 at 109, 184.
B.
Duty to defend
(1)
The CGL Part
Under the CGL provision, the policies issued by Charter Oak to Fairhope provide, in
relevant part, as follows:
SECTION I – COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the 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
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against any “suit” seeking those damages. However, we will have no duty
to defend the insured against any “suit” seeking damages for “bodily injury”
or “property damage” to which this insurance does not apply…
b. This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an
“occurrence” …;
(2) The “bodily injury” or “property damage” occurs during the
policy period; and
(3) Prior to the policy period, no insured … and no “employee”
authorized by you to give or receive notice of an “occurrence”
or claim, knew that the “bodily injury” or “property damage”
had occurred in whole or in part. If such a listed insured or
authorized “employee” knew, prior to the policy period, that the
“bodily injury” or “property damage” occurred, then any
continuation, change or resumption of such “bodily injury” or
“property damage” during or after the policy period will be
deemed to have been known prior to the policy period.
…
d. “Bodily injury” or “property damage” will be deemed to have been known
to have occurred at the earliest time when any insured … or any
“employee” authorized by you to give or receive notice of an
“occurrence” or claim:
(1) Reports all, or any part, of the “bodily injury” or “property
damage” to us or any other insurer;
(2) Receives a written or verbal demand or claim for damages
because of the “bodily injury” or “property damage”; or
(3) Becomes aware by any other means that “bodily injury” or
“property damage” has occurred or has begun to occur.
Doc. 11 at 117.4
Charter Oak argues, first, that the CGL coverage does not apply to the underlying Breland
action because Breland’s claimed damages were not caused by an “occurrence” as it is defined in
the policies. Charter Oak contends that an occurrence, by definition, requires that damages
resulting from a given action are unforeseen, unintended, and accidental, but Breland’s complaint
4
The Court notes there are four (4) policies at issue, renewed annually by the parties, providing
continuous coverage from January 9, 2011 to January 9, 2015. Any differences in the insurance
contracts are irrelevant for purposes of this case; the relevant language is substantially unchanged
from year to year. This opinion references the language from the initial policy that took effect in
2011. All four (4) policies are filed on the docket at Doc. 11.
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alleges that Fairhope’s conduct was intentional, deliberate, purposeful, repeated, and specifically
targeted to prevent Breland from filling the wetlands on his property. Fairhope argues, to the
contrary, that Breland alleges negligence in his complaint against Fairhope, and allegations of
negligence constitute an “occurrence” for purposes of triggering a duty to defend.
The policy defines an “occurrence” as an “accident, including continuous or repeated
exposure to substantially the same general or harmful conditions.” Doc. 11 at 135. As Charter
Oak notes in its motion, the policy does not define “accident.” Where a policy does not define a
word or phrase, the Court should construe it according to its ordinary meaning. See Lambert v.
Coregis Ins. Co., 950 So. 2d 1156, 1161 (Ala. 2006) (“If a word or phrase is not defined in the
policy, then the court should construe the word or phrase according to the meaning a person of
ordinary intelligence would reasonably give it.”) (citations omitted).
Black’s Law Dictionary defines “accident” as:
1. An unintended and unforeseen injurious occurrence; something that does not
occur in the usual course of events or that could not be reasonably anticipated; any
unwanted or harmful event occurring suddenly, as a collision, spill, fall, or the like,
irrespective of cause or blame . 2. Equity practice. An unforeseen and injurious occurrence not attributable
to the victim's mistake, negligence, neglect, or misconduct; an unanticipated and
untoward event that causes harm.
Accident, BLACK’S LAW DICTIONARY (11th ed. 2019). As Charter Oak notes, the Alabama
Supreme Court has applied the definition of “accident” supplied by Black’s Law Dictionary in
comparable cases. See, e.g., Hartford Cas. Ins. Co., 928 So. 2d at 1011 (internal quotation marks
and citation omitted) (stating that the term has been “variously defined as something unforeseen,
unexpected, or unusual”).
In Hartford, the Alabama Supreme Court, reversing a lower court ruling, found an insurer
had no duty to defend its insured, a bank, in a lawsuit claiming the bank had seized money and
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assets in which the underlying plaintiff held an interest. Id. at 1011. Specifically, the plaintiff’s
complaint alleged that a furniture retailer defaulted on a loan issued by the bank, so the bank seized
money and inventory held by the furniture retailer in order to secure its claims under the loan
agreement, despite notification from the plaintiff/retailer that it held an interest in the property.
The state supreme court determined that nothing in the factual averments of the complaint
indicated that the bank’s actions, or the consequences of its actions, were unintended or unforeseen
so as to constitute an “occurrence” under the policy. Id. at 1012.
In that case, the plaintiff alleged negligence against the bank—specifically, that the bank
“negligently, willfully, and/or wantonly breached its duty . . . in that it was aware that its wrongful
possession of [the] property would result in injury” to the plaintiff. Id. at 1012. Nevertheless, the
court determined that the negligence count “merely dangle[d] as a cause of action . . . unrelated to
any asserted facts” and, “[w]here facts are alleged in the complaint to support a cause of action, it
is the facts, not the legal phraseology, that determine whether an insurer has a duty to defend its
insured in the action.” Id.
Charter Oak relies heavily on Hartford to argue that the damages alleged in Breland’s
complaint are not the result of an “occurrence” under the terms of the policy because Fairhope
acted intentionally and purposefully to issue stop-work orders and enact ordinances in order to
prevent Breland from filling the wetlands on his property. Charter Oak argues that, as in Hartford,
the allegation of negligence asserted in the Breland action is incongruous with the facts set out in
the amended complaint.
Fairhope argues that Hartford is distinguishable from the instant case because Breland’s
complaint alleges that Fairhope acted “negligently, carelessly, and unskillfully” in handling its
municipal functions. In Count Five, Breland alleges that Fairhope had a duty to prudently and
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properly issue permits and not to deny them baselessly or delay activity that is otherwise permitted.
Breland alleges that Fairhope breached that duty by treating Breland’s “obvious right to fill the
Property with flippant disregard, and continuously delay[ing] and ignor[ing] Breland’s right.”
Doc. 23-2 ¶ 68. Breland seeks money damages flowing from his “eleven-year battle” with
Fairhope. Id. ¶ 70. Fairhope argues that these negligence allegations constitute an “occurrence”
under the policy.
Fairhope cites three (3) cases in support of its argument. In the first, Edwards Dodge, Inc.
v. Pennsylvania National Mutual Casualty Insurance Co., 510 So. 2d 225 (Ala. 1987), the
Alabama Supreme Court reversed a lower-court determination that the defendant insurance
company did not have a duty to defend its policy-holder where the underlying complaint alleged
fraudulent representation. Specifically, the court found that, although the insurer was not obliged
to defend its insured based on plaintiff’s allegations that the insured “intentionally, willfully or
maliciously misrepresented” their financial arrangement, the plaintiff’s alternative allegation—
that the defendant represented the arrangement with “total and reckless disregard for [] truth and
accuracy”—did not include the sort of intentional act precluded by the policy. Edwards Dodge,
510 So. 2d at 226-27. Specifically, the court determined that “a finding of ‘reckless’ conduct is
not premised on intentional acts.” Id. at 227. Edwards Dodge is not directly on point, however,
because the relevant insurance policy language specifically precluded an obligation by the insurer
to defend the insured in a suit or claim arising out of a “dishonest, fraudulent, criminal or malicious
act, libel or slander.” Id.
Plaintiff cites two (2) additional cases that are likewise distinguishable. In United States
Fidelity & Guaranty Co. v. Bonitz Insulation Co. of Alabama, 424 So. 2d 569 (Ala. 1982), the
Alabama Supreme Court sided with the insured in determining that a leaking roof constituted an
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“occurrence” for insurance purposes where the underlying lawsuit alleged the plaintiff’s roof was
negligently installed. Id. at 571. The court stated that “the term ‘accident’ does not necessarily
exclude human fault called negligence” and determined, as to the underlying defendant charged
with negligently installing the roof, “there is no evidence that they either expected or intended the
roof to start leaking.” Id.
Similarly, in United States Fidelity & Guaranty Co. v. National Tank & Machine Works,
402 So. 2d 925 (Ala. 1981), the Alabama Supreme Court determined that an underlying allegation
that the insured negligently or wantonly delivered the wrong product to its customer was sufficient
to require a defense for an “occurrence” under the policy. National Tank, 402 So. 2d at 927.
These cases are off point here because the allegations of negligence they involve—
installing a leaky roof and delivering the wrong product, respectively—may be considered
accidental. Moreover, the parties in these cases did not allege that the damages resulting from the
insured’s actions were intentional. The leaky roof in Bonitz resulted in water damage and, in
National Tank, the plaintiff alleged the company’s negligent conduct resulted in a drowning.
There is no indication that the complaint alleged the roof installer in Bonitz intended to cause water
damage by installing a leaky roof, or that the supplier of the pool hooks in National Tank intended
for anyone to drown.
Breland, though he charges negligence, alleges actions by Fairhope that are deliberate and
intentional. The complaint alleges that, starting in 2002, Fairhope submitted letters to the Corps
openly opposing Breland’s proposed filling activity. Later, in 2008, Fairhope issued a series of
stop-work orders to Breland instructing him to cease efforts to fill the wetlands. The purpose of a
stop-work order is self-evident: to stop whatever activity is occurring. The damage alleged by
Breland stems from his inability to fill the wetlands and, by extension, proceed to develop the
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property. Stopping the filling of the wetlands was the intended outcome of Fairhope’s stop-work
orders. It was not an accidental or unforeseen result. Breland also alleges that Fairhope drafted
and enacted specific ordinances in a targeted effort to thwart his development efforts. Again, he
specifically alleges that the impact of Fairhope’s land-use ordinances on his wetlands project was
not accidental.
Although Breland asserts in Count Five that Fairhope acted “negligently, carelessly, and
unskillfully” in carrying out its municipal functions, Breland incorporated into Count Five all of
the previous allegations in the complaint, which is rife with language alleging Fairhope’s actions
were intentional. For example, Breland alleges that Fairhope “intentionally shelved” its 2008 landdisturbance permit indefinitely, and that Fairhope Ordinances 1313, 1363, and 1370 were
“conceived, drafted, and enacted in a targeted attempt to frustrate Breland’s lawful filling of the
property.” Doc. 23-2 ¶¶ 21, 25. Breland also alleges that Fairhope acted with “flippant disregard,”
Fairhope “continuously delayed and ignored Breland’s right to fill the Property,” and Fairhope
“refus[ed] to recognize” Breland’s right to fill the property. Id. ¶¶ 68-69. Indeed, Breland asserts
that Fairhope’s “conduct, from 2002 to the present date, amounts to a single sustained attempt to
prevent the lawful filling of the Property.” Id. ¶ 69. Taken as a whole, the amended complaint
clearly alleges that Fairhope’s actions to prevent Breland from filling the wetlands were deliberate.
Because the allegations in the complaint do not state an occurrence within the meaning of
the insurance policy, the Court must look to whether facts in the record, if proved, state an
occurrence. The Court finds they do not. The parties do not contest that Fairhope issued stopwork orders and enacted land-use ordinances that prevented Breland from moving forward with
his development plans. Even assuming Fairhope’s actions were not intended to stop Breland from
filling the wetlands, the consequences of Fairhope’s actions were readily foreseeable and could be
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reasonably anticipated. Thus, there are no facts that could demonstrate an occurrence for purposes
of insurance coverage. Accordingly, the CGL part of the insurance policies do not apply here.5
(2) The PEML part
As an initial matter, the parties agree the PEML part does not provide coverage for loss
related to injunctive or other non-monetary relief. See Doc. 11 at 201. Thus, the issue is whether
the negligence allegations raised here are contemplated within the PEML provisions. Charter Oak
argues it has no duty to defend Fairhope because (1) the PEML part does not cover wrongful acts
committed before the retroactive date of the policy and (2) the PEML specifically excludes from
coverage “known wrongful acts.”
The relevant portion of the PEML part reads as follows:
SECTION I – PUBLIC ENTITY MANAGEMENT LIABILITY COVERAGE
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay
as damages because of loss to which this insurance applies. We will have
the right and duty to defend the insured against any claim or “suit” seeking
those damages. However, we will have no duty to defend the insured
against any claim or “suit” seeking damages because of loss to which this
5
Charter Oak also argues that the CGL coverage is inapplicable in other respects. In light of the
Court’s determination that there was no “occurrence,” it is unnecessary to address these arguments
in detail. Briefly, however, the Court notes that, even if Breland’s allegations constituted an
“occurrence,” the Breland action would not be covered under the CGL part because, as discussed
supra, pp. 15-18, the damages to Breland already were known to Fairhope when the policies first
took effect in 2011. Thus, the policy’s “known loss” provision would apply. See Doc. 11 at 117.
Among Charter Oak’s other arguments, it asserts the CGL exclusion for expected or intended
injury would apply here as well, and the Court agrees. The policy excludes coverage for bodily
injury or property damages “expected or intended from the standpoint of the insured.” Doc. 11 at
118. For largely the same reasons the actions alleged by Breland do not constitute an “occurrence,”
the damages claimed by Breland were expected by the insured. However, the Court rejects Charter
Oak’s additional argument, that the policy does provide coverage because Breland did not allege
bodily injury or property damage but seeks damages for pure economic loss. The policy defines
“property damage” as “(a) Physical damage to tangible property of others, including all resulting
loss of use of that property; or (b) Loss of use of tangible property of others that is not physically
damaged.” Doc. 11 at 116. Breland’s loss of use of his property is implicated by part (b).
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insurance does not apply…
b. This insurance applies to loss only if:
(1) The loss is caused by a “wrongful act” committed while
conducting duties by or on behalf of you or “your boards”;
(2) The “wrongful act” is committed within the “coverage territory”;
(3) The “wrongful act” was not committed before the Retroactive
Date shown in the Declarations of this Coverage Part or after the
end of the policy period;
Doc. 11 at 199.
Additionally, the policy excludes the following:
o. Known Wrongful Acts
Loss arising out of any “wrongful act”, including any part of “related wrongful
acts”, that any “described authorized person” knew about before the first date
we or any of our affiliated insurance companies have continuously provided
this or similar coverage to you.
A “described authorized person” will be deemed to know about a “wrongful
act” at the earliest time when such “described authorized person”:
(1) Reports all, or any part, of the “wrongful act” to us or any provider of
other insurance;
(2) Receives a written or verbal demand or claim for damages because of
the “wrongful act”; or
(3) Becomes aware by any other means that all, or any part, of the
“wrongful act” has been committed.
Id. at 201. A “described authorized person” is defined as: “(a) Any of your elected or appointed
officials, ‘executive officers’ or directors; (b) Any member of ‘your boards’; or (c) Your risk
manager, or any leaders of your legal, finance, risk management or other department that is
responsible for insurance matters.” Id. at 208.
Charter Oak argues that no duty to defend exists under the policies’ PEML provisions, first,
because Breland alleges that Fairhope’s conduct began before the insurance policies took effect.
Charter Oak asserts that Breland’s complaint alleges wrongful acts beginning in 2002 and
continuing to the present. Because all of the wrongful acts are related, they are deemed to have
occurred on the date the first wrongful act is committed. Charter Oak also argues, presumably in
Page 16 of 20
the alternative, that Breland’s claim against Fairhope was first made or brought when Breland filed
his 2008 Complaint, which still predates the 2011 start date of the insurance policies.
Fairhope argues, in opposition, that the time of the occurrence is not when the wrongful
act was committed, but when damage actually accrues. Fairhope asserts that, in this instance, the
occurrence falls within the relevant coverage period because Fairhope required Breland to obtain
a wetlands-disturbance permit in 2012, and Breland’s loss of the use of the property flowed from
that action. Fairhope asserts as further evidence that Breland subsequently filed a Notice of Claim
with Fairhope and filed the underlying state court action in 2013. Fairhope asserts that those dates
are the relevant ones for purposes of insurance coverage.
As an initial matter, the parties agree that the relevant retroactive date for purposes of
insurance coverage is January 9, 2011. Thus, the question is whether the relevant “wrongful act”
was committed before or after that date. The policy defines a “wrongful act” as “any act, error, or
omission.” Id. at 211. Under the insurance agreement, each “wrongful act” in a series of wrongful
acts will be deemed to have been committed on the date the first “wrongful act” in that series was
committed. Id. at 200. The policy defines “related wrongful acts” as two (2) or more wrongful
acts that have as a common connection, tie, or link any fact, circumstance, situation, event,
transaction, cause, or series of related facts, circumstances, situations, events, transactions, or
causes. Id. at 210.
The Court finds that Fairhope’s allegedly wrongful acts began well before the effective
date of the insurance policies. First, Breland clearly alleges in the amended complaint that the
lawsuit involves a series of actions over a period of years that prevented him from filling the
wetlands on his property—indeed, the amended complaint refers to an “eleven-year battle” that
allegedly began in 2002 when Fairhope filed written objections to Breland’s Corps permit
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application. See Doc. 23-2 ¶ 70. Breland received a permit at that time despite Fairhope’s
objections, so no injury attached at that point. Nevertheless, Fairhope issued its first stop-work
order to Breland on March 27, 2008. The stop-work order precipitated precisely the event—
Breland’s inability to fill the wetlands—that forms the basis of the alleged injury in the Breland
action. It also prompted an initial lawsuit by Breland in 2008, which was later voluntarily
dismissed. The stop-work orders issued by Fairhope and the city’s other allegedly deliberate
attempts to thwart Breland’s development plans—shelving Breland’s permit application and
revamping city ordinances—all share common facts and circumstances, and thus, are related acts
for purposes of insurance coverage.
Consequently, the allegedly wrongful act at issue here can be traced at least to March 27,
2008, when Fairhope issued the first stop-work order. Fairhope was well aware by that time of
Breland’s plan to fill the wetlands and had taken affirmative actions to prevent it. Thus, the alleged
injury could easily be foreseen. Moreover, Breland alleges that he spent $144,000 to purchase
mitigation credits and dedicated a portion of his land to conservation as part of the requirements
of his 2002 permit, so the money damages he claims in his lawsuit already had begun to accrue.
Accordingly, the wrongful acts alleged here predate the insurance policies, and the PEML part
does not apply. For the same reasons already stated, Breland’s claimed losses also would have
been evident to Fairhope when it issued the first stop-work order, and thus, the “known wrongful
acts” exclusion would preclude coverage as well.6
Here again, Charter Oak raises additional arguments for denying coverage under the PEML part
that are unnecessary to address. Briefly, however, Breland argues that the PEML part excludes
coverage for “bodily injury” or “property damage” and argues that, to the extent the Court rejects
its prior argument and finds Breland’s claims may be considered “property damage” under the
terms of the policy, they are excluded under this part. The PEML part definition of “property
damage” mirrors that found in the CGL part. As the Court finds the damages alleged fall within
the definition of “property damage,” coverage is also excluded on that basis.
6
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C.
Indemnification
Finally, Charter Oak argues that a determination that it has no duty to defend Fairhope in
the Breland action is determinative of the narrower issue of whether it has a duty to indemnify
Fairhope in the same action. Thus, Charter Oak argues that the indemnification issue is ripe for
adjudication and seeks declaratory judgment in its favor. As noted above, the Court stayed both
the issue of indemnification and Fairhope’s allegation of breach of good faith pending a final
outcome in the Breland action. See Doc. 3. Fairhope does not address this argument in its
response. See Doc. 26.
As Charter Oak asserts, Alabama law “holds that an insurer’s duty to defend may be
broader than its duty to indemnify.” Universal Underwriters Inc. v. Stokes Chevrolet, Inc., 990 F.
2d 598, 605 (11th Cir. 1993) (citing U.S. Fid. & Guar. Co. v. Armstrong, 479 So. 2d 1164, 1168
(Ala. 1985) and Lawler Mach. & Foundry Co. v. Pac. Indem. Ins. Co., 383 So. 2d 156, 157 (Ala.
1980)); see also Evanston Ins. Co. v. Lett, Civ. Act. No. 11-0383-WS-C, 2012 WL 4927958, at
*4, 2012 U.S. Dist. LEXIS 148357, at *15 (S.D. Ala. Oct. 15, 2012) (stating that, under Alabama
law, the duty to defend “is more expansive than the duty to indemnify”).
“[A] court’s
determination that the insurer has no duty to defend requires a finding that there is no duty to
indemnify.” Trailer Bridge, Inc. v. Ill. Nat’l Ins. Co., 657 F.3d 1135, 1146 (11th Cir. 2011)
Charter Oak also asserts that the PEML part does not provide coverage for damages “first made or
brought” during the policy period, arguing that Breland first brought these claims in his initial
2008 lawsuit, which was voluntarily dismissed. See Docs. 11 at 199, 23-4, 23-5. However,
Breland seeks only declaratory and injunctive relief in that complaint. Thus, some of the claims
raised in Breland’s 2013 action were not first brought in the 2008 complaint. Accordingly, that
argument is rejected.
Page 19 of 20
(quoting Phila. Indem. Ins. Co. v. Yachtsman’s Inn Condo Ass’n, Inc., 595 F. Supp. 2d 1319, 1322
(S.D. Fla. 2009)).
Because Charter Oak has no duty to defend Fairhope in the Breland action, the Court
necessarily finds that the narrower issue of indemnification is also determined in Charter Oak’s
favor.
V.
CONCLUSION
Based on the foregoing, the Court GRANTS summary judgment in favor of Charter Oak
as to duty to defend and DENIES Fairhope’s countermotion, finding Plaintiff has no duty to
defend Fairhope in the Breland action. The Court LIFTS the stay as to indemnification and
GRANTS summary judgment in favor of Charter Oak as to indemnification, finding Charter Oak
has no duty to indemnify Fairhope in the Breland action.
DONE and ORDERED this 11th day of August 2020.
/s/ Terry F. Moorer
TERRY F. MOORER
UNITED STATES DISTRICT JUDGE
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