Spivey et al v. American Casualty Company of Reading, Pennsylvania

Filing 14

ORDER granting American Casualty's 5 Motion to Dismiss. Plaintiffs' claims, taken as true, fail to state a claim against American Casualty. Signed by Chief Judge Lisa G. Wood on 9/1/2015. (ca)

3n the Eniteb Statto 3ttritt Court
for the boutbern flttrttt of georgia
Waptro 3ibiion
MARY JEAN SPIVEY and DOUGLAS
ASPHALT PAVING, INC., as
assignees of DIXIE
ROADBUILDERS, INC.,
Plaintiffs,
V

CV 515-004

.

AMERICAN CASUALTY COMPANY OF
READING, PENNSYLVANIA,
Defendants.
ORDER

In this insurance action, Plaintiffs Mary Jean Spivey and
Douglas Asphalt Paving, Inc., seek to enforce an assignment of
rights they received in a settlement from Dixie Roadbuilders,
Inc., against Dixie's insurer, Defendant American Casualty
Company of Reading, Pennsylvania. American Casualty moves to
dismiss Plaintiffs' complaint under Federal Rule of Civil
Procedure 12(b) (6) on the theory that the occurrence for which
Plaintiffs seek coverage, conversion, was not an occurrence
covered under Dixie's liability policy with American Casualty.
See Dkt. no. S. Because the underlying policy does not cover
conversion, Plaintiffs' claims fail as a matter of law and
American Casualty's Motion to Dismiss (Dkt. no. 5) is GRANTED.

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FACTUAL AND PROCEDURAL BACKGROUND

The Court draws these facts from Plaintiffs' Complaint and
accepts them as true in considering American Casualty's Motion
to Dismiss. See Am. United Life Ins. Co. v. Martinez, 480 F.3d
1043, 1057 (11th Cir. 2007)
Plaintiff Douglas Asphalt had several roadwork contracts
with the Georgia Department of Transportation throughout the
state. However, Georgia DOT terminated these contracts,
ostensibly because the asphalt Douglas Asphalt mixed for the
projects was deficient in some respects. Dkt. no. 1, Ex. A
("Compi.") ¶ 6.
Lumbermens Mutual Casualty Company had written security
bonds on one of Douglas Asphalt's projects located in Wayne
County, Georgia. After Georgia DOT terminated its contracts with
Douglas Asphalt, Lumbermens hired Dixie Roadbuilder's Inc.
("Dixie"), to finish the Wayne County project. Despite the
switch in contractors, Douglas Asphalt had to leave millions of
dollars' worth of traffic control equipment and inventory at the
project site for public safety reasons. This equipment belonged
to Plaintiff Spivey, who had leased it to Douglas Asphalt. When
it finished the project, Lumbermens, "without legal authority,
took control of the equipment and either gave or sold it to"
Dixie. Id. 191 7-8.

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Plaintiffs filed a civil suit against Dixie (the
"Underlying Action"), alleging that Dixie had engaged in
"willful and malicious conversion of Plaintiffs' security
interest or rights" in the equipment. Dixie then sought a
defense under a general liability policy it had with its
insurer, Defendant American Casualty. American Casualty refused
to provide the defense. Nevertheless, Plaintiffs Spivey and
Douglas Asphalt obtained consent judgments from Dixie in the
amount of $2,000,000 each, or $4,000,000 total. They also
received from Dixie an assignment of all of Dixie's rights to
any claims it may have against American Casualty. Id. ¶91 10-14.
Plaintiffs sued American Casualty in their capacity as
assignees in Ware County State Court on December 8, 2014. See
Id. The Complaint alleges that American Casualty denied its
insured coverage in bad faith and breached a statutory duty to
indemnify a claim pursuant to Georgia Code section 33-4-6. The
Complaint also seeks punitive damages and attorney's fees. Id.
191 18-25. American Casualty removed the case to this Court on
January 14, 2015. Dkt. no. 1.
LEGAL STDRD

When ruling on a motion to dismiss brought pursuant to Rule
12(b) (6), a district court must accept as true the facts as set
forth in the complaint and draw all reasonable inferences in the
plaintiff's favor. Randall v. Scott, 610 F.3d 701, 705 (11th
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Cir. 2010). Although a complaint need not contain detailed
factual allegations, it must contain sufficient factual material
"to raise a right to relief above the speculative level." Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). At a minimum, a
complaint should "contain either direct or inferential
allegations respecting all the material elements necessary to
sustain a recovery under some viable legal theory." Fin. Sec.
Assurance, Inc. v. Stephens, Inc., 500 F.3d 1276, 1282-83 (11th
Cir. 2007) (per curiam) (quoting Roe v. Aware Woman Ctr. for
Choice, Inc., 253 F.3d 678, 683 (11th Cir. 2001)).
A district court is usually limited to reviewing the
allegations on the face of the complaint in considering a motion
to dismiss for failure to state a claim. Rule 12(d) provides:
If, on a motion under Rule 12(b)(6) or 12(c), matters
outside the pleadings are presented to and not
excluded by the court, the motion must be treated as
one for summary judgment under Rule 56. All parties
must be given a reasonable opportunity to present all
the material that is pertinent to the motion.
Fed. R. Civ. P. 12(d). However, "courts must consider the
complaint in its entirety, as well as other sources courts
ordinarily examine when ruling on Rule 12(b) (6) motions to
dismiss, in particular, documents incorporated into the
complaint by reference, and matters of which a court may take
judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 322 (2007) . Courts may consider these other

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sources, along with public records, without converting the
motion to dismiss into a motion for summary judgment. Universal
Express, Inc. v. U.S. S.E.C., 177 F. App'x 52, 53-54 (11th Cir.
2006); see also Bryant v. Avado Brands, Inc., 187 F.3d 1271,
1280 n.16 (11th Cir. 1999) (noting that other courts allow a
defendant to introduce a document "central to the claim" on a
Rule 12(b) motion to dismiss when a plaintiff bases its claims
on that document but fails to attach it to the complaint).
Here, the underlying policy is incorporated into the
Complaint by reference. See Compi. ¶ 15 ("Defendant American
Casualty issued a commercial general liability insurance policy
to Dixie Roadbuilders, Inc., Policy Number U2070988189 .

.").

The Complaint also references the complaint in the underlying
suit between Plaintiffs and Dixie. Compi. ¶ 10 ("Plaintiffs
filed a civil suit against Dixie Roadbuilders, Inc., alleging
that Dixie Roadbuilders, Inc. exercised control over the
equipment in a manner inconsistent with Plaintiffs' interest
which constitutes willful and malicious conversion . . .

•

1)•

Because these documents are incorporated into the Complaint by
reference and they are central to Plaintiffs' claims, the Court
will consider them on American Casualty's Motion to Dismiss
without first converting it into a motion for summary judgment.

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D IC SUS S ION

Plaintiffs bring claims against American Casualty for "bad
faith denial of coverage" and breach of duty to indemnify
pursuant to Georgia Code section 33-4-6, along with derivative
claims for punitive damages and attorney's fees. Compi. IT 1826. The substantive claims concern only American Casualty's
denial of coverage to Dixie Roadbuilders in the underlying
litigation—a denial which Plaintiffs may challenge as assignees
of Dixie's claims against American Casualty. American Casualty
argues that the Complaint should be dismissed because it was not
obligated to cover Dixie for the tort of conversion and
therefore cannot have acted in bad faith in refusing to
indemnify Dixie. Plaintiffs counter that, despite the fact the
Complaint explicitly claims American Casualty wrongly refused to
cover Dixie's "willful and malicious" conversion, the Complaint
can be liberally construed to allege that American Casualty
wrongly refused to cover Dixie's "negligent" conversion.
Plaintiffs further argue that negligent conversion would be a
covered occurrence under the underlying policy. Alternatively,
to the extent the Complaint cannot be construed to allege a
claim for bad faith refusal of coverage for negligent
conversion, Plaintiffs argue that they should be given leave to
amend their Complaint.

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In Georgia, the allegations in a complaint against an
insured provide the basis for determining whether coverage
exists. Ga. Farm Bureau Mut. Ins. Co. v. Hall Cnty., 586 S.E.2d
810, 811 (Ga. Ct. App. 2003). Plaintiff's complaint against
Dixie in the underlying suit alleged one cause of action for
conversion. Compi. ¶ 4; Dkt. no. 5-2, ¶ 13 (alleging "willful
and malicious conversion."). Thus, for Plaintiffs to maintain
their assigned denial of coverage claim against American
Casualty, they will have to show that "conversion" as alleged in
the underlying complaint is a covered occurrence under Dixie's
Policy with American Casualty.
The Policy provides that American Casualty will pay for
covered property damage caused by an "occurrence." Dkt. no. 5-1,
p. 14, Sec. 1(1) (b) (1). The Policy defines "occurrence" as "an
accident, including continuous or repeated exposure to
substantially the same general harmful conditions." Id. at
p. 25, Sec. IV(13) . The Policy does not further define
"accident." However, the Georgia Supreme Court has held that the
term "accident," as undefined in an insurance policy, means "an
unexpected happening rather than one occurring through intention
or design." Am. Empire Surplus Lines Ins. Co. v. Hathaway, 707
S.E.2d 369, 371 (Ga. 2011). This does not necessarily mean that
an intentional act cannot give rise to an "accident"—the Georgia
Supreme Court in Hathaway went on to hold that a "deliberate
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act, performed negligently, is an accident if the effect is not
the intended or expected result; that is, the result would have
been different had the deliberate act been performed correctly."
Id. at 372.
The "deliberate act, performed negligently," in Hathaway
was a plumber's negligent installation of some pipe at a
construction site. Id. at 370. Because of the faulty
workmanship, the pipes failed and caused water damage to
surrounding properties. Id. Hathaway sought recovery from the
negligent plumber's insurance company, American Empire. American
Empire denied coverage under the theory that the negligent
plumbing work was not an "accident" covered under the Policy.
However, the Georgia Court of Appeals held that the water
damages resulting from the negligent workmanship was an
"accident," and the Georgia Supreme Court agreed. Id. at 372.
This Court has had occasion once before to apply Hathaway's
holding to the tort of conversion. In Capital City Insurance Co.
v. Forks Timber, a landowner had contracted with a logging
company to remove some timber that the landowner had represented
was unencumbered by liens. CV 511-039, 2012 WL 3757555,

*1 (S.D.

Ga. Aug. 28, 2012). In fact, there was a lien on the timber, and
the lien-holder sued the logging company for conversion of its
security interest in the timber. Id. The logging company sought
indemnification from its insurance provider, who denied coverage
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on the theory that conversion is not an "accident," and thus not
a covered loss. Id.
The Court observed that a conversion requires "'an
intentional exercise of dominion or control over a chattel'
which seriously interferes with the right of another to control
the chattel." Id. at *4 (quoting Restatement (Second) of Torts §
222A (1965)). The logging company, channeling Hathaway, argued
that conversion could nevertheless give rise to an "accident,"
because even though the logging company intentionally harvested
the timber, the legal consequence of the harvest (i.e., the
conversion), was an unintended result of the act. Id. at *5
The Court rejected this application of Hathaway: "Without
some indication to the contrary—either in the text of Hathaway
or from the Georgia courts—this Court reads Hathaway as limited
to faulty workmanship cases. This is not a case about negligent,
faulty workmanship, and, accordingly, Hathaway does not apply."
Id.
Neither is the present case about faulty workmanship. In
fact, it is not even about the unintended legal consequences of
an intentional act. Unlike the case in Hathaway, where the
logging company unwittingly converted the timber in question,
Plaintiffs here have alleged that Dixie willfully and
maliciously converted Plaintiff's equipment. Compl. ¶ 10.

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Thus, Plaintiffs' Complaint in this case fails on two
levels: First, because the allegations in the underlying action
determine whether coverage exists for Plaintiffs' denial of
coverage claims, there is no coverage here because a "willful
and malicious" conversion is not an "accident" under the Policy.
The underlying complaint did not seek a remedy for the
unintended consequences of an intentional act, but rather for
the "willful and malicious" conversion itself. The conversion
was not an accident, and is not covered under the Policy. As a
matter of law, Plaintiffs cannot prevail on their claim that
American Casualty refused to cover the willful and malicious
conversion. Second, even assuming the Court looks past the
"willful and malicious" language in the underlying complaint and
assumes that the "occurrence" in question was actually Dixie's
negligent conversion of Ms. Spivey's property, this is not the
type of unintended result from a negligent act that Hathaway and
other Georgia courts have construed as an "accident" under
general liability policies. Even if Dixie and Lumbermens did not
know that the traffic equipment was not theirs to take, such an
unintentional conversion is not an "accident" under Georgia law.
Plaintiffs suggest that they should be allowed to amend
their Complaint to address these deficiencies. Any such
amendments would be futile. No matter what changes Plaintiffs
would make in the present Complaint, they cannot amend the
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underlying complaint which determines the existence of coverage
in this action. The underlying complaint alleged a "willful and
malicious" conversion, for which there is no coverage under the
Policy.' This fatal deficiency is immutable.
[SLPf.it')l

A conversion—whether "willful and malicious" or merely
"negligent"—is not an "accident" for general liability policies
under Georgia law, and thus is not a covered "occurrence" in
this case. Plaintiffs' claims, taken as true, fail to state a
claim against American Casualty. 2 As such, the Court GRANTS
American Casualty's Motion to Dismiss (Dkt. no. 5).

SO ORDERED,

this 1ST day of September, 2015.

LISA GODBEY OOD, CHIEF JUDGE
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA

The underlying complaint also sought punitive damages for the conversion,
which is further indication that the "occurrence" in question was intentional
and not an "accident." See Hall Cnty., 586 S.E.2d at 718 (noting that factual
allegations do not constitute an occurrence where the plaintiff sought
punitive damages in connection with the act and thus "explicitly alleged that
the act was intentional or at least evinced an expectation of harm.")
2
Because the underlying claims in this case are dismissed, the derivative
punitive damages and attorney's fees claims must also be dismissed. The Court
notes, though, that Plaintiffs concede that the punitive damages claim should
be dismissed regardless of the merits of their underlying claims.
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