Scottsdale Insurance Company v. The Alarm Company, LLC et al
Filing
65
OPINION AND ORDER GRANTING 33 Plaintiff's Motion for Summary Judgment and DENYING 46 Defendants' Cross Motion for Summary Judgment. Signed by U.S. District Judge Robert H. Cleland on 3/30/16. (lgw)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
SCOTTSDALE INSURANCE CO.,
Plaintiff,
v.
Case No. 14-2636
THE ALARM COMPANY, LLC, THOMAS
BRADY, SUSAN BRADY, and LANCE
WOODS
Defendants.
/
OPINION AND ORDER GRANTING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT AND DENYING
DEFENDANTS’ CROSS MOTION FOR SUMMARY JUDGMENT
This insurance dispute arises out of a contract between Plaintiff, Scottsdale
Insurance Company (“Scottsdale”), and Defendants, The Alarm Company and its
principals. Scottsdale seeks a declaratory judgment that it does not owe Defendants a
duty to provide a defense and indemnity in connection with claims asserted by ADT
Services in the related, underlying litigation. See ADT Servs. AG and ADT Security
Servs., Inc. v. Thomas Brady, Susan Brady, Lance Woods, and The Alarm Company,
LLC, No. 10-cv-02197 (W.D. Tenn. Sept. 15, 2014). Pending before the court is
Plaintiff’s Motion for Summary Judgment. (Dkt. # 33.) Defendants have filed a
Response and Cross-Motion for Summary Judgment, (Dkt. # 46.), to which Plaintiff has
replied, (Dkt. # 49). On August 27, 2015 the court ordered supplemental briefing on the
threshold issue of whether Defendants failed to give Plaintiff proper notice of their
claims, which was a dispositive issue raised in the Amended Complaint (Count VI) but
not addressed in the parties’ motions. (Dkt. # 59.) The parties simultaneously filed
supplemental briefs on that issue. (Dkt. ## 61, 62.) The matter is now fully briefed and
the court determines that a hearing is not needed. See W.D. Tenn. LR 7.2(d). For the
following reasons the court will grant Plaintiff’s Motion for Summary Judgment and deny
Defendant’s Cross-Motion for Summary Judgment.
I. BACKGROUND
From 2009 to 2013, Scottsdale provided Defendants insurance against liability
for certain business-related activities. (Dkt. # 56, Pg. ID 1469-70.) Before Defendants
obtained insurance from Scottsdale, they were involved in litigation and a resulting
settlement with ADT Services AG and ADT Security Services, Inc. (collectively “ADT”)
concerning some allegedly fraudulent conduct. (Id. at Pg. ID 1471.) In that litigation,
which took place from 2005 to 2008, ADT alleged that it had terminated another
company, Crime Prevention, Inc., as an authorized dealer and that within months the
company reformed as The Alarm Company in order to shield Crime Prevention, Inc and
its principal Thomas Brady from liability. The Alarm Company then proceeded to
approach its old customers, to whom Defendants had previously sold ADT contracts,
and, claiming to be still affiliated with ADT, convince them to break their ADT contracts
and sign up with a new security company that Defendants now represented. (Id. at Pg.
ID 1472-73.) In April 2008, ADT and Defendants settled, and Defendants agreed not to
solicit ADT customers within a certain geographical area. (Id.)
Shortly thereafter, in May of 2008, a local news station published an article
detailing allegations that representatives from The Alarm Company duped an elderly
woman into believing they were representatives of ADT and sold her $1,800 of security
2
services. (Dkt. # 56-8, Pg. ID 1968-69.) According to the article, The Alarm Company
responded to requests for interviews concerning the article with a five page letter from
one of the attorneys of record in this suit, Jeff Germany. (Id.) Apparently prompted by
the news story, on December 1, 2009, ADT sent Susan and Thomas Brady a cease and
desist letter threatening legal action and stating that ADT had learned that The Alarm
Company was not complying with the settlement agreement. (Id. at Pg. ID 1982-83.)
After the cease and desist letter, another news station published another account of
Defendants’ alleged scam in early March of 2010, this time the putative targets were a
95 year old woman and her 100 year old sister. (Id. at 1976-77.)
ADT initiated the current underlying litigation on March 22, 2010, alleging that
after the 2008 settlement, The Alarm Company continued to interfere with its customer
contracts by using deceptive and unlawful tactics to force ADT customers to transfer
their contracts to the Alarm Company. (Id.). ADT claimed that Defendants told
customers that ADT was no longer in business, that they were canceling all contracts
and services, that The Alarm Company was ADT’s successor, and that consumers had
to switch their contracts to the Alarm Company. (Id. at Pg. ID 1473-74.) On January 29,
2013, the Complaint was amended to add a breach of contract claim. (Id. at Pg. ID
1471.) Over three years after the original Complaint was filed and over seven months
after the Amended Complaint was filed, Defendants notified Scottsdale of the claims
against The Alarm Company. (Id. at Pg. ID 1483.) That litigation ended with a
settlement and an accompanying permanent injunction ordering Defendants not to
engage in the alleged deceitful conduct. See ADT Servs. AG, No. 10-cv-02197 (W.D.
Tenn. Sept. 15, 2014).
3
II. STANDARD
A court will enter summary judgment only when “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). “In deciding a motion for summary judgment, the court must view the
evidence in the light most favorable to the non-moving party, drawing all reasonable
inferences in that party’s favor.” Sagan v. United States, 342 F.3d 493, 497 (6th Cir.
2003). The movant has the initial burden of showing the absence of a genuine dispute
as to a material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden
then shifts to the non-movant, who must put forth enough evidence to show that there
exists “a genuine issue for trial.” Horton v. Potter, 369 F.3d 906, 909 (6th Cir. 2004)
(citation omitted). The non-movant “must do more than simply show that there is some
metaphysical doubt as to the material facts.” Matsushita v. Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586 (1986). Additionally, the court’s role is not to weigh the
evidence and rule on the truth of the matter, but to determine whether there is a genuine
issue to be considered at trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249
(1986). Summary judgment, therefore, is not appropriate when “the evidence presents a
sufficient disagreement to require submission to a jury.” Id. at 251–52 (1986).
III. DISCUSSION
In Count VI of the Amended Complaint, Plaintiff alleges that Defendants
breached the notice provision of their insurance contract and that Scottsdale is therefore
relieved of its obligation to provide coverage. (Dkt. # 56, Pg. ID 1482.) The insurance
4
policies in force at the relevant times require that the insured give notice “as soon as
practicable” of an “occurrence or offense” or “error or omission” that may result in a
claim. (See, e.g., Dkt. # 56-3, Pg. ID 1589.) Additionally, the policies include a provision
that requires an insured to give notice “as soon as practicable” after a claim or suit has
been brought. (Id.) Defendants argue that even if notice was delayed there was no
prejudice to Scottsdale, and the law requires some prejudice arising from the delay in
order to deny coverage.
Tennessee law governs this court’s interpretation of the insurance policies at
issue in this case. See Erie R.R. v. Tompkins, 304 U.S. 64, 58 (1938); U.S. Fire Ins. Co.
v. Vanderbilt Univ., 267 F.3d 465, 470 (6th Cir. 2001). Under Tennessee law, “once it is
determined that the insured has failed to provide timely notice in accordance with the
insurance policy, it is presumed that the insurer has been prejudiced by the breach.”
Alcazar v. Hayes, 982 S.W.2d 845, 856 (Tenn. 1998). The insured then has the burden
to proffer “competent evidence that the insurer was not prejudiced by the insured’s
delay.” Id. Thus the court must engage in a two-step inquiry. First, the court must
determine whether The Alarm Company gave timely notice to Scottsdale in accordance
with the policy. Second, if The Alarm Company did not give timely notice, the court must
determine if The Alarm Company has rebutted the presumption of prejudice and created
a genuine issue of material fact for trial.
As to whether notice was timely, the Tennessee Supreme Court has held that
when an insurance policy requires notice “as soon as practicable,” the insured must
“give notice when he becomes, or should become, aware of facts which would suggest
to a reasonably prudent person that the event for which coverage is sought might
5
reasonably be expected to produce a claim against the insurer.” Reliance Ins. Co. v.
Athena Cablevision Corp., 560 S.W.2d 617, 618 (Tenn. 1977). The court noted that “‘as
soon as practicable’ are not words of precise or definite import. They are roomy words.
They provide for more or less free play. They are in their nature ambulatory and subject
under the guiding rule, to the impact of particular facts on particular cases.” Id. (quoting
Transamerica Ins. Co. v. Parrott, 531 S.W.2d 306, 312-13 (Tenn. Ct. App. 1975)). Thus,
the words “must be construed as requiring the notice within a reasonable time under all
the circumstances, to effectuate the objects and purposes of the notice clause.” Id.
Defendants rightly spend little time arguing that they gave timely notice. They
appear to argue, instead, that it is somehow relevant to the timeliness inquiry that they
“had counsel and [were] actively engaged in the defense of the allegations.” (Dkt. # 62,
Pg. ID 2313.) It is undisputed, however, that news reports concerning the fraudulent
activity began surfacing in May 2008, and Defendants apparently at that point engaged
the services of attorney Jeff Germany to dispute the claims. (Dkt. # 56-8, Pg. ID 196869.) Certainly if they saw the need to engage the representation of an attorney,
Defendants had “become[] . . . aware of facts that . . . might reasonably be expected to
produce a claim against the insurer.” See Reliance, 560 S.W.2d at 618. At the very
latest, Defendants incurred a duty to notify Scottsdale when ADT sent the December 1,
2009 cease and desist letter that threatened legal action for breaching the settlement
agreement. The Alarm Company did not notify Scottsdale of these occurrences until
August 15, 2013, five years after engaging legal representation on the matter and three
and a half years after receiving a cease and desist letter from ADT. Defendants even
6
waited years after ADT filed its original complaint in the underlying matter. The Alarm
Company failed to timely notify Scottsdale of the claims at issue here.
The court must now consider whether Defendants can overcome the
presumption of prejudice, Alcazar, 982 S.W.2d at 856, and concludes that they cannot.
Courts have held that an insurer is prejudiced when timely notice of a claim would have
given the insurer the opportunity to cancel or decline to renew a policy, thereby
eliminating claims for future related acts. 1 Allan D. Windt, Insurance Claims and
Disputes § 1:4 n.32 (6th ed.). Plaintiff was prejudiced here because Defendants
continued to renew their insurance contract year after year, while continuing to engage
in the conduct that gave rise to the instant claims. By delaying notice of the occurrences
at issue here, Defendants deprived Plaintiffs of information that would have been highly
relevant in the decision to renew or cancel The Alarm Company’s insurance contract. In
fact, once Scottsdale finally learned of the claims against The Alarm Company, it did
cancel coverage. Further, Scottsdale lost the opportunity to intervene in order to stop or
mitigate the conduct that, at least as early as May 2008, began the accrual of liability
that continued for years thereafter.
Defendants cite cases in which courts have found that significant delays, even a
delay until after a verdict was entered against the insured, were not found to prejudice
insurers. See Nat’l Union Fire Ins. Co. v. Mead Johnson & Co., LLC, 735 F.3d 539 (7th
Cir. 2013); Falcon Steel Co. v. Md. Cas. Co., 366 A.2d 512 (Del. Super. Ct. 1976).
These cases are distinguishable, however. In National Union Fire, the parties do not
appear to have argued that the duty to notify the insurer was triggered at any time
before the underlying lawsuit in that case was filed. 735 F.3d at 542-44. The suit in that
7
case, involving claims of false advertising, was filed and resulted in a verdict within one
year. Id. at 542 (law suit filed in 2009 and concluded with a jury verdict by December
2009). The insurer, therefore, would have had no opportunity to intervene in order to
mitigate or cut-off liability even if the insured had given timely notice. The same is not
true in this case where the allegedly tortuous conduct that gave rise to the insurance
claim was ongoing for a span of years. The same goes for Falcon Steel, which involved
a single wrongful-death claim. 366 A.2d at 513. There, unlike here, earlier notice would
not have given the insurer the opportunity to mitigate any potential claim against it by
either forcing the insured to modify its conduct or by canceling coverage.
In sum, though the language at issue here, “as soon as practicable,” should be
read to give insurance claimants “more or less free play,” Reliance, 560 S.W.2d at 618,
the court has little trouble concluding as a matter of law that it does not give Defendants
the right to delay notice for years without explanation or justification. Further, it does not
allow insured entities to hide, by omission, conduct that would lead an insurer to
reassess its decision to assume an insured’s risk.
IV. CONCLUSION
Accordingly, IT IS ORDERED that Plaintiff’s Motion for Summary Judgment (Dkt.
# 33) is GRANTED. Defendant’s Cross-Motion for Summary Judgment (Dkt. # 46) is
DENIED.
8
IT IS FURTHER ORDERED that Plaintiff shall SUBMIT to the court a proposed
declaratory judgment by April 8, 2016. If there is an objection to the proposed
language, Defendants may respond and articulate the objection no later than April 15,
2016.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: March 30, 2016
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, March 30, 2016, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
(313) 234-5522
C:\Users\wagner\AppData\Local\Temp\notesDF63F8\14-2636.SCOTTSDALE.grantSMJ.smq.V2.wpd
9
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?