Liberty Mut. Ins. Co. v. Wheelwright Trucking Co.

• Decision Date: 27 November 2002
• Citation: 851 So.2d 466
• Parties: LIBERTY MUTUAL INSURANCE COMPANY v. WHEELWRIGHT TRUCKING CO., INC. GAN North America Insurance Company v. Wheelwright Trucking Co., Inc. Federal Insurance Company v. Wheelwright Trucking Co., Inc. Gerling America Insurance Company v. Wheelwright Trucking Co., Inc.
• Court: Alabama Supreme Court

851 So.2d 466

LIBERTY MUTUAL INSURANCE COMPANY v. WHEELWRIGHT TRUCKING CO., INC.

GAN North America Insurance Company v. Wheelwright Trucking Co., Inc.

Federal Insurance Company v. Wheelwright Trucking Co., Inc.

Gerling America Insurance Company v. Wheelwright Trucking Co., Inc.

1010818, 1010819, 1021.

Supreme Court of Alabama.

November 27, 2002.

Brent J. Kaplan of Robins, Kaplan, Miller & Ciresi, L.L.P., Atlanta, Georgia; and Joseph Carpenter, Montgomery, for appellant Liberty Mutual Insurance Company.

Walter J. Price III of Huie, Fernambucq & Stewart, L.L.P., Birmingham, for appellant GAN North America Insurance Company.

Walter J. Price III of Huie, Fernambucq & Stewart, L.L.P., Birmingham; and J. Stephen Berry of Swift, Currie, McGhee & Hiers, Atlanta, Georgia, for appellant Federal Insurance Company.

H.L. Ferguson, Jr., and Stacy A. Linn of Ferguson, Frost & Dodson, L.L.P., Birmingham; and Joseph K. Powers and Lawrence Klein of Sedgwick, Detert, Moran & Arnold, New York City, New York, for appellant Gerling America Insurance Company.

W. Percy Badham III, Robert W. Tapscott, Jr., and Brannon J. Buck of Maynard, Cooper & Gale, P.C., Birmingham; Larry W. Morris and Randall S. Haynes of Morris, Haynes & Hornsby, Alexander City; William H. Robertson of Robertson, Brunson & New, L.L.C., Eufaula; and Paul W. Brunson, Jr., of Robertson, Brunson & New, L.L.C., Clayton, for appellee.

HARWOOD, Justice.

Liberty Mutual Insurance Company, GAN North America Insurance Company, Federal Insurance Company, and Gerling America Insurance Company, the insurers of Dorsey Trailers, Inc. ("Dorsey"), appeal from the respective summary judgments entered against them and in favor of Wheelwright Trucking Company, Inc. ("Wheelwright"), by the Circuit Court of Barbour County in certain garnishment proceedings. We reverse and remand in cases no. 1010818, no. 1010819, and no. 1010820; we affirm in part, reverse in part, and remand in case no. 1010821.

I. History of the Case

In October 1994, Wheelwright and Eufaula Equipment Associates, L.L.C. ("Eufaula"),¹ purchased 44 trailers from Scruggs, Incorporated ("Scruggs"), a trailer dealer. The trailers were manufactured by Dorsey. During the next five years, Liberty Mutual Insurance Company ("Liberty"), GAN North America Insurance Company ("GAN"), Federal Insurance Company ("Federal"), and Gerling America Insurance Company ("Gerling")(hereinafter referred to jointly as "the insurers"), and National Union Fire Insurance Company ("National Union") successively and respectively issued excess commercial liability insurance policies and/or "umbrella" excess liability insurance policies to Dorsey. An "umbrella" commercial liability policy is generally issued in addition to an excess commercial liability policy to provide additional coverage for claims that exceed the limits of the excess commercial liability policy.

On November 8, 1999, Wheelwright and Eufaula sued Dorsey and Scruggs in the Circuit Court of Barbour County on theories of breach of contract, breach of warranty, fraud, and negligence, and asserting a claim under the Alabama Extended Manufacturer's Liability Doctrine ("AEMLD"). Although the original complaint generally sought damages on the ground that the trailers were defective, those general claims were refined during litigation into claims seeking compensation for "economic damages," i.e., lost profits and lost business opportunities, arising from Wheelwright's inability to use its tractors to haul concentrated heavy loads because, the plaintiffs alleged, the trailers purchased from Dorsey were not suitable to haul those types of loads even though capacity for such loads was specified in the purchase contract and even though Dorsey otherwise represented that the trailers would be able to haul such loads. The insurers and National Union denied Dorsey's request for coverage and refused to provide it with a defense.

In the fall of 2000, Federal, Gerling, and Liberty filed complaints in the United States District Court for the Northern District of Georgia against Dorsey, Wheelwright, and Eufaula seeking judgments declaring that their respective policies did not require them to provide coverage to Dorsey. GAN filed a similar action in the United States District Court for the Middle District of Alabama with respect to coverage under its policies. Those declaratory-judgment actions were subsequently consolidated in the Federal District Court for the Middle District of Alabama. The parties unsuccessfully attempted to mediate their disputes on two occasions—September 12, 2000, and December 6, 2000.

On December 4, 2000, Dorsey filed a petition in the United States Bankruptcy Court of the Middle District of Alabama pursuant to Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 1101 et seq. The Barbour County action and the federal declaratory-judgment actions were all stayed pursuant to the "automatic stay" provision of 11 U.S.C. § 362. Thereafter, the insurers and National Union all filed motions for relief from the stay in order to proceed with their respective declaratory-judgment actions. In January 2001, Dorsey entered into a settlement agreement with Wheelwright and Eufaula. Wheelwright and Eufaula filed a motion with the bankruptcy court seeking relief from the automatic stay of their action against Dorsey in the Barbour Circuit Court and the approval of a proposed order of the Barbour Circuit Court incorporating the settlement. The insurers and National Union filed objections to the "form and contents" of the proposed order approving the settlement, on the ground that the proposed order contained language concerning the conduct of the insurers that was not substantiated by any evidence. The objections all contained substantially the same language indicating that the insurers and National Union did not object "to the entry of a proper order at the proper time relieving or modifying the stay of 11 U.S.C. § 362 for the purpose of the entry of a consent judgment as announced by the litigating parties...." On January 8, 2001, the bankruptcy court deferred ruling on all pending motions for relief from the automatic stay until January 30, 2001.

On January 17, 2001, Dorsey presented the proposed settlement to the bankruptcy court in what it styled as a "Motion to Compromise and Settle Claim" ("the motion to compromise"). Each insurer was served with a copy of the motion to compromise. In pertinent part, the motion stated:

"To reduce potential claims against the bankruptcy estate and because it is unable to defend the Action, the Debtor has negotiated a resolution whereby the Debtor will agree to a Consent Judgement of $2,500,000 in favor of the Plaintiffs in the Action. The amount of this Consent Judgment is substantially less than the potential liability for the Debtor at trial. In addition, the Plaintiffs have agreed to collect the Consent Judgement only to the extent that the Debtor's insurance provides coverage."

(Emphasis added.) The bankruptcy court held a hearing on the motion to compromise on March 6, 2001; none of the insurers took any action to oppose the motion. On March 9, 2001, the bankruptcy court granted the motion to compromise and lifted the stays as to all of the related lawsuits.

On March 23, 2001, the Barbour Circuit Court entered a judgment against Dorsey ("the consent judgment"). In pertinent part, the consent judgment stated:

"3. To reduce its exposure and because it is financially unable to defend itself, Dorsey has negotiated a Judgment of $2,500,000 in favor of the Plaintiffs. The Plaintiffs have agreed to collect the Judgment only to the extent that Dorsey's insurance provides coverage. Attached hereto and incorporated by reference as Exhibit A is a copy of the Settlement Agreement between the parties and the Order approving said agreement entered by the Honorable William Sawyer, United States Bankruptcy Judge for the Middle District of Alabama dated March 9, 2001. [Exhibit A is not attached to this opinion.]

"4. Dorsey is not, by virtue of this judgment, admitting to any intentional wrongdoing, including fraud.

"Based upon the foregoing, it is hereby ORDERED that a final judgment is entered in favor of Plaintiffs Wheelwright and Eufaula and against Dorsey and that damages are fixed and assessed in the amount of $2,500,000.00 due and owing to Wheelwright[²] pursuant to Rule 54(b) of the Alabama Rules of Civil Procedure, there being no just reason to delay the entry of this judgment. It is further ORDERED that the Plaintiffs may proceed with their claims against Scruggs, Inc. and that this action will remain pending."

On the same day, Wheelwright filed petitions for writs of garnishment in the Barbour Circuit Court against the insurers and National Union seeking to collect on the consent judgment. At different times during April 2001, the insurers and National Union removed the respective garnishment petitions to the United States District Court for the Middle District of Alabama. Wheelwright filed motions on April 24 to remand the removed cases to the Barbour Circuit Court and on August 10, 2001, the federal district court determined that the removals were improvident and remanded the cases. The federal district court also stayed the declaratory-judgment actions pending before it until after there had been adjudication by the Barbour Circuit Court of the petitions for writs of garnishment.³ The insurers and National Union subsequently filed motions with the circuit court requesting that it dismiss the cases or abstain from ruling on the petitions for the writs of garnishment in deference to the adjudication of the declaratory-judgment actions in the federal district court.

Thereafter, the parties conducted further discovery concerning the writs of garnishment and filed cross-motions for a summary judgment. In a detailed order entered on November 13, 2001, the circuit court stated that "[t]he sole issue to be decided in these...