Ala. Gas Corp. v. Travelers Cas. & Sur. Co.

• Decision Date: 16 July 2013
• Docket Number: Case No. CV–10–J–1840–S.
• Parties: ALABAMA GAS CORPORATION, Plaintiff, v. TRAVELERS CASUALTY AND SURETY COMPANY, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

990 F.Supp.2d 1163

ALABAMA GAS CORPORATION, Plaintiff,

v.TRAVELERS CASUALTY AND SURETY COMPANY, et al., Defendants.

Case No. CV–10–J–1840–S.

United States District Court,

N.D. Alabama,

Southern Division.

Signed July 16, 2013.

Fred R. Deleon, Jr., Deleon Law Firm, Haley Andrews Cox, Michael L. Bell, Lightfoot Franklin & White LLC, Rebecca W. Pritchett, Lawler Lansden, Birmingham, AL, W. Scott Laseter, Kazmarek Mowrey Cloud Laseter LLP, Atlanta, GA, for Plaintiff.

Andrew J. Sinor, Jr., John S. Johnson, Hand Arendall LLC, Birmingham, AL, Frank Winston, Jr., Paul E. Janaskie, Ruth S. Kochenderfer, Steptoe & Johnson, LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

INGE PRYTZ JOHNSON, Senior District Judge.

Pending before the court are cross-motions for summary judgment filed by the parties. Each of the claims in this case arises out of defendants' refusal to defend or indemnify plaintiff on a claim for which the plaintiff asserts the insurance policies in question should provide coverage.

As previously set forth by the court, the facts relevant to this case began before 1900. The lengthy, relevant facts are not in dispute, and the court summarizes the same here. The Huntsville Gas Light Company incorporated in 1856 and manufactured gas. That company and its operations moved to the site relevant to this action prior to 1886, under the name Huntsville Gas Light and Coke Company (“HGLC”). See e.g., doc. 130–3 (Exhibit B) at 3. HGLC, under several different names, provided gas produced from various sources to customers until 1946. Spills, leaks and emissions released substances classified as hazardous into the environment.¹ In 1946, the Huntsville facility was converted to a propane air system, and then plaintiff (a corporate successor to the Huntsville company) sold the plant and distribution system to the City of Huntsville in 1949. Depo. of Dennis Unites (doc. 144–1), at 37–38. Although a natural gas pipeline was installed in March 1952, ending the need for the propane system, the City of Huntsville used the site for various utility service purposes until 1967. In 1967 ownership of the site was transferred for purposes of constructing public housing. The plant was demolished, and the Searcy Homes public housing project was completed in 1971, with title to the land passing to the Huntsville Housing Authority at that time. Doc. 133–1 at 6, ¶ 9.h.

From 1947 until 1984, plaintiff allegedly was insured under liability policies issued by various subsidiaries of defendant Travelers Casualty and Surety Company.² In 2008 plaintiff received an “information request” letter from the EPA and a pollution report regarding this site. See e.g., doc. 130–20 (Exhibit N) at 3. Plaintiff forwarded the same to the defendants along with a demand for coverage in October 2008. Id., at 1. In November 2008 defendants notified plaintiff that there was no “formal claim” and thus there could be no coverage until “such a claim or lawsuit is received.” Doc. 130–22 (Exhibit P). In June 2009 the plaintiff received a formal PRP letter, which it again forwarded to the defendant.³ Doc. 130–21 (Exhibit O). On February 3, 2010, the defendants informed plaintiff that there was no “suit” and hence there was no defense obligation on its part. See Memorandum Opinion of December 7, 2010 (doc. 51), at 8–9; see also doc. 130–23 (Exhibit Q). The plaintiff's claims include Declaration of Duty to Defend; Reimbursement for Defense Costs; Bad Faith; Declaration of Duty to Indemnify; and Waiver and Estoppel. In sum, this case concerns whether defendants' denial of insurance coverage to plaintiff was reasonable, and if not, whether such denial was in bad faith.⁴

Because the parties agreed that “no Alabama state court or any federal court applying Alabama law ha[s] ever addressed whether a PRP letter from the EPA satisfies the “suit” requirement under a liability policy,” ⁵ the court certified this question to the Alabama Supreme Court. See Travelers Casualty and Surety Company v. Alabama Gas Corp., 117 So.3d 695 (Ala.2012). The Supreme Court of Alabama responded by stating “[w]e answer this question in the affirmative.” Id. at 696. With this background, the court considers the pending motions on the duty to indemnify.

A. The Duty to Indemnify Claim:

The duty to indemnify does not rise out of the existence of a duty to defend. See e.g., Allstate Indem. Co. v. Lewis, 985 F.Supp. 1341, 1349 (M.D.Ala.1997) (“Although the existence of a duty to defend may be established by the allegations in the injured party's complaint, the insurer's liability to the insured is ultimately established by what is developed at trial.”). “Although the bare allegations of the complaint may trigger an insurer's duty to defend its insureds, ‘[t]he duty to pay ... must be analyzed separately.’ ” Porterfield v. Audubon Indem. Co., 856 So.2d 789, 792 (Ala.2002) (quoting United States Fid. & Guar. Co. v. Armstrong, 479 So.2d 1164, 1167 (Ala.1985)). “The insured's conduct rather than the allegedly injured person's allegations determine whether the insurer has a duty to indemnify.” Tanner v. State Farm Fire & Cas. Co., 874 So.2d 1058, 1066 (Ala.2003) (quoting City Realty, Inc. v. Continental Cas. Co., 623 So.2d 1039, 1047 (Ala.1993)).

The court has before it the following documents on plaintiff's claim that defendants have a duty to indemnify: Plaintiff's motion for partial summary judgment on defendants' duty to indemnify (doc. 128); plaintiff's brief and evidence in support of said motion (docs. 130, 140–148, 150, 175–176); defendants' opposition to plaintiff's motion and evidence in support of said opposition (doc. 163) and the plaintiff's reply thereto (doc. 182). The defendants also filed a motion for summary judgment on “trigger of coverage” (doc. 132); and a brief and evidence in support of said motion (docs. 133–134, 149), to which the plaintiff filed a response and evidence in opposition (docs. 161, 165), and defendants thereafter filed a reply (doc. 180). Under the defendants' “trigger of coverage” argument, there is no duty to indemnify because no event triggered coverage during any of the policy periods.

Plaintiff seeks to have defendants indemnify it for the sums plaintiff agreed to pay to EPA pursuant to an Administrative Settlement Agreement and Order on Consent for Removal Action (“AOC”). Plaintiff's motion (doc. 128). Conversely, the defendants argue that neither the use of the property nor the value of the property was impaired in any way prior to 2008.⁶ Defendants' brief in support (doc. 133), at 4.

In response to plaintiff's requests for coverage to defendants, defendants informed plaintiff that defendants were reviewing the file and any potentially applicable policies, and repeatedly “advise[d] that Alagasco act in a manner that it believes will best protect its interests with respect to the USEPA's AOC.” See docs. 130–27 (Exhibit U) and 130–28 (Exhibit V). Thus, in October 2009, plaintiff executed the AOC with the Huntsville Housing Authority and the EPA. Doc. 130–29 (Exhibit W). In carrying out the work called for in the AOC, plaintiff expended approximately four million dollars. Doc. 130–33 (Exhibit AA). Plaintiff asserts that defendants have breached their duty to indemnify plaintiff. Defendants raise several arguments in support of their position that there is no coverage under any of the multiple policies issued.⁷

B. The Duty to Indemnify (plaintiff's brief in support (doc. 130), at 8)

Plaintiff relies on Alabama law for the proposition that having settled with the EPA, defendants have a duty to indemnify plaintiff for the amount of the settlement. In Alabama the general rule is that, “if indemnity is sought against an indemnitor without notice of either the original suit or of the settlement by the indemnitee,” then the indemnitee has the burden of establishing that it was actually liable to the plaintiff and that the settlement was a reasonable one. Watts v. Talladega Fed. Sav. & Loan Ass'n, 445 So.2d 316, 320 (Ala.Civ.App.1984). However, when the indemnitor has actual notice of the suit and refuses to participate in reaching a settlement, Alabama law requires a different burden of proof.

....A person legally liable for damages who is entitled to indemnity may settle the claim and recover over against the indemnitor, even though he has not been compelled by judgment to pay the loss.... In the event that an indemnitor is not afforded the alternative of participating in a settlement or conducting the defense against the original claim, an indemnitee settling the claim will have the burden of establishing actual liability to the original plaintiff rather than the lesser burden of showing potential liability.

However, when the indemnitor has notice of the claim and refuses to defend, the indemnitor is bound by any good faith reasonable settlement, and the indemnitee need only show potential liability.

Liberty Mutual Insurance Co. v. Wheelwright Trucking Co., Inc., 851 So.2d 466, 476 (Ala.2002) (quoting 41 Am.Jur.2d Indemnity § 46 (1995)) (emphasis and footnotes omitted).

Rather than participating in the settlement discussions, the defendants declared a lack of any duty to provide a defense or coverage. ⁸ The record contains substantial evidence that plaintiff provided defendants notice and opportunity to participate in the negotiations which culminated in plaintiffs' 2009 AOC with the EPA. See e.g., Stone Bldg. Co. v. Star Elec. Contractors, Inc., 796 So.2d 1076, 1090–1091 (Ala.2000) (finding under similar facts duty to indemnify was created). However, Alabama law contains yet a further limitation on the right to indemnification, namely that an indemnitee must show that the “fact situation of the original claim was covered by the contract of indemnity.” FabArc Steel Supply, Inc. v. Composite Const. Systems, Inc., 914 So.2d 344, 356 (Ala.2005); see also Peerless Landfill Co., Inc. v. Haleyville Solid Waste Disposal Authority, 941 So.2d 312, 317 (Ala.C...