Alabama Elec. Co-Op. v. Bailey's Constr.

• Citation: 950 So.2d 280
• Decision Date: 28 July 2006
• Docket Number: No. 1050433.,1050433.
• Parties: ALABAMA ELECTRIC COOPERATIVE, INC., et al. v. BAILEY'S CONSTRUCTION COMPANY, INC.
• Court: Supreme Court of Alabama

950 So.2d 280

ALABAMA ELECTRIC COOPERATIVE, INC., et al. v. BAILEY'S CONSTRUCTION COMPANY, INC.

No. 1050433.

Supreme Court of Alabama.

July 28, 2006.

Ronald G. Davenport and R. Austin Huffaker, Jr., of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for appellants.

E.L. McCafferty III and Clay A. Lanham of Vickers, Riis, Murray & Curran, L.L.C., Mobile, for appellee.

LYONS, Justice.

Alabama Electric Cooperative, Inc. ("AEC"), and its insurers — Wausau Insurance Company and Aegis Insurance Services, Inc. — appeal from a summary judgment in favor of Bailey's Construction Company, Inc. ("Bailey"). We affirm.

I. Facts and Procedural History

On March 2, 2000, AEC and Bailey entered into a written contract whereby Bailey agreed to remove ash and sludge from one of AEC's holding ponds. The terms of the contract specifically required Bailey to provide evidence to AEC that Bailey had procured liability insurance to cover the removal procedure. According to AEC, Bailey agreed to have AEC named as an additional insured on the liability insurance policy Bailey secured, but the contract itself does not contain that requirement. AEC points out that, on two occasions during the approximately two years before AEC and Bailey entered into the holding-pond contract, AEC had requested through letters to Bailey that, because Bailey was performing work for AEC, Bailey provide AEC evidence showing that AEC had been named as an additional insured on Bailey's then existing insurance policies. According to AEC, Bailey forwarded those requests to Bailey's insurance agent, International Assurance, Inc., who, according to AEC, sent certificates of insurance to AEC that listed AEC as an additional insured on the policies represented by those certificates.¹ The parties refer to International Assurance as an independent broker. According to AEC, the representations on the certificates that AEC was an additional insured were false, because AEC had never actually been added as an additional insured on the policies by an endorsement to that effect.

On October 30, 2000, Willene McLoed, an independent contractor working for Bailey, was killed on AEC's premises while working on the holding-pond project. The executor of McLoed's estate filed a wrongful-death action against AEC. AEC contacted International Assurance and requested that it provide AEC with a certificate of insurance showing AEC as an additional insured on Bailey's then existing liability policy; QBE Insurance Company was the underwriter of the policy in effect at the time. It was subsequently determined that AEC was not an additional insured on Bailey's insurance policy with QBE. Nevertheless, according to Bailey, in response to AEC's request, International Assurance added AEC as an additional insured on a certificate of insurance without authorization from Bailey or QBE. International Assurance sent that certificate to AEC.

AEC demanded that Bailey and QBE defend and indemnify AEC in the wrongful-death action resulting from McLoed's death. Initially, QBE represented to AEC that it would defend and indemnify AEC, because AEC was listed as an additional insured on the certificate of insurance. Later, however, QBE refused to defend and indemnify AEC on the ground that AEC was never actually added to the policy as an additional insured by an endorsement to that effect.

AEC and its own insurers settled the wrongful-death action without contribution from Bailey or QBE. Subsequently, AEC and its insurers sued Bailey, QBE, and International Assurance. Bailey moved for a summary judgment on all claims against it, which the trial court granted; it certified the summary judgment as final pursuant to Rule 54(b), Ala. R. Civ. P. AEC and its insurers appealed. The only claims at issue in this appeal are AEC and its insurers' claims against Bailey.

II. Standard of Review

"The standard of review applicable to a summary judgment is the same as the standard for granting the motion . . . ." McClendon v. Mountain Top Indoor Flea Market, Inc., 601 So.2d 957, 958 (Ala.1992).

"A summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Rule 56(c)(3), Ala. R. Civ. P. The burden is on the moving party to make a prima facie showing that there is no genuine issue of material fact and that it is entitled to a judgment as a matter of law. In determining whether the movant has carried that burden, the court is to view the evidence in a light most favorable to the nonmoving party and to draw all reasonable inferences in favor of that party. To defeat a properly supported summary judgment motion, the nonmoving party must present `substantial evidence' creating a genuine issue of material fact — `evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved.' Ala.Code 1975, § 12-21-12; West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989)."

Capital Alliance Ins. Co. v. Thorough-Clean, Inc., 639 So.2d 1349, 1350 (Ala. 1994). Questions of law are reviewed de novo. Alabama Republican Party v. McGinley, 893 So.2d 337, 342 (Ala.2004).

III. Analysis

Against Bailey, AEC and its insurers alleged misrepresentation, breach of contract, negligence, and wantonness.

A. Misrepresentation

AEC and its insurers contend that they presented substantial evidence indicating that Bailey falsely represented to AEC that AEC was named as an additional insured on Bailey's insurance policies and that those misrepresentations induced AEC to enter into the holding-pond contract. AEC and its insurers contend that the misrepresentations were contained in the certificates of insurance sent to AEC by International Assurance, indicating that AEC was an additional insured on Bailey's then existing insurance policies.

"An insurance broker, like other brokers, is primarily the agent of the person who first employs him, and, in the absence of a statute to the contrary, he is the agent of insured as to all matters within the scope of his employment." 44 C.J.S. Insurance § 181 (1993). Bailey argues that, even assuming that Bailey can be held liable for the misrepresentations of International Assurance, AEC and its insurers have not presented substantial evidence indicating that AEC reasonably relied on those misrepresentations in awarding Bailey the holding-pond contract. Reasonable reliance is an essential element of a misrepresentation claim. See Foremost Ins. Co. v. Parham, 693 So.2d 409, 421 (Ala. 1997).

In support of their misrepresentation claim, AEC and its insurers rely on two specific certificates of insurance sent by International Assurance to AEC, before AEC awarded Bailey the holding-pond contract, indicating that AEC was an additional insured on Bailey's then existing policies. Bailey points out that both certificates carried the following statement:

"THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW."

(Capitalization in original.) Further, while the reverse side of the first certificate of insurance relied upon by AEC and its insurers does not appear in the record, the reverse side of the second certificate, dated June 2, 1999, does. It states:

"IMPORTANT

"If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

"If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

"DISCLAIMER

"The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon."

(Capitalization in original.)

In TIG Insurance Co. v. Sedgwick James of Washington, 184 F.Supp.2d 591 (S.D.Texas 2001), the client of a vendor and the client's own insurer sued an insurance broker, alleging that the broker had misrepresented on an insurance certificate that the client was an additional insured on the vendor's insurance policy. The United States District Court for the Southern District of Texas held as a matter of law that the client could not have reasonably relied on the insurance certificate:

"In order to prevail on a claim of negligent or fraudulent misrepresentation, a plaintiff must show that he reasonably relied upon the defendant's false representations. See American Tobacco Co. v. Grinnell, 951 S.W.2d 420, 436 (Tex.1997) (fraud and negligent misrepresentation claims require reasonable reliance by the plaintiff). Plaintiffs in the instant case have not shown through the probative evidence that they reasonably relied upon the representation of additional insured status on the certificate of insurance.

"`A claim for misrepresentation can not stand when the party asserting the claim is legally charged with knowledge of the true facts.' Shindler v. Mid-Continent Life Ins. Co., 768 S.W.2d 331, 334 (Tex.App.-Houston [14th Dist.] 1989, n.w.h.) (citing Sutton v. Grogan Supply Co., 477 S.W.2d 930, 935 (Tex.App.-Texarkana 1972, no writ)). An insured has a duty to read the insurance policy and is charged with knowledge of its provisions. Ruiz v. Government Employees Ins. Co., 4 S.W.3d 838, 841 (Tex.App.-El Paso 1999, n.w.h.); Pankow v. Colonial Life Ins., 932 S.W.2d 271, 277 (Tex.App.-Amarillo 1996, writ denied); Amarco Petroleum, Inc. v. Texas Pacific Indemnity Co., 889 S.W.2d 695, 699-700 (Tex. App.-Houston [14th Dist.] 1994, writ...