Brown Mach. Works & Supply Co., Inc. v. Insurance Co. of North America

Decision Date31 March 1995
CourtAlabama Supreme Court

E. Paul Jones and Clayton Kim Taylor, Alexander City, for plaintiff.

Thomas R. Elliott, Jr. and Allen R. Trippeer, Jr. of London, Yancey, Elliott & Burgess, Birmingham, for Bodi and Wachs Aviation Ins. Agency Inc.

Roger C. Foster and K. David Sawyer of McDaniel, Hall, Conerly & Lusk, Birmingham, for Ins. Co. of North America.

ALMON, Justice.

This Court agreed to answer the following questions certified by the United States District Court for the Middle District of Alabama, the Honorable Ira DeMent presiding:

"(1) In a breach of contract action when an insurer fails to deliver a copy of the policy to an insured in accordance with Ala.Code 1975, § 27-14-19, but does provide a certificate of insurance which sets out the general coverage without enumerating the limitations and exclusions, 1 is the insurer estopped from asserting an otherwise valid exclusion?

"(2) Would it alter the opinion of the Court if, in addition to the above facts, the insurer's agent made representations to the insured that the insured had full coverage under the policy, upon which [representations] the insured relied to its detriment?"

As phrased, the certified questions ask this Court to decide an abstract question of law. Unfortunately, the parties here have, for the most part, focused their arguments on the facts of the case rather than on the wisdom of adopting any of the various answers to this abstract question. Basically, the question is, if all facts are as the plaintiff alleges: Is there a theory upon which the plaintiff may recover in this case? Specifically, whether an exception to our long-standing rule against enlarging the coverage of an insurance policy by estoppel should be created to give effect to the statutory requirement that an insurer deliver a copy of an insurance policy to the insured. The certification of a question of law does not place this Court in a position to decide questions of fact. The defendants' motions for summary judgment are pending in the Federal court. The resolution of factual questions necessary to reach the certified questions is therefore assumed to be in the plaintiff's favor, and we set out the essentially uncontested facts of the case merely to provide a context within which our answer may be understood.

In June 1991, Brown Machine Works & Supply Company, Inc. ("Brown"), the owner of a 1973 Cessna 421 aircraft, entered into a contract with Texas Corporate Aircraft Sales, Inc. ("TCAS"), under which TCAS would attempt to sell the aircraft. The parties agreed that TCAS would take possession of the aircraft in exchange for a check in the amount of $100,000--post-dated to October 15, 1991. The parties agreed that if the aircraft was not sold within 120 days, then Brown would accept the check as payment in full for the aircraft.

The parties also agreed that TCAS would provide insurance on the aircraft while it was in the possession of TCAS. TCAS had a "blanket policy" with Insurance Company of North America ("INA") on all the aircraft it possessed. Coverage under that policy for Brown's Cessna 421 was issued by INA and was secured through Bodi & Wachs Aviation Insurance Agency ("Bodi & Wachs").

On June 5, 1991, Brown received a copy of a certificate of insurance issued by Bodi & Wachs on behalf of INA. The certificate stated, in pertinent part, the following:

"Brown Machine & Supply Company is named as the owner/lessor and additional insured only as respects the operations of the named insured effective 6/6/91.

"Certificate of Insurance does not amend, extend, or otherwise alter the terms and conditions of insurance coverage contained in policies listed above issued by Insurance Company of North America."

The certificate also has "All Risks" printed under the "Aircraft Physical Damage" designation of the type of policy and lists the corresponding "Limits of Liability" as being "Not Less Than ... $105,000 Value Insured."

It is undisputed that Brown did not obtain a copy of the policy of insurance until after Brown had filed a complaint against INA and Bodi & Wachs. In October 1991, Brown discovered that TCAS, by forging a certificate of title to the aircraft, had sold it to a third party. Brown then attempted to cash the $100,000 check, but TCAS had stopped payment on it.

Brown began to inquire whether the policy issued by INA provided theft coverage. The parties dispute when and if a representative of Brown actually spoke with a representative at Bodi & Wachs. The parties also dispute whether a representative at Bodi & Wachs informed Brown that it had coverage for the theft of its aircraft. On July 22, 1992, Brown filed a claim with INA for coverage under the policy's theft provision. The policy INA had issued to TCAS had been cancelled in October 1991 for nonpayment of premiums. INA rejected Brown's claim, asserting that the policy did not provide for theft coverage to Brown as an additional insured and that, even if it did, exclusion 12 of the policy excluded coverage for "conversion." 2 The parties dispute whether TCAS's illegal sale of the aircraft constituted conversion or theft.

Brown argues that because INA failed to deliver a copy of the insurance policy to it, INA cannot now assert exclusions of which Brown did not have notice. Neither this Court nor the Alabama Legislature has addressed the effect an insurer's failure to deliver a policy to an insured has on the insurer's right to assert an otherwise applicable exclusion in the policy.


We begin our analysis by noting that, although the parties have not mentioned it, the general rule in Alabama is that "coverage under an insurance policy cannot be enlarged by waiver or estoppel." Johnson v. Allstate Ins. Co., 505 So.2d 362, 365 (Ala.1987); see Home Indem. Co. v. Reed Equip. Co., 381 So.2d 45, 50-51 (Ala.1980) (holding that, where there is no ambiguity in an insurance contract, coverage under the policy cannot be created or enlarged by waiver or estoppel so as to bring within the coverage of the policy risks not covered by its terms or risks expressly excluded therefrom); Woodall v. Alfa Mutual Insurance Co., 658 So.2d 369 (Ala.1995). If the general rule governs this case, then it is clear that the plaintiff will be bound by any applicable exclusions of insurance coverage found in the INA/TCAS policy. The Legislature, however, has enacted a statutory provision declaring that an insurer must deliver a policy of insurance to the insured. Section 27-14-19, Ala.Code 1975, provides:

"(a) Subject to the insurer's requirements as to payment of premium, every policy shall be mailed or delivered to the insured or to the person entitled thereto within a reasonable period of time after its issuance, except where a condition required by the insurer has not been met by the insured."

There are no cases interpreting or otherwise citing § 27-14-19. Thus, whether the failure to comply with the mandate of the statute may be a ground upon which to estop an insurance company from asserting an otherwise valid exclusion is a question of first impression.

Other jurisdictions have held that an insurer may be estopped to deny coverage based on an insured's failure to comply with a notice requirement or based on an exclusion in the policy, if the insurer did not provide a copy of the policy to the insured. See generally Thomas M. Fleming, Annotation, Insurer's Duty, and Effect of its Failure, to Provide Insured or Payee with Copy of Policy or Other Adequate Documentation of its Terms, 78 A.L.R.4th 9 (1990). Louisiana statutes and cases address the precise question at issue here. Louisiana adheres to the rule that generally estoppel cannot be used to enlarge the coverage of an insurance contract beyond what is set out in the policy. Ledoux v. Old Republic Life Ins. Co., 233 So.2d 731, 735 (La.App.), cert. denied, 256 La. 372, 236 So.2d 501 (1970) (citing H.D. Foote Lumber Co. v. Svea Fire & Life Ins. Co., 179 La. 779, 155 So. 22 (1934); Loubat v. Audubon Life Ins. Co., 248 La. 183, 177 So.2d 281 (1965)); see Graham Resources, Inc. v. Lexington Ins. Co., 625 So.2d 716 (La.App.1993), cert. denied, 631 So.2d 1164 (La.1994); Hunter v. Office of Health Services, 385 So.2d 928 (La.App.), cert. denied, 393 So.2d 737 (La.1980). Additionally, Louisiana's code includes a provision requiring that an insurer deliver an insurance policy to the insured; that provision is virtually identical to Alabama's. See La.Rev.Stat.Ann. § 22:634 (West 1978) ("every policy shall be delivered to the insured or to the person entitled thereto within a reasonable period of time after its issuance").

In Louisiana Maintenance Services, Inc. v. Certain Underwriters at Lloyd's of London, 616 So.2d 1250 (La.1993), the Supreme Court of Louisiana held that an insurer could not rely on its policy exclusions where it had failed to comply with the statutory requirement of delivering the policy to the insured. Id. at 1253. Louisiana Maintenance Services ("LMS") purchased a comprehensive general liability insurance policy from Lloyd's through an agent. LMS received a confirmation of third-party general liability coverage from Lloyd's, but neither LMS nor the agent received a copy of the insurance policy. Based upon a policy exclusion, Lloyd's denied coverage for an incident in which an employee of LMS had negligently damaged a piece of leased equipment. The Louisiana court interpreted the statute as requiring that an insured be informed of a policy's coverage. Id. at 1252. The court stated that "[n]otice of any exclusionary provisions is essential because the insured will otherwise assume the desired coverage exists," and it ultimately held that "[i]nsurance policy exclusions are not valid unless clearly communicated to the insured." Id. at 1252-53.

The law of Georgia is also closely on point. As a general matter, it...

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