Jlm Enterprises, Inc. v. Houston General Ins. Co.

• Citation: 196 F.Supp.2d 1299
• Decision Date: 12 April 2002
• Docket Number: No. CV 401-038.,CV 401-038.
• Parties: JLM ENTERPRISES, INC. and Jerral L. Mayes, Sr., Plaintiffs, v. HOUSTON GENERAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Georgia

Page 1299

196 F.Supp.2d 1299

JLM ENTERPRISES, INC. and Jerral L. Mayes, Sr., Plaintiffs, v. HOUSTON GENERAL INSURANCE COMPANY, Defendant.

No. CV 401-038.

United States District Court, S.D. Georgia, Savannah Division.

April 12, 2002.

COPYRIGHT MATERIAL OMITTED

Linda B. Foster, Weissman, Nowack, Curry & Wilco, PC, Atlanta, for dft represented by Foster.

Edward Mark Gilgor, Weissman, Nowack, Curry & Wilco, PC, Atlanta, for dft represented by Gilgor.

Patrick T. O'Connor, Oliver, Maner & Gray, Savannah, for pla represented by O'Connor.

Christopher L. Ray, Oliver, Maner & Gray, Savannah, for pla represented by Ray.

ORDER

Before the Court are the parties' cross-motions for summary judgment (Docs. 24 and 30) and defendant's motion for filing of original discovery (Doc. 40). Defendant's motion for filing of original discovery is hereby GRANTED (Doc. 40). For the reasons set forth herein, plaintiffs' motion for summary judgment (Doc. 30) is DENIED and defendant's motion for summary judgment (Doc. 24) is GRANTED.

Plaintiffs JLM Enterprises, Inc. ("JLM") and Jerral L. Mayes, Sr. ("Mayes") entered into a commercial general liability policy ("CGL") with defendant Houston General Insurance Company ("Houston"). Plaintiffs sought the CGL insurance for JLM's business, which included an auto parts store, a gas station and a car wash. After purchasing the CGL, plaintiffs were involved in five separate lawsuits regarding wholesale transactions involving freon. In each of these lawsuits, plaintiffs tendered a defense to Houston. In each case, Houston refused to defend or indemnify. In the instant litigation, plaintiffs allege that in each of those five lawsuits defendant: (1) breached its duty to defend; (2) breached its duty to indemnify; and (3) acted in bad faith in refusing to defend or indemnify. Plaintiffs seek to be reimbursed for their attorneys' fees, costs, expenses and settlement amounts, and to recover an additional twenty-five percent as a bad faith penalty.

SUMMARY JUDGMENT STANDARD

Summary judgment serves to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." FED. R. CIV. P. 56 advisory committee's note, cited in Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). It is appropriate only when the pleadings, depositions, and affidavits submitted by the parties indicate no genuine issue of material fact and show that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). A court must view the evidence and any inferences that may be drawn from it in the light most favorable to the non-movant. Combs v. Plantation Patterns, 106 F.3d 1519, 1526 (11th Cir.1997), cert. denied sub nom. Combs v. Meadowcraft Co., 522 U.S. 1045, 118 S.Ct. 685, 139 L.Ed.2d 632 (1998) (citing Carter v. City of Miami, 870 F.2d 578, 581 (11th Cir.1989)).

The party seeking summary judgment must first identify grounds demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Thompson v. Metro. Multi-List, Inc., 934 F.2d 1566, 1583 n. 16 (11th Cir. 1991), cert. denied, 506 U.S. 903, 113 S.Ct 295, 121 L.Ed.2d 219 (1992). Such a showing shifts to the non-moving party the burden "to go beyond the pleadings and by ... affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (quoting Fed R. Civ. P. 56(e)); Thompson, 934 F.2d at 1583 n. 16. A non-movant does not create a genuine issue of material fact by relying on "conclusory allegations based on mere subjective beliefs." Plaisance v. Travelers Ins. Co., 880 F.Supp. 798, 804 (N.D.Ga.1994), aff'd, 56 F.3d 1391 (11th Cir.1995) (citing Carter, 870 F.2d at 585). Further, a "mere scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant]." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

BACKGROUND

The following material facts are undisputed. See generally Consolidated Stipulation of Material Facts.

JLM is a Georgia corporation with its principal place of business in Chatham County, Georgia. Mayes resides in Chatham County and is a former officer and employee of JLM. Houston is a Texas insurance company with its principal place of business in Fort Worth, Texas. Houston is authorized to do business in Georgia.

In 1993, JLM purchased a commercial general liability policy ("CGL") from Houston with a policy period of December 21, 1993 through December 21, 1994. The policy was renewed the next three years. The CGL provides that all statements in its Declarations are accurate and complete and are based upon representations made by JLM to Houston and that Houston issued the CGL in reliance upon JLM's representations. JLM's application for the CGL and the Declarations page reveal that the premium basis for the "Gas Station-Self Service" was $240,000; the premium basis for the "Auto Parts/Supply Stores" was $150,000; and the premium basis for the "Car Wash" was $10,000. JLM's application contains no express reference to the fact that JLM and/or Mayes had been brokering freon sales on the wholesale market prior to purchasing the CGL. Houston charged JLM $605, $574, $597 and $544 for the CGL, beginning in 1993 and continuing through the policy renewals.

In December 1994, Mayes brokered a wholesale transaction for a shipment of 30,000 pounds of freon. At that time, Mayes was working for both JLM and for White Brothers Auto Supply, Inc. ("White Brothers"). Aztec Brokerage, Inc. ("Aztec") was to purchase the freon from Thermo King Dealerships, Inc. ("Thermo King") in return for a payment of $165,000. Mayes was to receive a brokering commission of $15,000. Thermo King wired $165,000 to Aztec, but Aztec failed to deliver the freon to Thermo King. On February 7, 1995, Thermo King's agents traveled to Savannah, Georgia to meet with Mayes and demanded a return of the $165,000. Mayes did not return this money.

On June 24, 1997, Thermo King sued Mayes, White Brothers and Aztec in a suit styled Williamson v. Thermo-King Dealerships, Inc. v. White Brothers Supply, Inc., et al, 5-97-CV-502-BR(2) (E.D. N.C. June 24, 1997) (the "Thermo King" action). Mayes tendered the Thermo King action to Houston for a defense. Houston reviewed the Thermo King complaint and determined that it had no duty to defend because it concluded that there was no allegation of an occurrence that resulted in property damage. Houston informed Mayes of its conclusion.

In the fall of 1996, JLM, Discount Auto Parts ("DAP"), and Refrigeration Station, Inc. ("RSI") worked together to sell freon to Airgas, Inc., Airgas Management, Inc. and Airgas Specialty Gases, Inc. (collectively, "Airgas"). JLM or DAP would purchase the freon on the wholesale market and then sell the freon to RSI. As part of the arrangement with Airgas, RSI was to retain a certain amount of the freon at its own facility on Airgas' behalf and to ship certain amounts directly to various Airgas wholesale customers, including Autozone.

In two lawsuits¹, Airgas alleged that plaintiffs engaged in three separate schemes designed to defraud Airgas. First, Airgas claimed that plaintiffs sold it Freeze-12 designed as freon. Freeze-12 is a product that is substantially cheaper than freon and does not have freon's chemical characteristics. Second, Airgas alleged that plaintiffs sold it Canadian freon that had been imported illegally into the United States and for which no excise tax had been paid. Third, Airgas alleged that plaintiffs conspired with Davis, DAP, Morris and RSI, using false bills of lading, to induce Airgas to wire money for freon that never existed.

On February 19, 1997, plaintiffs tendered the two Airgas lawsuits to Houston for defense. Houston reviewed the claims and was unable to find a duty to defend because it concluded that there was no occurrence that resulted in property damage and because various exclusions rendered the Airgas claims uncovered. Houston therefore declined to defend plaintiffs in the Airgas actions.

On March 20, 1997, plaintiffs tendered to Houston for defense a cross-claim in the Airgas II lawsuit, in which William Morris and RSI claimed that any wrongdoing with which they were charged resulted from duress at the hands of their co-defendants. Houston reviewed the cross-claim and concluded that there was no duty to defend because the cross-claim was essentially identical to the claims in the Airgas suits. Houston therefore declined to defend plaintiffs.

On April 28, 1997, plaintiffs tendered for defense a counter-claim resulting from an action originally filed by plaintiffs against RSI in the case of In re JLM Enterprises, No. 96-43228-LWD, Adversary Case No. 97-04007A-LWD (Bankr.S.D.Ga.1997) (the "bankruptcy matter"). Houston reviewed the counter-claim and concluded that there was no duty to defend because the counter-claim was essentially identical to the claims in the Airgas suits. Houston therefore declined to defend plaintiffs.

Nationwide Insurance Company ("Nationwide"), the commercial general liability insurer for DAP, filed a declaratory judgment in this Court (Edenfield, J.) to determine its rights and duties under its policy with DAP. Nationwide Property & Casualty Ins. Co., et al. v. Airgas, et al., CV497-167 (S.D.Ga.1997) (the "Nationwide" action). Nationwide named Mayes and JLM as defendants in the Nationwide action. Mayes and JLM tendered the Nationwide action to Houston for defense. Nationwide sought no damages in the Nationwide action, but rather sought an adjudication of the various obligations of the parties under DAP's insurance policy. Houston declined to defend Mayes and JLM because there were no sums...