Nat'l Sec. Fire & Cas. Co. v. DeWitt

• Decision Date: 18 November 2011
• Docket Number: 1091225.
• Parties: NATIONAL SECURITY FIRE & CASUALTY COMPANY v. Maurice DeWITT.
• Court: Alabama Supreme Court

85 So.3d 355

NATIONAL SECURITY FIRE & CASUALTY COMPANY

v.Maurice DeWITT.

1091225.

Supreme Court of Alabama.

Nov. 18, 2011.

Anthony M. Hoffman and Jennifer S. Holifield of Zieman, Speegle, Jackson & Hoffman, L.L.C., Mobile, for appellant.

Banjamin T. Larkin of Donald W. Stewart, P.C., Bessemer; Donald W. Stewart of Donald W. Stewart, P.C., Anniston; and John L. Lawler, Mobile, for appellee.

Michael M. Shipper of Davis & Fields, P.C., Mobile; and Anthony T. Eliseuson of SNR Denton US LLP, Chicago, Illinois, for amicus curiae Property Casualty Insurers Association of America, in support of the appellant.

WISE, Justice.

The remaining defendant below, National Security Fire & Casualty Company ("National Security"), appeals an order of the Mobile Circuit Court certifying a class action.

Facts and Procedural History

The plaintiff, Maurice DeWitt, lived in a mobile home in Theodore. On August 29, 2005, DeWitt's mobile home and storage shed were damaged during Hurricane Katrina. At the time of the loss, DeWitt had a homeowner's insurance policy with National Security, and DeWitt filed a claim with National Security regarding the loss. Subsequently, an insurance adjuster with National Security went to DeWitt's property and prepared an estimate. The estimate stated that the "Actual Cash Value" ("ACV") of the damage to DeWitt's home was $3,438.71, the damage to the contents was $568.00, and the damage to his storage shed was $418.59. The total ACV of the damage was $4,425.30, and DeWitt had a $500.00 deductible. Therefore, the adjuster recommended that National Security pay DeWitt $3,925.30. On October 3, 2005, National Security issued a check payable to DeWitt and Green Point Credit¹ for $2,938.71 and two checks payable to DeWitt—one for $418.59 and another for $568.00, for a total of $3,925.30. Subsequently, DeWitt sent a letter to National Security in which he disputed the amount National Security had paid for the loss of his storage shed. National Security prepared a supplemental estimate and, on November 3, 2005, issued an additional check in the amount of $4,001.41 payable to DeWitt.

On July 19, 2007, DeWitt filed a complaint in the Mobile Circuit Court against National Security, National Security Group, Inc., and Omega One Insurance Company ("the defendants").² In his complaint, DeWitt alleged that the defendants had breached his policy of insurance when they did not include in the payment to him 20% for general contractor overhead and profit ("GCOP") in calculating the ACV of his loss. Specifically, he alleged that, according to the definition of a "actual cash value" in his insurance policy and according to insurance-industry standards, "when it is reasonably foreseeable that the services of a general contractor will be necessary to repair covered property, then ‘actual cash value’ includes not only material and labor costs, but also the standard overhead and profit charged by the general contractor"; that, "[a]ccording to industry standard ... when three or more trade skills (e.g., roofing, sheetrocking, painting) will be needed to repair property, then it is reasonably foreseeable that a general contractor will be employed to accomplish the repair"; that the damage to his mobile home required more than three trade skills to make the repairs; and that, "[a]ccording to [National Security's] standard practice, [National Security] does not include payment for contractor overhead and profit in its payment of ‘actual cash value’ to its insureds, even when it is reasonably foreseeable that the services of a general contractor will be necessary to repair covered property." He also sought to represent a proposed class of plaintiffs pursuant to Rule 23(b)(3), Ala. R. Civ. P.

On January 11, 2008, the defendants filed their answer to the complaint and an objection to class certification. In support of their objection, the defendants filed an affidavit of A.W. Shivley, the claims manager for National Security. In his affidavit, Shivley stated:

"3. [DeWitt's] Complaint in this case requests a review of all estimates regarding overhead and profits for a period of six years immediately preceding the filing of the Complaint. To respond to such a request would be an overly burdensome task for National Security.

"4. Each individual claim file would be required to be pulled and sorted to determine if the file includes any of the information requested by [DeWitt]. This would take a massive amount of time.

"5. Since January 01, 2002 National Security has opened approximately 57,818 claim files (this includes 3 major hurricanes). We have closed approximately 51,242 claim files and have a current open inventory of 6,576 open claim files. Research into this many files would cause the claims department to cease daily operation for a long period of time.

"6. National Security is located in Elba, Alabama. It is not so large a company that it can afford to dedicate numerous employees solely to a search of client files.

"7. Responding or providing the documentation requested by [DeWitt] would be a great burden on the company."

On July 13, 2009, National Security Group, Inc., and Omega One Insurance Company filed a motion to dismiss them as defendants, which the trial court granted on August 3, 2009.

On October 1, 2009, DeWitt filed a motion for class certification, defining the class of potential plaintiffs as:

"1) All current and former National Security Fire and Casualty Company insureds;

"2) who are citizens of the State of Alabama;

"3) who in the six years preceding July 19, 2007, suffered a covered loss to property situated within the State of Alabama;

"4) where the damage estimate for such loss prepared by National Security Fire & Casualty Company or its agents indicated repairs by three or more trade skills;

"5) where the loss was settled on an actual cash value basis; and

"6) where the actual cash value payment did not include an amount for general contractor overhead and profit equal to 20% of the underlying cost of repair."

On March 1, 2010, the trial court conducted a hearing on DeWitt's class-certification motion. During the hearing, the following portion of Shivley's deposition was read into evidence:

"[DEWITT'S COUNSEL:] If a homeowner has a loss—and I'm talking about on an actual cash value claim if a homeowner has a loss, when would National Security Fire & Casualty or Omega One pay for general contractor overhead and profit?

"[SHIVLEY:] When the general contractor was involved.

"[DEWITT'S COUNSEL:] The homeowner did not actually involve a general contractor, would ... National Security Fire & Casualty or Omega One pay the general contractor overhead and profit in that case?

"[SHIVLEY:] Each claim is individual and unique and we handle each and every claim on its merit.

"[DEWITT'S COUNSEL:] Okay.

"[SHIVLEY:] Generally, no.

"[DEWITT'S COUNSEL:] Okay. So, generally, ... if the insured did not actually hire a general contractor or employ a general contractor, then that general contractor overhead and profit would not be included in the loss payment. Is that correct?

"[SHIVLEY:] Yes.

"[DEWITT'S COUNSEL:] Okay. When is it the case that when an insured has a loss, if they go out and hire a general contractor, will Omega One or National Security Fire & Casualty always pay the general contractor overhead and profit on every loss that the insured hires a general contractor on?

"[SHIVLEY:] I can't say every loss but I can't think of a reason why we wouldn't. I would say—

"[DEWITT'S COUNSEL:] Okay.

"[SHIVLEY:]—yes, but it's hard to say—

"[DEWITT'S COUNSEL:] Okay.

"[SHIVLEY:] 110 percent of the time.

"[DEWITT'S COUNSEL:] Sure. Let's talk about, you know say, you know, a loss where there was just roofing damage, where there was just roof damage involved. If the insured called up a roofer and hired a roofer and that roofer charged overhead and profit above what the estimate called for, you know, for material and labor costs to fix the roof, would y'all pay overhead and profit on that case?

"[SHIVLEY:] Just on a roofer?

"[DEWITT'S COUNSEL:] Correct.

"[SHIVLEY:] No.

"[DEWITT'S COUNSEL:] Okay. If, say, the insured had some roof damage and some vinyl siding damage and then would you pay overhead and profit in that case?

"[SHIVLEY:] Every claim is unique and individual. The adjuster would handle the claim on its merits and he would agree with the insured on the loss and pay it.

"[DEWITT'S COUNSEL:] Okay. If, say, you had and, of course, I was up to two trades there. But let's say you had a three-trade loss. Let's say you had a three-trade loss. If, in a three-trade loss, somebody went out and hired a general contractor to fix that loss, would y'all—and by that, I mean. Omega One or National Security Fire & Casualty—pay overhead and profit in that case?

"[SHIVLEY:] Yes."

DeWitt presented the expert testimony of Albert Stephen Paxton. Paxton testified that "[w]hen three or more unrelated building trades are involved, it's reasonably foreseeable that coordinating contractor activities are going to be necessary and need to be included in the job—need to be included in the estimate." He also testified that the Transamerica Insurance Group in California taught him this three-trade rule in 1972. Paxton further testified that he was a licensed contractor in California and that California law provides that a licensed general contractor would be required to perform work that involved a contract of $500 or more and three or more trades. He also testified that he had been taught the three-trade rule by other people; that he had seen the three-trade rule in operation and had read about it throughout his career; and that the three-trade rule was almost universally recognized throughout the United States.

However, on cross-examination, Paxton admitted that the insurance-industry standard, which was applied in Alabama, was to pay GCOP on a case-by-case basis; that it was National Security's policy, consistent with the insurance-industry standard, to pay GCOP on a case-by-case basis; and that...