Nationwide Mut. Ins. Co. v. Hall

• Decision Date: 01 April 1994
• Citation: 643 So.2d 551
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY, as subrogee of Friedlander Realty, Inc. v. John HALL and Alfa Mutual Insurance Company. John HALL and Alfa Mutual Insurance Company v. NATIONWIDE MUTUAL INSURANCE COMPANY, as subrogee of Friedlander Realty, Inc. 1921128, 1921272.
• Court: Alabama Supreme Court

Page 551

643 So.2d 551

NATIONWIDE MUTUAL INSURANCE COMPANY, as subrogee of Friedlander Realty, Inc. v. John HALL and Alfa Mutual Insurance Company.

John HALL and Alfa Mutual Insurance Company v. NATIONWIDE MUTUAL INSURANCE COMPANY, as subrogee of Friedlander Realty, Inc.

1921128, 1921272.

Supreme Court of Alabama.

April 1, 1994.

Rehearing Denied June 17, 1994.

J.F. Janecky, J. Stuart Wallace and Daniel R. Klasing of Barker and Janecky, P.C., Mobile, for appellant/cross-appellee.

Robert H. Smith of Collins, Galloway & Smith, Mobile, for appellees/cross-appellants.

ALMON, Justice.

Both the plaintiff Nationwide Mutual Insurance Company ("Nationwide"), as subrogee of Friedlander Realty, Inc. ("Friedlander"), and the defendants John Hall ("Hall") and Alfa Mutual Insurance Company ("Alfa") appeal from a $102,032 summary judgment in favor of Nationwide. This case arose out of a personal injury and wrongful death action brought as a result of a fire in an apartment building owned by Hall and managed by Friedlander, in which a tenant was killed and her infant child was injured. The issues on this appeal concern the respective liability of Friedlander, Hall, and their insurers for amounts paid to settle claims brought against Hall and Friedlander by the personal representatives of the decedent mother and her child: (1) Whether an indemnity clause in the rental management agreement between Friedlander and Hall is enforceable; (2) Whether the circuit court erred in prorating between Nationwide and Alfa the amount paid to settle claims against Friedlander; and (3) Whether as the subrogee of its insured, Nationwide can bring against Alfa a claim of bad faith failure to investigate, defend, and indemnify.

Hall owns an apartment building in Mobile. In May 1986 Hall entered into a management agreement with Friedlander. Included in this management agreement was this indemnity provision:

"Owner agrees to save agent harmless from all damage suits and claims arising in connection with said property and from all liability for injuries to persons or property while in, on, or about the premises. Owner agrees to carry, at his own expense, appropriate amounts of public liability insurance and such other liability insurance as may be reasonably applicable to this property[;] said policies shall be so endorsed as to protect agent in the same manner and to the same extent as owner. If these policies or endorsements are not furnished to agent within 10 days after execution of this agreement, coverage may be secured by agent and charged to owner, although agent does not assume this responsibility."

Presumably in accordance with this provision of the management agreement, Hall owned a contract of insurance with Alfa, which covered himself, as the named insured, and Friedlander, as "Any person ... acting as [Hall's] real estate manager." The Alfa policy also covered Hall against all claims made against him on the basis of the indemnity agreement with Friedlander. Friedlander was covered under a policy of its own issued by Nationwide.

On April 14, 1987, a fire in the apartment building owned by Hall and managed by Friedlander caused the death of a tenant named Sheila Harris and severe injuries to her minor daughter Courtney Sedeidra Harris. As administratrix of the estate of Sheila Harris and as guardian and next friend of Courtney Sedeidra Harris, Ella Mae Packer brought a wrongful death and personal injury action against Hall and Friedlander. On September 23, 1988, Friedlander sent a letter to Hall and Alfa, requesting that they provide it with a defense and indemnify. Alfa received this letter on September 29, 1988. Neither Hall nor Alfa answered this letter. Between September 23, 1988, and October 18, 1988, Friedlander made several additional, oral requests that Hall and Alfa defend and indemnify in regard to the claims alleged in the Packer action. Neither Hall nor Alfa responded to these requests. On October 18, 1988, Friedlander sent Hall and Alfa a second written request for a defense and indemnification. Again neither responded.

In accordance with its policy, Nationwide provided Friedlander with a defense, and on July 31, 1989, Nationwide entered into an agreement with Packer settling the claims against Friedlander for $250,000. The circuit court judge later approved the settlement in a prochein ami hearing, and the settlement agreement was subsequently consummated. To defend Friedlander in the Packer action, Nationwide paid $48,123 in attorney fees and $7,621 in other expenses.

Hall never responded to any of Friedlander's requests for indemnity under the management agreement. The evidence indicates that Alfa did not determine that Friedlander was covered under the Hall policy until August 21, 1989, and did not advise Friedlander that it was covered until November 28, 1989. After the settlement agreement between Packer and Friedlander was consummated on January 12, 1990, Alfa also entered into an agreement with Packer on behalf of Hall, settling the claims against Hall for $300,000, the limit of coverage under the Alfa policy.

On October 22, 1991, as subrogee of Friedlander, Nationwide brought this action against Hall and Alfa, seeking the amount it paid to settle the claims against Friedlander and the attorney fees and other expenses it paid to defend Friedlander. In its complaint, Nationwide alleged that Hall breached the indemnity provision of the management agreement. Nationwide also alleged that Alfa breached its contract of insurance with Friedlander, that Alfa negligently failed to settle the claims against Friedlander, that it wantonly failed to defend and indemnify Friedlander, and that it acted in bad faith by failing to investigate Friedlander's claim of coverage and by failing to provide Friedlander with coverage or a defense. In their answer, Hall and Alfa denied most of Nationwide's allegations and pleaded, as affirmative defenses, that Nationwide had failed to state a claim and that it had no standing as a subrogee of Friedlander to prosecute the breach-of-contract claim against Hall and the negligence, wantonness, and bad faith claims against Alfa. ¹

Nationwide moved for a summary judgment against Hall and for a partial summary judgment against Alfa. After the parties submitted sundry items of deposition, affidavit, and documentary evidence, the circuit court entered a summary judgment in favor of Nationwide on its breach-of-contract claim against Alfa. In a thorough, written judgment, the circuit court held that the Alfa and Nationwide policies both provided Friedlander with primary insurance coverage and that Alfa was obligated under its policy to contribute a pro rata share of the $250,000 paid to settle the claims against Friedlander and a pro rata share of the prejudgment interest thereon and to pay one-half of the attorney fees and other expenses paid by Nationwide to defend Friedlander and one-half of the prejudgment interest on these fees and costs. The circuit court calculated Alfa's pro rata share of the settlement and the prejudgment interest thereon based on the proportion that the limit of coverage of the Alfa policy bore to the total limit of insurance coverage applicable to the loss suffered by Friedlander. Thus, the circuit court concluded that because the $300,000 limit of coverage on the Alfa policy was 23% of the $1,300,000 total amount of insurance coverage applicable to the loss, Alfa was obligated to pay $57,500 of the $250,000 settlement and $10,925 of the $47,500 in prejudgment interest thereon. The circuit court also calculated that Alfa was obligated to pay $27,571 (one-half of the $55,143 in attorney fees and other expenses) and $5,735 (one-half of the $11,470 in prejudgment interest thereon).

The circuit court also entered ex mero motu a summary judgment in favor of Hall on Nationwide's breach-of-contract claim, holding that the indemnity provision of the management agreement was unenforceable because it did not contain unambiguous language evincing an intent to indemnify Friedlander for the consequences of its own negligence. With regard to the claim of bad faith, the circuit court stated that although the evidence established a prima facie case of a bad faith failure to defend and indemnify, the circuit court entered ex mero motu a summary judgment in favor of Alfa, holding that Alabama law does not allow an insurer to bring a bad faith claim as the subrogee of its insured. ²

The first issue is whether the circuit court erred in holding that the indemnity provision of the management agreement between Hall and Friedlander was unenforceable as a matter of law because it did not contain unambiguous and unequivocal language clearly expressing the parties' intent that Hall would indemnify Friedlander for the consequences of its own acts of negligence.

In Industrial Tile, Inc. v. Stewart, 388 So.2d 171 (Ala.1980), cert. denied, 449 U.S. 1081, 101 S.Ct. 864, 66 L.Ed.2d 805 (1981), the Court rejected the general rule that a party may not contract against the consequences of his own negligence and held that contracts against the consequences of one's own negligence are valid and enforceable if "the parties knowingly, evenhandedly, and for valid consideration, intelligently enter into an agreement whereby one party agrees to indemnify against the indemnitee's own wrongs, [and if that agreement is] expressed in clear and unequivocal language." Id. at 175-76, modifying Alabama Great Southern R.R. v. Sumter Plywood Corp., 359 So.2d 1140 (Ala.1978). "When one seeks indemnification from another for damages that were caused by his own negligence, strict construction of the indemnity agreement against the contractor is particularly appropriate." Craig Constr. Co. v. Hendrix, 568 So.2d 752, 757 (Ala.1990); Industrial Tile, Inc., 388 So.2d at 176.

This Court has stated that an indemnity contract purporting to indemnify for the consequences of the indemnitee's own negligence is...