Sphere Drake Ins., PLC v. Shoney's, Inc.

• Citation: 923 F. Supp. 1481
• Decision Date: 18 April 1996
• Docket Number: Civil Action No. 95-T-786-E.
• Parties: SPHERE DRAKE INSURANCE, P.L.C., a corporation, Plaintiff, v. SHONEY'S, INC., etc., et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

923 F. Supp. 1481

SPHERE DRAKE INSURANCE, P.L.C., a corporation, Plaintiff, v. SHONEY'S, INC., etc., et al., Defendants.

Civil Action No. 95-T-786-E.

United States District Court, M.D. Alabama, Eastern Division.

April 18, 1996.

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Walter R. Byars, William M. Bowen, Jr., Steiner, Crum & Baker, Montgomery, AL, for Sphere Drake Insurance, P.L.C., a corporation, plaintiff.

Jay Daniel St. Clair, T. Matthew Miller, Bradley, Arant, Rose & White, Birmingham, AL, for Shoney's Inc., a corporation, defendant.

Carl Michael Benson, Auburn, AL, for Shoney's of Lanett, a partnership or joint venture composed of Bobby Garrison and Bob Crowell, defendant, Bobby Garrison.

Jack J. Hall, Jr., Christy C. Osborne, McDaniel, Hall, Conerly & Lusk, P.C., Birmingham, AL, Carl Michael Benson, Auburn, AL, for County of Auburn.

Margaret Y. Brown, Auburn, AL, Jack J. Hall, Jr., Christy C. Osborne, McDaniel, Hall, Conerly & Lusk, P.C., Birmingham, AL, for Bob Crowell, defendant.

Billie Anne Tucker, LaFayette, AL, for Jeffrey Dawson, Derrick Todd, Ralph Hensley, defendants.

Richard S. Jaffe, Stephen Andrew Strickland, Jaffe, Burton & DiGiorgio, Birmingham, AL, for Rebecca Holt, Chandra Barnes, Connie Benefield, Daniel Keith Hornsby, Kathy Hornsby, Michelle Ledford, Lurleen Smith, Suzanne Turner, defendants.

Byron R. Perkins, Gordon, Silberman, Wiggins & Childs, for Tunitha Thomas, defendant.

ORDER

MYRON H. THOMPSON, Chief Judge.

Plaintiff Sphere Drake Insurance, P.L.C., brought this lawsuit under the Declaratory Judgment Act, 28 U.S.C.A. § 2201, seeking a declaration from this court that it has no duty to defend and indemnify various defendants in three other pending lawsuits. All of these other lawsuits relate to claims by employees of sexual discrimination and harassment by other employees, supervisors, and managers of a Shoney's restaurant. Sphere Drake has properly invoked the jurisdiction of the court based on diversity of citizenship, 28 U.S.C.A. § 1332. The court now has before it cross motions for summary judgment. For the reasons that follow, summary judgment will be granted in part and denied in part for each party.

I. SUMMARY JUDGMENT STANDARD

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Once the party seeking summary judgment has informed the court of the basis for its motion, the burden shifts to the non-moving party to demonstrate why summary judgment would be inappropriate. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); see also Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-17 (11th Cir.1993) (discussing how the responsibilities on the movant and the nonmovant vary depending on whether the legal issues, as to which the facts in question pertain, are ones on which the movant or nonmovant bears the burden of proof at trial). In making its determination, the court must view all evidence and any factual inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The parties have agreed that there are no contested issues of fact, allowing for final disposition of this lawsuit on the cross motions for summary judgment now before the court.

II. BACKGROUND

The following facts are undisputed. First, this case involves two insurance policies:

First policy: From May 1, 1993, through May 1, 1994, Sphere Drake issued an insurance policy to Bobby Garrison doing business as Captain D's of Auburn, Captain D's of Shawmut, and Shoney's of Lanett.

Second policy: From May 1, 1994, through May 1, 1995, Sphere Drake issued another insurance policy, identical in all relevant respects to the first policy, to Garrison and Bob Crowell doing business as Captain D's of Auburn, Captain D's of Valley, and Shoney's of Lanett.

As stated, this case also involves three underlying lawsuits:

Smith case: The first suit, brought by Lurleen Smith, Suzanne Turner, Rebecca Holt, and Chandra Barnes against Crowell, Jeffery Dawson, Ralph Hensley, Derrick Todd, and CD of Auburn in the United States District Court for the Middle District of Alabama, alleges sexual harassment, negligent and wanton supervision and retention, assault and battery, invasion of privacy, and outrage.¹

Thomas case: The second lawsuit, brought by Tunitha Thomas against Shoney's, Inc., CD of Auburn, Crowell, and Todd, in the United States District Court for the Middle District of Alabama, alleges sexual harassment, denial of promotion for refusing sexual advances, retaliation for filing a sex discrimination claim, assault and battery, intentional infliction of emotional distress, invasion of privacy, and negligent retention.²

Hornsby case: The third lawsuit, brought by Kathy Hornsby, Connie Benefield, and Michelle Ledford against CD of Auburn, Crowell, Todd, Dawson, and Hensley in the Circuit Court of Chambers County, Alabama, alleges negligent and wanton supervision and retention, assault and battery, invasion of privacy, and outrage.³

The basis for all three complaints is that male employees, supervisors, and managers at a Shoney's restaurant subjected female employees to unwelcome, lewd, and sexually-explicit language, unwelcome touching, made sexual advances, and discriminated against the female employees for refusing to engage in sex with them. Sphere Drake was properly notified of all three lawsuits, and the defendants in the underlying lawsuits requested that it defend them. The insurance company has agreed to provide a defense under a reservation of rights. Sphere Drake filed this lawsuit seeking a declaration that it is not required to defend the following defendants in the underlying lawsuits: Shoney's of Lanett, CD of Auburn, Garrison, Crowell, Dawson, Hensley, and Todd. It claims, for a variety of reasons, that the alleged conduct is not covered by the insurance policies. These defendants respond that, under the insurance policies, Sphere Drake is required to provide a defense to all of the defendants named in the underlying lawsuits. All of these defendants except Hensley and Todd have filed motions for summary judgment. The plaintiffs in the underlying lawsuits have filed their own motion for summary judgment, contending that Sphere Drake is required to defend all of the underlying defendants, including Hensley and Todd. Therefore, although Hensley and Todd have not filed motions for summary judgment in this case, the court has considered Sphere Drake's obligation, if any, to defend them in the underlying cases.

III. DISCUSSION

A. Basic law

"An insurance company's duty to defend its insured is determined by the language of the insurance policy and by the allegations in the complaint giving rise to the action against the insured." Ajdarodini v. State Auto Mut. Ins. Co., 628 So.2d 312, 313 (Ala.1993); Ladner & Co., Inc. v. Southern Guar. Ins. Co., 347 So.2d 100, 102 (Ala.1977). "If the allegations of the injured party's complaint show an accident or occurrence which comes within the coverage of the policy, the insurer is obligated to defend regardless of the ultimate liability of the insured." Chandler v. Alabama Mun. Ins. Co., 585 So.2d 1365, 1367 (Ala.1991) (internal citations omitted).⁴ Where the allegations of the complaint show that no injury alleged is within the coverage of the policy, however, or where the allegations are ambiguous, "the court is not limited to the bare allegations of the complaint ... but may also look to facts which may be proved by admissible evidence." Chandler, 585 So.2d at 1367 (internal citations omitted); see also Perkins v. Hartford Ins. Group, 932 F.2d 1392 (11th Cir.1991). Because the allegations in the underlying complaints are not ambiguous, the court has limited its consideration to the complaints and has not considered extrinsic evidence.

Under Alabama law, the insured bears the burden of establishing coverage by demonstrating that a claim falls within the policy, Colonial Life & Accident Ins. Co. v. Collins, 280 Ala. 373, 194 So.2d 532, 535 (1967), while the insurer bears the burden of proving the applicability of any policy exclusion. Universal Underwriters Ins. Co. v. Stokes Chevrolet, 990 F.2d 598, 605 (11th Cir.1993), citing United States Fidelity & Guar. Co. v. Armstrong, 479 So.2d 1164, 1168 (Ala.1985). If an insurance policy is ambiguous in its terms, the policy must be construed liberally in favor of the insured, and exceptions to coverage must be interpreted as narrowly as possible in order to provide maximum coverage to the insured. Altiere v. Blue Cross & Blue Shield, 551 So.2d 290, 292 (Ala.1989). However, if there is no ambiguity, insurance contracts must be enforced as written, and courts should not defeat express provisions in a policy, including exclusions from coverage, by making a new contract for the parties. Id.

B. The duty to defend

Sphere Drake claims that, based on various definitions and exclusions in the policies, it is not required to provide a defense to any of the defendants in the underlying lawsuits. The court will first analyze Sphere Drake's general denials of coverage. Then, the court will analyze each claim alleged in the underlying lawsuit, and determine whether Sphere Drake is obligated to defend the alleged wrongdoers against that claim.

1. General denials of coverage

Sphere Drake first claims that it is not required to provide a defense to any underlying claim alleging bodily injury to an employee of the insured. Under the terms of the each policy, Sphere Drake is required to indemnify the insured in any lawsuit for damages that the insured becomes legally obligated to pay because of "bodily injury" caused by "an occurrence, and arising out of the ownership,...