St. Paul Fire & Marine Ins. Co. v. Town of Gurley

• Court: U.S. District Court — Northern District of Alabama
• Decision Date: 22 August 2012
• Docket Number: Civil Action No. CV-11-S-4356-NE
• Citation: St. Paul Fire & Marine Ins. Co. v. Town of Gurley, Civil Action No. CV-11-S-4356-NE (N.D. Ala. Aug 22, 2012)
• Parties: ST. PAUL FIRE AND MARINE INSURANCE CO., Plaintiff, v. TOWN OF GURLEY, ALABAMA, STAN SIMPSON, and M&N MATERIALS, INC., Defendants.

ST. PAUL FIRE AND MARINE INSURANCE CO., Plaintiff,

v.TOWN OF GURLEY, ALABAMA, STAN SIMPSON, and M&N MATERIALS, INC., Defendants.

Civil Action No. CV-11-S-4356-NE

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA NORTHEASTERN DIVISION

Dated: August 22, 2012

MEMORANDUM OPINION AND ORDER

Plaintiff, St. Paul Fire and Marine Insurance Company ("St. Paul"), is seeking a declaratory judgment that it has no contractual duty under two insurance policies that it issued to the Town of Gurley, Alabama (the "Town") to defend or indemnify the Town in connection with the issues raised in the state court action styled M&N Materials, Inc. v. Town of Gurley, Alabama, et al., which was commenced in the Circuit Court of Madison County, Alabama as Civil Action No. CV-2005-000731, and which is currently pending before the Supreme Court of Alabama.

Defendant M&N Materials, Inc. ("M&N") has filed a motion to dismiss this action for failure to state a claim under Fed. R. Civ. P. 12(b)(6), arguing that the issues are not ripe for adjudication. Alternatively, M&N asks this court to stay allproceedings pending resolution of the appeal before the Alabama Supreme Court. Likewise, the Town and defendant Stan Simpson ("Simpson") have filed a joint motion to stay all proceedings pending resolution of the appeal.

For the reasons discussed below, this court holds that the issue of whether St. Paul has a duty to defend the Town is ripe for adjudication, while the issue of whether St. Paul has a duty to indemnify the Town is not. Thus, as to the duty to defend, this court will: (1) deny the motion by M&N to dismiss the case; (2) deny the alternative motion by M&N to stay the case; and (3) deny the joint motion of the Town and Simpson to stay the case. As to the duty to indemnify, this court will: (1) grant M&N's motion to stay the resolution of that question; (2) deny as moot the alternative motion by M&N to dismiss the case; and (3) grant the joint motion of the Town and Simpson to stay.

I. FACTUAL BACKGROUND

A. Town Insurance Policies

St. Paul issued the Town two "public entity composite"¹ insurance policies in 2003, both of which contained a "Public Entity General Liability Protection" component and a "Public Entity Management Liability Protection" component.² Thefirst policy bore policy number GP09311290 and provided coverage from October 14, 2003 to the same date in 2004,³ and the second policy bore policy number GP09312976 and provided coverage from October 14, 2004 to the same date in 2005.⁴

B. Underlying State Litigation

1. Original Complaint

On April 14, 2005, M&N filed an inverse condemnation claim in the case styled M&N Materials, Inc. v. Town of Gurley, Alabama, et al., Civil Action No. CV-2005-000731, in the Circuit Court of Madison County, Alabama.⁵ The complaint alleged that M&N purchased a parcel of real property in Madison County, Alabama for purposes of operating a limestone quarry,⁶ and obtained all necessary state and federal regulatory approvals for the operation of a quarry on the property.⁷

The Town then enacted an ordinance annexing the property into its municipal limits,⁸ refused to approve a business license for operating the quarry,⁹ and imposed a moratorium on issuing business licenses to annexed Town property.¹⁰ Accordingly,M&N asserted an inverse condemnation claim and alleged that the actions of the Town constituted a taking without just compensation in violation of the Fifth Amendment to the United States Constitution and Alabama Code § 18-1A-1 et seq.¹¹

2. Amended Complaint

On October 30, 2005, M&N filed an amended complaint adding four defendants: Stan Simpson ("Simpson"), the Mayor of the Town of Gurley; as well as Vulcan Materials Company, Vulcan Construction Materials, L.P., and Vulcan Lands, Inc (collectively, the "Vulcan defendants").¹² M&N alleged that the Vulcan defendants owned an interest in the quarry property, and that they were added as defendants "pursuant to Ala. Code § 6-6-227 (1975)[,] which requires that all persons be made parties to actions brought pursuant to Ala. Code § 6-6-222 et seq."¹³

The amended complaint incorporated all of the allegations of the original complaint,¹⁴ but added claims against the Town and Simpson for wrongful interference with contractual or business relations; negligence and wantonness; negligent or wanton hiring, retention, and supervision; a declaratory judgment; and an injunction.¹⁵ St. Paul provided a defense to the Town and Simpson in that action,subject to full reservation of rights under the policies.¹⁶

3. Jury Trial, Judgment, and Appeal

A jury heard the inverse condemnation claim against the Town and the wrongful interference claim against Simpson in February of 2011,¹⁷ and found in favor of M&N on the inverse condemnation claim against the Town. Damages were assessed against the Town in the amount of $2,750,000 plus interest.¹⁸ The circuit court entered a judgment in favor of M&N in accordance with the jury's verdict, and ordered the Town to pay damages in the amount of $2,750,000, interest in the amount of $966,493.15, and litigation expenses in the amount of $1,200,169.20.¹⁹

The Town filed an appeal to the Alabama Supreme Court,²⁰ and M&N cross-appealed.²¹ St. Paul elected not to appeal the judgment,²² and opted to continue to pay the Town's attorney's fees, but again subject to full reservation of rights under the policies.²³ St. Paul argues in this case that "no coverage exists for the claims or damages asserted by M&N or the judgment entered against Gurley . . . ,"²⁴ and that it owes no obligation to defend the Town.²⁵

II. DISCUSSION

The question of whether St. Paul is entitled to receive a declaratory judgment defining its duty to defend or indemnify the Town is governed by the Declaratory Judgment Act, which states that a court "may declare the rights and other legal relations of any interested party seeking this declaration." 28 U.S.C. § 2201. "Except for one early decision to the contrary, all courts that have considered the issue expressly in the context of insurance coverage disputes have held that the propriety of disputes for declaratory relief in federal court is an issue of federal law." Alan M. Posner, Prematurity of Declaratory Judgment Actions: Does State or Federal Law Apply?, 25 The Brief 15, 18 (1995).

Indeed, the Eleventh Circuit has repeatedly decided an insurer's duty to defend or indemnify its insured under the Declaratory Judgment Act as governed by the relevant federal law. Specifically, the Eleventh Circuit held that an invocation of the Declaratory Judgment Act is "neither precluded nor controlled" by state procedural law. Cincinnati Ins. Co. v. Holbrook, 867 F.2d 1330, 1332 (11th Cir. 1989). Several years later, this Circuit reaffirmed Holbrook and held that "'the federal court has jurisdiction to entertain a declaratory judgment petition in the circumstances of this case whether or not authorized by the procedures of the state.'" Allstate Ins. Co. v. Prasad, 991 F.2d 669, 671 (11th Cir. 1993); see also Posner, supra, at 18.

A. "Actual Controversy" Requirement

Article III, Section 2 of the United States Constitution limits the judicial power of federal courts to "cases or controversies," a limitation that courts have interpreted to include a requirement that suits be "ripe" for adjudication. Because a suit that lacks ripeness is not justiciable, the absence of ripeness precludes the federal courts from exercising jurisdiction. 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 227:21 (1997).

As a result, the question of whether St. Paul is entitled to declaratory relief raises the question of whether there is an "actual controversy" within the meaning of the Declaratory Judgment Act. See Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 272 (1941). When assessing the "actual controversy" requirement in complaints that invoke the Declaratory Judgment Act,

the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. See Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-242. It is immaterial that frequently, in the declaratory judgment suit, the positions of the parties in the conventional suit are reversed; the inquiry is the same in either case. Nashville, C. & St. L. Ry. Co. v. Wallace, [288 U.S. 249,] 261 [(U.S. 1933)].

Id. at 273 (alterations supplied).

In weighing the issue of whether a declaratory judgment involving a third-partyinsurer satisfies the "actual controversy" requirement, it is important to understand the difference between a claim that concerns the duty to defend and a claim that concerns the duty to indemnify: i.e., the duty of an insurer to pay a judgment against its insured. 16 Couch on Insurance 3d § 227:21 (footnotes omitted). In essence:

The duty to defend is based on the potential that the trial of the underlying suit against the insured may develop facts showing that the occurrence is within the coverage; the duty to pay the judgment or reasonable settlement is based on facts having been established which show the occurrence to actually have been within the coverage.

Id. (emphasis supplied).

Under this rule, "[a]n insurer's duty to indemnify under a policy is not as extensive as its duty to defend." State Farm & Cas. Co. v. Myrick, 611 F. Supp. 2d 1287, 1291 (M.D. Ala. 2009) (citing Hartford Cas. Ins. Co. v. Merchants & Farmers Bank, 928 So. 2d 1006, 1009 (Ala. 2005) (per curiam)) (alteration supplied). Thus, "the duties must be analyzed separately." Myrick, 611 F. Supp. 2d at 1291(citing Tanner v. State Farm Fire & Cas. Co., 874 So. 2d 1058, 1066 (Ala. 2003)).

Because St. Paul is seeking a declaratory judgment that the two policies it issued to the Town do not create a duty to defend or indemnify the Town in the underlying state lawsuit,²⁶ the following...