Tanner v. State Farm Fire & Casualty Co.

• Decision Date: 01 August 2003
• Citation: 874 So.2d 1058
• Parties: Elton O. TANNER, Jr., and Tanner & Company, P.C. v. STATE FARM FIRE & CASUALTY COMPANY.
• Court: Alabama Supreme Court

874 So.2d 1058

Elton O. TANNER, Jr., and Tanner & Company, P.C. v. STATE FARM FIRE & CASUALTY COMPANY.

1010888.

Supreme Court of Alabama.

August 1, 2003.

Robert H. Smith of Galloway, Smith, Wettermark & Everest, L.L.P., Mobile, for appellants.

C. Robert Gottlieb, Jr., Mobile, for appellee.

JOHNSTONE, Justice.

The defendants Elton O. Tanner, Jr. ("Tanner"), and Tanner & Company, P.C. ("Tanner & Co."), appeal a summary judgment for the plaintiff State Farm Fire & Casualty Company in a declaratory judgment action. The judgment declared that a State Farm liability insurance policy ("the policy") did not cover Tanner and Tanner & Co. for a lawsuit Wayne R. Mitchell had filed against them ("Mitchell's lawsuit"). We affirm in part, reverse in part, and remand with directions.

Facts

Mitchell, a partner in two partnerships named MASCO I and MASCO IV, sued the other partners, including Tanner, for suppression; breach of fiduciary duty; conversion; and intentional, reckless, and innocent misrepresentation. Mitchell alleged that Tanner and the other partners had swapped the maritime vessels constituting the principal assets of the partnerships for replacement vessels without Mitchell's knowledge; that Tanner and the other partners had concealed these swaps from Mitchell; that Tanner and the other partners had misled Mitchell concerning these swaps; and that Tanner and the other partners had withheld information and documents Mitchell had requested relating to MASCO I and MASCO IV.

Subsequently, Mitchell amended his complaint to add separate claims against Tanner, who was also Mitchell's accountant, for accounting malpractice allegedly committed in rendering accounting services that related to Mitchell's investments in MASCO I and MASCO IV.

On receiving Mitchell's lawsuit papers, Tanner requested that State Farm defend and indemnify him under a policy of liability insurance.¹ State Farm refused Tanner's request and, instead, brought this declaratory judgment action for a declaration that the policy did not afford Tanner coverage for Mitchell's claims. Meanwhile, in Mitchell's lawsuit, Tanner's accounting-malpractice insurer, Interstate Insurance Company, defended Tanner.

Tanner filed his answer to the State Farm declaratory judgment action. While the answer is not also entitled a counterclaim for declaratory judgment, it is, by its content, tantamount to a counterclaim for a declaration that Tanner was due defense and indemnification under the State Farm policy.

Subsequently, Mitchell amended his complaint again to add Tanner & Co., Tanner's professional corporation, as an additional defendant. Mitchell's amended allegations included Tanner & Co. itself as a partner in MASCO I and MASCO IV and charged Tanner in his capacity as the "owner and principal" of Tanner & Co. as well as in his capacity as an individual partner for his allegedly tortious partnership participation:

"5. In or about 1984, Plaintiff Wayne R. Mitchell, an adult resident citizen of Mobile County, Alabama, entered into general partnership agreements with, among others, Defendants James Michael Rice, Elton O. Tanner, Jr., Tanner & Co., Professional Corporation, Master Boat Builders and MASCO Boats, Inc. The purpose of these partnership agreements [was] for the partners to contribute sums of money so that Master Boat Builders could manufacture certain motor vessels which, upon completion, would be leased for the purpose of generating income on behalf of the partnerships....

"6. ....

"7. In or about October, 1996, Plaintiff was notified by Defendant, Elton O. Tanner, Jr. the owner and principal of Defendant, Tanner & Co., Professional Corporation, that all the other partners wanted to terminate the partnership agreements and that Plaintiff's share, upon dissolution of the partnerships, was $20,000.00 for MASCO I and $20,000.00 for MASCO IV.

"8. Plaintiff objected to the dissolution of the partnership agreements and called upon Tanner, as owner and principal of Tanner & Co., Professional Corporation, and as general partner of the partnerships and as Plaintiff's professional accountant, to explain how his proportionate shares had been calculated and to provide an accounting of Plaintiff's shares and of the shares of the other partners in MASCO I and MASCO IV. Tanner refused to provide any information whatsoever in response to Plaintiff's requests...."

(Emphasis added.) Mitchell's complaint as last amended alleged against Tanner and Tanner & Co. in these capacities all of the claims Mitchell had already alleged against Tanner as an individual partner. State Farm then amended its complaint in this declaratory judgment action to add Tanner & Co. as an additional defendant and to seek a declaratory judgment that Tanner & Co. was not entitled to coverage either.

State Farm declined to participate in settlement negotiations in Mitchell's lawsuit. When Tanner notified State Farm that he intended to settle Mitchell's claims for $50,000, State Farm refused to contribute any of the settlement funds. Interstate Insurance Company contributed $20,000 of the settlement funds, and Tanner paid the remaining $30,000.

After Tanner settled Mitchell's lawsuit, State Farm moved for summary judgment in this declaratory judgment action on the grounds that: (1) Mitchell had sued Tanner and Tanner & Co. for intentional conduct which did not constitute an "occurrence" under the insuring clause of the policy and which would incur the exclusion in the policy for damages "intended or expected from the standpoint of the insured"; and (2) Mitchell had sued Tanner and Tanner & Co. for conduct which would incur the exclusion in the policy for damages "due to the rendering of professional services." State Farm conceded in the supporting brief that, because Mitchell had claimed damages for mental anguish as well as pecuniary loss, State Farm was not entitled to a summary judgment on the ground that Mitchell's lawsuit had not claimed damages for "bodily injury." Although State Farm did initially assert as a ground for summary judgment that Tanner had failed to give timely notice of Mitchell's claims, State Farm subsequently conceded that it could not prevail on this ground. State Farm did not assert as a ground for summary judgment either that Tanner & Co. was not an insured as defined by the policy or that Tanner himself was not an insured as defined by the policy.

As evidence in support of summary judgment, State Farm submitted the policy, Mitchell's lawsuit complaint, and the depositions of Mitchell and Tanner taken in this declaratory judgment action.

The policy defines who is an insured, in pertinent part:

"1. If you are designated in the Declarations as:

". . . .

"c. an organization other than a partnership or joint venture, you are an insured. Your executive officers, directors and trustees are insureds but only with respect to their duties as your officers, directors, or trustees. Your stockholders are also insureds but only with respect to their liability as stockholders."

"2. Each of the following is also an insured:

"a. your employees, other than your executive officers, but only for acts within the scope of their employment by you."

The insuring clause of the policy provides, in pertinent part:

"[State Farm] will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury... to which this insurance applies.... This insurance applies only:

1. to bodily injury ... caused by an occurrence...."

The policy defines "occurrence," in pertinent part, as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury...."

The duty-to-defend clause in the policy provides, in pertinent part:

"We will have the right and duty to defend any claim or suit seeking damages payable under this policy even though the allegations of the suit may be groundless, false or fraudulent...."

The exclusion for damages "expected or intended from the standpoint of the insured" provides, in pertinent part:

"[T]his insurance does not apply:

"1. to bodily injury ...:

"a. expected or intended from the standpoint of the insured ...."

The exclusion for damages "due to the rendering of professional services" provides, in pertinent part:

"[T]his insurance does not apply:

". . . .

"10. to bodily injury ... due to rendering or failure to render any professional services.... This includes but is not limited to:

"a.... accounting ... services ...."

Mitchell testified in the deposition State Farm took after Mitchell had settled his lawsuit that, although Mitchell's lawsuit complaint had contained claims that Tanner, in his capacity as Mitchell's partner, had wronged Mitchell unintentionally, Mitchell had actually "felt" or "contended" that Tanner had been acting in his capacity as Mitchell's accountant when Tanner wronged Mitchell and that Tanner had been acting intentionally when he wronged Mitchell:

"Q. And so regardless of what your lawyers may have done in their legalese or legal couching of claims, your contention all along was he should have told me as my accountant and rendered a professional service to me by telling me as my accountant and my financial advisor, these things are going on, because I was entitled to know and he didn't tell me?

"A. I feel he should have told me.

"Q. And you feel like he intentionally didn't tell you?

"I—

". . . .

"A. I feel like he intentionally didn't tell me.

"Q. That's been your claim all along?

"A. That's been my claim all along."

Tanner and Tanner & Co., opposing summary judgment for State Farm and cross-moving for summary judgment, argued that: (1) Mitchell's claims for innocent misrepresentation, reckless misrepresentation, and suppression constituted "occurrences" under the insuring clause of the policy and did not incur the exclusion for damages "expected or intended from the standpoint of the insured" because Tanner did not...