TWIN CITY FIRE INS. v. COLONIAL LIFE INS.
| Decision Date | 21 June 2002 |
| Citation | 839 So.2d 614 |
| Parties | TWIN CITY FIRE INSURANCE COMPANY et al. v. COLONIAL LIFE & ACCIDENT INSURANCE COMPANY et al. |
| Court | Alabama Supreme Court |
Micheal S. Jackson of Beers, Anderson, Jackson, Hughes & Patty, P.C., Montgomery, for plaintiffs.
Steven K. Herndon and Philip S. Gidiere, Jr., of Gidiere, Hinton & Herndon, Montgomery, for defendants.
This case stems from a dispute over the manner in which one insurance company represented another insurance company in an underlying action alleging the wrongful termination of an employee. It comes to this Court via two certified questions from the United States District Court for the Middle District of Alabama. Our answer to the first question moots the second question.
Twin City Fire Insurance Company ("Twin City") provided commercial general liability ("CGL") coverage to Colonial Life & Accident Insurance Company ("Colonial") from 1994-1996. One of Colonial's former employees filed a wrongful-termination action in 1996, and, as provided by the policy, Twin City helped defend Colonial in that action under a reservation of rights. Pursuant to the reservation of rights, Twin City filed a declaratory-judgment action in the United States District Court for the Middle District of Alabama, seeking a declaration that it had no duty to continue defending Colonial and no duty to indemnify Colonial in the event that a judgement was entered against it. The wrongful-termination action was settled out of court for $1.3 million; that amount was provided by Colonial and the other insurance companies that had provided Colonial with CGL coverage. Twin City contributed nothing to the settlement.
The settlement rendered the declaratory-judgment action moot, but before that action was dismissed Colonial filed a counterclaim against Twin City alleging fraud, breach of contract, and breach of the insurer's enhanced duty of good faith under the reservation-of-rights defense. Judge Ira DeMent dismissed the fraud claim but allowed the breach-of-contract and breach-of-duty-of-good-faith claims to go to trial. After hearing the evidence, Judge DeMent entered an order indicating that he would find no breach of contract by Twin City, but that he would find that under Alabama law Twin City had breached its enhanced duty of good faith. However, before entering a final order to this effect, Judge DeMent, pursuant to Rule 18, Ala. R.App. P., certified the following two questions to this Court:
The first question is actually two questions, asking first whether under Alabama law a claim alleging a breach of an insurer's enhanced duty of good faith is a tort or a contract claim, and second, if it is a tort claim, whether Alabama or South Carolina law applies.
If this Court determines that the insurer's enhanced duty of good faith sounds in contract, then the parties have stipulated that Alabama law dictates that South Carolina law (the place where the contract providing CGL coverage was executed) controls Colonial's claim. However, if the Court finds that the claim sounds in tort, then another matter becomes unclear. Whose law applies to the tort claim arising out of the contract claim? That is the thrust of the second half of the first certified question.
The answer to the first certified question affects the type of damages available to Colonial, which is the topic of the second question certified by the district court. Because we determine that the enhanced-duty-of-good-faith claim sounds in contract and not in tort, we need not determine whether Alabama law applies to that claim, nor must we determine what kind of damages can be awarded in such a claim.
L & S Roofing Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So.2d 1298 (Ala.1988), is the seminal case in this area. That case holds that "when an insurance company undertakes a defense pursuant to a reservation of rights, it does so under an `enhanced obligation of good faith' toward its insured in conducting such a defense." Aetna Cas. & Sur. Co. v. Mitchell...
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