Twin City Fire Ins. v. Colonial Life & Acc. Ins.

• Decision Date: 07 December 2000
• Docket Number: Civil Action No. 99D935-N.
• Citation: 124 F.Supp.2d 1243
• Court: U.S. District Court — Middle District of Alabama
• Parties: TWIN CITY FIRE INS. CO., et. al., Plaintiffs, v. COLONIAL LIFE & ACC. INS. CO., et. al., Defendants.

124 F.Supp.2d 1243

TWIN CITY FIRE INS. CO., et. al., Plaintiffs, v. COLONIAL LIFE & ACC. INS. CO., et. al., Defendants.

Civil Action No. 99D935-N.

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

December 7, 2000.

COPYRIGHT MATERIAL OMITTED

Michael S. Jackson, Beers Anderson Jackson Nelson Hughes & Patty PC, Mongomery, AL, for plaintiffs.

George Lamar Beck, Jr., David B. Byrne, III, Brenton L. Dean, Beck & Byrne, P.C., Montgomery, AL, Philip S. Gidiere, Jr., Steven K. Herndon, Gidiere, Hinton & Herndon, Montgomery, AL, for defendants.

MEMORANDUM OPINION AND ORDER

DE MENT, District Judge.

Before the court is a Renewed Motion For Summary Judgment filed by counterclaim Defendants Twin City Insurance Company and The Hartford Casualty Insurance Company ("Twin City," "Hartford," or "Defendants") on July 27, 2000. Counterclaim Plaintiff Colonial Life and Accident Insurance Company ("Colonial" or "Plaintiff") filed a Response on October 27, 2000. Defendants issued a Reply on November 3, 2000.¹ The court granted Plaintiff additional leave to supplement the record, but denied a similar request by Defendants, for they failed to comply with the requirements set forth in the Uniform Scheduling Order entered in this case. After careful consideration of the arguments of counsel, the relevant law, and the record as a whole, the court finds that the Motion is due to be granted in part and denied in part.

I. JURISDICTION AND VENUE

The court exercises subject matter jurisdiction over these claims pursuant to 28 U.S.C. § 1332 (diversity jurisdiction). The parties do not contest personal jurisdiction or venue.

II. SUMMARY JUDGMENT STANDARD

The court construes the evidence and makes factual inferences in the light most favorable to the nonmoving party. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Summary judgment is entered only if it is shown "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c). At this juncture, the court does not "weigh the evidence and determine the truth of the matter," but solely "determine[s] whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citations omitted).

This determination involves applying substantive law to the substantive facts that have been developed. A dispute about a material fact is genuine if a reasonable jury could return a verdict for the nonmoving party, based on the applicable law in relation to the evidence presented. See id. at 248, 106 S.Ct. 2505; Barfield v. Brierton, 883 F.2d 923, 933 (11th Cir.1989). The moving party bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The burden then shifts to the non-moving party, which must designate specific facts remaining for trial and "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). An action will be dismissed when the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party. See id. at 587, 106 S.Ct. 1348.

III. FACTUAL BACKGROUND

This action arises out of an insurance coverage dispute related to a lawsuit filed more than three years ago in Alabama state court. Twin City provided Colonial with commercial general liability coverage from January 1994 through 1997, and Hartford provided umbrella coverage from January 1994 until April 20, 1995. (Resp. at 2.) Colonial alleges that Twin City and Hartford breached the contract and committed several business torts when they resolved a lawsuit filed against Colonial by Lucas White, one of Colonial's former employees.

White brought three relevant causes of action against Colonial. These included breach of contract, tortious interference, and fraudulent misrepresentation and suppression. Each of Colonial's misdeeds, according to White, caused him "present and future mental anguish, pain and suffering" and "great mental distress, anguish, pain and suffering." (White Am.Compl. ¶¶ 26, 27, 28, 35, 36, 42, 43, 45.)

Colonial timely notified Twin City and Hartford of the lawsuit. Twin City and Hartford participated in Colonial's defense under a reservation of rights, and they appointed one of their attorneys, Mario Gonzalez, to provide appropriate legal representation. (Resp. at 2-3.) Although White's lawsuit survived summary judgment, White and Colonial reached a settlement agreement shortly before the case was scheduled for trial. (Id. at 3-4.) Defendants had concurrently filed for a declaratory judgment, stating that they did not owe any duty to defend Colonial, but this issue was never resolved. (Id. at 2.)

At some point, Defendants originally committed to contribute $75,000 to a global settlement of White's lawsuit. Defendants subsequently withdrew that offer. (Id. at 2-5.) Colonial and the other insurance carriers participating in the case then had to make up the difference. Colonial claims proximate injuries as a result.

IV. DISCUSSION

Colonial's counterclaim against Defendants states four causes of action: breach of contract, breach of insurer's enhanced duty of good faith, breach of duty of good faith and fair dealing, and fraud. At the outset, the court notes that Colonial has abandoned its breach of contract claim against Hartford. (Resp. at 6.) See Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir.1995) (abandoned claims). The court addresses Plaintiff's remaining claims in turn.

A. Breach of Contract

Plaintiff alleges that Twin City breached its insurance contract by failing to indemnify Colonial for the losses it suffered in connection with White's lawsuit. (Compl. ¶¶ 28-31.) Twin City responds that it had no duty to provide coverage, for White's claims did not fall within the policy. For the reasons to follow, the court disagrees.

A federal court sitting in diversity applies the substantive laws of the forum state. Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). In the absence of extraordinarily persuasive evidence, the Erie doctrine requires that the court follow state common law as it was last stated by the state's highest court. While an Erie court must not be unduly inflexible in discerning the scope of substantive state law, it must give due respect to the basic principles of equity, comity, and federalism that support our nation's system of dual sovereignty.² See, e.g., Flintkote Co. v. Dravo Corp., 678 F.2d 942, 945 (11th Cir.1982).

Alabama choice of laws rules follow the doctrine of lex loci contractus, which provides that contract claims are governed by the law of the place where the contract was executed. See Brown Mach. Works & Supply, Inc. v. Insurance Co. of N. Am., 951 F.Supp. 988, 992 (M.D.Ala. 1996). "Where the last act is `receipt and acceptance' of an insurance policy, the court must apply the law of the state where this last act occurred." Id. The parties agree, and the court therefore finds, that South Carolina law governs the interpretation of Colonial's insurance contract.

Under South Carolina law, "[q]uestions of coverage and the duty of a liability insurance company to defend a claim brought against its insured are determined by the allegations of the third party's complaint." Isle of Palms Pest Control Co. v. Monticello Ins. Co., 319 S.C. 12, 459 S.E.2d 318, 319 (App.1995), aff'd, 321 S.C. 310, 468 S.E.2d 304 (1996). "If the underlying complaint creates a possibility of coverage under an insurance policy, the insurer is obligated to defend." Id. Ambiguities in a policy — such as doubts as to the duty to defend — should be resolved in favor of the insured. See Poston v. National Fidelity Life Ins. Co., 303 S.C. 182, 399 S.E.2d 770, 772 (1990); see also Douglas R. Richmond, Lost in the Eternal Triangle of Insurance Defense Ethics, 9 GEO. J. LEGAL ETHICS 475, 480 (1996) ("any doubts about whether a defense is owed are always resolved in the insured's favor.")

The issue, then, is whether White's consistent allegations that Colonial caused him "present and future mental anguish, pain and suffering" fairly fall within the policy's definition of "bodily injury." The policy defines "bodily injury" as "bodily injury, sickness or disease sustained by a person, including mental anguish or death resulting from any of these." (Def.Ex. Book 5B.) Under South Carolina law, emotional trauma can constitute "bodily injury," see State Farm Mut. Auto. Ins. Co. v. Ramsey, 295 S.C. 349, 368 S.E.2d 477, 478 (App.Ct.), aff'd, 297 S.C. 71, 374 S.E.2d 896 (1989) (per curiam), unless the complaint "contains no allegations of physical damages." Jefferson-Pilot Fire & Cas. Co. v. Sunbelt Beer Distributors, Inc., 839 F.Supp. 376, 379 (D.S.C.1993).

The court finds that White's Amended Complaint, with its references to "pain and suffering," sufficiently pleaded physical damages. Pain and suffering both constitute "some objective indication of physical symptoms." Id. at 379. White's complaint certainly alleges more than the "loss of reputation, mental anguish, humiliation, and loss of enjoyment of life" claim presented in Jefferson-Pilot. See id. The court also finds that it may have been foreseeable from White's complaint that he would have attempted to demonstrate physical manifestations of emotional distress at trial. In addition, the court finds that Defendant has not conclusively shown that White would not have prevailed on the merits had his case been presented to a jury. (Gonzalez's Dep. at 152-56, 169.) Therefore, the court finds sufficient evidence to conclude that Defendant should have defended and/or indemnified Colonial for...