Worthington Fed. Bank v. Everest Nat'l Ins. Co.

• Decision Date: 04 June 2015
• Docket Number: No. 5:14–cv–0244–JEO.,5:14–cv–0244–JEO.
• Parties: WORTHINGTON FEDERAL BANK and Worthington Financial Holdings, Inc., Plaintiffs, v. EVEREST NATIONAL INSURANCE COMPANY and Security National Insurance Company, Defendants.
• Court: U.S. District Court — Northern District of Alabama

110 F.Supp.3d 1211

WORTHINGTON FEDERAL BANK and Worthington Financial Holdings, Inc., Plaintiffs,

v.EVEREST NATIONAL INSURANCE COMPANY and Security National Insurance Company, Defendants.

No. 5:14–cv–0244–JEO.

United States District Court, N.D. Alabama, Northeastern Division.

Signed June 4, 2015.

James S. Williams, Marcus Monte Maples, Sirote & Permutt P.C., Birmingham, AL, for Plaintiffs.

Archibald T. Reeves, IV, McDowell Knight Roedder & Sledge LLC, Mobile, AL, Brian A. Dodd, Krebs Farley & Pelleteri, Birmingham, AL, Jeffrey S. Price, Justin D. Wear, Manier & Herod P.C., Nashville, TN, for Defendants.

MEMORANDUM OPINION & ORDER

JOHN E. OTT, United States Chief Magistrate Judge.

In this action removed from Alabama state court, Plaintiffs Worthington Federal Bank (the "Bank") and Worthington Financial Holdings, Inc. ("WFH") (collectively "Plaintiffs" or the "Companies") bring claims under Alabama law for breach of contract, the tort of bad faith, and for a declaratory judgment against Everest National Insurance Company ("Everest") and Security National Insurance Company ("Security National") (collectively "Defendants"). (See Doc.¹ 21, Amended Complaint (hereinafter "Complaint" or "Compl.")). The case was assigned the undersigned pursuant to the court's general order of reference dated January 14, 2013, and the parties have consented to an exercise of plenary jurisdiction by a magistrate judge under 28 U.S.C. § 636(c) and FED.R.CIV.P. 73. (Doc. 31). The cause now comes to be heard on a motion for summary judgment filed by Security National (Doc. 35) and a motion for partial summary judgment filed by Everest. (Doc. 37). The parties have filed evidence and fully briefed their respective positions on the motions. (Docs. 36, 38, 40, 41, 42, 43). Upon consideration, the court concludes that Everest's motion for partial summary judgment is due to be denied and that Security National's motion for summary judgment is due to be granted in part, as it relates to its duty to advance defense expenses for an underlying action pending in state court.

I. BACKGROUND

For purposes of the instant summary judgment motions only, the parties have stipulated to the following facts (see Doc. 32 at 2–4):

1. Everest issued Directors & Officers Liability Policy Number 8100000269–121 for the policy period of December 14, 2012 to December 14, 2013 (the "Everest Policy").

2. Security National issued Directors & Officers Liability Policy Number SDO1108069 for the policy period of December 14, 2013 to December 14, 2014 (the "Security National Policy").

3. The terms of the Everest Policy and the Security National Policy and no other insurance agreement govern the dispute among the Parties.

4. Plaintiffs are insureds under the Everest Policy and the Security National Policy.

5. On February 6, 2013, Judy Worthington filed suit against Plaintiffs and certain of their employees, officers and/or directors in the Circuit Court of Madison County, Alabama (the "Worthington Lawsuit").

6. On April 4, 2014, Stephen Brewer and others filed suit against Plaintiffs and certain of their employees, officers and/or directors in the Circuit Court of Madison County, Alabama (the "Brewer Lawsuit"). Plaintiffs provided Security National with notice of the Brewer Lawsuit on April 9, 2014, and Everest with notice of the Brewer Lawsuit on April 16, 2014. Solely for purposes of the Preliminary Summary Judgment Motions, neither Everest nor Security National will argue that notice of the Brewer Lawsuit was untimely.

7. Plaintiffs contend that they have met every condition precedent to coverage under the Security National Policy and the Everest Policy. Plaintiffs assert that one or both Policies should provide defense costs and coverage for the Brewer Lawsuit.

8. Everest asserts that the Brewer Lawsuit is deemed to be a claim first made during the Security National Policy period and is not related to the Worthington Lawsuit.

9. Security National asserts that the claims and allegations in the Brewer Lawsuit are Interrelated Wrongful Acts (as defined under the Security National Policy) with the claims and allegations in the Worthington Lawsuit and is deemed to have been made during the Everest Policy period.

10. Everest asserts that the Brewer Lawsuit is not covered under the Everest Policy because, inter alia, the claim was not made during the Policy Period.

11. Security National asserts that the allegations in the Brewer Lawsuit are related to claims first made during the Everest Policy period. Security National also asserts that the Brewer Lawsuit is not covered under the Security National Policy because, inter alia, (a) it is an Interrelated Wrongful Act (as defined under the Security National Policy), (b) it is deemed to have been first made no later than the date when the Worthington Lawsuit was filed pursuant to Section III.B. of the Security National Policy, and (c) Exclusion A.1 of the Security National Policy excludes coverage for the Brewer Lawsuit.

The parties have further stipulated that it is appropriate for the court to consider the following documents in ascertaining whether summary judgment is due to be granted (see Doc. 32 at 4–5):

1. The Everest Policy (Doc. 38–1);

2. The Security National Policy (Doc. 36–1, Doc. 38–2);

3. Plaintiffs' Application for the Security National Policy dated December 11, 2013 (Doc. 36–7);

4. The pleadings (including the Complaint) in the Worthington Lawsuit (Doc. 36–2, Doc. 38–3 ("Worthington Complaint" or "Worthington Compl."));

5. The pleadings (including the Complaint) in the Brewer Lawsuit (Doc. 36–3, Doc. 38–4 ("Brewer Complaint" or "Brewer Compl.")).

II. SUBJECT MATTER JURISDICTION

Before considering the merits of the summary judgment motions, it is necessary to address subject matter jurisdiction despite that no party questions its existence. Federal courts have limited jurisdiction and are authorized to hear only those types of cases prescribed by Congress.See Baggett v. First Nat. Bank of Gainesville, 117 F.3d 1342, 1345 (11th Cir.1997). Further, "federal courts have an independent obligation to ensure that they do not exceed the scope of their jurisdiction, and therefore they must raise and decide jurisdictional questions that the parties either overlook or elect not to press." Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434, 131 S.Ct. 1197, 1202, 179 L.Ed.2d 159 (2011) (citing Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) ). Likewise, while an action may be removed where the district courts have original jurisdiction, 28 U.S.C. § 1441(a), the removal statutes provide that, "if at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c).

Plaintiffs originally filed this action in the Circuit Court of Madison County, Alabama, seeking to recover under state law pursuant to various contract and tort theories against Everest and another defendant, ABA Insurance Services, Inc. ("ABAIS"). (Doc. 1–1). Everest and ABAIS removed the action pursuant to 28 U.S.C. §§ 1441, 1446. (Doc. 1). As the parties invoking federal jurisdiction, Everest and ABAIS bore the burden of establishing jurisdiction. Underwriters at Lloyd's, London v. Osting–Schwinn, 613 F.3d 1079, 1085–86 (11th Cir.2010) ; see also FED.R.CIV.P. 8(a)(1). To that end, Everest and ABAIS asserted that this court could hear the case under the diversity statute, which confers federal jurisdiction where the matter in controversy exceeds $75,000, exclusive of interest and costs, and is between citizens of different States. 28 U.S.C. § 1332(a)(1).

The allegations of the notice of removal are sufficient to show that the amount-in-controversy requirement is not in doubt. (See Doc. 1, ¶¶ 12–22). However, Everest and ABAIS also had to establish the citizenship of all parties and that no defendant shares citizenship with any plaintiff. See Stillwell v. Allstate Ins. Co., 663 F.3d 1329, 1332 (11th Cir.2011). For a pleading to establish prima facie the citizenship of a party that is a natural person, it is typically enough simply to allege the State of which that person is a citizen, i.e., the State of domicile. See Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1342 n. 12 (11th Cir.2011) ; Taylor v. Appleton, 30 F.3d 1365, 1367 (11th Cir.1994) ; see also Newman–Green, Inc. v. Alfonzo–Larrain, 490 U.S. 826, 828, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989). By contrast, for a party that is a corporation, partnership, or some other type of organization or association, a pleading must contain more specific factual allegations from which its citizenship may be ascertained under federal standards applicable to the particular type of entity. See Mallory & Evans Contractors & Eng'rs, LLC v. Tuskegee Univ., 663 F.3d 1304, 1305 (11th Cir.2011) ; Underwriters of Lloyd's, London, 613 F.3d at 1089 ; Rolling Greens MHP, LP v. Comcast SCH Holdings LLC, 374 F.3d 1020, 1022 (11th Cir.2004) ; Xaros v. U.S. Fid. & Guar. Co., 820 F.2d 1176, 1181–82 (11th Cir.1987) ; American Motorists Ins. Co. v. American Employers' Ins. Co., 600 F.2d 15, 16 (5th Cir.1979).²

For diversity purposes, a corporation is deemed a citizen of both the State under whose law it was incorporated and the State where it has its principal place of business. 28 U.S.C. § 1332(c)(1). As such, a pleading must allege sufficient material as to both of those prongs to make a prima facie showing of citizenship. American Motorists, 600 F.2d at 16 ; Fidelity & Guar. Life Ins. Co. v. Thomas, 559 Fed.Appx. 803, 805 n. 5 (11th Cir.2014). A corporation's principal place of business under § 1332(c)(1) is its "nerve center," "where a corporation's officers direct, control, and coordinate the corporation's activities." Hertz Corp. v. Friend, 559 U.S. 77, 92–93, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010). "In practice," this "should normally be the place where the corporation maintains its headquarters." Id. at 93, 130 S.Ct....