Opinion
Civil Action No. 1:98-0806-RV-S.
December 6, 2000.
JUDGMENT
In accordance with the court's December , 2000 order granting the motions for summary judgment filed by defendant Cole-Farley Associates, Inc. and defendant Auto Owners Insurance Company, plaintiff Concrete Metal Forms, Inc. shall recover nothing from either defendant. Pursuant to Federal Rule of Civil Procedure 58, judgment is hereby entered in favor of defendant Cole-Farley Associates, Inc. and in favor of defendant Auto Owners Insurance Company and against plaintiff Concrete Metal Forms, Inc.
ORDER
This matter is before the court on the following documents:
1. "Motion for Summary Judgment," (doc. 62), filed by defendant Cole-Farley Associates, Inc., together with a supporting memorandum, (doc. 63), evidentiary material, (doc. 62), and proposed findings of fact and conclusions of law as required by Local Rule 7.2.(a);
2. "Motion for Summary Judgment," (doc. 65), filed by defendant Auto Owners Insurance Company, together with a supporting memorandum, (doc. 66), evidentiary material, (doc. 67), and proposed findings of fact and conclusions of law as required by Local Rule 7.2.(a);
3. Response, (doc. 75), filed by plaintiff Concrete Metal Forms, Inc., together with evidentiary material (doc. 76);
4. Reply, (doc. 78), filed by defendant Cole-Farley;
5. Reply, (doc. 80), filed by defendant Auto Owners;
6. "Supplemental Brief," (doc. 103), filed by plaintiff; and
7. The parties' "Joint Pretrial Document." (doc. 104).
After due consideration, the court finds that no genuine issue of material fact exists and that defendants are entitled to summary judgment as a matter of law pursuant to Federal Rule of Civil Procedure 56. Accordingly, it is
ORDERED that the motions for summary judgment are GRANTED. The court finds that the following facts are uncontroverted and makes the following conclusions of law.
UNCONTROVERTED FACTS
Most of these uncontroverted facts are taken from the "Admitted or Uncontested Facts" section in the parties' Joint Pretrial Document.
1. Plaintiff, Concrete Metal Forms, Inc., is a Florida corporation with its principal place of business in Jasper, Florida. Plaintiff was incorporated by Wayne Keene. Wayne Keene's son, Robert Keene, later purchased plaintiff and was plaintiff's vice-president at all relevant times. Lynette Keene, Robert Keene's wife, was plaintiff's president at all relevant times.
2. Plaintiff is in the business of providing and installing wooden forms into which concrete is poured on construction sites.
3. Prior to purchasing plaintiff, Robert Keene had worked in the concrete form business with his father's company since he was sixteen years old.
4. In October 1996, plaintiff successfully bid on a concrete form job with Stuart Construction Company, the general contractor, with respect to the addition to the Baldwin County, Alabama Jail. This was the first, last, and only job plaintiff performed.
5. Plaintiff's subcontract with Stuart Construction required plaintiff to maintain comprehensive general liability insurance as well as workers' compensation insurance. Accordingly, Wayne Keene and Robert Keene telephoned Robert Cole of defendant Cole-Farley Associates, Inc. regarding the purchase of the required insurance.
There appears to be some disagreement as to which Keene (father or son) actually spoke to Mr. Cole and requested the insurance. Compare Uncontested Facts, ¶ 5 ("Wayne Keene asked Robert Cole to insure the plaintiff for general liability insurance and workers' compensation insurance.") with Plaintiff's Statement, p. 1 ("Robert Keene, the owner of [plaintiff], zcontacted Cole-Farley and requested to purchase liability insurance for the job.") and defendant Cole-Farley's Statement, p. 2 ("Wayne Keene contacted Robert Cole . . . [and] specifically requested the same coverage he had for his company.").
As it is required to do when ruling on a defendant's summary judgment motion, the court will assume that plaintiff's version of the facts is correct. However, the court notes that it is immaterial to its ruling which Keene spoke to Robert Cole.
6. Cole-Farley is a Georgia corporation with its principal place of business in Columbus, Georgia. Cole-Farley, an insurance agency, had a written agreement with defendant Auto Owners authorizing it to solicit applications and bind certain coverages subject to the terms of the Agency Agreement.
7. Plaintiff, either through Wayne Keene or Robert Keene, specifically asked Cole-Farley only for commercial general liability insurance and workers' compensation insurance. Plaintiff asserts that Robert Keene "informed Cole-Farley that [plaintiff] wanted to purchase liability insurance that would provide full and complete coverage for any and all damages to persons or property that might arise out of any accident on the job." (Plaintiff's Statement, p. 1).
8. As a result of that conversation, Cole-Farley obtained insurance for plaintiff through defendant Auto Owners which issued a commercial general liability insurance policy and a commercial inland marine policy to plaintiff on January 7, 1997, with an effective date of November 1, 1996.
The workers' compensation insurance policy plaintiff requested was issued by Monumental Life Insurance Company; that policy is not at issue in this action.
9. Defendant Auto Owners is a Michigan corporation with its principal place of business in Lansing, Michigan.
10. The general liability insurance policy issued was a standard policy that provided coverage against claims for Bodily Injury and Property Damage as those terms are defined in the policy.
The court notes that this uncontested fact (JPTD, p. 7, ¶ 7) — that the issued policy was a "standard" general liability insurance policy — contradicts plaintiff's expert who testified that this policy was unusual. Under the court's ruling, neither characterization is material.
11. Plaintiff received the two policies in the mail, together with a transmittal letter from Cole-Farley. Plaintiff's president, Lynette Keene, checked the commercial general liability insurance policy to make sure that the coverage amounts complied with the insurance requirements in plaintiff's subcontract with Stuart Construction. It did.
12. The transmittal letter included this invitation: If after examination of the policy you need to make any changes or have any questions, please feel free to call me [Robert Cole]." The policy itself states:
Various provisions in this policy restrict coverage. Read the entire policy carefully to determine rights, duties, and what is and is not covered.
The policy also states in bold print:
READ YOUR POLICY CAREFULLY.
13. Ms. Keene read page three of the commercial general liability insurance policy which stated: " READ YOUR POLICY CAREFULLY," and she read some, but not all, of the policy.
14. Ms. Keene did not read the entire policy, choosing only to glance through the policy exclusions, and she did not contact either Cole-Farley or Auto Owners regarding the written policy.
15. Plaintiff began its work on the Baldwin County Jail Addition project on February 24, 1997. With approximately 1/4 of the project finished, plaintiff placed the concrete forms for the second floor. Stuart Construction, which did the actual pouring, was pouring the concrete into the second floor forms on June 2, 1997, when the floor collapsed. On both dates, the Auto Owners policies issued to plaintiff were in effect.
16. Auto Owners was placed on notice of the accident and immediately undertook an investigation of the loss. Auto Owners hired an independent adjuster experienced in handling complex construction claims, Thomas Medina, and retained a structural engineer, Marc Barter, to investigate the work performed by plaintiff.
17. Plaintiff's expert witness, Greenberry Bush Taylor, agreed that the investigation was conducted in a competent manner and he would not have done anything differently in handling the investigation.
18. After its investigation, Auto Owners undertook the defense of six personal injury lawsuits and, as of May 2000, had paid approximately $239,000 with respect to those claims. The personal injury claims are not at issue in this litigation.
19. Both plaintiff and Stuart Construction submitted claims to Auto Owners; these claims exceeded $100,000. Of those claims, Auto Owners paid $13,328.90 to Stuart Construction (apparently under the inland marine policy), denied the balance of the Stuart Construction claim, and denied plaintiff's claim in full. Auto Owners explained its denial a letter to plaintiff dated December 19, 1997.
20. The property damage claims submitted to Auto Owners fell within two categories: (1) expenses for "physical injury to tangible property" which amounted to $13,328.90 and, as noted above, was paid by Auto Owners and (2) expenses that Auto Owners determined were not covered under the commercial general liability insurance policy which have been described as "clean up costs" by plaintiff's expert in the amount of $70,165.40. Plaintiff contends that those "clean up costs" constitute "loss of use" which is covered under the definition of "property damage." Plaintiff's expert, Mr. Taylor, admitted that Auto Owners did not owe the amount of the original claim for property damage ($109,874.24), but rather only owed $70,165.40 under the policy as written.
21. As a result of an arbitration proceeding brought by Stuart Construction against plaintiff, the general contractor was awarded a net award of $40,626.60. This award was premised upon the arbitrator's finding that plaintiff "did not adequately provide shoring sufficient to carry the loads anticipate in the contract."
22. Based on its own investigation, the Occupational Safety and Health Administration (OSHA) issued four citations to plaintiff for "serious" violations arising out of the Baldwin County Jail Addition collapse.
CONCLUSIONS OF LAW
I. Jurisdiction and Venue
The court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332. Venue is proper pursuant to 28 U.S.C. § 1391(a).
II. Legal Standard for Summary Judgment
As the Court of Appeals for the Eleventh Circuit has cogently explained:
Summary judgment is proper in cases in which there is no genuine issue of material fact. Fed.R.Civ.P. 56(c). . . . [The court] must view all of the evidence in the light most favorable to the non-moving party. Samples ex. rel. Samples v. Atlanta, 846 F.2d 1328, 1330 (11th Cir. 1988). The movant bears the initial burden of presenting evidence sufficient to demonstrate the absence of a genuine issue of material fact. Celotex Co. v. Catreet, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). When the movant has met its burden, the non-movant must then designate, by affidavits, depositions, admissions, and answers to interrogatories, specific facts showing the existence of a genuine issue for trial. Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590, 593-94 (11th Cir. 1995).Southern Solvents, Inc. v. New Hampshire Insur. Co., 91 F.3d 102, 104 (11th Cir. 1996).
III. Plaintiff's Claims Against Each Defendant
In the pretrial document, plaintiff identified its claims against defendants as follows:
This list of claims is taken almost verbatim from plaintiff's list of its claims in the JPTD (p. 16).
1. Breach of contract against Auto Owners for failing to pay the full amount owed under a policy of insurance after being timely notified of a loss arising out of the collapse of the second floor of the Baldwin County Jail addition.
2. Bad faith against Auto Owners for the manner in which it adjusted the insurance claim and by failing to pay the full amount owed under the policy of insurance for the loss suffered by plaintiff.
3. Negligence against Cole-Farley and Auto Owners for Cole-Farley's breach of duty to plaintiff by failing to inform properly Auto Owners of the type coverage desired by plaintiff and by failing to provide such coverage to plaintiff while acting as agent for Auto Owners.
4. Wantonness/recklessness against Cole-Farley and Auto Owners for the acts described in issue 3.
5. Fraud against Cole-Farley and Auto Owners for representing and promising plaintiff that they would provide a policy of insurance that would contain coverage for all personal injury and/or property damages claims arising out of any accident on the Baldwin County Jail Addition job.
6. Fraudulent concealment against Cole-Farley and Auto Owners for breaching a fiduciary duty owed to plaintiff by failing to inform plaintiff that many types of property damage would not be covered under the policy of insurance for which plaintiff paid a premium and which defendants represented would provide such coverage.
IV. Discussion
A. Breach of Contract Against Auto Owners
This is the claim set forth in Section III, No. 1, supra.
In April 2000, the court held a hearing on defendants' motions for summary judgment and orally announced that it was denying defendant Auto Owners' motion as to plaintiff's breach of contract claim. The next month, on the morning of trial, plaintiff waived its jury trial demand and, without calling any witnesses, stated on the record that it could not prove a prima facie case as to its breach of contract claim. Defendant Auto Owners responded by moving for judgment as a matter of law which the court orally granted on the record. Accordingly, no further action regarding plaintiff's breach of contract claim is required in this order. B. Bad Faith Against Auto Owners
Defendants did not object to this waiver.
Upon review, it appears that defendant Auto Owners's motion for judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(a) was not the correct procedural vehicle in light of plaintiff's waiver of its jury trial. To the extent that the record needs to be corrected, the court hereby enters its conclusion of law in accordance with Federal Rule of Civil Procedure 52(a) that defendant Auto Owners is entitled to a judgment in its favor on plaintiff's breach of contract claim in light of plaintiff's on the record stipulation that it could not prove that claim.
This is the claim set forth in Section III, No. 2, supra.
During the April 2000 hearing, the court orally announced that it was granting defendant Auto Owners' motion for summary judgment as to plaintiff's bad faith claim. However, the intervening stipulation by plaintiff that it could not prove its underlying breach of contract claim and the court's granting of judgment in defendant Auto Owners' favor on said claim obviates Rule 56's requirement of the entry of conclusions of law regarding the grant of a summary judgment, for the Alabama Supreme Court has held that no bad faith claim will lie if the plaintiff does not prevail on the underlying breach of contract claim. State Farm Fire Casualty Co. v. Slade, 747 So.2d 293, 319 (Ala. 1999) ("After throughly reviewing Alabama law on the tort of bad faith, we are convinced that when this Court recognized the tort of bad faith, it intended to limit liability under that tort to those instances in which the insured's losses were covered under the policy."). Thus, plaintiff's concession that it could not prove its breach of contract claim carries with it the additional result of eliminating its bad faith claim. Judgment is due to be entered in favor of Auto Owners on the bad faith claim.
C. Negligence/Wantonness/Fraud/Fraudulent Suppression Against Cole-Farley and Auto Owners With Respect to the Requested Insurance Coverage
Plaintiff alleges that defendants Cole-Farley and Auto Owners committed various tortious acts against it by failing to procure and provide the insurance coverage plaintiff requested. Plaintiff argues that the issued policies were not "tailored" to plaintiff's coverage request or to the subcontract in that the policies contained exclusions which left plaintiff exposed to liability in the area where its biggest liability existed. Plaintiff further asserts that Auto Owners issued a policy similar, if not identical, to the commercial general liability policies that Wayne Keene's company usually requested — but which did not meet the maximum coverage request made by Robert Keene on behalf of plaintiff.
According to plaintiff's expert, this area of biggest exposure was the concrete forms which plaintiff had rented to perform the Baldwin County Jail Addition. Those forms which plaintiff had on site cost approximately $100,000.
Without downplaying this exposure, it would appear that plaintiff's biggest exposure was not damage to or loss of the concrete forms but personal injury claims — and the insurance provided covered those claims. See Uncontroverted Fact No. 18.
None of this, however, is material to the court's decision.
Plaintiff asserts that at all relevant times Cole-Farley was acting as an agent of Auto Owners. For purposes of this ruling, the court will assume arguendo that Cole-Farley was acting as Auto Owners' agent at all relevant times.
Although recognized in some jurisdictions, plaintiff's tortious procurement causes of action fail as a matter of law under the "merger doctrine" which Alabama courts have applied for at least forty years. That doctrine provides that oral negotiations are merged into the written insurance policy once it is accepted by the insured:
[T]he general rule is the same as that regarding any other negotiations or agreements culminating in the issuance of a policy, i.e., that they are merged into the policy. The majority of American courts hold that if the policy is accepted by the insured, he is bound thereby, even thought the policy does not correspond to the preliminary negotiations.
This same rule would seem to obtain in Alabama, since our precedents provide that an insured is presumed to be familiar with the provisions of his policy.Hartford Fire Ins. Co. v. Shapiro, 270 Ala. 149, 155, 117 So.2d 348, 354 (1960) (citations omitted). Thus, when applied to the facts of the case in Hartford Fire, the merger doctrine barred the insured's parole evidence that he told the insurance agent that he wanted "full coverage" including "collision and upset coverage" when the written policy did not contain such coverage and the insured was not charged a premium for such coverage. Id., 270 Ala. at 151-52 154-55, 117 So.2d at 350-51 353-54.
Subsequent decisions issued by the Alabama Supreme Court and by the Court of Appeals for the Eleventh Circuit applying Alabama law have consistently applied the merger doctrine. See, e.g., Sexton v. Liberty Nat. Life Ins. Co., 405 So.2d 18, 22 (Ala. 1981) ("It is the rule that if the policy is accepted by the insured, he is bound thereby even though the policy does not correspond to the preliminary negotiations. The oral negotiations for the policy are merged in the accepted policy. . . . This principle is well embodied in our law.") (quoting Smith v. Protective Life Ins. Co., 355 So.2d 728, 730 (Ala.Civ.App. 1978)) (relying on Hartford Fire) (other citations omitted); Farmers Merchants Bank v. Home Ins. Co., 514 So.2d 825, 830-31 (Ala. 1987) ("Here, however, the written policy of insurance was issued subsequent to the agent's allegedly making oral representations that were contrary to the provisions of the written insurance contract. The instant facts, therefore, do invoke the application of the doctrine of merger, thereby precluding any consideration of the alleged prior representations of [the insurance agent] as to coverage.") (relying on Hartford Fire); Langley v. Mut. Fire, Marine, and Inland Ins. Co., 512 So.2d 752, 766 (Ala. 1987) (same) ( overruled on other grounds); First Ala. Bank of Montgomery N.A., v. First State Ins. Co., 899 F.2d 1045, 1069-70(11th Cir. 1990) (applying Alabama law) (same).
In addition to the merger doctrine, Alabama courts have also reached the same result through a different approach. In Syx v. Midfield Volkswagen, Inc., 518 So.2d 94 (Ala. 1987), Mr. Syx purchased a motor vehicle and applied to the defendant insurance agency for an automobile insurance policy issued by the defendant insurance company. Mr. Syx testified that the insurance agent told him that "he was applying for `full coverage,' including liability coverage." Id. at 95. Although Mr. Syx was given the opportunity to read the insurance application, he chose not to do so, and he also chose not to read the issued policy sent to him in the mail by the insurance company. Id. Five and one-half months after receiving the policy in the mail, Mr. Syx was involved in an accident and learned for the first time that he had no liability coverage. Id. Mr. Syx sued the insurance agent and the insurance company, among others, claiming that the insurance agent had fraudulently misrepresented to him that he had "`full coverage,' including liability coverage." Id.
Noting that reasonable reliance was "an essential element of a fraud action," id. at 96, the Supreme Court of Alabama held that Mr. Syx had acted unreasonably as a matter of law by failing to read the insurance application and the insurance policy and thereby failing to discover that his policy did not contain liability coverage. Id. at 96-97.
In determining that Mr. Syx had acted unreasonably, the state supreme court relied heavily on Torres v. State Farm Fire Casualty Co., 438 So.2d 757 (Ala. 1983). In Torres, the plaintiffs specifically told the insurance agent's employee that they wanted flood insurance, and the employee responded by telling the Torreses that she would "take care of it." Id. at 758. Notwithstanding the employee's response, the homeowner's policies issued to the Torreses and received by them over the next two years did not contain any flood coverage provision. Additionally, the Torreses were never charged a flood coverage premium.
Affirming the trial court's entry of summary judgment in favor of the insurance company, the Alabama Supreme Court stated:
Because it is the policy of courts not only to discourage fraud but also to discourage negligence and inattention to one's own interests, the right of reliance comes with a concomitant duty on the part of the plaintiff's to exercise some measure of precaution to safeguard their interests. In order to recover for the misrepresentation, the plaintiffs' reliance must, therefore, have been reasonable under the circumstances. If the circumstances are such that a reasonably prudent person who exercised ordinary care would have discovered the true facts, the plaintiff's should not recover.
. . . The employee who told Mrs. Torres that she would "take care of it" no doubt was inundated with work at that particular time generated by claims like the Torreses' related to the hurricane. The plaintiffs relied on the statement for over a year and a half, despite the fact that they never received any premium notice for flood coverage and despite the fact that they received a homeowner's policy each year which did not provide for such coverage. We opine that, under the circumstances, the plaintiff's failed to exercise ordinary diligence in relying for so long on [the employee's] statement, when they received nothing from State Farm indicating that flood coverage had gone into effect. The failure to procure flood insurance which would have covered the loss was attributable to the plaintiffs' carelessness and neglect rather than to the misrepresentation.Torres, 438 So.2d at 758-59 (citations omitted).
Torres was decided on the basis of the "reasonable reliance" standard. The Alabama Supreme Court subsequently abandoned that standard in favor of the "justifiable reliance" standard, see Hickox v. Stover, 551 So.2d 259 (Ala. 1989), "which basically eliminated a person's duty to read and attempt to understand the contents of a document or documents received in connection with a particular transaction (consumer or commercial)." Foremost Ins. Co. v. Parham, 693 So.2d 409, (Ala. 1997). The state supreme court reversed course again in its 1997 Foremost decision, reverting back to the "reasonable reliance" standard followed in Torres. Accordingly, Torres has reclaimed its status as "good law" in the wake of Foremost.
As defendants point out, under Alabama law, a contracting party has an affirmative duty to read the contracts and related legal documents they sign or receive. Foremost Ins. Co. v. Parham, 693 So.2d 409, 421 (Ala. 1997). The Eleventh Circuit has recognized this "duty to read" requirement:
Alabama law imposes upon a party the duty to read and inspect any document which might affect that person's legal rights of liabilities. It must be said that the receipt of such a document would "provoke inquiry by a person of ordinary prudence," and that inquiry necessarily would consists of actually reading the document. This obligation is part of the "concomitant duty on the part of the plaintiff's to exercise some measure of precaution to safeguard their interests," as stated in Torres. If the facts constituting an alleged fraud claim would be apparent from simply reading a given document, a plaintiff's failure to do so renders his reliance on previous misrepresentations unreasonable under the circumstances.Ramp Operations, Inc. v. Reliance Ins. Co., 805 F.2d 1552, 1556 (11th Cir. 1986).
Here, it is undisputed that plaintiff's president chose to read only selected portions of the insurance policy when it arrived in the mail and that she did not question or challenge the terms or scope of coverage in any fashion. In this case, plaintiff chose to assign to its president the responsibility of reading its insurance policies to determine if they conformed to plaintiff's needs and requirements, and the president deliberately chose to read only selected portions thereof. Moreover, the president made her decision to read only selected portions after reading the policy's clear directive to " READ YOUR POLICY CAREFULLY."
The court notes that there is no evidence that plaintiff's president, Ms. Keene, was aware that plaintiff's vice-president, Mr. Robert Keene, had requested "liability insurance that would provide full and complete coverage for any and all damages to persons or property that might arise out of any accident on the job." See Uncontroverted Fact No. 7. For purposes of this ruling, the court will assume that Mr. Keene had communicated this information to Ms. Keene when Ms. Keene was tasked with the responsibility of reviewing the insurance policies.
After due consideration, the court concludes that plaintiff's tort claims against Cole-Farley and Auto Owners are either barred by the merger doctrine or fail due to the absence of reasonable reliance by plaintiff. Accordingly, the court further concludes that defendants are entitled to judgment on those claims.
These are the claims set forth in Section III, Nos. 3, 4, 5, 6, supra.
CONCLUSION
Defendants Cole-Farley and Auto Owners are entitled to judgment as a matter of law as to all of plaintiff's claims. In accordance with Federal Rule of Civil Procedure 58, judgment will be entered by separate document.