Albersonv.Nationwide Assurance Company

United States District Court, M.D. AlabamaOct 24, 2003
CIVIL ACTION NO. 03-T-011-S (M.D. Ala. Oct. 24, 2003)


October 24, 2003

Joseph W. Lewis, Dothan, AL, for Plaintiff ANGUS ALBERSON

Joseph W. Lewis, Dothan, AL, for Counter-Defendant ANGUS ALBERSON

Charles A. Stewart, Angela Raines Rogers, Bradley Arant Rose White, LLP, Montgomery, AL, for defendant NATIONWIDE ASSURANCE COMPANY

Charles A. Stewart, Angela Raines Rogers, Bradley Arant Rose White, LLP, Montgomery, AL, for counter-claimant NATIONWIDE ASSURANCE COMPANY


MYRON THOMPSON, District Judge

Plaintiff Angus Alberton sued defendant Nationwide Assurance Company for breach of contract and bad faith arising out of Nationwide's denial of his insurance claim for a car accident. Nationwide counterclaimed for breach of contract, bad faith, fraud-misrepresentation, and fraud-suppression. Diversity jurisdiction is proper under 28 U.S.C.A. § 1332. This action is now before the court on Nationwide's motion for summary judgment. For the reasons that follow, that motion will be granted in part and denied in part.

I. Summary-Judgment Standard

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Under Rule 56, the party seeking summary judgment must first inform the court of the basis for the motion, and the burden then shifts to the non-moving party to demonstrate why summary judgment would not be proper. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986); see also Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-17 (11th Cir. 1993) (discussing burden-shifting under Rule 56). The non-moving party must affirmatively set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials in the pleadings. Fed.R.Civ.P. 56(e).

The court's role at the summary-judgment stage is not to weigh the evidence or to determine the truth of the matter, but rather to determine only whether a genuine issue exists for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511 (1986). In doing so, the court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in favor of that party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 So. Ct. 1348, 1356 (1986).

II. Factual Background

Alberson had a "non-owned vehicle" policy with Nationwide, which provided coverage for Alberson only when he was driving a vehicle he did not own in whole or in part. He was involved in an accident on July 11, 2001, while driving a truck. The accident report showed that Alberson owned the truck. Alberson filed a claim with Nationwide. He visited Nationwide's office in Dothan on July 23 and told someone there that he had purchased the truck from a relative in Florida, that title had transferred to his name, but that no other paperwork had been completed.

On August 2, 2001, Alberson gave a recorded phone interview with Heath Gray, a Nationwide adjustor. Alberson stated that he owned the truck and that he had purchased it a few months previously from his half-brother. He expressed uncertainty about whether title was in his name and whether he had the title and stated the vehicle was not registered in his name and he did not have a tag for it. However, he stated that he had signed a bill of sale for the truck and that he had paid cash.

Record of telephone interview with Angus Alberson, Exhibit D attached to Exhibit 2 to Motion for Summary Judgment, filed July 16, 2003 (Doc. No. 12).

On September 10, 2001, Nationwide sent Alberson a reservation-of-rights letter, explaining that Nationwide was investigating the ownership of the truck and that the investigation did not constitute a waiver of Nationwide's rights under the policy. The letter was returned to Nationwide unclaimed.

Reservation of rights letter, Exhibit F attached to Exhibit 2 to Motion for Summary Judgment.

On December 3, 2001, Gray conducted a recorded phone interview with Alberson's half-brother. The half-brother stated that he had sold the truck to Alberson; however, there had been a "problem" getting the title transferred to Alberson's name, and the half-brother had not yet "cleared up" the problem. He stated that he did not think he had completed a bill of sale with his brother. The half-brother told Gray that he had paid $ 1,155 for the truck from a wholesaler. He gave a vague answer when asked if Alberson had paid in cash or check; he indicated that it was a "family deal," that Alberson owed him money for other things in addition to the truck, and that Alberson had "paid me back some of this and that."

Record of telephone interview with Glenn Alberson, Exhibit G attached to Exhibit 2 to Motion for summary judgment.

On December 2, 2002, Alberson sued Nationwide for bad faith and breach of contract. On February 18, 2003, Nationwide deposed Alberson. Alberson stated that he had never owned the truck, that he had never told anyone he owned the truck, and that he was only test-driving it at the time of the accident. On June 6, 2003, Nationwide deposed Alberson's half-brother, who stated that he did not sell the truck to Alberson before the accident, although he did intend to sell it to him. He further said that he could not sell the vehicle directly to Alberson because he is a wholesale automobile dealer and cannot sell directly to the public.

Deposition of Angus Alberson, Exhibit 3 to Motion for summary judgment, at 28-29, 32, 46-48, 50-52.

Deposition of Glenn Alberson, Exhibit 3 to Motion for summary judgment, at 9-14.

Id. at 10.

The parties now agree that title for the truck was never transferred to Alberson's name, and that he does not have a bill of sale.

III. Discussion A. Breach-of-Contract Claim

Alberson's first claim against Nationwide is for breach of contract. Nationwide argues that it is entitled to summary judgment on this claim, first, because Alberson did in fact own the truck, and, second, because Alberson failed to comply with the terms of the policy by failing to cooperate with Nationwide.

If Nationwide is correct that Alberson owned the truck, that would mean the accident was not covered under his non-owned vehicle policy. Alberson says he did not own the truck, citing the fact that title was never transferred to his name and that his half-brother could not have sold him the vehicle because he is a wholesale dealer who is prohibited from selling to the public. Nationwide counters that there were other "indicia of ownership," which under Alabama law can be enough to establish ownership. There is, in other words, a genuine factual dispute as to whether or not Alberson owned the truck. Summary judgment on the breach-of-contract claim therefore cannot be granted on this theory.

Nationwide also argues that summary judgment on the breach-of-contract theory is warranted because Alberson failed to cooperate with Nationwide, as required by his insurance policy. The policy states:

"Assistance and Cooperation. The insured person shall cooperate with us and assist us in any matter concerning a claim or suit. . . .
"Action Against Us. An insured person must have complied fully with all the terms of this policy, and given us the fullest opportunity to perform in accordance with the terms, before any action can be taken against us."

Policy, Exhibit A attached to Exhibit 2 to Motion for summary judgment, at 10.

This language seems to make cooperation a condition precedent to coverage. Generally speaking, "an insurer's obligation to pay or evaluate the validity of an insured's claim does not arise until the insured has complied with the terms of the contract with respect to submitting claims." Nationwide Ins. Co. v. Nilsen, 745 So.2d 264, 267 (Ala. 1999) (holding that, where policy made submitting to examination under oath a condition precedent to coverage, the insured's failure to submit to examination relieved insurer of liability).

However, under Alabama law, "[o]nly a material and substantial failure to cooperate relieves an insurer of its duty to cover and defend. . . . The test for determining what is material and substantial . . . amounts to a requirement of prejudice to the insurer." Williams v. Alabama Farm Bureau Mutual Cas. Ins. Co., 416 So.2d 744, 746 (Ala. 1982) (internal citations omitted). See also Home Equity Indem. Co. v. Reed Equip. Co., 381 So.2d 45, 49 (Ala. 1980) (holding that under Alabama law an insured's noncooperation must be "material and substantial resulting in prejudice to the insurer"); but see United States Fire Ins. Co. v. Watts, 370 F.2d 405, 409 (5th Cir. 1966) (stating, in dicta, that under Alabama law when "cooperation is a condition precedent to an action against the insurance company, there need be no showing of prejudice"). The reason for the prejudice requirement is that "`[c]ooperation clauses' as conditions precedent to the insurer's obligations impose broad, vague requirements, which, in the absence of legally applied standards, would put into doubt the contractual obligations between insurer and insured in nearly every case." Home Equity Indem. Co. v. Reed Equip. Co., Inc., 381 So.2d 45, 49 n. 3 (Ala. 1980). By contrast, a requirement that an insured give notice of his claim, for instance, is "specific" and thus lends itself to "objective proof." Id.

In Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit Court of Appeals adopted as binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981.

"`What constitutes a failure of cooperation by the insured is usually a question of fact,' and `[t]he burden of proof to establish non-cooperation rest[s] upon the insurer.'" Ex parte Clarke, 728 So.2d 135, 141 (Ala. 1998) (citing Employers Ins. Co. v. Crook, 160 So.2d 463, 465 (Ala. 1964)). An insurer does not necessarily meet its burden of proving a material and substantial failure to cooperate resulting in prejudice simply by showing that the insured misled or gave incorrect information to the insurer. For instance, in Home Indemnity Co. v. Reed Equipment Co., the insured did not tell the insurance company that a wheel had come off the trailer being driven by its employee until eleven months after the accident. 381 So.2d at 46-47. Before the existence of the wheel was disclosed, it appeared that the other driver involved in the accident was the one at fault; however, once the existence of the wheel was made known, it appeared that the wheel might have caused the accident. The court noted that the mere fact of the eleven-month delay did not constitute prejudice to the insurer because the information was "neither more, nor less, damaging now" than it was immediately after the accident. Id. at 49. Similarly, in Williams v. Alabama Farm Bureau Mutual Insurance Co., the court noted that noncooperation "affecting credibility," such as the insured lying about who was driving the car when the accident took place, was "not ipso facto prejudicial." 416 So.2d at 747.

Here, while Nationwide alleges that Alberson failed to cooperate, it has not explained how that alleged noncooperation prejudiced it. The questions of whether Alberson did in fact fail to cooperate in a "material and substantial" way, and whether Nationwide was prejudiced, are disputed questions of fact. Therefore, summary judgment on the breach-of-contract theory is due to be denied.

B. Bad-Faith Claim

Alberson also claims that Nationwide denied his claim in bad faith. There are two ways a plaintiff can show bad faith in a denial of coverage: he can demonstrate either (1) there is no lawful basis for the refusal coupled with actual knowledge of that fact, or (2) intentional failure to determine whether there was any lawful basis for the refusal.State Farm Fire Cas. Co. v. Slade, 747 So.2d 293, 303 (Ala. 1999) (citing Chavers v. Nat'l Sec. Fire Cas. Co., 405 So.2d 1 (Ala. 1981)). Under the second theory, the "relevant question before trier of fact would be whether a claim was properly investigated and whether the results of the investigation were subjected to a cognitive evaluation and review." Id. at 304 (citing Gulf Atlantic Ins. Co. v. Barnes, 405 So.2d 917, 924 (Ala. 1981)).

Alberson admits that there is not sufficient evidence to support a claim of bad faith based on first theory, but he argues that his claim can go forth under the second. He asserts that Nationwide failed to investigate adequately his claim, and that this constituted an "intentional failure to determine whether there was any lawful basis" for its refusal of the claim. However, the second theory is merely "an elaboration" on the first.Slade at 304 (citing Gulf Atlantic Ins. Co. v. Barnes, 405 So.2d 917, 924 (Ala. 1981)). "The trier of fact, by finding, on the part of the insurer, an `intentional failure to determine whether or not there was any lawful basis for refusal,' may use that fact as an element of proof that no lawful basis for refusal ever existed." Id. If a lawful basis for denial exists, "the insurer, as a matter of law, cannot be held liable in an action based upon the tort of bad faith." Id. As Alberson seems to concede, there was a lawful basis for Nationwide's refusal to pay his claim, namely, its reasonable belief that he owned the truck, based on his statements that he owned it. This forecloses Alberson's bad-faith claim.

Brief in support of motion in opposition to summary judgment, filed Aug. 1, 2003 (Doc. No. 16), at 10.

Even if this were not the case, Alberson could not prevail on the theory that Nationwide failed to investigate his claim, because Nationwide clearly did investigate. It reviewed the accident report and recorded interviews with Alberson and his half-brother. It was reasonable for Nationwide to conclude that Alberson owned the truck based on this evidence. Therefore, summary judgment is due to be granted on Alberson's bad-faith claim.

An appropriate order will be entered.


In accordance with the memorandum opinion entered today, it is the ORDER, JUDGMENT, and DECREE of the court as follows:

(1) Defendant Nationwide Assurance Company's motion for summary judgment, filed on July 16, 2003 (Doc. No. 12), is granted as to plaintiff Angus Alberson's bad-faith claim, and judgment is entered in favor of defendant Nationwide Assurance Company and against plaintiff Alberson on this claim.

(2) The motion for summary judgment is denied as to plaintiff Alberson's breach-of-contract claim.

The clerk of the court is DIRECTED to enter this document on the civil docket as a final judgment pursuant to Rule 58 of the Federal Rules of Civil Procedure.