Opinion
Civil Action 00-0183-AH-L
May 9, 2001
ORDER
This is a declaratory judgment suit in which Plaintiff Canal Insurance Company ("Canal") seeks a declaration from this Court that it has no duty to defend or indemnify Defendant MG Tank Lines, Inc. ("MG") (the named insured in a policy issued by Plaintiff), from an action brought by Defendants Darren J. Jackson and Katrina S. Jackson (the "Jacksons"), naming MG and Kimberly-Clark Corporation as Defendants in the Circuit Court of Mobile County. Throughout these proceedings, Canal has undertaken the defense of MG in the underlying action pursuant to a reservation of rights defense. While this underlying state action was seemingly resolved in favor of MG Tank, and therefore Canal, by the state court on March 14, 2001, the Court has been made aware that the Jacksons have appealed the judgment to the Alabama Supreme Court.
Darren J. Jackson and Katrina S. Jackson, Plaintiffs, vs. MG Tank Lines, Inc., Kimberly-Clark Corporation, et. al. Civil Action Number CV-99-3911, Circuit Court of Mobile County, Alabama.
The circuit court's judgment granted summary judgment to MG against the Jackson's claims that Darren Jackson was not an employee of MG Tank at the time of injury, an issue which proves dispositive in a case such as this, given the exclusivity of Alabama's workers compensation remedies with respect to workplace injuries.
Canal requests a declaration that it does not have to defend or indemnify MG with regard to the Jackson lawsuit, and that it is not required to defend MG in the Jackson's upcoming appeal of the trial court's grant of summary judgment to MG. Both parties have briefed and requested the Court to rule on the question presently before it, namely, whether or not an insurance company must defend its policy-holder in a suit where the insurance company alleges that the factual circumstances of the underlying state claims fall within the purview of the insurance policy's exclusion provisions. Given the procedural context of the case at bar, the Court must also address the logical corollary to this initial question, which is whether the insurance company is obligated to continue to provide a defense on appeal, even if the state trial court has already granted summary judgment to the policy-holder on the very question that the insurance company asserts brings the suit within the policy's exclusionary provisions.
For the following reasons, the Court holds today that Canal Insurance Company has a legal duty to continue to defend MG Tank Lines throughout the pendency of the appeal brought by the Jacksons in the Supreme Court of Alabama. Given the plain terms of the insurance policy entered into between MG and Canal, and because of the important public policy insurance issues at stake, the Court declines to release Canal from its obligation to defend its policy-holder, even where, as here, the insurance company has advanced strong and cogent arguments that the injuries complained of fall outside the scope of policy coverage.
I. Facts
Canal insured the Defendant MG under a liability insurance policy bearing policy number 319623. The policy provided coverage for personal injury claims "caused by an occurrence, and arising out of the ownership, maintenance, or use, including loading and unloading, . . . of an owned automobile . . . and the company shall have the right and duty to defend any suit . . . even i/any of the allegations of the suit are groundless, false or fraudulent . . ." (emphasis supplied).
In addition, the liability policy contains, among other provisions, the following exclusions:
Exclusions: This insurance does not apply:
. . .
(b) to any obligation for which the insured or any carrier as his insurer may be held liable under any workmen's compensation, unemployment compensation or disability benefits law, or under any similar law.
(c) to bodily injury to any employee of the insured arising out of and in the course of his employment by the insured or to any obligation of the insured to indemnify another because of damages arising out of such injury; but this exclusion does not apply to any such injury arising out of and in the course of domestic employment by the insured unless benefits therefore are in whole or in part either payable or required to be provided under any workmen's compensation law.
As discussed above, MG is a defendant in a state court personal injury lawsuit, now on appeal, filed by Darren Jackson for injuries that Jackson received in an "occurrence" on December 8, 1997, while he was unloading a bleach-hauling truck. The underlying suit contains twelve causes of action, and basically asserts that through the alleged fault of MG, equipment "owned, operated or under the control of" MG malfunctioned causing Jackson to be burned. The provisions of the Alabama Worker's Compensation Act were raised by the insurance company as a complete defense in MG's successful motion for summary judgment. Finally, as already discussed, the Jacksons have timely appealed this grant of summary judgment to the Supreme Court of Alabama.
II. Discussion
An insurance company's duty to defend its insured is determined by the language of the insurance policy and by the allegations in the complaint against the insured. See, e.g., American States Ins. Co. v. Martin, 662 So.2d 245 (Ala. 1995); American States Ins. Co. v. Cooper, 518 So.2d 708 (Ala. 1987). The contract shall be construed liberally in favor of the insured and strictly against the insurer. Tyler v. Insurance Co. of North America, 331 So.2d 641 (Ala. 1976). Exclusions are to be interpreted as narrowly as possible, so as to provide maximum coverage for the insured, and are to be construed most strongly against the insurance company that drafted and issued the policy. Alliance Ins. Co. v. Reynolds, 494 So.2d 609 (Ala. 1986).
The insurer bears the burden of proving the applicability of any policy exclusion in litigation with the insured. See Universal Underwriters Ins. Co. v. Stokes Chevrolet, Inc., 990 F.2d 598, 604 (11th Cir. 1993); Jordan v. National Accident Ins. Underwriters, Inc., 922 F.2d 732, 735 (11th Cir. 1991) (applying Alabama law), aff'd in part, rev'd in part remanded, 948 F.2d 1218 (11th Cir. 1991); Sphere Drake Ins., P.L.C. v. Shoney's Inc., 923 F. Supp. 1481, 1487 (M.D. Ala. 1996); Metropolitan Life Ins. Co. v. Sullen, 413 So.2d 1106, 1108 (Ala. 1982) (holding a "mental infirmity exclusion" as an affirmative defense); Belt Auto Indem. Ass'n v. Ensley Transfer Supply Co., 99 So. 787, 790 (Ala. 1924).
Under the terms of its insurance policy, Canal's duty to defend MG at the state trial court level depended upon the allegations of the complaint in the underlying state action. However, because the decision on whether to provide a defense must be made at a preliminary stage in the proceedings, Alabama holds that an insurer's duty to defend may be broader than its duty to indemnify. See Universal Underwriters Ins. Co. v. Stokes Chevrolet, Inc., 990 F.2d 598, 602 (11th Cir. 1993); Universal Underwriters Ins. Co. v. Youngblood, 549 So.2d 76, 78 (Ala. 1989) U.S. Fidelity Guar. Co. v. Armstrong, 479 So.2d 1164, 1168 (Ala. 1985); Lawler Machine Foundry Co. v. Pacific Indem. Ins. Co., 383 So.2d 156, 157 (Ala. 1980). The insurer's duty to defend at this preliminary stage "must be determined primarily from the allegations of the complaint." See Stokes Chevrolet, 990 F.2d at 602; Armstrong, 479 So.2d at 1167; Ladner, 347 So.2d at 102. "If the allegations accuse the insured of actions for which the insurance company provides protection, the insurance company is obligated to defend the insured." American States Ins. Co. v. Cooper, 518 So.2d 708, 709 (Ala. 1987).
This line of inquiry was aptly illustrated by the district court in Sentry Ins. Co. v. Miller, 914 F. Supp. 496, 499 (M.D. Ala. 1996) ( aff'd in part, rev'd in part, Sentry Ins. Co. v. Miller, 114 F.3d 1202 (11th Cir. 1997) ( unpublished opinion)):
In Alabama, an insurance company's duty to defend its insured in a lawsuit arises when the complaint against the insured alleges a state of facts within policy coverage [ citing Armstrong, 479 So.2d at 1168] . . . If the complaint against the insured implicates coverage, the insurer must defend its insured regardless of the insured's ultimate liability. Id. If the complaint's allegations on their face do not implicate policy coverage, then other facts outside the complaint may be taken into consideration in determining whether the complaint alleges a covered injury. Pacific Indemnity Co. v. Run-A-Ford Co., Inc., 276 Ala. 311, 161 So.2d 789 (1964). While Alabama case law allows a court to go beyond the allegations in a complaint to find coverage, the cases reveal limited application of the rule . . . No case cited to this court holds that coverage may be determined on the basis of evidence conflicting with a complaint's allegations. Such an inquiry would require a court in a declaratory judgment action to decide substantive issues pending in a previously filed legal action.
In the case at bar, Canal maintains that Darren Jackson was an employee of MG Tank while performing the tasks in which he suffered his injury. This is a set of circumstances which, if true, would mean coverage of Jackson's injuries would be excludable from policy coverage based on the operation of the exclusive provisions of the Alabama Workmen's Compensation Act. In order to invoke such an exclusion in denying the duty to defend, the insurer bears the burden of pointing to allegations of the complaint or other available evidence by which the claim was clearly excludable. See Armstrong, 479 So.2d at 1168. If the insurer fails to establish such evidence, the insurer bears a duty to defend even if subsequent developments indicate circumstances that would render the claim excludable. See id. at 1168-69.
It is true that the state trial court concluded that Jackson was MG's employee in its order granting summary judgment to MG on the issue. This order has been appealed, however, and it is therefore unclear whether the trial court's finding (that Jackson was an employee of MG at the time of the incident) will stand. Referring to the complaint itself, which is of course the basis for determining Canal's duty to defend, the Court notes that even Canal admits that drawing a definite conclusion from the face of the complaint is not an open and shut inquiry: ". . . Jackson's complaint does not clearly state that he was working for MG at the time of this accident . . . ." Canal Insurance Company's Memorandum Brief and Separate Statement of Undisputed Facts in Support of its Motion for Summary Judgment, p. 10. Indeed, Jackson's perhaps intentionally vague reference in his complaint to his employment takes the following form: "While working within the line and scope of his employment . . ."
Given that the pleadings on the face of the complaint are the first and most often used points of reference in cases such as this, the Court has little choice but to characterize the trial court's finding that Jackson was MG's employee as a development "subsequent" to the allegations that were pled on the face of Darren Jackson's original complaint. See Armstrong, 479 So.2d at 1168-69. As the duty to defend has already been triggered by Jackson's complaint, and given that the Court can find no justification for looking beyond the face of the complaint to apply Canal's exclusionary provisions, the Court hereby DECLARES that Canal has a continuing duty to defend MG Tank until such time as the state proceedings have come to their final conclusion in accordance with applicable principles of res judicata.