Opinion
CIVIL ACTION 97-D-771-N.
March 20, 2001.
MEMORANDUM OPINION AND ORDER
The sole issue before the court is whether Defendants Jon and Melody Sharpton's (the "Sharptons") bad faith counterclaim against Plaintiff Peachtree Casualty Insurance Company's ("Peachtree") can withstand Peachtree's Motion For Summary Judgment ("Mot."), which was filed on October 2, 1997. The Sharptons filed a Response on June 8, 2000. Peachtree issued a Reply on June 15, 2000.
In May 1997, Peachtree filed a Complaint For Declaratory Judgment, requesting the court to declare its exclusion of coverage for persons operating and/or occupying "a motor vehicle with less than four wheels" valid and appropriate under Alabama law. The Sharptons filed a Counterclaim seeking benefits under their insurance contracts and alleging bad faith on the part of Peachtree. Both parties moved for summary judgment on the issues raised in Peachtree's Complaint. Peachtree also moved for summary judgment on the Sharptons' Counterclaim. On September 9, 1998, this court certified to the Supreme Court of Alabama a question of law, which the Parties agreed was dispositive as to issues raised in Peachtree's Complaint. On February 4, 2000, the Supreme Court of Alabama answered the certified question. See Peachtree Cas. Ins. Co. v. Sharpton, 768 So.2d 368 (Ala. 2000). In light of said holding, the court granted the Sharptons' Motion For Summary Judgment and denied Peachtree's Motion For Summary Judgment as to the claims in Peachtree's Complaint. (5/2/00 Order). The court did not address the merits of the Sharptons' bad faith claim, which is the subject of this instant opinion.
I. JURISDICTION AND VENUE
The court exercises subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1367 (diversity). The Parties do not contest personal jurisdiction or venue.
II. SUMMARY JUDGMENT STANDARD
On a motion for summary judgment, the court is to construe the evidence and factual inferences arising therefrom in the light most favorable to the nonmoving party. Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970). Summary judgment can be entered on a claim 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). As the Supreme Court has explained the summary judgment standard:
[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be no genuine issue as to any material fact, since the complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial.Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
The trial court's function at this juncture is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986) (citations omitted). A dispute about a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248; see also Barfield v. Brierton, 883 F.2d 923, 933 (11th Cir. 1989).
The party seeking summary judgment has the initial burden of informing the court of the basis for the motion and of establishing, based on relevant "portions of `the pleadings, depositions, answers to interrogatories, and admissions in the file, together with affidavits, if any,'" that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex, 477 U.S. at 323. Once this initial demonstration under Rule 56(c) is made, the burden of production, not persuasion, shifts to the nonmoving party. The nonmoving party must "go beyond the pleadings and by (his or her] own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324; see also FED.R.CIV.P. 56(e).
In meeting this burden the nonmoving party "must do more than simply show that there is a metaphysical doubt as to the material facts."Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). That party must demonstrate that there is a "genuine issue for trial." FED.R.CIV.P. 56(c); Matsushita, 475 U.S. at 587; see also Anderson, 477 U.S. at 249.
III. BACKGROUND
The underlying facts giving rise to this cause of action are concisely set forth in the Supreme Court of Alabama's opinion, from which the court quotes:
The facts are not in dispute. The defendants Jon Sharpton and Melody Sharpton were involved in an accident with an automobile that was being operated by Danny Parker, who was insured by State Farm Insurance Company. The Sharptons were riding and/or operating a motorcycle at the time of the collision. The Sharptons sustained injuries in the accident. Mrs. Sharpton suffered a traumatic amputation of her right leg as a result of the accident. The Sharptons settled with State Farm Insurance Company, Parker's insurer, for his policy limits.
The Sharptons owned two automobiles, which they had insured with Peachtree Casualty Insurance Company ("Peachtree"). Each car was insured by a separate policy. The policies contain identical language and provide uninsured/underinsured-motorist coverage. Under the doctrine of "stacking," the policies may provide as much as $80,000 of uninsured/underinsured-motorist ("UIM") benefits to either one, or both, of the Sharptons. The policies contained the following provision:
We will pay for bodily injury, which the insured person is legally entitled to recover from the owner or operator of an uninsured motor vehicle. The bodily injury must be caused by an accident or result from the operation, maintenance, and use of the vehicle.
The policy also states that Peachtree does not cover bodily injury to a person "occupying a vehicle with less than four wheels."
In May 1992, Peachtree filed its standard automobile-liability-insurance-coverage-policy form with the Alabama Department of Insurance. The Department approved the policy language, including the exclusion of UIM coverage for persons occupying a vehicle with fewer than four wheels.
The Sharptons also owned the motorcycle involved in the accident, and for the motorcycle they had obtained insurance from a company other than Peachtree. UIM coverage was offered with the policy covering the motorcycle, but the Sharptons had effectively rejected that coverage.
Peachtree sued the Sharptons for a judgment declaring that they were not entitled to insurance coverage for the motorcycle accident under the two policies of automobile insurance issued by Peachtree. Peachtree contends that the motorcycle is not a "vehicle" as the term "vehicle" is defined in those policies and is not a "listed vehicle" on those policies. The Sharptons argue that the provisions of the Uninsured Motorist Statute, § 32-7-23, Ala. Code 1975, require broader coverage than Peachtree's policies provide and that the exclusion contained in Peachtree's policies is therefore void. The Sharptons counterclaimed, seeking benefits under the policies and stating a bad-faith claim.Peachtree, 768 So.2d at 369-70 (note 2 added).
As statutorily defined, the term "uninsured motorist" includes "underinsured motorist." Lowe v. Nationwide Ins. Co., 521 So.2d 1309, 1309 n. 1 (Ala. 1988) (citing ALA. CODE 532-7-23(b) (1975)).
At the time the parties filed their respective Motions For Summary Judgment, they agreed that the dispositive issue for determination in Peachtree's Complaint was whether an insurance company can exclude from uninsured/underinsured motorist ("UIM") coverage any vehicle which has less than four wheels. In other words, the earlier issue before the court was whether the Sharptons were entitled to UIM coverage under the Peachtree Policies given the fact that they were occupying a motorcycle when injured. Finding this issue to be one of first impression under Alabama law, this court certified the following question to the Supreme Court of Alabama:
[Is] an insured [that sustains bodily injury while occupying a motorcycle] legally entitled to recover damages under the Alabama Uninsured Motorist Act, Ala. Code § 32-7-23 (1975), when the [relevant] insurance policy [provided] coverage for [the insured's] automobile only, the policy expressly excluded from coverage any bodily injury to a person occupying a motor vehicle with less than four wheels, the policy was approved by the Alabama Department of Insurance, and the insured had a separate insurance policy governing her motorcycle under which uninsured/underinsured motorist coverage was offered but effectively rejected by the [insured]?Peachtree Cas. Ins. Co. v Sharpton, No. 97-D-771-N (M.D. Ala. Sept. 9, 1998) (order certifying question to Supreme Court of Alabama).
The Supreme Court of Alabama concluded that the "certified question must be answered in the affirmative." Peachtree, 768 So.2d at 373. In other words, the Supreme Court held that, according to Alabama law, the Sharptons are entitled to UIM coverage under Peachtree's policies.See id. Based on the Supreme Court of Alabama's holding, this court granted the Sharptons' Motion For Summary Judgment and denied Peachtree's Motion For Summary Judgment. (5/5/00 Order.)
On April 10, 2000, the Supreme Court of Alabama overruled Peachtree's application for rehearing in this action. See Peachtree, No. 1972214 (Ala. 2000) (unpublished).
See Hamilton v. Cannon, 80 F.3d 1525, 1534 (11th Cir. 1996) ("`Only through certification can federal courts get definitive answers to unsettled state law questions. Only a state supreme court can provide what we can be assured are `correct' answers to state law questions, because a state's highest court is the one true and final arbiter of state law.'") (quoting Sultenfuss v. Snow, 35 F.3d 1494, 1504 (11th Cir. 1994)).
However, in ruling on the parties' summary judgment motions, the court did not address the Sharptons' bad faith counterclaim. As such, the counterclaim is the sole claim remaining for determination. Because the stipulated facts do not specifically address the bad faith claim, the Sharptons have submitted the affidavit of John Sharpton along with the Sharptons' Brief in opposition to summary judgment.
Jon Sharpton sets out the following additional facts, regarding his initial contact with Peachtree, in support of the bad faith counterclaim:
I do not know the exact date, but as soon as my health allowed, and in either late November or early December 1996, I began to try to make claims under the various insurance policies which seemed to be applicable to my wife's and my situation. I dealt with State Farm, the insurance carrier for the party at fault in the accident, and it was apparent that State Farm's coverage was not enough to pay my wife and me for our injuries and damages and repay our medical insurance carrier, which sought subrogation. I therefore contacted Peachtree Casualty Insurance Company in November or early December 1996 at the number I had for them. After identifying myself and advising the person who answered the phone that I wanted to make a claim my call was transferred to the claims department. I explained to the person with whom I spoke there that I wanted to make a claim or claims under the uninsured motorist/underinsured motorist provision of our policies. That person seemed to not understand what I was talking about and told me that I could not make any such claim, that my wife and I had no such coverage as I was attempting to describe, and that any such claim would be denied. I finally terminated that conversation in frustration. I did not tell the claims person referenced that my wife and I were on a motorcycle, because we never really had a chance to discuss the details of the accident.
(J. Sharpton Aff. at 1-2) (emphasis added).
After he was told that he did not have uninsured motorist/underinsured motorist coverage and could not make a claim, John Sharpton did not contact Peachtree for several months. (Id. at 2.) When he contacted Peachtree again in February 1997, Jon Sharpton spoke with a claims manager and explained in detail the nature of the Sharptons' claims. (Id.) After reviewing the policy provisions, Peachtree informed the Sharptons that it did not believe there was coverage for their claim. (Def.'s Ex. 1.) However, Peachtree volunteered to consider any new information and reevaluate their decision if necessary. (Id.)
Jon Sharpton again contacted Peachtree and further investigation ensued. The claims manager corresponded with the Sharptons several times over the next few months, and continued to request additional information relevant to the Sharptons' claim. (Def.'s Ex. 2-6, 8.) Finding Peachtree's piecemeal investigation burdensome, Jon Sharpton requested a claim form so that he could provide all the necessary information at one time, but he was never sent one. (J. Sharpton Aff. at 2.)
Finally, in a letter dated May 7, 1997, Peachtree's president indicated that the Sharptons' "automobile policy with Peachtree Casualty was never intended to cover anyone for injuries related to a motorcycle accident," and that all Peachtree's policies "specifically exclude coverage while you are on or operating a vehicle with less than four wheels." (Def.'s Ex. 7.) However, the letter also acknowledged that the Peachtree exclusion had not been reviewed by the courts and that, if reviewed, the exclusion may be found inapplicable to the Sharptons' case. (Id.) Peachtree indicated its intention to submit the question of whether the exclusion was being properly interpreted with regard to the Sharptons' claim to a court of competent jurisdiction. (Id.) Peachtree's declaratory judgment action was subsequently filed.
IV. DISCUSSION
A plaintiff may establish a bad faith claim in one of two ways. See State Farm Fire Cas. Co. v. Slade, 747 So.2d 293, 303 (Ala. 1999). A plaintiff may demonstrate bad faith refusal to pay by proving either "`(i) no lawful basis for the refusal coupled with [insurer's] actual knowledge of that fact or (2) intentional failure to determine whether or not there was any lawful basis for such refusal.'" Slade, 747 So.2d at 303 (quotingChavers v. National Sec. Fire Cas. Co., 405 So.2d 1, 7 (Ala. 1981)). The court finds that the Sharptons have not established a claim under either theory.
To establish one of the two theories, a plaintiff must prove the following requirements:
(a) an insurance contract between the parties and a breach thereof by the defendant;
(b) an intentional refusal to pay the insured's claim;
(c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason);
(d) the insurer's actual knowledge of the absence of any legitimate or arguable reason;
(e) if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.Nat'l Sec. Fire Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala. 1982). The Alabama Supreme Court has interpreted these requirements as follows:
In short, plaintiff must go beyond a mere showing of nonpayment and prove a bad faith nonpayment, a nonpayment without any reasonable ground for dispute. Or, stated differently, the plaintiff must show that the insurance company had no legal or factual defense to the insurance claim. The "debatable reason" under (c) above means an arguable reason, one that is open to dispute or question.Bowen, 417 So.2d at 183. Additionally, the Alabama Supreme Court "has made it abundantly clear that an action for bad faith lies only where the insurer has acted with an intent to injure." Webb v. International Indem. Co., 599 So.2d 1144, 1146 (Ala. 1992) (citing Coleman v. Gulf Life Ins. Co., 514 So.2d 944, 946 (Ala. 1987)).
1. The First Theory
Proof of the first theory, i.e., "that the insurer had no lawful basis for the refusal to pay the claim and knew that it had no lawful basis," requires proof of the first four requirements set forth in Bowen. See Fuller v. State Farm Fire Cas. Co., 721 F. Supp. 1219, 1226 (M.D.Ala. 1989) ("While a plaintiff must eventually prove each of these elements, a bad faith claim under Alabama law `ultimately depends upon whether there is a debatable reason for denying the claim.'") (quoting Jones v. Alabama Farm Bureau Mut. Cas. Co., 507 So.2d 396, 402 (Ala. 1986) (Torbert, C.J., concurring specially)). The court finds that the Sharptons cannot demonstrate requirement (d) because they cannot prove Peachtree had actual knowledge that there was no legitimate, arguable, or debatable reason for denying their claim.
To satisfy requirement (d), the Sharptons must establish that Peachtree had "actual knowledge" of the absence of any legitimate or arguable reason. Bowen, 417 So.2d at 183. "[P]roof of mere negligence or mistake is not sufficient to support a claim of bad faith; there must be a refusal to pay, coupled with a conscious intent to injure." Davis v. Cotton States Mut. Ins. Co., 604 So.2d 354, 359 (Ala. 1992). Because the issue had never before been addressed, the Sharptons cannot contend that Peachtree knew that the Alabama uninsured/ underinsured motorist statute rendered its exclusion void. Peachtree's mistaken interpretation is insufficient to sustain the Sharptons' bad faith claim. Accordingly, the court finds that the Sharptons have failed to establish the first theory of bad faith.
2. The Second Theory
The second theory of bad faith requires a plaintiff to demonstrate that the insurer intentionally failed to determine whether there was any lawful basis for refusing to pay. Bowen, 417 So.2d at 183. This theory is referred to as bad faith failure to investigate. It is unclear whether the Sharptons allege a claim of bad faith failure to investigate. Nevertheless, the court finds that, if the Sharptons make such a claim, it cannot survive Peachtree's Motion For Summary Judgment for two reasons.
First, the Sharptons have presented evidence that, before they revealed that their injuries occurred while on a motorcycle, one of Peachtree's agents told Jon Sharpton that he and his wife had no uninsured motorist coverage and that any claim regarding such coverage would be denied. (J. Sharpton Aff. at 2.) However, this evidence fails to demonstrate an intentional or reckless failure to investigate. See Slade, 747 So.2d at 306-07. By his own testimony, Jon Sharpton has indicated that the Peachtree representative with whom he initially spoke "seemed not to understand what [he] was talking about." (J. Sharpton Aff. at 1.) Alabama courts have "consistently refused to recognize a cause of action for the negligent handling of insurance claims, and (] will not recognize a cause of action for alleged wanton handling of insurance claims." Kervin v. Southern Guar. Ins. Co., 667 So.2d 704, 706 (Ala. 1995). Because Peachtree's representative "seemed not to understand what [Jon Sharpton] was talking about" and was confused about the coverage Jon Sharpton was "attempting to describe," (J. Sharpton Aff. at 2), the representative's failure to assess a potential claim properly and provide the correct information in response, cannot be characterized as intentional or reckless. (J. Sharpton Aff. at 2.) In short, the Sharptons have failed to show that Peachtree intentionally or recklessly failed to investigate their claim.
Second, and alternatively, the court finds that the record demonstrates that, prior to its denial, Peachtree did take reasonable steps to investigate the Sharptons' claim. In determining whether Peachtree conducted any type of investigation prior to denial, it is necessary to determine the date of denial. As explained in Slade, "the date of denial is crucial because information received by the insurer after the date of the denial is irrelevant to the determination of whether the insurer denied at that date in bad faith." 747 So.2d at 317 n. 6.
While the Sharptons have not stated on what day they deem Peachtree to have denied their claim, the Sharptons' evidence, discussed above, suggests that they consider Peachtree to have denied their claim on the date Jon Sharpton first telephoned a Peachtree representative. The court, however, is not persuaded that this date is the date of denial.
Here, Peachtree denied the Sharptons' claim on February 19, 1997. Prior to this denial, Peachtree reviewed the facts provided by Jon Sharpton regarding the accident. (Def's Ex. 1.) The facts indicated that the Sharptons were on a motorcycle when they were struck by a vehicle. The Sharptons were attempting to file an underinsured motorist claim under their automobile policy. Peachtree examined the policy provisions and ultimately concluded that the incident was not covered by the policy. (Id.)
In a letter to the Sharptons, Peachtree set out its analysis as follows:
Under UM coverage it states that the bodily injury must be caused by an accident and result from the ownership, maintenance or use of the vehicle. Vehicle [as] described under "Your insured car" means the [c]ar described in the declarations and any private passenger car or utility car you replace it with, a utility trailer you own, any additional private passenger car or utility car which you acquire ownership [in] during the policy if we insure all private passenger or utility cars owned by you on the date of your acquisition of the additional car and you notify us during the policy period or within 30 days after the date of acquisition to make this and no other policy issued by us applicable to the car . . . Under limits of liability Part III it goes in to how the limits of liability are applied when the insured person was occupying your insured car at the time of the accident. To our knowledge [,] you were not occupying your vehicle at the time the bodily injuries were caused. Therefore, it would appear that UM would not be applicable in this incident.
(Id.)
The proffered evidence does not support a bad faith failure to investigate claim. The evidence indicates that Peachtree considered the information available to them and made a determination based upon the provisions of the policy. Furthermore, in the February letter of denial, Peachtree indicated its willingness to consider new information and reevaluate its position if the Sharptons had in their possession any information which would indicate that they were entitled to benefits. When Jon Sharpton, apparently responding to Peachtree's invitation, contacted Peachtree, Peachtree conducted further investigation before issuing a conclusive denial on May 7, 1997. (Def.'s Exs. 2-7; Reply at 13.) Although Peachtree's ultimate conclusion may have been mistaken, the court finds that the Sharptons cannot demonstrate that Peachtree intentionally or recklessly failed to investigate their claim or failed to properly subject it to cognitive review. Thus, the court finds that summary judgment is due to be granted.
ORDER
Based on the foregoing, it is CONSIDERED and ORDERED that Peachtree's Motion For Summary Judgment as to the Sharptons' bad faith counterclaim be and the same is hereby GRANTED.