ACCIDENTS OR OCCURRENCES
Alabama employs a modified "subjective" test, distinguishing between the terms "expected" and "intended". An injury will be deemed intended if the insured possessed the specific intent to cause bodily injury to another. State Auto Mut. Ins. Co. v. McIntyre, 652 F.Supp. 1177, 1221 (N.D. Ala. 1987). However, an injury may be "expected" if the insured "subjectively possessed a high decree of certainty that bodily injury to another would result from his or her act." White v. Maryland Cas. Co., 589 So.2d 1294, 1296 (Ala. 1991); USF&G v. Armstrong, 479 So.2d 1164 (1985); and State Auto Mutual Ins. Co. v. McIntyre, 652 F.Supp. 1177 (N.D. Ala. 1987). Intent will also be inferred as a matter of law for some acts. State Farm Fire & Cas. Co. v. Davis, 612 So.2d 458 (Ala. 1993)(sexual assault) and State Farm v. King, 851 F.2d 1369 (11th Cir. 1988).
An injury is deemed "intended" if the insured possessed the specific intent to cause injury, whereas it is "expected" if the insured "subjectively possessed a high degree of certainty" that injury would result from his or her acts. Alabama Farm Bureau Mutual Cas. Ins. Co. v. Dyer, 454 So.2d 921, 925 (Ala. 1984). The mere fact that an injury is foreseeable does not make it "expected" since this would broadly eliminate coverage for negligent conduct that is meant to be insured.
Claims for sexual discrimination and wrongful discharge have been held not to allege an "occurrence" in successive rulings of the Alabama Supreme Court in Jackson County Hospital v. Alabama Hospital Association Trust, 619 So.2d 1369 (Ala. 1993) and 652 So.2d 233 (Ala. 1994). The court ruled that even claims of disparate treatment were not covered since such claims require proof of discriminatory treatment.
However, wilful violations of safety rules were held covered in Haisten v. Audubon Ind. Co., 642 So.2d 404 (Ala. 1994). The court has also ruled that misrepresentations may be a basis for finding an "occurrence." American States Ins. Co. v. Cooper, 518 So.2d 708, 710 (1987). Similarly, the ruled that an insurer has a duty to defend negligent misrepresentation claims notwithstanding the insurer's contention that such claims fail to allege an "accident." Universal Underwriters Ins. Co. v. Youngblood, 549 S.2d 76 (Ala. 1989).
The Alabama Supreme Court has ruled that the insured's failure to purchase liability insurance to protect the plaintiff was not an "occurrence" since the insured's conduct did not result in the claimed bodily injury or property damage. Reliance Ins. Co. v. Wyatt, Inc., 540 So.2d 688, 691 (Ala. 1988).
Even though a liability policy excluded coverage for intentional injuries, where it separately afforded coverage for certain intentional torts, including civil rights violations, it was deemed to provide coverage for civil rights claims against various municipal police officers. Titan Indemnity Co. v. Riley, 679 So.2d 701 (Ala. 1996).
Apart from the "occurrence" issue, federal courts interpreting Alabama law have found that public policy bars coverage for harm that is either intended by the insured or which a reasonably prudent insured would know was likely to result in some injury. American & Foreign Ins. Co. v. Colonial Mortgage Co., 936 F.2d 1162 (11th Cir. 1991) and St. Paul Ins. Co. v. Talladega Nursing Home, 606 F.2d 631 (5th Cir. 1979).
An exclusion for intentional acts was held to apply even if the injuries were unintended in Universal Underwriters Ins. Co. v. Stokes Chevrolet, Inc., 990 F.2d 598 (11th Cir. 1993). Similarly, the Alabama Supreme Court ruled in Hooper v. Allstate Ins. Co., 517 So.2d 1001 (Ala. 1990) that a criminal acts exclusion was not limited to situations in which the resulting injury was also expected or intended by the insured. More recently, a federal district court has ruled in Allstate Indemnity Co. v. Lewis, 96-T-1028 (M.D. Ala. November 18, 1997), that although an insurer had an obligation to provide a defense to allegations that the insured had negligently assaulted the plaintiff, allegations based upon wantonness and a conspiracy to kill fell within the scope of a policy exclusion for injuries that were intended by or which may reasonably be expected to result from the intentional or criminal acts of any insured person.
An insurer seeking to obtain an allocation of covered and non-covered damages may either intervene in the case against its insured or request that the trial against the policyholder be bifurcated so that the coverage issues are resolved by the same judge as has decided the underlying case. Universal Underwriters Insurance Company v. East Century Alabama 4-Mercury, Inc., 574 So.2d 716 (Ala. 1990).
The Alabama Supreme Court has ruled that "self-insurance" is not insurance. Universal Underwriters Ins. Co. v. Marriott Homes, Inc., 238 S.2d 730, 732 (Ala. 1970)
Where a defense arises under multiple policies, the Eleventh
Circuit has ruled that defense costs are to be apportioned pro rata among
carriers based upon years of coverage. Commercial Union Ins. Co.
v. Sepco Corp., 765 F.2d 1543 (11th Cir. 1985), on remand, Civil No. 81
G 1215-S (N.D. Ala. November 17, 1987).
Alabama has only a state supreme court.
Unfair claims handling by insurers is regulated under Ala. Code § 27-12-24 (1975). Unfair or deceptive consumer practices are proscribed by Ala. Code § 8-19-1 (Michie 1984 & Supp. 1992).
The tort of bad faith for failing to pay an insured's claim was first recognized by the Alabama Supreme Court in Chavers v. National Security Fire & Casualty Co., 405 So.2d 1 (Ala. 1981). In Chavers, the Alabama Supreme Court declared that a policyholder could recover in tort if there was either "no lawful basis for the refusal coupled with actual knowledge of that fact or an intentional refusal to determine whether or not there was any lawful basis for such refusal." Id. at 7. A year later, in National Security Fire & Casualty Co. v. Bowen, 417 S.2d 179, 183 (Ala. 1982), the court declared that "no lawful basis" means that an insurer lacks "a legitimate or arguable reason for failure to pay the claim. A claim may be fairly debatable if an insurer has any reason, whether based on fact or law, for questioning it. Bush v. Alabama Farm Bureau Mutual Casualty Co., Inc., 576 S.2d 175 (Ala. 1991). This burden is a heavy one. National Savings Life Ins. Co. v. Dutton, 419 S.2d 1357, 1362 (Ala. 1982) and Attorneys Ins. Mutual of Alabama, Inc. v. Smith, Blocker & Lowther, 703 So.2d 866 (Ala. 1996).
The elements of a cause of action for a bad-faith refusal to pay an insurance claim were set out in National Security Fire & Casualty Co. v. Bowen, 417 So. 2d 179 (Ala. 1982), in which the Alabama Supreme Court declared that “the plaintiff in a 'bad faith refusal' case has the burden of proving: (1) an insurance contract between the parties and a breach thereof by the defendant; (2) an intentional refusal to pay the insured's claim; (3) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason); (4) the insurer's actual knowledge of the absence of any legitimate or arguable reason; and (5) 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. 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."
In subsequent rulings, the court has identified the first four elements as those required to prove a “normal” case whereas the fifth requirement sets forth the “abnormal” case. Blackburn v. Fidelity and Deposit Company of Maryland, 667 S.2d 661 (Ala. 1995) and Employees Benefit Association v. Grissett, 732 S.2d 968, 976 (Ala. 1998). In State Farm Fire & Casualty Company v. Slade, 747 S.2d 293, 318 (Ala. 1999), the Supreme Court elaborated on the elements of an “abnormal” bad faith case, ruling that “In order to prove a bad faith failure to investigate claim, the insured must prove that a proper investigation would have revealed that the insured’s loss was covered under the terms of the contract.”
The Alabama Supreme Court has ruled that whether an insurer had a “fairly debatable” reason for denying a claim requires consideration not only of the original decision to deny but also of the insurer’s handling of any appeal or request for reconsideration of the original denial. In Ex Parte Simmons, 1980570 (Ala. August 11, 2000), the Supreme Court ruled that the Court of Civil Appeals had erred when it concluded that “if the tort of bad faith was committed, it was committed at the time of the original denial and no later.”
An insurer's failure to investigate may not give rise to bad faith liability where the claims were outside the scope of coverage in any event. Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916, 924 (Ala. 1981).
The Alabama Supreme Court has ruled that only contract damages are available in a suit for the wrongful cancellation of an insurance policy. In refusing to import tort liability, the court also ruled in Ex Parte Certain Underwriters at Lloyd’s of London, No. 1990822 (Ala. March 23, 2001) that Underwriters could not be liable for cancelling a first party policy because the insured home was too old to satisfy underwriting guidelines.
A bad faith claimant has the burden of proving the absence of any "reasonably legitimate or arguable reason" for the insurer's denial of coverage. Fuller v. State Farm Fire & Casualty Co., 721 F.Supp. 1219, 1226 (M.D. Ala. 1989); McLaughlin v. Alabama Farm Bureau Mutual Fire Ins. Co., 437 So.2d 86, 90 (Ala. 1983).
A third-party tort claimant has no right to assert bad faith claims against the tortfeasor’s liability insurer. Hicks v. Alabama Pest Services, Inc., 548 So.2d 148 (Ala. 1989).
Filing an action for declaratory relief is not, in and of itself,
a bar to a possible finding that the insurer has acted in bad faith.
Blackburn v. Fidelity & Deposit Co. of Maryland, 667 So.2d 661, 672
Under Alabama law, an insurer has an independent duty to exercise
"honest judgment" in determining whether a claim against its policyholder
should be settled. State Farm Mutual Auto Ins. Co. v. Hollis, 554
So.2d 387 (Ala. 1989). The insurer's decision not to settle must
be "thoroughly honest, intelligent and objective...it must also be a realistic
one when tested by the necessarily assumed expertise of the insurance company."
Carrier Express, Inc. v. Home Indemnity Co., 860 F.Supp. 1465, 1479 (N.D.
Ala. 1994). Further, the insurer must notify its insured of all settlement
offers as well as the possibility of an excess verdict. Okay Lumber
Co. v. Providence Washington Ins. Co., 759 P.2d 523 (Ala. 1988).
Alabama has recognized the tort of bad faith in the first-party context. State Farm Fire & Casualty Co. v. Nicholson, 777 P.2d 1152, 1157 (Ala. 1989).
Insureds may recover from carriers for "outrage or outrageous conduct" or for emotional distress resulting from "extreme and outrageous conduct" that intentionally or recklessly causes such injury. American Road Service Co. v. Inmon, 394 So.2d 361, 365 (Ala. 1980). However, an insurer is not liable for the tort of "outrage" if it has done nothing more than insist upon its legal rights in a permissible way. State Farm v. Morris, 612 So.2d 440 (Ala. 1993); Garwin v. Shewbart, 564 So.2d 428, 431 (Ala. 1990). In Inmon, the Alabama Supreme Court held that the tort of “outrage” encompassed:
Willful wrongs, or those made so recklessly as to equate willfulness, authorize recovery in damages for the mental suffering caused thereby, and we now recognize that one who by extreme and outrageous conduct intentionally or recklessly causes severe emotional distress to another is subject to liability for such emotional distress and for bodily harm resulting from the distress. The emotional distress ... must be so severe that no reasonable person could be expected to endure it. Any recovery must be reasonable and justified under the circumstances, liability ensuing only when the conduct is extreme. Comment, Restatement [(Second) of Torts, §§ 46 (1965)], at 78. By extreme we refer to conduct so outrageous in character and so extreme in degree as to go beyond all possible bounds of decency, and to be regarded as atrocious and utterly intolerable in a civilized society. Comment (d), Restatement, supra at 72.
In Garvin v. Shewbart, 442 So. 2d 80 (Ala. 1983), the Alabama Supreme Court held that the exclusivity provisions of the Workers' Compensation Act, §§§§ 25-5-11, -52, and -53, Ala. Code 1975, do not bar claims based on the tort of outrage. In Continental Casualty Insurance Co. v. McDonald, 567 So. 2d 1208 (Ala. 1990), the court stated that there is a threshold beyond which an insurance company's recalcitrance must go before it crosses into actionable outrageous conduct.
Under Alabama law, punitive damages must be rationally related to the amount of compensatory damages suffered by an insured. Foremost Ins. Co. v. Parham, No. 1950507 (Ala. March 14, 1997).
There can be no recovery for bad faith unless the insurer has
otherwise breached its contractual obligations to the policyholder. Poarch
v. Alpha Mutual Insurance Company, 1991454 (Ala. April 27, 2001).
The Alabama Supreme Court has ruled mental anguish may be a "bodily
injury." American States Ins. Co. v. Cooper, 518 So.2d 708, 711 (Ala.
1987). See also Morrison Assurance Company v. North American Ins. Corp.,
588 F.Supp. 1324, 1327 (N.D. Ala. 1984)
BREACH OF POLICY CONDITIONS
Under Alabama law, whether or not an insured gave notice within a reasonable period of time is determined by assessing the length of the delay and the reasons for the delay. Pharr v. Continental Cas. Co., 429 So.2d 1018 (Ala. 1983)(8 month delay unreasonable as a matter of law, whether prejudicial or not, where insured failed to give any explanation for tardiness). Although the Supreme Court of Alabama has required a demonstration of prejudice in order to avoid coverage or uninsured motorists benefits, no such requirement has as yet been applied to general liability coverage. See State Farm Mutual Automobile Ins. Co. v. Burgess, 474 So.2d 634 (Ala. 1985) and USF&G v. Armstrong, 424 So.2d 59 (Ala. 1983). In Reeves v. State Farm Fire & Cas. Co., 539 So.2d 252 (Ala. 1989), the court ruled that an insured that waited five years after an accident (and four years after suit was filed) could not secure coverage for a wrongful death claim.
Whereas prejudice is not required for primary insurers, the Alabama
Supreme Court has ruled that prejudice must be proved by an excess carrier
given the different nature of the insurance afforded. Midwest Employers
Cas. Co. v. East Alabama Health Care, 695 So.2d 1169 (Ala.1997).
BROAD FORM COVERAGES
Allegations that the business of a RV dealership was suffering
due to foul odors emanating from an adjoining animal rendering plant were
held not to constitute a claim for "wrongful invasion of the right of private
occupancy" or other "personal injury" under the law of Nebraska.
Kruger Commodities, Inc. v. USF&G, 923 F. Supp. 1474 (M.D. Ala. 1996).
Similarly, pollution liability claims were held to be for "property damage"
and not any "wrongful invasion" or other personal injury in Norfolk-Southern
Railway Co. v. Roberts, 1996 WL 931575 (N.D. Ala. October 29, 1996).
BURDEN OF PROOF
Under Alabama law, an insured bears the burden of establishing a claim within the scope of coverage. Colonial Life & Accident Ins. Co. v. Collins, 194 S.2d 532, 535 (Ala. 1967). By contrast, an insurer has the burden of showing that coverage does not apply. State Farm v. Boyer, 357 So.2d 958 (Ala. 1978). Insurer must demonstrate applicability of policy exclusion. Fleming v. Alabama Farm Bureau Mut. Ins. Co., 310 So.2d 200, 202 (Ala. 1975); Boyington v. American Liberty Ins. Co., 282 Ala. 581, 226 So.2d 640 (1969) and State Auto v. McIntyre, 652 F.Supp. 1177 (N.D. Ala. 1987); USF&G v. Armstrong, 479 So.2d 1164, 1168 (Ala. 1985) and Universal Underwriters Ins. Co. v. Stokes Chevrolet, 990 F.2d 598, 605 (11th Cir. 1993).
An insured was held to have met its burden of proving the terms
and existence of missing policies in Trinity Universal Ins. Co. v. Gulf
Rubber & Gasket Co., Inc., C.A. No. 92-0183-B (S.D. Ala. April 14,
CHOICE OF LAWS
Alabama follows a lex loci contractus approach to choice of laws. "A contract is governed as to its nature, obligation and validity by the law of the place where it was made." Ex parte Owen, 537 S.2d 476, 481 (Ala. 1983), See also Cincinnati Ins. Co. v. Girod, 570 S.2d 595, 597 (Ala. 1990) and Donegal Mutual Ins. Co. v. McConnell, 562 S.2d 201 (Ala. 1990). See also Kruger Commodities, Inc. v. USF&G, 923 F. Supp. 1474 (M.D. Ala. 1996) (personal injury suits in Alabama governed by Nebraska law as that was where the policy in question was issued).
Thus, Alabama courts have ruled that the choice of law will be
governed by the place of contracting, with a particular emphasis on the
place where the policy was executed. Pines v. Warnaco, Inc., 706
F.2d 1173 (11th Cir. 1983).
CONFLICTS OF INTEREST
When an insurance company retains counsel to represent its policyholder, the lawyer owes a duty to further the interests of both the insured and the insurer. Mitchum v. Hudgens, 533 So.2d 194 (Ala. 1988).
In the event that a conflict of interest arises between the interests of the insured and the insurer, the insurer may still retain the right to select counsel to defend its policyholder but has an enhanced duty of good faith as a result. Ross Neely Systems, Inc. v. Occidental Fire & Casualty Company of North Carolina, 196 F.3d 1347 (11th Cir. 1999). In L&S Roofing Supply Co., Inc. v. St. Paul Fire & Marine Ins. Co., 521 So.2d 1298, 1304 (Ala. 1987), the Alabama Supreme Court refused to find that an insurer was obliged to pay for independent counsel to represent its insured’s interests in any case for which it has issued a reservation of rights. Nevertheless, the defense must be undertaken in compliance with the following stated criteria:
First, the company must thoroughly investigate the cause of the insured’s accident and the nature and severity of the plaintiff’s injuries. Second, it must retain competent defense counsel for the insured. Both retained defense counsel and the insurer must understand that only the insured is the client. Third, the company has the responsibility for fully informing the insured not only of the reservation of rights defense itself but of all developments relevant to his policy coverage and the progress of this lawsuit. Information regarding progress of the lawsuit includes disclosure of all settlement offers made by the company. Finally, an insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer’s monetary interest than for the insured’s financial risk. Id. at 1303.
The Supreme Court of Alabama has since clarified in Aetna Casualty
and Surety Company v. Mitchell Brothers, Inc., 1980950 (Ala. May 18, 2001)
that this obligation of enhanced good faith only applies in cases where
the insurer exercises control over the defense of the lawsuit pursuant
to a reservation of rights and would therefore not apply in a case where,
although the insurer appointed defense counsel under a reservation of rights,
the insured nonetheless maintained complete control over the manner in
which the case was handled.
The Alabama Supreme Court has ruled that Superfund "response
costs" are covered "damages." Alabama Plating Co. v. USF&G, 690 So.2d
331 (Ala. 1996). Earlier, the court had rejected as "hyper technical"
any argument that distinguished between equitable relief and money "damages."
National Union Fire Ins. Co. v. City of Leeds, 530 So.2d 205 (1988).
The Alabama Supreme Court has ruled that a liability insurer has no right to intervene in the tort case against its insured for the purpose of requesting a special jury verdict form to assist it in evaluating whether a covered basis for liability exists under its policy. In Mutual Assurance, Inc. v. Chancey, 1982161 (Ala. May 26, 2000), the court reaffirmed earlier rulings which had declared that an insurer has no absolute right to intervene as it does not have any direct interest in the outcome of the litigation until such time as its insured’s liability has been adjudicated. The insurer is not without remedy, however, as it is still free to bring a DJ after the fact to determinate its obligations. See also Universal Underwriters Insurance Company v. East Century Alabama 4-Mercury, Inc., 574 So.2d 716 (Ala. 1990)(an insurer seeking to obtain an allocation of covered and non-covered damages may either intervene in the case against its insured or request that the trial against the policyholder be bifurcated so that the coverage issues are resolved by the same judge as has decided the underlying case).
DIRECT ACTION CLAIMS
Alabama permits direct action claims by tort claimants against
The Alabama Supreme Court ruled that a policyholder’s suit to
recover fees that it was forced to pay due to the insurer’s refusal did
not place counsel’s entire file “at issue.” In
--Other Policyholder Claims
DUTY TO DEFEND
An insurer's duty to defend is determined by the language of its policy and the allegations in the complaint giving rise to the suit against its insured. ALFA Mutual Ins. Co. v. Morrison, 613 So.2d 381, 382 (Ala. 1993) and American States Ins. Co. v. Cooper, 518 So.2d 708 (Ala. 1988). If the complaint suggests that the injury alleged may be outside the scope of coverage, other facts outside the complaint may be taken into consideration. Chandler v. Alabama Municipal Ins. Co., 585 So.2d 1365, 1367 (Ala. 1991). However, such facts may not be relied on to contradict allegations giving rise to coverage. The 11th Circuit has concluded, moreover, that insurers have a duty to investigate where the allegations are unclear and that a failure to do so by an insurer may be evidence of bad faith. Perkins v. Hartford Ins. Group, 932 F.2d 1392 (11th Cir. 1991).
An insurer may not terminate its defense obligation by tendering
its limits. Samply v. Integrity Ins. Co., 476 So.2d 79 (Ala. 1985).
ESTOPPEL AND WAIVER
Generally, an insurer is not estopped from disputing the extent of its claimed indemnity obligation by having previously refused to provide a defense to the claim. Alabama Farm Bureau Mutual Casualty Ins. Co. v. Moore, 349 So.2d 1113 (Ala. 1977).
An insurer that has reservations about coverage must communicate
them to its policyholder. If an insurer accepts the defense of a
case without issuing a reservation of rights to its insured, it may be
estopped subsequently dispute coverage. Home Ins. Co. v. Rice, 585
So.2d 859 (Ala. 1991) Burnham Shoes, Inc. v. West American Ins. Co.,
504 So.2d 238, 241-2 (Ala. 1987). Further, in such circumstances, prejudice
will be presumed. Integrity Ins. Co. v. King Kutter, Inc., 866 F.2d
408 (11th Cir. 1989) and Campbell Piping Contractors, Inc. v. Hess
Pipeline Co., 342 So.2d 766, 770-71 (Ala. 1977). Moreover, if the
insurer’s delay is unduly long, the presumption of prejudice will become
irrefutable. Home Ins. Co. v. Rice, 585 So.2d 859 (Ala. 1991)(13
On-going continuation of roof leak did not trigger policies.
USF&G v. Bonitz Insulation Co. of Alabama, 424 So.2d 511 (Ala. 1985).
NUMBER OF OCCURRENCES
Under Alabama law, all elements of damage resulting from one uninterrupted chain of causation constitute one "occurrence". Where two unrelated causes, distinguishable in time and space, cause damage multiple "occurrences" will be found. In U.S. Fire Ins. Co. v. Safeco Ins. Co., 444 So.2d 844 (Ala. 1983), the Alabama Supreme Court ruled that property damage resulting separately from leaking roof and contractor's subsequent failure to fix roof had two "causes" and thus involved two separate "occurrences." In Home Indemnity Co. v. City of Mobile, 749 F.2d 659 (11th Cir. 1984), the 11th Circuit ruled that claims against sewer system operator may involve multiple "occurrences" based on manner in which City's negligence resulted in flooded homes. Court rejects basing number of "occurrences" on number of claimants ("effect" analysis) or number of rain storms prompting floods. The Alabama Supreme Court ruled that policy limits apply separately to each insured in Home Ind. Co. v. Employers National Ins. Corp., 564 So.2d 945 (Ala. 1990).
In Continental Cas. Co. v. Brooks, 698 So.2d 763 (Ala. 1997),
the Alabama Supreme Court declared that a single "claim" limit under a
professional liability policy applied in a malpractice action despite the
fact that the claim was based on diverse separate claimed acts of negligence.
The Alabama Supreme Court has ruled that the purpose of “other
insurance” clauses is “to limit the insurance company’s liability when
a person is insured under two or more policies covering the same risk.”
Gaught v. Evans, 361 S.2d 1027, 1028 (Ala. 1978). “The determination
of which insurance coverage is primary and which, if any is secondary,
is dependent upon the exact language of each policy.” Isler v. Federated
Guaranty Mutual Ins. Co., 567 S.2d 1264, 1265 (Ala. 1990).
Such clauses have therefore been held not to provide a basis for allocating
risk between different forms of insurance coverage. For instance,
the court ruled in Blackburn v. Fidelity & Deposit Co. of Maryland,
667 So.2d 661, 671 (Ala. 1995), that an “excess” clause in a fiduciary
responsbility policy did not provide a basis for limiting its contractual
obligations on the basis that coverage should first be paid out under a
separate errors and omissions policy. The Alabama Supreme Court declared
that one policy insured that the “breach of fiduciary duty” relating to
a pension and welfare fund whereas the professional liability policy covered
the wrongful acts of a director of such funds.
After initially being upheld by the Alabama Supreme Court in Alabama Plating Co. v. USF&G, 1996 WL 498993 (Ala. August 30, 1996), opinion withdrawn and superseded on rehearing by, 690 So.2d 331 (Ala. 1996), the court reversed itself on December 20, 1996 and declared instead that "sudden" is ambiguous and that the exclusion only applies to intentional pollution. Further, where the wastes were meant to be contained, as in a landfill, it only applies if the insured expected that the wastes would escape from the area in which they were placed, even if the initial disposal was intentional.
In the interim period between these contradictory opinions, a U.S. District Court ruled in Norfolk Southern Railway Co. v. Roberts, 1996 WL 931575 (N.D. Ala. October 29, 1996) that the disposal of the insured's waste batteries at a recycling center over a 13 year period was neither "sudden" nor "accidental."
The Alabama Supreme Court has refused to uphold the exclusion in the context of indoor releases, however. In Essex Ins. Co. v. Avondale Mills, Inc., 639 So.2d 1339 (Ala. 1994), the court ruled that the exclusion did not apply to personal injury claims arising out of the insured's improper removal of asbestos from a building since there had been no release of pollutants into the "atmosphere."
Further, in Associated Scrap Metal, Inc. v. Royal Globe Ins. Co., 927 F.Supp. 432 (S.D. Ala. 1995), appeal pending (11th Cir. 1997), a federal district court ruled that the meaning of "sudden" was ambiguous based on the Claussen analysis of the Georgia Supreme Court. While agreeing that the focus of the exclusion was on whether the release of pollutants was expected or intended, the court refused to find that intentional disposal of the insured's wastes by a third party transporter was not "accidental."
Allegations that the business of a RV dealership was suffering due to foul odors emanating from an adjoining animal rendering plant were held subject to an "absolute" exclusion in Kruger Commodities, Inc. v. USF&G, 923 F. Supp. 1474 (M.D. Ala. 1996)(Nebraska law). The court took note of earlier Alabama cases, such as Armstrong or Molton, Allen, wherein the Alabama Supreme Court had limited the scope of an earlier form of the exclusion to "industrial activities", but held that this limitation, even if applicable to the later exclusions, was met in this case.
The "absolute" exclusion was affirmed in principle by the 11th
Circuit's 1990 decision in Reliance Ins. Co. v. Kent Corp., 896 F.2d 501
(11th Cir. 1990). In Norfolk Southern Railway Co. v. Roberts, 1996
WL 931575 (N.D. Ala. October 29, 1996), a federal court ruled that the
exclusion plainly barred coverage for claims arising out of the insured's
shipments of waste batteries to a recycling center. See also
Shalimar Contractors, Inc. v. American States Ins. Co., 975 F.Supp. 1450
(M.D. Ala. 1997)(no coverage for claims arising out of insured's disposal
of lead-contaminated debris from construction project) and Haman, Inc.
v. St. Paul Fire & Marine Ins. Co., 18 F.Supp.2d
1306 (N.D. Ala. 1998)(spraying of highly toxic pesticide inside insured’s
motel held excluded under first party “pollution” exclusion).
Intangible or economic losses are not "property damage." American States Ins. Co. v. Martin, 662 So.2d 245, 248 (Ala. 1995).
The purpose of liability insurance is to protect against claims
for bodily injury or property damage, not to make the insurer a silent
partner in the insured's business ventures. Auto-Owners Ins. Co.
v. Toole, 947 F.Supp. 1557 (M.D. Ala. 1996).
Under Alabama law, it is against public policy to indemnify an
insured against the consequences of his immoral, fraudulent or felonious
conduct. Fidelity-Phoenix Fire Ins. Co. v. Murphy, 146 So.2d 387
(Ala. 1933). However, the Alabama Supreme Court later ruled in Titan
Indemnity Co. v. Riley, 679 So.2d 701 (Ala. 1996) that it is not against
public policy, where a policy insures against intentional acts, to require
payment to a public entity for civil rights violations by certain police
officers, even though those injuries involve intentional acts on the part
of the insured's employees. Chief Justice Hooper dissented, asserting
that the police officers were not entitled to coverage since their misconduct
was outside the scope of their employment and therefore did not qualify
them as "insureds."
Traditionally, Alabama courts have found that coverage for “bodily injury” includes coverage for punitive damages arising out of bodily injury. Employers Insurance Company of Alabama v. Brock, 172 So. 671 (Ala. 1937) and American Fidelity & Casualty Company v. Werfel, 164 So. 383 (Ala. 1935).
The Alabama Insurance Commissioner declared in February 1978 that insurance coverage for punitive damages was not in violation of public policy. However, the 11th Circuit has since ruled that it was against public policy to indemnify policyholders for intentional wrongs, such as fraud.
The Alabama Supreme Court ruled in Montgomery Health Care Facility
v. Ballard, 565 So.2d 221 (Ala. 1990) that it was not against the public
policy of Alabama to permit coverage for punitive damages in a wrongful
death case. On the other hand, it is not against public policy to
exclude such damages. Commercial Standard Insurance Company v. General
Trucking Company, 423 So.2d 168 (Ala. 1982) and Ross Neely Systems, Inc.
v. Occidental Fire & Casualty Company of North Carolina, 196 F.3d 1347
(11th Cir. 1999).
STANDARDS FOR POLICY INTERPRETATION
Insurance policies, like other contracts, are to be construed so as to give effect to the intention of the parties. To determine this intent, a court must examine more than an isolated phrase or word; rather, it must look to the meaning of these words in context based upon the contract as a whole. Attorneys Ins. Mutual of Alabama, Inc. v. Smith, Blocker & Lowther, 703 So.2d 866 (Ala. 1996).
Under Alabama law, the court will construe ambiguities against the party that drafted the clause in question but will give effect to the reasonably determined intent of the parties. Alabama Ins. Guarantee Assoc. v. Magic Trucking Service, Inc., 547 S.2d 849, 855 (Ala. 1989).
"Reasonable expectations" doctrine was recognized in Lambert
v. Liberty Mutual Ins. Co., 331 So.2d 260 (Ala. 1976) but only where policy
language is ambiguous. Travelers Ins. Co. v. Jones, 529 So.2d 234, 239
(Ala. 1988); Wallace v. Auto-Owners Ins. Co., 421 So.2d 131 (Ala. App.
1982). However, Alabama courts will not create ambiguities by "strained
and twisted reasoning where no such ambiguities exist." Lipscomb
v. Reed, 514 So.2d 949 (Ala. 1987), cited in Rehburg v. Constitution States
Ins. Co., 558 So.2d 79 (Ala. 1989).
THEORIES OF ALTERNATIVE LIABILITY
None yet adopted.
TRIGGER OF COVERAGE
The Supreme Court of Alabama has stated that "as a general rule the time of an 'occurrence' of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed but the time the complaining party was actually damaged." United States Fidelity & Guaranty Co. v. Warwick Development Company, Inc., 446 So.2d 1021 (Ala. 1984); Mutual Fire, Marine & Inland Ins. Co. v. Safeco Ins. Co., 473 So.2d 1012 (Ala. 1984).
An "exposure" theory has been adopted by courts construing claims for asbestos bodily injury in Alabama. See Commercial Union Ins. Co. v. Sepco Corp., supra and Safety National Casualty Corp. v. Shook & Fletcher Insulation Co., Jefferson No. CV-93-01574 (Ala. Cir. Ct. March 5, 1999). The period of exposure is deemed to terminate on the last date of the claimant's employment in the type of work causing injury. Simmons v. American Mutual Liability Ins. Co., 433 F.Supp. 747 (S.D. Ala. 1976).
As to property damage claims, the Supreme Court of Alabama has taken an "actual injury" approach, focusing on the date when harm actually took place. USF&G v. Bonitz Insulation Company of Alabama, 424 So.2d 511 (Ala. 1985). In these cases, the Supreme Court has rejected efforts to trigger coverage under successive policies for ongoing property damage. Bonitz adopted a "loss in progress" rule, holding that on-going water damage because of a defectively-installed roof did not trigger coverage where the problem had begun prior to USF&G's policy.
Insurers whose policies expired prior to the first date that an insured shipped waste to a site were held not to owe coverage in Norfolk-Southern Railway Co. v. Roberts, 1996 WL 931575 (N.D. Ala. October 29, 1996).