196 So. 3d 238
Ala.2015Background
- Advantage Medical Electronics (insured) was hired to de-install and transport a CT scanner from South Carolina to Texas; the 4,500‑lb gantry was moved on dollies and was being transferred into a box van when a bolt on a dolly sheared and the gantry fell and was damaged.
- KEI’s insurer (Mid‑Century) paid $180,000, subrogated, and sued Advantage for negligence in South Carolina.
- Advantage tendered the claim to its CGL insurer, Mid‑Continent, which denied coverage citing multiple exclusions (auto, care/custody/control, your work, contractual liability) and a no‑action clause.
- Advantage sued Mid‑Continent in Alabama state court for a declaratory judgment that Mid‑Continent had a duty to defend (and breached the policy); cross‑motions for summary judgment followed.
- The Alabama circuit court held Mid‑Continent has a duty to defend; the Supreme Court of Alabama affirmed, analyzing each exclusion and the no‑action clause.
Issues
| Issue | Plaintiff's Argument (Advantage) | Defendant's Argument (Mid‑Continent) | Held |
|---|---|---|---|
| Whether insurer owes duty to defend based on complaint + extrinsic facts | Complaint alleges negligence causing property damage; insurer must defend when complaint alleges covered occurrence | Exclusions and policy language remove duty; insurer may rely on exclusions | Duty to defend exists because complaint and undisputed facts do not bring claim squarely within exclusions |
| Applicability of the auto exclusion (loading/unloading) | Loading into Advantage’s box van is within covered risk unless excluded by policy definition exception | Loading/unloading of an auto triggered exclusion; accident arose from use of the box van | Auto exclusion inapplicable: policy definition excludes movement by a mechanical device not attached to the auto (tow truck winch), so "use" exclusion did not apply |
| Applicability of the care, custody, or control exclusion | Advantage: did not have exclusive possessory control at time of loss (third‑party tow operator was actively lowering gantry) | Mid‑Continent: allegations that Advantage "lost control" show care/custody/control exclusion applies | Exclusion did not apply: evidence showed tow operator exercised control; exclusion requires exclusive possessory control and is construed narrowly |
| Applicability of the "your work" (j(6)) exclusion | Advantage: damage resulted from sudden bolt failure (not faulty workmanship); exclusion only bars damage to parts subject to defective work | Mid‑Continent: loading was Advantage’s work and therefore excluded | Exclusion did not bar defense in full: ambiguous whether mere movement is "work incorrectly performed" and j(6) only excludes damage to the particular part that was subject to defective work; other parts of scanner alleged damaged, so duty to defend remains |
| Applicability of contractual‑liability exclusion | Advantage: underlying complaint asserts negligence, not contractual assumption of liability | Mid‑Continent: relationship with KEI and contract for services triggers exclusion | Exclusion inapplicable: underlying claim sounded in negligence, not liability assumed by contract |
| Effect of no‑action clause on declaratory suit | Advantage: may seek declaratory relief now on duty to defend | Mid‑Continent: insured must await final judgment/settlement before suing insurer | No‑action clause does not bar insured’s declaratory‑judgment action on duty to defend; action permitted before final judgment |
Key Cases Cited
- United States Fid. & Guar. Co. v. Armstrong, 479 So.2d 1164 (Ala. 1985) (insurer’s duty to defend determined primarily by allegations of complaint, but extrinsic facts may be considered)
- Ladner & Co. v. Southern Guar. Ins. Co., 347 So.2d 100 (Ala. 1977) (if complaint alleges occurrence within coverage, insurer must defend)
- Pacific Indem. Co. v. Run‑A‑Ford Co., 161 So.2d 789 (Ala. 1964) (court may look to admissible extrinsic evidence when deciding whether complaint alleges covered injury)
- Hartford Cas. Ins. Co. v. Merchants & Farmers Bank, 928 So.2d 1006 (Ala. 2005) (overview of duty‑to‑defend principles and when insurer must investigate)
- Fidelity & Cas. Co. of N.Y. v. Landers, 220 So.2d 884 (Ala. 1969) (care/custody/control exclusion requires possessory control; exclusive possession is decisive)
- Mid‑Continent Cas. Co. v. JHP Dev., Inc., 557 F.3d 207 (5th Cir.) (j(6) exclusion bars only damage to parts that were the subject of defective work)