110 F. Supp. 3d 1211
N.D. Ala.2015Background
- Plaintiffs Worthington Federal Bank and Worthington Financial Holdings, Inc. sue Everest and Security National in federal court asserting state-law contract and tort claims.
- Everest issued a claims-made Directors & Officers policy (Dec 14, 2012–Dec 14, 2013); Security National issued a similar policy (Dec 14, 2013–Dec 14, 2014).
- Worthington Lawsuit filed Feb. 6, 2013; Brewer Lawsuit filed Apr. 4, 2014; both involve similar defendants and derivative shareholder claims against the same corporate officers and directors.
- Plaintiffs claim the Brewer Lawsuit is covered under one or both policies as defense costs and coverage for claims arising from related wrongful acts.
- Everest contends Brewer is outside its policy period unless related to Worthington under a single-claim provision; Security National makes a similar relatedness argument for its policy.
- Court applies Alabama contract-interpretation law and determines that Everest’s and Security National’s duty to advance defense costs hinges on whether the Brewer and Worthington claims are sufficiently related under the policies’ single-claim and interrelated-wrongful-acts provisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Brewer is a covered claim under Everest as a single claim related to Worthington | Worthington argues Brewer is related to Worthington, forming a single claim. | Everest argues Brewer is outside the Everest period unless related under the single-claim provision. | Everest's motion denied; Brewer is related to Worthington, forming a single claim. |
| Whether Brewer is a covered claim under Security National as a single claim related to Worthington | Worthington contends Brewer is part of the same claim as Worthington under interrelated acts. | Security National argues Brewer is the same claim or related under its single-claim provision and pre-policy. | Security National's motion granted to the extent of advancing defense costs; Brewer is part of the same claim as Worthington. |
| Whether extrinsic evidence may be used to determine the duty to defend | Brewer should be evaluated only on the Brewer Complaint; extrinsic facts may not defeat defense duty. | Extrinsic evidence may be used to assess relation to Worthington and whether claims are interrelated. | Extrinsic evidence permissible to assess interrelated acts and relatedness for defense duties. |
| Duty to indemnify is premature while the Brewer action is pending | Indemnity should be determined on the merits, not now. | Indemnity may be resolved later; current determinations should focus on defense costs. | Indemnity issues remain premature; focus is on defense-cost advancement. |
Key Cases Cited
- Blackburn v. Fidelity & Dep. Co. of Maryland, 667 So.2d 661 (Ala. 1995) (single claim provision can relate post-period claims to covered claims)
- Attorneys Ins. Mut. of Alabama v. Smith, Blocker & Lowther, PC, 703 So.2d 866 (Ala. 1996) (single-claim provisions may not allow phantom claims; ins. must cover timely notices)
- Tanner v. State Farm Fire & Casualty Co., 874 So.2d 1058 (Ala. 2003) (duty to defend may be analyzed with extrinsic evidence; depends on underlying allegations)
- St. Paul Mercury Ins. Co. v. Chilton-Shelby Mental Health Ctr., 595 So.2d 1375 (Ala. 1992) (ambiguous coverage resolved in favor of insured; construction of exclusions narrow)
- American Motorists Ins. Co. v. American Employers’ Ins. Co., 600 F.2d 15 (5th Cir. 1979) (principle of determining principal place of business for diversity; relevant to citizenship)
- Continental Cas. Co. v. Brooks, 698 So.2d 763 (Ala. 1997) (relation of related acts and injuries for coverage under multiple claims)
- Bay Cities Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 5 Cal.4th 854 (Cal. 1993) (framework for determining related and interrelated acts under insurance policy)
- Home Indemn. Co. v. City of Mobile, 749 F.2d 659 (11th Cir. 1984) (related to multiple claims arising from a single occurrence under policy)
- Attorneys Insurance Mutual of Alabama v. Smith, Blocker & Lowther, PC, 703 So.2d 866 (Ala. 1996) (single claim language; not controlling for phantom post-period notices)