Franklin County Commission v. Madden

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ALABAMA

NORTHWESTERN DIVISION

FRANKLIN COUNTY )

COMMISSION, )

)

Plaintiff, )

)

vs. ) Civil Action No. 3:19-CV-0230-CLS

)

CRISTA MADDEN, et al., )

)

Defendants. )

MEMORANDUM OPINION

This court’s previous opinion addressed the claims of plaintiff, the Franklin

County Commission (“the commission”), against defendant Lafayette Insurance

Company. See doc. nos. 56 (Memorandum Opinion) and 57 (Order). The present

opinion addresses the Commission’s claim for breach of contract against defendant

State Farm Fire and Casualty Company (“State Farm”), arising from State Farm’s

failure to pay a claim under a fidelity bond that covered employee theft,1 and, State

Farm’s motion to dismiss that claim pursuant to Federal Rule of Civil Procedure

1 See doc. no. 1-1 (Complaint). The complaint was filed in state court but removed here by

another defendant, Lafayette Insurance Company. Doc. no. 1 (Notice of Removal). Plaintiff’s

complaint asserted other claims against other defendants, but only the claims against State Farm are

addressed in this opinion. The Commission has acknowledged that its only claim against State Farm

is for breach of contract. See doc. no. 36 (Plaintiff’s Objection and Response to Defendant State

Farm Fire and Casualty’s Motion to Dismiss), at 6 (“Plaintiff has alleged claims against State Farm

Fire and Casualty Company for breach of contract in the Complaint only.”) (emphasis in original).

12(b)(6) for failure to state a claim upon which relief can be granted.2 Upon

consideration of the complaint, State Farm’s motion, plaintiffs’ response,3 State

Farm’s reply,4 plaintiff’s sur-reply,5 and the oral arguments of counsel, the court

concludes that the motion should be granted.

I. STANDARD OF REVIEW

The standards for evaluating a motion to dismiss a complaint for, among other

reasons, “failure to state a claim upon which relief can be granted,” were fully

explicated in the opinion evaluating the motion filed by Lafayette Insurance Company

(see doc. no. 56, at 2-4) and will not be reiterated here. See Fed. R. Civ. P. 12(b)(6);

see also, e.g., Ashcroft v. Iqbal, 556 U.S. 662 (2009), Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007).

II. ALLEGATIONS OF PLAINTIFF’S COMPLAINT AND RELEVANT

POLICY LANGUAGE

State Farm issued Fidelity Bond No. 93-90-2893-3, covering the Commission

2 Doc. no. 6.

3 Doc. no. 36 (Plaintiff’s Objection and Response to Defendant State Farm Fire and

Casualty’s Motion to Dismiss).

4 Doc. no. 44 (Defendant State Farm Fire and Casualty Company’s Reply to Plaintiff’s

Opposition to its Motion to Dismiss).

5 Doc. no. 52 (Plaintiff’s Sur-Reply to Defendant State Farm’s Additional Submissions to

Their Motion to Dismiss).

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for employee theft (“the policy”) on March 3, 1989.6 The Crime Policy Declarations

Page states that the policy period is from March 3, 1989 “until cancelled, as provided

in the policy.”7 The policy requires each covered “employee”8 to be listed, and the

Commission added Crista Madden as a covered employee on September 17, 1992.9

The policy states that, “[r]egardless of the number of years this Insurance applies as

respects a specific ‘employee,’ the most we will pay in the aggregate for any one

‘occurrence’ is the largest Limit of Insurance applicable to that ‘employee’ shown in

the SCHEDULE at the time loss occurred.”10 The “Schedule” states that the “Limit

of Insurance” for each employee, including Crista Madden, is $100,000, and that limit

never changed throughout Madden’s employment.11 An “occurrence” is defined as

“all loss caused by each ‘employee’ [regardless of] whether the [loss is the] result of

a single act or series of acts.”12 The policy also states that, “[r]egardless of the

6 See, e.g., doc. no. 10-1 (Complaint), ¶ 10; doc. no. 6-1 (Fidelity Bond), at ECF 2. A district

court “may consider a document attached to a motion to dismiss without converting the motion into

one for summary judgment if the attached document is (1) central to the plaintiff’s claim and (2)

undisputed.” Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005). Here, plaintiff’s claim is

founded completely upon the language of the policy, and plaintiff has not disputed the authenticity

of the policy, only its interpretation.

7 Doc. no. 6-1 (Fidelity Bond), at ECF 2.

8 The term “employee” is defined as “any person named in the SCHEDULE.” Id. at ECF 40,

§ D(3)(a)(1) (capitalization in original).

9 Id. at ECF 11.

10 Id. at ECF 39, § B(1) (alteration supplied, capitalization in original).

11 Id. at ECF 11.

12 Id. at ECF 40, § D(3)(c) (alterations supplied).

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number of years this Insurance remains in force or the number of premiums paid, no

Limit of Insurance cumulates from year to year or period to period.”13

Crista Madden stole approximately $753,899.21 from the Franklin County

Commission General Fund, Franklin County Gas Tax Fund, and Franklin County

Commission Solid Waste Fund between 2008 and 2017.14 The Commission filed a

claim under the policy for Madden’s theft.15 State Farm paid $100,000, but refused

to pay any additional amount.16 This suit followed.

III. DISCUSSION

The sole question to be answered is a legal one: i.e., whether the language of

the policy can be interpreted to require State Farm to pay more than $100,000 to

cover Crista Madden’s theft. The Commission asserts that the policy should be

construed to provide $100,000 in coverage for each year in which a theft occured,

13 Doc. no. 6-1 (Fidelity Bond), at ECF 42, § B(12) (alteration supplied).

14 Doc. no. 1-1 (Complaint), ¶ 9.

15 Id. ¶ 12.

16 Id. ¶ 13; see also doc. no. 6-2 (copy of check from State Farm Fire and Casualty Company

to Franklin County Commission in the amount of $100,000). The court also can consider the check

without converting the motion to dismiss into a motion for summary judgment. Plaintiff refers in

its complaint to State Farm’s partial payment. Doc. no. 1-1 (Complaint), ¶ 13 (“Defendant State

Farm Fire and Casualty Company has failed and refused to fully pay this claim.”) (emphasis

supplied). Moreover, plaintiff acknowledges State Farm’s $100,000 payment and cites to the copy

of the check attached to State Farm’s motion. See doc. no. 36 (Plaintiff’s Objection and Response

to Defendant State Farm Fire and Casualty’s Motion to Dismiss), ¶ 4 (“On June 7, 2018, State Farm

issued a check to the Commission in the amount of $100,000 . . . .”) (citing to doc. no. 6-2).

Therefore, the check is central to plaintiff’s claim and undisputed. See supra, note 6.

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and State Farm asserts that the policy only provides a total of $100,000 in coverage

for any single employee’s theft, regardless of the length of the period over which the

theft occurred.

General contract principles govern the interpretation of insurance contracts.

See Twin City Fire Insurance Co. v. Alfa Mutual Insurance Co., 817 So. 2d 687, 691

(Ala. 2001) (citing Pate v. Rollison Logging Equipment, Inc., 628 So. 2d 337 (Ala.

1993)).

Insurance companies are entitled to have their policy contract enforced

as written. Gregory v. Western World Ins. Co., 481 So. 2d 878

(Ala.1985). “Insurance contracts, like other contracts, are construed so

as to give effect to the intention of the parties, and, to determine this

intent, a court must examine more than an isolated sentence or term; it

must read each phrase in the context of all other provisions.” Attorneys

Ins. Mut. of Alabama, Inc. v. Smith, Blocker & Lowther, P.C., 703 So.

2d 866, 870 (Ala. 1996).

Twin City Fire Insurance Co., 817 So. 2d at 691-92. The court should assign policy

terms “their common, everyday meaning and interpret[] them as a reasonable person

in the insured’s position would have understood them.” Pharmacists Mutual

Insurance Co. v. Advanced Specialty Pharmacy, LLC, 230 So. 3d 380, 387 (Ala.

2016) (citing State Farm Mutual Automobile Insurance Co. v. Brown, 26 So. 3d 1167,

1169-70 (Ala. 2009) (in turn citing Western World Insurance Co. v. City of

Tuscumbia, 612 So. 2d 1159 (Ala. 1992), and St. Paul Fire & Marine Insurance Co.

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v. Edge Memorial Hospital, 584 So. 2d 1316 (Ala. 1991))) (alteration supplied).

The common meaning of the relevant terms of State Farm’s policy supports

State Farm’s interpretation. The policy states that the most State Farm will pay “in

the aggregate for any one ‘occurrence’” is $100,000, “[r]egardless of the number of

years [the policy] applies as respects a specific ‘employee.’”17 An “occurrence” is

defined as “all loss caused by each ‘employee’ [a term that includes Crista Madden,

because she was specified in the ‘Schedule,’ and regardless of whether the loss was]

the result of a single act or series of acts.”18 Moreover, the policy specifically states

that its $100,000 benefit limit does not cumulate from year to year: i.e., “Regardless

of the number of years this Insurance remains in force or the number of premiums

paid, no Limit of Insurance cumulates from year to year or period to period.” Doc.

no. 6-1 (Fidelity Bond), at ECF 42, § B(12). There is no reasonable way to read those

provisions to require State Farm to pay more than $100,000 for Crista Madden’s theft,

and the Commission has not identified any other policy provisions that support a

contrary interpretation.

The Commission asserts that “the Fidelity Bonds are individual coverages per

17 Doc. no. 6-1 (Fidelity Bond), at ECF 39, § B(1) (alterations and emphasis supplied).

18 Id. at ECF 40, § D(3)(c) (alteration and emphasis supplied).

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year, which allows coverage up to $100,000.00 for theft each year. . . .”19 But other

policy provisions refute that interpretation by stating that the policy period began

upon its inception on March 3, 1989, and ran “until cancelled.”20 There is no

indication that the policy ever was cancelled, so there was only one policy period, and

only one term of coverage for $100,000 for each employee listed. See Royal

Insurance Company of America v. Thomas, 879 So. 2d 1144, 1155 (Ala. 2003)

(holding that courts “must interpret insurance policies ‘to give meaning and effect,

if possible, to every word and phrase in the contract’ and cannot adopt ‘a construction

which neutralizes any provision’”) (quoting J. Appleman, Insurance Law and

Practice § 7383 (1981)).

The Commission also asserts that the ambiguity of the policy’s terms prevents

dismissal as a matter of law, but there is no ambiguity because the relevant policy

provisions are subject to only one reasonable construction. See Twin City Fire

Insurance Co., 817 So. 2d at 92 (citing Tate v. Allstate Insurance Co., 692 So. 2d

822 (Ala. 1997)) (“The fact that the parties interpret the insurance policy differently

does not make the insurance policy ambiguous.”); State Farm Fire & Casualty Co.

v. Slade, 747 So. 2d 293, 308-09 (Ala. 1999) (“The terms of an insurance policy are

19 Doc. no. 36 (Plaintiff’s Objection and Response to Defendant State Farm Fire and

Casualty’s Motion to Dismiss), at 2 n.1 (emphasis in original). See also id. at ¶ 2 (“Each year of

coverage required a renewal of the State Farm Policy from one year to the next.”).

20 Doc. no. 6-1 (Fidelity Bond), at ECF 2.

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ambiguous only if the policy’s provisions are reasonably susceptible to two or more

constructions or there is reasonable doubt or confusion as to their meaning.”)

(emphasis supplied).

Plaintiff also asserts that the motion to dismiss should be denied, and discovery

should be allowed, because State Farm failed to produce a complete copy of the

policy to plaintiff or the court. The copy of the policy attached to State Farm’s

motion to dismiss begins with a certification page, where John R. Horton, the

Underwriting Team Manager states:

I, the undersigned do hereby confirm that I am custodian of the

records pertaining to the issuance of policies by State Farm Fire and

Casualty Company.

I received the request for a true and accurate record of the terms

and conditions of Policy Number 93 90 2893 3 including any

endorsements, if applicable, for the policy term(s) 3/3/1989 to 3/3/2020

and insuring FRANKLIN COUNTY COMMISSION of PO BOX 1028,

Russellville AL 35653-1028 based on available records.

However, I am unable to provide a complete record as the

information is not available.

The following documents are not available:

FB 9148

FB 9148.1.

Doc. no. 6-1, at ECF 1 (Certified Policy Record) (emphasis supplied, capitalization

in original). Even so, State Farm represents in its reply brief that endorsement “FB-

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9148 was removed from the policy and replaced with FB-9148.1 on October 15,

1990.””' State Farm also attached a certified copy of endorsement FB-9148.1 to its

reply brief.” That endorsement does not contain any provisions that would affect the

outcome of State Farm’s motion to dismiss.” Accordingly, there is no reason to

delay ruling on the motion for the purpose of conducting discovery.

IV. CONCLUSION

In summary, the court concludes that State Farm did not breach its insurance

contract with the Commission, because it paid all amounts owing to the Commission

under the unambiguous terms of its policy. State Farm’s motion to dismiss will be

granted, and the Commission’s breach of contract claim against State Farm will be

dismissed with prejudice. An appropriate order will be entered contemporaneously

herewith.

DONE this 30th day of August, 2019.

owed Ant

*I Doc. no. 44 (Defendant State Farm Fire and Casualty Company’s Reply to Plaintiffs

Opposition to its Motion to Dismiss), at 7.

* See doc. no. 44-1.

*> There is no merit to any of plaintiff’ s arguments that endorsement FB-9148.1 creates a fact

dispute warranting discovery. See doc. no. 52 (Plaintiff's Sur-Reply to Defendant State Farm’s

Additional Submissions to Their Motion to Dismiss).