Nationwide Mutual Fire Insurance Company v. Carmichael

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

WESTERN DIVISION

NATIONWIDE MUTUAL FIRE }

INSURANCE COMPANY, }

}

Plaintiff, }

}

v. } Case No.: 7:22-cv-00689-ACA

}

JAMES CARMICHAEL, }

}

Defendant. }

MEMORANDUM OPINION

In this declaratory judgment action, Plaintiff Nationwide Mutual Fire

Insurance Company asks the court to declare that under the terms of homeowners

insurance policy issued to Defendant James Carmichael, Nationwide does not have

a duty to defend Mr. Carmichael in an underlying state court action.

Currently before the court is Nationwide’s motion for summary judgment.

(Doc. 25). Because Nationwide’s policy does not require it to provide a defense to

Mr. Carmichael in these circumstances, the court WILL GRANT Nationwide’s

motion and WILL ENTER summary judgment in favor of Nationwide and against

Mr. Carmichael.

I. BACKGROUND

In deciding a motion for summary judgment, the court “view[s] all evidence

and draw[s] all reasonable inferences in the light most favorable to the non-moving

party.” Hallums v. Infinity Ins. Co., 945 F.3d 1144, 1148 (11th Cir. 2019).

In 2009, Mr. Carmichael bought a home located in Blocton, Alabama. (Doc.

1 at 2–3; doc. 24-1 at 4). Nationwide issued a homeowners insurance policy to Mr.

Carmichael for the property and most recently renewed the policy for a period

from July 14, 2018 to July 14, 2019. (Id. at 6; doc. 1-3 at 3).

Relevant to Nationwide’s claim in this case, the policy states that “[i]f a

claim is made or a suit is brought against an ‘insured’ for damages to due to an

‘occurrence’ resulting from negligent personal acts or negligence arising out of the

ownership, maintenance or use of real or personal property,” Nationwide would

“[p]rovide a defense at our expense.” (Doc. 1-3 at 40). The policy defines an

“occurrence” as “an accident, including continuous or repeated exposure to

substantially the same general harmful conditions, which results, during the policy

period, in” either “[b]odily injury” or “[p]roperty damage.” (Id. at 18). The policy

defines “bodily injury” as “bodily harm, sickness or disease, including required

care, loss of services and death that results.” (Id. at 16).

In January 2019, Mr. Carmichael sold his house to Keith and Gloria White.

(Doc. 1-1 at 3 ¶ 7; doc. 24-1 at 4). In December 2020, Mr. and Ms. White—who

are not parties to this lawsuit—filed a complaint in state court against their wood

infestation inspector asserting state law claims for negligence, wantonness, fraud,

suppression, and deceit. (Doc. 1-1). According to the state court lawsuit, before

Mr. and Ms. White purchased Mr. Carmichael’s home, the wood infestation

inspector failed to disclose the presence of termites in the home. (Id. at 3 ¶¶ 8–9,

4–5 ¶¶ 19–20, 5 ¶¶ 24–25, 7 ¶ 34). At some point after they purchased the home,

Mr. and Ms. White detected evidence of termite infestation, which was confirmed

by an inspection in May 2020. (Id. at 3 ¶¶ 11–13).

Mr. and Ms. White later amended their state court complaint to assert a

claim of suppression against Mr. Carmichael. (Doc. 1-2). The amended complaint

alleges that Mr. Carmichael knew or should have known that the house “suffered

from moisture, termites, conditions suitable for termites, structural issues or

concerns, and/or concerns or issues affecting health or safety” and “failed to

disclose any such defect.” (Id. at 1–2 ¶¶ 47–48). Mr. and Ms. White seek

compensatory and punitive damages against Mr. Carmichael for his alleged

suppression and misrepresentation. (Id. at 2). Nationwide is currently defending

Mr. Carmichael in the underlying state court action. (Doc. 29 at 2 ¶ 3).

Nationwide filed this lawsuit, seeking a declaration that it owes no duty to

defend or indemnify Mr. Carmichael in the state court action. (Doc. 1). With no

objection from Nationwide, the court previously dismissed the duty to indemnify

claim as unripe because there has been no judgment entered against

Mr. Carmichael in the underlying lawsuit. (See docs. 4, 6, 7). Therefore, the only

remaining claim is one for declaratory judgment on the duty to defend.

II. DISCUSSION

The court must grant summary judgment if the movant establishes that

“there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Hallums, 945 F.3d at

1148. “There is a genuine issue of material fact if the nonmoving party has

produced evidence such that a reasonable factfinder could return a verdict in its

favor.” Looney v. Moore, 886 F.3d 1058, 1062 (11th Cir. 2018) (cleaned up).

In its motion for summary judgment, Nationwide seeks a declaration that it

has no duty to defend Mr. Carmichael with respect to the claims filed by Mr. and

Ms. White in the state court action. (Doc. 25-1 at 3–8). Mr. Carmichael responds

that Nationwide’s duty to defend claim is unripe and that this court cannot

determine Nationwide’s duty to defend because the underlying lawsuit remains

pending and the facts that may determine liability in the case have yet to be

determined. (Doc. 28 at 2–8).

1. Ripeness

Because ripeness is one aspect of the court’s subject matter jurisdiction

under Article III of the Constitution, Support Working Animals, Inc. v. Governor of

Fla., 8 F.4th 1198, 1202 n.2 (11th Cir. 2021), the court addresses that issue first.

Mr. Carmichael cites only one binding case for the proposition that

Nationwide’s duty to defend claim is not ripe because the state court has not made

findings of facts in the underlying action. (Doc. 28 at 4) (citing Allstate Ins. Co. v.

Emps. Liab. Assur. Corp., 445 F.2d 1278 (5th Cir. 1971)1). But Allstate Ins. Co. is

distinguishable because it addressed the ripeness (or lack thereof) of an insurer’s

declaratory judgment claim on a duty to indemnify, not a duty to defend. See

Allstate Ins. Co., 445 F.2d at 1281 (stating in dicta that a duty to indemnify claim

is not ripe “until a judgment has been rendered against the insured since, until such

judgment comes into being, the liabilities are contingent and may never

materialize”). The same is true of the non-binding cases upon which

Mr. Carmichael relies. See Sullivan v. Everett Cash Mut. Ins. Co., No. 19-11943,

2023 WL 1521579 (11th Cir. Feb. 3, 2023) (“[I]n this circuit, a declaratory

judgment claim with respect to indemnification is generally not ripe until (and if)

the insured has been held liable to a third party.”); Mid-Continent Cas. Co. v.

1 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the

Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed

down before October 1, 1981.

Delacruz Drywall Plastering & Stucco, Inc., 766 F. App’x 768 (11th Cir. 2019)

(agreeing with and affirming the district court’s finding that the insurer’s duty to

indemnify its insured was not ripe until the underlying lawsuit was resolved).

And as the former Fifth Circuit has held, an insurer’s request for a

declaration about its duty to defend is ripe when the insurer is providing a defense

to its insured. Am. Fid. & Cas. Co. v. Pa. Threshermen & Farmers’ Mut. Cas. Ins.

Co., 280 F.2d 453, 461 (5th Cir. 1960). Here, Nationwide is currently defending

Mr. Carmichael in the state court action. (Doc. 29 at 2 ¶ 3). Therefore, its duty to

defend claim is ripe for the court’s review.

2. Duty to Defend

Before examining Nationwide’s duty to defend, the court pauses to address

what substantive law governs the analysis. The court has diversity of citizenship

jurisdiction over this action. (Doc. 1 at 2 ¶ 5). Therefore, the court applies choice

of law principles of Alabama, the forum state. Shaps v. Provident Life & Accident

Ins. Co., 244 F.3d 876, 881 (11th Cir. 2001). Under Alabama’s choice of law rules,

“a contract is governed by the laws of the state where it is made except where the

parties have legally contracted with reference to the laws of another jurisdiction.”

Cherry, Bekaert & Holland v. Brown, 582 So. 2d 502, 506 (Ala. 1991). For

insurance policies, the State in which the policy was issued and delivered is the

State in which the contract was formed. Cherokee Ins. Co., Inc. v. Sanches, 975 So.

2d 287, 293 (Ala. 2007). The policy in this case was issued in Alabama (see doc.

1-3 at 1). Therefore, Alabama’s substantive law applies.

Under Alabama law, “whether an insurance company owes its insured a duty

to provide a defense is determined primarily by the allegations contained in the

complaint.” St. Paul Fire & Marine Ins. Co. v. ERA Oxford Realty Co. Greystone,

LLC, 572 F.3d 893, 894–95 (11th Cir. 2009) (citing United States Fid. & Guar.

Co. v. Armstrong, 479 So. 2d 1164, 1168 (Ala. 1985)). However, “the court is not

limited to the bare allegations of the complaint in the action against [an] insured

but may also look to facts which may be proved by admissible evidence.” Pac.

Indem. Co. v. Run-A-Ford Co., 161 So. 2d 789, 795 (1964).

Nationwide makes two arguments in support of its motion for summary

judgment on its duty to defend claim. First, Nationwide maintains that neither the

allegations in the underlying complaint nor other evidence shows an “occurrence”

within the meaning of the policy triggering coverage. (Doc. 25-1 at 3–7). Second,

Nationwide submits that any emotional distress Mr. and Ms. White experienced

related to Mr. Carmichael’s alleged misrepresentations occurred after Mr.

Carmichael terminated the Policy. (Id. at 7–8). Because Nationwide’s first

argument entitles it to summary judgment, the court does not consider

Nationwide’s second argument.

The policy obligates Nationwide to provide a defense for Mr. Carmichael

only if Mr. and Ms. White’s claim is one for damages “due to an ‘occurrence’

resulting from” Mr. Carmichael’s “negligent personal acts or negligence arising

out of the ownership, maintenance, or use of real or personal property.” (Doc. 1-3

at 40). Under the policy, an “occurrence” is “an accident, including continuous or

repeated exposure to substantially the same general harmful conditions, which

results, during the policy period, in” either “bodily injury” or “property damage.”

(Id. at 18). Here, there is no dispute that Mr. Carmichael’s alleged

misrepresentation did not cause bodily injury or property damage.

Starting with bodily injury, the policy defines that term as “bodily harm,

sickness or disease, including required care, loss of services and death that results.”

(Id. at 16). “Bodily injury” as defined in the Policy “does not include emotional

distress, mental anguish, humiliation, mental distress or injury, or any similar

injury unless the direct result of bodily harm.” (Id.). The underlying complaint

makes no allegation that Mr. and Ms. White suffered any physical injury due to

Mr. Carmichael’s alleged misrepresentations. (See generally docs. 1-1, 1-2). And

Mr. Carmichael has not pointed to other evidence from which the court could

conclude otherwise.

With respect to property damage, the Policy defines that term as “physical

injury to, destruction of, or loss of use of tangible property.” (Doc. 1-3 at 19).

Nationwide does not argue that the underlying complaint fails to allege property

damage. Instead, citing State Farm Fire & Cas. Co. v. Gwin, 658 So. 2d 426 (Ala.

1995), Nationwide argues that any property damage was not “due” to

Mr. Carmichael’s alleged misrepresentation, and therefore it has no duty to defend

the claim. (Doc. 25-1 at 4–5). The court agrees.

In Gwin, the insureds sold two properties, and after the sale, the purchasers

discovered a termite infestation. 658 So. 2d at 427. The purchasers then filed suit

against the insureds, alleging fraud and misrepresentation. Id. The insurance

company filed a declaratory judgment action seeking a declaration that it had no

obligation to defend the insureds in the underlying lawsuit. Id. The relevant policy

language required the insurance company to provide a defense “[i]f a claim [wa]s

made or suit [wa]s brought against an insured for damages because of bodily injury

or property damage to which this coverage applies, caused by an occurrence.” Id.

Relying on its own precedent, the Alabama Supreme Court reversed the trial

court’s finding that the insurance company had a duty to defend because “any

alleged misrepresentations made by the [insureds] did not cause the property

damage of which the [purchasers] complain[ed].” Gwin, 658 So. 2d at 428.

Similar to the policy in Gwin which required that property damage be

“caused by” an occurrence, the policy here covers only property damage that is

“due to” an occurrence. (Doc. 1-3 at 40). And under the rationale of Gwin, the

property damage Mr. and Ms. White experienced was not “due to”

Mr. Carmichael’s alleged misrepresentations or suppression. See Gwin, 658 So. 2d

at 428. Therefore, there is no coverage under the policy for any property damage.

Mr. Carmichael contends that because “the facts that determine liability here

are still to be determined” in the underlying action, the court cannot make a finding

about Nationwide’s duty to defend and must deny Nationwide’s motion. (Doc. 28

at 7–8). The court disagrees. Again, the court may look to facts that may be proved

by admissible evidence in determining the duty to defend. Pac. Indem. Co., 161

So. 2d at 795. But Mr. Carmichael has not pointed to any such evidence. See

Ladner & Co. v. S. Guar. Ins. Co., 347 So. 2d 100, 103 (Ala. 1977) (“[T]here is

nothing in the record before us, looking beyond the allegations of the complaint, to

indicate that the plaintiffs in the lawsuit against [the insured] are asserting”

covered claims.). That there have been no factual findings in the underlying state

court action does not prevent the court from examining Nationwide’s duty to

defend as this declaratory judgment action is currently postured; if the evidence in

the state court action ultimately shows that Mr. and Ms. White’s claim is covered

under the policy, then Nationwide may be liable for any fees and expenses

Mr. Carmichael incurs in his defense. See Ladner, 347 So. 2d at 104. But on the

record before the court, Mr. Carmichael has not presented evidence creating a

dispute of fact regarding Nationwide’s duty to defend. Therefore, Nationwide is

entitled to summary judgment.

Hl. CONCLUSION

The court WILL GRANT Nationwide’s motion for summary judgment and

WILL ENTER summary judgment in favor of Nationwide and against

Mr. Carmichael on Nationwide’s declaratory judgment claim concerning its duty to

defend.

The court will enter a separate final judgment consistent with this

memorandum opinion.

DONE and ORDERED this August 23, 2023.

Lo

UNITED STATES DISTRICT JUDGE

11