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09/02/94 JAMES W. HALL v. AMERICAN INDEMNITY GROUP

September 2, 1994

JAMES W. HALL
v.
AMERICAN INDEMNITY GROUP AND ALABAMA FIRST INSURANCE COMPANY



Appeal from Jefferson Circuit Court. (CV-91-4132). Jack D. Carl, TRIAL JUDGE.

Rehearing Denied October 14, 1994. Released for Publication January 17, 1995.

Steagall, Maddox, Almon, Shores, Houston, and Kennedy, JJ., concur. Hornsby, C. J., concurs in part and Dissents in part. Ingram, J., Dissents.

The opinion of the court was delivered by: Steagall

STEAGALL, JUSTICE.

Alabama First Insurance Company ("Alabama First") brought a declaratory judgment against James W. Hall and American Indemnity Group ("American Indemnity"), seeking a determination of the parties' rights and obligations under two separate Alabama First and American Indemnity policies that insured a rental house that Hall owned. Alabama First alleged that the rental house had sustained water damage that was not covered under the two policies. Hall cross-claimed against American Indemnity and counterclaimed against Alabama First for a declaratory judgment and for damages, alleging that he was due coverage under the policies and that both insurers had breached the insurance contracts by failing to provide that coverage. He also claimed damages from both insurers, alleging bad faith, fraud, and the tort of outrage, arising from their denials of coverage.

American Indemnity and Alabama First each moved for a summary judgment; the trial court granted their separate motions, except as to the breach of contract/coverage claim. Thereafter, Hall did not comply with certain discovery orders, and Alabama First moved to dismiss the breach of contract/coverage claim. The trial court granted this motion, and American Indemnity then moved for a summary judgment on this issue. The trial court entered a summary judgment for American Indemnity, holding that the insurance policy excluded coverage for the type of water damage Hall's rental house had sustained. Hall appeals.

In October 1989, the main water line going into the basement wall of Hall's rental house burst, causing a sudden building of hydrostatic pressure that pushed the basement wall inward. The tenants of the house notified Hall about the break and told him that there were large amounts of water in the basement and around the front of the house near the exterior basement wall. Hall submitted to Alabama First and American Indemnity claims for the structural damage to the basement wall and foundation, and both companies employed experts to investigate the premises and to determine the cause of the damage. Neither company discovered that Hall had two policies until after each had investigated the premises of the house and had independently concluded that the damage was excluded from coverage under its policy.

We begin by addressing the issues that pertain to American Indemnity. Hall first argues that the trial court erred in entering a summary judgment for American Indemnity on the breach of contract/coverage claim and the bad faith refusal to pay claim. In its order, the court held that Hall's American Indemnity policy specifically excluded coverage for any structural damage to the foundation of the rental house that was caused by a build-up of water pressure. Hall argues that the court misconstrued this exclusion and that the summary judgment was improper.

The American Indemnity policy contains a section entitled "PERILS INSURED AGAINST," which provides, in pertinent part:

"We insure for all risks of physical loss to the property described in Coverages A and B except:

"1. losses under General Exclusions;

"....

"3. freezing, thawing, pressure or weight of water or ice, whether driven by wind or not, to a fence, pavement, patio, swimming pool, foundation, retaining wall, bulkhead, pier, wharf or dock;

"....

"8. continuous or repeated seepage or leakage of water or steam over a period of time from within a plumbing, heating or air conditioning system ...


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