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Emcasco Insurance Co. v. Knight

United States District Court, N.D. Alabama, Northwestern Division

October 7, 2014

KELLI KNIGHT, et al., Defendants.

AMENDED MEMORANDUM OPINION AND ORDERS (Entered October 7, 2014 nunc pro tunc August 22, 2014)

C LYNWOOD SMITH, Jr., District Judge.

It is ORDERED that the Memorandum Opinion and Order filed in this action on August 22, 2014, and entered as document number 47 be, and the same hereby is, rescinded and withdrawn, and the following substituted in its place.

Eleven claims have been asserted in this action. Six of those were framed in the complaint of plaintiff (and counterclaim-defendant), EMCASCO Insurance Company ("EMCASCO"), which requests, under six remedial theories, that this court enter a judgment declaring that EMCASCO had no obligation under homeowner's insurance policy number 74S-44-04-12 to provide defendants (and counterclaim-plaintiffs), Christopher and Kelli Knight, with coverage for a house fire that occurred on December 4, 2011, at 919 Vista Circle in Tuscumbia, Alabama.[1]

The remaining five claims were asserted in the Amended Counterclaim of Christopher and Kelli Knight.[2] EMCASCO has moved for summary judgment on all of those counterclaims.[3]

Count One of the Knights' amended counterclaim alleges that EMCASCO breached its contractual obligations under the Knights' homeowner's policy by "failing and refusing to tender payment of any and/or all available proceeds as set out in its contract or policy of insurance applicable to the dwelling and contents."[4]

Count Two of the Knights' amended counterclaim contends that EMCASCO breached its fiduciary duties of good faith and fair dealing under the terms of that policy by

( i ) "refusing to pay benefits set out in the policy, where there existed no lawful basis for [EMCASCO's] refusal coupled with [EMCASCO's] actual knowledge of the absence of any lawful basis for their refusal to pay the benefits";
( ii ) "intentionally failing to determine whether there was an arguable reason or lawful basis for denying payment of full benefits under the policy and/or by failing to submit the results of any alleged investigation to a reasoned and informed evaluation and review before denying payment"; and,
( iii ) "consciously or deliberately engag[ing] in oppression, fraud, wantonness[, ] or malice with regard to the Knights, thereby depriving the Knights of legal rights and entitling the Knights to punitive damages against EMC Insurance."[5]

Count Three of the Knights' amended counterclaim alleges that EMCASCO negligently, wantonly, and/or willfully failed "to properly document the known mortgagee on the Knights' policy, " and "refused to make payment under the Mortgagee Clause[, ] asserting that there was no mortgagee listed on the subject policy, " even though EMCASCO "was aware through its employee(s), agent(s), and/or representative(s) that the Knights had a mortgage on their property with Regions Bank" ["Regions"].[6]

Finally, Counts Four and Five of the Knights' amended counterclaim rely upon the same operative facts as Count Three, but add separate allegations of fraud. Count Four, asserting a claim for "Fraudulent Misrepresentation, " states that EMCASCO "made multiple representations to the Knights that the mortgagee would be properly documented on their policy, " that those representations "were false and [EMCASCO] knew they were false; or [EMCASCO] recklessly misrepresented the facts, without true knowledge thereof; or [EMCASCO] misrepresented the facts by mistake, but did so with the intention that the Knights should rely upon them."[7] Count Five adds a claim of "Fraudulent Suppression, " alleging that EMCASCO "had a duty to properly document the known mortgagee on the Knights' policy and suppressed the fact that the mortgagee would not be properly documented on their policy."[8]

This court has jurisdiction over the controversy pursuant to 28 U.S.C. § 1332(a), as the parties are citizens of different States and the amount in controversy exceeds $75, 000.


Summary judgment should be entered "if the movant shows 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). The party requesting summary judgment always bears the initial responsibility of informing the court of the basis for its motion, and of identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, that demonstrate the absence of a genuine issue of material fact. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden, Rule 56(c) requires the nonmoving party to go beyond the pleadings, and by its own affidavits, or by the depositions, answers to interrogatories, and admissions on file, to designate specific facts showing that there is a genuine issue for trial. See id. at 324. Any reasonable dispute or doubt as to any material fact, and all justifiable inferences, are resolved in favor of the non-moving party. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993) (quoting United States v. Four Parcels of Real Property, 941 F.2d 1428, 1437 (11th Cir. 1991)). The materiality of a fact is determined by the substantive law at issue. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine" dispute is one in which a reasonable jury could find for the non-moving party. Id.

In making this determination, the court must review all evidence and make all reasonable inferences in favor of the party opposing summary judgment.
The mere existence of some factual dispute will not defeat summary judgment unless that factual dispute is material to an issue affecting the outcome of the case. The relevant rules of substantive law dictate the materiality of a disputed fact. A genuine issue of material fact does not exist unless there is sufficient evidence favoring the nonmoving party for a reasonable jury to return a verdict in its favor.

Chapman v. AI Transport, 229 F.3d 1012, 1023 (11th Cir. 2000) ( en banc ) (quoting Haves v. City of Miami, 52 F.3d 918, 921 (11th Cir. 1995)); see also United States v. Four Parcels of Real Property, 941 F.2d 1428, 1437 (11th Cir. 1991) ( en banc ).


The pertinent facts in this case arose from a fire that occurred on the evening of December 4, 2011, in a house located at 919 Vista Circle in Tuscumbia, Alabama. The structure was owned by defendants and counterclaim-plaintiffs, Christopher and Kelli Knight.[9] EMCASCO Homeowner's Insurance Policy No. 74S-44-04-12 was in full force and effect on the date of the events that form the basis of the claims alleged in the underlying suit, and provided coverage to the Knights for fire and other insured perils.[10]

A. The Knights' Application for EMCASCO "Homeowners Special Form 3" Policy No. 74S-44-04-12

The Knights' application for homeowner's insurance with EMCASCO was rife with errors and omissions. First, the Knights did not disclose that they had made a claim on a prior homeowner's policy following a fire at the same location on March 21, 2009.[11] In fact, Andy Kabcenel, EMCASCO's Personal Lines Underwriting Supervisor and the EMCASCO employee who ultimately wrote the insurance policy at issue in this action (although not the agent who met with the Knights and transcribed their information for their insurance application), learned after the Knights' 2011 fire that the Knights had made three previous insurance claims - a fact that would have made them ineligible for coverage with EMCASCO.[12]

Second, the Knights failed to disclose that they had filed for Chapter 7 Bankruptcy on March 28, 2008.[13]

Third, even though Regions held a mortgage on the insured property, no mortgagee was named on the application or on the subsequent homeowner's policy.[14]

Finally, neither Christopher nor Kelli Knight signed the application.[15]

Even so, none of the errors or omissions in the application or subsequently issued policy were due to affirmative misrepresentations or omissions by the Knights themselves.[16] Instead, the person who prepared the policy application for the Knights, Nicole Creel, who was an independent insurance agent and not an EMCASCO employee, [17] made the following admissions in her deposition: she was aware of the Knights' prior fire loss claim but failed to disclose that information;[18] she did not ask the Knights whether they had previously filed for bankruptcy;[19] the Knights informed her of their mortgage with Regions, but she neglected to include that information on the application;[20] and, she prepared the application for the Knights, but failed to provide an opportunity for either of them to read and sign it before presentation to EMCASCO.[21]

B. Pertinent Provisions of the Knights' Insurance Policy

EMCASCO issued Homeowner's Policy No. 74S-44-04-12 to Christopher and Kelli Knight on January 14, 2011.[22] The homeowner's policy itself contained multiple definitions, exclusions, and conditions, including the following provisions pertinent to the present action:


A. In this policy, "you" and "your" refer to the "named insured" shown in the Declarations and the spouse if a resident of the same household. "We", "us" and "our" refer to the Company providing this insurance.
B. In addition, certain words and phrases are defined as follows:
5. "Insured" means:
a. You and residents of your household who are:
(1) Your relatives; or
(2) Other persons under the age of 21 and in the care of any person named above;


A. We do not insure for loss caused directly or indirectly by any of the following....
8. Intentional Loss
Intentional Loss means any loss arising out of any act an "insured" commits or conspires to commit with the intent to cause a loss.
In the event of such loss, no "insured" is entitled to coverage, even "insureds" who did not commit or conspire to commit the act causing the loss.
Q. Concealment Or Fraud
We provide coverage to no "insureds" under this policy if, whether before or after a loss, an "insured" has:
1. Intentionally concealed or misrepresented any material fact or circumstance;
2. Engaged in fraudulent conduct; or
3. Made false statements; relating to this insurance.[23]
C. December 4, 2011 Fire

On the date of the fire, eight persons resided at 919 Vista Circle in Tuscumbia, Alabama: Christopher Knight; his wife, Kelli Knight; their son, Titus Knight (who then was nine years of age); their daughter, Laiken (who then was eight years of age); Jamie Forcier, a family friend, who occupied the basement; and Jamie Forcier's three children, who were seven, two, and seven months of age, respectively, on the date of the fire.[24] In addition, the Knights owned two dogs that lived in the home.[25]

On the evening of the fire, Christopher and Kelli Knight, their two children, and one of their two dogs, along with Jamie Forcier and her three children, were across the street, visiting the home of Ms. Forcier's sister, Jana Silvia.[26] Ms. Silvia's boyfriend and children were also present at the home. At approximately 7:00 p.m., Christopher Knight stepped outside Ms. Silvia's residence in an attempt to obtain better reception for his cellular telephone, at which time he observed that the exterior Christmas lights on his home, which he had turned on before leaving the house, were no longer lit.[27] After moving closer to the house, Christopher Knight heard fire alarms sounding within the house. After discovering that the front door was locked, he kicked in the door and was greeted with heavy black smoke.[28] Knight then ran to the back of the house to free his German Shepard, whom he believed to still be inside the house, at which time he discovered flames rising through the back window of the basement.[29]

Ms. Silvia's boyfriend reported the fire to the Tuscumbia Fire Department at 7:16 p.m.[30] While waiting for the fire department to arrive, Christopher Knight managed to turn off the gas line to the home, but was unsuccessful in his attempts to use a water hose to fight the flames.[31] The first firefighters arrived at the scene at 7:23 p.m., where they, like Christopher Knight, observed heavy smoke rising from the home and flames coming from the basement.[32]

The firefighters battled the blaze until 11:28 p.m., when the fire appeared to be fully extinguished.[33] At or around that time, the Knights left the scene, and spent the night at Kelli Knight's parents' home in Sheffield, Alabama.[34] Kelli Knight informed EMCASCO of the fire loss by a telephone call placed at 1:08 a.m. on December 5, 2011.[35]

The next morning, the Knights were informed by Kelli Knight's father that the Fire Department had called his home between 2:30 and 3:00 a.m., and advised him that the fire had rekindled and caused considerable damage to the remaining structure.[36]

D. Insurance Claim and Subsequent Investigation

After receiving notification of the fire loss, EMCASCO retained Mickey Evers, an independent claims adjuster, to handle the Knights' claim.[37] Evers was supervised by Jewel Stubbs, the Birmingham branch supervisor for EMCASCO, who was in turn advised and supervised by Charles Herrold, a property claims superintendent for Employers Mutual Casualty Company, the parent company of EMCASCO.[38]

Evers interviewed Kelli Knight, inspected and photographed the loss, drew a building diagram, reviewed the Knights' deed, examined reimbursement receipts presented by the Knights, reviewed photographs from an earlier fire at the same location, and prepared and presented five written reports detailing his work and findings to Stubbs and Herrold.[39]

EMCASCO also retained an independent fire investigation company, Southeastern Origin & Cause, to investigate the fire.[40] An employee of that company, Darwin Clark, conducted the investigation.[41] On the day after the fire, i.e., December 5, 2011, Clark inspected the scene, took photographs, collected evidence, and conducted interviews with Christopher Knight and Tuscumbia Fire Chief David Cole.[42] Chief Cole showed Clark the basement apartment where Jamie Forcier and her three children had been residing, and the location in which Cole believed the fire had originated.[43] Christopher Knight told Clark that, even though he was unsure of the cause of the fire, he "thought Ms. Forcier might have left the heater on in the downstairs apartment and it was too close to the mattress."[44] Clark collected the heater as evidence.[45]

Clark returned to the scene of the fire on four subsequent occasions as part of his investigation. On December 16, 2011, he removed debris from the upstairs area of the home with a track-hoe excavator, in order to better access the basement.[46] The following day, he photographed, removed, and examined a large portion of the debris in the basement area, and collected two laboratory samples for testing from the area around the large mattress that had been used by Jamie Forcier. Clark did so because he determined that "an area of intense burning" had occurred in the area of the mattress.[47] Subsequent laboratory testing revealed no presence of ignitable liquids in or around the mattress.[48]

Clark returned to the scene of the fire on December 22, 2011, this time with an electrical engineer, Dr. Ray Franco, who did not find any electrical failures or electrical heat sources for the fire.[49]

Clark removed the remainder of the basement debris on December 30, 2011, and reconstructed the setting of the basement apartment with the assistance of Jamie Forcier.[50]

Finally, on January 16, 2012, an additional examination took place at the offices of Southeastern Origin & Cause, to test the hypothesis that the space heater found in the debris had provided the heat source for the fire.[51] After three separate tests failed to ignite the bedding or mattress, Dr. Franco concluded that no electrical sources, including the space heater, could have caused the fire.[52] Thus, Clark concluded that, although the large mattress in the basement apartment had been the origin of the fire, the cause of the fire was not electrical.[53] Rather, Clark stated in his report that "[t]he cause of this fire is determined to be incendiary": that is, the fire was intentionally set.[54]

1. Prior insurance claims

In addition to Jewel Stubbs and Charles Herrold (who are identified in the second sentence of Section "D", supra ), a third employee of Employers Mutual Casualty Company ("EMC") was assigned to the Knights' claim: Tim Pettit, a Special Investigations Unit investigator.[55] Pettit's initial investigation, conducted on December 7, 2011, revealed information on Christopher and Kelli Knight that concerned Jewel Stubbs and Charles Herrold.[56] For example, Pettit discovered that the couple had jointly filed for Chapter 7 bankruptcy on March 28, 2008, in Decatur, Alabama.[57] Pettit also discovered four small claims judgments entered against Kelli Knight from 2006 to 2011, in amounts ranging from $310 to $1, 487.[58] Of most concern, however, was Pettit's discovery that the Knights had filed seven insurance claims between 2009 and 2011, including two claims for fire damage: i.e.,

• September 4, 2011 claim with EMC for damage to the rear window and top of the Knights' car;
• June 25, 2011 claim with Progressive for damage caused when their boat struck an item in the water;
• April 3, 2011 claim with EMCASCO for fire damage to the Knights' house, resulting in a payment ...

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