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Franklin v. National General Assurance Co.

United States District Court, M.D. Alabama, Northern Division

January 23, 2015

LAURA FRANKLIN and MIGUEL GUTIERREZ, Plaintiffs,
v.
NATIONAL GENERAL ASSURANCE COMPANY, Defendant.

MEMORANDUM OPINION AND ORDER

W. KEITH WATKINS, Chief District Judge.

Laura Franklin and Miguel Gutierrez, once litigation adversaries, now join as Plaintiffs in this action against National General Assurance Company ("NGAC"), seeking to recover the damages awarded to Mr. Gutierrez and against Ms. Franklin in an underlying state-court action. The underlying state-court action arose from a rear-end, motor-vehicle collision that rendered Mr. Gutierrez a paraplegic. Ms. Franklin was the driver who rear ended Mr. Gutierrez's vehicle. Mr. Gutierrez commenced the underlying state-court action after NGAC refused multiple, pre-suit offers to settle Mr. Gutierrez's claim for the $50, 000 limits of Ms. Franklin's automobile insurance policy. A jury found Ms. Franklin liable for $13 million in compensatory damages, and, the appeals process having run its course, Ms. Franklin now is indebted to Mr. Gutierrez on a remitted judgment of $9 million.

The differential between $50, 000 pre-suit settlement offers and the $9, 000, 000 judgment led to this diversity lawsuit. Ms. Franklin brings third-party negligence, wantonness, and bad-faith claims against NGAC, asserting that it failed to exercise ordinary care and good faith to investigate and settle Mr. Gutierrez's claim for the Policy limits. Mr. Gutierrez, through an assignment of rights from Ms. Franklin, brings a breach-of-contract claim arising from NGAC's failure to obtain an appeal bond and pay the premium for the appeal bond in the full amount of the state-court judgment. NGAC moves for partial summary judgment on Ms. Franklin's third-party wantonness and bad-faith claims and on Mr. Gutierrez's breach-of-contract claim. (Doc. # 128.) The motion has been fully briefed.[1] (Docs. # 128, 141, 145.)

After careful consideration of the arguments of counsel, the relevant law, and the evidentiary submissions, the court finds that the motion for partial summary judgment is due to be denied.[2]

I. JURISDICTION AND VENUE

The court exercises subject-matter jurisdiction pursuant to 28 U.S.C. ยง 1332(a). Personal jurisdiction and venue are uncontested.

II. STANDARD OF REVIEW

To succeed on summary judgment, the movant must demonstrate "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 court must view the evidence and the inferences from that evidence in the light most favorable to the nonmovant. Jean-Baptiste v. Gutierrez, 627 F.3d 816, 820 (11th Cir. 2010).

The party moving for summary judgment "always bears the initial responsibility of informing the district court of the basis for its motion." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). This responsibility includes identifying the portions of the record illustrating the absence of a genuine dispute of material fact. Id.; Fed.R.Civ.P. 56(c)(1)(A). Or, the movant can assert, without citing the record, that the nonmoving party "cannot produce admissible evidence to support" a material fact. Fed.R.Civ.P. 56(c)(1)(B). If the movant meets its burden, the burden shifts to the nonmoving party to establish-with evidence beyond the pleadings-that a genuine dispute material to each of its claims for relief exists. Celotex, 477 U.S. at 324. A genuine dispute of material fact exists when the nonmoving party produces evidence allowing a reasonable fact finder to return a verdict in its favor. Waddell v. Valley Forge Dental Assocs., 276 F.3d 1275, 1279 (11th Cir. 2001).

III. BACKGROUND[3]

A. The Collision

The catastrophic collision happened on February 15, 2010, as Ms. Franklin and Mr. Gutierrez were traveling alone in separate vehicles in the northbound lane of Highway 231, a four-lane highway with a posted speed limit of fifty-five miles-per-hour. At approximately 10:30 p.m., Ms. Franklin's Ford Explorer struck Mr. Gutierrez's Toyota Corolla in the rear. Ms. Franklin and Mr. Gutierrez dispute what occurred during the seconds before impact. Mr. Gutierrez claims that he had been driving in his lane within the speed limit for about a quarter of a mile, when Ms. Franklin, who was speeding and texting, rear-ended his vehicle. Ms. Franklin contends that she was driving the posted speed limit, was not texting, and that Mr. Gutierrez suddenly turned right onto Highway 231 from a gas station into the lane directly in front of her, leaving her no time to avoid the collision.

There is no dispute, however, as to the catastrophic nature of the rear-end impact. Photographs depict that the passenger side rear corner of Mr. Gutierrez's vehicle was crushed forward over the rear axle and into the back seat, and the collision caused Mr. Gutierrez to suffer a lower spinal cord injury, rendering him a paraplegic. To this date, Mr. Gutierrez, who is in his late fifties, is wheelchair bound, incontinent of bowel and bladder, and confined to a nursing home.

The Alabama Uniform Traffic Crash Report provides further details about the accident. It states that the collision occurred on a "straight, level" roadway, the weather was "clear, " the area was a well-lit "shopping or business" area, and there were no skid marks. The report states further that the collision was a "rear-end, " "front-to-rear" collision and that Mr. Gutierrez was transported by "EMS ground" to Baptist South Hospital due to his "incapacitating" injuries. It identifies Mr. Gutierrez as the "primary contributing unit" and concludes that he "fail[ed] to yield [the] right of way." No citations were issued at the scene, however. Additionally, because Mr. Gutierrez was incapacitated, he did not give the investigating officer a statement. Rather, the report contains only Ms. Franklin's statement that, as she "was traveling down the roadway [Mr. Gutierrez], pulled out in front of her and she could not avoid the collision." (Police Report (Def.'s Ex. 2).)

B. Pertinent Policy Provisions

At the time of the accident, Ms. Franklin, a twenty-year-old college student, was covered under her parents' NGAC automobile insurance policy ("Policy"). There is no dispute that the premiums were current and that the collision was a covered claim. There also is no dispute that the Policy provided $50, 000 in liability coverage for bodily injury. (Policy, at 6 & Declarations Page (Ex. A to Compl.).)

The following provisions of the Policy are relevant for purposes of this litigation. As to NGAC's settlement and defense obligations, the Policy provides as follows:

We will settle or defend, as we consider appropriate, any claim or suit asking for [bodily injury] damages. If we defend, we will choose the counsel of our choice which may include an in-house counsel. In addition to our limit of liability, we will pay all defense costs we incur. Our duty to settle or defend ends when we offer to pay and pay our limit of liability for this coverage.

(Policy, at 3.) The corresponding obligations of the insured require him or her, when "seeking coverage, " to "cooperate with [NGAC] in the investigation, settlement or defense of any claim or lawsuit, " and to "not voluntarily assume any obligation to pay [or] make any payment or incur any expense... for bodily injury... arising out of an accident." (Policy, at 18.) Additionally, the failure of the insured to comply with his or her obligations "may result in denial of coverage and relieve [NGAC] of all duties to investigate, settle, defend, pay any judgment or otherwise honor any claims made against an insured." (Policy, at 18.) Because NGAC chose to defend Ms. Franklin and appeal the adverse judgment, the Supplementary Payments section of the Policy placed an additional obligation on NGAC: "In addition to [its] limit of liability, [NGAC] will pay on behalf of an insured... premiums on appeal bonds... in any suit [it] defend[s] and [it] choose[s] to appeal." (Policy, at 3.)

C. Mr. Gutierrez's Policy Claim and NGAC's Investigation

On February 17, 2010, two days after the collision, Ms. Franklin's mother reported the accident to NGAC. Although she mistakenly referred to it as a "T-bone" collision, she told the NGAC representative that Mr. Gutierrez's vehicle "was just demolished, " and he "would be dead if [Ms. Franklin's SUV had] hit his driver[s side]." The call representative acknowledged "it was a really bad accident" and told her that NGAC would "do a full investigation separate from the police department just to make sure that everything... aligns [with the police report]." (Telephone Call Transcript (Def.'s Ex. 1).)

On the same date, NGAC assigned the claim to Gary Sneed, one of its property-damage adjusters in Georgia. Mr. Sneed treated the claim as one for property damage and closed the file the same day. The next day, February 18, 2010, Mr. Sneed received a letter from Keith Bennett, Esq., that he was representing Mr. Gutierrez on a claim for bodily injury. Based on receipt of that letter, Mr. Sneed opened a bodily injury claim for Mr. Gutierrez but indicated in his February 18 claims note that he would "issue [a] denial [of the claim] if [the] police report confirms facts of loss as presented [by Ms. Franklin]." (Claims Note, at 12343 (Pl.'s Ex. 140-1).) During his deposition in this case, Mr. Sneed testified that "it was [his] responsibility to handle the liability investigation" and that NGAC "entitle[d him] to deny" the claims. (Sneed's Dep., at 174 (Pl.'s Ex. Doc. # 140-24).) This was Mr. Sneed's first bodily injury claim. (Sneed's Dep., at 20, 28.)

On February 19, 2010, the Franklins faxed a copy of the police report to Mr. Sneed. Mr. Sneed recognized after reviewing the police report that Mr. Gutierrez did not get "T-boned" and "got out far enough to straighten before being hit." (Claims Note, at 12342.) On February 22, 2010, Mr. Sneed also received and reviewed an appraisal estimate with photographs of Mr. Gutierrez's vehicle, performed by NGAC's field appraiser at Mr. Sneed's request. The same date, Mr. Sneed wrote Mr. Bennett, informing him that he was "in the process of investigating th[e] accident" and needed "complete medical reports, bills, wage verification, and a settlement demand...." (Sneed's Feb. 22 Letter (Ex. C to Compl.).)

The next day, however, in a letter dated February 23, 2010, Mr. Sneed informed Mr. Bennett that he had "completed an investigation of the accident details involving [his] client." Mr. Sneed explained that his investigation revealed that Ms. Franklin "was not legally liable for [Mr. Gutierrez's] loss, " and that, as a result, he was denying payment on Mr. Gutierrez's claim. (Sneed's Feb. 23 Letter (Ex. D to Compl.).) Mr. Sneed conditioned his denial of Mr. Gutierrez's bodily injury claim, stating that, "if [Mr. Bennett] f[ound] any additional evidence, [he would] reconsider [NGAC's] position." (Sneed's Feb. 23 Letter (Ex. D to Compl.).) Hence, Mr. Sneed denied the claim after reviewing Ms. Franklin's statement, the police report that placed Mr. Gutierrez at fault, the appraisal estimate of Mr. Gutierrez's car, and the photographs of his car. (Sneed's Dep., at 131-36.) Mr. Sneed believed this information was sufficient to show, at the very least, contributory negligence on the part of Mr. Gutierrez and that, therefore, under Alabama law, Mr. Gutierrez would not be able to recover from Ms. Franklin. (Sneed's Dep., at 176); see, e.g., Norfolk S. Ry. Co. v. Johnson, 75 So.3d 624, 639 (Ala. 2011) ("Contributory negligence is an affirmative and complete defense to a claim based on negligence."). At his deposition, Mr. Sneed confirmed that he denied the claim based solely on a liability assessment ( i.e., on Mr. Gutierrez's contributory negligence). (Sneed's Dep., at 184, 197; Claims Note, at 12340.)

Unaware that Mr. Sneed already had denied the claim, Mr. Bennett called Mr. Sneed on February 23, 2010, to discuss Mr. Sneed's February 22 request for information. Mr. Sneed orally informed Mr. Bennett that he had denied the claim and that the letter documenting the denial was "on the way." (Bennett's Dep., at 128 (Pl.'s Ex. 140-25).) Notwithstanding the denial, Mr. Bennett informed Mr. Sneed that Mr. Gutierrez's version of how the collision occurred did not align with Ms. Franklin's. Mr. Bennett relayed to Mr. Sneed that, according to Mr. Gutierrez, he did not pull out in front of Ms. Franklin. Mr. Bennett also told Mr. Sneed that he had photographed the scene, that there were no skid marks at the scene, and that Mr. Gutierrez was paralyzed from the waist down. (Bennett's Dep., at 59-60, 82.) Although some of the contents of this call are in dispute, [4] Mr. Sneed's February 25, 2010 claims note confirms that Mr. Bennett told him Mr. Gutierrez had a "lower spine injury." (Claims Note, at 12340.) Mr. Sneed testified he knew this could mean "paraplegia, " but he did not request additional information about Mr. Gutierrez's injury. (Sneed's Dep., at 212-13.) Mr. Bennett also asked about the liability limits under the Policy, but Mr. Sneed declined to tell him. (Bennett's Dep., at 136.) On March 4, 2010, Mr. Sneed acknowledged in the claim notes that Ms. Franklin may "file suit" based on NGAC's denial of Mr. Gutierrez's claim. (Claims Note, at 12340.)

On March 9, 2010, two weeks after NGAC had denied the claim, NGAC Claims Manager Tabatha Schultz reviewed the file and wrote in the claim notes that "1% [contributory negligence] bars recovery" and that it "appears we have at least that against [Mr. Gutierrez], if not all." Ms. Schultz also documented that she was taking the file "[o]ff mngr. [manager] diary" and requested Mr. Sneed to "notify [her] if [Mr. Gutierrez] pursued [it] further." (Claims Note, at 12340.)

On April 7, 2010, Mr. Bennett wrote Mr. Sneed, requesting that he reconsider the denial of Mr. Gutierrez's claim. Mr. Bennett advocated that Ms. Franklin's fault was "clear" because she struck Mr. Gutierrez "from behind." He also noted that Mr. Gutierrez "ha[d] very severe injuries, ha[d] undergone two surgeries, and ha[d] incurred high medical bills for weeks of hospitalization[, ]... [was] uninsured and [was] personally responsible for the medical bills." Mr. Bennett attached a $57, 632.02 medical bill that contained diagnosis codes for spinal cord injury, fracture of two ribs, contusion of the lung, dislocation of two cervical vertebrae, traumatic pneumothorax, and injury to the head. He asked Mr. Sneed to review his investigative materials again and inform him whether NGAC "intends to pay the claim."[5] (Bennett's Apr. 7, 2010 Letter (Ex. E to Compl.); Medical Bill (Pl.'s Ex. 140-12); Def.'s Ex. 3.) The letter also included an offer of settlement for policy limits:

In closing, I want to let you know that my client is in a desperate situation and needs money. Consequently, he will accept your insured's policy limits (along with evidence of what those limits are) as full and final settlement of his claim. My client is willing to accept those limits and will give your insured a full and final release of any and all possible liability. Hopefully, we can get this matter worked out quickly as my client is in great need.

(Bennett's Apr. 7, 2010 Letter, at 1.)

Upon receiving this Policy limits demand letter, NGAC reassigned the claim to Joe Lord, a senior claims representative and "high-exposure" claims handler who specialized in large loss or high-risk claims. (Claims Note, at 12339; Lord's Dep., at 11-12 (Pl.'s Ex. 140-28).) Like Mr. Sneed, Mr. Lord was not in Alabama; he worked in Texas. (Lord's Dep., at 318.) When Mr. Lord reviewed the file on April 19, 2010, he knew that Ms. Franklin's "exposure was going to be much greater than the amount of coverage she had" because he knew (1) that Mr. Gutierrez had suffered a severe rear-end impact, (2) that he was contesting liability, (3) that he had a "spinal injury, " (4) that his first hospital bill, which covered only six days, was $58, 000, and (5) that he was uninsured and had additional bills forthcoming for several additional weeks of hospitalization and two surgeries. (Claims Note, at 12338-39; Lord's Dep., at 100-02, 106-07, 109, 111, 153-55.)

On the same day of his file review (April 19), Mr. Lord wrote a letter to Mr. Bennett seeking to discuss his client's "liability theory, " and reiterating that NGAC had denied the claim "based upon [its] previous liability investigation." (Lord's Apr. 19, 2010 Letter (Ex. F to Compl.).) Consequently, on April 21, 2010, Mr. Bennett wrote Mr. Lord expressing disbelief that NGAC had denied Mr. Gutierrez's claim, given that Ms. Franklin's vehicle had rear ended Mr. Gutierrez's and the seriousness of Mr. Gutierrez's injuries. Mr. Bennett made a second settlement demand for the Policy limits with a thirty-day deadline:

[Mr. Gutierrez] demands [Ms. Franklin's] policy limits and will not accept one penny less than full payment of those limits. In exchange for payment of those limits, [Mr. Gutierrez] will give your insured a full and final release of all possible claims. If you refuse to tender your policy limits in the next thirty days, then [Mr. Gutierrez] will be forced to move forward with filing this lawsuit against your insured and will not be in a position to accept your insured's limits after the case has been filed.

(Bennett's Apr. 21, 2010 Letter (Ex. G to Compl.).) NGAC never responded to the time-limited settlement demand.

Mr. Lord completed a large loss report ("LLR") on May 5, 2010. (Claims Note, at 12339; LLR (Pl.'s Ex. 140-6).) NGAC requires an LLR when a claim has "an exposure at or above $50, 000." (NGAC Claim Handling Guidelines, at 476 (Pl.'s Ex. 140-7).) Mr. Lord recommended rejecting Mr. Gutierrez's second settlement demand based on contributory negligence:

Upon my review of the liability of this case, I do not find that our insured is 100% responsible for this accident as the claimant attorney indicates. The police report documents that the primary contributing factor was that the claimant failed to yield right of wa[y] from a private drive.... Alabama has the 1% negligence rule. This means if either party is determined to have contributed at least 1% of the negligence to the loss, then they are [sic] barred from recovery from a liability perspective. I recommend that we maintain our liability stance at this time[;] we will more than likely draw suit here on this case, which we can forward to our defense counsel for continued handling.

(LLR, at 10514 (Pl.'s Ex. 140-6).) Upon reviewing the LLR, Nancy Gregg, NGAC's regional claims manager, concluded NGAC "didn't have an exposure based on Alabama negligence ...


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