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Sabbah v. Nationwide Mutual Insurance Co.

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

May 11, 2017

IBRAHIM SABBAH, and SABBAH BROTHERS ENTERPRISES, INC, doing business as 14th Street BP, Plaintiffs,


          VIRGINIA EMERSON HOPKINS United States District Judge.


         This is a civil action filed by the Plaintiffs, Ibrahim Sabbah (“Sabbah”), and Sabbah Brothers Enterprises, Inc. d/b/a 14th Street BP (“SBE”), against the Defendants, Nationwide Mutual Fire Insurance Company (“NMFIC”) and Nationwide Mutual Insurance Company (“NMIC”). (Doc. 47). The 113 page Second Amended Complaint was filed on September 7, 2016. The following counts for relief are alleged therein: negligent/wanton failure to settle by NMFIC (Count One); negligent/wanton failure to settle by NMIC (Counts Two and Three); bad faith failure to properly investigate, defend, and settle by NMFIC (Count Four); bad faith failure to properly investigate, defend, and settle by NMIC (Counts Five and Six); bad faith failure to indemnify by NMFIC (Count Seven); bad faith failure to indemnify by NMIC (Counts Eight and Nine); breach of the enhanced duty and obligation of good faith by NMFIC (Count Ten); breach of the enhanced duty and obligation of good faith by NMIC (Count Eleven); breach of contract by NMFIC (Count Twelve); breach of contract by NMIC (Count Thirteen); declaratory judgment against NMFIC (Count Fourteen); and declaratory judgment against NMIC (Count Fifteen). All counts arise out of judgments obtained against Sabbah and SBE in four underlying lawsuits, and the instant Defendants' refusal to indemnify SBE and Sabbah as to those judgments.

         The case comes before the Court on the Defendants' Motion To Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. 50). For the reasons stated herein the Motion To Dismiss will be GRANTED in part and DENIED in part.

         II. STANDARD

         Generally, the Federal Rules of Civil Procedure require only that the complaint provide “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). However, to survive a motion to dismiss brought under Rule 12(b)(6), a complaint must “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007) (“Twombly”).

         A claim has facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556) (“Iqbal”). That is, the complaint must include enough facts “to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citation and footnote omitted). Pleadings that contain nothing more than “a formulaic recitation of the elements of a cause of action” do not meet Rule 8 standards, nor do pleadings suffice that are based merely upon “labels or conclusions” or “naked assertion[s]” without supporting factual allegations. Id. at 555, 557 (citation omitted).

         Once a claim has been stated adequately, however, “it may be supported by showing any set of facts consistent with the allegations in the complaint.” Id. at 563 (citation omitted). Further, when ruling on a motion to dismiss, a court must “take the factual allegations in the complaint as true and construe them in the light most favorable to the plaintiff.” Pielage v. McConnell, 516 F.3d 1282, 1284 (11th Cir. 2008) (citing Glover v. Liggett Group, Inc., 459 F.3d 1304, 1308 (11th Cir. 2006)).


         The Second Amended Complaint contains the following factual allegations:

A. The Insurance Policies
7. On or about April 5, 2007, SBE purchased and/or renewed a business owners liability insurance policy (Policy No. 77-BO-762-940-3001) (hereinafter the “NMIC Policy”) issued by NMIC. (see Exhibit A[1]). On the same date, SBE purchased and/or renewed a commercial general liability insurance policy with liquor law liability coverage (Policy No. 77 PR 762-940-3007) (hereinafter the “NMFIC Policy”) issued by NMFIC. (see Exhibit B[2]). The policy period for both policies was April 5, 2007 to April 5, 2008.
8. The [NMIC] Policy listed SABBAHBROTHERS ENTERPRISES INC. as the named insured and the NMFIC Policy listed SABBAH BROTHERS ENTERPRISES INC., d/b/a 14TH STREET BP as the named insured. (Ex. A, p.1; Ex. B, p.1). Both policies describe SBE's business as convenience store. The NMFIC Policy lists 14TH STREET BP as the name of the covered convenience store and both policies list the covered address as “600 14th Street, Bessemer, Alabama, 35023.”[3]
* * *
10. The NMFIC Policy provided liquor liability coverage in the sum of $1, 000, 000 for each occurrence and $1, 000, 000 in the aggregate. The NMFIC Policy will pay for “bodily injury” caused by “the selling, serving or furnishing of any alcoholic beverage” at “premises you own, rent or occupy.”[4]
11. The NMIC Policy provided business owners liability coverage in the sum of $1, 000, 000 for each occurrence and $2, 000, 000 in the aggregate. The NMIC Policy will pay for “bodily injury” caused by “an occurrence” and “personal injury” caused by an offense arising out of your business, that takes place in the “coverage territory” and during the policy period. The NMIC Policy defines an occurrence as an accident, and the coverage territory as the United States.
12. At all relevant times, the premises of the 14TH STREET BP were owned by SBE and the store was operated pursuant to a lease between SBE (lessor) and Nineteenth Street[5] (lessee). SBE is a related entity to Nineteenth Street. SABBAH is employee, owner, sole shareholder, officer, and director of SBE and SBE is the sole shareholder of Nineteenth Street. SABBAH is also an officer and director of Nineteenth Street.
B. The Underlying Accident and Litigation
13. On or about May 2, 2007, an automobile accident occurred in which three teens were severely and permanently injured and another died. Those teens alleged that the accident was caused by alcohol consumption and that the employee at the 14TH STREET BP located at 600 14th Street, Bessemer had illegally sold alcohol to intoxicated minors.
14. Through various pleadings and amendments, claims were brought against Nineteenth Street, SBE, 14TH STREET BP and SABBAH by the injured parties in the following Alabama state court civil actions, in the Circuit Court for Jefferson County, Bessemer Division:
(a) Sharon Robertson, et al. v. Brittany Caffee, et al., 68-CV-2007-000633. (Plaintiff represented by Pat Lavette of Davenport Lavette and Cleckler)
(b) Tammy Hardin, Mother of Brittany Caffee v. Nineteenth Street Investments, CV-2007-000633. (Plaintiff represented by Don McKenna and Ashley Peinhardt of Hare Wynn Newell & Newton)
(c) Susan Green, et al. [Jennifer Vickery] v. Brittany Caffee, et al., CV-2007-000783. (Plaintiff represented by Ralph Bohanan of Bohanan and Associates)
(d) Tisha Owens and Bobby Waldrop [Michael Waldrop] v. Brittany Caffee, et al., CV-2007-00797. (Plaintiff represented by Edward Tumlin, Esq.)
15. The state court lawsuits alleged that Nineteenth Street, SBE, 14TH STREET BP, and SABBAH were responsible for the deaths and injuries of the minors pursuant to Alabama's “Dram Shop” laws. The basic allegation by the “dram shop Plaintiffs” (hereinafter collectively referred to as the “Claimants”) was that Nineteenth Street illegally sold alcoholic beverages to Brittany Caffee, a minor, from its “14th Street BP” convenience store in Bessemer, Alabama. Claimants alleged that Caffee became intoxicated as a consequence of these illegal sales and that she later crashed the vehicle she was driving, killing one passenger and injuring the others. Additionally, each of the lawsuits alleged that SBE, 14TH STREET BP, and SABBAH were liable for any judgment rendered against Nineteenth on equitable veil-piercing and/or alter-ego grounds. Claimants made claims that SABBAH was “an officer, director, and shareholder” of SBE.
C. The Claim Management, Handling, and Adjusting
* * *
17. SBE d/b/a 14TH STREET BP, SABBAH, and Nineteenth Street requested that NMFIC and NMIC provide it defense and indemnity for each of the above lawsuits under the terms of the Policies. . . .
18. While NMFIC issued the NMFIC Policy to SBE d/b/a 14TH STREET BP, on information and belief, NMFIC and/or NMIC handled all aspects of managing, handling, and adjusting the claim. The correspondence regarding the claims were sent from employees of Nationwide on behalf of both NMFIC and NMIC. On information and belief, NMFIC is the alter-ego of NMIC in that NMIC, at all relevant times, exercised total dominion and control over NMFIC and NMIC voluntarily undertook the management, handling, and adjusting of claims against the NMFIC Policy. On information and belief, NMIC voluntarily undertook certain duties to be performed by NMFIC and NMIC acted on behalf of NMFIC to perform the services related to the management, handling, and adjusting of claims against the NMFIC Policy. Also, during the course of the underlying litigation, employees and agents of NMFIC acted on behalf of NMIC to perform the services related to the management, handling, and adjusting of claims against the NMIC Policy.
19. During the course of the litigation, defense counsel on the underlying claims against SBE, 14TH STREET BP, and SABBAH provided regular updates and correspondence to NMFIC and NMIC, including commercial claims specialist Kelly Jackson and Kevin Paschall. These letters were directed to “Nationwide Insurance Company” and not specifically NMFIC or NMIC, making it impossible to determine which company [was] responsible for managing, handling, and adjusting the claims. According to the Alabama Department of Insurance, there is no such corporate entity named “Nationwide Insurance Company.” Upon information and belief, “Nationwide Insurance Company” is a conflation of NMFIC and NMIC intended to permit either entity to act on behalf of and/or as the alter-ego of the other in performing the services related to the management, handling, and adjusting of claims against each insurer's policies.
20. On July 2, 2007, Kori Clement (“Clement”) wrote to Kelly Jackson[6] of “Nationwide Insurance Company” to “confirm and acknowledge [her] assignment of the defense of Sabbah Brothers Enterprises.” (see Exhibit C[7]). The letter provided no other clarification of whether NMFIC, NMIC, or both entities was assigning the defense of the action. Likewise, the very same day, Clement sent a letter to SBE advising of her firm's retention and instructing him to not speak with anyone other than someone from her firm or “a representative of Nationwide Insurance Company.” (see Exhibit D[8]). Despite [the fact that] they were paying her bill, based on the correspondence to and from Clement, it is clear that she made no distinction between the non-existent entity of “Nationwide Insurance Company” and NMFIC and/or NMIC.
21. On July 17, 2007, Clement sent an initial case evaluation to Kelly Jackson of “Nationwide Insurance Company.” (see Exhibit E[9]). Despite both NMFIC and NMIC issuing policies at issue, Kelly Jackson was not noted in this letter to be employed by either NMFIC or NMIC.
[Clement . . . informed . . . Jackson . . . that a coverage defense trying to pin all of the liability on the non-named insured (Nineteenth Street) would not exculpate the named insureds. [sic] Counsel stated that we may “seek to avoid liability by arguing that [Nineteenth Street], rather than SBE, sold the beverages to Ms. Caffee. [Nineteenth Street] operated the 14th Street BP station and it held the liquor license to the property … [but] … even if we could prove that [Nineteenth Street], and not SBE, provided the liquor to Ms. Caffee, the plaintiff could arguably still hold SBE liable by showing that [Nineteenth Street] is basically merely the alter ego of SBE. Plaintiff could accomplish this by showing that SBE owns all of [Nineteenth Street]'s issued stock, which we understand it does. … Therefore, we believe it is unlikely that we will prevail by showing that [Nineteenth Street], and not SBE, dispensed the liquor, but we will pursue the facts regarding that argument." (see Exhibit E).[10][11]
[On] July 19, 2007 - Kelly Jackson sent a letter to SBE and SABBAH on behalf of both NMFIC and NMIC denying coverage on the claims and offering a “courtesy defense” to SBE on behalf of those entities. (see Exhibit F[12]). . . .[13]
* * *
23. On January 26, 2009, following several amendments by the Claimants to underlying complaints, Kevin Paschall[14] sent SBE dba 14th Street BP[15] a letter on behalf of NMFIC [stating] that [NMFIC] was investigating the claim against SBE and indicated that “It is possible that the value of this claim will be more than the limits of your policy. Because of this possibility, you may want to consider consulting with an attorney at your own expense.” (see Exhibit G[16]).
24. On February 23, 2009, . . . NMFIC and NMIC sent a letter to SABBAH disclaiming coverage, but affording a “courtesy defense.” (see Exhibit H[17]). The letter specifically disclaimed coverage under the NMIC Policy[18] because “no liquor liability coverage was purchased for this policy, there is no coverage for this claim.”[19] . . .[20]
25. On April 3, 2009, . . . NMFIC[21] sent SBE and SABBAH[22] a Reservation of Rights letter (“ROR”). (see Exhibit I[23]). The letter indicated that NMFIC examined both the NMFIC Policy and the NMIC business owner's policy. The letter noted that “the claim presented by this claimant may not be covered under the policies, ” and that whether coverage is provided will hinge on “issue[s] that will ultimately be determined by a court of law.” (Emphasis added). . . .[24] The letter states:
The coverage issues related to each cause of action against you include, but are not limited to:
The business owner's liability coverage form excludes coverage for liquor liability, and the liquor liability coverage form excludes coverage when there is no liquor license in effect. SBE did not have a liquor license in effect when this loss occurred.
The following excerpts from your coverage form will help to explain the coverage issues.
26. Regarding the NMFIC Policy, NMFIC cites the following exclusion in the policy:
2. Exclusions
This insurance does not apply to:
d. Liquor License Not in Effect
“Injury” arising out of any alcoholic beverage sold, served or furnished while any required license is not in effect. (Ex. B, p.20-21). . . .[25] Nineteenth Street held a valid liquor license, SBE held a valid business license and the subject sale was made pursuant to that legal authority.
27. In the same letter, NMFIC asserted that the NMIC Policy excluded coverage for liquor liability citing the following exclusion in the NMIC Policy:
B. Exclusions
1. Applicable To Business Liability Coverage
This insurance does not apply to:
c. Liquor Liability
"Bodily injury" or "property damage" for which any insured may be held liable by reason of:
(1) Causing or contributing to the intoxication of any person;
(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or
(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.
This exclusion applies only if you are in the business of manufacturing, distributing, selling, serving or furnishing alcoholic beverages.
(Ex. I).[26] NMFIC also states in the letter “While we argue that SBE did not and could not have furnished any alcoholic beverages to Brittany Caffee because SBE does not operate the business that would have done so, this is an issue that will ultimately be determined by a court of law. The applicable policy exclusions will depend on the ultimate finding.”[27]
* * *
29. . . . [O]n April 26, 2010, NMFIC and/or NMIC[28] sent another letter [to Sabbah and SBE] that reaffirmed the ROR defense and the fact that coverage will hinge on issues that will be decided by a court of law.
After April 26, 2010, no additional coverage letters or ROR letters were ever sent by NMFIC and/or NMIC to PLAINTIFFS. (see Exhibit J[29]; also at Doc. 1-2).[30]
* * *
D. Offers to Settle
32. In the years following the accident, the Claimants made several offers to settle and would have settled all of their claims against the PLAINTIFFS for an amount within the $1, 000, 000 limits of either policy. Such offers to settle were communicated orally and in writing on numerous occasions.
33. Specifically, on March 3, 2011, Claimants, by and through one of their counsel Patrick M. Lavette, notified NMFIC and/or NMIC in writing via a letter to PLAINTIFFS' counsel (in the underlying case) Kori Clement that Claimants would accept the available $1, 000, 000 policy limits in order to settle all of the Claimants claims against PLAINTIFFS. (see Exhibit K[31]; also at Doc. 1-3).
34. In this letter, Mr. Lavette points out the following critical facts:
(a) The Defendants' motions for summary judgment have been denied and the court has indicated that all issues - including the corporate identity issues - will go to trial.
(b) All living plaintiffs ([C]laimants) will testify that alcohol was illegally purchased by Caffee from the 14th Street BP convenience store. It is undisputed that she became intoxicated from that alcohol and crashed as a result of her intoxication. She was underage, was not carded, and the sale was illegal.
(c) One of the largest verdicts in Jefferson County history arose from a liquor liability action in the same court, the Bessemer cut off. In that case [Chambliss v. Applebee's], CV-96-744, a Bessemer jury returned a $13, 000, 000 judgment against Applebee's for overserving a 20-year-old girl who later died in a single-vehicle car crash.
(d) This case is even more tragic in that a 13-year-old boy was killed, 2 other teenagers were seriously injured, and there is a potential for multiple large verdicts.
(e) The case for disregarding the corporate form is especially strong considering Mr. Sabbah regularly commingles assets among the various corporations and uses whichever corporate entity is more advantageous or convenient in certain circumstances. For example, SBE makes all the oil and gas purchases for 19th Street yet 19th Street claims these expenses for income tax purposes. SBE claims to own all of the shares of 19th Street yet for personal income tax purposes Mr. Sabbah claims that he owns all the shares. Money is regularly moved from one corporation to another and Sabbah regularly draws money out of both Corporations. Bills of one corporation are regularly paid by the other. Little accounting work appears to have been done to distinguish between the corporations. The evidence is clear that Mr. Sabbah operates all of these corporations for his own benefit and that he, SBE, and 19th are essentially one and the same.
(f) Sabbah and SBE are clearly covered by the Nationwide insurance policy.
(g) The parties clearly obtained dram shop liability coverage for the convenience store operating at the 600 14th Street location.
(h) the defense posture in this case is that the 2 insured entities - Sabbah and SBE - have no liability in this matter and the entity that sold the alcohol - Nineteenth St. - has no insurance. Although this might be a favorable result for Nationwide, it is a potentially disastrous result for Nineteenth Street and for Mr. Sabbah.
(i) All of the plaintiffs agree to accept the $1 million policy limits available and to dismiss all claims.
35. Based on the legal and factual posture of the case, the trial court [in the underlying cases] decided that a bifurcated trial was necessary. The first trial would be against Nineteenth Steet Investments, the named operator of the 14TH STREET BP, and a jury would decide whether the operator of the store was liable pursuant to the Dram [S]hop Acts for the subject accident and the resulting damages suffered. If the Claimants prevailed in the jury trial against the operator, then a bench trial would be conducted several months later to determine the liability of SBE and SABBAH for the previously issued judgment against the operator.
36. Despite attempts by the Claimants to settle the case within limits prior to the first trial, NMFIC and NMIC refused to ever make an offer under either policy.
E. The Verdicts and Appeal
37. On or about February 8, 2013, the Claimants received a jury verdict totaling Fifteen Million, One Hundred Fifty Thousand and no/100 Dollars ($15, 150, 000.00) against Nineteenth (1st phase of trial) in the following amounts:
Sharon Robertson [obo] Andrew Robertson
$7, 000, 000
Jennifer Vickery
$3, 900, 000
Michael Waldrop
$3, 750, 000
Tammy Hardin
$500, 000
$15, 150, 000
38. On March 14, 2013, despite having just received a $15, 150, 000 jury verdict against Nineteenth, Claimants, by and through one of the counsel of record Patrick M. Lavette, notified NMFIC and NMIC in writing that Claimants would accept the available $1, 000, 000 policy limits in order to settle all of the Claimants claims against all of the insureds--Nineteenth, SBE and SABBAH. It was known at this time that a separate bench trial would occur later that year which would decide as a matter of law and fact whether Nineteenth's corporate veil should be pierced and judgment entered against SBE and SABBAH. (See Exhibit L[32]; also at Doc. 1-4).
39. On April 10, 2013, SABBAH and SBE made demand upon NMFIC and NMIC in writing via a letter to Kori Clement that NMFIC and/or NMIC must pay the available $1, 000, 000 policy limits in order to settle all of the Claimants' claims and ...

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