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American Chemicals & Equipment, Inc. v. Continental Casualty Co.

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

June 2, 2017




         Plaintiff American Chemicals & Equipment, Inc. d/b/a American Osment brings this action against defendants Continental Casualty Company and CNA F in ancial Corporation, Inc. alleging, among other things, that Continental breached the terms of an employment practices liability policy that the company issued to American Osment. (Docs. 1 & 7). American Osment r e lie s on broad language in a general provision in the policy and argues that the general provision obligated Continental to provide a defense to American Osment in a state court action even if the state court claim is not covered under the policy. (Docs. 10 & 37). American Osment attempts to advance its duty to defend theory on behalf of a class of “all other policyholders of Defendant Continental, whose policy language regarding the duty to defend claims mirrors the policy language in Plaintiff's policy, and who have reported claims, as that term is defined in the policy, to Defendant Continental for which Defendant Continental has refused to provide a defense.” (Doc. 7, p. 9).

         American Osment seeks summary judgment on its breach of contract claim against Continental regarding Continental's failure to provide a defense in the underlying lawsuit against American Osment.[1] (Doc. 11). Continental seeks summary judgment on American Osment's class action claim and moves to strike the class allegations in American Osment's complaint. (Docs. 29 & 31). Because American Osment's interpretation of its policy does not withstand scrutiny under Alabama's rules of contract interpretation, the Court denies American Osment's motion for summary judgment. The Court grants Continental's motion to strike and denies Continental's motion for summary judgment as moot. (Doc. 42). For the reasons stated below, the Court directs the parties to examine a coverage issue that neither American Osment nor Continental addressed in the summary judgment briefs.

         I. Summary Judgment Standard

         “The court shall grant summary judgment 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). Absent ambiguity, the interpretation of an insurance policy presents a question of law which a court may resolve summarily. See e.g., Giddens v. Equitable Life Assur. Soc. of U.S., 445 F.3d 1286, 1297 (11th Cir. 2006); Technical Coating Applicators, Inc. v. U.S. Fidelity Guar. Co., 157 F.3d 843, 844 (11th Cir. 1998); see also Cool Temp., Inc. v. Pennsylvania Nat. Mut. Cas. Ins. Co., 148 So.3d 448, 454 (Ala. 2013). When considering a summary judgment motion, “[t]he court need consider only the cited materials, but it may consider other materials in the record.” Fed.R.Civ.P. 56(c)(3).

         II. Relevant Facts and Procedural Background

         The Insurance Policy

         Continental issued the employment practices liability policy at issue --Epack Extra policy number 26764149 -- to American Osment on February 10, 2012. (Doc. 11-2, pp. 5-6). Th e p olicy was in force until May 9, 2014. (Id., pp. 5-6, 9). The policy includes a set of general terms and conditions, a specific Employment Practices Liability Coverage Part which contains the insuring agreement, and a glossary of defined terms. (See Doc. 11-2).[2] The relevant provisions in each section of the policy are as follows:

         1. General Terms and Conditions

         There are 24 separate sections in the general terms and conditions portion of the policy. Section I is titled “Terms and Conditions” and provides in part:

If any provision in the General Terms and Conditions is inconsistent or in conflict with the terms and conditions of any Coverage Part, the terms and conditions of such Coverage Part shall control for purposes of that Coverage Part.

(Doc. 11-2, p. 10).

         Section XXI is titled “Defense/Settlement/Mediation/Pre-Claim Assistance.” This section of the general terms and conditions states:

         Solely with respect to Liability Coverage Parts, . . .

The insurer has the right and duty to defend all Claims even if the allegations are groundless, false or fraudulent. The Insurer shall have the right to appoint counsel and to make such investigation and defense of a Claim as it deems necessary. Alternatively the Insurer may, at its option, give its written consent to the defense of any such Claim by the Insureds. The Insurer's obligation to defend any Claim or pay any Loss, including Defense Costs, shall be completely fulfilled and extinguished if the applicable limit of liability has been exhausted by payment of Loss.

(Doc. 11-2, p. 16) (emphasis added).

         2. Employment Practices Liability Coverage Part

         The Employment Practices Liability (or EPL) Coverage Part describes the scope of the insuring agreement. The EPL states, in pertinent part:

The Insurer shall pay on behalf of Insured that Loss, in excess of the retention and up to the applicable limit of liability, resulting from any Claim first made against the Insureds during the Policy Period . . . by or on behalf of [] a natural person who is an Employee . . . for a Wrongful Employment Practice as described in paragraphs 1 through 11 of the definition of Wrongful Employment Practice [or] any other natural person, for a Wrongful Employment Practice but solely to the extent that such Wrongful Employment Practice is as described in paragraph 12 of the definition of Wrongful Employment Practice.

(Id., pp. 20-21).

         The EPL Coverage Part also lists exclusions from coverage, including six exclusions that apply to all Loss and two exclusions that apply to Loss other than Defense Costs. (Id.). Among the exclusions that apply to all Loss, the following provision appears:

The Insurer shall not be liable to pay any Loss under this Coverage Part in connection with any Claim made against any Insured [. . .] based upon or arising out of any actual or alleged violation of . . . any [] federal, state or local statutory law or common law ...

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