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Acadia Insurance Co. v. SouthernPointe Group, Inc.

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

November 29, 2017

SOUTHERNPOINTE GROUP, INC., et al., Defendants.



         Acadia Insurance Company brings this declaratory judgment action to determine its rights under a Commercial Liability Policy it issued to SouthernPointe Group, Inc. (SouthernPointe)[1] with respect to a lawsuit recently filed against SouthernPointe in state court. SouthernPointe has filed a Motion to Dismiss, doc. 12, contending that, as a matter of law, Acadia is obligated to provide coverage for the claims asserted in the underlying litigation.[2] That motion is now fully briefed, docs. 15; 16, and ripe for decision. After carefully reviewing the complaint and the parties' briefs, SouthernPointe's motion is due to be denied in part and granted in part.


         Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” “[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Mere “‘labels and conclusions'” or “‘a formulaic recitation of the elements of a cause of action'” are insufficient. Id. (quoting Twombly, 550 U.S. at 555). “Nor does a complaint suffice if it tenders ‘naked assertion[s]' devoid of ‘further factual enhancement.'” Id. (quoting Twombly, 550 U.S. at 557).

         Federal Rule of Civil Procedure 12(b)(6) permits dismissal when a complaint fails to comply with Rule 8(a)(2) or does not otherwise state a claim upon which relief can be granted. When evaluating a motion under Rule 12(b)(6), the court accepts “the allegations in the complaint as true and construe[s] them in the light most favorable to the plaintiff.” Hunt v. Aimco Props., L.P., 814 F.3d 1213, 1221 (11th Cir. 2016). However, “[t]o survive a motion to dismiss, a complaint must . . . ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). A complaint states a facially plausible claim for relief “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The complaint must establish “more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (emphasizing that “[f]actual allegations [included in the complaint] must be enough to raise a right to relief above the speculative level”). Ultimately, the line between possibility and plausibility is a thin one, and making this determination is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

         In the context of an action seeking declaratory relief, the Declaratory Judgment Act provides that “[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a). Thus, as the Supreme Court has explained, “the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941). Significantly, “the requirements of [a] case or controversy are met where payment of a claim is demanded as of right . . . but where the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or to challenge the legality of the claim.” Altvater v. Freeman, 319 U.S. 359, 365 (1943); see also MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007) (concluding that there was no requirement that the plaintiff terminate a license agreement before seeking a declaratory judgment that the patent underlying the agreement was invalid, unenforceable or not infringed).

         II. FACTS

         Acadia issued a Commercial Liability Policy (the Policy), [3] naming SouthernPointe as an insured, covering a year-long period beginning on March 10, 2014. Docs. 1 at 2; 1-1 at 5. Among other things, the Policy provides insurance coverage for “bodily injury and property damage . . . caused by an occurrence.” Doc. 1-1 at 11. The Policy defines property damage as “[p]hysical injury to tangible property, including all resulting loss of use of that property.” Id. at 25. An “occurrence, ” for purposes of the Policy, means “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. at 24. The Policy, however, fails to include a definition for the term “accident.”

         The Policy also contains specific exclusions precluding coverage for certain types of property damage. These exclusions include damages that are “expected or intended from the standpoint of the insured, ” damages to “[p]ersonal property in the care, custody or control of the insured, ” damages based on the insured's assumption of liability in a contract or agreement, and non-physical damages arising out of the insured's “delay or failure . . . to perform a contract or agreement in accordance with its terms.” Id. at 12, 14-15.

         During the coverage period, SouthernPoint entered into an agreement with Luther S. Pate, IV and Encore Tuscaloosa, LLC (collectively Encore) to develop Wintzell's Oyster House restaurant locations in and around Jefferson County, Alabama. Docs. 1 at 3; 1-4 at 2-4. Encore contributed significant capital to develop these properties, but the business relationship between the parties quickly soured. Doc. 1-4 at 3-5. In February 2016, Encore sued SouthernPointe in the Circuit Court of Jefferson County, Alabama asserting, among other things, claims for breach of contract, fraud, and breach of fiduciary duty all primarily arising out of SouthernPointe's alleged misuse of funds that Encore contributed toward the development of the restaurant properties. Id. at 1, 3-7. Acadia is currently defending SouthernPointe against these allegations in state court, but it has reserved its right to ultimately deny coverage under the Policy. Doc. 1 at 16. Consistent with this reservation of right, Acadia now seeks a declaration from this court that it has no obligations under the Policy related to the underlying lawsuit. SouthernPointe has now moved to dismiss the action under Rule 12(b)(6) for failure to state a claim. Doc. 12.


         SouthernPointe's motion focuses on the threshold question of whether the business dispute that is the subject of the underlying state court lawsuit qualifies as an “occurrence” under the Policy. The Policy broadly defines an “occurrence” as an “accident, ” but provides no further interpretative guidance. Doc. 1-1 at 24. According to SouthernPointe, Alabama law provides that, in the absence of contrary contractual language, the question of whether an accident has occurred in the insurance context is exclusively determined via reference to the subjective intent of the insured. SouthernPointe contends that it did not anticipate its business relationship with Encore to end in failure and that Encore's complaint in state court is silent with respect to SouthernPointe's subjective intentions. Therefore, SouthernPointe avers that the business dispute at the heart of the underlying lawsuit qualifies as an “occurrence” under the Policy and that Acadia is obliged to defend and indemnify it as a matter of law.

         Under Alabama law, which the parties agree governs Acadia's obligations under the Policy, an insurer's twin duties to defend and indemnify its insured are distinct, and “must be analyzed separately.” United States Fid. & Guar. Co. v. Armstrong, 479 So.2d 1164, 1167 (Ala. 1985). An insurer's duty to defend “is more extensive than its duty to [indemnify], ” and is primarily determined by the allegations contained in the underlying complaint. Id. at 1168. Indeed, the duty to defend exists only if “the original complaint alleges a state of facts within the coverage of the policy.” Id. However, “the court is not limited to the bare allegations of the complaint in the action against [the] insured but may also look to facts which may be proved by admissible evidence.” Pac. Indem. Co. v. Run-A-Ford Co., 161 So.2d 789, 795 (Ala. 1964). “[I]f a complaint alleges both acts covered under the policy and acts not covered, the insurer is under a duty to at least defend the allegations covered by the policy.” Blackburn v. Fid. & Deposit Co. of Md., 667 So.2d 661, 670 (Ala. 1995).[4]

         It is undisputed that the Policy only provides coverage for property damage caused by an “occurrence, ” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Doc. 1-1 at 24. While the Policy fails to define the term “accident, ” Alabama law has previously defined the word in a substantively identical context as “‘[a]n unintended and unforeseen injurious occurrence; something that does not occur in the usual course of events or that could be reasonably anticipated.'” Hartford Cas. Ins. Co. v. Merchs. & Farmers Bank, 928 So.2d 1006, 1011 (Ala. 2005) (quoting Accident, Black's Law Dictionary 15 (7th ed. 1999)). In other words, an accident is “something unforeseen, unexpected, or unusual.” U.S. Fid. & Guar. Co. v. Bonitz Insulation Co. of Ala., 424 So.2d 569, 572 (Ala. 1982). “‘A result, though unexpected, is not an accident; the means or ...

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