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AIX Specialty Insurance Co. v. H&W Tank Testing, Inc.

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

March 19, 2018




         This is an insurance coverage dispute. On March 11, 2016, Defendant Bobby Sullivan was driving a propane tanker truck when he lost control and crashed. The propane tank was punctured, caught fire, and exploded, causing Mr. Sullivan catastrophic burn injuries. Mr. Sullivan and his wife, Allison, sued Defendant H&W Tank Testing, Inc., in an Alabama state court, alleging that H&W was negligent in its testing and inspection of the propane tanker. H&W had insurance coverage through a commercial general liability (“CGL”) policy with Plaintiff AIX Specialty Insurance Company. AIX denied coverage to H&W, invoking an exclusion in the policy for any bodily injury or property damage arising out of “[a]n error, omission, defect or deficiency in [a]ny test performed; or [a]n evaluation, a consultation[, ] or advice given[] by or on behalf of” H&W. AIX then brought this action seeking a declaratory judgment that its policy does not cover the Sullivans' claims against H&W in the underlying suit and that AIX has no obligation to defend or indemnify H&W in that suit. (Doc. # 1, at 5.)

         Before the court is the Recommendation and Order of the Magistrate Judge. (Doc. # 57.) After briefing and oral argument on the parties' cross motions for summary judgment, the Magistrate Judge determined that (1) the Sullivans' claims fall within the insurance policy's testing exclusion, and (2) this exclusion does not violate Alabama law or public policy and is therefore enforceable. Accordingly, the Magistrate Judge recommends that judgment be entered in favor of AIX. The Sullivans object to the Magistrate Judge's second conclusion, but not the first. (Doc. # 58.) Upon an independent review of the record and a de novo determination of those issues to which the Sullivans object, the court finds that the Magistrate Judge's Recommendation is due to be adopted. See 28 U.S.C. § 636(b).

         The Sullivans invoke the Alabama statutory scheme governing liquefied petroleum gas as establishing a public policy of “protect[ing] the public from the unique dangers of propane tanker explosions, ” and warn that “[i]f AIX is free to exclude the very coverage required by [Alabama law], then the Alabama citizens would lose the very protection mandated by the legislature.” (Doc. # 58, at 3-4.)

         As the Magistrate Judge pointed out, however, the problem with this argument is that the statutory provision at issue (1) regulates the individuals seeking permits to work with liquefied petroleum gas, not their insurance carriers, and (2) is silent on the requirement of the kind of coverage (or exclusion from coverage) here at issue. The relevant Code provision provides:

         An applicant for any of the 10 permits shall provide the board with evidence of minimum insurance coverage by an insurance company or companies licensed to do business in the state. . . . The minimum insurance requirements are as follows:

(1) Commercial general liability insurance for all 10 permits:
a. One million dollars ($1, 000, 000)-each occurrence.
b. One million dollars ($1, 000, 000)-personal and advertising injury.
c. One million dollars ($1, 000, 000)-general aggregate.
d. One million dollars ($1, 000, 000)-products and completed operations aggregate.

Ala. Code § 9-17-105(d) (emphasis added). Thus, even if the CGL policy issued by AIX did not conform to the statutory requirements, it was H&W's responsibility to acquire correct coverage. The provision does not impose an affirmative obligation on AIX to provide it.

         This is in contrast to the automobile coverage cases that the Sullivans cite.

         In St. Paul Fire & Marine Insurance Co. v. Elliott, 545 So.2d 760 (Ala. 1989), for instance, the Alabama Supreme Court found that a city ordinance requiring an insurer to notify the city 30 days before cancelling coverage of a taxicab operator meant that the insurer would be liable for continued coverage if it failed to do so, even if the insured himself was on notice that his coverage had lapsed. Id. at 762. The court found that the “purpose and intent of the ordinance . . . is to insure the citizens of Eutaw against tortious conduct of taxicab operators, ” and concluded that the ordinance meant what it said: that the insurer, not the taxicab operator, was responsible for notifying the city of the cancellation ...

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