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

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

September 21, 2018




         In this action, plaintiff American Chemicals & Equipment, Inc. d/b/a American Osment contends that defendants Continental Casualty Company and CNA Financial Corporation, Inc. breached the terms of an employment practices liability policy that the company issued to American Osment. American Osment asserts breach of contract, bad faith, negligence, and wantonness claims against the defendants.

         On June 2, 2017, the Court entered a memorandum opinion and order denying American Osment's motion for summary judgment on its breach of contract claim against Continental regarding Continental's failure to provide a defense in an underlying lawsuit that a former employee filed against American Osment.[1] (Doc. 11).

         In its June 2, 2017 memorandum opinion and order, pursuant to Federal Rule of Civil Procedure 56(f), the Court directed the parties to examine a coverage issue that neither American Osment nor Continental addressed in the summary judgment briefs: whether the policy provides coverage for punitive damages that would give rise to duty a defend the state court action.

         Having considered the parties' arguments (see Doc. 46; Doc. 47), and with the benefit of oral argument, the Court finds in favor of American Osment on its breach of contract claim.

         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). When considering a summary judgment motion, the Court must view the evidence in the record in the light most favorable to the non-moving party and draw reasonable inferences in favor of the non-moving party. Bivens v. Bank of America, N.A., 868 F.3d 915, 918 (11th Cir. 2017).

         II. Relevant Facts

         A. The Insurance Policy's Punitive Damages Clause

         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). The policy 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). The Employment Practices Liability (or EPL) Coverage Part provides coverage for Loss on account of a Claim against an Insured for a Wrongful Employment Practice. (Doc. 11-2, p. 20).

         Under the policy, the definition of “Loss” includes: “punitive and exemplary damages and the multiplied portion of multiplied awards (subject to this Policy's other terms, conditions and limitations). Enforceability of this paragraph shall be governed by such applicable law that most favors coverage for such punitive, exemplary and multiplied amounts.” (Doc. 11-2, p. 29). The EPL defines “applicable law” to include the law of the jurisdiction where the Insured is incorporated. (Doc. 11-2, p. 29). American Osment is incorporated in Alabama. (Doc. 7, ¶ 1).

         B. Allegations of Promissory Fraud in the Underlying State Court Action

         During the policy period, Steve Pate, a former American Osment employee, sued the company in the Circuit Court of Jefferson County, Alabama. In his state court complaint, Mr. Pate alleged that the company failed to pay him the salary and sales commission rate that the company's president guaranteed him when he accepted an offer to work at American Osment. (Doc. 11-3, pp. 1-3). Mr. Pate's complaint contains a promissory fraud claim. (Doc. 11-3, p. 6).

         In support of his fraud claim, Mr. Pate alleged that before he entered an employment agreement with American Osment, the company's president “represented that he would pay Pate $120, 000.00 plus commissions at the rate of thirty-six percent (36%).” (Doc. 11-3, p. 6, ¶ 36; see also Doc. 11-3, p. 1, ¶ 2). According to Mr. Pate, “[a]t the time these statements were made, [American Osment's president] had no intention of paying Pate $120, 000.00 and thirty-six percent (36%) commissions but instead, only intended to pay him [Pate] $100, 000.00 and thirty-two percent (32%) commissions.” (Doc. 11-3, p. 6, ¶ 36; see also Doc. 11-3, p. 1, ¶ 3). Mr. Pate alleged that he “believed the representations” that American Osment's president made, and, “in reasonable reliance on those representations, ” entered an employment agreement with the company to work as ...

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