Broadway v. State Farm Mutual Automobile Insurance Co.

          MEMORANDUM OPINION AND ORDER

          W. KEITH WATKINS, UNITED STATES DISTRICT JUDGE.

         “No man is allowed to be a judge in his own cause; because his interest would certainly bias his judgment, and, not improbably, corrupt his integrity.” The Federalist No. 10 (James Madison). James Madison missed Alabama law, or Alabama law missed James Madison. In Alabama actions involving uninsured and underinsured motorist coverage, ^[1] the insurer is the coach of the opposing team and the referee. Here is how Alabama law on uninsured motorist coverage works: Consumer buys the insurance company's product — uninsured/underinsured (UM/UIM) motorist coverage — as required by the Alabama legislature. Consumer is injured by an underinsured motorist who is at fault in the accident. Consumer settles with the motorist for the limits of the underinsured's policy but believes he has not been made whole. So consumer looks to his own insurer to make him whole under the UM/UIM coverage the legislature forced him to buy. Insurer believes — in good faith, let's say — that consumer is entitled to $5, 000 instead of consumer's — also good faith, let's say — claim of $25, 000. It is only a simple contract dispute, right? And that's what courts are for, right? In Alabama, under present precedent, wrong.

         In Alabama, the amount of UM/UIM motorist coverage, measured by what the consumer motorist is “legally entitled to recover, ” Quick v. State Farm Mut. Auto Ins. Co., 429 So.2d 1033, 1035 (Ala. 1983), must be proven to the insurer (who, remember, is the coach of the opposing team) before the game begins.^[2] That is, the insurer gets to decide when the insured can sue for breach of contract or bad faith.

         Now, this makes sense in a claim for bad faith. After all, parties to a contract are presumed to act in good faith, see 23 Williston on Contracts § 63:22 (4th ed. 2006), so before a party can be said to have acted in bad faith, there must be evidence that it possessed all the facts, knew its obligations, and still refused to perform. In the UM/UIM bad faith context, there must be proof the consumer provided sufficient evidence to the insurer — medical records, bills, and so on — showing his damages, but the insurer still refused to pay. Without this rule, the consumer could, while withholding evidence, simply make a claim under his policy, and if his claim is denied, go straight for the jugular by suing for bad faith — an intentional tort for which a jury may impose punitive damages, see Nat'l Ins. Ass'n v. Sockwell, 829 So.2d 111, 138-39 (Ala. 2002) — even though the insurer never knew the factual basis for the consumer's claim.

         But one should not confuse bad faith — again, an intentional tort — with a simple breach of contract. When there is a dispute about what the terms of a contract mean, the law normally does not require one party to satisfy the other with an evidentiary showing before suing. To the contrary, it is the prerogative of neutral, civil courts — not a party to the dispute — to resolve the dispute, as courts have done for thousands of years.

         That brings us to the current dispute. This is an uninsured motorist case under Alabama law. Before the court is Defendant's motion for summary judgment on Counts I (breach of contract) and III (bad faith) of Plaintiff's amended complaint. (Doc. # 13.) Count II is a direct claim for UIM benefits. The Magistrate Judge recommended the motion be granted and all of Plaintiff Joseph J. Broadway's (“Broadway”) claims against Defendant State Farm (“State Farm”) be dismissed without prejudice.^[3] (Doc. # 27.) Broadway timely objected to the Recommendation, and State Farm responded to those objections. (Docs. # 29, 30.) Having conducted an independent and de novo review of those portions of the Recommendation to which objection is made, see 28 U.S.C. § 636(b), the court finds that the objections are due to be overruled and the Recommendation adopted as modified herein.

         I. BACKGROUND

         This is the second lawsuit filed in this court arising out of a 2012 car accident involving Broadway and Roger Channell in downtown Montgomery. Both Broadway and State Farm agree that Channell was at fault for the accident and that Broadway was injured in the accident. At the time of the accident, Broadway had a car insurance policy with State Farm that included uninsured and underinsured motorist benefits up to $25, 000. Broadway settled with Channell's insurance provider for the full policy limits of $25, 000, without litigation. Broadway then sought another $25, 000 in UIM benefits from his own carrier, State Farm, claiming that his injuries exceeded the settlement amount. State Farm offered $5, 000 in satisfaction of the claim, and Broadway cashed the check.

         In the first lawsuit, Broadway sued State Farm for, among other claims, breach of contract and bad faith. This court granted summary judgment for State Farm on the breach of contract and bad faith claims, citing Alabama law requiring a determination of damages before a plaintiff may proceed on breach of contract and bad faith claims based on an insurer's failure to pay UIM benefits. Broadway v. State Farm Mut. Auto. Ins. Co., No. 2:13-CV-628, 2016 WL 2946418 (M.D. Ala. May 20, 2016) (Broadway I) (dismissing action without prejudice). The Eleventh Circuit affirmed. Broadway v. State Farm Mut. Auto. Ins. Co., 683 Fed.Appx. 801');">683 Fed.Appx. 801 (11th Cir. 2017).

         Broadway brought another lawsuit — this one — based on State Farm's failure to pay the UIM benefits he seeks. This time, he says, things are different. He contends that his breach of contract and bad faith claims are based on facts that arose after he filed the first suit. (Doc. # 12 at 4.) Broadway asserts that, in response to discovery requests in Broadway I, he gave State Farm evidence of additional medical treatment he received as the result of the accident. (Doc. # 12 at 6.) This new evidence, he says, established the extent of his damages and triggered State Farm's duty to pay.

         State Farm moved for summary judgment, arguing that the additional records are not enough. It says the new medical records show that Broadway had a preexisting injury, suffered a new injury following the 2012 accident, and one of his accident-related injuries had healed. This evidence, it argues, shows there is a legitimate dispute as to damages and thus Broadway has not established the requisite elements to bring claims of breach of contract and bad faith.

         The Magistrate Judge filed a Recommendation (Doc. # 27) that Broadway's claims be dismissed without prejudice. This court entered a memorandum opinion and order (Doc. # 31) granting State Farm's motion as to the bad faith claim because Broadway has not already established the amount of damages to which he is entitled. The court deferred ruling on State Farm's motion as to the breach of contract claim until the parties briefed whether a distinction exists between a contract action for benefits under a UIM policy and an action for breach of a UIM contract for failure to pay benefits.^[4] The parties submitted additional briefing, (Docs. # 33, 34, 35), and State Farm's motion is now ripe for disposition.

         Along with submitting supplemental briefing, both parties moved the court to revisit its earlier memorandum opinion and order. Broadway's motion to alter, vacate, or amend (Doc. # 32) asked the court to vacate its earlier order and issue a new opinion more fully discussing the evidence relevant to Broadway's claims. State Farm's motion to reconsider and renewed motion to dismiss (Doc. # 34) asked the court to revisit its denial of State Farm's motion to dismiss as to Broadway's breach of contract claim.

         Considering the additional briefing and those motions, the court vacated its earlier memorandum opinion and order. (Doc. # 38.) In the same order, the court gave the parties notice of its intent to convert State Farm's motion into one for summary judgment and gave the parties an opportunity to submit additional materials in support of or in opposition to the motion.^[5] (Doc. # 38.) No. party did so. State Farm's motion is now under submission, and the court enters this memorandum opinion and order as its ultimate disposition of State Farm's motion for summary judgment (Doc. # 13).

         II. STANDARD OF REVIEW

         Determining the appropriate standard of review hinges on how the court characterizes State Farm's motion. This issue is complicated because Alabama courts have been less than clear on whether a plaintiff's failure to show that he is legally entitled to recover implicates subject-matter jurisdiction — making a Rule 12(b)(1) motion to dismiss appropriate — or goes to the elements of the claim itself — making a Rule 12(b)(6) motion to dismiss or Rule 56 motion for summary judgment appropriate.^[6]

         A. Rule 12(b)(1) and Rule 12(b)(6) Motions to Dismiss

         The Alabama Supreme Court's latest pronouncement on the matter signaled that, under the state analogue to Rule 12(b)(6), a motion to dismiss for failure to state a claim was a proper vehicle to challenge whether the plaintiff was legally entitled to recover. See Ex parte Safeway Ins. Co. of Ala., Inc., 148 So.3d 39, 42 n.2 (Ala. 2013) (Safeway II). Safeway II distinguished cases treating the issue as jurisdictional by stating that those cases involved a phantom driver. See Id. (“Safeway has not cited, and we have not found, any controlling decisions that apply Pontius to cases involving phantom drivers.”). Since this case does not involve a phantom driver, the court will follow Safeway II's guidance and not treat the issue as jurisdictional — and so will not treat State Farm's motion as one under Rule 12(b)(1).

         But the fact that State Farm's motion presents matters outside the pleadings makes it inappropriate to consider the motion as a Rule 12(b)(6) motion to dismiss for failure to state a claim. As every first-year law student should know, a defendant bringing a Rule 12(b)(6) motion must take the complaint as he finds it. See Fed. R. Civ. P. 12(d). If it presents matters outside the pleadings, “the motion must be treated as one for summary judgment under Rule 56.” Id. State Farm asks the court to take judicial notice of the filings in Broadway I in deciding its motion. Even if it did so, the court must still treat the motion as one for summary judgment. In support of its motion, State Farm also attaches an affidavit of Paul Schriefer, one of its claims managers. (Doc. # 14-1.) The motion therefore presents matters outside the pleadings and will be treated as one for summary judgment under Rule 56, as stated in the court's December 17, 2018 Order (Doc. # 38).

         B. Rule 56 Motion for Summary Judgment

         To succeed on a motion for summary judgment, the moving party must show 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). A genuine dispute of material fact exists when the nonmoving party produces evidence allowing a reasonable fact finder to return a verdict in its favor. Waddell v. Valley Forge Dental Assocs., 276 F.3d 1275, 1279 (11th Cir. 2001). The court views the evidence, and all reasonable inferences drawn therefrom, in the light most favorable to the nonmoving party. Jean-Baptiste v. Gutierrez, 627 F.3d 816, 820 (11th Cir. 2010).

         III. DISCUSSION

         Alabama's uninsured motorist statute requires all car insurance policies to contain coverage “for the protection of persons insured thereunder who are legally entitled to recover damages” from uninsured drivers. Ala. Code § 32-7-23. Broadway's policy with State Farm included both UM and UIM coverage triggered when Broadway established that he was “legally entitled to recover, ” tracking the statute. (Broadway I, Doc. # 94-1, at 41.) Whether Broadway established that he was legally entitled to recover is the question raised by State Farm's motion.

         A. The Legal Backdrop of UM/UIM Claims in Alabama

         Our Quick drama contains three acts. The first explains the construction Alabama courts have imposed on the uninsured motorist statute. The second recognizes that this construction applies to both breach of contract and bad faith claims and explains why the failure to recognize the distinction between those claims thirty-five years ago has caused problems ever since. The third centers on the procedure for UM/UIM actions — the procedure this court is bound to apply — that developed in Alabama in the wake of this construction.

         1. Construing Alabama's Uninsured Motorist Statute

         The confusion began when courts interpreted Alabama's uninsured motorist statute to require an insured to prove both liability of the uninsured motorist and the amount of damages as prerequisites to suing his insurer. The first authoritative interpretation of the statute came in an Alabama Court of Civil Appeals decision, State Farm Mutual Automobile Insurance Co. v. Griffin, 286 So.2d 302 (Ala. Civ. App. 1973). In that case, the insurer argued that to show he is “legally entitled to recover damages, ” the insured must sue and obtain a judgment against the uninsured motorist before bringing any claims against the insurer. Id. at 304. The court rejected that argument, id. at 306, ^[7] but decided to go further and give definitive meaning to the phrase, “legally entitled to recover damages.” The court interpreted the phrase to mean that

the insured must be able to establish fault on the part of the uninsured motorist, which gives rise to damages, and must be able to prove the extent of those damages. In a direct action by the insured against the insurer, the insured has the burden of proving in this regard that the other motorist was uninsured, legally liable for damage to the insured, and the amount of this liability.

Id. (emphasis added). Griffin's interpretation of “legally entitled to recover damages” was uncritically adopted by the Alabama Supreme Court ten years later in Quick, see 429 So.2d at 1035, and has become the ...