United States District Court, M.D. Alabama, Northern Division
JOSEPH J. BROADWAY, Plaintiff,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.
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 ...