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Franklin County Commission v. Madden

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

August 30, 2019

FRANKLIN COUNTY COMMISSION, Plaintiff,
v.
CRISTA MADDEN, et al., Defendants.

          MEMORANDUM OPINION

         This court's previous opinion addressed the claims of plaintiff, the Franklin County Commission (“the commission”), against defendant Lafayette Insurance Company. See doc. nos. 56 (Memorandum Opinion) and 57 (Order). The present opinion addresses the Commission's claim for breach of contract against defendant State Farm Fire and Casualty Company (“State Farm”), arising from State Farm's failure to pay a claim under a fidelity bond that covered employee theft, [1] and, State Farm's motion to dismiss that claim pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.[2] Upon consideration of the complaint, State Farm's motion, plaintiffs' response, [3] State Farm's reply, [4] plaintiff's sur-reply, [5] and the oral arguments of counsel, the court concludes that the motion should be granted.

         I. STANDARD OF REVIEW

         The standards for evaluating a motion to dismiss a complaint for, among other reasons, “failure to state a claim upon which relief can be granted, ” were fully explicated in the opinion evaluating the motion filed by Lafayette Insurance Company (see doc. no. 56, at 2-4) and will not be reiterated here. See Fed. R. Civ. P. 12(b)(6); see also, e.g., Ashcroft v. Iqbal, 556 U.S. 662 (2009), Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

         II. ALLEGATIONS OF PLAINTIFF'S COMPLAINT AND RELEVANT POLICY LANGUAGE

         State Farm issued Fidelity Bond No. 93-90-2893-3, covering the Commission for employee theft (“the policy”) on March 3, 1989.[6] The Crime Policy Declarations Page states that the policy period is from March 3, 1989 “until cancelled, as provided in the policy.”[7] The policy requires each covered “employee”[8] to be listed, and the Commission added Crista Madden as a covered employee on September 17, 1992.[9]The policy states that, “[r]egardless of the number of years this Insurance applies as respects a specific ‘employee,' the most we will pay in the aggregate for any one ‘occurrence' is the largest Limit of Insurance applicable to that ‘employee' shown in the SCHEDULE at the time loss occurred.”[10] The “Schedule” states that the “Limit of Insurance” for each employee, including Crista Madden, is $100, 000, and that limit never changed throughout Madden's employment.[11] An “occurrence” is defined as “all loss caused by each ‘employee' [regardless of] whether the [loss is the] result of a single act or series of acts.”[12] The policy also states that, “[r]egardless of the number of years this Insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.”[13]

         Crista Madden stole approximately $753, 899.21 from the Franklin County Commission General Fund, Franklin County Gas Tax Fund, and Franklin County Commission Solid Waste Fund between 2008 and 2017.[14] The Commission filed a claim under the policy for Madden's theft.[15] State Farm paid $100, 000, but refused to pay any additional amount.[16] This suit followed.

         III. DISCUSSION

         The sole question to be answered is a legal one: i.e., whether the language of the policy can be interpreted to require State Farm to pay more than $100, 000 to cover Crista Madden's theft. The Commission asserts that the policy should be construed to provide $100, 000 in coverage for each year in which a theft occured, and State Farm asserts that the policy only provides a total of $100, 000 in coverage for any single employee's theft, regardless of the length of the period over which the theft occurred.

         General contract principles govern the interpretation of insurance contracts. See Twin City Fire Insurance Co. v. Alfa Mutual Insurance Co., 817 So.2d 687, 691 (Ala. 2001) (citing Pate v. Rollison Logging Equipment, Inc., 628 So.2d 337 (Ala. 1993)).

Insurance companies are entitled to have their policy contract enforced as written. Gregory v. Western World Ins. Co., 481 So.2d 878 (Ala.1985). “Insurance contracts, like other contracts, are construed so as to give effect to the intention of the parties, and, to determine this intent, a court must examine more than an isolated sentence or term; it must read each phrase in the context of all other provisions.” Attorneys Ins. Mut. of Alabama, Inc. v. Smith, Blocker & Lowther, P.C., 703 So.2d 866, 870 (Ala. 1996).

Twin City Fire Insurance Co., 817 So.2d at 691-92. The court should assign policy terms “their common, everyday meaning and interpret[] them as a reasonable person in the insured's position would have understood them.” Pharmacists Mutual Insurance Co. v. Advanced Specialty Pharmacy, LLC, 230 So.3d 380, 387 (Ala. 2016) (citing State Farm Mutual Automobile Insurance Co. v. Brown, 26 So.3d 1167, 1169-70 (Ala. 2009) (in turn citing Western World Insurance Co. v. City of Tuscumbia, 612 So.2d 1159 (Ala. 1992), and St. Paul Fire & Marine Insurance Co. v. Edge Memorial Hospital, 584 So.2d 1316 (Ala. 1991))) (alteration supplied).

         The common meaning of the relevant terms of State Farm's policy supports State Farm's interpretation. The policy states that the most State Farm will pay “in the aggregate for any one ‘occurrence'” is $100, 000, “[r]egardless of the number of years [the policy] applies as respects a specific ‘employee.'”[17] An “occurrence” is defined as “all loss caused by each ‘employee' [a term that includes Crista Madden, because she was specified in the ‘Schedule,' and regardless of whether the loss was] the result of a single act or series of acts.”[18] Moreover, the policy specifically states that its $100, 000 benefit limit does not cumulate from year to year: i.e., “Regardless of the number of years this Insurance remains in force or the number of premiums paid, no Limit of Insurance cumulates from year to year or period to period.” Doc. no. 6-1 (Fidelity Bond), at ECF 42, § B(12). There is no reasonable way to read those provisions to require State Farm to pay more than $100, 000 for Crista Madden's theft, and the Commission has not identified any other policy provisions that support a contrary interpretation.

         The Commission asserts that “the Fidelity Bonds are individual coverages per year, which allows coverage up to $100, 000.00 for theft each year. . . .”[19] But other policy provisions refute that interpretation by stating that the policy period began upon its inception on March 3, 1989, and ran “until cancelled.”[20] There is no indication that the policy ever was cancelled, so there was only one policy period, and only one term of coverage for $100, 000 for each employee listed. See Royal Insurance Company of America v. Thomas, 879 So.2d 1144, 1155 (Ala. 2003) (holding that courts “must interpret insurance policies ‘to give meaning and effect, if possible, to every word and phrase in the contract' and cannot adopt ‘a construction which neutralizes any provision'”) (quoting J. Appleman, Insurance Law and Practice § 7383 (1981)).

         The Commission also asserts that the ambiguity of the policy's terms prevents dismissal as a matter of law, but there is no ambiguity because the relevant policy provisions are subject to only one reasonable construction. See Twin City Fire Insurance Co., 817 So.2d at 92 (citing Tate v. Allstate Insurance Co., 692 So.2d 822 (Ala. 1997)) (“The fact that the parties interpret the insurance policy differently does not make the insurance policy ambiguous.”); State Farm Fire & Casualty Co. v. Slade, 747 So.2d 293, 308-09 (Ala. 1999) (“The terms of an insurance policy are ambiguous only if the policy's provisions are reasonably susceptible to two or more constructions or there is reasonable doubt or confusion as to their meaning.”) (emphasis supplied).

         Plaintiff also asserts that the motion to dismiss should be denied, and discovery should be allowed, because State Farm failed to produce a complete copy of the policy to plaintiff or the court. The copy of the policy attached to State Farm's motion to dismiss begins with ...


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