Title: Sentinel Insurance Company, Ltd. v. Alabama Municipal Insurance Corp.

State: alabama

Issuer: Alabama Supreme Court

Document:

This case was originally assigned to another Justice; it
1
was reassigned to Justice Shaw on December 8, 2014.
REL:09/25/2015
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2015
____________________
1130841
____________________
Sentinel Insurance Company, Limited
v.
Alabama Municipal Insurance Corporation
Appeal from Lee Circuit Court
(CV-11-900264)
SHAW, Justice.1
Sentinel 
Insurance 
Company, 
Limited 
("Sentinel"),
appeals the declaratory judgment entered in favor of Alabama
1130841
2
Municipal Insurance Corporation ("AMIC") in this dispute
between Sentinel and AMIC over which insurance company is
responsible for providing primary insurance coverage in an
underlying automobile-accident case. We reverse and remand.
Facts and Procedural History
In September 2005, the City of Opelika ("the City")
entered into an "operations agreement" with ESG Operations,
Inc. ("ESG").  Under the operations agreement, ESG was to
perform certain work for the City, including providing workers
to perform certain municipal 
services. 
The 
operations
agreement also contained an indemnification provision and a
provision requiring that both parties to the agreement acquire
insurance. The City had previously acquired a "Commercial
Auto" insurance policy with AMIC ("the AMIC policy").
Purportedly in an effort to comply with the operations
agreement, the City had AMIC add ESG as an "additional
insured" on the AMIC policy. ESG obtained its own insurance
policy from Sentinel ("the Sentinel policy").
On April 28, 2010, Gwendolyn Vaughan, an ESG employee,
was operating a street sweeper owned by the City when it
collided with a vehicle driven by Roger Clark. The collision
1130841
3
injured Clark and his wife, June Clark. On June 1, 2011, the
Clarks sued ESG, Vaughan, and the City seeking damages for
their injuries.
Pursuant to the AMIC policy, AMIC defended the City in
the Clarks' action. Four months after the Clarks commenced
their action, they withdrew their claims against the City, and
the City was dismissed from the case. AMIC's costs in
defending the City in the action amounted to $5,507. After the
City was dismissed, the Clarks continued to pursue their
claims against ESG and Vaughan.
While the Clarks' claims were still pending against them,
ESG and Vaughan filed a third-party complaint against AMIC,
seeking, among other things, a declaration that AMIC was
required to defend and indemnify ESG and Vaughan.  AMIC filed
a third-party complaint against Sentinel, and Sentinel later
filed a counterclaim against AMIC.  Both pleadings sought
judgments declaring which insurance company was required to
defend and indemnify ESG and Vaughan.  The Clarks ultimately
entered into a settlement agreement with ESG, Vaughan, AMIC,
and Sentinel ("the settlement"). AMIC and Sentinel each paid
one-half of the settlement amount. The Clarks then released
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4
Vaughan and ESG, leaving AMIC and Sentinel, and their
respective claims against one another, pending in the trial
court.
Sentinel and AMIC later filed dueling requests for a
summary judgment in their respective favor seeking to be
reimbursed 
for 
their 
part 
of 
the 
settlement 
amount.
Specifically, each insurance company argued that the other's
policy provided primary coverage for ESG and Vaughan, while
its own policy merely provided excess coverage.  The trial
court entered a judgment that stated, in pertinent part:
"Essentially, the Clarks were involved in an
automobile accident which involved a street sweeper
operated by [ESG].  Gwendolyn Vaughn [sic] is an
employee of [ESG].  The undisputed evidence is that
[ESG] provides primary public work services for the
City of Opelika.  Therefore, the employees of ESG
are not the employees of the City of Opelika but
[ESG].  The City of Opelika and [ESG] entered into
this agreement whereby ESG would provide these
public work services.  The operating agreement was
negotiated by the parties.  The operating agreement
states that each party shall obtain and maintain
insurance coverage of a type and in the amounts
described in appendix G.  Paragraph 3 of [a]ppendix
G states that:
"'Property 
damage 
and 
liability
insurance in a minimum amount not less than
One Million Dollars ($1,000,000.00) for all
vehicles owned and operated by ESG under
this agreement.'
1130841
The trial court also required Sentinel to pay the $5,507
2
in costs incurred by AMIC in the City's defense in the Clarks'
action. Sentinel does not challenge on appeal that portion of
the trial court's order. 
5
"After reviewing the insurance policies in
place, the court determines that the language used
in both is unambiguous and that the Sentinel policy
provides primary coverage with respect to the
subject accident and that AMIC's policy is in
excess.
"Therefore, it is Ordered, Adjudged and Decreed
that Sentinel Insurance Company's motion for summary
judgment and counterclaim for declaratory relief are
denied. Furthermore, the relief requested by [AMIC]
is hereby granted and judgment is entered in favor
of [AMIC]. ..."
The trial court required Sentinel to cover the entire
settlement.  Sentinel appeals. 
2
Standard of Review
"'"This Court's review of a summary
judgment is de novo.  Williams v. State
Farm Mut. Auto. Ins. Co., 886 So. 2d 72, 74
(Ala. 2003). We apply the same standard of
review 
as 
the 
trial 
court 
applied.
Specifically, 
we 
must 
determine 
whether 
the
movant has made a prima facie showing that
no genuine issue of material fact exists
and that the movant is entitled to a
judgment as a matter of law. Rule 56(c),
Ala. R. Civ. P.; Blue Cross & Blue Shield
of Alabama v. Hodurski, 899 So. 2d 949,
952-53 (Ala. 2004). In making such a
determination, we must review the evidence
in the light most favorable to the
nonmovant.  Wilson v. Brown, 496 So. 2d
1130841
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756, 758 (Ala. 1986).  Once the movant
makes a prima facie showing that there is
no genuine issue of material fact, the
burden then shifts to the nonmovant to
produce 'substantial evidence' as to the
existence of a genuine issue of material
fact.  Bass v. SouthTrust Bank of Baldwin
County, 538 So. 2d 794, 797-98 (Ala. 1989);
Ala. Code 1975, § 12-21-12. '[S]ubstantial
evidence is evidence of such weight and
quality that fair-minded persons in the
exercise 
of 
impartial 
judgment 
can
reasonably infer the existence of the fact
sought to be proved.'  West v. Founders
Life Assur. Co. of Fla., 547 So. 2d 870,
871 (Ala. 1989)."'
"Prince v. Poole, 935 So. 2d 431, 442 (Ala. 2006)
(quoting Dow v. Alabama Democratic Party, 897 So. 2d
1035, 1038-39 (Ala. 2004))."
Brown v. W.P. Media, Inc., 17 So. 3d 1167, 1169 (Ala. 2009).
Discussion
Sentinel argues that the trial court erred in holding
that "the Sentinel policy provides primary coverage with
respect to the subject accident and that AMIC's policy is
excess." Sentinel's brief, at 26-27.  According to Sentinel,
the language in both policies "establishes that the AMIC
policy, as the vehicle owner's policy, provided the primary
coverage." Sentinel's brief, at 24. Sentinel further argues
that, 
because 
AMIC's 
coverage 
was 
primary, 
AMIC 
was
responsible for the entire settlement because its policy
1130841
7
limits were never reached and excess coverage was not
required. 
We have previously held that "[t]he determination of
which insurance coverage is primary and which, if any, is
excess or secondary depends on the exact language of the
policy."  Nationwide Mut. Ins. Co. v. Hall, 643 So. 2d 551,
558 (Ala. 1994).  See also Isler v. Federated Guar. Mut. Ins.
Co., 567 So. 2d 1264, 1265 (Ala. 1990); Protective Nat'l Ins.
Co. of Omaha v. Bell, 361 So. 2d 1058 (Ala. 1978); and Gaught
v. Evans, 361 So. 2d 1027 (Ala. 1978).  Further, insurance
contracts give effect to the intention of the parties, and,
when that intention is clear and unambiguous, the insurance
policy will be enforced as written. See Wakefield v. State
Farm Mut. Auto. Ins. Co., 572 So. 2d 1220 (Ala. 1990). If the
terms of an insurance policy are plain and unambiguous, the
interpretation of the contract and its legal effect are
questions of law.  Nationwide Ins. Co. v. Rhodes, 870 So. 2d
695, 697 (Ala. 2003).  "Questions of law are reviewed de
novo."  Alabama Republican Party v. McGinley, 893 So. 2d 337,
342 (Ala. 2004). 
1130841
Section 3.6 of the operations agreement states that the
3
City, as the "Owner" under the operations agreement, "shall
... provide for ESG's use all vehicles and equipment currently
in use ... including the vehicles described in Appendix E."
Those vehicles include "all city equipment" for the "street
department."
8
The AMIC policy stated that AMIC would "pay all sums an
'insured' legally must pay as damages because of 'bodily
injury' or 'property damage' to which this insurance applies,
caused by an 'accident' and resulting from the ownership,
maintenance or use of a covered 'auto.'" The AMIC policy
defines "insured" as follows:
"The following are 'insureds':
"a. You for any covered 'auto.'
"b. Anyone else while using with your
permission a covered 'auto' you own, hire
or borrow. ...
"....
"c. Anyone liable for the conduct of
an 'insured' described above but only to
the extent of that liability."
(Emphasis added.) The street sweeper Vaughan was using when
the accident occurred is listed in the "Schedule of Covered
Autos You Own" of the AMIC policy.  Vaughan, an ESG employee,
was using this "covered auto" with the permission of the
City.   She is thus an "insured" under subparagraph b.
3
1130841
The parties wrangle with whether ESG could also be
4
considered a permissive user under subparagraph a. Because
subparagraph c clearly applies to ESG, we pretermit discussion
of that issue.
9
Additionally, under subparagraph c, ESG is also an "insured"
because it is "liable for the conduct of an 'insured,'"
namely, Vaughan, as its employee.4
The AMIC policy also includes an "Other Insurance"
provision, which states:
"5. Other Insurance
"a. For any covered 'auto' you own,
this 
Coverage 
Form 
provides 
primary
insurance. For any covered 'auto' you don't
own, 
the 
insurance 
provided 
by 
this
Coverage Form is excess over any other
collectible insurance."
(Emphasis added.) Because the street sweeper involved in the
underlying accident was a "covered auto" being used by an
"insured"--Vaughan--under the AMIC policy, coverage under the
AMIC policy is "primary" in this case, within the parameters
of the "Other Insurance" provision of the policy.
AMIC contends, however, that its coverage of ESG and
Vaughan is "excess" because, it says, ESG's status as an
"additional insured" limits the coverage available to it under
the policy. Specifically, AMIC points out that its policy
1130841
10
lists ESG as an "additional insured as their interests may
appear."  According to AMIC, there is "overwhelming testimony"
that this language limits ESG's coverage under the AMIC policy
only to situations where "the City of Opelika was negligent."
AMIC's brief, at 22.  Nevertheless, whatever more limited
coverage might exist as to an "additional insured" under the
AMIC policy, both Vaughan and ESG, under the terms of that
policy, are "insureds," and the accident involved a "covered
auto."  Under the clear language of the AMIC policy, the
coverage provided, under the facts of this case, is primary.
Cf. Nationwide Mut. Ins. Co. v. Hall, 643 So. 2d 551, 559
(Ala. 1994) (rejecting the argument that an "other insurance"
provision gave primary coverage to a "named insured" but not
an "additional insured" because the "'other insurance'
provision makes no distinction between 'named insureds' and
'additional insureds'").   
It is undisputed that the Sentinel policy also provided
coverage to ESG and Vaughan in this case.  It includes the
following section concerning "Other Insurance," which is
identical to the same provision in the AMIC policy:
"5. Other Insurance
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"a. For any covered 'auto' you own,
this 
Coverage 
Form 
provides 
primary
insurance. For any covered 'auto' you don't
own, 
the 
insurance 
provided 
by 
this
Coverage Form is excess over any other
collectible insurance. ...
"....
"c. Regardless of the provisions of
Paragraph a. above, this Coverage Form's
Liability Coverage is primary for any
liability 
assumed 
under 
an 
'insured
contract.'"
(Emphasis added.)  Sentinel contends that the first sentence
of subparagraph a does not apply because ESG and Vaughan did
not "own" the street sweeper.  Thus, Sentinel argues, under
the second sentence of subparagraph a, its coverage is not
"primary" but is instead "excess." 
In its brief on appeal, AMIC contends that subparagraph
c of the "Other Insurance" provision of the Sentinel policy
provides primary coverage "for any liability assumed under an
'insured contract.'" (Emphasis added.) AMIC's brief, at 29.
AMIC contends that the operations agreement between the City
and ESG is an "insured contract" and that, thus, under
subparagraph c, the Sentinel policy provides primary coverage.
We disagree. 
1130841
Section 7 of the operations agreement is entitled
5
"Indemnity, Liability and Insurance." Section 7.1 states:
"ESG hereby agrees to and shall hold [the City]
harmless ... from any liability or damages for
property damage or bodily injury, including death,
which may arise from ESG's negligent operations
under this Agreement, to the proportion such
negligence contributed to the damages, injury, or
loss, whether such negligent operation be by ESG or
by subcontractor of ESG. [The City] agrees to and
shall hold ESG harmless from any liability or
damages for property damage or bodily injury,
including death, which may arise from all causes of
any kind other than ESG's negligence."
AMIC contends that neither it nor the City contemplated
that it would be liable for damages resulting from ESG's own
negligence.  This understanding, however, was not memorialized
in the insurance policies. Furthermore, the operations
agreement specifically required the City to insure the
vehicles it owned and ESG would be operating. 
12
Nothing before us indicates that ESG's liability for
which it seeks coverage under the AMIC policy (the settlement
with the Clarks) was "assumed" from "another."  Instead, the
driver, Vaughan, and ESG, as Vaughan's employer, were the
actual tortfeasors in this case. They have not "assumed" the
liability of another; they are instead directly liable
independently of a contractual assumption of liability.
It is true that, in the operations agreement, ESG was
required to indemnify and hold the City harmless for liability
stemming from ESG's own negligence.  The City, however, was
5
1130841
13
not a party to the settlement, and the plaintiffs withdrew any
claims against the City long before the settlement was
reached. It appears that ESG did indemnify the City for its
initial costs to defend itself at the beginning of the action,
but 
nothing 
before 
us 
indicates 
that 
the 
settlement
discharged liability on the City's part. Because the liability
for which ESG seeks coverage was not "assumed" from the City,
subparagraph c does not apply.  Because it does not apply, the
Sentinel policy designates itself under subparagraph a as
providing excess coverage.
Conclusion
After reviewing the AMIC policy and the Sentinel policy,
we conclude that the language in each is unambiguous as to
which provides primary coverage: The AMIC policy provides
primary coverage, and the Sentinel policy provides excess
coverage.  For the foregoing reasons, we hold that the trial
court erred in concluding that the Sentinel policy provided
primary coverage. Therefore, the trial court's judgment is
reversed, and the case is remanded for further proceedings
consistent with this opinion.   
1130841
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REVERSED AND REMANDED.
Stuart, Bolin, Murdock, Main, Wise, and Bryan, JJ.,
concur. 
Moore, C.J., and Parker, J., dissent.