Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alnd-5_14-cv-00613/USCOURTS-alnd-5_14-cv-00613-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Contract Dispute

---

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

WESTERN DIVISION

ST. PAUL FIRE AND )

MARINE INSURANCE )

COMPANY, )

)

Plaintiff, )

)

v. ) Case No. 5:14-cv-00613-TMP

)

TOWN OF GURLEY, )

ALABAMA, et al., )

)

Defendants. )

MAGISTRATE JUDGE’S REPORT AND RECOMMENDATION 

The above styled case arises from the complaint filed by St. Paul Fire and 

Marine Insurance Company (“St. Paul”), seeking a declaratory judgment regarding 

whether the claims and damages asserted in the underlying litigation between the 

Town of Gurley, Alabama, and M&N Materials, Inc. (“M&N”), are covered by the 

insurance policy issued by the plaintiff to defendant Town of Gurley, Alabama 

(“the Town”). Before the court are motions for summary judgment filed by the 

Town, St. Paul, and M&N Materials, Inc. (“M&N”). (Docs. 32, 33, 36). The 

parties have not consented to the exercise of final dispositive jurisdiction by the 

undersigned magistrate judge pursuant to 28 U.S.C. § 636(c). Accordingly, having 

FILED

 2015 Jul-13 AM 08:53

U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 5:14-cv-00613-AKK Document 47 Filed 07/13/15 Page 1 of 56
considered all of the arguments and evidence submitted by the parties, the court 

enters this Report and Recommendation. 

SUMMARY JUDGMENT STANDARD

Under Federal Rule of Civil Procedure 56(a), summary judgment is proper 

“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). The 

party asking for summary judgment “always bears the initial responsibility of 

informing the district court of the basis for its motion, and identifying those 

portions of ‘the pleadings, depositions, answers to interrogatories, and admissions 

on file, together with the affidavits, if any’ which it believes demonstrate the 

absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 

317, 323 (1986) (quoting former Fed. R. Civ. P. 56(c)). The movant can meet this 

burden by presenting evidence showing there is no dispute of material fact or by 

showing that the nonmoving party has failed to present evidence in support of 

some element of its case on which it bears the ultimate burden of proof. Celotex, 

477 U.S. at 322-23. There is no requirement, however, “that the moving party 

support its motion with affidavits or other similar materials negating the 

opponent’s claim.” Id. at 323. 

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Once the moving party has met its burden, Rule 56 “requires the nonmoving 

party to go beyond the pleadings and by her own affidavits, or by the ‘depositions, 

answers to interrogatories, and admissions on file,’ designate ‘specific facts 

showing that there is a genuine issue for trial.’” Id. at 324 (quoting former Fed. R. 

Civ. P. 56(e)). The nonmoving party need not present evidence in a form 

necessary for admission at trial; however, he may not merely rest on his pleadings. 

Celotex, 477 U.S. at 324. “[T]he plain language of Rule 56(c) mandates the entry 

of summary judgment, after adequate time for discovery and upon motion, against 

a party who fails to make a showing sufficient to establish the existence of an 

element essential to that party’s case, and on which that party will bear the burden 

of proof at trial.” Id. at 322. 

After the plaintiff has properly responded to a proper motion for summary 

judgment, the court “shall” grant the motion if there is no genuine issue of material 

fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. 

P. 56(a). The substantive law will identify which facts are material and which are 

irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute 

is genuine “if the evidence is such that a reasonable jury could return a verdict for 

the nonmoving party.” Id. at 248. “[T]he judge’s function is not himself to weigh 

the evidence and determine the truth of the matter but to determine whether there is 

a genuine issue for trial.” Id. at 249. His guide is the same standard necessary to 

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direct a verdict: “whether the evidence presents a sufficient disagreement to require 

submission to a jury or whether it is so one-sided that one party must prevail as a 

matter of law.” Id. at 251-252; see also Bill Johnson’s Restaurants, Inc. v. 

N.L.R.B., 461 U.S. 731, 745 n. 11 (1983). 

However, the nonmoving party “must do more than show that there is some 

metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. 

Zenith Radio Corp., 475 U.S. 574, 586 (1986). The evidence supporting a claim 

must be “substantial,” Marcus v. St. Paul Fire and Marine Ins. Co., 651 F.2d 379 

(5th Cir., Unit B, 1981); a mere scintilla of evidence is not enough to create a 

genuine issue of fact. Young v. City of Palm Bay, 358 F.3d 859, 860 (11th Cir. 

2004); Kesinger ex rel. Estate of Kesinger v. Herrington, 381 F.3d 1243, 1249-

1250 (11th Cir. 2004). If the non-movant’s evidence is so thoroughly discredited 

by the rest of the record evidence that no reasonable jury could accept it, the 

evidence fails to establish the existence of a genuine issue of fact requiring a jury 

determination. See Scott v. Harris, 550 U.S. 372, 127 S. Ct. 1769, 1776, 167 L. 

Ed. 2d 686 (2007) (“Respondent’s version of events is so utterly discredited by the 

record that no reasonable jury could have believed him. The Court of Appeals 

should not have relied on such visible fiction; it should have reviewed the facts in 

the light depicted by the videotape.”); Lewis v. City of West Palm Beach, Fla., 561 

F.3d 1288, 1290 n. 3 (11th Cir. 2009). If the evidence is merely colorable, or is not 

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significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 

249 (citations omitted); accord Spence v. Zimmerman, 873 F.2d 256 (11th Cir. 

1989). Furthermore, the court must “view the evidence presented through the 

prism of the substantive evidentiary burden,” so there must be sufficient evidence 

on which the jury could reasonably find for the plaintiff. Anderson, 477 U.S. at 

255. The non-movant need not be given the benefit of every inference but only of 

every reasonable inference. Brown v. City of Clewiston, 848 F.2d 1534, 1540 

n. 12 (11th Cir. 1988). Utilizing these standards, the court undertakes the analysis 

of whether the defendant has shown that it is entitled to judgment as a matter of 

law.

FACTS

Ordinarily, in deciding a motion for summary judgment, the court must take 

the facts in the light most favorable to the non-moving party. In the instant case, 

each party has filed its own motion for summary judgment and, therefore, all 

parties are “movants” for purposes of summary judgment. The facts submitted by 

the parties in the Motions for Summary Judgment are almost identical. 

Accordingly, the facts for purposes of summary judgment have been compiled 

from the three separate motions for summary judgment. Any relevant disputed fact 

will be noted.

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A. Background

M&N was formed by Charles Nelson and Brian McCord in 2003 as an 

Alabama corporation for the purpose of developing and operating a rock quarry. 

The principal place of business for M&N is in Alabama. Shortly after formation, 

M&N purchased a 160-acre parcel of land from Nelson, on which M&N planned 

to develop the quarry. The land was located in Madison County close to the Town 

of Gurley but outside the Town limits. In 2003, citizens of Gurley began efforts to 

oppose the quarry’s construction. Eventually, a citizens action group was formed 

to formally oppose the quarry. Roughly 35 members of the group attended the 

Gurley Town Council meeting on July 15, 2003, and requested that letters be sent 

to state Senator Lowell Barron and Representative Albert Hall regarding the 

potential annexation of M&N’s property by the Town. The Town’s mayor 

informed the group that, based on advice from the Town’s attorney, no action 

regarding annexation would be taken until the proposal was reviewed by the 

town’s attorney. 

On July 17, 2003, at a special meeting held to consider the issue of the 

quarry, the Town Council passed Resolution No. 216, which states:

WHEREAS, The Town Council of the Town of Gurley has obtained 

information from the Alabama Department of Environmental 

Management that a corporation by the name of M & N, Incorporated, 

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has applied for a permit to operate a rock quarry near the corporate 

limits of the Town of Gurley, and

WHEREAS, the Town Council has serious concerns regarding the 

effects such a rock quarry would have on (1) air quality, (2) damage 

from blasting to homes and business, (3) large volumes of traffic on 

Gurley Pike (the main service road for Madison County Elementary 

School), (4) damage to existing streets by heavy trucks and 

(5) damage to the Town’s water storage tank, located on Gurley Pike.

NOW, THEREFORE, be it resolved that the Town of Gurley opposes 

the location of a rock quarry near the corporate limits of the Town.

READ AND ADOPTED THIS 17 DAY OF JULY, 2003.

(Doc. 35-4, p. 2). On August 5, 2003, a member of the citizens action group 

proposed Resolution 217 to the Town Council, but the resolution did not pass. 

Resolution 217 proposed that Gurley request state Senator Barron and 

Representative Hall sponsor legislation to permit annexation of M&N’s property 

into the corporate limits of Gurley.

Following the proposal of Resolution 217, M&N’s attorney sent a letter to 

Gurley, asking for “fair and impartial consideration” of all factors surrounding any 

possible annexation in order to “avoid the need to take any action” to protect M&N 

from damages resulting from annexation of the property. (Doc. 35-6, p. 3). On 

August 19, 2003, the Town Council voted again on Resolution 217, but the 

resolution failed to pass. At the August 19 meeting, Gurley’s attorney, Jeff 

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McKinney advised against annexation of the property and advised that Gurley 

could not enact regulations regarding blasting. On September 2, 2003, the same 

citizens action group member that proposed Resolution 217 advised the Town 

Council that the group had sought state legislation permitting a special election 

regarding Gurley’s ability to annex M&N’s property. The Alabama Department of 

Environmental Management (“ADEM”) conducted a public hearing concerning the 

permits for which M&N had applied. At the hearing, various public officials and 

Gurley residents voiced concerns regarding the potential impact of a rock quarry, 

including concerns about health problems, noise, property damage, and damage to 

roads and infrastructure. 

On February 26, 2004, the Alabama Legislature passed House Bill 170, 

which authorized Gurley to annex M&N’s property subject to a majority vote of 

the residents of Gurley. On March 23, 2004, ADEM issued permits to M&N to 

construct and operate the quarry. On April 13, 2004, the Town annexed M&N’s 

property. M&N alleges that the purpose of the annexation was “to stop the quarry 

by any means necessary.” (Doc. 35-1, ¶ 12). On April 21, 2004, M&N applied to 

the Town for a business license, but the license was denied. M&N alleges that all 

of the grounds stated for the denial of the business license were pretextual, and the 

true reason was to “buy time” to enact a moratorium on the issuance of business 

licenses. The Town enacted Ordinance Number 281 on May 4, 2004, imposing a 

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moratorium on the acceptance of permit applications “pertaining to property 

annexed into the Town of Gurley pursuant to Alabama Act No. 2004-19 and 

subsequent special municipal election held in the Town of Gurley, Alabama on 

April 13, 2004.” (Doc. 35-17). The moratorium affected only M&N’s property.

The Town created the Board of Adjustment on July 6, 2004, the purpose of 

which was to hear applications for variances from zoning decisions. According to 

M&N, six of the eight board members opposed the quarry and had “Stop the 

Quarry” signs on their lawns. (Doc. 35-1, ¶ 19). The newly elected mayor and 

members of the city council also were public opponents of the quarry. According 

to M&N, this served to “stack the deck” against the quarry and against M&N.

During this turmoil, M&N entered into an agreement with Vulcan Lands, 

Inc. (“Vulcan Lands”), giving Vulcan Lands an option to purchase the property for 

$3.75 million. The option was set to expire on November 15, 2004. In the 

underlying litigation, M&N asserts that “[a]fter the election of the new mayor and 

council, the stacked Planning Commission, and the newly-created and stacked 

Board of Adjustment, Vulcan substantially reduced its purchase price ‘because of 

this Gurley situation.’” (Doc. 35-1, ¶ 27). Ultimately, M&N sold the property to 

Vulcan Lands for far less than the originally agreed-upon $3.75 million. Part of 

the purchase price was the agreement to pay a royalty to M&N, which it alleges it 

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has never received because the Town has refused to allow Vulcan to operate a 

quarry on the site. 

On December 16, 2004, M&N faxed a Notice of Claim to the Town, in 

which M&N alleged that the Town had annexed M&N’s property without consent, 

“arbitrarily and capriciously” refused to issue licenses allowing M&N to conduct 

quarry operations, and threatened to enact zoning regulations that would prevent 

M&N from ever using the property as a rock quarry. The following January 2005, 

the Town passed Ordinance 284, which states that “[a]ll newly annexed land or 

property that shall be brought into the corporate limits of the Town of Gurley, 

Alabama, shall by operation of this section be initially zoned as Agricultural 

District and shall so remain zoned as Agricultural District until such time as said 

land or property is rezoned by the Town Council of the Town of Gurley in 

accordance with law.” (Doc. 35-29). The zoning of M&N’s property for 

agricultural use prevented M&N (or the purchaser, Vulcan Lands) from operating a 

rock quarry on the land. M&N asserts that the rezoning of the land resulted in a 

loss of royalty payments from Vulcan, because Vulcan has been unable to use the 

property as a quarry. The Town has not compensated or offered to compensate 

M&N for the decrease in value the property or loss of royalty revenue suffered due 

to the zoning.

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B. Underlying Litigation 

M&N first sued the Town in 2005 in the Circuit Court of Madison County, 

Alabama, alleging inverse condemnation of the property by the Town. The 

Complaint alleged that, “[t]he actions of Gurley have caused the property . . . to be 

unsuitable for its use as a limestone quarry which is its highest and best use,” and 

that M&N “has lost the value of its property and been caused to sell such property 

at a loss.” (Doc. 35-19, ¶ 13). M&N further charged that the Town’s annexation 

and zoning of the property “constitute[d] a taking without just compensation in 

violation of the Fifth Amendment to the United States Constitution, Article I, 

Section 6, of the Constitution of Alabama (1901), and Alabama Code 1975, § 18-

1A-1, et seq.” (Id. at ¶ 14). Later, M&N amended its complaint to allege the 

following additional claims for relief: wrongful interference with contractual or 

business relations; negligence and wantonness; negligent and/or wanton hiring, 

retention and supervision; a motion for declaratory judgment; and a motion for 

injunctive relief. (Id. at pp. 6-13). M&N voluntarily dismissed its Fifth 

Amendment claim after the Town removed the case to this court based upon 

federal-question jurisdiction, and the case was remanded to state court. Town of 

Gurley v. M&N Materials, Inc., 143 So. 3d 1, n. 2 (Ala. 2012). M&N’s suit on the 

remaining state-law claims was tried before a jury, which found against the Town 

only on the claim of inverse condemnation, and awarded M&N $2.75 million in 

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damages. The Town appealed the decision, and the Supreme Court of Alabama 

reversed the trial court’s judgment for M&N on the inverse condemnation claim on 

the basis that Alabama law does not recognize a claim for inverse condemnation 

arising from a regulatory restriction. Town of Gurley, 143 So.2d at 18. In his 

concurrence, Justice Parker noted that the Alabama Supreme Court’s decision does 

not bar M&N from seeking relief under the Fifth Amendment, despite the fact that 

M&N previously voluntarily dismissed the claim. Id. at 41.

The present underlying action was filed in this court on January 31, 2014. 

M&N Materials, Inc. v. Town of Gurley, Alabama, et al., Case No. 5:14-cv-00184-

CLS. In the underlying action, M&N raises the following claims for relief: 

(1) unconstitutional taking in violation of the Fifth Amendment as incorporated by 

the Fourteenth Amendment; (2) arbitrary and capricious due process denial under 

the Fifth and Fourteenth Amendments; (3) declaratory judgment invalidating the 

annexation and/or zoning of the property; (4) declaratory judgment under Alabama 

Code 1975 § 6-6-220, et seq. declaring the annexation and/or zoning restrictions on 

the property void, invalid, and/or unconstitutional; and (5) injunction preventing 

the Town from exercising control over the property. M&N Materials, Inc., Case 

No. 5:14-cv-00184-CLS, (Doc. 1). The underlying action is pending in this court 

before Judge C. Lynwood Smith, and dispositive motions have not yet been filed in 

the action.

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C. St. Paul Insurance Policies1

St. Paul issued a Public Entity Composite Policy (“the Policy”) to Gurley in 

2003 and 2004 to cover the periods of October 14, 2003 to October 14, 2004 and 

October 14, 2004 to October 14, 2005. The Policies contained identical Public 

Entity Management Liability Protection (“PEML”) and Public Entity General 

Liability Protection (“PEGL”) parts.2

 The PEML part states, in relevant part, the 

following: 

What This Agreement Covers

Public entity management liability. We’ll pay amounts any 

protected person is legally required to pay as damages for covered 

loss that:

• results from the conduct of duties by or for a public entity;

• is caused by a wrongful act committed on or after the 

retroactive date3 and before the ending date of this 

agreement; and

• results in a claim first made or brought while this 

agreement is in effect, or during the limited reporting 

period or the extended reporting period, if either one 

applies. 

. . . 

1

 St. Paul is defending Gurley with respect to M&N’s claims in the underlying action, subject to 

a full reservation of all rights. (Doc. 35-27).

2

 The relevant portions of the 2003 and 2004 policies are identical, therefore, all language will 

be taken from the 2004 policy, and all references to the policies will cite to the 2004 policy.

3 The Policy recites the retroactive date to be October 7, 1989.

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When This Agreement Covers

During this agreement or the limited reporting period, if it 

applies. We’ll apply this agreement to claims for covered loss only 

when they’re first made or brought:

• while this agreement is in effect; or

• during the limited reporting period, if it applies.

Limited reporting period means the 60 days, starting with the ending 

date of this agreement, during which claims for covered loss may be 

first made or brought.

When we consider a claim to be first made or brought. We’ll 

consider a claim for covered loss to be first made or brought on the 

earliest of the following dates:

• The date that we or any protected person first receives written 

notice of such claim.

• The date that we first receive written notice from any protected 

person of a specific wrongful act that caused the loss which 

resulted in such claim.

. . . 

When the limited reporting period will apply.

The limited reporting period will automatically apply without an 

additional premium if this agreement is canceled or not renewed for 

any reason. It may not be canceled by you or us once it applies.

. . .

Exclusions – What This Agreement Won’t Cover

. . . 

Declaratory, injunctive, or other non-monetary relief. We won’t 

cover:

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• any cost, expense, or fee; or 

• any amount required to comply with a court or administrative 

agency order, judgment, ruling or decree, or a federal, state, or 

local law; 

that results from any action or demand, or any part of any claim, 

which seeks declaratory, injunctive, or other non-monetary relief.

Such costs, expenses, fees, or amounts include the following:

• The costs of physical alterations or other changes made to 

accommodate or afford accessibility to any disabled person.

• The cost of developing, implementing, or enforcing any 

company policy, procedure, or program. 

Declaratory, injunctive, or other non-monetary relief includes:

• a judgment which declares the rights and duties of any person 

or organization; or

• any type of injunction, restraining order, or any other nonmonetary relief. 

. . . 

Known wrongful acts. We won’t cover loss that results from any 

wrongful act, including any part of related wrongful acts, which any 

protected person:

• knew about before the beginning date of this agreement; and 

• could reasonably foresee would result in a claim being made or 

brought while this agreement is in effect.

. . . 

Public use of property. We won’t cover loss that results from;

• any method or proceeding used in the taking or controlling of 

private property for public use; or

• the diminution in value or inverse condemnation of property 

that’s caused by the taking or controlling of private property for 

public use.

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Method or proceeding includes condemnation, adverse possession, 

and dedication by adverse use.

(Doc. 35-25, pp. 76-85). The PEGL part of the Policy issued to the Town states, in 

relevant part:

What This Agreement Covers

Bodily injury and property damage liability. We’ll pay amounts 

any protected person is legally required to pay as damages for covered 

bodily injury or property damage that:

• happens while this agreement is in effect; and

• is caused by an event.

. . . 

Property damage means:

• physical damage to tangible property of others, including all 

resulting loss of use of that property; or

• loss of use of tangible property of others that isn’t physically 

damaged. . . 

. . . 

Event means an accident, including continuous or repeated exposure 

to substantially the same general harmful conditions.

. . . 

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Exclusions – What This Agreement Won’t Cover

Expected or intended bodily injury or property damage. We 

won’t cover bodily injury or property damage that’s expected or

intended by the protected person. 

Nor will we cover such medical expenses that result from such bodily 

injury. 

But we won’t apply this exclusion to bodily injury, property damage, 

or medical expenses that result from the use of reasonable force to 

protect persons or property. 

. . . 

Public use of property. We won’t cover injury or damage that 

results from:

• any method or proceeding used in the taking or controlling of 

private property for public use; or 

• the diminution in value or inverse condemnation, or property 

that’s caused by the taking or controlling of private property for 

public use.

Method or proceeding includes condemnation, adverse possession, 

and dedication by adverse use.

(Doc. 35-24, pp. 116, 117; Doc. 35-25, pp. 4, 11, 20). St. Paul initiated this action 

seeking a declaration from this court that it owes no coverage to the Town under 

the PEML or PEGL parts of the Policies issued to the Town in 2003 and 2004.

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DISCUSSION

The determination of this case hinges almost entirely on the interpretation of 

the various provisions and exclusions in the PEGL and PEML parts of the Policy. 

St. Paul argues that none of the claims in the underlying action fall within the 

Policy’s coverage, either because of Policy exclusions or because the underlying 

claims do not meet coverage requirements. Therefore, St. Paul argues that it has 

no duty to defend the Town in the underlying action or to indemnify the Town for 

any judgment against it. The issue that must be determined, therefore, is whether 

any or all of the claims in the underlying action fall within the coverage provided 

by the Policy and, if so, whether the claims are then excluded from coverage by 

Policy exclusions. Applying Alabama law, the Town has the burden of proving 

that the claims come within the coverage provided, while St. Paul as the burden of 

proof as to whether any exclusion applies. 

Alabama law places the burden on the insured to show that a claim falls 

within the coverage provided by an insurance policy. Universal Underwriters Ins. 

Co. v. Stokes Chevrolet, Inc., 990 F.2d 598, 602 (11th Cir. 1993) citing Jordan v. 

National Accident Ins. Underwriters, Inc., 922 F.2d 732, 735 (11th Cir. 1991); 

Colonial Life and Accident Ins. Co. v. Collins, 194 So. 2d 532, 535 (Ala. 1967). 

The burden then shifts to the insurer to prove the applicability of a policy 

exclusion. Id. at 604, citing Jordan, 922 F.2d at 735; Flemming v. Alabama Farm 

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Bureau Mut. Cas. Ins. Co., 310 So.2d 200, 202 (Ala. 1975). Accordingly, the 

Town must prove that the claims in the underlying action fall within Policy 

coverage. Then, it is up to St. Paul to show that claims falling within Policy 

coverage are excluded from coverage due to express exclusions set out in the 

Policy. 

I. Policy Coverage

St. Paul asserts in its motion for summary judgment (doc. 33) that all of 

M&N’s claims in the underlying action stem from the Town’s annexation and rezoning of M&N’s property – which M&N claims was a violation of the Fifth 

Amendment takings clause and the Fourteenth Amendment due process clause. 

St. Paul argues that the Town’s claims do not fall within the policy coverage 

because, in the underlying action, M&N does not allege covered property damage 

that was caused by an “event,” as required for coverage under the policy. “An 

insurance company’s duty to defend its insured is determined by the language of 

the insurance policy and by the allegations in the complaint giving rise to the 

action against the insured. If the allegations accuse the insured of actions for 

which the insurance company has provided protection, the insurance company is 

obligated to defend the insured.” Ajdarodini v. State Auto Mutual Insurance Co., 

628 So. 2d 312, 313 (Ala. 1993) (internal citations omitted). 

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“[A] court ordinarily will have no reason to immerse itself in the facts 

surrounding the incident in question; it need only look to the allegations made 

against the insured and decide whether, if proven, those allegations would establish 

an injury that the policy would cover. St. Paul Fire and Marine Ins. Co. v. Town of 

Gurley, Ala., 2012 WL 3637690, *4 (N.D. Ala. August 22, 2012), quoting 

Nationwide Ins. v. Zavalis, 52 F.3d 689, 694 (7th Cir. 1995). Therefore, it is the 

duty of the undersigned to determine whether the allegations in the underlying 

complaint are subject to coverage by the St. Paul policy. The merits of the case 

will be left for evaluation and decision in the underlying action. “As long as the 

complaint comprehends an injury which may be within the scope of the policy, the 

company must defend the insured until the insurer can confine the claim to a 

recovery that the policy does not cover.” St. Paul Fire and Marine Ins. Co. v. 

Town of Gurley, Ala., 2012 WL 3637690, *4 (N.D. Ala. August 22, 2012), 

quoting Nationwide Ins. v. Zavalis, 52 F.3d 689, 694 (7th Cir. 1995).4 So, if the 

Policy requires defense of any of the claims in the underlying action, St. Paul must 

4

 “When a complaint alleges both acts covered under the policy and acts not covered, the 

insurer is under a duty to at least defend the allegations covered by the policy.” Acceptance Ins. 

Co. v. Brown, 832 So. 2d 1, 14 (Ala. 2001) citing Blackburn v. Fidelity & Deposit Co. of 

Maryland, 667 So. 2d 661, 670 (Ala. 1995), Tapscott v. Allstate Ins. Co., 526 So. 2d 570, 574 

(Ala. 1988). This statement references the dicta in Tapscott. Because this court has adopted the 

standard set forth by the 7th Circuit, requiring full representation if any claim in the complaint is 

subject to the duty to defend, this court will apply that standard.

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defend the Town against all claims in the underlying action. The same does not 

hold true for indemnification, which will be discussed further below.

A. Time Period Covered by the Policy

St. Paul asserts in its motion that no coverage exists under the PEML portion 

of the 2003 Policy because the claims by M&N in the underlying action were not 

“first made or brought” while the 2003 PEML part was in effect. (Doc. 34, p. 25). 

Indeed, the Town was served with M&N’s Complaint in the prior state court action 

on April 18, 2005, after coverage by the 2003 Policy had lapsed. As the Town 

points out in its own motion for summary judgment, the Town first presented the 

claim to St. Paul in April 2005. (Doc. 32-1, p. 21). The 2004 Policy covered the 

Town from October 2004 to October 2005, and M&Ns action was initiated within 

that time period.5

St. Paul does not argue that the Town’s claim was not made during the 

applicable time period for the 2004 renewal policy (doc. 34, p. 25), and neither the 

Town nor M&N argue that coverage exists only under the 2003 policy specifically, 

just that coverage exists under the Policies issued by St. Paul over the relevant time 

period. (Doc. 32-1, p.21; Doc. 37, p. 16). It appears that there is no real conflict in 

regard to whether the claim at issue was brought within a time period covered by

5 Although it makes no difference in the outcome of the case, M&N actually presented its 

claim to the Town for the first time in a written Notice of Claim filed with the Town clerk on 

December 16, 2004. This date also was within the effective dates of the 2004 renewal Policy.

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the 2004 policy.

6

 Therefore, the Town has sufficiently met its burden to show 

that its claim falls within coverage of this aspect of the PEML policy. 

B. PEML Coverage

The PEML portion of the Policy covers damages for “covered loss” that 

“results from the conduct of duties by or for a public entity; is caused by a 

wrongful act committed on or after the retroactive date and before the ending date 

of this agreement; and results in a claim first made or brought while this agreement 

is in effect, or during the limited reporting period or the extended reporting period, 

if either one applies.” (Doc. 35-25, p.76). That the claim falls within the “Public 

entity management liability” portion does not appear to be a point of contention 

between the parties. The Town focuses primarily on the relevant time period in its 

motion for summary judgment (doc. 32-1, p. 20), and, as M&N points out in its 

motion for summary judgment, St. Paul does not dispute that the underlying action 

arose from “actions undertaken by Gurley in its capacity as a municipality.” 

(Doc. 37, p. 15). Accordingly, the Town has met its burden of showing that the 

underlying action falls within the coverage of the PEML portion of the Policy.

6

 Frankly, the court fails to grasp the point of St. Paul’s argument on this issue. Although it is 

true that the claim was not first made during the term of the 2003 policy, there appears to be no 

dispute that it clearly was made during the term of the 2004 policy. St. Paul admits as much at 

page 24 of its principal summary judgment brief (Doc. 34). The parties agree that both policies 

contain identical language, so there seems to be no reason for focusing so much attention on the 

2003 policy while ignoring the apparent applicability of the identical 2004 policy.

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C. PEGL Coverage

Finally, St. Paul claims that it has no duty to the Town under the PEGL 

portion of the policy because the damages alleged by M&N were not “property 

damage” caused by an “event” as these words are defined in the policy. The PEGL 

policy defines “property damage” as “physical damage to tangible property of 

others, including all resulting loss of use of that property; or loss of use of tangible 

property of others that isn’t physically damaged.” (Doc. 35-24, p. 117). St. Paul 

contends that the type of damage asserted by M&N in the underlying action is 

“purely economic” and therefore, not covered. St. Paul claims that “[e]ven if 

M&N’s complaint in the underlying action could be read to allege covered damage 

under the PEGL part, the terms of the PEGL’s insuring agreement are only

satisfied if the damage is caused by an ‘event.’” (Doc. 35-25, p. 4). Under the 

PEGL part of the policy, an “event” is defined as “an accident, including 

continuous or repeated exposure to substantially the same general harmful 

conditions.” (Doc. 35-24, p. 117).

The court agrees with St. Paul that the damage claimed by M&N against the 

Town was not the product of an “accident” and therefore no “event” caused the 

damage within the meaning of the PEGL coverage. As explained above, coverage 

exists under the PEGL portion of the policy only if the personal injury or property 

damage was caused by an “event.” That term is further defined by the policy to 

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mean an “accident.” By its nature, an “accident” is unintended, the product of 

thoughtlessness or carelessness. See Hartford Casualty Ins. Co. v. Merchants & 

Farmers Bank, 928 So. 2d 1006, 1011 (Ala. 2005) (“Accident” is defined as “An 

unintended and unforeseen injurious occurrence; something that does not occur in 

the usual course of events or that could be reasonably anticipated”) (quoting 

Black’s Law Dictionary 15 (7th ed.).7

 In no way can the annexation, license 

moratorium, and zoning of the M&N property be considered an accident. The 

Town very clearly and explicitly intended to prevent the operation of the quarry by 

annexing the land into the town limits and then zoning it in such a way as to 

prevent its use as a quarry. There can be no reasonable argument that the Town 

did not know that doing so would have a detrimental effect on the property value 

and M&N’s economic interest in it. Whatever damage M&N suffered due to the 

loss of the opportunity to use the land for a quarry,8 it was not caused by an 

“accident,” and thus was not the product of an “event,” as required for coverage 

7

 The court does not accept the Town’s argument that because the Alabama Supreme Court took 

the definition of “accident” from the 7th edition of Black’s Law Dictionary, this court should 

disregard the explicit definition given by that court and refer to the newer 8th edition. The 

reference to Black’s in Alabama cases cannot be read as a license for this court to “update” the 

state supreme court’s definition of a term every time a new edition of the venerable tome is 

released. Such updating would be for the state supreme court to do.

8 The Town asserts that it did not know the extent of the damage M&N would suffer due to its 

actions, but this is immaterial to the coverage question. Whether the Town knew it would do a 

lot or a little damage to M&N, it does not dispute that it knew some damage would occur. In any 

event, the question whether the damage was caused by an “accident” turns not on knowledge of

the extent of damage, but the intent to carry out the acts that resulted in any damage. An 

intended act is not an accident.

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under the PEGL portion of the policy. It appears, therefore, there is no PEGL 

coverage for the claims made by M&N against the Town.

Nevertheless, because the PEML portion of the policy does not limit 

coverage to damage to tangible property arising out of an “event,” even if St. Paul 

has no duty to defend under the PEGL portion of the policy, it cannot claim that 

there is no duty to defend under the policy as a whole. Accordingly, the Town has 

met its burden of showing that the claims in the underlying action fall within

PEML Policy coverage. The burden now shifts to St. Paul to show that one or 

more policy exclusions apply to the various claims. 

II. Exclusions

A. Public Use of Property Exclusion

Both the PEML and PEGL sections of the Policy contain coverage 

exclusions for the public use of property. The exclusions are identical and state as 

follows:

Public use of property. We won’t cover loss that results from;

• any method or proceeding used in the taking or controlling of 

private property for public use; or

• the diminution in value or inverse condemnation of property 

that’s caused by the taking or controlling of private property for 

public use.

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Method or proceeding includes condemnation, adverse possession, 

and dedication by adverse use.

(Doc. 35-25, pp. 85, 20). St. Paul argues that Counts I and II of the Complaint in 

the underlying action are subject to the “public use of property” exclusion and, 

therefore, it has no duty to defend the Town against Counts I and II of the 

underlying action. 

1. Count I – Unconstitutional Taking

In Count I of the underlying action, M&N claims that the Town’s actions 

“amount to an unconstitutional taking of M&N’s property without just 

compensation,” as prohibited by the Fifth Amendment to the United States 

Constitution and incorporated against the states by the Fourteenth Amendment. 

(Case No. 5:14-cv-00184-CLS, Doc. 1, ¶¶ 34-35). With regard to the taking of 

private property, the Fifth Amendment states that “private property [shall not] be 

taken for public use, without just compensation.” U.S. Const. amend. V, full text. 

Count I of the complaint in the underlying action specifically references the Fifth 

Amendment and clearly is based on an alleged violation thereof. (Case No. 5:14-

cv-00184-CLS, ¶ 35). 

St. Paul is correct in its assertion that, if proven, damages claimed pursuant 

to a violation by the insured of the Fifth Amendment would be excluded from 

coverage under both the PEML and PEGL portions of the Policy. The very 

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purpose of this exclusion is to prevent the insurance company from being called on 

to fund an exercise of eminent domain by the Town. Absent the exclusion, an 

insured municipality could take private property for a public use and then call on 

the liability insurance carrier to pay for the value of the property claimed by the 

property owner. The exclusion removes from liability coverage any taking of 

private property for public use.

In its motion for summary judgment, the Town argues, however, that the 

underlying action is not subject to the “public use of property” exclusion because 

the policy should be interpreted to ascribe a narrower meaning to the phrase 

“public use” than St. Paul would have the court apply. Specifically, St. Paul 

argues that the court should read the phrases “public use” and “public purpose” 

interchangeably (doc. 32-1, p. 25), while the Town urges the court to narrowly 

interpret the word “use” in the policy. The Town contends that the plain language 

of the policy is not ambiguous and that “[i]n order for this exclusion to be 

applicable, the Town must have taken or controlled M&N’s private property for a 

public use through an act of condemnation, adverse possession, or dedication by 

adverse use.” (Id. at 26). The Town asserts that, although the word “use” is not 

defined in the policy, the word is not ambiguous because, “[w]here terms are not 

defined, the meaning of a word to a person of average intelligence is to be 

applied.” (Doc. 32-1, p. 26). The Town claims that a person of average 

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intelligence would presume that the word “use” entails actively employing the land 

for some purpose, rather than merely passively preventing a particular use of it. 

The Town has cited no controlling case law supporting such a narrow 

interpretation of the phrase “public use.” The Town argues that, in the case where 

a word is not defined, but no ambiguity exists, Alabama contract law “does not 

require reading a word in a contract as a legal term of art, or applying a legal 

interpretation under a certain context. It is the plain language of the words that are 

to be applied where no ambiguity exists.” (Doc. 32-1, p. 26). However, when the 

United Sates Supreme Court has interpreted the meaning of a phrase in a certain 

context, that meaning is not to be ignored, particularly where that interpretation is 

in a body of law meant to be dealt with by the contract exclusion.

In Kelo v. City of New London, Connecticut, the United States Supreme 

Court addressed the issue of “whether a city’s decision to take property for the 

purpose of economic development satisfies the ‘public use’ requirement of the 

Fifth Amendment.” 545 U.S. 469, 477, 125 S. Ct. 2655, 2661 (2005). The 

Supreme Court advanced a broad interpretation of the “public use” test for 

purposes of Fifth Amendment taking arguments:

[T]his “Court long ago rejected any literal requirement that 

condemned property be put into use for the general public.” Id., at 

244, 104 S. Ct. 2321. Indeed, while many state courts in the mid-19th 

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century endorsed “use by the public” as the proper definition of public 

use, that narrow view steadily eroded over time. Not only was the 

“use by the public” test difficult to administer (e.g., what proportion 

of the public need have access to the property? At what price?), but it 

proved to be impractical given the diverse and always evolving needs 

of society. Accordingly, when this Court began applying the Fifth 

Amendment to the States at the close of the 19th century, it embraced 

the broader and more natural interpretation of public use as a “public 

purpose.” See, e.g., Fallbrook Irrigation Dist. v. Bradley, 164 U.S. 

112, 158-164, 17 S. Ct. 56, 41 L. Ed. 369 (1896). Thus, in a case 

upholding a mining company’s use of an aerial bucket line to 

transport ore over property it did not own, Justice Holmes’ opinion for 

the Court stressed “the inadequacy of use by the general public as a 

universal test.” Strickley v. Highland Boy Gold Mining Co., 200 U.S. 

527, 531, 26 S. Ct. 301, 50 L. Ed. 581 (1906). We have repeatedly 

and consistently rejected that narrow test ever since.

The disposition of this case therefore turns on the question whether 

the City’s development plan serves a “public purpose.” Without 

exception, our cases have defined that concept broadly, reflecting our 

longstanding policy of deference to legislative judgments in this filed. 

Kelo v. City of New London, Conn., 545 U.S. 469, 479-480, 125 S. Ct. 2655, 

2662-2663 (2005). There is no reason to define the phrase “public use” differently 

than the Supreme Court of the United States when no alternate definition is 

provided in the policy. One can reasonably presume that, in drafting the language 

of the exclusion, St. Paul was aware of the way in which the term “public use” is

construed in Fifth Amendment takings cases. “Public use” was intended to convey 

“public purpose,” just as the cases have interpreted the phrase for a hundred years.

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Furthermore, the Supreme Court of Alabama has addressed a similar 

distinction when evaluating an alleged taking. In Aldridge v. Tuscumbia, C. & 

D.R. Co., the Alabama Supreme Court opined, “[t]he distinction taken, between 

public use and public benefit, does not seem to me, sustained by reason; nor has 

precedent attached a different meaning to the terms: in practical application, they 

are convertible terms. . . . Whatever is beneficially employed for the community, is 

of public use, and a distinction cannot be tolerated.” 1832 WL 566, *1 (June 1, 

1832). Though old and graying, Aldridge has not been overruled or otherwise 

abrogated. Although Aldridge addresses the word “benefit,” rather than the word 

“purpose,” the two words seem to have the same connotation in a Fifth 

Amendment context. 

In the instant case, as in Aldridge and Kelo, any distinction between the 

phrases “public use” and “public purpose” (or “public benefit”) merely is an 

exercise in intellectual gymnastics. The “public use” or “public purpose” 

contemplated by the Town when annexing the property was the prevention of 

pollution, avoidance of damage to homes and businesses, reducing large volumes 

of traffic on the main access road to the Madison County Elementary School, and 

preventing damage to the streets caused by heavy trucks. These “public purposes” 

were explicitly set out in the Town Council’s Resolution 216.

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Furthermore, it already has been determined in the underlying action that 

“M&N’s claim is for a ‘regulatory taking,’” in violation of the Fifth Amendment. 

(Case No. 5:14-cv-00184-CLS, Doc. 23, p. 12). Regarding Count I, as alleged, St. 

Paul has met its burden of proving that the claim is excluded from policy coverage 

by the “public use of property” exclusion. Whether or not Gurley’s annexation and 

subsequent rezoning of the property actually was a taking as contemplated by the 

Fifth Amendment is not for this court to decide. That issue is pending in Case No. 

5:14-cv-00184-CLS. Because the allegations in Count I fall within the “public use 

of property” exclusion, St. Paul appears to have no duty to defend the Town 

against Count I of M&N’s complaint in the underlying action. 

Despite the fact that Count I of the Complaint in the underlying action falls 

within a policy exclusion, St. Paul still may have a duty to defend the Town in the 

underlying action. If St. Paul has a duty to defend the Town of Gurley against any

of the claims in the underlying action, it must defend Gurley against all of the 

claims brought against it. “As long as the complaint comprehends an injury which 

may be within the scope of the policy, the company must defend the insured until 

the insurer can confine the claim to a recovery that the policy does not cover.” St. 

Paul Fire and Marine Ins. Co. v. Town of Gurley, Ala., 2012 WL 3637690, *4 

(N.D. Ala. August 22, 2012), quoting Nationwide Ins. v. Zavalis, 52 F.3d 689, 694 

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(7th Cir. 1995). Therefore, Counts II through V of M&N’s complaint in the 

underlying action still must be examined.

2. Count II – Arbitrary and Capricious Due Process Denial

In Count II of the complaint in the underlying action, M&N claims that the 

Town, by annexing and zoning the property at issue for agricultural use, deprived 

M&N of its property interest and did so “in an arbitrary and capricious manner.” 

(Case No. 5:14-cv-00184-CLS, Doc. 1, ¶ 42). M&N argues that this deprivation 

was a violation of M&N’s “right of due process of law under the Fifth and 

Fourteenth Amendments to the United States Constitution which protects M&N 

from arbitrary and capricious government conduct that would deprive M&N of its 

legitimate property interests.” (Id. at ¶ 40). In its motion for summary judgment, 

St. Paul counters that Count II also arises from M&N’s Fifth Amendment takings 

claims and, therefore, is excluded from coverage by the “public use of property” 

exclusion.

In its motion for summary judgment, M&N argues that the “public use of 

property” exclusion does not apply to the arbitrary and capricious due process 

claim because the due process claim creates a cause of action separate and apart 

from the alleged regulatory taking, and that cause of action can arise independently 

of the first claim. In support of that argument, M&N cites City of College Station 

v. Star Ins. Co., 735 F.3d 332 (5th Cir. 2013). In College Station, the insured city 

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sued its insurer for indemnification of defense costs. In the underlying action in 

College Station, a land developer claimed that the city rezoned the land on which it 

planned to develop a shopping center, treating the developer differently than other 

developers who had developed properties nearby, because the city was biased 

against Walmart (which the developer intended to be the anchor store for the 

shopping center) and other “big box” retailers. 735 F.3d at 335. The insurance 

company claimed, like St. Paul does here, that all of the developer’s claims in the 

underlying action arose out of the developer’s Fifth Amendment takings claim and, 

therefore, were excluded by the policy’s “inverse condemnation” exclusion. Id. at 

336. The district court agreed but, on appeal, the Fifth Circuit reversed the district 

court’s reasoning. 

The circuit court determined that the underlying complaint “alleged facts 

sufficient to create a possibility of liability wholly independent of WRI’s inverse 

condemnation act – liability that could ‘arise’ whether or not the City’s zoning 

decisions amount to a taking that warrants just compensation.” Id. at 338. The 

court elaborated:

We begin by examining WRI’s allegation that the City’s zoning 

decisions were discriminatory and driven by an irrational animus 

toward WRI and WALMART, depriving WRI of its right to equal 

protection. To understand why these allegations create the potential 

of liability “arising” independently of WRI’s inverse condemnation 

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action, an extreme illustration is helpful. Suppose that a municipality 

has a policy or custom of imposing zoning restrictions on properties 

purchased by racial minorities – restrictions that do not physically 

intrude on the properties and reduce their value by only about 1%. No 

one would argue that such restrictions amount to regulatory takings; 

however, the municipality would still be liable for violating the Equal 

Protection Clause. To say that the municipality’s liability in such 

circumstances “arises out of” an “inverse condemnation” action is 

untenable – the liability arises out of the city’s constitutional 

malfeasances. And the same general logic applies here. Though the 

allegations of discrimination in WRI’s complaint are less compelling 

than the facts of our hypothetical, the duty to defend is triggered even 

by frivolous or groundless allegations. 

We next consider WRI’s related allegation that the City’s zoning 

decisions were arbitrary – driven by an irrational bias against WRI 

and Walmart – and therefore violated WRI’s right to substantive due 

process. Again, we are satisfied that these allegations create the 

possibility of liability “arising” independently of WRI’s inverse 

condemnation action.

Id. at 338-339. 

In the underlying action here, M&N bases its arbitrary and capricious due 

process claim on the allegation that “[t]he town specifically targeted M&N in order 

to prevent it from operating a lawful and properly licensed business. The Town’s 

hostility to M&N’s property interests while knowing of M&N’s substantial 

investment of time, money and effort exhibited a flagrant disregard of M&N’s 

constitutionally protected rights,” and that “[t]he Town had no legitimate public 

interest that was furthered by its actions.” (Case No. 5:14-cv-00184-CLS, Doc. 1, 

¶¶ 42-43.)

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In the statement of facts included in the complaint in the underlying action, 

M&N claims that the entire purpose of the annexation was to stop M&N from 

developing and operating a rock quarry. (Case No. 5:14-cv-00184-CLS, Doc. 1, ¶ 

12.) In fact, M&N claims that the Town wanted to stop the quarry “by any means 

necessary.” Id. Although the Complaint does not claim that the Town was biased 

against the company specifically, it does allege a bias against the type of business 

that M&N intended to operate, much like the town in College Station’s alleged 

bias against “big box” retailers. The alleged bias is not as compelling or as readily 

identifiable as the one put forth in the Fifth Circuit’s hypothetical, but the alleged 

bias does create a claim arising separate and apart from M&N’s Fifth Amendment 

taking claim. 

Because M&N could bring the due process claim without the Fifth 

Amendment taking claim, and recovery for a due process violation does not require 

that a Fifth Amendment taking actually be found, St. Paul has not met its burden of 

showing that Count II of the underlying complaint falls within the “public use of 

property” exclusion of the Policy. Accordingly, this policy exclusion provides no 

basis for St. Paul to refuse to defend the Town against the claim and, thus, against

the suit. Because a verdict has not yet been reached in the underlying case, the 

issue of indemnification is not yet ripe for adjudication, as discussed further below.

 

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B. Known Wrongful Acts Exclusion

The PEML section of the Policy contains a coverage exclusion for “known 

wrongful acts,” which reads:

Known wrongful acts. We won’t cover loss that results from any 

wrongful act, including any part of related wrongful acts, which any 

protected person:

• knew about before the beginning date of this agreement; and 

• could reasonably foresee would result in a claim being made or 

brought while this agreement is in effect.

(Doc. 35-25, p. 84).9

 By its terms, this exclusion is intended to remove from 

coverage any “loss” that any insured “protected person” knew about “before the 

beginning date” of the insurance coverage and “could reasonably foresee” would 

result in a claim being made after the insurance went into effect. Its purpose is to 

avoid coverage for wrongful acts occurring prior to the effective date of the 

insurance and known to the insured but upon which claims are made after the 

insurance goes into effect.

9

 In its motion for summary judgment, St. Paul does not reference or argue that the “expected or 

intended bodily injury or property damage” exclusion of the PEGL portion of the policy is 

applicable. (Doc. 34, p. 23). Accordingly, St. Paul has not met its burden of proving that 

exclusion is applicable, and the court’s analysis will focus on the “known wrongful acts” 

exclusion of the PEML portion of the Policy. Of course, the court has already determined that 

the Town cannot show that it is entitled to any coverage under the PEGL portion of the policy.

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1. Count I – Unconstitutional Taking

The court already has determined that Count I of the underlying complaint is 

precluded from coverage under either the PEML or PEGL parts of the Policy due 

to the “public use of property” exclusion. However, for the same reasons set out 

below with respect to Count II, Count I of the complaint in the underlying action is 

not subject to the “known wrongful acts” exclusion in the PEML coverage. 

2. Count II – Arbitrary and Capricious Due Process Denial

The PEML portion of the Policy covers damages resulting from a “wrongful 

act committed on or after the retroactive date and before the ending date of this 

agreement” that “results in a claim first made or brought while this agreement is in 

effect.” (Doc. 35-25, p. 76). The Policy goes on to define “wrongful act” as “any 

act, error, or omission,” but it does not specify any criteria that make an act 

“wrongful,” other than it “results in a claim.” St. Paul argues in its motion for 

summary judgment that the events giving rise to the underlying complaint by 

M&N fall into the “known wrongful acts” exclusion because the efforts

constituting “wrongful acts” to stop the quarry began “as early as May of 2003,”

before the effective date of the Policy. (Doc. 34, p. 21) St. Paul points out further 

that, in response to these efforts, the Town’s attorney, in August 2003 (still before 

the effective date of the Policy), advised against annexation of M&N’s property. 

Because of this warning, St. Paul asserts that the Town could (and, in fact, did) 

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reasonably foresee that annexation would result in a claim being brought during 

the policy period. 

On April 13, 2004 (after the effective date of the Policy), the Town annexed 

the property at issue by a majority vote. Prior to this date, no affirmative actions 

limiting M&N’s ability to use the property had been taken by the Town because 

the property was outside its jurisdictional limits. All of the efforts opposing the 

quarry beginning in 2003 and continuing up to the annexation itself could not have 

been the basis for a “claim” because none of the pre-annexation actions of the 

Town had the ability to prevent M&N’s use of the land for a quarry or to cause 

M&N any damage or injury. Until it annexed the land, the Town did nothing that 

could be understood to expose the Town to liability for a claim by M&N. If the 

annexation had never occurred, the loss and damages complained of by M&N 

could not have occurred, at least not as the result of anything the Town did. 

Because these pre-annexation “efforts” were neither wrongful nor the bases for a 

claim to be made by M&N, they are not sufficient to invoke the “known wrongful 

acts” exclusion.

After the annexation, on April 21, 2004, the Town denied M&N a business 

license, and on May 4, 2004, the Town instituted a moratorium on the acceptance 

of new permit applications, which moratorium was structured in a way that it 

impacted the M&N property exclusively. These acts reasonably could be foreseen 

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by the Town as resulting in a claim, but during this time, the 2003 Policy was in 

effect (the effective dates for the 2003 policy were October 14, 2003 to 

October 14, 2004). Accordingly, the “known wrongful acts” exclusion for the 

2003 policy is inapplicable to any claim made by M&N due to the annexation of its 

land and other acts by the Town thereafter. In order for the exclusion to apply, the 

wrongful act must be known about before the beginning date of the policy and be 

something that could be reasonably foreseen as resulting in a claim. Nothing that 

took place prior to the annexation itself can be said to have been reasonably 

foreseeable by the Town to result in a claim. 

The question becomes, then, whether the acts listed above – the annexation, 

the denial of a business license, and the moratorium on new license applications --

which took place before the beginning date of the 2004 Policy became effective, 

are subject to the “known wrongful acts” exclusion contained in that Policy. 

Although the annexation and denial and moratorium on business licenses occurred 

after the effective date of the 2003 Policy, the “claim” was not made until 

December 16, 2004, when M&N gave its written Notice of Claim to the Town. At 

that time the 2003 Policy had expired, being replace on October 14, 2004 by the 

identical 2004 Policy. The language in the exclusion referring to the “beginning 

date of this agreement,” therefore, might be read as using the effective date of the 

2004 Policy (not the earlier 2003 Policy it replaced) as the key date for 

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interpretation and application of the exclusion. (Italics added for emphasis). 

Thereafter, in January 2005, the Town passed an ordinance zoning the M&N land 

for agricultural purposes only. Clearly, the passage of the zoning ordinance, to the 

extent it was a “wrongful act,” did not predate the 2004 Policy and, therefore, is 

not subject to the exclusion. M&N then filed suit against the Town in state court in 

April 2005.

St. Paul claims that, because the Town’s attorney advised against any action 

regarding M&N’s property, the Town was on notice, when it annexed the land, 

denied the business license, and put a moratorium on license applications, that a 

lawsuit from M&N was likely and such suit would result in a claim against the 

Policy. Thus, by the logic of this argument, the Town knowingly engaged in the 

“wrongful acts” of annexation, denial of a business license, and a moratorium on 

new license applications, all before the effective date of the 2004 Policy and, based 

on the advice of Town counsel, the Town could and did reasonably foresee that the 

acts would result in a claim being made during the term of the 2004 Policy.

The court is unpersuaded. At the outset, it must be remembered that 

liability-insurance exclusions, where ambiguous, must be strictly construed against 

the insurer and to provide coverage for the insured. “[W]e are mindful of some 

general principles applicable when construing insurance contracts. A contract of 

insurance will be construed strictly against the insurer and liberally in favor of the 

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insured. Ambiguous provisions of an insurance policy will be construed most 

strongly against the insurer and in favor of the insured. Twin City Fire Ins. Co. v. 

Alfa Mutual Ins. Co., 817 So. 2d 687, 695 (Ala. 2001), citing Life Ins. Co. of 

Georgia v. Miller, 292 Ala. 525, 296 So. 2d 900 (Ala. 1974). “Exclusions are to be 

interpreted as narrowly as possible, so as to provide maximum coverage for the 

insured, and are to be construed most strongly against the insurance company that 

drafted and issued the policy.” Cook v. Aetna Ins. Co., 661 So. 2d 1169, 1170 

(Ala. 1995), citing Alliance Ins. Co. v. Reynolds, 494 So. 2d 609 (Ala. 1986); 

Employers Ins. Co. of Alabama v. Jeff Gin Co., 378 So. 2d 693 (Ala. 1979). 

“Where the parties disagree on whether the language in an insurance contract is 

ambiguous, a court should construe language according to the meaning that a 

person of ordinary intelligence would reasonably give it.” Twin City Fire Ins. Co. 

v. Alfa Mut. Ins. Co., 817 So. 2d 687, 692 (Ala. 2001), citing Western World Ins. 

Co. v. City of Tuscumbia, 612 So. 2d 1159 (Ala. 1992).

First, it is clear that the alleged covered losses fall within the coverage of the 

2004 Policy, which contains a retroactive date of October 7, 1989. By its own 

terms of “What This Agreement Covers,” covered losses include those “caused by 

a wrongful act committed on or after the retroactive date....” Thus, even though 

the annexation, license denial, and moratorium occurred before the effective date 

of the 2004 Policy, they came after the retroactive date and are covered, unless 

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excluded by an applicable exclusion. It is here that St. Paul argues that the “known 

wrongful acts” exclusion comes into play; that is, because the Town knew of the 

annexation, license denial, and moratorium before the effective date of the 2004 

Policy (even though they occurred during the coverage period of the 2003 Policy) 

and could reasonably foresee that those acts would result in a claim under the 2004 

Policy, coverage is excluded.

In this case, however, ambiguity arises from several Policy provisions, and 

ultimately that ambiguity must be construe against the insurer, St. Paul. The 

“known wrongful acts” exclusion purports to exclude coverage for any wrongful 

act any insured (“protected person”) knew about “before the beginning date of this

agreement” and which could reasonably be foreseen as one resulting in “a claim 

being made or brought while this agreement is in effect.” (Italics added) The 

phrase “this agreement” is ambiguous when read in the light of the retroactive date 

of October 7, 1989, and the provision that the Policy covers losses “caused by a 

wrongful act committed on or after the retroactive date....” Given the reference to 

the retroactive date, does the phrase “this agreement” refer only to the specific

2004 renewal Policy, or does it refer to a seamless, integrated agreement composed 

of the original 2003 Policy subsequently renewed in identical form by the 2004

Policy? A person of ordinary intelligence could read these policy provisions and 

understand them to mean that the “agreement” referred to in the exclusion is the 

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combined 2003 Policy and its identical renewal in 2004, not just the specific 2004 

renewal. Under such a reading, only those wrongful acts known about by a 

protected person before the 2003 Policy became effective would be excluded.10 

Wrongful acts occurring during the term of the 2003 Policy (and, thus becoming 

“known” during that term) would not be excluded because they did not pre-date 

“this agreement,” where “this agreement” is understood to mean the seamless 

coverage provided by the 2003 Policy and its renewal year-to-year.

 Although not involving exactly the same issue, the Eleventh Circuit case of 

Cast Steel Products, Inc. v. Admiral Ins. Co., 348 F.3d 1298 (11th Cir. 2003), is 

instructive. Relying on Florida law (which is virtually indistinguishable from 

Alabama law on this point), the Eleventh Circuit concluded that a provision of a 

“claims-made” policy was ambiguous and should be construed in favor of the 

insured because it created the possibility that a claim accruing during the term of a 

policy, but being first presented during the subsequent renewal of the policy,

would still not be covered. The court said:

 

10 This reading is consistent with the fundamental purpose of the exclusion. The “known 

wrongful acts” exclusion is designed to prevent someone who has engaged in wrongful acts from 

thereafter seeking to have those acts covered by a “claims-made” policy. If the putative insured 

is aware of wrongful acts predating the insurance agreement, he should not be allowed to seek to 

protect himself against a claim being made on them by obtaining “claims-made” insurance. 

Under the facts of this case, the Town obtained its coverage in October 2003, before the alleged 

wrongful acts alleged in 2004, not afterward.

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The district court's decision presents a somewhat alarming scenario. 

Faced with two consecutive insurance policies that created apparently 

seamless coverage over two policy periods, the court nevertheless 

found that a claim accruing within the two periods was somehow not 

covered by either policy. On the face of the [1999] and [2000]

Policies, there appears to be no gap in coverage. Indeed, the 99 Policy 

was effective until 12:01 a.m. on January 6, 2000, and the 00 Policy 

was retroactively effective beginning on January 6, 2000 (presumably 

at 12:01 a.m.). At a glance, one would be hard pressed to imagine how 

a claim accruing in the middle of the two policy periods would not be 

covered by one of the policies.

Cast Steel Products, Inc. v. Admiral Ins. Co., 348 F.3d 1298, 1301-02 (11th Cir. 

2003). The court found that the provision of the policy dealing with the “extended 

reporting period” was ambiguous in that it did not describe how claims made after 

the end of the term of the agreement are treated in renewal situations, in contrast to 

cancellation and non-renewal circumstances. Construing the language in favor of 

the insured, the court read the contract as providing a similar “extended reporting 

period” in cases of renewal of the insurance agreement, like that provided in nonrenewal cases. 

The same questions can be asked here. How can it be that losses caused by 

allegedly wrongful acts occurring during the effective term of the 2003 claimsmade Policy, upon which an actual claim was made during the 2004 renewal of the 

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Policy, are not covered by either insurance contract?11 Plainly, the 2003 insurance 

Policy implicitly anticipated that coverage might be “renewed” year-to-year when

it explained what happens to the “limited reporting period” upon a non-renewal. 

Such a renewal of insurance coverage is view by the ordinary man as being a 

seamless continuation of coverage provided in the original insurance agreement. 

The average insured does not view each yearly renewal contract as a separate 

agreement, but, rather, simply annual renewals of the same contract. Construing 

this ambiguity against St. Paul, as Alabama law requires, the term “this agreement” 

in the “known wrongful acts” exclusion must be read as a seamless, continuous 

insurance agreement composed of the original and annual renewals of the 

agreement. Where the insured merely renews his insurance and there is no 

cancellation or change of carrier, “[s]uch an event should not precipitate a trap 

wherein claims spanning the renewal are denied.” Cast Steel Products, Inc. v. 

Admiral Ins. Co., 348 F.3d 1298, 1303 (11th Cir. 2003), quoting Helberg v. Nat'l 

Union Fire Ins. Co., 102 Ohio App.3d 679, 657 N.E.2d 834 (1995).

11 The instant case is different from Cast Steel Products on this point. In Cast Steel Products, 

the court of appeals resolved the ambiguity by reading into the contract an “extended reporting 

period” in renewal situations comparable to that provided upon cancellation or non-renewal. In 

this case, reading a “limited reporting period” into the 2003 Policy when it was renewed, 

comparable to that provided upon non-renewal, still puts the December 16, 2004, written Notice 

of Claim filed by M&N three days outside such a “limited reporting period. The 2003 Policy 

expired on October 14, 2004, so the 60-day “limited reporting period” would expire 

December 13, 2004. Nevertheless, ambiguity still exists in the 2003 and 2004 Policies with 

respect to the meaning of the phrase “this agreement” in the “known wrongful acts” exclusion.

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Under the undisputed facts here, the 2004 Policy simply followed the 

identical 2003 Policy. A person of average intelligence would believe that his 

insurance coverage simply continued uninterrupted from one policy-year to the 

next, and he would not anticipate that he would not be covered for alleged 

wrongful acts occurring during the term of one policy simply because the “claim” 

for those acts is presented during the term of an identical renewal policy. Thus, 

when referring to time periods “before” the effective date of “this agreement,” the 

key date is the effective date of the original insurance contract, not the anniversary 

dates of subsequent renewals of the same coverage. Because the alleged wrongful 

acts of the Town’s annexation, denial of a business license, and institution of a 

moratorium on new license applications all occurred after the effective date of the

original 2003 Policy, the court finds that the “known wrongful acts” exclusion does 

not apply because the alleged wrongful acts were not known to the Town or any 

protected persons before the effective date of the “this agreement,” where “this 

agreement” is understood to be the seamless insurance contract created by the 

original 2003 Policy and its 2004 annual renewal. 

C. “Non-Monetary Relief” Exclusion

The PEML portion of the policy contains an exclusion regarding various 

forms of non-monetary relief that might be sought against the insured, which reads 

as follows:

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We won’t cover:

• any cost, expense, or fee; or 

• any amount required to comply with a court or administrative 

agency order, judgment, ruling or decree, or a federal, state, or 

local law; 

that results from any action or demand, or any part of any claim, 

which seeks declaratory, injunctive, or other non-monetary relief.

Such costs, expenses, fees, or amounts include the following:

• The costs of physical alterations or other changes made to 

accommodate or afford accessibility to any disabled person.

• The cost of developing, implementing, or enforcing any 

company policy, procedure, or program. 

Declaratory, injunctive, or other non-monetary relief includes:

• a judgment which declares the rights and duties of any person 

or organization; or

• any type of injunction, restraining order, or any other nonmonetary relief. 

(Doc. 35-25, p. 82). 

St. Paul argues that it has no duty to defend or indemnify the Town of 

Gurley in regard to M&N’s Counts III, IV, and V because those claims fall under 

the policy exclusion for “Declaratory, Injunctive, or Other Non-monetary Relief.” 

Counts III, IV, and V state, as follows:

Count III – Declaratory Judgment: “A judgment from this Court 

invalidating the annexation and/or zoning of the property and other 

official actions of the Town would settle a present justiciable claim or 

controversy and declare the rights of the parties to this action.”

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Count IV – Declaratory Judgment Under Alabama Law: “A judgment 

from this Court invalidating the annexation and/or zoning of the 

property and other official actions of defendants would settle a present 

justiciable claim or controversy and declare the rights of the parties to 

this action.”

Count V – Injunction: “An order enjoining the continued enforcement 

of the Town’s punitive annexation and oppressive and invalid scheme 

of regulations and ordinances would adequately balance the harms 

currently occurring to M&N.” 

(Case No. 5:14-cv-00184-CLS, Doc. 1, pp. 9-13). M&N, however, states that, 

although “M&N does seek equitable relief in its lawsuit, M&N’s takings and 

arbitrary-and-capricious claims both seek compensatory damages, and of course, 

each of those claims supports an award of monetary compensatory damages.” 

(Doc. 37, p. 17). M&N argues that “[b]ecause the complaint contains multiple 

claims that seek compensatory damages, St. Paul owes coverage under the PEML 

policy.” (Id.) 

The Town points out, in its motion for summary judgment, that Counts IIIV, although styled as claims for declaratory and injunctive relief, seek interest, 

costs, attorney fees, and “all other further or different legal . . . relief.” (Doc. 32-1, 

p. 31). The Town argues, therefore, that Counts III, IV, and V are “inextricably 

intertwined” with Counts I and II, which undisputedly seek monetary damages. 

Further, the Town claims that, because Counts III, IV, and V are so closely linked 

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with the other claims, St. Paul must defend them even if the claims, for purposes of 

indemnification, fall into the “non-monetary relief” exclusion, and that the 

language in the policy itself requires coverage at least for purposes of defense. To 

support this claim, Gurley cites to the PEML portion of the policy, which discusses 

St. Paul’s duty to defend:

Right and duty to defend a claim. We’ll have the right and duty to 

defend any protected person against a claim for covered loss. We’ll 

do so even if any of the allegations of such claims are groundless, 

false, or fraudulent. But we won’t have a duty to perform any other 

act or services. 

. . .

Our duty to defend to defend [sic] protected persons against claims for 

covered loss ends when we have used up the limits of coverage that 

apply with the payment of judgments or settlements. 

(Doc. 32-1, p. 32). The Town contends that, because there has not yet been a 

judgment or settlement of the underlying suit, St. Paul’s duty to defend has not 

ended under the policy. St. Paul correctly points out in its response to the Town’s 

motion for summary judgment, however, that the right and duty to defend section 

of the Policy limits itself to defending protected persons against a claim for 

covered loss. (Doc. 41, p. 27). St. Paul argues that Counts III, IV, and V do not 

allege covered losses because they seek only non-monetary relief and, therefore, 

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are not subject to the duty to defend. St. Paul also disputes the argument that it 

must defend Gurley on Counts III, IV, and V, because those claims are 

“inextricably intertwined” with Counts I and II. Id. at 26. 

St. Paul quotes State Farm Fire & Cas. Co. v. Middleton, stating that “if 

there is no ambiguity, insurance contracts must be enforced as written, and courts 

should not defeat express provisions in a policy, including exclusions from 

coverage, by making a new contract for the parties.” 65 F. Supp. 2d 1240, 1244 

(M.D. Ala. 1999), quoting Guaranty Nat’l Ins. Co. v. Beeline Stores, 945 F.Supp. 

1510, 1513 (M.D. Ala. 1996). It does not seem, however, that M&N and the Town 

are requesting that the court create a new policy; the argument is, at least for the 

purpose of defense, that “[a]s long as the complaint comprehends an injury which 

may be within the scope of the policy, the company must defend the insured until 

the insurer can confine the claim to a recovery that the policy does not cover.” St. 

Paul Fire and Marine Ins. Co. v. Town of Gurley, Ala., 2012 WL 3637690, *4 

(N.D. Ala., August 22, 2012), quoting Nationwide Ins. v. Zavalis, 52 F.3d 689, 694 

(7th Cir. 1995). As a practical matter, the defense of the claim that the Town 

arbitrarily and capriciously denied M&N due process is grounded on the very same 

set of facts underlying the non-monetary counts of the underlying complaint. It 

makes practical nonsense to talk about defending Count II without also defending 

Counts III, IV, and V; any defense to the former is necessarily at least a partial 

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defense to the latter.12 Therefore, although St. Paul may, indeed, have no duty to 

defend the Town against Counts III, IV, and V, the court has determined that St. 

Paul does have a duty to defend the Town against Count II and, therefore, against 

all of the claims until such time as Count II is no longer in the underlying case. 

III. Duties of St. Paul

This court has previously discussed the duty of insurers to defend and 

indemnify insureds:

Under Alabama law, an insurer’s duties of defense and indemnity are 

related but distinct and thus require separate analysis. Porterfield v. 

Audubon Indem. Co., 856 So. 2d 789, 792 (Ala. 2002) (citation 

omitted) (“Armstrong”). Specifically, an insurer’s duty to defend is 

more extensive than its duty to indemnify. U.S. Fid. & Guar. Co. v. 

Armstrong, 479 So. 2d 1164, 1168 (Ala. 1985) (citations omitted). 

The complaint allegations primarily govern the scope of the duty to 

defend. Id. (citations omitted). If these allegations reveal a claim 

within the policy coverage, then the insurer must defend, regardless of 

the ultimate liability of the insured. Ladner & Co. v. S. Guar. Ins. 

Co., 347 So. 2d 100, 102 (Ala. 1977) (citation omitted). But an 

insurer’s duty to defend is not solely determined from the facts 

alleged in the complaint. Id. at 103. A court may look to the facts 

that can be proved by admissible evidence. Pac. Indem Co. v. Run-AFort Co., 276 Ala. 311, 161 So. 2d 789, 795 (1964). When a 

complaint alleges both acts covered under a policy and acts not 

covered, the insurer must at least defend the covered allegations. 

12 The court recognizes, of course, that there might be additional defenses to the non-monetary 

counts beyond simply contesting the facts of the case. For example, the counts seeking equitable 

relief might involve defenses of lack of clean hands or the adequacy of remedies in law.

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Blackburn v. Fid. & Deposit Co. of Md., 667 So. 2d 661, 670 (Ala. 

1995) (citation omitted).

 

Employers Mut. Cas. Co. v. Smith Const. & Dev., LLC, 949 F. Supp. 2d 1159, 

1167-68 (N.D. Ala. 2013).

A. Duty to Defend

“Whether an insurance company owes its insured a duty to provide a defense 

in proceedings instituted against the insured is determined primarily by the 

allegations contained in the complaint. Porterfield, 856 So.2d 789, 792 (Ala. 2002)

(internal citations omitted). Because, as determined above, M&N has alleged in 

the underlying action claims that are subject to coverage under the policy, St. Paul 

has a duty to defend the Town of Gurley in the underlying action. Further, 

because, “[a]s long as the complaint comprehends an injury which may be within 

the scope of the policy, the company must defend the insured until the insurer can 

confine the claim to a recovery that the policy does not cover,” St. Paul must 

defend Gurley against all claims in the action. St. Paul Fire and Marine Ins. Co. v. 

Town of Gurley, Ala., 2012 WL 3637690, *4 (N.D. Ala. August 22, 2012), 

quoting Nationwide Ins. v. Zavalis, 52 F.3d 689, 694 (7th Cir. 1995). 

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B. Duty to Indemnify

Because there has been no judgment or settlement in the underlying case, the 

issue of indemnification is not yet ripe and the court will not rule on the issue. 

Employers Mut. Cas. Co. v. Smith Const. & Development, LLC, 949 F.Supp. 2d 

1159, 1176 (N.D. Ala. 2013); See, e.g., Allstate Ins. Co. v. Employers Liab. 

Assurance Corp., 445 F.2d 1278, 1281 (5th Cir. 1971)13 (“[N]o action for 

declaratory relief will lie to establish an insurer’s liability . . . until a judgment has 

been rendered against the insured since, until such judgment comes into being, the 

liabilities are contingent and may never materialize.”); Allstate Indem. Co. v. 

Lewis, 985 F. Supp. 1341, 1349 (M.D. Ala. 1997) (“The duty to indemnify is not 

ripe for adjudication until the insured is in fact held liable in the underlying suit”) 

(citation omitted).

RECOMMENDATION

For the reasons set forth herein, the undersigned RECOMMENDS the 

following: 

13 In Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981)(en banc), the Eleventh 

Circuit Court of Appeals adopted as precedent decision of the former Fifth Circuit rendered prior 

to October 1, 1981. 

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1. The motion for summary judgment filed by St. Paul (doc. 33) be 

DENIED; 

2. The motion for summary judgment filed by the Town of Gurley (doc. 32) 

be GRANTED insofar as St. Paul is required to defend the Town in the underlying 

action and DENIED as unripe on the issue of indemnification; and 

3. The motion for summary judgment filed by M&N (doc. 36) be 

GRANTED insofar as St. Paul is required to defend the Town in the underlying 

action and DENIED as unripe on the issue of indemnification.

NOTICE OF RIGHT TO OBJECT

Any party who objects to this Report and Recommendation must, within 

fourteen (14) days of the date on which it is entered, file specific written objections 

with the clerk of this court. Any objections to the failure of the magistrate 

judge to address any contention raised in the petition also must be included. 

Failure to do so will bar any later challenge or review of the factual findings, 

except for plain error. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 

140, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985), reh’g denied, 474 U.S. 1111, 106 S. 

Ct. 899, 88 L. Ed. 2d 933 (1986); Nettles v. Wainwright, 677 F.2d 404 (5th Cir. 

1982)(en banc). In order to challenge the findings of the magistrate judge, a party 

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must file with the clerk of the court written objections which shall specifically 

identify the portions of the proposed findings and recommendation to which 

objection is made and the specific basis for objection. A copy of the objections 

must be served upon all other parties to the action.

Upon receipt of objections meeting the specificity requirement set out above, 

a United States District Judge shall make a de novo determination of those portions 

of the report, proposed findings, or recommendation to which objection is made 

and may accept, reject, or modify in whole or in part, the findings or 

recommendation made by the magistrate judge. The district judge, however, need 

conduct a hearing only in his or her discretion or if required by law, and may 

consider the record developed before the magistrate judge, making his or her own 

determination on the basis of that record. The district judge may also receive 

further evidence, recall witnesses or recommit the matter to the magistrate judge 

with instructions. Objections not meeting the specificity requirement set out 

above will not be considered by a district judge.

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A party may not appeal a magistrate judge’s recommendation directly to the 

United States Court of Appeals for the Eleventh Circuit. Appeals may be made

only from a final judgment entered by or at the direction of a district judge.

DONE this 10th day of July, 2015.

_______________________________

T. MICHAEL PUTNAM

UNITED STATES MAGISTRATE JUDGE

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