Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alnd-2_15-cv-00210/USCOURTS-alnd-2_15-cv-00210-0/pdf.json

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

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UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

C. STANLEY BAILEY, et al.,

Plaintiffs,

v.

FEDERAL INSURANCE 

COMPANY,

Defendant.

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Civil Action Number

2:15-cv-210-AKK

MEMORANDUM OPINION

Plaintiffs C. Stanley Bailey, John Figlewski, Rick D. Gardner, George J. 

Hall, Rick Halloran, James M. Kent, Jr., Peter L. Lowe, Shannon Maddox, D. 

Dewey Mitchell, Robert R. Parrish, Jr., Kenneth Pomeroy, C. Marvin Scott 

(collectively “the Bailey Plaintiffs”), and Intervenor Plaintiffs James A. White and 

William Caughran (collectively “the Intervenor Plaintiffs”) (collectively “the 

Plaintiffs”), pursue this action against Federal Insurance Company pursuant to 28 

U.S.C. § 2201 seeking a declaration of rights and obligations under a liability 

insurance policy. Docs. 1 at 3; 24 at 5–6; 29 at 5–6.

1 Specifically, Plaintiffs allege 

that Federal breached the policy when it attached an endorsement that it had not

first filed with the State of Alabama and then used that endorsement to limit 

 1 Caughran has joined in the Bailey Plaintiffs’ motion, doc. 91, and White has filed his own motion for 

summary judgment, doc. 77, that mirrors the Bailey Plaintiffs’ motion.

FILED

 2016 Sep-30 PM 04:43

U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 2:15-cv-00210-AKK Document 118 Filed 09/30/16 Page 1 of 23
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coverage. Id. Plaintiffs have moved for partial summary judgment, docs. 33; 77, 

91, and Federal has also moved for summary judgment on all claims, docs. 40; 79. 

The motions are fully briefed and ripe for review. Docs. 35; 38; 47; 78; 80; 91; 92;

106; 107; 108. Based on a review of the evidence, the law, and with the benefit of 

oral argument as to the issues related to Count I, Plaintiffs’ motion for summary 

judgment is due to be denied in part, and Federal’s motion for summary judgment 

is due to be granted in part. 

I. SUMMARY JUDGMENT STANDARD OF REVIEW

Under Rule 56(a) of the Federal Rules of Civil Procedure, 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.” “Rule 56[] 

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.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 

(1986) (alteration in original). The moving party bears the initial burden of proving 

the absence of a genuine issue of material fact. Id. at 323. The burden then shifts to 

the nonmoving party, who is required to “go beyond the pleadings” to establish 

that there is a “genuine issue for trial.” Id. at 324 (citation and internal quotation 

marks omitted). A dispute about a material fact is genuine “if the evidence is such 

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that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. 

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 

The court must construe the evidence and all reasonable inferences arising 

from it in the light most favorable to the non-moving party. Adickes v. S. H. Kress 

& Co., 398 U.S. 144, 157 (1970); see also Anderson, 477 U.S. at 255 (all 

justifiable inferences must be drawn in the non-moving party’s favor). Any factual 

disputes will be resolved in the non-moving party’s favor when sufficient 

competent evidence supports the non-moving party’s version of the disputed facts. 

See Pace v. Capobianco, 283 F.3d 1275, 1276, 1278 (11th Cir. 2002) (a court is 

not required to resolve disputes in the non-moving party’s favor when that party’s 

version of events is supported by insufficient evidence). However, “mere 

conclusions and unsupported factual allegations are legally insufficient to defeat a 

summary judgment motion.” Ellis v. England, 432 F.3d 1321, 1326 (11th Cir. 

2005) (per curiam) (citing Bald Mountain Park, Ltd. v. Oliver, 863 F.2d 1560, 

1563 (11th Cir. 1989)). Moreover, “[a] mere ‘scintilla’ of evidence supporting the 

opposing party’s position will not suffice; there must be enough of a showing that 

the jury could reasonably find for that party.” Walker v. Darby, 911 F.2d 1573, 

1577 (11th Cir. 1990) (citing Anderson, 477 U.S. at 252)). 

Case 2:15-cv-00210-AKK Document 118 Filed 09/30/16 Page 3 of 23
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II. FACTUAL ALLEGATIONS

The Plaintiffs are former officers and directors of Superior Bancorp, a 

holding company for Superior Bank. Docs. 34 at 6; 81-2 at 15–17. In their capacity 

as officers and directors, Plaintiffs regularly purchased liability insurance 

coverage, including Directors and Officers insurance (D&O), for Superior Bancorp 

and Superior Bank from Federal. Id. D&O policies are used to protect the directors 

and officers of a corporation against claims that they allegedly failed to perform 

their duties. Docs. 35-2 at 10; 81-1 at 25.

The dispute in this case centers on a D&O policy Plaintiffs purchased 

through their broker, the Mailon Kent Agency, whose owner, Mailon Kent, was 

also a director of Superior Bancorp. Doc. 81-3 at 16. From April 2009 until April 

2010, the D&O policy had a $10 million coverage limit that contained no 

regulatory limitations or exclusions resulting from regulatory claims. Docs. 35-2 at 

16; 81-1 at 45. However, when the policy came up for renewal in April 2010, 

because of the economic climate Federal informed Plaintiffs that it intended to 

change the terms of the policy to offer liability coverage with a regulatory 

exclusion endorsement and defense carveback.

2 Doc. 82-1 at 40. The defense 

 2 Beginning in 2008, as a result of the financial crisis, many banks nationwide failed and faced increased 

regulatory scrutiny. As a result of this heightened regulatory scrutiny, insurance companies began 

inserting regulatory exclusion endorsements into their policies which would either limit or remove their 

coverage for claims brought by regulators. Following this industry trend, Federal began inserting 

regulatory exclusions into its coverage policies with financial institutions. Docs. 35-2 at 12; 35-7 at 2.

Case 2:15-cv-00210-AKK Document 118 Filed 09/30/16 Page 4 of 23
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carveback meant that the D&O policy had a new sublimit of $1 million on defense 

coverage for a regulatory action against the bank. Doc. 35-2 at 19. Federal

decreased the coverage because of its concerns about potential exposure if Superior 

Bank failed and the Federal Deposit Insurance Corporation instituted a civil action 

against the directors and officers. Doc. 35-9 at 2–3. Although Plaintiffs had the 

option to reject the new terms—i.e., Plaintiffs could have paid an additional 

amount to extend the old coverage for acts committed during the coverage period 

or obtain coverage with another carrier; Plaintiffs decided to renew with Federal 

under the new limitations of a regulatory exclusion endorsement. Docs. 35-8 at 2; 

81-1 at 71–72.

As part of its operating practice and procedure, Federal has various standard 

endorsements or policies its underwriters may retrieve and insert into a policy. 

Doc. 35-2 at 12. In contrast, a manuscript endorsement is one that is created for a 

specific policy with the attendant language changes that may be necessary. Doc. 

35-2 at 13. Basically, when an underwriter wishes to use language that is not 

standard, the underwriter sends the desired language to Federal’s legal counsel for 

that department to create an endorsement, i.e., “manuscripted.” Doc. 35-2 at 12–

13. Federal utilized this practice for the new policy it issued to Plaintiffs because 

although Federal already had defense carvebacks in place for some financial 

institutions, it did not have a standard endorsement available with the exclusion 

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that was widely used for banks. Docs. 35-2 at 20, 40; 86-4 at 12. As a result, 

Federal manuscripted an endorsement for the policy it issued Plaintiffs in April 

2010. 

Federal finally transmitted the final binders containing the policy to 

Plaintiffs in July 2010. Doc. 81-8 at 124. By then, Federal had created a standard 

version of the regulatory exclusion endorsement and placed this standard version in 

the policy. Doc. 35-12 at 2. However, apparently because it viewed the 

endorsement as “unique” and not subject to the filing requirement imposed by Ala. 

Code § 27-14-8, doc. 35-10 at 8, Federal waited until September 6, 2010 to file the 

endorsement with the Alabama Department of Insurance, docs. 35-4 at 4; 35-17 at 

2–3.

Superior Bank failed a year after Federal issued the new policy and six 

months after Federal filed the endorsement. The FDIC takeover and its litigation 

against Plaintiffs triggered Plaintiffs to request coverage from Federal for defense 

costs. Doc. 39-1 at 28. By a letter dated May 11, 2011, Federal informed Plaintiffs 

it intended to cap the coverage for defense costs at $1 million because of the

regulatory exclusion cap. Doc. 35-3 at 2–7. Although Plaintiffs never raised any 

objections to the policy or its endorsement, see, e.g., doc. 81-1 at 96; 81-7 at 63–

64, Plaintiffs now seek to void the policy due to alleged deficiencies. Specifically, 

Plaintiffs maintain that the failure to file prior to issuing the policy that forms 

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Plaintiffs contentions in this case that the defense carveback contained in the 

endorsement is null and void as a result and that Federal is obligated to provide 

coverage without the $1 million sublimit. 

III. ANALYSIS

Plaintiffs seek to void the Endorsement and ultimately get coverage beyond 

the $1 million limit. In particular, in Counts I and II, Plaintiffs move for a 

Declaratory Judgment pursuant to 28 U.S.C. § 2201, declaring the Regulatory 

Exclusion Endorsement null and void due to Federal’s failure to (1) file the 

endorsement in compliance with Ala. Code §27-14-8, and (2) disclose the terms of 

the endorsement before materially altering the policy. Doc. 1 at 17. And, in Counts 

III and IV, Plaintiffs seek reformation of the insurance contract and state a claim 

for breach of contract, respectively.

3 As a general matter, where, as here, the 

interpretation of a state statute is at issue, a federal court sitting in diversity must 

apply state substantive law. Allison v. Vintage Sports Plaques, 136 F.3d 1443, 

1445 (11th Cir. 1998) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). Put 

differently, the court must “decide the case the way it appears the state’s highest 

court would.” Ernie Haire Ford, Inc., v. Ford Motor Co., 260 F.3d 1285, 1290 

(11th Cir. 2001). Relevant here, Alabama law provides that “insurance contracts, 

 3 Intervenor Plaintiffs allege the same causes of action as the Bailey Plaintiffs, see docs. 24 at 17–22; 30 

at 17–23, and have filed substantively similar motions for summary judgment, see docs. 77, 101.

Accordingly for the purposes of this Opinion, when discussing Plaintiffs’ claims, the court will reference 

the Bailey Plaintiffs’ Complaint and Motions for Summary Judgment. 

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like other contracts, are construed so as to give effect to the intention of the parties, 

and, to determine this intent, a court must examine more than an isolated sentence 

or term; it must read each phrase in the context of all other provisions.” Celtic Life 

Ins. Co. v. McLendon, 814 So. 2d 222, 224 (Ala. 2001). “[I]nsurance companies 

are entitled to have their policy contracts enforced as written, rather than risking 

their terms either to judicial interpretation or the use of straining language, and the 

fact that different parties contend for different constructions does not mean that the 

disputed language is ambiguous.” Woodall v. Alfa Mt. Ins. Co., 658 So. 2d 369, 

371 (Ala. 1995). Insurance companies also have the right to limit their liability and

to write new policies with narrow coverage. Altiere v. Blue Cross & Blue Shield of 

Ala., 551 So. 2d 290, 292 (Ala. 1989); United States Fid. & Guar. Co. v. Bonitz 

Insulation Co., 424 So. 2d 569 (Ala. 1982). In that regard, if the language 

comports with Alabama law, courts do not have the power to rewrite the language 

to provide coverage that was not intended by the parties. Am. Nat’l Prop. & Cas. 

Ins. Co. v. Blocker, 165 F. Supp. 2d 1288, 1295 (S.D. Ala. 2001). However, 

ambiguities in a policy are “construed liberally in favor of the insured,” Scottsdale 

Ins. Co. v. Town of Orange Beach, 618 So. 2d 1323, 1325 (Ala. 1993), and 

coverage exceptions are construed narrowly to allow for maximum coverage for 

the insured, Alliance Ins. Co. v. Reynolds, 494 So. 2d 609, 612 (Ala. 1986). 

Case 2:15-cv-00210-AKK Document 118 Filed 09/30/16 Page 8 of 23
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With these general principles in mind, the court turns its attention to the policy 

provision at issue and the parties’ respective contentions. The court will begin first 

with Plaintiffs’ contentions that they are entitled to a declaratory judgment due to 

Federal’s purported failure to disclose a material alteration to the policy (Count II) 

or, alternatively, that they are entitled to a reformation of policy (Count III). 

Finally, the court will address Plaintiffs’ contentions that the endorsement is null 

and void due to the filing deficiency (Count I) and the related breach of contract 

claim (Count IV). 

A. Declaratory Judgment For Failure to Disclose (Count II)

In Count II, Plaintiffs contend that they are entitled to a declaratory judgment 

based on the alleged failure of Federal to disclose a material alteration to their 

policy. Doc. 1 at 18–19. Plaintiffs do not allege that they reasonably relied upon 

Federal’s representations about the substance of the challenged endorsement or 

that Federal fraudulently induced them to sign the Policy. Instead, they claim that 

because Federal appended the draft endorsement to the policy binder in April 2010 

and failed to file the endorsement with the Alabama Department of Insurance, 

Federal cannot rely on the endorsement to limit its coverage. Doc. 1 at 18–19. 

After a careful review of the law and the evidence, the court finds that Federal is 

due summary judgment on this claim. 

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A fraud claim based on suppression requires: (1) a false representation 

concerning an existing material fact; (2) made with knowledge of the falsity or 

with reckless regard for truth or falsity; (3) reasonable reliance on the 

representation by the plaintiff who was, in fact, deceived by it; (4) that the 

plaintiff’s reliance was justified under the circumstances; and (5) damages. First 

Alabama Bank of Montgomery, N.A. v. First State Ins. Co., Inc., 899 F.2d 1045, 

1056 (11th Cir. 1990). However, reliance is not reasonable and “the trial court can 

enter a judgment as a matter of law . . . where the undisputed evidence indicates 

that the party or parties claiming fraud in a particular transaction were fully 

capable of reading and understanding their documents, but nonetheless made a 

deliberate decision to ignore written contract terms.” Foremost Ins. Co. v. Parham, 

693 So. 2d 409, 421 (Ala. 1997). Under this standard, “[a] defendant does not 

suppress the truth, even if he previously made an oral misrepresentation, if he 

presents for the plaintiff’s review and signature a document that clearly discloses 

the truth.” Roper v. Assoc. Fin. Serv. of Alabama, Inc., 533 So. 2d 206, 209 (Ala. 

1988). 

Turning to the facts in this case, the evidence establishes that Federal placed 

Plaintiffs on notice that their renewed policy would include a Regulatory Exclusion 

Endorsement. First, Mailon Kent, one of the Bailey plaintiffs and the owner of the 

agency responsible for procuring the liability insurance, played a direct role in the 

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procurement process. Doc. 81-4 at 36. Although Kent contends that he never read 

the emails alerting him to the change in coverage and that he assigned that task 

instead to a subordinate, doc. 81-4 at 69–70 (“I don’t think I read this. . . . I 

depended on Pam [Bowden] to handle that.”), the employee in question testified 

that she discussed the policy with Plaintiffs. According to the employee, “it was 

not a surprise to [Plaintiffs] about either endorsement . . . because it had been 

discussed previously with them,” and that although she would not have used the 

word “carveback,” she discussed that the policy had a “million dollar sub-limit.” 

Doc. 81-8 at 67, 105–6. Significantly, Plaintiffs corroborated her testimony. For 

example, Bailey testified that he had no reason to believe that the employee did not 

discuss the regulatory exclusion with defense carveback with him, doc. 81-1 at 33–

36, and the other Plaintiffs also acknowledge that they had discussions with 

Federal regarding the contraction of the scope of coverage, docs. 81-3 at 32–33; 

81-4 at 91–93, 99–101; 81-5 at 18; 81-7 at 51, 53. Moreover, although Plaintiffs 

claim they never read the policy and did not understand the term “defense 

carveback,” they acknowledge that they knew the policy had a $1,000,000 

limitation on defense costs. Docs. 39-1 at 18, 20, 24; 81-7 at 50, 56, 76; 81-1 at 79. 

In fact, the documents produced and conversations Plaintiffs detailed in their 

depositions demonstrate that Plaintiffs had notice that the scope of their coverage 

had materially changed, and that Plaintiffs accepted the new terms in part because 

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they had limited options with respect to increasing their coverage due to the state 

of the banking environment. See, e.g., docs. 81-4 at 46 (“we would have loved to—

we would have loved to have had, you know, more D&O coverage, but I think the 

industry could see what was happening to the banks, so everyone started dropping 

it.”); 39-1 at 10 (“I knew it [the practice of regulatory exclusions] was going on in 

the industry. It had been discussed at the initial fact-finding lunch, that that was 

one of the trends that the insurance companies were seeing with all the turmoil that 

was going on in the industry.”). Finally, the court notes also that, after Federal 

issued the policies and Plaintiffs forwarded them to the legal department, no one at 

Superior alleged that the D&O policy contained a mistake in its provision of 

coverage or that the policy documents failed to include material terms that 

Plaintiffs had agreed to in accepting the coverage. Docs. 39-1 at 26; 81-4 at 102, 

115, 117; 81-7 at 63; 81-8 at 127–129.

Ultimately, even when taken in the light most favorable to Plaintiffs, the facts 

alleged do not support a finding that Federal failed to disclose material changes to 

the policy or that Plaintiffs reasonably relied upon Federal’s representations to 

their detriment.4 As directors of a bank involved in complex financial transactions, 

 4 Plaintiffs rely on the holding in Alliance Ins. Co., Inc. v. Reynolds, 494 So. 2d 609 (Ala. 1986), to 

support their contention that a failure to disclose is grounds for reformation of contract. In Reynolds, the 

defendants had assault and battery liability insurance under a policy with a separate carrier until the 

plaintiff insurance company picked up the policy. Id. The plaintiff failed to notify the defendants that they 

were changing the scope of the policy coverage, and, in fact, the defendants’ agent returned the renewal 

notice to the defendants indicating that it was renewed “as is.” Id. at 612. Relying on the particular facts 

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Plaintiffs were all sophisticated actors knowledgably versed in reading and 

bargaining for contracts. See, e.g., docs. 81-4 at 17, 24–26; 81-7 at 51–52. That 

they now disagree about the scope of coverage provided is simply not a sufficient 

basis for a finding that Federal misrepresented the contents of the policy. 

Accordingly, Defendants are entitled to summary judgment on Count II. 

B. Reformation of Contract (Count III)

In Count III, Plaintiffs seek reformation of the policy to omit the regulatory 

exclusion endorsement based on their contention that “Federal incorrectly 

represented that the regulatory exclusion in the renewed Policy would be the 

Regulatory Sub-Limit Endorsement” and “did not disclose the Regulatory 

Exclusion Endorsement . . . before the renewed Policy dated July 19, 2010 was 

delivered.” Doc. 1 at 21. Reformation is used to “make [the contract] conform to 

the intention of the parties where, through mutual mistake, their intention is not so 

expressed . . . .” Original Church of God, Inc. v. Perkins, 293 So. 2d 292, 293 

(Ala. 1974). In the insurance contract context, reformation is an appropriate 

remedy where a carrier failed to give notice to an insured of the enlargement or 

material change to a policy prior to renewal. See generally Reynolds, 494 So. 2d 

 

in that case, the court held that the defendants had justifiably relied upon the plaintiff’s representations 

regarding the scope of their coverage and ordered the plaintiff to pay the amount due under the scope of 

the prior coverage. Id. In contrast, here, Federal informed Plaintiffs that the scope of their coverage was 

changing in a material way and then outlined those changes in conversation and via email. As such, no 

credible basis exists to argue that Federal failed to disclose a material change to the insurance contract. 

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609. To invoke the remedy the moving party must demonstrate “by evidence that is 

clear, exact, convincing and satisfactory that [the contract] does not express the 

true agreement of the parties.” Perkins, 293 So. 2d at 293. Plaintiffs have failed to 

make the necessary showing and, as such, are not entitled to reformation. 

Contrary to Plaintiffs’ contentions, the record establishes that Federal placed 

them on notice that their renewed policy would have decreased D&O coverage and 

a regulatory exclusion. See, e.g., doc. 81-5 at 36–37 (Plaintiff Caughran stating: “I 

understood that there would be no money available for regulators, yes.”). To get 

around this disclosed fact, Plaintiffs contend that they are challenging instead 

Federal’s decision to use a final endorsement that differed from the one Federal 

presented in the initial email transmitting the policy. Doc. 98 at 29–30. While 

Plaintiffs are technically correct, their contention is unavailing for several reasons. 

First, Plaintiffs overlook that Federal labeled the endorsement as “Draft” and that it 

contained no terms, effective dates, or policy amounts. Doc. 35-11 at 13. Instead, 

the initial email outlined a discussion Federal had with the Mailon Kent Agency 

and included several attached draft endorsements. Id. Second, the Mailon Kent 

employee responsible for procuring the policy for Plaintiffs testified that she knew 

that the endorsement in the April 2010 email was not the final version that Federal 

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would include in the policy.5 Doc. 81-8 at 100. Her testimony is consistent with the 

substance of the initial email, which states: “For the D&O we will provide $5M 

Limit with a $1M Ret for $275,000. This will include a regulatory exclusion with a 

defense carveback for $1,000,000.” Id. at 2. Third, this language from the April 

email mirrors the final language of the endorsement which Federal delivered in 

July 2010: “this exclusion shall not apply to Defense Costs which amount shall not 

exceed $1,000,000 . . . .” Doc. 81-15 at 64 (emphasis original). Put simply, the 

evidence belies Plaintiffs’ contention that Federal used an endorsement that 

materially differed from the email Plaintiffs received outlining the new Policy 

terms. 

Construing all evidence in favor of Plaintiffs, no valid basis exists for Plaintiffs 

to contend that Federal made a mistake or engaged in fraud that would warrant 

reformation. To the contrary, the record establishes that Plaintiffs received the 

coverage that they bargained for with Federal. While it is evident from this lawsuit 

that Plaintiffs now disagree with the limited coverage provided, “[r]eformation is 

 5 These facts run counter to the supplemental authority Plaintiffs cite to the court. Doc. 109-1. In that 

case, the insurance company was attempting to enforce a clause that it added after it issued the policy. See 

generally FDIC v. Bryan et al., 2016 WL 1075997 (N.D. Ga. March 18, 2016). As a result, the court held 

that the omitted clause was unenforceable because the regulatory exclusion clause was not a part of the 

policy. Id. In fact, the only reference to the regulatory exclusion clause appeared in the insurance binder, 

which was modifiable and automatically terminated once the policy was issued. Id. at 10. Therefore, 

Plaintiffs’ reliance on Bryan is misplaced. In contrast, here, the policy in Superior’s records explicitly 

contained the regulatory exclusion clause, doc. 81-15, Plaintiffs’ insurance agent also knew that the 

policy would contain a regulatory exclusion clause in the binder, doc. 35-11, and the parties executed the 

agreement prior to the FDIC takeover of Superior.

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not available to make a new agreement.” Highlands Underwriters Ins. Co. v. 

Elegante Inns, Inc., 361 So. 2d 1060, 1064 (Ala. 1978). Accordingly, Federal is 

entitled to summary judgment on Count III. 

C. Declaratory Judgment For Failure to File Endorsement (Count I)

In Count I, Plaintiffs seek declaratory judgment that the Regulatory Exclusion 

Endorsement (the “Endorsement”) is void due to Federal’s purported failure to

comply with § 27-14-8’s filing requirement. At issue is Federal’s failure to file the 

endorsement with the Alabama Department of Insurance before the policy’s

issuance. As Plaintiffs note, the Alabama legislature has created a department of 

insurance that is responsible for receiving and granting approval of insurance rates, 

rating systems, as well as endorsements and riders. See Ala. Code §§ 27-2-1, et 

seq. Relevant here, Alabama law provides in part that:

No basic insurance policy or annuity contract form or 

application form where written application is required 

and is to be made a part of the policy, or contract, or 

printed rider, or endorsement form or form of renewal 

certificated shall be delivered or issued for delivery in 

this state unless the form has been filed with, and 

approved by, the commissioner. This subsection shall not 

apply to . . . policies, riders, endorsements or forms of 

unique character designed for, and used with, relation to 

insurance upon a particular subject . . .

Ala. Code § 27-14-8(a). Subsection (b) states in turn that “every such filing shall

be made not less than 30 days in advance of any such delivery.” Ala. Code § 27-

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14-8(b). While property and casualty forms are exempted from the thirty day filing 

requirement, insurance companies are still required to file their forms with the 

Alabama Insurance Department prior to their issuance. See Ala. Admin. Code § 

482-1-123-.04(1).

In this case, Federal filed the endorsement approximately five months after it 

presented the initial binder to Plaintiffs and two months after it issued the policy,

and, as such, failed to comply with § 27-14-8. Based on this failure to comply, 

Plaintiffs direct the court to several Alabama cases which they say support their 

position that the endorsement is null and void as a result. The key case is Aetna 

Ins. Co. v. Word, 611 So. 2d 266, upon which both parties rely in their briefs. In 

that case, Aetna sought to enforce an endorsement it filed with the state over a 

month after the effective date of a policy it issued. 611 So. 2d at 267. The Alabama 

Supreme Court disagreed, noting that in addition to the delay in filing, the 

endorsement Aetna attached to the policy also differed from the endorsement 

Aetna relied on in court. Id. The parties disagree about the significance, if any, of 

the fact that the insurer in Word never filed the actual endorsement with the state. 

Presumably because the endorsement Federal filed after it issued the endorsement 

is the same as the one it is relying on in this case, Federal contends that Word

supports its contention that its late filing is valid. See doc. 102 at 14–15. Plaintiffs 

disagree with this contention and direct the court to Attorney’s Ins. Mut. of 

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Alabama, Inc. v. Alabama Dept. of Ins., 62 So. 3d 1 (Ala. Civ. App. 2010), in 

which the Alabama Court of Civil Appeals affirmed the Commissioner’s finding 

that the insurer’s compliance with the filing requirement after-the-fact did not 

excuse the failure to initially comply: “We agree . . . with the trial court’s decision 

to affirm the determination of the commissioner, in which the commissioner stated 

that ‘[a]lthough AIM has complied after the fact in regards to allowing insured to 

pay premiums in installments, during the period cover[ed in the examination 

report,] AIM was in violation of § 27-12-14.’” 62 So. 3d at 21–22.

Based on Attorney’s Mutual, it seems that Plaintiffs are correct that a proper 

reading of Word’s holding suggests that Federal’s two-month delay in filing, in the 

face of a statute that mandates filing prior to issuance, necessarily means that 

Federal’s filing after-the-fact is not in compliance with the statute. See Ala. Code. 

§ 27-14-8(b); Ala. Admin. Code § 482-1-123-.04(a).

6 The court notes that 

Alabama courts have held that insurance companies have the same rights as 

individuals to limit their liability or impose conditions on coverage. Consequently, 

it seems perhaps contrary to this general recognition that Plaintiffs can avoid the 

terms they bargained for, and, as Federal argues, get a windfall, by relying on a 

 6 Plaintiffs also direct the court to African Methodist Episcopal Church, Inc. v. Smith, 2016 WL 4417268 

(Ala. August 19, 2016), a case the Alabama Supreme Court issued last month. In that case, the plaintiffs 

relied on Word to allege that an arbitration endorsement was invalid because it had not been approved by 

the Alabama Department of Insurance prior to its attachment to the policy at issue. 2016 WL 4417268 at 

*3. Elaborating on the Word and Waikar holdings, the court explained that the filing requirement refers to 

the form itself, and not a specific company’s use of the form. Accordingly, the court found that the insurer 

had complied with the filing requirement because its predecessor company had, in fact, filed the relevant 

form with the Department of Insurance prior to issuing the policy. 

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technical requirement that has no bearing on the specific contractual terms the 

parties actually negotiated. However, an insurer’s rights are limited by the 

provisions in the insurance code, Alabama Farm Bureau Mut. Cas. Ins. Co. v. 

Goodman, 279 Ala. 538, 540 (Ala. 1966), and courts determine the validity of 

insurance contract provisions, including those which exclude or limit coverage, by 

comparing them with the insurance code, Ex parte O’Hare, 432 So. 2d 1300, 

1302–1303 (Ala. 1983); Higgins v. Nationwide Mut. Ins. Co., 291 Ala. 462, 467 

(Ala. 1973). Relevant here, based on the cases the parties have cited, it is clear that 

Alabama courts have strictly interpreted the filing requirement of § 27-14-8. See, 

e.g., Aetna Ins. Co. v. Word, 611 So. 2d 266 (Ala. 1992); Waikar v. Royal Ins. Co. 

of America, Inc. 765 So. 2d 11 (Ala. Civ. App. 1999). Therefore, Federal can only 

avoid liability if it can establish that it is exempt from the filing requirement or has 

some other valid defense. 

To get around its failure to file in advance of issuing the policy, Federal raises 

several arguments. First, Federal alleges the commercial casualty policy it issued is 

exempted from the thirty-day filing requirement contained in Ala. Code § 27-14-

8(b) by Ala. Admin. Code § 482-1-123-.04(a). Indeed, the exemption allows 

insurers to operate under the “File and Use System.” Ala. Admin. Code § 482-1-

123.04. Under this system, an insurance company must file its form “with the 

regulator on or before the date of use [by the company].” Ala. Admin. Code § 482-

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1-123.03(3). Also, this section of the Administrative Code anticipates that any 

modifications a regulator requests will be made on a prospective basis, id., which 

Federal argues means that this system implicitly rejects Plaintiffs’ contention that 

they are entitled to void the endorsement. However, even under a “File and Use” 

system, there is no language in the regulations that exempts an insurer from the 

initial obligation to file its forms with the Department of Insurance prior to using 

them in this state. As a result, because it is undisputed that Federal filed the 

endorsement well after it issued the policy, Federal cannot rely on the exemption in 

Ala. Admin. Code § 482-1-123-.04(a) to cure its failure to file its form prior to 

issuance.

Second, in reliance on Am. Auto. Ins. Co. v. McDonald, 812 So. 2d 309, 311–12 

(Ala. 2001), Federal asserts that Plaintiffs do not have standing to bring a claim for 

a violation of the Insurance Code. The reliance on McDonald is misplaced because 

the court focused on the fact that the plaintiff had no relationship with the insurer 

at the time the plaintiff sought to file a claim against the company for selling 

policies without a license. 812 So. 2d at 312. In contrast, here, Plaintiffs are the 

insureds. In addition, based on the holdings in Aetna Ins. Co. v. Word, 611 So. 2d 

266 (Ala. 1992), Waikar v. Royal ins. Co. of Am., Inc., 765 So. 2d 11 (Ala. Civ. 

App. 1999), and African Methodist Episcopal Church, Inc. v. Smith, 2016 WL 

4417268 (Ala. 2016), the Alabama appellate courts have recognized that a party to 

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an insurance contract has an action where an endorsement that is not in compliance 

with Alabama law restricts coverage and the endorsement’s invalidity may change

the scope of insurance coverage.

Third, Federal contends that the endorsement qualified as “unique” within the 

meaning of § 27-14-8(a), and, as such, it was exempt from the filing requirement. 

Doc. 40 at 12–16. This argument centers on the fact that Federal had not used 

Form 14-02-16863, the official designation of the endorsement, in Alabama at the 

time it created it for Plaintiffs. Id. Plaintiffs counter that the endorsement is not 

unique and have moved for summary judgment on this claim. 

In interpreting a statute, “the starting point . . . is the language of the statute 

itself.” Bankston v. Then, 615 F.3d 1364, 1367 (11th Cir. 2010) (internal 

quotations omitted). In this case, the statute excludes from the filing requirements 

“policies, riders, endorsements or forms of unique character designed for, and used 

with, relation to insurance upon a particular subject.” Ala. Code § 27-14-8(a) 

(emphasis added). Federal contends that its endorsement is “unique” because when 

Federal issued Form 14-02-16863 to Plaintiffs, Federal was only using a similar 

endorsement, Form 02-16722, with one other Alabama bank. See doc. 86-9 (Tabs 

KK and LL). Because the statute does not define the term “unique character,” the 

court must “look to the common usage of [the] words for their meaning.” 

Consolidated Bank, N.A. v. United States Dep’t of Treasury, 118 F.3d 1461, 1464 

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(11th Cir. 1997). The parties do not cite, and the court has not found, any cases in 

Alabama that address “unique character” in the insurance context. The parties 

seem to agree that a resolution of this issue will depend, in part, on whether 

Federal had used the endorsement previously or if Federal only made this 

endorsement available to Plaintiffs. The parties disagree, however, about the 

specifics of the use of the endorsement here, with Plaintiffs claiming that Federal 

used it in a broader manner than Federal contends. Because of the conflicting 

evidence on this issue, the lack of case law on point, and the fact that a resolution 

of this issue will have a dispositive effect, the court finds that material issues of 

fact preclude summary judgment on this claim.

7

 7 Federal also relies on the “savings clause” of Ala. Code § 27-14-16 to argue that the policy it issued is 

valid even though it failed to comply with § 27-14-8. The “savings clause” states: “[a]ny insurance policy, 

rider or endorsement hereafter issued and otherwise valid which contains any condition or provision not 

in compliance with the requirements of this title shall not be thereby rendered invalid but shall be 

construed and applied in accordance with such conditions and provisions as would have applied had such 

policy, rider, or endorsement been in full compliance with this title.” Ala. Code § 27-14-16. The 

endorsement here satisfies the first part of this clause in that it is “otherwise valid” in light of its approval 

by the Department of Insurance. The court does not believe it satisfies the rest of the clause however, i.e., 

“which contains any condition or provision [of a policy that is] not in compliance with [Alabama law].” 

Ala. Code § 27-14-16 (emphasis added). As the court sees it, the issue here is not whether the 

endorsement contains language that complies with Alabama law. Again, the record here shows that the 

Department of Insurance deemed the endorsement “filed” in September 2010 and no one has raised any 

allegation that there is a condition or provision in the endorsement that does not comply with Alabama 

law. Accordingly, because the failure to file a form prior to its use in a policy is an issue separate and 

distinct from a “condition or provision” in the policy itself, the court finds that § 27-14-16 is inapplicable 

to the current facts. However, because Federal indicated at oral argument that this issue is a fallback in the 

event its main arguments fail, Federal is free to ask for reconsideration on this issue in the event it loses 

on the “unique character” issue.

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D. Breach of Contract (Count IV)

A plaintiff establishes a breach of contract claim by showing: (1) the existence 

of a valid contract binding the parties; (2) his performance under the contract; (3) 

the defendant’s nonperformance; and (4) damages. Southern Medical Health Sys., 

Inc. v. Vaughn, 669 So. 2d 98, 99 (Ala. 1995). The existence of a contract is 

obviously not in dispute, nor is it disputed that Plaintiffs performed under the 

policy by paying their premiums. Because resolution of this claim hinges on 

whether the regulatory exclusion endorsement is void and therefore not a part of 

the policy, see supra III.C, the motion for summary judgment on this claim is also 

due to be denied at this juncture. 

CONCLUSION

For the foregoing reasons, the Plaintiffs’ motion for summary judgment is 

due to be denied as to Counts I (Declaratory Judgment for Failure to File) and IV 

(Breach of Contract), and Federal’s motions for summary judgment are due to be 

granted as to Counts II (Declaratory Judgment for Failure to Disclose) and III 

(Reformation), and due to be denied in all other respects. 

DONE the 30th day of September, 2016.

 

_________________________________

ABDUL K. KALLON

UNITED STATES DISTRICT JUDGE

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