Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alnd-2_19-cv-00425/USCOURTS-alnd-2_19-cv-00425-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

ELITE REFRESHMENT SERVICES 

LLC,

Plaintiff,

v.

LIBERTY MUTUAL GROUP, INC. 

d/b/a OHIO SECURITY INSURANCE 

COMPANY,

Defendant.

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Case No. 2:19-cv-00425-MHH

MEMORANDUM OPINION 

In this action, Elite Refreshment Services, LLC seeks insurance benefits under 

an employment practices liability provision (EPL, for short) in a commercial general 

liability insurance policy that Ohio Security Insurance Company issued to Elite 

Refreshment. (Doc. 8, pp. 3–4, ¶¶ 9–16). Elite Refreshment contends that Ohio 

Security should have paid defense costs and funded a settlement for an employment 

discrimination lawsuit against Elite Refreshment. (Doc. 8, p. 5, ¶ 20). Ohio Security 

has asked the Court to dismiss this action. (Doc. 15). Ohio Security argues that 

Elite Refreshment is not entitled to insurance coverage for the underlying 

discrimination action under the unambiguous terms of the EPL coverage form in the 

CGL policy. The relevant provisions of the EPL coverage form, read in conjunction 

with the factual allegations in the complaint in the underlying discrimination action,

FILED

 2020 Jan-29 AM 10:54

U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 2:19-cv-00425-MHH Document 27 Filed 01/29/20 Page 1 of 10
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indicate that Ohio Security does not owe Elite Refreshment coverage for defense or 

indemnification expenses incurred in the underlying employment discrimination 

action.

1

 

To reach this conclusion, the Court applied Alabama law.2 Under Alabama 

law, general rules of contract construction govern a court’s interpretation of an 

insurance policy. Farmers & Merch. Bank v. Home Ins. Co., 514 So. 2d 825, 831

(Ala. 1987) (citations omitted). “[T]he interpretation of the contract and its legal 

effect are questions of law” for a court to decide. Sentinel Ins. Co. v. Alabama Mun. 

Ins. Corp., 188 So. 3d 640, 644 (Ala. 2015); see also St. Paul Fire & Marine Ins. 

Co. v. ERA Oxford Realty Co. Greystone, LLC, 572 F.3d 893, 897 (11th Cir. 2009)

(applying Alabama law). “[A]mbiguities in an insurance contract must be construed 

 

1 The Court’s consideration of the insurance policy at issue does not convert Ohio Security’s 

motion to dismiss into a motion for summary judgment because the terms of the insurance policy 

are central to Elite Refreshment’s claim for benefits under the policy, and the parties do not dispute 

the authenticity of the policy or the language of the policy provisions at issue. Day v. Taylor, 400 

F.3d 1272, 1276 (11th Cir. 2005). Similarly, the Court’s consideration of the operative complaint

in the underlying discrimination action does not convert the motion to dismiss into a motion for 

summary judgment. United States ex rel. Osheroff v. Humana, Inc., 776 F.3d 805, 811 n.4 (11th 

Cir. 2015) (citations omitted) (On a motion to dismiss, “[c]ourts may take judicial notice of 

publicly filed documents . . . .”). 

2 The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 because the parties are 

completely diverse, and the amount in controversy exceeds $75,000. (Doc. 1). The parties agree 

that Alabama law supplies the substantive principles concerning the interpretation of the insurance

policy at issue. See St. Paul Fire & Marine Ins. Co. v. ERA Oxford Realty Co. Greystone, LLC, 

572 F.3d 893, 894 n.1 (11th Cir. 2009) (“A federal court sitting in diversity, as in this case, must 

apply the choice of law principles of the state in which it sits. In determining which state’s law 

applies in a contract dispute, Alabama follows the principle of lex loci contractus, applying the 

law of the state where the contract was formed.”).

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liberally in favor of the insured.” Johnson v. Allstate Ins. Co., 505 So. 2d 362, 365 

(Ala. 1987). “If there is no ambiguity, courts must enforce insurance contracts as 

written and cannot defeat express provisions in a policy, including exclusions from 

coverage, by making a new contract for the parties.” Johnson, 505 So. 2d at 365; 

see also St. Paul Fire & Marine, 572 F.3d at 898 (same). 

Under Alabama law, an insurance policy may give rise to a duty to defend and 

a duty to indemnify. U.S. Fidelity & Guar. Co. v. Armstrong, 479 So. 2d 1164, 1168 

(Ala. 1985). An insurer’s duty to defend “is more extensive than its duty to 

indemnify.” Armstrong, 479 So. 2d at 1168. “Under Alabama law, whether an

insurance company owes its insured a duty to provide a defense is determined 

primarily by the allegations contained in the complaint.” St. Paul Fire & Marine, 

572 F.3d at 894–95. “Where facts are alleged in the complaint to support a cause of 

action, it is the facts, not the legal phraseology, that determine whether an insurer 

has a duty to defend its insured in the action.” Hartford Cas. Ins. Co. v. Merchants 

& Farmers Bank, 928 So. 2d 1006, 1012 (Ala. 2005). “If the allegations in the 

underlying complaint show an occurrence within the coverage of the policy, then the 

insurer is obligated to defend, regardless of the ultimate liability of the insured.” St. 

Paul Fire & Marine, 572 F.3d at 895.

In the underlying employment discrimination action, the plaintiff alleged that

Elite Refreshment hired her as a housekeeper in August of 2016. (Doc. 25-1, p. 6). 

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The plaintiff asserted that while she worked for Elite Refreshment, her supervisor 

discriminated against her because of her age and her “sexual affiliation.” (Doc. 25-

1, p. 6-12). The plaintiff contended that Elite Refreshment fired her in October 25, 

2016. (Doc. 25-1, p. 7). The plaintiff alleged that “[o]n October 31, 2016, within 

180 days of the last discriminatory act of which [she] complain[ed], [she] filed a 

Charge of Discrimination” with the EEOC. (Doc. 25-1, p. 5). 

In her EEOC charge, the plaintiff indicated under penalty of perjury that 

October 25, 2016 was the last day on which discrimination took place. She did not 

identify her charge as a “continuing action.” (Doc. 25-1, p. 42). 

(Doc. 25-1, p. 42). Nevertheless, in each of the three counts of her complaint, the 

underlying plaintiff alleged that she “is suffering and will continue to suffer

irreparable injury from Defendant’s unlawful policies and practices as set forth 

herein unless enjoined by this court,” (Doc. 25-1, p. 9, ¶ 34; Doc. 25-1, p. 10, ¶ 39; 

Doc. 25-1, p. 13, ¶ 51), and she asked the judge who presided over the underlying 

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action to “award [] the following relief: Enter a declaratory judgment that 

Defendant’s policies, practices, and procedures complained of herein have violated

and continue to violate the rights of the Plaintiff as secured by the ADEA” and “by 

Title VII,’” (Doc. 25-1, p. 9, ¶ a; Doc. 25-1, p. 11, ¶ a; Doc. 25-1, p. 13, ¶ a). In each 

count of the underlying complaint, the plaintiff requested declaratory relief, 

compensatory damages, and attorney fees. (Doc. 25-1, p. 9, ¶ c; Doc. 25-1, p. 11, ¶ 

c; Doc. 25-1, pp. 13–14, ¶ c). 

Elite Refreshment asked Ohio Security to provide coverage for the underlying 

discrimination action. Ohio Security refused, stating that there was no coverage 

under the EPL form because the underlying complaint indicated that “[t]he date of 

the alleged wrongful termination was October 25, 2016, with other alleged disparate 

treatment prior to that date” such that the “employment-related practices [] occurred 

prior to the effective date” of the policy. (Doc. 25-1, p. 36; see Doc. 8, p. 4, ¶¶ 14–

15). Elite Refreshment defended and settled the underlying employment action at 

its own expense. (Doc. 8, p. 4, ¶ 16).

Elite Refreshment’s policy with Ohio Surety covered consecutive policy 

periods from February 6, 2017 to February 6, 2019. (Doc. 8, p. 3, ¶ 9). The policy 

provided “claims made and reported coverage.” (Doc. 15-1, p. 183). Under the EPL 

Coverage Form, Ohio Security agreed to “pay on behalf of” Elite Refreshment 

“‘damages’ in excess of the Deductible arising out of any ‘employment practices’ to 

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which this insurance applies.” (Doc. 15-1, p. 183). As defined in the policy, the 

term “‘Damages’ means monetary amounts to which this insurance applies and 

which the insured is legally obligated to pay as judgments or awards, or as 

settlements to which we have agreed in writing.” (Doc. 15-1, p. 194).3 As defined 

in the policy, the term “employment practices” embraces wrongful termination of 

employment, including retaliatory discharge, and discrimination based on “age, . . . 

sexual orientation or sexual preference or any other protected class or characteristic” 

established by federal statute. (Doc. 15-1, p. 195). The EPL coverage provision 

states: 

This insurance applies to such “damages” only if:

. . . 

c. Such “employment practices” occurred after the Retroactive 

Date, if any, shown in the Declarations and before the end of the 

“policy period.”

(Doc. 15-1, p. 183). The EPL Coverage Form provided a retroactive date of January 

31, 2017. (Doc. 8, p. 3, ¶ 10; see also Doc. 15-1, p. 21).

 

3 The policy expressly excludes from the definition of “damages” equitable and injunctive relief

or legal fees when an underlying plaintiff seeks only equitable relief. (Doc. 15-1, p. 194) 

(“‘Damages’ do not include: . . . (2) Equitable relief, injunctive relief, declarative relief or any 

other relief or recovery other than money; (3) ‘Legal fees’ when solely equitable relief, injunctive 

relief, declarative relief or any other relied or recovery other than money is sought.”). 

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These policy provisions, read together, unambiguously supply EPL coverage 

to Elite Refreshment only for employment practices that occurred between January 

31, 2017 and February 6, 2019. The underlying complaint establishes that the 

employment practices at issue in the discrimination action against Elite Refreshment 

ended, at the latest, on October 25, 2016. Therefore, under the plain language of the 

policy, because the final act of discrimination occurred more than three months 

before the January 31, 2017 retroactive date for the start of coverage, Ohio Security

had no obligation to defend or indemnify Elite Refreshment in the underlying action. 

Nothing on the face of the underlying complaint indicates that Ohio Security 

breached its policy with Elite Refreshment by refusing coverage for the underlying 

employment discrimination action.

Elite Refreshment argues that the underlying plaintiff’s allegations that Elite 

Refreshment’s “policies, practices, and procedures” continued to violate her rights

under the ADEA and Title VII and continued to injure her and that Elite Refreshment 

had “a habit and/or practice” of sexually harassing employees and retaliating against 

employees who engaged in protected activity triggered EPL coverage under the Ohio 

Security policy. Elite Refreshment urges the Court to regard these allegations of 

ongoing conduct as “employment practices” occurring after the retroactive date of 

January 31, 2017. That argument is not persuasive. 

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Per the Alabama Supreme Court’s decision in Hartford Cas. Ins. Co., the 

underlying plaintiff’s description of continuing injury and continuing violations of 

the law based on habits and practices are “legal phraseology” offered to support the 

plaintiff’s request for injunctive relief. 928 So. 2d at 1012. The underlying 

plaintiff’s assertions of ongoing conduct are expressly rooted in her factual 

allegations, (see, e.g., Doc. 25-1, p. 9, ¶ 34, describing “irreparable injury from 

Defendant’s unlawful policies and practices as set forth herein”), and those factual 

allegations expressly state that Elite Refreshment terminated the underlying plaintiff 

on October 25, 2016, (Doc. 25-1, p. 7), and that she filed her October 31, 2016 EEOC 

Charge of Discrimination following Elite Refreshment’s “last discriminatory act,” 

(Doc. 25-1, p. 5, ¶ 7). The underlying plaintiff’s EEOC charge, which was 

incorporated by reference in her complaint, states that the “latest” date 

discrimination took place was October 25, 2016. The plaintiff did not describe her 

EEOC charge as a “continuing action.” (Doc. 25-1, p. 42). 

Under Alabama law, the continuing conduct/injury language in the underlying 

plaintiff’s prayers for relief “is framed by the factual allegations” of paragraph 7 and

paragraphs 11 through 26 of the underlying complaint. 928 So. 2d at 1012. As the 

Alabama Supreme Court stated in Hartford Cas. Ins. Co., “when the complaint 

supplies descriptive facts and those facts are irreconcilable with a legal theory, such 

as “negligence,” inserted in the complaint, the facts, not the mere assertion of the 

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legal theory, determine the insurer’s duty to defend.” 928 So. 2d at 1012. 

Accordingly, given that the underlying plaintiff’s factual allegations establish that 

Elite Refreshment’s last act of discrimination, i.e. its last “employment practice,” 

predated the retroactive start date in the Ohio Security EPL coverage form, the 

underlying plaintiff’s legal phraseology concerning continuing practices and injuries 

does not trigger EPL coverage. 

Because an insurer has a duty under Alabama law to investigate an insured’s 

request for coverage and because an insurer must construe an insurance policy in 

favor of its insured, when the allegations on the face of the underlying complaint do 

not identify a covered event – here, an employment practice post-dating January 31, 

2017 – an insurer sometimes must consider other facts “‘which did exist but were 

not alleged’” in the underlying complaint to determine whether it owes its insured a 

duty to defend. Hartford Cas. Ins. Co., 928 So. 2d at 1010 (quoting Tanner v. State 

Farm Fire & Casualty Co., 874 So. 2d 1058, 1064–65 (Ala. 2003)); see also 

Hartford Cas. Ins. Co., 928 So. 2d at 1012 (“Because the averments of the complaint 

do not establish a duty to defend, we turn to the second prong of the analysis, i.e., 

whether other facts that ‘may be proved by admissible evidence’ but that were not 

alleged in the complaint would show or create a reasonable inference that there had 

been an ‘occurrence’ within the meaning of the policy so as to require Hartford to 

defend Merchants in Barnett's action against it.”). The Court does not have to look 

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beyond the allegations of the underlying complaint in this instance because in its 

complaint in this action, Elite Refreshment has not alleged facts that could be proved 

by admissible evidence to establish a post-January 31, 2017 employment practice 

that would trigger coverage. 

For these reasons, as a matter of Alabama law, Ohio Security did not breach 

its contract with Elite Refreshment when Ohio Security denied Elite Refreshment’s 

request for defense and indemnification in the underlying employment 

discrimination action.4 Therefore, the Court will dismiss this action with prejudice.

DONE and ORDERED this January 29, 2020.

 _________________________________

 MADELINE HUGHES HAIKALA

 UNITED STATES DISTRICT JUDGE

 

4 Because Ohio Security did not breach its contract with Elite Refreshment, Elite Refreshment’s 

bad faith failure to pay claim against Ohio Security fails as a matter of Alabama law. State Farm 

Fire & Cas. Co. v. Brechbill, 144 So. 3d 248, 257 (Ala. 2013) (explaining that under Alabama 

law, the first element of a bad faith failure to pay claim is “an insurance contract between the 

parties and a breach thereof by the defendant”).

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