IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

NATIONWIDE MUTUAL 

INSURANCE COMPANY,

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Plaintiff,

vs. CIVIL ACTION NO. 14-110-CG-M

NALL’S NEWTON TIRE a/k/a 

NALL’S NEWTON TIRE 

SERVICE, INC.,

Defendant.

ORDER

This matter is before the Court on the motion of Nationwide Mutual 

Insurance Company (“Nationwide”) for summary judgment (Doc. 50), the opposition 

filed by Nall’s Newton Tire (“NNT”) (Doc. 63), and Nationwide’s replies (Docs. 65, 

67). For the reasons stated below, the Court finds that summary judgment should 

be granted in favor of Nationwide as to NNT’s bad faith claim, but finds that there 

is a genuine issue of material fact as to NNT’s breach of contract claim and 

therefore, that the remaining portions of Nationwide’s summary judgment motion 

should be denied. 

BACKGROUND

This case arises from insurance claims made for damage resulting from a fire 

that occurred at NNT’s premises on December 18, 2012. Nationwide asserts in its 

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complaint that no coverage exists for NNT’s claims under their policy of insurance. 

(Doc. 1). NNT’s answer to the complaint asserts counterclaims for breach of 

contract and bad faith refusal to pay. (Doc. 9). Nationwide moves for summary 

judgment as to both its declaratory judgment complaint and NNT’s counterclaims. 

(Doc. 50). Nationwide asserts that the fire was the result of arson, that NNT had a 

motive for burning the building and that the evidence implicates NNT in the setting 

of the fire. (Doc. 52). As such, Nationwide contends fire coverage is excluded by the 

policy of insurance and that NNT’s submission of the claim for the fire loss amounts 

to a misrepresentation that voids the policy. (Doc. 52). NNT denies that the fire is 

the result of arson and contends that there is evidence to show that Nationwide 

intentionally or recklessly failed to properly investigate NNT’s claim or 

intentionally or recklessly failed to properly subject the claim to a cognitive 

evaluation or review. (Doc. 63, pp. 10-16). NNT also argues that even if Nationwide 

has presented a prima facie case of arson, Nationwide has not shown that it is 

entitled to summary judgment on the breach of contract claim. (Doc. 63, pp. 16-19). 

Additionally, NNT contends that its representations were not intended to deceive. 

(Doc. 63, pp. 19-20). 

DISCUSSION

A. Summary Judgment Standard

Federal Rule of Civil Procedure 56(a) provides that summary judgment shall 

be granted: “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.” The trial court’s 

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function is not “to weigh the evidence and determine the truth of the matter but to 

determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, 

Inc., 477 U.S. 242, 249 (1986). “The mere existence of some evidence to support the 

non-moving party is not sufficient for denial of summary judgment; there must be 

‘sufficient evidence favoring the nonmoving party for a jury to return a verdict for 

that party.’” Bailey v. Allgas, Inc., 284 F.3d 1237, 1243 (11th Cir. 2002) (quoting 

Anderson, 477 U.S. at 249). "If the evidence is merely colorable, or is not 

significantly probative, summary judgment may be granted." Anderson, at 249-250. 

(internal citations omitted).

The basic issue before a court on a motion for summary judgment is “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.” See

Anderson, 477 U.S. at 251-252. The moving party bears the burden of proving that 

no genuine issue of material fact exists. O'Ferrell v. United States, 253 F.3d 1257, 

1265 (11th Cir. 2001). In evaluating the argument of the moving party, a court 

must view all evidence in the light most favorable to the non-moving party, and 

resolve all reasonable doubts about the facts in its favor. Burton v. City of Belle 

Glade, 178 F.3d 1175, 1187 (11th Cir. 1999). “If reasonable minds could differ on 

the inferences arising from undisputed facts, then a court should deny summary 

judgment.” Miranda v. B&B Cash Grocery Store, Inc., 975 F.2d 1518, 1534 (11th 

Cir. 1992) (citing Mercantile Bank & Trust v. Fidelity & Deposit Co., 750 F.2d 838, 

841 (11th Cir. 1985)).

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Once the movant satisfies its initial burden under Rule 56(c), the non-moving 

party "must make a sufficient showing to establish the existence of each essential 

element to that party's case, and on which that party will bear the burden of proof 

at trial." Howard v. BP Oil Company, 32 F.3d 520, 524 (11th Cir. 1994)(citing 

Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). Otherwise stated, the nonmovant must “demonstrate that there is indeed a material issue of fact that 

precludes summary judgment.” See Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 

(11th Cir. 1991). The non-moving party “may not rely merely on allegations or 

denials in its own pleading; rather, its response .... must be by affidavits or as 

otherwise provided in this rule be set out specific facts showing a genuine issue for 

trial.” Vega v. Invsco Group, Ltd., 2011 WL 2533755, *2 (11th Cir. 2011). “A mere 

‘scintilla’ of evidence supporting the [non-moving] 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) (citation omitted). 

“[T]he nonmoving party may avail itself of all facts and justifiable inferences in the 

record taken as a whole.” Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 998 (11th 

Cir. 1992). “Where the record taken as a whole could not lead a rational trier of fact 

to find for the non-moving party, there is no genuine issue for trial.” Matsushita 

Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 at 587 (1986) (internal 

quotation and citation omitted).

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B. Motions for Summary Judgment

Nationwide moves for summary judgment as to both its declaratory judgment 

complaint and NNT’s counterclaims for breach of contract and bad faith. (Doc. 50). 

Since the declaratory judgment complaint seeks a declaration that the insurance 

policy issued by Nationwide does not provide coverage for NNT’s fire claim, a 

determination of NNT’s counterclaims will also determine whether Nationwide is 

entitled to summary judgment on its complaint.

1. Breach of Contract

The elements for a breach of contract claim are: “(1) the existence of a valid 

contract binding the parties in the action, (2) [plaintiff’s] own performance under 

that contract, (3) the defendant’s nonperformance, and (4) damages.” Southern Med. 

Health Sys., Inc. v. Vaughn, 669 So.2d 98, 99 (Ala. 1995) (citations omitted). There 

is no dispute that a valid contract existed, that NNT made the required policy 

payments under that contract and that NNT sustained damages. The issues are 

whether Nationwide’s denial of the claim constitutes nonperformance and whether 

NNT’s submission of the claim constituted a misrepresentation that voids the 

policy.

Nationwide claims it performed under the contract because NNT’s insurance

claim was excluded by the policy. Specifically, Nationwide asserts that John Nall 

intentionally set the fire and that the policy expressly excludes losses caused by 

dishonest or criminal acts by the insured and any loss arising out of an act 

committed by or at the direction of the insured with the intent to cause a loss. 

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While the insurer bears the burden of demonstrating that these exclusions apply,

Acceptance Ins. Co. v. Brown, 832 So.2d 1, 12 (Ala. 2001) (citing Fleming v. 

Alabama Farm Bureau Mut. Cas. Ins. Co., 293 Ala. 719, 310 So.2d 200, 202 (1975)), 

there appears to be no dispute that if John Nall intentionally set the fire, the policy 

exclusions apply. Thus, the issue before the Court is whether there is a genuine 

issue of material fact regarding whether John Nall intentionally set the building on 

fire. The Court finds that viewing the evidence in the light most favorable to NNT, 

as the non-moving party, there is a sufficient disagreement to require submission to 

a jury. 

Although Nationwide has experts that opine that the fire was intentionally 

set and there is no dispute that John Nall was at the scene of the fire when it 

began, there is also evidence that the fire was accidental. John Nall testified to the 

circumstances under which the fire began and has maintained that the fire was 

accidental. (Doc. 66, pp. 59-68, Doc. 62-8). NNT’s expert, A.K. Rosenhan, opined 

that the fire was accidental. (Doc. 62-12 p. 2). Rosenhan found that the fire started 

at one place of origin, near the southeastern corner of the building, which is 

consistent with Mr. Nall’s description of what occurred. (Doc. 62-13, p. 5, 6-7). 

Rosenhan also opined that the reports of Nationwide’s experts contain numerous 

defects, omissions and erroneous conclusions. (Doc. 62-13, pp. 5-6, 7). The account 

of the first responding officer to the scene of the fire, James Jones, is also consistent 

with John Nall’s account and Rosenhan’s conclusion as to where the fire originated. 

(Doc. 62-2). In light of the above evidence, the Court finds that Nationwide has not 

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met its burden of showing that no genuine issue of material fact exists with regard 

to NNT’s breach of contract claim.

2. Bad Faith

NNT’s counterclaim asserts that Nationwide has failed to pay NNT’s claim 

without any legitimate or arguable reason for denying the claim and has 

intentionally failed to determine whether there was a lawful basis for its refusal by 

failing to investigate or subject its findings to a reasonable interpretation. (Doc. 9, 

pp. 4-5). The tort of bad-faith refusal to pay a claim requires evidence to support 

the following elements:

(a) a breach of insurance contract, (b) the refusal to pay claim, (c) the 

absence of arguable reason, (d) the insurer's knowledge of such 

absence—with a conditional fifth element: “(e) if the intentional failure 

to determine the existence of a lawful basis is relied upon, the plaintiff 

must prove the insurer's intentional failure to determine whether 

there is a legitimate or arguable reason to refuse to pay the claim.”

EMCASCO Ins. Co. v. Knight, 2014 WL 5020044, *15 (N.D. Ala. Oct. 7, 2014) 

(quoting National Sec. Fire & Cas. Co. v. Bowen, 417 So.2d 179, 183 (Ala. 1982)). 

“The plaintiff asserting a bad-faith claim bears a heavy burden.” Shelter Mut. Ins. 

Co. v. Barton, 822 So.2d 1149, 1154 (Ala. 2001) (citing LeFevre v. Westberry, 590 

So.2d 154, 159 (Ala. 1991)). “[A] finding of bad faith based upon rejection of an 

insurer's legal argument should be reserved for extreme cases.” Id. (quoting Safeco 

Ins. Co. of America v. Sims, 435 So.2d 1219, 1226 (Ala. 1983) (Jones, J., concurring 

specially)). “The right of an insurer to deny a claim on any arguable legal issue is to 

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be as zealously guarded as is its right to decline benefits on any debatable issue of 

fact, the test of reasonableness being the same.” Id. (quoting Safeco supra). “To 

defeat a bad faith claim, the defendant does not have to show that its reason for 

denial was correct, only that it was arguable.” Liberty Nat. Life Ins. Co. v. Allen, 

699 So.2d 138, 143 (Ala. 1997). “No matter how badly the insurer acted in 

investigating and evaluating the claim, if there was a debatable reason for refusing 

to pay the claim, when payment was refused, the insured was not entitled to prompt 

payment.” State Farm Fire & Cas. Co. v. Balmer, 672 F.Supp. 1395, 1406 (M.D. Ala. 

1987) (italics and citation omitted). “[P]roof of mere negligence or mistake is not 

sufficient to support a claim of bad faith; there must be a refusal to pay, coupled 

with a conscious intent to injure.” Peachtree Cas. Ins. Co., Inc. v. Sharpton, 2001 

WL 286919, *5 (M.D. Ala. March 20, 2001) (citation omitted).

“Ordinarily, if the evidence produced by either side creates a fact issue with 

regard to the validity of the [insurance] claim and, thus, the legitimacy of the denial 

thereof, the [bad faith] tort claim must fail and should not be submitted to the jury.” 

Nat. Sav. Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362 (Ala.1982). To make out a 

prima facie case of bad faith refusal to pay, the insured must generally show that he 

is entitled to a directed verdict on the contract claim. Id. NNT has not moved for 

summary judgment on its breach of contract claim and has not suggested here that 

it is entitled to judgment as a matter of law on its breach of contract claim. Since 

NNT has not shown that the facts demonstrate, as a matter of law, that Nationwide 

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breached the contract of insurance, it cannot maintain a claim of bad faith refusal to 

pay.

Moreover, Nationwide contends that it had an arguable reason for denying 

the claim and that it did not intentionally fail to determine whether there was a 

legitimate or arguable reason. Nationwide submitted evidence to support a finding 

that the fire was the result of arson.

To establish an arson defense under Alabama law, an insurer must 

“ ‘prove by competent and relevant evidence arson by someone, motive 

by the plaintiff and unexplained surrounding circumstantial evidence 

implicating the plaintiff.’ ” Mueller v. Hartford Insurance Co., 475 

So.2d 554, 557 (Ala.1985) (quoting Great Southwest Fire Insurance Co. 

v. Stone, 402 So.2d 899, 900 (Ala.1981)). The insurer's burden of proof 

is not particularly heavy. Proof may be made by circumstantial 

evidence “if the inferences are not too remote and all circumstances, 

including the inferences, are of sufficient force to bring minds of 

ordinary intelligence to a persuasion of incendiarism by a fair 

preponderance of the evidence.” Id. Proof beyond a reasonable doubt, or 

proof by direct evidence, is not required.

Fondren v. Allstate Ins. Co., 790 F.2d 1533, 1535 (11th Cir. 1986). There have 

clearly been sufficient facts presented for a jury to find that the above standard has 

been met. 

Nationwide submitted testimony from experts who investigated the fire and 

found it to be incendiary in nature. Fire Marshal Jeb Harrison found that the fire 

was incendiary. (Doc. 54-4, p. 3). An independent fire origin and cause expert, 

Bryan Cash, found that the fire was not accidental, but was instead incendiary with

two points of origin. (Doc. 54-3, pp. 3-4, 7-8, 11).

Nationwide also submitted evidence showing that NNT was experiencing 

significant financial difficulties. NNT had at least three outstanding loans and 

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NNT was behind on its payment of the loans. (Doc. 54-5). NNT’s had very little 

money in its bank accounts and at times the accounts had negative balances during 

the months leading up to the fire. (Doc. 55-1). NNT was also behind in paying one 

of its suppliers, Robertson Tire, who has a judgment against NNT. (Doc. 54-1, pp. 

18-22). There were also tax liens totaling $103,330.83 pending against NNT at the 

time of the fire. (Doc.56-3).

There is evidence that implicates John Nall in that he was at the scene of the 

fire when it began and his account is not consistent with the findings of 

Nationwide’s experts. John Nall had the opportunity to set the fire, as he was the 

only person in the building when it started. (Doc. 54-1, p. 24). Nationwide’s expert, 

Cash, eliminated all possible accidental causes, including the possibility that it 

could have been caused by the torch or welding equipment that John Nall had 

reported he had been using prior to the fire. (Doc. 54-3, p. 10). As stated above, 

Cash found that the fire had two points of origin, which is inconsistent with any 

accidental cause that has been suggested.

Moreover, John Nall has been indicted for intentionally setting the fire. 

Courts have held that the fact that an insured had been indicted for arson can be 

strong evidence that the insurance company had a reasonable justification for 

denial. See e.g. Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 422 (6th Cir. 

2000) (“If an insured is indicted before an insurance company refuses to honor its 

policy, by contrast, then an indictment on arson charges certainly would be strong 

evidence that shows that the insurance company had a reasonable justification for 

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the denial of a fire insurance claim, assuming that the insurance company knew 

about the indictment at the time it refused to honor the claim.”).

NNT contends that Nationwide failed to determine whether there was a 

lawful basis for its refusal. However, Nationwide clearly investigated the claim 

including hiring an expert to determine the cause and origin of the fire. This Court 

has already denied NNT’s Daubert motion to exclude the testimony of Nationwide’s 

experts. As previously explained, even if the investigation was lacking, if there is a 

debatable reason for refusing to pay the claim, the insured cannot be held liable for 

bad faith. Balmer, 672 F.Supp. at 1406. “[P]roof of mere negligence or mistake is not 

sufficient to support a claim of bad faith; there must be a refusal to pay, coupled 

with a conscious intent to injure.” Sharpton, 2001 WL 286919 at *5 (citation 

omitted). Where there was an arguable reason to deny the claim, “[t]he insurer's 

“subpar” investigation cannot in and of itself sustain a tort action for bad faith.” 

Balmer, 672 F.Supp. at 1405. 

In light of all of the above, the Court finds that Nationwide clearly had an 

arguable reason to deny NNT’s claim. Accordingly, Nationwide is entitled to 

summary judgment on NNT’s bad faith claim.

CONCLUSION

For the reasons stated above, the motion of Nationwide Mutual Insurance 

Company for summary judgment (Doc. 50), is GRANTED in part to the extent 

that summary judgment is hereby granted in favor of Nationwide on NNT’s 

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counterclaim for bad faith. Nationwide’s motion for summary judgment is 

DENIED as to Nationwide’s declaratory complaint and NNT’s counterclaim for 

breach of contract.

DONE and ORDERED this 13th day of August, 2015.

/s/ Callie V. S. Granade 

UNITED STATES DISTRICT JUDGE

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