IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

NATIONWIDE MUTUAL FIRE 

INSURANCE COMPANY,

)

)

)

)

)

) 

)

)

)

)

)

Plaintiff,

v. Civil Action No. 15-351-CG-N

D.R. HORTON, INC.—

BIRMINGHAM, 

Defendants.

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Plaintiff Nationwide Mutual Fire 

Insurance Company’s (“Nationwide”) Motion for Summary Judgment (Doc. 

60), brief in support (Doc. 61), Defendant D.R. Horton, Inc.—Birmingham’s 

(“DRHI-B”) response in opposition (Doc. 71), and Nationwide’s reply (Doc. 73). 

The Court simultaneously considers Nationwide’s motion to preclude 

evidence of counterclaim plaintiff’s contract-related damages (Doc. 59), 

DRHI-B’s response (Doc. 68), and the reply (Doc. 70); Nationwide’s motion to 

strike affidavit (Doc. 69), DRHI-B’s response (Doc. 72), and the reply (Doc. 

75); and finally Nationwide’s motion to strike affidavit filed in response to 

motion for summary judgment (Doc. 74), DRHI-B’s response (Doc. 76), and 

the reply (Doc. 77). For the reasons set forth herein, Plaintiff’s motion for 

summary judgment is due to be GRANTED IN PART and DENIED IN 

PART. Upon review of the record and the parties’ arguments, the Court also 

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finds it proper to DENY both motions to strike the affidavit. As such, 

Nationwide’s motion to preclude evidence is found to be MOOT. 

I. BACKGROUND

This action seeks a declaratory judgment as to Nationwide’s rights, 

obligations, and duties, if any, to provide a defense and indemnity1 coverage 

to DRHI-B pursuant to a commercial general liability insurance policy issued 

by Nationwide to Olmedo Construction Co., Inc. (“Olmedo”) with respect to an 

action pending in the Circuit Court of Baldwin County, Alabama. (Doc. 1, ¶ 

28). In response to Nationwide’s seeking declaratory judgment, DRHI-B has 

counterclaimed for breach of contract and bad faith and has pled the 

affirmative defense of estoppel. (Doc. 7, ¶¶ 2–3, 33, 42). 

A. The Relationship Between Olmedo and DRHI-B 

On September 7, 2006, Olmedo entered into a contract with DRHI-B2

to become an independent contractor for framing, concrete, brick, and roofing 

labor on a blanket basis. (Doc. 1, Ex. 5, p. 1, 6). In this contract, Olmedo 

agreed to the following provisions:

 1 Because the underlying suit filed in Alabama state court is not yet finalized, 

this Court will only address Nationwide’s duty to defend; the question of its 

obligation or duty to indemnify DRHI-B is NOT RIPE. See Assurance Co. of 

Am. v. Legendary Home Builders, Inc., 305 F.Supp. 2d 1266, 1270 (S.D. Ala. 

2003) (“First, with regard to the issue of ripeness, the other district courts in 

this Circuit have held that an insurer's duty to indemnify is not ripe for 

adjudication in a declaratory judgment action ‘until the insured is in fact held 

liable in the underlying suit.’”) (citations omitted).

2 While the parties initially contested the identity of the party to the contract, 

DRHI-B indicates that “DRH, Inc.” was a shorthand used to indicate “D. R. 

Horton, Inc.—Birmingham” in contracts at the time. (Doc. 60, Ex. 13). 

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11.1 General Liability. Contractor [Olmedo] agrees to 

carry a Broad Form Commercial General Liability 

Insurance on an Occurrence Form (“the CGL Policy”), 

with completed operations coverage which contains a per 

occurrence limit of no less than One Million Dollars

($1,000,000.00), and an aggregate limit of no less than 

Two Million Dollars ($2,000,000.00) protecting against 

bodily injury, broad form property damage, and personal 

injury claims arising from the exposures of: (i) premisesoperations; (ii) products and completed operations 

including materials designed, furnished, and/or modified 

in any way by Contractor (with a separate aggregate limit 

at least equal to the general aggregate limit); (iii) 

independent subcontractors; (iv) contractual liability risk 

covering the indemnity obligations set forth in this 

Agreement; and (v) where applicable, property damage 

resulting from explosion, collapse, or underground (x, c, u) 

exposures. The CGL Policy shall not exclude from 

coverage the type of, or nature of, the Work or limit the 

type of structure on which the Work is to be performed. 

The CGL policy shall not contain a deductible or self 

insured retention of more that $25,000.00. Contractor 

shall continuously maintain a commercial general 

liability policy covering completed operations for any 

applicable statute of repose for commencing lawsuits 

associated with the Work. [. . .]

11.3 General Requirements Applicable to All 

Required Insurance. Contractor shall add Owner 

[DRHI-B] as an Additional Insured on the CGL Policy or 

policies required above covering both on-going and 

completed operations (equivalent to form CG20101185 or 

CG2037). [. . .]

11.4 Proof on Insured Status. Contractor shall provide 

evidence that all required insurance is in full force by 

furnishing Owner with a Certificate of Insurance, or 

certified copies of the required policies. Each Certificate of 

Insurance or policy shall contain an unqualified clause to 

the effect that the policy shall (i) not be subject to 

cancellation, non-renewal, adverse change, or reduction of 

amounts of coverage without thirty (30) days’ prior 

written notice to owner, (ii) be carried continuously from 

the date of commencement of the Work until expiration of 

the period of the Contractor’s warranty provided in this 

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Agreement, (iii) specifically identify Owner as an 

Additional Insured, and (iv) indicate that coverage applies 

in the state where the Work is being performed. [. . .]

(Doc. 1, Ex. 5, p. 5). Olmedo then obtained a commercial general liability 

insurance policy from Plaintiff Nationwide through its captive agent Kilgro & 

Associates, Inc. (“Kilgro & Associates”). (See Doc. 73, p. 2–3; Doc. 71, Ex. 10). 

Beginning in 2009, Kilgro & Associates sent DRHI-B Certificates of 

Insurance and copies of the policy endorsements as proof of Olmedo’s policy 

coverage and DRHI-B’s status as an additional insured. (See Doc. 71, Exs. 7, 

23–26, 28–29, 31). 

B. The Underlying Suit

On May 16, 2013, Olmedo employee Roberto Campos Leco worked on a 

house being built on Lot 109, located at 9621 Cumbria Road, Daphne, 

Alabama, as a member of the framing crew. (Doc. 1, Ex. 3, p. 3). The truss 

system on the job site collapsed, causing Mr. Leco to fall to his death. Id. Mr. 

Leco’s personal representative brought an action in Alabama state court 

against Olmedo and others for acts and/or omissions allegedly causing Leco’s 

death.3 (See Doc. 1, Ex. 2). In May 2014, the underlying plaintiff amended the 

complaint to add D.R. Horton, Inc. as a defendant. (Doc. 1, Ex. 3, p. 2). The 

complaint was further amended to correct the party name to DRHI-B. (Doc. 1, 

Ex. 4). In the Saddler complaint, the plaintiff alleges the following:

40. [DRHI-B] was the owner of the Lot 109 house and 

served as the general contractor for the construction of 

 3 Saddler et. al v. Mega Constr. Co., Inc., et. al, CV 3013-901074-REW (Cir. 

Ct. Baldwin Cnty.). 

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the Lot 109 house. In that dual capacity, [it] had the right 

and authority to direct its subcontractors on the means 

and methods of completing the framing work on the Lot 

109 house. Because of its right of control over the means 

and methods of framing and construction, [DRHI-B] had a 

duty to provide its subcontractors with a reasonably safe 

place to work and with the tools and materials needed to 

perform the work safely. As the owner-general contractor 

[DRHI-B] also had a duty to coordinate among those 

responsible for the house design, the truss system design, 

the truss system fabrication and, most importantly, the 

framing crews, to make sure that the framers were 

familiar with those instructions and had a plan to follow 

the instructions by installing appropriate permanent and 

temporary bracing.

41. [DRHI-B] negligently or wantonly failed to provide 

a safe place for Olmedo employees to work and 

negligently failed to coordinate among those responsible 

for the truss system design and installation because: (a) it 

did not require the presence of the truss system bracing 

plan on site or in the building plans; (b) it did not 

coordinate and communicate with the house and truss 

system designers to make sure that a bracing plan was 

provided to the subcontractors, (c) it did not require its 

subcontractors to be trained in how to properly brace and 

support truss systems; (d) it did not provide the 

equipment and means for subcontractors to properly 

protect their employees from falls; (e) it did not inspect 

and supervise the work to insure that the truss systems 

were properly braced; and (f) it did not warn it[s] 

subcontractors to stop work in windy conditions.

(Doc. 1, Ex. 4, p. 10–11). In addition, the complaint alleges DRHI-B 

“negligently or wantonly hired [Olmedo] to perform framing and supervisory 

services on the Lot 109 house.” Id. at 12. As a basis for claiming Olmedo was 

“unqualified,” the complaint states, 

[Olmedo]: (a) did not employ trained employees and 

supervisors who could communicate in the English 

language; ([b]) did not employ employees who knew the 

safe way to brace truss systems; (c) did not provide 

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adequate fall protection training and equipment for its 

framers; (d) had no formal fall protection program; (e) did 

not insure that proper truss system bracing instructions 

were provided by [DRHI-B] or the vendors supplying the 

truss systems; and (f) was not licensed as a general 

contractor, home builder or framer.

Id.

After being joined as a defendant, DRHI-B notified Nationwide of the 

underlying suit and requested defense under Olmedo’s policy. (See Doc. 60, 

Ex. 1, p. 33–34) (Thomas deposition testimony stating that Nationwide 

received notice of the underlying suit in June 2014); (Doc. 71, Ex. 4) (e-mail 

from DRHI-B’s counsel to Nationwide dated July 2, 2014).4 Nationwide, 

however, argues DRHI-B delayed in giving notice of the suit until September 

2014 and, thus, failed to comply with the notification requirement in 

Olmedo’s policy. (Doc. 1, ¶ 25).

Between June 2015 and the filing of the instant action in July 2016, 

Nationwide never tendered a defense to DRHI-B. (See Doc. 61, Ex. 13; Doc. 7, 

¶¶ 18–22). 

C. The Insurance Policy in Effect

Nationwide claims it issued policy ACP GLGO 2324496714 to Olmedo 

with effective dates of August 5, 2012 through August 5, 2013 (the “232 

 4 DRHI-B also claims to have sent a letter via facsimile and U.S. mail to 

Nationwide through its captive agent Kilgro & Associates in June 2013. See

Doc. 71, Ex. 32; Doc. 7, ¶ 12. Although this letter predates the addition of 

DRHI-B to the underlying suit, it nonetheless requests a defense and 

indemnity in anticipation of a suit. Nationwide claims Kilgro & Associates 

never received this communication and has no record of DRHI-B’s request in 

June 2013. See Doc. 71, Ex. 33, p. 6, 10. 

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Policy”). (Doc. 1, Ex. 1 at 2). According to Nationwide, this policy listed DRHIB as an additional insured only for completed operations, with the project site 

listed as “2900 US Hwy 98, Bld A, Ste 202, Daphne, AL 36526.”5 (Doc. 1, Ex. 

1 at 37) (capitalization omitted). Because the occurrence in the underlying 

suit transpired during an ongoing project at a site that differs from that 

listed on the endorsement, Nationwide contends it owes neither defense nor 

indemnification to DRHI-B. (Doc. 62, p. 20–21). Nationwide also cites other 

policy exclusions, such as the “Employer’s Liability” and “Worker’s 

Compensation And Similar Laws” sections, as evidence it does not owe 

defense or indemnification to DRHI-B under the 232 Policy. (Doc. 1, ¶ 27). 

DRHI-B, however, argues Nationwide erroneously deleted ongoing 

operations coverage, which was included Olmedo’s original policy, during a 

2009 rewrite.6 DRHI-B contends that agent Kilgro requested to add 

completed operations coverage, which triggered a rewrite of the policy. When 

the new policy was issued, Nationwide mistakenly replaced the ongoing 

operations coverage with completed operations rather than merely adding the 

completed operations coverage. Nationwide, however, argues that the 

rewritten policy is in accord with agent Kilgro’s request and maintains that 

only completed operations coverage is available in the 232 Policy. (See Doc. 

71, Ex. 1, p. 425–27, 525).

 5 This address corresponds to DRHI-B’s corporate address for its South 

Alabama operations. (Doc. 60, Ex. 1, p. 126).

6 See, infra, Section II.D for a further explanation of the request for 

completed operations coverage and the rewrite of Olmedo’s policy. 

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DRHI-B further posits Nationwide is estopped from relying solely on 

the 232 Policy as a basis for excluding coverage because Nationwide, through 

its captive agent, issued Certificates of Insurance and copies of the policy 

endorsements indicating DRHI-B’s status as an additional insured for both 

completed and ongoing operations without geographical limitations. (Doc. 71, 

p. 1–2). Kilgro & Associates prepared and sent the Certificates of Insurance 

to DRHI-B through its insurance vendor Ebix. (Doc. 71, Ex. 18, p. 101–02). 

According to Nationwide, Kilgro & Associates could not have created the 

endorsements with a policy number; these endorsements necessarily would 

have come from Nationwide’s underwriting department through its computer 

system. Id. Thus, Kilgro & Associates merely attached the endorsements 

available with the policy in Nationwide’s system at the time to the 

Certificates of Insurance. (Doc. 71, Ex. 1, p. 396–404). DRHI-B further 

contends Nationwide is estopped from excluding coverage under the 232 

Policy because it failed to deliver a copy of the policy pursuant to Ala. Code. § 

27–14–19 (1975). (Doc. 7, ¶¶ 24, 41). The parties do not dispute that DRHI-B 

did not request a copy of the policy from Nationwide prior to the initiation of 

this suit. (Doc. 62, p. 11; Doc. 71, p. 5). 

In December 2012 Kilgro & Associates responded to DRHI-B’s request 

for proof of insurance and sent a Certificate of Insurance along with copies of 

the relevant endorsements. (Doc. 71, Ex. 31). The Certificate of Insurance 

states the policy number as ACP GLGO 2304496714 with effective dates of 

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August 5, 2012 through August 5, 2013.7 Id. Additionally, the Certificate of 

Insurance describes the attached endorsements: “Below named certificate 

holder is also named as Additional Insured (Form ACP0013 attached) as 

respects to above. [. . .]” Id. The attached endorsements, which reflect the 

policy number stated on the Certificates, indicated coverage for both 

completed operations at “All Locations” and for on-going operations (Form 

ACP-0013). Id. The Certificate of Insurance contains a disclaimer, stating: 

THIS CERTIFICATE IS ISSUED AS A MATTER OF 

INFORMATION ONLY AND CONFERS NO RIGHTS 

UPON THE CERTIFICATE HOLDER. THIS 

CERTIFICATE DOES NOT AFFIRMATIVELY OR 

NEGATIVELY AMEND, EXTEND OR ALTER THE 

COVERAGE AFFORDED BY THE POLICIES BELOW. 

THIS CERTIFICATE DOES NOT CONSTITUTE A 

CONTRACT BETWEEN THE ISSUING INSURER(S),

AUTHORIZED REPRSENTATIVE OR PRODUCER, 

AND THE CERTIFICATE HOLDER.

***

IMPORTANT: If the certificate holder is an 

ADDITIONAL INSURED, the policy(ies) must be 

endorsed. [. . .] A statement of this certificate does not 

confer rights to the certificate holder in lieu of such 

endorsement(s).

Id.8 (capitalization in original). 

D. Nationwide’s Investigation of DRHI-B’s Coverage Claim

In September 2014 Nationwide began investigating whether DRHI-B 

was covered under Olmedo’s policy and informed DRHI-B that it was not 

 7 This Certificate of Insurance also lists the 2013 calendar year as the 

effective date for Workers’ Compensation and Employer’s Liability coverage. 

8 The Court uses the certificates found in DRHI-B’s response, Doc. 71, Ex. 31 

because that document states the coverage period relative to the date of loss. 

The other certificates produced in discovery contain the same, or 

substantially the same, disclaimer. See Doc. 60, Ex. 8. 

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covered under the 232 Policy. (Doc. 61, Ex. 12). Nationwide contends the 

policy number stated on the Certificates of Insurance DRHI-B submitted 

corresponds to Olmedo’s policy from August 2010 through August 2011 and 

that “it appears the policy number and dates on the certificate of insurance 

do not match up.”9 Id.

Upon further investigation, Nationwide discovered that Olmedo’s 

original policy from 2008 listed DRHI-B as an additional insured for ongoing 

operations. (Doc. 71, Ex. 15; Ex. 10). In 2009, agent Kilgro requested that 

DRHI-B be added to the policy as an additional insured for completed 

operations (form CG-7160). (Doc. 71, Ex. 15). Suzanne Shore, a senior 

commercial underwriter at Nationwide, indicated that Olmedo’s policy would 

have to be re-written as “a PR policy” to include the completed operations 

endorsement. Id. She stated, “I have approval to add this endorsement once 

the policy is rewritten. [. . .]” Id. In her 2014 investigation of the 2009 policy 

rewrite, claims agent Cynthia Thomas found that the “[ongoing] ops 

[operations] endorsement for the PR policy, CG2010, was never added for 

either of the AIs [additional insureds] on this re-write.” Id. She further 

inquired, “Did the agent’s request to add DR Horton via CG 7160 / completed 

ops ask that DR Horton only be written as AI for completed ops, and not to 

write DR Horton as AI for ops anymore? Or did we drop the ball and just 

 9 DRHI-B submitted a copy of its contract with Olmedo, a copy of the 

underlying complaint, a Certificate of Insurance for August 2013 through 

August 2014 listing policy number ACP GLGO 2304496714, and copies of the 

attached endorsements. (Doc. 71, Ex. 4). 

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missed that endorsement on the re-write?” Id. (emphasis in the original). In 

response, Jan Aguilar, a commercial underwriting specialist for Nationwide, 

stated, “I found two emails on file from 2009 under the existing PCIO policy 

regarding the re-write and that DR Horton had been added with the CG 7160 

per the agents [sic] request. However, there is no mention of continuing them 

under the AC corresponding endorsement CG 2010.” Id.; see also Doc. 71, Ex. 

1, p. 424–32.

After its review of the 232 Policy, Nationwide determined it did not 

owe a defense. In her deposition Thomas explained,

We never made a decision to not extend a defense. We just 

never got proof of the information that we needed in order 

to—well, we didn’t decide not to extend a defense. We 

didn’t believe we owed a defense, but we knew you guys 

[DRHI-B] felt differently. So we actually just decided to 

file the declaratory judgment action and let a judge 

decide.

(Doc. 71, Ex. 1, p. 40). 

E. DRHI-B’s Claim for Damages

DRHI-B seeks compensatory damages for its attorneys’ fees and 

related costs—including as yet undetermined indemnity costs—it incurred in 

defending the underlying suit.10 (Doc. 7, p. 10, 12). As of March 2016, DRHI-B 

 10 DRHI-B repeatedly reminds the Court and Nationwide that the underlying 

suit is not resolved. While it was scheduled for trial beginning August 15, 

2016, the parties settled on August 13. That settlement has not yet been 

finalized. As such, DRHI-B does not—and cannot—yet know what its total 

damages are. (See Doc. 71, p. 5; Doc. 68, p. 6). On September 19, 2016, the 

parties entered a Joint Stipulation of Dismissal resolving all claims and 

stating that each party will bear its own costs. (Saddler et. al v. Mega Constr. 

Co., Inc., et. al, CV 3013-901074-REW, Doc. 1024 (Cir. Ct. Baldwin Cnty. 

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claims it has expended $380,294.89 in this pursuit.11 (Doc. 61, Ex. 14). DRHIB further acknowledges it reached a settlement agreement with a third party 

insurance company to cover one-third of the costs of defending the underlying 

suit, as well as the receipt of a lump sum settlement from an additional third 

party. (Doc. 71, p. 5; Doc. 60, Ex. 4, p. 56–57). DRHI-B admits these 

payments or credits do not appear on the invoices or billing statements it 

provided to Nationwide during discovery. Id. Nationwide contends the 

evidence of DRHI-B’s expenditures is insufficient to determine the hourly 

rate(s), the nature of the tasks performed, the time billed, and other factors 

relevant to determining the reasonableness of the attorneys’ fees. (See Doc. 

62, p. 32–33; Doc. 59, p. 4, 8–11).

In its motion to preclude evidence of DRHI-B’s breach of contract 

damages (Doc. 59), Nationwide contends DRHI-B failed to produce any 

evidence, except for the monthly billing statements, relating to its claimed 

damages. (Doc. 59, p. 8–9). It further argues DRHI-B’s failure to submit 

attorney testimony, including expert testimony, as to the necessity and 

reasonableness of the hours spent and the hourly rate merits a finding of 

summary judgment. Id. at 9–11. Furthermore, Nationwide asks this Court to 

limit DRHI-B’s evidence of its contract damages to the monthly billing 

 

Sept. 19, 2016)). 

11 In an affidavit submitted along with its response to Nationwide’s motion 

for summary judgment, DRHI-B updated its accounting of the expenses and 

fees it has occurred. It states it has spent a total of $420,041.34 on fees and 

expenses as of the end of June 2016. Doc. 71, Ex. 35, p. 3). This affidavit is 

the subject of Nationwide’s motions to strike and will be discussed below.

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statements produced during discovery. (Doc. 70, p. 4). 

In response to the motion for summary judgment and the motion to 

preclude evidence (Docs. 71, Ex. 35; 68, Ex. 2), DRHI-B submitted the 

affidavit of J. Burris (“Buzzy”) Riis, one of its attorneys for the underlying 

suit. This affidavit is the subject of Nationwide’s two motions to strike (Docs. 

69, 74). In this affidavit, Riis provides testimony and opinions regarding 

DRHI-B’s legal bills in the underlying suit, including the hours expended, the 

hourly rates of the different attorneys and paralegals, and the fact that the 

bills reflect only the fees and expenses charged for the underlying action (and 

not inclusive, for example, of secondary but related litigation, including the 

instant matter). (See Doc. 68, Ex. 2). DRHI-B admits that it failed to include 

Riis in its initial and ongoing discovery disclosure as a witness but maintains 

that its discovery disclosures (the monthly billing statements and evidence of 

payment) are sufficient evidence to withstand summary judgment; it also 

argues that its failure to disclose Riis is harmless under Fed. R. Civ. P. 37(c)

and, therefore, that his affidavit should not be stricken. See Docs. 68, p. 7–16; 

72, p. 2, 5–13). 

Moreover, DRHI-B rejects Nationwide’s claims that it had no prior 

knowledge of Riis, that it could not have anticipated this type of evidence, or 

that it did not have an opportunity during discovery to develop a record 

against the claim for attorneys’ fees. (See Docs. 69, p. 2–4; 72, p. 2–7). DRHIB asserts that it disclosed, during the discovery window, the monthly invoices 

from its counsel (Doc. 59, Ex. 2), evidence of payment (id.), and responses to 

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interrogatories regarding calculation of its damages and its representation in 

the underlying suit (Doc. 59, Ex. 4, p. 12–13). Notably, in its response to 

Nationwide’s interrogatories, DRHI-B specifically answered, “[A]t all times 

[DRHI-B] has been represented by Bradley Smith, Buzzy Riis[,] and the law 

firm of Hand Arendall in the underlying action. [DRHI-B] is responsible for 

the payment of all fees and expenses with one-third of those fees and 

expenses being reimbursed by Essex as the insurer for Mega Construction, 

subject to a negotiated agreement.” (Doc. 59, Ex. 4, p. 12–13). Notably, these 

responses were submitted to Nationwide on February 18, 2016. (Id. at 16). As 

the record indicates, discovery initially closed on April 29, 2016 but was 

extended through July 1, 2016. (See Docs. 20 & 51).

II. ANALYSIS

Nationwide moves this Court for summary judgment as to both its 

declaratory judgment complaint and DRHI-B’s counterclaims for breach of 

contract and bad faith. Before addressing summary judgment, this Court will 

turn its attention to Nationwide’s motions to strike and its motion to preclude 

evidence. 

A. Motions to Strike and Motion to Preclude Evidence 

Nationwide’s motions to strike (Docs. 69, 74) challenge the propriety of 

Riis’s affidavit and request that it be stricken because DRHI-B never 

identified Riis as a witness in its initial disclosures or any amendments 

thereto; Nationwide further claims it is “obvious[ly]” harmed by the belated 

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admission of Riis’s affidavit because DRHI-B denied Nationwide the ability to 

collect evidence regarding the fees and expenses during the discovery window 

prior to the submission of its motion for summary judgment. (See Doc. 69, p. 

6; Doc. 75, p. 6). Its motion to preclude evidence (Doc. 59) asks this Court to 

limit the evidence regarding DRHI-B’s contract-related damages to the 

monthly billing statements and evidence of payment submitted during 

discovery. 

1. Legal Standard

Under Rule 26(a)(1)(A), Fed. R. Civ. P., a litigant in federal court must 

provide initial disclosures including “the name and, if known, the address 

and telephone number of each individual likely to have discoverable 

information that the disclosing party may use to support its claims or 

defenses, unless solely for impeachment, identifying the subjects of the 

information.” Id. The Rule 16(b) Scheduling Order (Doc. 20) obligated the 

parties to exchange initial disclosures on or before April 29, 2016, and the 

Amended Scheduling Order (Doc. 51) reopened discovery until July 1, 2016. 

By rule, the disclosure obligation is continuing, such that a party must 

supplement its disclosures “at appropriate intervals . . . if the party learns 

that in some material respect the information disclosed is incomplete or 

incorrect and if the additional or corrective information has not otherwise 

been made known to the other parties during the discovery process or in 

writing.” Rule 26(e)(1), Fed.R.Civ.P. Magistrate Judge Nelson ordered the 

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parties to make Rule 26(e) supplementation “‘at appropriate intervals’ and 

‘seasonably.’” (Doc. 20, ¶ 8.)

If a party without substantial justification fails to disclose required 

information, then that party “is not, unless such failure is harmless, 

permitted to use as evidence at a trial, at a hearing, or on a motion any 

witness or information not so disclosed.” Rule 37(c)(1); see also Cooper v. 

Southern Co., 390 F.3d 695, 728 (11th Cir. 2004) (“it was within the sound 

discretion of the trial judge to sanction plaintiffs for their failure to disclose 

by enforcing the unambiguous terms of Rule 37(c)”). In evaluating whether 

the failure to disclose a witness is harmless, the Eleventh Circuit considers 

“(1) the importance of the testimony; (2) the reason for the appellant's failure 

to disclose the witness earlier; and (3) the prejudice to the opposing party if 

the witness had been allowed to testify.” Bearint ex rel. Bearint v. Dorell 

Juvenile Group, Inc., 389 F.3d 1339, 1353 (11th Cir. 2004). The nonproducing party has the burden of showing that its actions were substantially 

justified or harmless. Stallworth v. E-Z Serve Convenience Stores, 199 

F.R.D. 366, 368 (M.D. Ala. 2001) (citing Burney v. Rheem Mfg. Co., 196 

F.R.D. 659, 691 (M.D. Ala. 2000)).

This Court’s jurisdiction is based on diversity, and Alabama is the 

forum state; therefore, the court applies the law of the State of Alabama to 

resolve disputes as to the reasonableness of attorneys’ fees. Kearney v. AutoOwners Ins. Co., 713 F.Supp.2d 1369, 1373 (M.D. Fla. 2010) (citing Trans 

Coastal Roofing Co., Inc. v. David Boland, Inc., 309 F.3d 758, 760 (11th Cir. 

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2002) (“Since Boland’s claim for attorney’s fees sounds in state law and 

reaches up by way of federal diversity jurisdiction, we apply the substantive 

law of Florida, the forum state.”) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 

64 (1938)).

It is well-settled that Alabama law permits the recovery of attorneys’ 

fees “incurred as a proximate result of . . . [a] refusal to defend” as an element 

of damages in a breach of contract suit. Green v. Standard Fire Ins. Co. of 

Ala., 477 So. 2d 333, 335 (Ala. 1985). “[The claimant] is entitled to recover 

attorneys’ fees only ‘to the extent that they are necessarily incurred and 

reasonable in amount.’” Id. (quoting Highlands Underwriters Ins. Co. v. 

Elegante Inns, Inc., 361 So. 2d 1060, 1066 (Ala. 1978)). “The determination of 

whether an attorney fee is reasonable is within the sound discretion of the 

trial court.” Kiker v. Probate Court of Mobile County, 67 So. 3d 865, 867 (Ala. 

2010) (citations omitted). In contemplating the reasonableness of the fees 

requested, 

Alabama courts consider non-exclusive list of criteria, 

including: “(1) [T]he nature and value of the subject 

matter of the employment; (2) the learning, skill, and 

labor requisite to its proper discharge; (3) the time 

consumed; (4) the professional experience and reputation 

of the attorney; (5) the weight of his responsibilities; (6) 

the measure of success achieved; (7) the reasonable 

expenses incurred; (8) whether a fee is fixed or contingent; 

(9) the nature and length of a professional relationship; 

(10) the fee customarily charged in the locality for similar 

legal services; (11) the likelihood that a particular 

employment may preclude other employment; and (12) 

the time limitations imposed by the client or by the 

circumstances.”

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(Stewart v. Continental Cas. Co., 2015 WL 225290, *2 (S.D. Ala. Jan. 16, 

2015) (quoting Pharmacia Corp. v. McGowan, 915 So. 2d 549, 552–53 

(Ala.2004)). While “[t]he fee charged by counsel . . . is not conclusive on the 

count of reasonableness of the fee to be awarded as damages,” Highlands 

Underwriters Ins. Co., 361 So. 2d at 1066, the trial court “may calculate the 

award based on its own experience, knowledge, and observations” when “ the 

rates of hours claimed seem excessive or lack the appropriate 

documentation.” Rhodes v. Davis, 2010 WL 4260048, *5 (S.D. Ala. Oct. 25, 

2010) (citing Norman v. House Auth. of the City of Montgomery, 836 F.2d 

1292, 1303 (11th Cir. 1988). Generally, attorney affidavits detailing the 

hourly rates and the reasonableness of the time expended are accepted. See 

id.12 The Alabama Supreme Court has also accepted a client’s trial testimony 

of the amounts paid to her attorney and the checks proving those payments

as sufficient evidence of compensatory damages for legal expenses in a duty 

to defend and bad faith claims. See Acceptance Ins. Co. v. Brown, 832 So. 2d 

1, 20–21 (Ala. 2001). 

2. Discussion

As this Court has noted, “Discovery in federal court is not a game of 

hide the ball[.]” Hosea v. Langley, 2006 WL 314454, *5 (S.D. Ala. Feb. 8, 

 12 In Rhodes, the party seeking fees also submitted a “detailed time sheet” to 

back up the attorneys’ affidavits. While no time sheets have been submitted 

in the instant case, the Court, as discussed below, finds this issue to be 

MOOT because of the impossibility of determining, with any specificity, the 

damages until the underlying case is fully resolved. 

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2006). While the Court denounces DRHI-B’s lackadaisical approach to 

submitting evidence regarding its damages, it cannot ignore Nationwide’s 

complacency. As to Riis, “[counterclaim] defense counsel failed to take steps 

reasonably available to them to secure depositions or statements in a timely 

manner. Rather than being proactive in attempting to obtain the requisite 

discovery, [counterclaim] defense counsel was content to express indignation 

at [counterclaim] plaintiff[’s] course of conduct, then sit back and do nothing 

until [the] declaration[ was] filed.” Id. As the record demonstrates, 

Nationwide had ample notice of Riis’s involvement in the underlying suit. His 

name was submitted in response to its interrogatory asking for information 

regarding DRHI-B’s representation in the underlying suit and also appears 

on numerous documents related to the underlying suit. (See Doc. 59, Ex. 4, p. 

12; Doc. 60, Ex. 7, p. 11). Further, it is unclear that Nationwide asked to 

depose defense counsel W. Bradley Smith specifically for the purpose of 

seeking information relating to DRHI-B’s damages.13 While Nationwide 

clearly asked for dates in order to depose Smith (see Doc. 59, Ex. 5), DRHIB’s response does not indicate that it would use no one from Hand Arendall 

as a witness (see id.). It simply stated it would not call Smith as a witness, 

which it has not done. Id. The entire line of correspondence regarding Smith’s 

availability, in fact, fails to mention the purpose for deposing him or any 

request for discoverable information regarding DRHI-B’s calculation of 

 13 In fact, the parties’ recounting of the oral conversations regarding 

Nationwide’s request for Smith’s deposition are completely divergent. 

Compare Doc. 59, p. 6 with Doc. 68, p. 5–6.

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damages. Id.14

Moreover, the appearance of Riis’s name in the interrogatory responses 

submitted well before the close of discovery indicates that Nationwide had 

the opportunity to ask to depose him and chose not to do so.15 Nationwide did 

not file a motion to compel a witness regarding DRHI-B’s damages or take 

further action to obtain discoverable evidence regarding them. The record 

further evidences that DRHI-B answered the discovery requests timely, 

included the information available to it regarding the legal fees and expenses 

it had paid, and disclosed settlement agreements with other parties to the 

underlying suit. As such, the Court finds that DRHI-B’s omission of Riis from 

the witness list was harmless “because (a) [DRHI-B] did reveal [Riis’s] 

identity [months] before the close of discovery, and (b) [Nationwide] failed to 

avail [itself] of procedural and investigative tools reasonably available to 

them to arrange [Riis’s] deposition prior to the close of discovery despite 

 14 The Court further considered Nationwide’s notice of deposition of DRHI-B’s 

corporate representative, which included a request for the person “most 

knowledgeable about the damages claimed.” (Doc. 59, Ex. 3, p. 2). While 

DRHI-B’s corporate representative could or did not answer specific questions 

about its attorneys’ billing rates, hours worked, or the exact nature of the 

work done, he did answer Nationwide’s questions about the third party 

contributions and other questions related to damages. Moreover, he testified 

that the monthly billing statements were the only damages DRHI-B had 

incurred as of that date. Id. at Ex. 1, p. 63. It is clear to the Court that the 

total amount of damages is unknown as the underlying matter has yet to be 

resolved. 

15 The Court notes the interrogatory responses were submitted on February 

18, 2016. (Doc. 59, Ex. 4, p. 16). Nationwide requested dates to depose Smith 

on March 9, 2016, approximately three weeks after it had acquired Riis’s 

name. (Id. at Ex. 5, p. 1). The record does not show any time where 

Nationwide requested to depose Riis or was otherwise denied access to him. 

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ample time for them to do so.” Hosea, 2006 WL 414454 at *5; see also

Northstar Marine, Inc. v. Huffman, 2014 WL 6454940, *1–2 (S.D. Ala. Nov. 

13, 2014) (denying a motion to strike evidence produced after the close of 

discovery because the evidence was produced “a month before trial (such that 

defendant has had sufficient time to tailor its trial strategy and trial 

presentation to account” for it). The Court further finds Riis’s affidavit 

testimony is harmless, despite his nonappearance on any witness list, 

because Nationwide “should not [be] surprised by this witness” because 

attorneys’ fees stemming from the underlying suit have been a part of DRHIB’s damages claim since the beginning of this proceeding, and Riis’s role as 

counsel for the underlying suit for three or so years certainly qualifies him “to 

testify as to the amount and value of his, his firm’s, legal services.” See

McSweeney v. Kahn, 347 Fed.App’x. 437, 442 (11th Cir. 2009) (Ga.) 

(unpublished). For these reasons, the Court DENIES both motions to strike 

((Docs. 69, 74) Riis’s affidavit. 

Because this Court denies the motions to strike Riis’s affidavit, it finds 

Nationwide’s motion to preclude evidence of counterclaim plaintiff’s contractrelated damages (Doc. 59) MOOT. Riis’s affidavit, while untimely, presents 

no harm to Nationwide’s motion for summary judgment. Additionally, a final 

calculation for DRHI-B’s damages will be impossible to determine until the 

underlying matter is completely resolved. As such, the evidence supporting or 

refuting those claims will be revisited at the appropriate juncture. 

B. The Summary Judgment Standard

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Federal Rule of Civil Procedure 56(a) instructs that “[t]he court shall 

grant summary judgment 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 mission is to “determine whether there is a 

genuine issue for trial” and not to “weigh the evidence.” See Anderson v. 

Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

The burden is on the moving party to show that there is no genuine 

dispute as to any material fact. Id. at 256. In conducting its summary 

judgment analysis, the Court must construe all evidence “in the light most 

favorable to the party opposing the motion.” United States v. Diebold, Inc., 

369 U.S. 654, 655 (1962).

After the movant meets its burden, the burden shifts to the nonmoving 

party “to make a showing sufficient to establish the existence of an element 

essential to that party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986). If the nonmoving party fails to do so, the “complete failure of proof 

concerning an essential element of the nonmoving party’s case necessarily 

renders all other facts immaterial.” Id. at 323. Further, 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 

(internal quotation marks omitted). There is no genuine issue for trial 

“[w]here the record taken as a whole could not lead a rational trier of fact to 

find for the non-moving party.” Matsushita Elec. Indus. Co. v. Zenith Radio 

Case 1:15-cv-00351-CG-N Document 80 Filed 10/06/16 Page 22 of 37
23

Corp., 475 U.S. 574, 587 (1986).

C. Nationwide’s Claim for Declaratory Judgment

Under Alabama law, the insured bears the burden of establishing 

coverage by demonstrating that a claim falls within the policy, see Colonial 

Life & Accident Ins. Co. v. Collins, 194 So.2d 532, 535 (Ala. 1967), while the 

insurer bears the burden of proving the applicability of any policy exclusion. 

See U.S. Fidelity & Guar. Co. v. Armstrong, 479 So.2d 1164, 1168 (Ala.1985). 

If an insurance policy is ambiguous in its terms, the policy must be construed 

liberally in favor of the insured, and exceptions to coverage must be 

interpreted as narrowly as possible in order to provide maximum coverage to 

the insured. Altiere v. Blue Cross & Blue Shield, 551 So.2d 290, 292 (Ala.

1989). 

The Court notes that an “insurer's duty to defend is more extensive 

than its duty to [indemnify].” Porterfield v. Audubon Indem. Co., 856 So.2d 

789, 791 (Ala. 2002) (quoting United States Fid. & Guar. Co. v. Armstrong, 

479 So.2d 1164, 1168 (Ala. 1985)). Generally, an insurer’s obligations with 

respect to providing a defense to its insured in an action brought by a third 

party are determined by the allegations contained in the third party’s 

complaint. Ladner and Company, Inc. v. Southern Guaranty Ins. Co., 347 

So.2d 100, 102 (Ala. 1977) (citations omitted). “If the allegations of the 

injured party's complaint show an accident or occurrence which comes within 

the coverage of the policy, the insurer is obligated to defend regardless of the 

ultimate liability of the insured.” Id. (citing Goldberg v. Lumber Mutual 

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24

Casualty Ins. Co., 297 N.Y. 148, 77 N.E.2d 131 (1948)). Thus, if there is any 

potential for coverage arising out of the allegations, then Nationwide would 

have at least a duty to defend.

However, a court is not constrained to consider only the 

allegations of the underlying complaint, but may 

additionally look to facts which may be proved by 

admissible evidence. Tanner [v. State Farm Fire & Cas. 

Co., 874 So.2d 1058, 1064 (Ala.2003)]; see also Hartford 

Cas. Ins. Co. v. Merchants & Farmers Bank, 928 So.2d 

1006, 1010 (Ala.2005) (in deciding whether the allegations 

of the complaint show a covered accident or occurrence, 

“the court is not limited to the bare allegations of the 

complaint ... but may look to facts which may be proved 

by admissible evidence”) (citations omitted). The test, 

ultimately, is this: “The insurer owes no duty to defend 

only if neither does the complaint against the insured 

allege a covered accident or occurrence nor does the 

evidence in the litigation between insurer and insured 

prove a covered accident or occurrence.” Tanner, 874 

So.2d at 1065.

Essex Ins. Co. v. Foley, 2011 WL 1706214, *3 (S.D. Ala. May 5, 2011). If both 

covered claims and non-covered claims are pleaded, then the insurer's duty to 

defend extends at least to those covered claims. Tanner, 875 So.2d at 1065.

In the instant action, Nationwide contends it owes no coverage to 

DRHI-B under the 232 Policy because (1) the underlying suit alleges only 

DRHI-B’s negligence and (2) the 232 Policy only offers completed operations 

endorsement with a project site that differs from the accident site. DRHI-B, 

however, counters that Nationwide (1) erroneously deleted DRHI-B’s ongoing 

operations coverage as an additional insured in the 2009 re-write and (2) is 

estopped from denying coverage (a) based on the representations it made on 

the Certificate of Insurance and the attached endorsements it received from 

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2010 through 2013 and (b) because it failed to deliver a copy of the policy 

pursuant to Alabama law. 

After reviewing the evidence and considering the facts in the light 

most favorable to DRHI-B, this Court finds that Nationwide is precluded 

from denying coverage under the 232 Policy based on the questions of 

material fact as to the exclusion of DRHI-B’s ongoing operations endorsement 

in the 2009 rewrite and because of misrepresentations made in the 

Certificate of Insurance and the attached endorsements. As such, summary 

judgment as to its declaratory judgment claim is due to be denied. 

1. The 2009 Rewrite Request

Nationwide asserts that the 232 Policy provides only a completed 

operations endorsement for DRHI-B with a project site listed as its South 

Alabama headquarters on Highway 98. Yet Nationwide’s only documented 

authority for deleting DRHI-B’s ongoing operations endorsement from 

Olmedo’s policy is two e-mails from the underwriting department, one of 

which purports “to add this [completed operations] endorsement once the 

policy is rewritten[.]” (Doc. 71, Ex. 15) (emphasis added). 

To justify this interpretation, Aguilar stated, “there is no mention of 

continuing [the ongoing operations endorsement] under the AC corresponding 

endorsement CG 2010.” Id. The Court finds a question of material fact as to 

whether the underwriter was authorized merely to add the completed 

operations endorsement to the rewritten policy or to replace ongoing 

operations coverage with the completed operations endorsement. 

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Nationwide’s insistence that the rewritten policy accurately reflected the 

agent’s request cannot stand on its own: Aguilar testified in deposition that 

she did not specifically determine whether the agent’s request was to replace 

ongoing coverage with completed coverage or simply to add completed 

coverage. (Doc. 71, Ex. 1, p. 425–27). A fact finder could determine 

Nationwide erroneously rewrote the 2009 policy to exclude ongoing 

coverage—whether, to adopt Thomas’s language, Nationwide “dropp[ed] the 

ball and just missed [the ongoing operations] endorsement on the re-write.” 

(Doc. 71, Ex. 15). Looking at the record as a whole, it is unclear whether the 

232 Policy’s exclusion of the ongoing operations endorsement was properly 

executed or documented in Nationwide’s own system. The ample evidence 

provided by the Certificates of Insurance with ongoing operations 

endorsements for the years surrounding—and including—the May 2013 

occurrence creates a question of fact for the fact finder to resolve. See Ex 

parte Clarke, 728 So. 2d 135, 141 (Ala. 1998) (finding “a factual dispute as to 

whether the endorsement was part of the Clarkes' insurance policy” and 

determining, “Allstate was not entitled to a summary judgment based on its 

assertion that the Clarkes' had failed to comply with the ‘examination under 

oath’ provision and with the provision requiring the insureds' cooperation.”). 

2. DRHI-B’s Estoppel Argument

DRHI-B argues Nationwide is estopped from denying coverage based 

upon the misrepresentations made by Kilgro & Associates on the Certificates 

of Insurance and the attached endorsements DRHI-B received beginning in 

Case 1:15-cv-00351-CG-N Document 80 Filed 10/06/16 Page 26 of 37
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2010 through 2013. (See Doc. 71, Exs. 4, 23, 25, 26, 31). It further claims 

Nationwide is precluded from denying coverage based on its failure to deliver

a copy of the policy pursuant to Ala. Code § 27–14–19 (1975). Because this 

Court finds the first argument persuasive, it will not reach the second 

argument. 

Both parties rely heavily on Ala. Elec. Coop., Inc. v. Bailey Constr. Co., 

Inc., 950 So. 2d 280 (2006), for the proposition that Nationwide either is or is 

not estopped from denying coverage. In that case, the Alabama Supreme 

Court determined that an additional insured cannot rely on certificates of 

insurance alone as proof of coverage and further determined that the 

insurance policy is the controlling document. Id. at 285. Specifically, the 

Alabama Supreme Court found:

Where an entity requires another to procure insurance 

naming it an additional insured, that party should not 

rely on a mere certificate of insurance, but should insist 

on a copy of the policy. A certificate of insurance is not 

part of the policy—if it states that there is coverage but 

the policy does not, the policy controls.

Id. (internal citations omitted). In the instant case, however, DRHI-B did not 

rely solely on certificates of insurance. Rather, it requested and received 

copies of the endorsements, which are a part of the policy, that provided it 

with coverage for ongoing operations. The Alabama Supreme Court 

addressed this scenario in its next sentence: “A developer or general 

contractor generally should demand more proof [than just a certificate of 

insurance], including a specific additional insured endorsement, to confirm 

Case 1:15-cv-00351-CG-N Document 80 Filed 10/06/16 Page 27 of 37
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their additional insured status.” Id. While a certificate of insurance, complete 

with its disclaimer, cannot override a policy that contradicts it, an 

endorsement alters the policy in question. Id. at 285–86. The Alabama 

Supreme Court thus indicated that an additional insured’s possession of a 

certificate plus the actual, specific endorsements would be indicative of its 

reasonable belief that the documents granted coverage. Id.

This difference between DRHI-B’s actions and those of Alabama 

Electric Cooperative, Inc.’s (“AEC”) actions significantly impacts the analysis 

under Ala. Elec. Coop., Inc., 950 So. 2d.16 In that case, the Alabama Supreme 

Court found that AEC did not

actually attempt[] to obtain a copy of the policies or the 

additional-insured endorsements that would have existed 

had AEC been named as an additional insured on the 

policies. [. . .] Based on the facts of this case, we hold that 

AEC and its insurers have not presented substantial 

evidence indicating that it was reasonable for AEC to rely 

on the certificates of insurance indicating that it was an 

additional insured in awarding [defendant] the 

[construction] contract.

Id. at 286. Conversely, DRHI-B’s request for and possession of the certificates 

plus the endorsements issued by Nationwide’s captive agent indicates it 

reasonably relied on those documents—and not merely the certificates—as 

proof of its status as an additional insured for ongoing operations. 

 16 Also of note is the contractual relationship between AEC’s subcontractor as 

compared to DRHI-B’s relationship with Olmedo. AEC’s contract with its 

subcontractor did not expressly require that the subcontractor name AEC as 

an additional insured. DRHI-B’s contract with Olmedo, however, expressly 

required additional insured coverage for both ongoing and completed 

operations as well as delivery of certificates of insurance. See Doc. 71, Ex. 8.

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Furthermore, the West Virginia Supreme Court case cited in Ala. Elec. 

Coop., Inc. favors an estoppel argument to prevent an insurance company’s 

denying coverage when a certificate of insurance misrepresents coverage: 

In the instant case we focus our analysis on the 

first exception, whether the insurer or its agent made a 

misrepresentation by issuing a certificate of insurance at 

the inception of coverage which resulted in the Board not 

having the coverage it desired. Our research indicates 

that “[i]t is well settled that an insurer may be equitably 

estopped from denying coverage where the party for 

whose benefit the insurance was procured reasonably 

relied upon the provisions of an insurance certificate to 

that party's detriment.” Lenox v. Excelsior Ins. Co., 255 

A.D.2d 644, 645, 679 N.Y.S.2d 749, 750 (1998) (citations 

omitted). See also, Zurich Ins. Co. v. White, 221 A.D.2d 

700, 633 N.Y.S.2d 415 (1995) (insurer was estopped from 

asserting deductibles to liability coverage when certificate 

of insurance represented there were no deductibles); 

Criterion Leasing Group v. Gulf Coast Plastering & 

Drywall, 582 So.2d 799 (Fla.App.1991) (under doctrine of 

promissory estoppel, insurer was prevented from denying 

workers' compensation coverage to subcontractor's 

employee when subcontractor was named as a “coinsured” 

on certificate of insurance); Bucon, Inc. v. Pennsylvania 

Mfg. Assoc. Ins. Co., 151 A.D.2d 207, 547 N.Y.S.2d 925 

(1989) (insurer estopped from denying the existence of 

plaintiff's coverage after issuing certificate of insurance 

identifying the plaintiff as an “additional insured”). “A 

Certificate of Insurance is an insurance company's 

written statement to its customer that he has insurance 

coverage, and the insurance company is estopped from 

denying coverage that the Certificate of Insurance states 

is in effect.” Blackburn, Nickels & Smith, Inc. v. National 

Farmers Union Property and Cas. Co., 482 N.W.2d 600, 

603 (N.D.1992).

We therefore hold that a certificate of insurance is 

evidence of insurance coverage, and is not a separate and 

distinct contract for insurance. However, because a 

certificate of insurance is an insurance company's written 

representation that a policyholder has certain insurance 

coverage in effect at the time the certificate is issued, the 

Case 1:15-cv-00351-CG-N Document 80 Filed 10/06/16 Page 29 of 37
30

insurance company may be estopped from later denying 

the existence of that coverage when the policyholder or 

the recipient of a certificate has reasonably relied to their 

detriment upon a misrepresentation in the certificate.

Marlin v. Wetzel Cty. Bd. of Educ., 569 S.E.2d 462, 472–73 (2002). In the 

instant case, both the certificates and the endorsements issued by Kilgro & 

Associates represented that DRHI-B was an additional insured with ongoing 

operations coverage. While the certificate clearly states it “does not constitute 

a contract” between Nationwide and DRHI-B, it also clearly indicates that 

the certificate holder is an additional insured when the policy is endorsed. 

(See Doc. 71, Ex. 31) (certificate of insurance stating that “[i]f the certificate 

holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed.”). As 

such, a fact finder may find it reasonable for DRHI-B to have relied on the 

certificate and the accompanying endorsements as proof of coverage as an 

additional insured for ongoing operations. 

Moreover, Nationwide’s assertion that its issued Certificates of 

Insurance do not accurately reflect the policy information does not overcome 

DRHI-B’s estoppel argument. (See Doc. 61, Ex. 12) (Thomas’s e-mail to 

DRHI-B’s counsel stating “it appears the policy number and dates on the 

certificate of insurance do not match up”); see also Doc. 1, Ex. 1 (the 232 

Policy) & Doc. 62, p. 7–9 (Nationwide’s brief in support of summary judgment 

claiming that DRHI-B’s certificates and endorsements reflect the incorrect 

policy number). As previously discussed, DRHI-B did not rely solely on the 

Certificates of Insurance; it also secured copies of the specific additional 

Case 1:15-cv-00351-CG-N Document 80 Filed 10/06/16 Page 30 of 37
31

insured endorsement as evidence of its coverage. In American and Foreign 

Ins. Co., Inc. v. Tee Jays Mfg. Co., Inc., 699 So. 2d 1226 (Ala. 1997), the 

Alabama Supreme Court found that an insurer’s error of including coverage 

for which a premium has not been paid must be construed against the 

insurer. Am. and Foreign Ins. Co., Inc. v. Tee Jays Mfg. Co., Inc., 699 So. 2d 

1226, 1228 (Ala. 1997) (“Here, the policy, on its face, clearly provides business 

loss coverage for Tee Jays, and any mistake in including this coverage in the 

policy must be construed against A & F.”). Additionally, Alabama courts have 

held that clerical errors do not invalidate an endorsement or nullify an 

insurer’s obligation to honor the endorsement. See id.; see also Waikar v. 

Royal Ins. Co. of Am., Inc., 765 So. 2d 11, 15 (Ala. Civ. App. 1999) (holding 

that a clerical error in an endorsement does not automatically invalidate the 

endorsement). As such, Nationwide cannot hide behind its own error to deny 

coverage. 

This Court finds that the inconsistencies between the 232 Policy 

and DRHI-B’s Certificate of Insurance and the endorsements attached 

thereto constitute an ambiguity as to the terms of the coverage provided. As 

such, the written instruments must be construed against Nationwide, the 

drafting party. Tee Jays Mfg. Co., Inc., 699 So. 2d at 1228. In construing the 

facts in the light most favorable to DRHI-B, the Court finds a material issue 

of genuine fact as to the coverage afforded to DRHI-B; it also finds 

Nationwide is estopped from denying coverage based on the 

misrepresentations in the Certificates of Insurance and the endorsements 

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32

attached thereto. Summary judgment is, therefore, inappropriate. 

D. DRHI-B’s Counterclaim for 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). Because there is a material question of fact as to 

whether Nationwide erroneously omitted DRHI-B’s ongoing operations 

endorsement in the 2009 re-write, see, supra Part II.B.1, the Court 

necessarily finds a material question of fact as to the existence of a valid 

contract binding the parties and as to Nationwide’s nonperformance. For this 

reason, summary judgment must be denied as to DRHI-B’s breach of contract 

claim. 

E. DRHI-B’s Counterclaim for Bad Faith

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. 

Case 1:15-cv-00351-CG-N Document 80 Filed 10/06/16 Page 32 of 37
33

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 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 

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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. 

DRHI-B argues that Nationwide failed to investigate agent Kilgro’s 

dissemination of certificates of insurance with accompanying endorsements 

(complete with policy numbers) that contradict Nationwide’s records and 

staunchly relied only on the information available in its own system. (Doc. 71, 

p. 26–28). To support these contentions, it points to Thomas’s testimony that 

she limited her investigation to Olmedo’s policies issued for 2010–11, 2011–

12, and 2012–13 and ignored DRHI-B’s assertions that it should have had 

ongoing operations coverage on the date of loss. See Doc. 71, Ex. 18, p. 313–

17. In her investigation, Thomas asked Aguilar “why [DRHI-B] would NOT 

have been an additional insured for [ongoing] operations?” (Doc. 71, Ex. 12) 

(emphasis in original). In response, Aguilar stated, “No other request for 

[DRHI-B] was made as I believe they assumed the CG 2010 [ongoing 

operations endorsement] was added back when it was re-written to the PR 

under the legacy platform.” Id. During the course of her investigation, 

Thomas had reason to question why the 2009 re-written policy did not 

include ongoing operations coverage for DRHI-B, and the evidence indicates 

that she made surface-level inquiries but did not examine the endorsements 

Kilgro & Associates issued or other evidence relating to DRHI-B’s claim that 

it was still covered by an ongoing operations endorsement.

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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. Nationwide argues 

that DRHI-B’s disagreement with the results of its investigation is not 

enough to carry a bad faith claim. See Doc. 71, p. 13. This Court finds, 

however, that a reasonable fact finder could interpret Nationwide’s refusal to 

acknowledge the certificates of insurance and the attached endorsements 

that contradicted its internal information as more than “mere negligence or 

mistake” but as an attempt to avoid coverage. See Doc. 71, Ex. 33, p. 36 

(Nationwide log notes stating, “I also noted that [Alabama] has NO antiindemnity statutes, so depending on if we have a properly executed contract, 

and what it states in terms of indemnity, may have a huge bearing on 

exposure/liability on this claim.”); id. at p. 43 (“Basic litigation strategy: 

Confirm no cov[erage] and address accordingly.”). 

In light of the above, the Court finds a reasonable fact finder could 

determine Nationwide acted in bad faith in denying DRHI-B a defense in the 

underlying suit. Accordingly, summary judgment is precluded.

F. Damages from DRHI-B’s Counterclaims

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The parties appear to agree that the basic language of the general 

commercial liability insurance policy controls Nationwide’s duty to defend. 

While the parties disagree on the inclusion or exclusion of certain 

endorsements, they do not suggest that the basic terms and definitions 

provided in the 232 Policy would change. As such, this Court looks to the 

general provisions and definitions to determine when Nationwide’s duty to 

defend, if found to apply in this case, began. 

The 232 Policy states, “We [Nationwide] will pay those sums that the 

insured [or additional insured] becomes legally obligated to pay as damages 

because of ‘bodily injury’ or ‘property damage’ to which this insurance 

applies. We will have the right and duty to defend the insured against any 

‘suit’ seeking those damages.” (Doc. 1, Ex. 1, p. 12). The policy defines “suit” 

as, “a civil proceeding in which damages because of ‘bodily injury’, ‘property 

damage’ or ‘personal and advertising injury’ to which this insurance applies 

are alleged.” (Id. at p. 26). Under this definition, Nationwide’s duty to defend 

would not be triggered until a civil proceeding (or similar) is initiated. In the 

instant case, DRHI-B has submitted evidence for damages incurred 

beginning in May 2013, but the underlying suit against it was not opened

until May 2014. (See Doc. 71, Ex. 4). DRHI-B was not owed any defense until 

it became a named party to the underlying suit. As such, this Court finds 

that its claimed damages from May 2013 through April 30, 2014 are 

improper, and summary judgment is to be GRANTED as to these attorneys’ 

fees and expenses. The Court will therefore reduce DRHI-B’s amount of 

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claimed damages, as to date, from $420,041.34 to $366,794.44 ($420,041.34 –

50,568.35 = $366,794.44).17 The Court declines to grant summary judgment 

as to the attorneys’ fees and expenses incurred beginning in May 2014 to the 

present date for the underlying suit. 

III. CONCLUSION

For the reasons stated above, Nationwide’s motion for summary 

judgment (Doc. 60) is GRANTED IN PART as to DRHI-B’s damages, to the 

extent that Nationwide is not obligated to pay any attorneys’ fees and 

expenses incurred before May 2014, but is DENIED as to Nationwide’s claim 

for declaratory judgment and as to DRHI-B’s counterclaims for breach of 

contract and bad faith. Furthermore, Nationwide’s motions to strike (Docs. 69 

& 74) are both DENIED, and its motion to preclude evidence of counterclaim 

plaintiff’s contract-related damages (Doc. 59) is MOOT. 

DONE and ORDERED this 6th day of October, 2016.

/s/ Callie V. S. Granade

SENIOR UNITED STATES DISTRICT JUDGE

 17 The Court has reduced the claimed attorneys’ fees by $47,889.80 (the 

amount billed and paid from May 2013 through April 30, 2014) and the 

expenses by $2,678.55 (the amount billed and paid in that same timeframe). 

The fees and expenses incurred before DRHI-B was named as a defendant in 

the underlying suit totals $50,568.35. 

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