Opinion ID: 1803717
Heading Depth: 2
Heading Rank: 2

Heading: The Effect of an Insurer's Insolvency

Text: The trial court dismissed Turner's action because it found, based upon California law, that the insolvency of Penwal's insurer, Reliance, excused Penwal from fulfilling its contractual responsibility to indemnify and defend Turner. Turner argues that Reliance's insolvency is irrelevant, because Turner seeks to recover from Penwal. If the law of either Alabama or California permits Turner's recovery, we must reverse. Penwal argued, and the trial court agreed, that seeking indemnity from an insured whose insurer has become insolvent unfairly gets around the protective intent of each state's insurance guaranty association law. We first analyze whether such a finding is consistent with Alabama law. In support of its position, Turner cites Aetna Life & Casualty Co. v. Atlantic & Gulf Stevedores, 590 So.2d 205 (Ala.1991). In Aetna, we allowed a claim for indemnity to proceed where the indemnitor's insurer had become insolvent, so long as the indemnitee could demonstrate it had incurred some out-of-pocket expenses. Aetna, 590 So.2d at 208. This holding was despite the fact that the indemnitee was insured by a solvent insurer and even though it covered essentially every cost. Aetna, 590 So.2d at 207-08. It is possible that Turner could present a set of facts showing that it has incurred some out-of-pocket costs. Under Alabama law, Turner is due to be indemnified for any legal costs it has incurred. Therefore, because Turner has shown a set of facts that would allow recovery under Alabama law, we need not discuss whether it can also prevail under California law. Because Turner could possibly show a set of circumstances entitling it to relief, we must reverse the trial court's judgment of dismissal and remand this cause to the trial court for further adjudication. 1021938  APPLICATION OVERRULED; OPINION OF APRIL 9, 2004, WITHDRAWN; OPINION SUBSTITUTED; AFFIRMED. SEE, BROWN, and STUART, JJ., and MADDOX, Special Justice, [] concur. LYONS, JOHNSTONE, HARWOOD, and WOODALL, JJ., dissent. 1021953  APPLICATION OVERRULED; OPINION OF APRIL 9, 2004, WITHDRAWN; OPINION SUBSTITUTED; REVERSED AND REMANDED. SEE, BROWN, and STUART, JJ., and MADDOX, Special Justice, [] concur. JOHNSTONE, J., concurs in part. LYONS, HARWOOD, and WOODALL, JJ., concur in the result.