Eleventh Circuit Allows Consideration of Extrinsic Evidence

by Traub Lieberman Straus & Shrewsberry LLP
Contact

In its recent decision in American Safety Indemnity Co. v. T.H. Taylor, 2013 U.S. App. LEXIS 5072 (11th Cir. March 14, 2013), the United States Court of Appeals for the Eleventh Circuit, applying Alabama law, had occasion to consider when and under what circumstances an insurer can rely on extrinsic evidence in determining whether a duty to defend is triggered.
American Safety insured T.H. Taylor under a commercial general liability policy. T.H. Taylor had been hired as a general contractor to construct a residential home. Prior to completion of the project, with approximately 20% of the project yet to be completed, the owners suspended construction. As of that time, T.H. Taylor had been paid nearly the full value of the original budget. T.H. Taylor and the owners were sued in several underlying lien actions filed by subcontractors and suppliers in Alabama state court. In these suits, the owners asserted a cross-claim against T.H. Taylor, alleging a cause of action for fraud. Specifically, the owners alleged that T.H. Taylor intentionally misrepresented the status of the construction project as well as how much the subcontractors and suppliers had been paid. The cross-claim specifically alleged that T.H. Taylor made these representations, knowing them to be false, for the purpose of receiving an advance on a construction loan.
The state court dismissed the owners’ cross-claims on the basis of a provision in the construction contract requiring all disputes to be arbitrated. The owners later commenced an arbitration proceeding against T.H. Taylor, but in doing so, the arbitration petition did not allege any specific causes of action, nor did it contain the specific assertions regarding T.H. Taylor’s intent to deceive. Instead, the petition alleged only that T.H. Taylor presented requests for payment in an amount not equal to the work that actually had been performed. American Safety took the position that the specific assertions in the cross-claims filed in state court precluded any finding of an “occurrence,” and that as such, it had no duty to defend. T.H. Taylor, on the other hand, argued that American Safety could not look beyond the arbitration petition in determining whether it had a duty to defend.
The United States District Court for the Middle District of Alabama held in favor of American Safety, and on appeal, the Eleventh Circuit agreed.  The court noted that Alabama law requires that in determining a duty to defend, an insurer cannot rely solely on the theories of liability pled by a plaintiff, but instead must consider the specific factual assertions in a complaint. If these factual assertions “could reasonably support a legal theory of recovery that is an insured risk under the policy, the insurer has a duty to defend the claim.” The court further noted, however, that T.H. Taylor’s arbitration proceeding contained no specific legal theories or specific detail concerning the operative facts. Under such circumstances, observed the court, Alabama law permits an insurer to look beyond the pleadings to examine other available evidence in determining a duty to defend. As such, the court concluded that it was permissible for American Safety to have relied on the facts alleged in the underlying cross-claim in determining a duty to defend:
The principal determinant in a duty-to-defend inquiry is the state of the pleadings in the underlying litigation, and here, those pleadings did not cease to exist simply because of a change of forum from the state court to private arbitration. The arbitration proceeding was ordered by the court and was ancillary to the state court litigation. It constituted a continuation of the same dispute between the same parties arising out of the same facts. Additionally, even if the arbitration complaint is viewed as somehow displacing the owner's cross claim as well as the claims made by the plaintiffs in the state court litigation, such that the arbitration complaint became the principal pleading driving the duty-to-defend issue, those underlying pleadings in the state court would still be admissible evidence with respect to the proper interpretation to be made of the non-specific complaint in arbitration.
As such, and having agreed that the allegations in the cross-claims supporting a conclusion of intentional rather than accidental conduct, the Eleventh Circuit agreed that American Safety had no duty to defend.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Traub Lieberman Straus & Shrewsberry LLP | Attorney Advertising

Written by:

Traub Lieberman Straus & Shrewsberry LLP
Contact
more
less

Traub Lieberman Straus & Shrewsberry LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!