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Heil Co. v. Evanston Insurance Co.

April 2, 2008

HEIL COMPANY, PLAINTIFF,
v.
EVANSTON INSURANCE CO., THE BURLINGTON INSURANCE CO., DEFENDANTS.



The opinion of the court was delivered by: Chief Judge Curtis L. Collier

MEMORANDUM

Before the Court is a Report and Recommendation ("R&R") from Magistrate Judge William B. Mitchell Carter (Court File No. 63). Plaintiff Heil Company ("Heil") and Defendant Burlington Insurance Company ("Burlington") have filed objections (Court File No. 66). Defendant Evanston Insurance Company ("Evanston") has also filed an objection to the magistrate judge's R&R (Court File No. 68). For the reasons laid out below the Court will ACCEPT and ADOPT the magistrate judge's report and recommendation, but the Court will GRANT Plaintiff's motion to amend to add a claim under the Tennessee Consumer Protection act. The Court will GRANT the parties joint motion to continue.

I. FACTS AND PROCEDURAL BACKGROUND

The issue in this case arises from a $4,000,000 default judgment entered against Heil in Alabama (Original Complaint ¶ 9-10).

Evanston issued to Heil a Commercial Lines Policy containing a "Commercial Liability Coverage Part," and this policy was in effect from January 1, 2003 to January 1, 2004 (Court File No. 1, Ex. A). Heil also procured from Burlington a supplemental insurance policy which covered the period from January 1, 2003 to January 1, 2004 (Court File No. 1 ¶ 12 "Original Complaint"). Heil argues Evanston breached the insurance agreement by failing to pay either the default judgment or defense fees. Evanston argues Heil materially breached the agreement by failing to procure a proper defense, and this material breach discharges Evanstons duty to pay (Original Complaint, Ex. C). Evanston also argues Heil's expenses in having the default judgment vacated are not necessary to the defense of this suit. When Heil originally filed this action Burlington had not stated its coverage position with respect to the default judgment (Original Complaint ¶ 20). Burlington and Heil have since resolved their differences and both assert Evanston is liable for the defense and indemnification of the Alabama claims and judgment (Court File No. 48).

The policy contained a Self-Insured Retention Endorsement*fn1 with a self-insured retention amount of $500,000. Under this endorsement, Heil had the duty to provide a proper defense and investigation of any claim until the $500,000 self-insured retention ("SIR") was exhausted. The endorsement also provided that Evanston's obligations under the policy were conditioned upon Heil's complying with the terms of the SIR endorsement. Paragraph 2 of the SIR endorsement provided as follows:

The Company's obligation under this policy applies only to the amount excess of the Self-Insured Retention. Your bankruptcy, insolvency, or inability to pay the Self-Insured Retention shall not increase our obligation under the policy.

The Insured shall have the obligation to provide, at his own expense, proper defense and investigation of any claim and to accept any reasonable offer of settlement within the Self-Insured Retention. The Insured's obligation to provide for his own defense is terminated upon the exhaustion of the Self-Insured Retention referenced above. In the event that there is any other insurance, whether or not collectible, applicable to an occurrence, claim or suit within the Self-Insured Retention, the Insured must make actual payment for the full Self-Insured Retention amount before the limits of insurance under this policy apply. Compliance with this clause is a condition precedent for coverage under this policy. In the event of the failure of the Insured to comply with this clause, no loss, cost or expense shall be payable by the Company. (Id.) (emphasis in original) (Court File No. 2, p.17).

The underlying judgment resulted from a products liability lawsuit survivors of Willie Evans brought in January 2004 against Heil and others in the Circuit Court of Hale County, Alabama, seeking damages for the alleged wrongful death of Willie Evans (Original Complaint, ¶9). Heil had assigned the defense of this lawsuit to a lawyer of Heil's choice. (Original Complaint, Ex. C). On January 4, 2005, the Alabama Circuit Court entered a $4 million default judgment against Heil as a sanction for Heil's failure to timely answer the complaint in that case and failure to respond to the plaintiffs' discovery demands. (Original Complaint, ¶10; Ex. C).

The Alabama lawsuit was settled in December 2006 without the $4 million default judgment ever being set aside. (Court File No. 39, ¶¶ 4,5). Heil instituted the present lawsuit on October 13, 2005 against Evanston and Burlington seeking both declaratory relief and damages for alleged breach of contract. This present lawsuit was stayed by the Court's Order of March 27, 2006. This Court lifted the stay by its Order dated February 22, 2007. (Id. at ¶¶ 1, 3). Plaintiff Heil asserts Burlington and Heil settled all differences between them several months ago. Heil has no further claim against Burlington so Burlington should no longer be a defendant in this action. However, both Heil and Burlington have a dispute with and make claims against Evanston arising out of these same events, the denial of coverage under the Evanston insurance policy.

Both Heil and Burlington seek permission to realign Burlington as a plaintiff, and to assert, on behalf of both Heil and Burlington, claims for alleged bad faith pursuant to Tenn. Code Ann. § 56-7-105; for alleged violation of the Tennessee Consumer Protection Act ("TCPA"), Tenn. Code Ann. § 47-18-101, et seq; and for a common law bad faith.

Evanston, while denying that it breached any contract or obligation and denying any liability to either Heil or Burlington under any theory of law, does not oppose the realignment of the parties, as requested in the instant motion. Evanston, however, does oppose allowing either Heil or Burlington to amend the Complaint to allege bad faith claims under Tennessee insurance statutes, common law, and TCPA. Evanston asserts any amendment of the pleadings to allege these claims would be futile.

The magistrate judge, after consideration, recommended the Court grant the motion to realign the parties (Court File No. 63, at 5). The magistrate judge recommended the Court grant Heil and Burlington's motion to amend to add a claim under the bad faith failure to pay statute, Tenn. Code Ann § 56-7-105 (id. at 8). The magistrate judge recommended the Court deny Heil and Burlington's motions to amend to add claims under common law bad faith and under the TCPA (id. at 10-11).

Heil and Burlington object to the magistrate judge's recommendation the Court deny their motions to amend their complaint to add a claim under the TCPA and common law bad faith. Evanston objects to the magistrate judge's recommendation Heil and Burlington be allowed to amend the complaint to allege a claim under the Tennessee bad faith statute.

Neither party objects to the magistrate judges recommendation to allow the realignment of the parties. Therefore, the Court will ACCEPT and ADOPT the magistrate judge's ...


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