Summary
The Alabama Supreme Court reviewed an insurance coverage dispute arising from racial-discrimination lawsuits against Mitchell Brothers, Inc. and Abraham Mitchell. The court held that Aetna did not owe an enhanced obligation of good faith in defending the Lowman action because the insureds retained control of the defense, and that although the enhanced obligation arose in the Craft action, Aetna did not breach it. The court reversed the trial court’s damages award and rendered judgment for Aetna.
Holdings
- An enhanced obligation of good faith does not arise under the specific circumstances where the insured accepts the insurer's reservation-of-rights defense but retains control of the investigation, litigation, and settlement negotiations and prevents the insurer and its appointed counsel from participating.
- Aetna did not breach its enhanced obligation of good faith by obtaining coverage advice from Harry Cole and then, after reconsideration, resolving doubts in favor of defending the insureds under a reservation of rights.
- Aetna's inclusion of Lowman settlement negotiations and commitments in its federal declaratory-judgment action did not constitute a breach of the enhanced obligation of good faith because the information was relevant to the consent-to-settle and coverage issues being litigated.
- The trial court incorrectly applied the law to the facts, and the judgment awarding compensatory and punitive damages against Aetna must be reversed and judgment rendered for Aetna.
Questions Presented
- Whether an insurer that undertakes a defense under a reservation of rights owes an enhanced obligation of good faith when the insured retains control of the investigation, defense, and settlement negotiations.
- Whether Aetna breached an enhanced obligation of good faith in its handling of the Craft defense by consulting a conflicted attorney for coverage opinions.
- Whether Aetna breached an enhanced obligation of good faith by including Lowman settlement information in its federal declaratory-judgment action.
- Whether the trial court's compensatory and punitive damages awards could stand.
Disposition
reversed
Cases Cited (23)
- L & S Roofing Supply Co. v. St. Paul Fire & Marine Insurance Co., 521 So. 2d 1298 (Ala. 1987)(followed and applied)
- Tank v. State Farm Fire & Casualty Co., 105 Wash. 2d 381, 715 P.2d 1133 (1986)(relied upon)
- Shelby Steel Fabricators, Inc. v. United States Fidelity & Guaranty Insurance Co., 569 So. 2d 309 (Ala. 1990)(distinguished)
- Hammond v. City of Gadsden, 493 So. 2d 1374 (Ala. 1986)(applied)
- BMW of North America, Inc. v. Gore, 701 So. 2d 507 (Ala. 1997)(applied below)
- Williams v. Lide, 628 So. 2d 531 (Ala. 1993)(followed)
- Eubanks v. Hale, 752 So. 2d 1113 (Ala. 1999)(followed)
- State Farm Fire & Casualty Co. v. Owen, 729 So. 2d 834 (Ala. 1998)(followed)
- Morton v. Allstate Ins. Co., 486 So. 2d 1263 (Ala. 1986)(relied upon)
- Federated Guaranty Life Ins. Co. v. Bragg, 393 So. 2d 1386 (Ala. 1981)(relied upon)
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Court Document
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