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INSURANCE CONTRACT/REFORMATION & VERDICT/SETOFF - HAR-MAR COLLISIONS, INC. V. SCOTTSDALE INS. CO.INSURANCE CONTRACT/REFORMATION & VERDICT/SETOFF - HAR-MAR COLLISIONS, INC. V. SCOTTSDALE INS. CO.

Har-Mar Collisions, Inc. v. Scottsdale Ins. Co., [Ms. 1141230, 1141267, June 3, 2016] __ So. 3d __ (Ala. 2016). Har-Mar Collisions, Inc. operated a paint-and-body shop in Mobile. It was insured with garage-liability and commercial umbrella-liability coverage provided by Auto-Owners and commercial-property coverage provided by Scottsdale. A fire destroyed the shop. Har-Mar made claims under the policies. Eventually litigation ensued. Har-Mar sought a reformation of the Scottsdale policy, requesting a judgment declaring that it was the named insured and that benefits were due. Har-Mar also asserted breach-of-contract and bad-faith-failure-to-pay claims against Scottsdale. It also asserted negligence, misrepresentation, and fraud claims against an insurance broker for its alleged failure to procure insurance for the shop. Auto-Owners intervened contending that Har-Mar had been sued in a separate action and had negligently-wantonly caused the fire that destroyed the shop, such that it had an interest in the outcome of that action.

Eventually Har-Mar entered into pro tanto settlement agreements with the broker and Auto-Owners, but the claims against Scottsdale proceeded to trial. The jury returned a verdict in favor of Har-Mar on its breach-of-contract claim and awarded damages. Scottsdale then sought an offset of the sums previously recovered in the pro tanto settlement agreements. Ultimately the trial court rendered judgment in favor of Har-Mar and against Scottsdale in the amount of zero dollars because of the offsets.

On appeal, the Court concluded the trial court correctly reformed the insurance contract pursuant to § 8-1-2, Ala. Code 1975, based upon a mutual mistake of the parties proven by Har-Mar with clear and convincing evidence. Ms. *15-17, citing Goodwyn, Mills & Cawood, Inc. v. Markel Ins. Co., 911 So. 2d 1044 (Ala. 2004) and Restatement (2d) of Contracts, § 152 (1981)) (defining “mutual mistake” to mean “mutual misunderstanding concerning a basic assumption on which the contract was made.”):

The undisputed evidence ... indicates that Scottsdale and Har-Mar Collisions intended for the Scottsdale policy to insure the auto shop, regardless of under what name the auto shop is incorporated. However, the Scottsdale policy does not reflect that intent because it lists Har-Mar, Inc., as the corporate entity being insured, a corporation Scottsdale concedes has not and does not exist. As the trial court noted when it reformed the Scottsdale policy, there is no evidence indicating that Scottsdale intended to provide insurance coverage for a non-existent corporation, and certainly [shop owner] did not intend to pay premiums on the Scottsdale policy with the understanding that only a non-existent corporation would ever be able to make a claim for coverage under the policy.

Ms. *20-21.

With regard to the offset, citing Alabama Farm Bureau Mut. Cas. Ins. Co. v. Williams, 530 So. 2d 1371 (Ala. 1988), the Court reiterates that “when an insured enters into a settlement agreement with one of its insurers, the non-settling insurer is not entitled to a setoff if the two insurers ‘owe separate and distinct contractual obligations’ to the insured.” Ms. *24. Because the obligations owed by Scottsdale under its commercial-property coverage were different than those owed by Auto-Owners under its garage-liability and commercial-umbrella-liability coverage, “the evidence does not support a conclusion that Scottsdale and Auto-Owners ‘undertook or assumed any joint obligation toward’ Har-Mar.” Ms. *27, quoting Williams, 530 So. 2d at 1373. “Furthermore, it is not the nature of the claims and allegations against separate insurers that determines whether a setoff is applicable; rather, it is the nature of the obligations to the insured undertaken by the separate insurers.” Ms. *30, quoting Williams, 530 So. 2d at 1373 (emphasis in original). Because Scottsdale did not meet its burden of proof on its affirmative defense of offset, the trial court’s application of the settlement agreements against the jury verdict was error, so on remand, the trial court is directed to enter a judgment reinstating the verdict in favor of Har-Mar. Ms. *31-32.

Related Documents: Har-Mar Collisions v Scottsdale Insurance

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