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MI Windows & Doors, LLC v. Liberty Mutual Fire Insurance Co.

United States District Court, M.D. Florida, Tampa Division

May 18, 2018

MI WINDOWS & DOORS, LLC, et al., Plaintiffs,



         MI Windows & Doors and MI Home Products (“MIWD”) are window and sliding-glass-door manufacturers that purchased commercial liability insurance from Liberty Mutual Fire Insurance Company. In 2002, several non-parties sued MIWD in Alabama for defective windows and doors. Liberty defended MIWD in the Alabama actions, which in 2006 settled for approximately $4.6 million (approximately $3 million for damage to the windows and doors and $1.6 million in “consequential damages”).

         In 2007, after Liberty refused to indemnify MIWD despite a policy limit that exceeded $4.6 million, MIWD sued Liberty in Florida for breach of contract “for failing to fund and indemnify MIWD for the money expended to settle the five Alabama” actions. (Doc. 56 at 11) A final judgment determined that the insurance policy excluded a claim for damage to MIWD's products but ordered indemnity for approximately $1.6 million in “consequential damages.”

         In 2014, in this action, MIWD sued Liberty to recover, among other things, the approximately $3 million not covered by the insurance policy. MIWD sues (Doc. 56) under Alabama law for “negligent failure to settle” and for “bad faith failure to settle” and sues under Florida law for Liberty's “statutory bad faith.”[1]Liberty moves (Doc. 173) for summary judgment on all counts. MIWD moves (Doc. 172) for a declaration that Liberty “breached its duty of good faith and fair dealing by entirely failing to investigate the allegations of damages” in the Alabama actions and moves for summary judgment on Liberty's second (res judicata and collateral estoppel), fifth (failure to mitigate), and sixth (comparative negligence) affirmative defenses. (Doc. 172 at 2)


         Liberty's motion for summary judgment.

         Liberty argues that MIWD's claims for failure to settle, pleaded under Alabama law, suffer from the fundamental flaw that all covered damages were within policy limits and reimbursed to MIWD in the Florida action, “leaving only non-covered items.” (Doc. 173 at 2) Liberty adds that “[b]ecause the duty to settle non-covered items was solely MI[WD]'s under Alabama law, and the alleged breach of that duty is the predicate for all of MI[WD]'s claims and damages . . . its claims cannot proceed.” (Doc. 173 at 2) Liberty contends (1) that the Alabama claims fail because Liberty was under no duty to settle non-covered damages and (2) that any damages both paid by MIWD in the Alabama settlements and covered by the policies were within policy limits and fully reimbursed to MIWD in the Florida action. MIWD responds (Doc. 179), among other things, that the Alabama claims are sufficient and “must be presented to a jury.” (Doc. 179 at 8)

         Negligent failure to settle requires the plaintiff to show that the insurer failed to exercise reasonable care in deciding not to settle. Mutual Assur., Inc. v. Schulte, 970 So.2d 292, 297 (Ala. 2007). To succeed on a claim for bad faith, the plaintiff must show:

(a) an insurance contract between the parties and a breach thereof by the defendant; (b) an intentional refusal to pay the insured's claim; (c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason); (d) the insurer's actual knowledge of the absence of any legitimate or arguable reason; [and] (e) if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.

National Security Fire & Casualty Co. v. Bowen, 417 So.2d 179, 183 (Ala. 1982).

         In determining liability under Alabama law for negligence and for bad faith failure to settle, “the issue is simply . . . whether, considering all the circumstances, the insurer failed to exercise ordinary care on the one hand or good faith on the other.” Waters v. Am. Cas. Co. Of Reading, Pa., 73 So.2d 254, 528 (Ala. 1953) This is a question for the jury. Waters, 73 So.2d at 529.

         Liberty denies liability for negligent or bad faith failure to settle the Alabama actions and insists Liberty was under no duty to settle non-covered damages. But MIWD does not allege that Liberty should have settled and paid both covered and non-covered claims merely to minimize MIWD's exposure to non-covered damages. Instead, MIWD sues for damages incurred because of Liberty's purported failure to investigate and settle the Alabama actions when Liberty purportedly could and should have paid with a contribution from MIWD. (Doc. 179 at 9)

         Summary judgment (on the Alabama claims) in favor of Liberty is precluded by the existence of genuine disputes of material fact, which include whether Liberty under the “totality of the circumstances” failed to meet Liberty's obligations, [2] whether Liberty's settlement decisions caused MIWD harm, and whether Liberty adequately investigated and provided MIWD with an adequate defense.

         Also, moving for summary judgment on the Florida claim, Liberty argues that the Florida claim is “wholly barred” by litigation immunity because “[a]ll of the alleged misconduct took place squarely within the confines of, or was related to, the [state] court proceedings and is not actionable.” (Doc. 173 at 3) As explained in an August 12, 2015 order (Doc. 40), which denies Liberty's motion to dismiss Count III on the ground of litigation immunity, litigation immunity fails to bar the Florida claim.

         MIWD's motion for ...

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