The American Insurance Company v. The Evercare Company

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
JUNE 15, 2011
No. 10-12728 JOHN LEY
CLERK
Non-Argument Calendar
________________________
D. C. Docket No. 1:09-cv-02698-TCB
THE AMERICAN INSURANCE COMPANY,
FIREMAN’S FUND INSURANCE COMPANY,
insurance corporations
ONE BEACON AMERICA INSURANCE COMPANY,
Plaintiffs-Appellees,
versus
THE EVERCARE COMPANY,
a corporation,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(June 15, 2011)
Before EDMONDSON, PRYOR and ANDERSON, Circuit Judges.
PER CURIAM:
The Evercare Company appeals the district court’s denial of its Motion to
Dismiss and grant of The American Insurance Company and Fireman’s Fund
Insurance Company’s (collectively “FFIC”) motion for summary judgment. On
appeal, Evercare argues that the district court did not have jurisdiction over the
case because there was no case or controversy under the Declaratory Judgment
Act. It also asserts that the district court erred when it held that Evercare had, as a
matter of law, given late notice of a claim or occurrence such that FFIC’s duty to
indemnify was excused.
I. FACTS AND PROCEDURAL BACKGROUND
FFIC insured Evercare under primary and excess policies from July 1, 2005,
to December 1, 2006. These policies covered, among other things, personal and
advertising injuries. The policies contained notice provisions that required the
insured to notify the insurance company “as soon as practicable” of an occurrence
which may result in a claim. Additionally, the policy instructed that if a claim
was made or suit was brought, the insured must notify the insurance company “as
soon as practicable.”
On March 22, 2007, Evercare received a letter from its biggest competitor,
3M, disputing claims that Evercare made in its labeling and its labeling’s
similarity to another 3M product. The letter requested that Evercare either
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substantiate the claims or cease using them. Evercare responded to the letter by
denying the allegations and requesting documentation of the tests 3M had
allegedly performed; Evercare also requested the 52-week sales data for all retail
outlets for the period ending March 2007. 3M then filed a claim with the National
Advertising Division of the Council of Better Business Bureaus. 3M notified
Evercare of this action in an August 16, 2007, letter, and Evercare responded by
filing a preemptive lawsuit against 3M on September 11, 2007, that sought a
declaratory judgment that it had not engaged in false advertising or trade dress
infringement. Less than a month later, 3M filed a counterclaim against Evercare,
alleging that some of Evercare’s advertising claims were false and misleading. In
November 2007, Evercare informed its current general liability and excess liability
insurers of the counterclaim. The general liability insurer responded to the
notification that it would provide coverage only for damages arising out of an
offense committed during its policy period.
In June 2008, Evercare received 3M’s damages expert’s report, which
Evercare claims is the first time it knew that certain offenses fell within the FFIC
coverage periods. Thus, in July 2008, Evercare notified FFIC of the claims. FFIC
disclaimed coverage on the basis of Evercare’s breach of the notice provisions in
September 2008. Three months later, Evercare notified FFIC that it had entered
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into a settlement with 3M and demanded indemnification of the settlement and
defense costs. Evercare had never responded to FFIC’s denial or informed FFIC
that it was in settlement negotiations.
In response to Evercare’s demand, FFIC filed for declaratory judgment in
the district court. Evercare sought dismissal of the case, arguing that there was no
case or controversy and thus no subject matter jurisdiction. The district court
rejected Evercare’s motion, reasoning that Evercare’s demand for indemnification
after the denial of the claim demonstrated the viable nature of the claim.
Several months later, FFIC filed for summary judgment and the court
granted their motion and denied Evercare’s counterclaim that Plaintiffs breached
their contract by refusing to pay defense costs. The district court explained that
although Georgia courts typically reserve the determination of whether notice has
been given as soon as practicable to juries, those same courts permitted the finding
of unreasonable delay as a matter of law. The court below highlighted a number
of events that made clear Evercare should have known that 3M’s counterclaim
likely contained claims for damages incurred during the FFIC policy period. First,
it discussed Evercare’s receipt of the initial letter in March 2007 and its response
that requested sales data from the period covered by FFIC. It pointed to
Evercare’s filing of the suit against 3M and 3M’s subsequent counterclaim based
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on the allegations in the March 2007 letter. The March 2007 letter, which
Evercare received three months after FFIC’s insurance coverage period expired,
clearly included that period. Further, the court pointed to Evercare’s hiring of
counsel in March 2007 and its notification of its other insurers in November 2007,
as well as the response by one of those insurers that pointed out the temporal
limits of its coverage. Thus, the court concluded, an ordinary policyholder should
have known that the counterclaim may have contained claims for damages that
were incurred during the FFIC policy period.
II. DISCUSSION
A. Subject Matter Jurisdiction
We review a district court’s denial of a motion to dismiss for lack of case or
controversy de novo. GTE Directories Pub. Corp. v. Trimen America, 67 F.3d
1563, 1567 (11th Cir. 1995). “At the outset we note that the Declaratory Judgment
Act does not enlarge the jurisdiction of the federal courts but rather ‘is operative
only in respect to controversies which are such in the constitutional sense. . . .
Thus the operation of the Declaratory Judgment Act is procedural only.’ ” Id.(quoting Wendy’s Intern., Inc. v. City of Birmingham, 868 F.2d 433, 435 (11th
Cir. 1989)). A party who invokes the court’s authority under Article III must
show: “(1) that they personally have suffered some actual or threatened injury as a
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result of the alleged conduct of the defendant; (2) that the injury fairly can be
traced to the challenged action; and (3) that it is likely to be redressed by a
favorable decision.” U.S. Fire Ins. v. Caulkins Indiantown Citrus, 931 F.2d 744,
747 (11th Cir. 1991) (citing Valley Forge College v. Americans United, 454 U.S.
464, 472, 102 S. Ct. 752, 758 (1982)).
The determination of whether an actual case or controversy exists is made
on a case-by-case basis. GTE, 67 F.3d at 1567 (citing Hendrix v. Poonai, 662 F.2d
719, 721–22 (11th Cir. 1981)). We have stated that the difference between an
abstract question and a “controversy” contemplated by the Declaratory Judgment
Act is “‘necessarily one of degree, and it would be difficult, if it would be
possible, to fashion a precise test for determining in every case whether there is
such a controversy.’” Id. (quoting Maryland Cas. Co. v. Pacific Coal & Oil Co.,
312 U.S. 270, 273, 61 S. Ct. 510, 512 (1941)). “‘Basically, the question in each
case is whether the facts alleged, under all the circumstances, show that there is a
substantial controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.’” Id.In GTE, we reversed the district court’s dismissal of an action brought
under the Declaratory Judgment Act and held that there was a case or controversy.
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There, the plaintiff sought to contact the defendant’s clients but the defendant had
sent cease and desist letters. We permitted the case to go forward, reasoning that
the “practical effect of finding no case or controversy in the instant case would be
to force GTEDPC to contact Trimen’s clients” and subject it to potential liability.
Id. at 1568. We rejected the defendant’s argument that there were two ifs – if
plaintiff contacted the clients and if defendant sued – that prevented there being a
controversy. Id. at 1570. Instead, we cited Wright and Miller’s Federal Practice,
which pointed out that “the standard declaratory judgment action brought by a
liability insurer against its insured often times contains two “ifs,” if the insured is
sued and if he is found liable . . . .” Id. (citing 10A Wright & Miller, p. 586).
Here, we have a similar situation with only one “if.” That one “if” is
whether or not Evercare will follow up its demand for indemnification – made
after FFIC’s denial – with a lawsuit; like the court in GTE, we do not think it is
necessary for FFIC to wait to be sued. FFIC denied coverage and Evercare has
demanded it. That is a controversy and thus there is jurisdiction.
B. Notice
Under Georgia law, when an insurance policy contains a notice requirement
as a condition precedent to coverage, an insured’s unreasonable failure to timely
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give that notice will excuse the insurer from providing a defense or coverage.
Forshee v. Emp’rs Mut. Cas. Co., __ S.E. 2d __, 2011 WL 1587109 at * 3 (Ga.
App. Apr. 28, 2011). Insureds are not required to foresee every possible claim and
are only required by law to act reasonably. Id. Thus, “if a reasonable and
ordinarily prudent person would conclude that an event forms no basis for a
possible claim, the failure of the insured to give notice of the event is justified and
no bar to coverage.” Id. The court in Forshee gave examples of what is to be
considered in making the reasonableness determination:
the nature of the event, the extent to which it would appear to a
reasonable person in the circumstances of the insured that injuries or
property damage resulted from the event, and the apparent severity of
any such injuries or damage. . . . A court also properly may consider
whether anyone gave an indication that he intended to hold the
insured responsible for the event and resulting injuries . . . .
Id.The question of whether an insured gave notice of an event or occurrence as
soon as practicable is one for the fact finder. Plantation Pipeline v. Royal Indem.
Co., 245 Ga. App. 23, 25, 537 S.E. 2d 165, 167 (2000). However, Georgia courts
have recognized that some cases present facts where the insured’s delay was
unjustified and unreasonable as a matter of law. Id. (citing cases).
Here, Evercare’s delay was unreasonable as a matter of law. Evercare’s
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argument is that it was unaware that 3M’s claims reached back to the FFIC policy
period. However, the initial letter that Evercare received from 3M was a scant
three months after FFIC’s coverage period ended and this letter specifically
mentioned the 52-week sales period ending in March 2007, most of which fell
under the FFIC policy period.1 Further, Evercare knew how long it had been
making the objected-to claims and knew that they fell clearly within the FFIC
coverage period. When 3M made its counterclaim, Evercare had to have known
that the claims pertained to advertizing made during the FFIC coverage period,
and while it informed its current insurer, its failure to inform the FFIC for another
nine months was unreasonable.2
The decision of the district court is
AFFIRMED.3
1
The letter recounted tests that 3M had performed on Evercare’s product in
comparison to its own. The level of detail in these tests should have alerted the ordinarily
prudent person that 3M had been studying the advertisements for more than three months.
2
To the extent that Evercare argues that it could not have known how large the
damages would be, and thus that the excess insurance policy would be involved, we reject that
argument. Evercare had the sales data for 3M for the March 2006 to March 2007 period and
knew what the damages could reasonably be through its consultations with its attorneys at the
time of the March letter and certainly at the time it filed its lawsuit.
3
Evercare’s request for oral argument is denied.
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