A.S. v. Horace Mann Ins. Co.

A.S., a minor, by and through her natural parents and next friend, J.S. and R.S, et al., Plaintiffs,

v.HORACE MANN INSURANCE COMPANY, Defendant.

Civil Action No. CV-12-S-271-NE

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA NORTHEASTERN DIVISION

DONE and ORDERED: July 8, 2013

MEMORANDUM OPINION AND ORDER

Plaintiffs, A.S., J.S., and R.S., commenced this action in the Circuit Court of Madison County, Alabama, against defendant, Horace Mann Insurance Company.¹ Defendant removed the case to this court on January 25, 2012.² Plaintiffs assert a single claim pursuant to Section 27-23-2 of the Alabama Code, under which a plaintiff can "reach and apply" insurance proceeds to satisfy a prior judgment against an insurance policyholder.³ Plaintiffs had previously settled an action they brought in Madison County Circuit Court against William Reaves, and a consent judgment wasentered against Reaves.⁴ Reaves, who was a teacher at the time of the events giving rise to this suit, had an insurance policy with defendant through the Alabama Educational Association, and defendant denied Reaves's claim for coverage in the underlying litigation.⁵ Plaintiffs' complaint asserts that Reaves's insurance policy with defendant provided coverage in the full amount of the settlement.⁶

The case is now before the court of defendant's motion for summary judgment.⁷ Plaintiffs have not responded to the motion, despite the fact that it was filed over two months ago. Consequently, defendant has filed a "motion for entry of summary judgment."⁸ Upon consideration, the motions are due to be granted.

I. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56 provides that summary judgment must be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In other words, summary judgment is proper "after adequate time for discovery and uponmotion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).⁹

According to the court's Uniform Initial Order, "material facts set forth in the statement [of facts] required of the moving party will be deemed to be admitted for summary judgment purposes unless controverted by the response of the party opposing summary judgment."¹⁰ See also Fed. R. Civ. P. 56(e)(2) (permitting such action by the court). Plaintiffs in this case have not filed a brief or evidence in opposition to defendant's motion for summary judgment. Even so,

the district court cannot base the entry of summary judgment on the mere fact that the motion was unopposed, but, rather, must consider the merits of the motion. See Dunlap v. Transamerica Occidental Life Ins. Co., 858 F.2d 629, 632 (11th Cir.1988) (per curiam). The district court need not sua sponte review all of the evidentiary materials on file at the time the motion is granted, but must ensure that the motion itself is supported by evidentiary materials. See id. At the least, the district court must review all of the evidentiary materials submitted in support of the motion for summary judgment.

United States v. One Piece of Real Property, 363 F.3d 1099, 1101-02 (11th Cir. 2004). Importantly, "there is no burden upon the district court to distill every potentialargument that could be made based upon the materials before it on summary judgment. Rather, the onus is upon the parties to formulate arguments." Solutia, Inc. v. McWayne, Inc., 672 F.3d 1230, 1239 (11th Cir. 2012).

II. FACTUAL BACKGROUND

A.S., who suffers from a mental disability, was enrolled in fifth-grade special education classes at Madison County Elementary School during the 2002-2003 school year.¹¹ William Ford Reaves was one of A.S.'s teachers.¹² Sometime during the 2002-2003 term, the school held a "Kite Day" outdoors for the students.¹³ After students and teachers were outside for the festivities, Reaves approached A.S. and convinced her to accompany him to his private office inside the school building.¹⁴ Once inside his office, Reaves locked the door and began rubbing A.S's arms, legs, and back.¹⁵ A.S. asked Reaves to stop, but instead he forced her onto a couch and raped her.¹⁶ During the course of his heinous act, Reaves also threatened to kill A.S.'sparents and "trash" her house.¹⁷

A.S. suffered nightmares and stomach sickness as a result of the rape.¹⁸ Soon after the incident, she transferred to a different school.¹⁹ Eventually, she revealed her ordeal to two friends, as well as in a letter addressed to her deceased brother.²⁰ The friends took A.S. to speak with a school guidance counselor, at which point she recounted the rape to the counselor and another teacher.²¹

In February of 2005, A.S. and her parents, J.S. and R.S., sued Reaves, as well as numerous other individuals or entities, in the Circuit Court of Madison County, Alabama, for state law claims arising out of the rape.²² The defendant in the present case, Horace Mann Insurance Company, provides insurance to members of the Alabama Educational Association ("AEA").²³ Reaves was a member of the AEA.²⁴ Accordingly, defendant furnished Reaves with a defense attorney in the underlying, state-court case, and paid other costs associated with that litigation.²⁵ However, defendant denied liability coverage for Reaves's actions, did not direct Reaves's defense, and refused to participate in settlement discussions of the underlying case.²⁶ Defendant opined to Reaves in a March 7, 2005 letter that, as a matter of law, the allegations in the underlying complaint fell outside the scope of its liability coverage.²⁷

The insurance policy at issue covers losses "sustained by the Insured by reason of liability imposed by law for damage caused by an occurrence in the course of the Insured's educational employment activities."²⁸ The policy defines "educational employment activities" as activities performed by the insured:

1. pursuant to the express or implied terms of his or her employment by an educational unit;

2. at the express request or with the express approval of his or her supervisor, provided that, at the time of such request or approval, the supervisor was performing what would appear to be his or her educational employment activities within the meaning of Part II(E)(1); or3. as a member of a state board or commission which has as its primary purpose the licensure or certification of educators, or the setting of standards for such licensure or certification.²⁹

The policy excludes from its liability coverage "intentional damages," defined as "[o]ccurrences involving damages which are the intended consequences of action taken by the Insured or at the Insured's direction."³⁰

On April 6, 2009, Reaves reached a settlement agreement in the underlying case with A.S. and her parents that provided for the entry of a consent judgment in the amount of $1,000,000.³¹ The agreement noted that Reaves "informed the plaintiffs that Horace Mann has completely denied coverage or any obligation to pay any of the claims or damages asserted by the plaintiffs in" the underlying action. It also memorialized plaintiffs' belief "that the Horace Mann insurance policy provides coverage for Reaves," and that they intended to pursue claims against defendant.³²

To that end, A.S. and her parents commenced this action against defendant in the Circuit Court of Madison County, Alabama, on December 21, 2011.³³ As previously noted, defendant removed the case to this court on January 25, 2012;³⁴ defendant then moved for summary judgement on May 1, 2013; and, plaintiffs have not filed a response.³⁵ Defendant subsequently filed a "motion for entry of summary judgment" on June 10, 2013, arguing that plaintiffs' failure to respond constitutes abandonment of their claims.

III. ANALYSIS

A. Subject Matter Jurisdiction Under 28 U.S.C. § 1332

The court considers its subject matter jurisdiction sua sponte. This case was removed on the basis of 28 U.S.C. § 1332,³⁶ which requires complete diversity of citizenship between the parties. Plaintiffs are residents of Alabama.³⁷ Defendant's notice of removal stated that it is a citizen of Illinois because it is incorporated in that state and maintains its principal place of business there.³⁸ It is frequent legal shorthand to say that "[f]or purposes of the diversity statute, a corporation is a citizen of the state where it is incorporated and the state where it has its principal place of business," Crockett v. Securitas Security Services USA, Inc., 278 F. App'x 863, 864(11th Cir. 2007) (per curiam), but 28 U.S.C. § 1332 also provides that:

in any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of . . . every State and foreign state of which the insured is a citizen.

28 U.S.C. § 1332(c)(1)(A) (emphasis supplied).

If that provision does not apply, then defendant is deemed a citizen of Illinois, and complete diversity of citizenship exists. See 28 U.S.C. § 1332.

On the other hand, if that provision does apply, then defendant is deemed to be a citizen of whichever state Reaves, the insured, is a citizen. Reaves was a citizen of Alabama in 2005 when the underlying action was filed,³⁹ and a similar conclusion in this case would destroy the diversity of citizenship. But the record does not reveal the citizenship of Reaves at the time this case was removed. See Burns v. Windsor Insurance Co., 31 F.3d 1092, 1097 n.13 (11th Cir. 1994) (noting that jurisdictional facts are assessed at the time of removal). Thus, if § 1332(c)(1)(A) applies, the court must order discovery on that issue to ensure that it has subject matter jurisdiction.

The application of § 1332(c)(1)(A) turns upon whether this case is a "direct...