Snell v. United Specialty Ins. Co.

102 F.4th 1208

James SNELL, d.b.a. Outdoor Expressions, Plaintiff-Appellant, v. UNITED SPECIALTY INSURANCE COMPANY, Defendant-Appellee.

No. 22-12581

United States Court of Appeals, Eleventh Circuit

Filed: May 28, 2024

Appeal from the United States District Court for the Southern District of Alabama, D.C. Docket No. 1:21-cv-00229-CG-M

Thomas M. O'Hara, O'Hara Law Firm, LLC, Daphne, AL, for Plaintiff-Appellant.

Cooper Campbell Thurber, Allen Eugene Graham, Phelps Dunbar, LLP, Mobile, AL, Douglas Kleeman, Phelps Dunbar, LLP, New Orleans, LA, for Defendant-Appellee.

Before Newsom, Branch, and Luck, Circuit Judges.

Branch, Circuit Judge:

United Casualty Insurance Company ("United") refused to defend James Snell, a landscaper, in a civil lawsuit alleging that Snell had negligently installed a ground-level trampoline in a client's backyard. Snell sued, contending that United had breached its insurance contract with him in bad faith and seeking a declaratory judgment that United had a duty to defend and indemnify Snell. The district court granted summary judgment for United, holding that the accident did not "arise from" Snell's "landscaping" work within the meaning of his commercial general liability policy. On appeal, Snell argues that the district court misconstrued the policy and his complaint, prematurely granted summary judgment on United's duty to indemnify him while the underlying suit was still pending, and erred in granting summary judgment on his bad faith claim.

After review, and with the benefit of oral argument, we affirm. In the first place, the district court correctly concluded that the allegations of the complaint did not trigger United's duty to defend and, though the facts United discovered in investigating the claim present a closer question, Snell's insurance application makes clear that the policy does not cover his work here. Next, Alabama law does not, as Snell suggests, preclude a decision on the duty to indemnify before judgment in the underlying case. Finally, Snell's bad faith claim necessarily fails because United had a lawful basis to deny the claim. But even if that were not so, Snell failed to meet the high burden of showing bad faith under Alabama law because he points to no evidence that United wholly failed to investigate any part of his claim. Instead, he simply insists that if United had done a more thorough investigation, it would agree with him, which is insufficient to show bad faith under Alabama law.

I. Background

A. Factual Background

Snell's landscaping company is named "Outdoor Expressions," and it is located in Fairhope, Alabama.

Snell was hired by a family, the Westons, to turn an above ground trampoline into a ground level trampoline. According to Snell, the Westons wanted an in-ground trampoline because it would be more aesthetically pleasing and sturdy than an above-ground trampoline.

Snell's project for the Westons involved various tasks like tree pruning and removal; installation of shrubs, trees, and sod; and setting up a sprinkler irrigation system. The trampoline aspect of the project involved "site work" to make a place for the trampoline and "assembly and installation" of the trampoline. Snell's site work included excavation of a pit, installation of a drain and drainage sand, excavation of a trench to install a drainage pipe, installation of the drainage pipe and of a drain pump, and, most relevant here, construction of concrete block retainer walls and installation of a wood cap on the retainer walls. The retaining walls aimed to prevent erosion and collapse of the structure; the wood cap was for aesthetics. Then, after all that, Snell unboxed the trampoline, assembled it, and lowered it into the pit.

A few years later, Matthew Burton sued the Westons for injuries his daughter suffered on the Westons' trampoline. Burton's original complaint alleged that his daughter was injured when she "fell off of the trampoline and struck her face on the wooden board" surrounding the trampoline. The original complaint further alleged that "[t]he trampoline had no padding and no netting," and that "[t]he conditions around the trampoline were dangerous and inherently dangerous for those who used it."

Burton later amended his complaint to add Snell, Outdoor Expressions, and the trampoline manufacturer as defendants. The amended complaint purported to incorporate all the allegations of the original complaint.

Burton alleged two claims against the trampoline manufacturer: the first under Alabama's Extended Manufacturer's Liability Doctrine, and the second for Failure to Warn. These claims alleged that the trampoline itself was defective and not in a reasonably safe condition, and that the trampoline manufacturer "failed to adequately warn the minor Plaintiff[ ] of the dangers associated with the use of the trampoline in question." "As installed," Burton alleged, "the trampoline had no netting, inadequate padding and was surrounded by wooden decking."

Burton alleged just one claim against Snell and Outdoor Expressions: "Negligence and/or Wantonness." Burton alleged that Snell "wantonly assembled, constructed and installed the trampoline in the backyard of the Weston[s]'s home," creating "an unreasonably dangerous condition and structure on the property." This "negligence and/or wantonness," Burton alleged, "was the proximate cause of the serious injuries suffered by the minor Plaintiff[.]"

Snell notified United (his insurance carrier) of the lawsuit in late December 2020. On January 5, 2021, United e-mailed Snell stating that it was reviewing the policy to determine if there was coverage. The following week, United informed Snell that it would not defend him in the lawsuit. The denial letter noted that the allegations dealt with wanton assembly of the trampoline and explained that United had no duty to defend Snell against such an action.

To explain its denial of coverage, United turned first to the general coverage provisions of the policy, which provided as follows:

[United] will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury"[¹] or "property damage"[²] to which this insurance applies. [United] will have the right and duty to defend the insured against any "suit" seeking those damages. However, [United] will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply.

United then turned to an endorsement to the policy which limited the broad coverage otherwise provided to "Specified Operations, Premises[³], or Projects" (which the parties call the "Specified Operations provision")⁴—and, here, the specified "Operation(s)" listed are "Insured performs landscaping." United reasoned that, because the underlying complaint alleged that the accident stemmed from Snell's "[a]ssembly and installation of a Trampoline," the injury did not "arise from [Snell's] performance of landscaping," and "there [was] no coverage for such claims."

Further, and though United did not specifically rely on it in the letter,⁵ Snell's application for insurance is relevant. The application, which predated the policy, specifically asked "[d]o you do any recreational or playground equipment construction or erection?" In response, Snell checked the "No" box.

After receiving the denial letter, Snell's attorney charged that the denial of coverage was in "bad faith" and demanded a retraction and reimbursement for all legal expenses. United stood by the decision.

B. Procedural History

After United refused to defend or indemnify him, Snell filed this lawsuit in Alabama state court. He alleged that United was obligated to defend and indemnify him in the underlying lawsuit. His complaint asserted claims for breach of contract and bad faith denial of coverage, and he sought a declaratory judgment that United had a duty to defend and indemnify him.

United removed the case to federal court based on diversity jurisdiction. After discovery, the district court granted summary judgment in favor of United.

As to the breach of contract and declaratory judgment claims, the district court reasoned that "whether the claims are covered depends upon whether the performance of 'landscaping' would include Snell's installation of the trampoline" under the specified operations provision. The court noted that the policy did not define the word "landscaping," and it concluded that the "common, everyday meaning of the word" did not include trampoline installation "even [under] the definitions submitted by Snell" in his briefing. The court further concluded that "the context of the Policy makes it clear that" the trampoline-related work "is not covered." Under Alabama law, the district court explained, an insurance contract must be "construed according to the entirety of its terms and conditions" including "as . . . modified by any . . . application which is a part of the policy." Ala. Code. § 27-14-17(a).⁶ And "Snell was asked in the application whether his work included 'any recreational or playground equipment construction or erection' and Snell answered 'No.' " "If Snell had answered 'Yes' to that question," the district court said, "or if he had informed United [ ] at some time later that his operations were going to include structural work for recreational equipment and the installation of recreational equipment, then United [ ] could have added that coverage and made any appropriate adjustments to Snell's rate."⁷ Thus, the district court concluded that the policy was not ambiguous and that United had not breached the contract because it had no duty to defend the lawsuit.

As to Snell's bad faith claim, the district court concluded that, because United "had a lawful basis for denying Snell's claim and [ ] Snell's breach of contract claim fail[ed]," his "bad faith denial [claim] also fail[ed]."

Snell appealed.

II. Standard of Review

"We review de novo a district court's grant of summary judgment,...