It is not unusual for a consent judgment to take place after an insurer disclaims coverage and the defendant has no ability to defend the case or pay a settlement of judgement. But what about determining coverage for the consent judgment if the plaintiff, as part of the arrangement, does not take an assignment of the insured's policy rights and file a coverage action? 
 
That’s what was at issue in Babwari v. State Farm Fire, No. 21-895 (N.D. Ala. May 15, 2023).  Amanali Babwari worked at Pit Stop Grocery, a convenience store and gas station in Birmingham, Alabama.  Following a shift that ended at 11 P.M. he was held up at gun point as he got to his car in a corner of the parking lot underneath an inoperable security light on a telephone poll.  Babwari was shot nine times.  He lived but was seriously injured.

Babwari filed suit against the store owners, asserting claims of negligence and wantonness.  He alleged that they did not implement adequate security measures, such as hiring a second employee to work the night shift with him and fix the inoperable street-light under which he was parked [he was not allowed to park in one of the spots in front of the store].

State Farm initially defended the store owners under a reservation of rights but, for reasons not discussed in the opinion, withdrew the defense.  Unable to defend themselves, the store owners agreed to a consent judgment with plaintiff and the court entered a judgment in the amount of nearly $900,000. 

Plaintiff then brought an action, under an Alabama statute, to recover the proceeds under the store owners’ liability policy.  The court explained the operation of the statute: “[W]hen an injured party secures a final judgment against a defendant that is covered by an insurance policy, the injured party is entitled to have the proceeds of the policy applied to satisfy the judgment. Ala. Code. § 27-23-2. When an injured party brings a direct action against an insurer under § 27-23-2, he acquires a vested interest in the insured’s rights under the policy and may seek to compel the insurer to pay the judgment.  However, this right is dependent on the rights of the insured under the policy.  Thus, the injured party effectively steps into the shoes of the insured and is subject to any defenses that the insurer could raise against the insured.”

So, the issue before the court was whether the underlying claim was covered as the complaint asserted claims of both negligence and wantonness.  [As an aside, the court addressed the employer’s liability exclusion and concluded that it did not apply.]  Putting aside a few other issues, the court concluded that it was covered. 

First, the court addressed the rule to be followed.  The explanation is lengthy, but worthy of being set out in full (with many citations omitted):

“As the party seeking coverage, a plaintiff in a § 27-23-2 action bears the burden of proving that the damages awarded in the underlying action are covered by the insurance policy. When a plaintiff obtains a judgment against an insured defendant after pursuing both covered and non-covered claims, the insurance company is only obligated to indemnify for damages arising from covered claims.  Therefore, if a plaintiff obtains a judgment after pursuing alternate theories of liability, and under one of those theories there is no coverage under the policy, the § 27-23-2 plaintiff must show that the basis of the judgment was the covered theory.  When no jury verdict or final order in the underlying action identifies the specific claims for which damages were awarded, it is appropriate, under Alabama law, to look to the record . . . in the underlying action to identify the injuries for which the injured party sought damages.

“If, after examining the record in the underlying action, a court is unable to determine what portion of the damages, if any, were awarded for covered claims, then the plaintiff has not met his burden to establish coverage. However, an insurance company is not relieved of its duty to indemnify simply because a plaintiff asserts non-covered claims in the underlying action. Rather, when the facts in the underlying action are irreconcilable with a legal theory asserted in the complaint, the facts, not the mere assertion of the legal theory, determine an insurers duty to indemnify.”

The court concluded that, despite the cause of action asserted for wantonness, the facts did not support it.  While there was evidence of prior incidents of criminal activity at the store, the court concluded that it was “insufficient to establish that the Store Owners knew or should have known that Plaintiff’s injuries were a probability.” 

The court concluded that “the record evidence shows that there was only one other robbery at the Pit Stop prior to October 2016, and that single event did not result in any injuries.  And, though Plaintiff frequently called the police while working at the Pit Stop, none of those calls resulted in an arrest.  This simply is not enough to infer that the Store Owners knew or were substantially certain that their failure to fix a telephone pole light or hire a second employee for the night shift would likely result in a violent attack on Plaintiff.”