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FROM THE ALABAMA LAWYER: Municipal Liability Cap on Damages and UIM Insurance

By Angela C. Taylor

No matter which side of the fence you find yourself on in litigation involving a municipality and allegations of damages, there are some basics you need to first familiarize yourself with before you can appropriately advise your client. While the subject of municipal liability is extremely broad, and while the case law that arose from it is voluminous, this article will focus on issues relating to statutory caps on damages and underinsured motorist (UIM) insurance.

Understanding the statutory cap on municipal liability and how the courts in Alabama have applied the cap in UIM insurance-related litigation is essential. This article provides a snapshot of the applicable Alabama statutes and some key court rulings.

The amount of damages awardable against a municipality in Alabama are limited to the amounts set forth in Ala. Code § 11-93-2 (1975), which provides:

The recovery of damages under any judgment against a governmental entity shall be limited to $100,000.00 for bodily injury or death for one person in any single occurrence. Recovery of damages under any judgment or judgments against a governmental entity shall be limited to $300,000.00 in the aggregate where more than two persons have claims or judgments on account of bodily injury or death arising out of any single occurrence. Recovery of damages under any judgment against a governmental entity shall be limited to $100,000.00 for damage or loss of property arising out of any single occurrence. No governmental entity shall settle or compromise any claim for bodily injury, death or property damage in excess of the amounts hereinabove set forth.

Section 11-47-190 identifies the circumstances under which a municipality may be held liable. It specifically states: “no recovery may be had under any judgment or combination of judgments, whether direct or by way of indemnity under Section 11-47-24, or otherwise, arising out of a single occurrence, against a municipality, and/or any officer or officers, or employee or employees, or agents thereof, in excess of a total $100,000 per injured person up to a maximum of $300,000 per single occurrence, the limits set out in the provisions of Section 11-93-2 notwithstanding.”

Statutory municipal immunity is an affirmative defense pursuant to Rule 8(c), Ala. R. Civ. P. and must be specifically pled in order to avoid a waiver. “Although statutory municipal immunity, like the statutory employer immunity provided by the Workers’ Compensation Act and like sovereign immunity, is not specifically listed in Rule 8(c), it quite obviously is of the same nature as those defenses specifically listed there.”[1]

Municipalities are required to indemnify their employees in certain circumstances pursuant to § 11-47-24(a). Claims against municipal employees and officials sued in their official capacity are, as a matter of law, claims against the municipality, and are subject to the statutory liability cap.[2] However, a municipality cannot be held liable for the intentional torts of its employees, agents, or officials. “There is no exception in the statute allowing an action against a municipality for the wanton or willful conduct of its agents or employees.”[3]

It is important to note that municipal employees and officials sued in their individual capacity for conduct outside their official duties are not protected by the liability cap provided in § 11-47-24.[4]

A pivotal question must be answered in any litigation against a municipal employee or official. “Whether a state officer is being sued in an official capacity or an individual capacity is not mere semantics; the question is whether the plaintiff is reasonably seeking relief from the state coffers or from the individual’s assets.”[5] Thus, if the plaintiff seeks relief from a municipal employee or official in their individual capacity and from his or her own assets, no statutory liability cap protection is available based on current Alabama law.

Tort lawsuits filed against municipalities and their employees have attempted to recover damages over and above the statutory cap by seeking underinsured motorist benefits from the plaintiffs’ automobile insurers. Plaintiffs have argued that due to the statutory municipal liability cap, the municipality is in essence underinsured and thus the proceeds of private automobile policies should pay the uncompensated portion of plaintiffs’ damages.

Typically, automobile insurance policies providing underinsured motorist (UIM) coverage in Alabama contain the “legally entitled to recover” language found in the Alabama statute governing UIM coverage, § 32-7-23. In defining the meaning of “legally entitled to recover,” the Alabama Court of Civil Appeals stated:

One must, then, make a determination as to what the words, ‘legally entitled to recover damages,’ mean. They mean that the insured must be able to establish fault on the part of the uninsured motorist, which gives rise to damages, and must be able to prove the extent of those damages. In a direct action by the insured against the insurer, the insured has the burden of proving in this regard that the other motorist was uninsured, legally liable for damage to the insured, and the amount of this liability. Note that the insurer would have available, in addition to policy defenses, the substantive defenses that would have been available to the uninsured motorist.[6]

In State Farm Mut. Auto. Ins. Co. v. Causey, 509 F. Supp. 2d 1026 (M.D. Ala. 2007), State Farm filed a declaratory judgment action asking the court to declare that State Farm had no duty to pay underinsured motorist benefits to the defendants (claiming parties) after an accident between Causey and a street-sweeper owned by a municipality and driven by its employee.[7] The municipality paid its policy limits of $100,000 to Causey.[8] State Farm argued that it had no liability to the defendants for any judgment in excess of the $100,000 paid on behalf of the municipality.[9] State Farm reasoned that the municipality’s employee/driver was acting in the scope of his employment at the time of the accident, and thus the defendants’ damages were subject to the cap found in § 11-93-2.[10] State Farm asserted that the statutory liability cap could be invoked by a UIM insurer because it was a substantive defense available to the tortfeasor.[11] The defendants insisted, however, that “the cap is merely a post-verdict remedy, and that this situation is no different than where a claimant’s recovery against the tortfeasor is limited by the tortfeasor’s policy limits.”[12] They also argued “that insured persons who are legally entitled to recover some damages, but are partially barred from recovering all damages, should be able to treat their claim as a pure underinsured motorist claim entitling them to recover the barred amount from their UIM carrier.”[13]

In reaching its decision in Causey, the Court examined how the courts in Alabama had ruled in a variety of circumstances dealing with statutory and immunity doctrines and insurance claims. During the 1980s and 1990s, several decisions by the Alabama Supreme Court created exceptions for the recoverability of damages irrespective of statutory or immunity doctrines.[14] Those decisions by the Alabama Supreme Court were later overturned, however, by Ex parte Carlton, 867 So. 2d 332 (Ala.2003) which firmly barred recovery above and beyond the protection given municipalities and their employees, acting in their official capacities. Because the Alabama Supreme Court overturned the rulings in Hogan, Jeffers, and Baldwin, the Causey court explained these various doctrines and the phrase “legally entitled to recover” as follows:

Under a literal reading of “legally entitled to recover,” which is the only reading permitted this court, the partial bar/total bar distinction is one without a legal difference. “Legally entitled to recover” requires analysis of the merits of the insureds’ claim and the remedies available to the insureds. To recover, the insureds must be able to establish liability, not just fault.5 The parties agree the driver of the street-sweeper was at fault; he owes damages. In this case those damages are at least $175,000. Can one then surmise that the driver is liable for $175,000? Clearly not. Though he is at fault, he is not liable for any amount over $100,000. Nor is his employer. See Benson, 659 So.2d at 86. The remedy of the insured against the tortfeasor is limited to $100,000. The insured can legally recover no more than that. Those are the merits of the insured’s case against the tortfeasor; applying the reasoning of Carlton, those are also the merits of the case against the UIM carrier. Thus, the distinction between the complete bars of the Workers’ Compensation Act, various forms of absolute governmental immunity, and defenses created by the guest statute and the statute of limitations, on the one hand, and the partial bar of the municipal cap on the other, is one of degree and not principle in the UM/UIM context. There is no rational basis for treating them differently solely on that distinction.[15]

Based on this rationale, the court ruled “that Defendants are ‘legally entitled to recover’ under their UIM coverage what they could recover in a direct suit against the tortfeasors who damaged them. If, in a direct suit against those tortfeasors, Defendants’ recovery would be limited to a statutory maximum, as Defendants’ recovery is limited here by Alabama’s municipal cap, then that statutory maximum applies to Defendants’ UIM claim against their insurer.”[16]

The same issue was presented in Kendall v. United Servs. Auto. Ass’n, 23 So. 3d 1119 (Ala. 2009), where the meaning of the phrase “legally entitled to recover” was discussed. The Alabama Supreme Court, in discussing its prior decision in Ex parte Carlton, supra, held that “[t]oday we return to the point from which this Court never should have departed–the language of the statute. The language of the uninsured-motorist statute is plain and unambiguous.”[17] The Alabama Supreme Court agreed with the holding in Causey and refused to expand the meaning of “legally entitled to recover.” It affirmed the lower court’s ruling that the insured was not entitled to recover damages from the county above the statutory liability damages cap she had already received through settlement, and therefore she was also not entitled to UIM benefits from her automobile insurer.[18]

In Ala. Mun. Ins. Corp. v. Allen, 164 So. 3d 569 (Ala. 2014), the passenger and driver filed a negligence action against police officer Beard in his individual capacity for personal injuries sustained in a vehicle accident. Beard was driving a police vehicle on his way to work. At the time of the accident, he reached speeds in excess of 100 miles per hour in a 45-mile-an-hour speed zone.[19] State Farm Mutual Automobile Insurance Company and Government Employee Insurance Corporation were also named as defendants, as plaintiffs sought underinsured motorist benefits.[20]

Officer Beard claimed that the statutory municipal liability cap of § 11-47-190 and § 11-93-2, “in conjunction with the indemnification provisions of Section 11-47-24, Ala. Code 1975, applied because he was on duty when the accident occurred.”[21] The trial court ultimately entered two judgments against Beard individually totaling $1,800,000.[22] The trial court held that the statutory municipal liability cap of § 11-93-2 did not apply to the judgments entered against Beard given that he was sued in his individual capacity for conduct outside the scope of his employment.[23]

The City of Madison, Alabama and Alabama Municipal Insurance Corporation moved jointly to intervene, claiming they had an interest in the collection of the judgments rendered against officer Beard, because he was an employee of the City of Madison and driving a car insured by AMIC at the time of the accident.[24] The City of Madison also moved to deposit $100,000 with the court as final satisfaction of the judgments entered against officer Beard, but the trial court denied the motion.[25] The City of Madison and AMIC filed separate appeals. The Alabama Supreme Court affirmed the trial court’s ruling that a police officer sued in his individual capacity for actions outside of his employment does not enjoy the benefit of the statutory municipal liability cap.[26]

[1] City of Birmingham v. Business Realty Inv. Co., 722 So. 2d 747, 750 (Ala. 1998).
[2] Smitherman v. Marshall Cnty. Comm’n, 746 So. 2d 1001, 1007 (Ala.1999).
[3] Morrow v. Caldwell, 153 So. 3d 764, 769 (Ala. 2014). (citing Cremeens v. City of Montgomery, 779 So. 2d 1190, 1201 (Ala. 2000) and Town of Loxley v. Coleman, 720 So. 2d 907, 909 (Ala.1998) (“This Court has construed § 11-47-190 to exclude liability for wanton misconduct.”)).
[4] See Ala. Mut. Ins. Corp. v. Allen, 164 So. 3d 568, 578 (Ala. 2014); See also Suttles v. Roy, 75 So. 3d 90 (Ala. 2010) (for a detailed discussion of the issues involving immunity of peace officers).
[5] Suttles, 75 So. 3d at 98 (citing Gamble v. Fla. Dep’t of Health & Rehabilitative Servs., 779 F. 2d 1509, 1513 (11th Cir. 1986), (quoted in Ex parte Troy Univ., 961 So.2d 105, 110 (Ala. 2006)).
[6] State Farm Mutual Auto. Ins. Co. v. Griffin, 51 Ala. App. 426, 431, 286 So. 2d 302, 306 (1973).
[7] State Farm Mutual Auto. Ins. Co. v. Causey, 509 F. Supp. 2d 1026 (M.D. Ala. 2007).
[8] Id. at 1027.
[9] Id.
[10] Id.
[11] Id.
[12] Id. at 129.
[13] Id. at 1031.
[14] See Hogan v. State Farm Mut. Auto. Ins. Co., 730 So.2d 1157 (Ala.1998) (holding that passenger was entitled to recover UM benefits even though guest statute granted immunity to driver); State Farm Mut. Auto. Ins. Co. v. Jeffers, 686 So. 2d 248 (Ala.1996) (holding that accident victim was entitled to recover UM benefits despite police officer driver’s protection from liability under doctrine of Alabama substantive immunity); State Farm Auto. Ins. Co. v. Baldwin, 470 So. 2d 1230 (Ala.1985) (holding that insureds were legally entitled to recover from UM carrier despite the total bar to recovery from the tortfeasor because of governmental immunity under the Feres doctrine); See also Feres v. U. S., 340 U.S. 135 (1950) (interpreting the Federal Tort Claims Act, 28 U.S.C. § 1346, to bar actions against the Government or its employees for injuries incurred by a member of the military arising out of and in the course of his military service).
[15] Causey, 509 F. Supp. 2d at 1031-1032; see also Benson v. City of Birmingham, 659 So. 2d 82 (Ala. 1995).
[16] Causey, 509 F. Supp. 2d at 1029.
[17] Kendall v. United Servs. Auto. Ass’n, 23 So. 3d 1119, 1122 (Ala. 2009).
[18] Id. at 125.
[19] Ala. Mun. Ins. Corp. v. Allen, 164 So.3d 569 (Ala. 2014).
[20] Id.
[21] Id. at 570.
[22] Id.
[23] Id.
[24] Id.
[25] Id.
[26] Id. at 579-580.