Alabama Mutual Insurance Co. v. City of Fairfield – State High Court Weighs Class-Action UM Claim

An insurance company providing workers’ compensation coverage and uninsured/underinsured motorist coverage to cities (and hence, their workers) across the state pulled what many considered to be an illegal move.
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As was later detailed in the case of Alabama Mutual Insurance Corp. v. City of Vernon, the city alleged in 2005 the insurer excluded city workers from collecting both workers’ compensation and UM benefits in the event workers were involved in an on-the-job accident. Workers’ compensation would thus be the only damages a worker could collect in the event of a serious crash. (They couldn’t sue the employer, due to the exclusive remedy provision, and suing the other driver who lacked insurance would likely be fruitless.)

Vernon argued this move by the insurer was a breach of contract that effectively rendered the city’s UM/UIM coverage as “illusory.” The city had contracted with the insurer to provide UM/UIM benefits to injured workers. It paid for those benefits. And yet, the city didn’t actually receive any coverage because the insurer cut out the only persons who had any realistic chance of collecting those benefits – city workers and volunteers.

When the city filed its complaint, it sought class action status, as many other cities were grappling with the same issue involving the same insurer. Vernon was the original class representative.

However, subsequent to filing the claim, the City of Vernon settled with the insurance company and then withdrew as the class representative. Without a class representative, the case wouldn’t be able to move forward, so the the Alabama Supreme Court directed the trial court to allow four months for a new one to be substituted.

The trial court then entered an order substituting the City of Fairfield as the representative of the class, thus initiating Alabama Mutual Insurance Co. v. City of Fairfield. Both sides submitted supplemental briefs.

However, when the Alabama Supreme Court reviewed those briefs, justices identified a jurisdictional defect in the case. The proper jurisdiction for this matter, the court ruled, is the Alabama Department of Insurance and the overseeing commissioner. Therefore, the trial court’s certification of the class had to be vacated.

The court relied on a 2010 decision it had previously issued in Ex parte Cincinnati Insurance Co. to reach its conclusion. In that case, an individual filed a lawsuit against his insurer regarding stacked UM coverage. Insureds were invited and even encouraged to purchase stacked UM coverage for up to six vehicles, but the complaint indicated this coverage was “illusory, unnecessary and provides no benefit to purchaser” because by statute, the policy could only provide stacked coverage for up to three vehicles. Still, the insurer collected premiums for stacked coverage on up to six cars. The insured argued the company engaged in a widespread practice of issuing multi-vehicle UM policies, even when insureds would never be able to collect on that coverage. Essentially, the insurance company was overcharging for coverage it knows it won’t ever have to provide.

The complaint sought damages and class action status.

The insurer moved to dismiss the claim for lack of subject matter jurisdiction, arguing the Commissioner of Insurance and the Alabama Department of Insurance have authority to decide such matters, and plaintiff failed to exhaust those administrative remedies first.

The court agreed.

Applying this same logic to the present case, the court said it was forced to dismiss. That means plaintiff will have to first file a complaint with the state insurance commissioner and seek redress through those channels before it can pursue remedy through the court.

Our experienced Montgomery injury attorneys recognize these cases can be complex, and especially confusing for workers hurt in on-the-job auto accidents. These individuals should seek their own representation with a qualified legal team.

Call Allred & Allred P.C. at 1-866-942-9315 to speak with a Montgomery personal injury lawyer.

Additional Resources:
Alabama Mutual Insurance Co. v. City of Fairfield, Dec. 19, 2014, Alabama Supreme Court
More Blog Entries:
Peterson-Tuell v. First Student Transp. – Prior Health History Relevant to Determine Damages, Dec. 2, 2014, Montgomery Injury Lawyer Blog