When defending an insured under reservation of rights, Alabama insurers often are faced with the possibility of exposure from a judgment or verdict that includes both covered and non-covered loss or damage under an insurance policy. Insurers can take multiple steps during the handling of a claim to ensure this coverage issue is addressed adequately and reserved upon. The insurer can issue a timely reservation of rights letter to the insured identifying the limited scope of indemnity coverage potentially available under the policy for a claim. Supplemental coverage letters can be issued to the insured reaffirming the insurer’s coverage position on indemnity. The insurer can provide notice to the insured of the insured’s duty and burden of proof under Alabama law to apportion damages ultimately awarded against it between covered and non-covered claims and loss and make clear that a general verdict or “similarly general judgment” is insufficient to meet this burden. See, e.g., Barton v. Nationwide Mut. Fire Ins. Co., 524 F. Supp. 3d 1219 (N.D. Ala. 2021). The insurer can request that the insured submit special jury interrogatories and/or a special verdict form in the context of the underlying case to ensure this burden is met and that any judgment or verdict allocates between insured and non-insured damages. The insurer also can advise the insured that any failure to allocate damages could result in a disclaimer of indemnity coverage for such judgment or verdict under the policy and reserve all rights accordingly.

Nonetheless, even if all of these good faith steps in claims handling are taken by an Alabama insurer, a case still may go to trial and result in a general, non-allocated judgment or verdict against the insured, which the insurer is then asked to satisfy in full. What to do?

Alabama law provides insurers with two options when facing this scenario through the procedural mechanism of permissive intervention. An insurer can move to intervene in an underlying action to have a trial bifurcated as to the issues of liability and coverage. See Universal Underwriters Ins. Co. v. E. Cent. Alabama Ford-Mercury, Inc., 574 So. 2d 716 (Ala. 1990), as modified on denial of reh’g (Jan. 18, 1991). Or an insurer can file a motion to intervene in the underlying action for the limited purpose of submitting special interrogatories delineating between covered and non-covered damages awarded against the insured in any judgment or verdict See Employers Mutual Cas. Co. v. Holman Building Co., LLC, et al., 84 So.3d 856 (Ala. 2011) (“an insurer may seek permissive intervention in the underlying tort litigation against the insured for the purpose of requesting a special-verdict form or a general-verdict form accompanied by interrogatories so that it may ascertain the basis of the jury’s verdict in the event the jury finds against its insured”).

On its face, the second option – intervening to submit special interrogatories relevant to the indemnity issues – has significant appeal as it would provide an Alabama insurer with a mechanism to avoid an unallocated general verdict against its insured without the significant costs and delays of a bifurcated trial. In practice, however, motions to intervene on this basis are largely unsuccessful and have proved to be a false beacon of hope for many Alabama insurers.

The apparent trend in Alabama motion practice is to deny motions for permissive intervention filed by insurers for the purpose of submitting special interrogatories or a special verdict form to the jury relevant to insurance coverage. These motions commonly are denied by Alabama courts without opinion, leaving the insurer in the position of appealing without a reasoned judgment from the underlying court.

If the insurer does appeal, they are up against an onerous burden. The Alabama Supreme Court has made clear that decisions on motions for permissive intervention filed by insurers in the specific context of submitting special interrogatories or a special verdict form to the jury remain within the sound discretion of the trial court. Emps. Mut. Cas. Co. v. Holman Bldg. Co., 84 So. 3d 856 (Ala. 2011) (affirming trial court’s denial of insurer’s motion to intervene to submit special interrogatories to the jury and noting “an insurer’s right to intervene in a civil action against its insured – either to seek a bifurcated trial or to request a general-verdict form with interrogatories or a special-verdict form – is permissive only”); QBE Ins. Corp. v. Austin Co., 23 So. 3d 1127 (Ala. 2009) (affirming trial court’s denial of insurer’s motion to intervene to submit special interrogatories relevant to coverage and noting “an insurer has no absolute right to intervene in an action against its insured”). Under Alabama law, the denial of a motion for permissive intervention will not be reversed unless the underlying court is found to have clearly exceeded its discretion. Emps. Mut., 84 So. 3d 856 (Ala. 2011) (noting the court “is not free to merely substitute its judgment for that of the trial court” and can only reverse the decision if “the trial court clearly exceeded its discretion in denying the motion”) (internal quotations and citations omitted). This standard is amorphous and often impossible for insurers to satisfy.

Where does this leave Alabama insurers? Should motions to intervene to submit special interrogatories relevant to covered and non-covered loss be disregarded? Not necessarily. While these motions may have limited success, they remain an option for insurers to consider when trying to account for the issue of covered and non-covered loss under a policy before a judgment or verdict is entered against an insured. These motions also can act as evidence of an insurer’s good faith efforts in trying to obtain an allocated judgment that accounts for the limited indemnity coverage available under a policy for a claim against an insured before a verdict is entered. Taking this step could help in defending against any allegations of bad faith ultimately made against an Alabama insurer in connection with payment of a judgment or verdict down the line.

An insurer also can use a motion to intervene as a starting point for negotiations with its insured on allocation of any prospective judgment or verdict accounting for the indemnity issues under a policy. The motion can provide an opportunity for the insurer and insured to address and resolve this coverage issue head on before a judgment or verdict is entered. Having an agreed indemnity allocation in place before a case goes to judgment or verdict could benefit both the insurer and the insured as it would remove all uncertainty regarding the scope of indemnity coverage ultimately available under the policy and would cut off the risk of future coverage disputes between the insurer and insured on indemnity coverage, as well as the costs associated with pursuing this coverage dispute. Any agreed allocation on indemnity also could be applied to any settlement reached by an insured before a judgment or verdict is entered.

In conclusion, Alabama insurers should continue to take all steps available to them to account for covered and non-covered loss under an insurance policy, including by filing motions to intervene to submit special interrogatories relevant to indemnity coverage. There are advantages to these motions even if the motions themselves ultimately are unsuccessful.