AEGIS Security Insurance Company v. MW Industrial Services, Inc.

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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
AEGIS SECURITY INSURANCE 	)
COMPANY, 	)
)
Plaintiff/ 	)
Counterclaim Defendant, 	)
)
v. 	) 	CIVIL ACT. NO. 1:23-cv-374-TFM-C
)
MW INDUSTRIAL SERVICES, INC., 	)
)
Defendant/ 	)
Counterclaim Plaintiff/ 	)
Third-Party Plaintiff, 	)
)
v. 	)
)
MAHORSKY GROUP, INC., et al. , 	)
)
Third-Party Defendants. 	)
MEMORANDUM OPINION AND ORDER
Pending before the Court is Plaintiff’s Aegis’s Motion to Dismiss Counterclaim of MWIS,
or Alternatively for Judgment on the Pleadings and Incorporated Memorandum of Law (Doc. 91,
filed October 8, 2024) in which Plaintiff/Counterclaim Defendant Aegis Security Insurance
Company motions the Court, pursuant to Fed. R. Civ. P. 12(b)(6) and (c), dismiss the counterclaim
that is brought against it by Defendant/Counterclaim Plaintiff/Third-Party Plaintiff MW Industrial
Services, Inc. 	Having considered the motion, response, reply, sur-reply, and relevant law, the
Court finds the motion to dismiss (Doc. 91) is due to be DENIED.
I. 	JURISDICTION AND VENUE
The Court has subject matter jurisdiction over the claims in this action pursuant to 28
U.S.C. § 1332 (diversity).
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The parties do not contest personal jurisdiction or venue, and there are adequate allegations
to support both. The district court has personal jurisdiction over the claims in this action because
the events that gave rise to this action are alleged to have occurred within this judicial district. See
Consol. Dev. Corp. v. Sherritt, Inc., 216 F.3d 1286, 1291-92 (11th Cir. 2000) (“Specific
jurisdiction arises out of a party’s activities in the forum that are related to the cause of action
alleged in the complaint . . . . 	General personal jurisdiction, on the other hand, arises from a
defendant’s contacts with the forum that are unrelated to the cause of action being litigated. The
due process requirements for general personal jurisdiction are more stringent than for specific
personal jurisdiction, and require a showing of continuous and systematic general business
contacts between the defendant and the forum state.”).
Venue is proper in this Court pursuant to 28 U.S.C. § 1391(b)(2) because a substantial part
of the events or omissions that gave rise to this litigation occurred in this judicial district.
II. 	BACKGROUND
A. 	Factual Background1
1 The facts presented in the “Factual Background” section of this Memorandum Opinion and Order
are based on the factual allegations that are contained in the Second Amended Answer,
Counterclaim and Third-Party Complaint (Doc. 78), which the Court must assume are true for a
motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). See, e.g., United States v. Gaubert, 499
U.S. 315, 327 (1991). Further, for a motion for judgment on the pleadings, the Court must also
“accept as true all material facts alleged in the non-moving party’s pleadings,” which are viewed
in “the light most favorable to the non-moving party.” Perez v. Wells Fargo N.A., 774 F.3d 1329,
1335 (11th Cir. 2014) (citing Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370 (11th Cir.
1998)). “[W]hen resolving a motion to dismiss or a motion for judgment on the pleadings, a court
may properly consider a document not referred to or attached to a complaint under the
incorporation-by-reference doctrine if the document is (1) central to the plaintiff’s claims; and (2)
undisputed, meaning that its authenticity is not challenged.” Johnson v. City of Atlanta, 107 F. 4th
1292, 1300 (11th Cir. 2024) (footnote omitted). Aegis references Jones’ affidavit that was attached
to MWIS’s response to Aegis’s motion to strike jury demand (Doc. 79-1). 	The Court finds the
affidavit is central to MWIS’s fraud claims and its authenticity is undisputed. Therefore, the Court
will consider the Jones’ affidavit.
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Cueto Consulting & Construction LLC (“Cueto”) is a Texas contractor that was awarded
two contracts from the Army Corps of Engineers (“the Corps”). Doc. 78 at 12. Pursuant to the
first contract, Cueto was required to construct a building for the Corps near the Granger Lake
reservoir, which is located outside of Austin, Texas (“the Granger Lake Project”). Id. Pursuant to
the second contract, Cueto was to complete certain work at the Fort Hood Military Base (“the Fort
Hood Project”) (collectively, the Granger Lake Project and the Fort Hood Project will be referred
to as “the Projects”). Id. The Corps awarded Cueto the contracts for the Projects on September
27, 2019. Id.
As part of Cueto’s work for the federal government, it was required to procure construction
bonds, including bid bonds, performance bonds, and payment bonds. Id. at 13. Cueto did not have
the financial ability to secure the appropriate bonds for the Projects and had ten days from the date
when the contracts for the Projects were awarded to secure the required bonds. Id. Third-Party
Defendant the Mahorsky Group, Inc. (“MGI”) was Cueto’s surety bonding agency and Defendants
Jesse Bingaman (“Bingaman”) and Scott Mahorsky (“Mahorsky”) (collectively, MGI, Bingaman,
and Mahorsky will be referred to as “the Mahorsky Parties”) were Cueto’s bonding agents and
brokers. Id. Together, the Mahorsky Parties and Plaintiff/Counterclaim Defendant Aegis Security
Insurance Company (“Aegis”) sought an indemnitor for Cueto. Id. at 14. The Mahorsky Parties
acted as Aegis’s agents under a Surety Agent Agreement that authorized MGI to solicit proposals
for indemnitors for bonds that were issued by Aegis. Id. Under the arrangement between Aegis
and the Mahorsky Parties, Aegis would collect the premiums on the bonds and the Mahorsky
Parties would be paid by Aegis a commission for selling the bonds. Id.
On June 26, 2019, Bingaman, at Mahorsky’s direction, approached MWIS to act as a cross-
indemnitor for Cueto after other potential cross-indemnitors declined. Id. At the time, MWIS was
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an existing client of MGI – MWIS had used Mahorsky and MGI to secure bonds for MWIS’s
projects, including bonds from Aegis. Id. at 14.
Beginning in June 2019 and continuing through October 2019, the Mahorsky Parties
communicated with MWIS’s agents, including Jay Dollar (“Dollar”) and Jim Landers (“Landers),
to indemnify Cueto’s bonds. Id. at 15. At the time, MWIS had not been a party to an indemnity
agreement for another party, and neither Dollar, Landers, nor MWIS’s owner, Tiffanie Jones
(“Jones”), had much knowledge of, or experience with, cross-indemnity agreements. Id. MWIS
had no pre-existing relationship with Cueto nor knowledge of Cueto’s financial state or experience.
Id. at 16. 	Nor did MWIS, at the time, have experience with contracting work for the federal
government and had not been pre-approved to serve as a federal contractor, while the Mahorsky
Parties had experience with federal contracting work and Aegis had experience in writing bonds
for federal projects. Id.
To convince MWIS to act as an indemnitor to Cueto, Bingaman and Mahorsky represented
to MWIS that MGI and/or Third-Party Defendant Brick Procurement, Inc. n/k/a Risk Strategies,
Inc. (“Brick Procurement”), would perform funds control for the Projects and Brick Procurement
would perform project monitoring for MWIS. Id. at 17. Bingaman and Mahorsky also told MWIS
that MGI would ensure MWIS would receive a separate teaming agreement with Cueto whereby,
if Cueto was unable to complete the Projects, MWIS would have the first right to complete the
Projects at a higher rate of pay than what Cueto was to receive. Mahorsky represented to MWIS
the indemnity agreements would not obligate MWIS to any bond or monetary obligation and
MWIS would receive financial compensation from Cueto if it agreed to serve as an indemnitor for
the Projects. Id. at 18. On October 24, 2019, Jones executed the agreements of indemnity for the
Projects (“the Agreements”). Id.
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Within a few months of Cueto’s work on the Projects, Cueto’s subcontractors asserted
claims against the Fort Hood Project bonds because of nonpayment. Id. at 20. In January 2020,
the Corps sent Cueto a notice of deficiency for the Fort Hood Project that listed several problems
with Cueto’s management of the project. Id. In February 2020, the Corps issued to Cueto a stop
work order for the Fort Hood Project, and a few months later, terminated the project. Id.
For the Granger Lake Project, Cueto used plans that contained design flaws that resulted
in the structural insufficiency of the final build. Id. at 20-21. Cueto also found it difficult to secure
subcontractors for the Granger Lake Project due to the site’s remote location. Id. at 21.
Neither the Mahorsky parties nor Aegis disclosed to MWIS the complications for Cueto
and with the Projects. Id. After Cueto defaulted, Mahorsky, MGI, and Brick Procurement hired a
project manager at their own expense to help complete the Granger Lake project and Aegis hired
a contractor to implement a plan to complete the Projects. Id. at 21-22.
Both 	the 	Mahorsky 	Parties 	and 	Aegis 	knew 	of 	Cueto’s 	financial 	problems 	and
undercapitalization before the Projects began but did not disclose that information to MWIS. Id.
at 22.
In June 2022, MWIS received from Aegis a demand letter for indemnity. Id. Landers then
called Mahorsky, who assured Landers that everything was fine with the Projects and he was taking
care of it with his own project manager on site. Id.
B. 	Procedural Background
Aegis originally filed the Complaint on April 27, 2023, with the United States District
Court for the Northern District of Alabama. Doc. 1. In the Complaint, Aegis brings claims against
MWIS for (1) exoneration and specific performance and (2) indemnity. Id. On August 25, 2023,
MWIS filed an Unopposed Motion to Transfer Venue (Doc. 14) that the District Court granted
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(15), and this matter was transferred to the Southern District of Alabama.
On October 2, 2023, MWIS filed an Answer (Doc. 19), and on October 16, 2023, MWIS
filed an Amended Answer and Third-Party Complaint (Doc. 27). 	In the third-party complaint,
MWIS brought claims against the Mahorsky Parties and Brick Procurement for (1) fraudulent
misrepresentation and suppression, (2) negligent misrepresentation, and (3) breach of fiduciary
duty. Doc. 27. MGI filed an Answer (Doc. 34) on December 18, 2023, Brick Procurement filed
an Answer (Doc. 37) on December 21, 2023, Bingaman filed an Answer (Doc. 41) on January 10,
2024, and Mahorsky filed an Answer (Doc. 47) on March 11, 2024, after the Court granted (Doc.
43) MWIS’s motion to extend the deadline to serve Mahorsky (Doc. 42).
On August 9, 2024, MWIS filed a motion for leave to amend its Amended Answer and
Third-Party Complaint (Doc. 67) for which the Court ordered any response in opposition to
MWIS’s motion be filed by August 19, 2024 (Doc. 68). 	Aegis, and the Mahorsky Parties and
Brick Procurement, separately filed responses in opposition (Docs. 70, 71) and MWIS filed a brief
in reply (Doc. 75). Ultimately, the Court granted MWIS’s motion for leave to amend (Doc. 76)
and ordered it to separately file its Second Amended Answer, Counterclaim and Third-Party
Complaint (Doc. 67-1), which it did on August 30, 2024.
In the Second Amended Answer, Counterclaim and Third-Party Complaint, MWIS brings
claims 	against 	the 	Mahorsky 	Parties 	and 	Brick 	Procurement 	for 	(Count 	1) 	fraudulent
misrepresentation and suppression and (Count 6) civil conspiracy, against the Mahorsky Parties
for (Count 2) negligent misrepresentation and (Count 3) breach of fiduciary duty, and against
Aegis for (Count 4) fraud and (Count 5) negligent misrepresentation. Doc. 78. On September 13,
2024, Bingaman, Mahorsky, MGI, and Brick Procurement filed separate answers to the third-party
complaint (Docs. 82, 83, 84, 85), and on September 27, 2024, Aegis filed a reply to the
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counterclaim (Doc. 90).
On October 8, 2024, Aegis filed the instant motion to dismiss (Doc. 91) for which the Court
entered a briefing schedule (Doc. 92). 	MWIS and Aegis timely filed their respective response
(Doc. 93) and reply (Doc. 94) to the motion to dismiss. MWIS then filed a motion for leave to file
a sur-reply to the motion to dismiss (Doc. 95) that the Court granted (Doc. 96), and MWIS timely
filed a sur-reply (Doc. 97). 	The motion to dismiss is ripe for review, and the Court finds oral
argument unnecessary.
III. 	STANDARD OF REVIEW
A. 	Fed. R. Civ. P. 12(b)(6)
Pursuant to Fed. R. Civ. P. 12(b)(6), a defendant may move to dismiss a complaint on the
basis that the plaintiff has failed to state a claim upon which relief may be granted. See FED. R.
CIV. P. 12(b)(6). To survive a motion to dismiss, a plaintiff must plead “only enough facts to state
a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007);
see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’ [Twombly, 550 U.S.] at 570, 127 S. Ct. [at] 1955. A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. Id. at 556, 127 S. Ct. [at] 1955.”). Since a Fed. R.
Civ. P. 12(b)(6) motion questions the legal sufficiency of a complaint, in assessing the merits of
the motion, the court must assume that all the factual allegations set forth in the complaint are true.
See, e.g., Gaubert, 499 U.S. at 327; Powell v. Lennon, 914 F.2d 1459, 1463 (11th Cir. 1990); but
see also Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 555) (“[T]he tenet that a court must
accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.
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Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements,
do not suffice.”). Moreover, all factual allegations shall be construed in the light most favorable
to the plaintiff. 	See, e.g., Brower v. County of Inyo, 489 U.S. 593, 598 (1989). 	Obviously,
therefore, a district court may not resolve factual disputes when adjudicating a motion to dismiss.
Page v. Postmaster Gen. and Chief Exec. Officer of the U.S. Postal Serv., 493 F. App’x 994, 995
(11th Cir. 2012)2 (citing, among other cases, Lawrence, 919 F.2d at 1529, for the proposition that,
under Fed. R. Civ. P. 12(b)(6), the existence of disputed material facts precludes a district court
from granting a motion to dismiss). “‘When considering a motion to dismiss . . . the court limits
its consideration to the pleadings and all exhibits attached thereto.’” Thaeter v. Palm Beach Cnty.
Sheriff’s Office, 449 F.3d 1342, 1352 (11th Cir. 2006) (quoting Grossman v. Nationsbank, N.A.,
225 F.3d 1228, 1231 (11th Cir. 2000)); see also Reese v. Ellis, Painter, Ratterree & Adams, LLP,
678 F.3d 1211, 1215-16 (11th Cir. 2012) (“Because the Ellis law firm’s dunning letter and enclosed
documents were attached to the Reeses’ complaint as an exhibit, we treat them as part of the
complaint for [Fed. R. Civ. P.] 12(b)(6) purposes.”).
B. 	Fed. R. Civ. P. 12(c)
The Federal Rules of Civil Procedure provide that “[a]fter the pleadings are closed-but
early enough not to delay trial-a party may move for judgment on the pleadings.” FED. R. CIV. P.
12(c). Judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c) is appropriate when “no issues
of material fact exist, and the movant is entitled to judgment as a matter of law.” 	Ortega v.
Christian, 85 F.3d 1521, 1524-25 (11th Cir. 1996). When reviewing a judgment on the pleadings,
2 In this Circuit, “[u]npublished opinions are not considered binding precedent, but they may be
cited as persuasive authority.” 	11th Cir. R. 36-2 (effective Dec. 1, 2014); see also Henry v.
Comm’r of Soc. Sec., 802 F.3d 1264, 1267 n.1 (11th Cir. 2015) (“Cases printed in the Federal
Appendix are cited as persuasive authority.”).
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the court must accept the facts in the complaint as true and view them in the light most favorable
to the nonmoving party. 	Id. 	A judgment on the pleadings is limited to consideration of “the
substance of the pleadings and any judicially noticed facts.” Bankers Ins. Co. v. Fla. Residential
Prop. & Cas. Joint Underwriting Ass’n, 137 F.3d 1293, 1295 (11th Cir. 1998). In other words, a
Fed. R. Civ. P. 12(c) motion “is subject to the same standard as a motion to dismiss under Rule
12(b)(6).” Doe v. Myspace, Inc., 528 F.3d 413, 418 (5th Cir. 2008); see also Edwards v. City of
Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999) (applying Fed. R. Civ. P. 12(b)(6) standard of
review to a Fed. R. Civ. P. 12(c) motion).
Eleventh Circuit precedent discussing the standard of review for a motion under Fed. R.
Civ. P. 12(c) indicates “[j]udgment on the pleadings is appropriate only when the plaintiff can
prove no set of facts in support of his claim which would entitle him to relief.”). Horsley v. Feldt,
304 F.3d 1125, 1131 (11th Cir. 2002) (quoting Moore v. Liberty Nat’l Life Ins. Co., 267 F.3d 1209,
1213 (11th Cir. 2001)); see also Horsley v. Rivera, 292 F.3d 695, 700 (11th Cir. 2002) (“If upon
reviewing the pleadings it is clear that the plaintiff would not be entitled to relief under any set of
facts that could be proved consistent with the allegations, the court should dismiss the complaint.”).
These cases have not yet been explicitly overturned. However, that same language was previously
utilized in the context of a Fed. R. Civ. P. 12(b)(6) motion to dismiss prior to Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). In Twombly, the Supreme Court explained that this “no set
of facts” language “earned its retirement” because it is simply “an incomplete, negative gloss on
an accepted pleading standard: once a claim has been stated adequately, it may be supported by
showing any set of facts consistent with the allegations in the complaint.” Id. at 563. As caselaw
is clear that the standards are functionally identical for a Fed. R. Civ. P. 12(b)(6) and 12(c) motion,
the Court will apply the Twombly standard. See, e.g., Perez-Acevedo v. Rivero-Cubano, 520 F.3d
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26, 29 (1st Cir. 2008) (applying Twombly to a Fed. R. Civ. P. 12(c) motion); Tucker v. Middleburg-
Legacy Place, LLC, 539 F.3d 545, 549-50 (6th Cir. 2008) (same); Doe v. MySpace Inc., 528 F.3d
at 418 (same); Pisciotta v. Old Nat’l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (same).
As a result, the Court must draw “all reasonable inferences in the [non-movant’s] favor.”
St. George v. Pinellas Cnty., 285 F.3d 1334, 1337 (11th Cir. 2002). 	However, the Court is not
required to accept a plaintiff’s legal conclusions. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The
U.S. Supreme Court has suggested that courts adopt a “two-pronged approach” when considering
motions to dismiss: “1) eliminate any allegations in the complaint that are merely legal
conclusions; and 2) where there are well-pleaded factual allegations, ‘assume their veracity and
then determine whether they plausibly give rise to an entitlement to relief.’” Am. Dental Ass’n v.
Cigna Corp., 605 F.3d 1283, 1290 (11th Cir. 2010) (quoting Iqbal, 556 U.S. at 679). Importantly,
“courts may infer from the factual allegations in the complaint ‘obvious alternative explanation[s],’
which suggest lawful conduct rather than the unlawful conduct the plaintiff would ask the court to
infer.” Id. (quoting Iqbal, 556 U.S. at 682).
IV. 	DISCUSSION AND ANALYSIS
Aegis argues MWIS’s counterclaim fails to state a claim against Aegis for which relief
may be granted for several reasons: (1) MGI did not act as Aegis’s agent, (2) the misrepresentation
that MWIS alleges relate to future acts and events, and are not statements of existing facts and
circumstances that would cause a fraud to be actionable under Alabama law, and (3) MWIS’s
reliance on any of the alleged oral misrepresentations is unreasonable based on the provisions of
the indemnity agreements. Doc. 91.
In response, MWIS argues MGI’s alleged conduct was within the scope of the agency
agreement between Aegis and MGI based on the actual, apparent, and implied authority that was
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conferred by Aegis. Doc. 93 at 5-6. MWIS argues the alleged fraudulent conduct either involves
claims of existing facts or is actionable as promissory fraud. Id. at 9-12. Finally, MWIS argues it
has met the appropriate standard to show a special or confidential relationship between MGI and
it such that MWIS’s reliance on MGI’s alleged misrepresentations was reasonable, and Aegis has
not 	specified 	any 	language 	in 	the 	indemnity 	agreements 	that 	is 	contradicted 	by 	MGI’s
misrepresentations. Id. at 12-25.
The Court will address each of Aegis’s arguments in turn and as appropriate.
A. 	MGI did not act as Aegis’s agent
The surety agent agreement between Aegis and MGI states in relevant part:
1. 	The “COMPANY” hereby appoints the “AGENT” with full power to
receive and accept proposals for surety where “COMPANY” is authorized to write
Surety Bonds and where the “AGENT” is licensed, for bonds covering such classes
of risks as the “COMPANY” may from time to time authorize to be issued . . . .
The “AGENT” shall have the power to and authority to prepare, countersign, and
deliver policies and endorsements thereto, to process cancellation and it shall be the
“AGENT’S” power and duty to collect, receive and receipt for premiums on surety
properly written by the “AGENT.”
. . .
9. 	Any employees of the “AGENT” shall be regarded as “AGENT” employees
only and in no sense employees of the “COMPANY.”
. . .
11. 	. . . This Agreement is automatically suspended immediately upon any of
the following:
1. 	Violation of any condition of this Agreement.
2. 	Fraud by the Agent or any of its employees.
. . .
18. 	The 	acts 	of 	the 	“AGENT” 	are 	considered 	to 	be 	the 	acts 	of 	the
“COMPANY”, unless outside their assigned authority given by the “COMPANY.”
If this should occur, “AGENT” assumes full responsibility for said acts.
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Doc. 78-3 at 2-5.
Based on MWIS’s allegations in the counterclaim, the Mahorsky Parties acted within its
authority as an agent for Aegis, pursuant to the surety agent agreement, when it solicited MWIS
to indemnify Cueto and act as its surety. The Court must determine whether the Mahorsky Parties’
alleged fraudulent representations to MWIS to induce it to indemnity Aegis fell within MGI’s
agency authority.
In the context of insurance, the Supreme Court of Alabama in Washington National
Insurance Co. v. Strickland, 491 So. 2d 872 (Ala. 1985), discussed the distinctions between
brokers, agents, and soliciting agents:
A “general agent” is one who has authority to transact all of the business of the
principal, of a particular kind, or in a particular case. 	Southern States Fire
Insurance Co. v. Kronenberg, 199 Ala. 164, 170–71, 74 So. 63, 67, (1917). The
powers of such an agent are coextensive with the business entrusted to his care,
authorizing him to act for the principal in all matters coming within the usual and
ordinary scope and character of such business. Id., 199 Ala. at 171, 74 So. at 67.
A general agent has full power to bind the insurer to the agent's contract of
insurance or to issue policies or to accept risks. 	McGhee v. Paramount Life
Insurance Co., 385 So.2d 969 (Ala.1980). In fact, a general agent “stands in the
shoes” of the principal for the purpose of transacting business entrusted to him.
Since a general agent's powers are coextensive with the business entrusted to him,
his fraudulent act is the fraudulent act of his insurer principal as well.
An insurance company also has the right to employ agents with limited authority.
Robinson v. Aetna Insurance Co., 128 Ala. 477, 30 So. 665 (1901). 	A “special
agent,” as distinguished from a “general agent,” is authorized to act for the principal
only in a particular transaction, or in a particular way. 	Southern States Fire
Insurance Co., supra, 199 Ala. at 171, 74 So. 67. In the insurance context, the most
prevalent type of special agent is the “soliciting agent.” 	A soliciting agent is
different from a general agent in that he has no power to bind his insurer principal
in contract. 	Watson v. Prudential Insurance Co., 399 So.2d 285 (Ala.1981).
However, when a soliciting agent commits a fraud upon one who seeks insurance
coverage, his insurer principal will be liable for that fraud, if the fraud was
perpetrated by the agent within the scope of his employment. The liability of an
insurer for the fraudulent acts of its soliciting agents is grounded in the doctrine of
“respondeat superior,” and not the doctrine of agency. National States Insurance
Co. v. Jones, 393 So.2d 1361 (Ala.1980). Since a soliciting agent is regarded as
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the “servant” of the insurer “master,” the insurer has the full right of control over
the agent's actions. A general agent, however, stands in the shoes of the principal;
his actions are regarded as those of the principal. The law deems the principal to
have “participated” in the fraud of its general agent, and so subjects the principal to
direct liability. 	Where a soliciting agent commits fraud the insurer's liability is
vicarious, and the principal is liable in spite of the fact that he did not participate in
the fraud, or even forbade it. 	National States Insurance Co. v. Jones, supra, at
1367.
An independent agent or broker is usually not an agent for the insurer at all; rather,
he is the agent of the insured. See Code 1975, § 27–7–1. For example, this Court
has held that when an independent agent or broker fails in his duty to obtain
insurance coverage, the principal may sue either for a breach of contract, or, in tort,
for breach of duty imposed on the agent or broker to sue reasonable skill, care, and
diligence in obtaining insurance. 	Highlands Underwriters Insurance Co. v.
Eleganté Inns, 361 So.2d 1060 (Ala.1978).
. . .
Although an independent agent or broker is normally an agent for the insured, for
some purposes he may at the same time be an agent for the insurer as well. 	See
Mobile Insurance, Inc. v. Smith, 441 So.2d 894 (Ala.1983). In such cases, if the
insurer principal authorizes the agent to make representations, and the agent makes
those representations within the scope of his authority to make them, the principal
will be liable if those representations are false. In other words, an insurer's liability
for the fraud of an independent agent or broker is predicated upon actual or apparent
authority conferred upon the agent/broker by the insurer to make representations
on the insurer's behalf. The doctrine of respondeat superior does not apply in the
independent agent or broker situation because the insurance company does not exert
sufficient control over the activities of the agent/broker to put him in the same
position as a company employee. An independent agent or broker can never impose
liability upon his principal for representations that are not authorized by the
principal.
491 So. 2d at 874-75.
As the Supreme Court of Alabama summarized the ruling in Strickland in its opinion in
Wofford v. Safeway Insurance Co. of Alabama, 624 So. 2d 555 (Ala. 1993):
In Strickland, the plaintiff, Carol Strickland, met with Bruce Palmer to discuss
medical insurance. 	Palmer described the policies of four different insurers,
including Washington National. Strickland chose the Washington National policy,
and she gave Palmer a check for the initial premium. Palmer assured Strickland at
the meeting that her new policy was effective immediately; on this assurance,
Strickland cancelled her existing medical insurance. 	However, Palmer did not
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submit the application until one week after the meeting, and Strickland had had an
accident in the interim. 	Washington National then refused to issue the policy,
claiming that Strickland was uninsurable because of her physical condition.
Strickland brought a fraud action against Washington National, claiming that it was
liable under the doctrine of respondeat superior for the misrepresentation of
Strickland, claiming that Strickland was its agent.
Washington National argued that Palmer was only a broker or an independent agent
and therefore that it was not liable; this Court rejected that argument. We held that,
because there was evidence in the record that Palmer had been licensed as an agent
of Washington National by the Alabama Department of Insurance, and because
Washington National had supplied Palmer with applications, sales literature, and
instructions, the jury could have reasonably inferred that Palmer was an agent.
. . .
[T]he determinative factor in Strickland was that Palmer had actually been
appointed by Washington National to transact business on its behalf. Because an
insurer is deemed by law to have a right of control over its agents, the insurer is
liable for the torts of those agents committed within the scope of their employment.
This was a sufficient basis to deem Palmer an agent of Washington National, and
the Strickland Court mentioned the evidence that Palmer had received materials
from Washington National only to underscore the right of control that was imputed
to Washington National by law.
624 So. 2d at 558-59.
Here, MWIS has pled MGI was Aegis’s agent pursuant to a surety agent agreement and
Bingaman and Mahorsky made fraudulent representations to MWIS to induce it to act as an
indemnitor to Cueto, pursuant to the authority authorized under the surety agent agreement.
Accordingly, the Court finds MWIS has sufficiently pled facts to show the Mahorsky Parties acted
as an agent for Aegis when the alleged fraudulent representations were communicated.
B. 	The alleged misrepresentations relate to future acts and events
A claim of promissory fraud is “one based upon a promise to act or not to act in the
future.” Ex parte Michelin N. Am., Inc., 795 So. 2d 674, 678 (Ala. 2001) (quoting
Padgett v. Hughes, 535 So. 2d 140, 142 (Ala. 1988)).
The elements of fraud are (1) a false representation (2) of a material
existing fact (3) reasonably relied upon by the plaintiff (4) who
suffered 	damage 	as 	a 	proximate 	consequence 	of 	the
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misrepresentation. To prevail on a promissory fraud claim . . ., two
additional elements must be satisfied: (5) proof that at the time of
the misrepresentation, the defendant had the intention not to perform
the act promised, and (6) proof that the defendant had an intent to
deceive.
Michel N. Am., 795 So. 2d at 678-79 (quoting Padgett, 535 So. 2d at 142).
The burden is on the plaintiff to prove that when the promise was
made the defendant intended to deceive. Martin v. Am. Med. Int’l,
Inc., 516 So. 2d 640 (Ala. 1987); P & S Bus., Inc. v. S. Cent. Bell
Tel. Co., 466 So. 2d 928 (Ala. 1985). The plaintiff cannot meet his
burden merely by showing that the alleged promise ultimately was
not kept; otherwise, any breach of contract would constitute a fraud.
Purcell Co. v. Spriggs Enters., inc., 431 So. 2d 515, 519 (Ala. 1983).
It is well settled that “a jury does not have untrammeled discretion
to speculate upon the existence of [the requisite] intent [for
promissory fraud].” 	There must be substantial evidence of a
fraudulent intent that existed when the promise was made. Martin,
516 So. 2d at 642 (quoting Purcell Co., 431 So. 2d at 519).
Goodyear Tire & Rubber Co. v. Washington, 719 So. 2d 774, 776 (Ala. 1998); see
also Trum v. Melvin Pierce Marine Coating, Inc., 562 So. 2d 235, 237 (Ala. 1990)
(“[I]n order for a promise to constitute a fraudulent misrepresentation, there must
have been at the time the promise was made an intention not to perform, and such
a promise must have been made with the intent to deceive.”); Clanton v. Bains Oil
Co., 417 SO. 2d 149, 151 (Ala. 1982) (“A promise, to constitute fraud, must be
made with the intent not to perform it.”). 	Evidence of consistent, but unfulfilled
promises can in some cases amount to substantial evidence of an intent to deceive.
Goodyear Tire, 719 SO. 2d at 777; Campbell v. Naman’s Catering, Inc., 842 So.
2d 654, 659 (Ala. 2002). 	Additionally, “[a] defendant’s intent to deceive can be
established through circumstantial evidence that relates to events that occurred after
the alleged misrepresentations were made.” Byrd v. Lamar, 846 So. 2d 334, 343
(Ala. 2002). However, misrepresentations made recklessly or innocently will not
sustain an action for promissory fraud. 	Graham Foods, 567 So. 2d at 862
(“Reckless misrepresentation will not support a charge of promissory fraud.”), and
City of Prattville v. Post, 831 So. 2d 622, 629 (Ala. Civ. App. 2002) (holding that,
because promissory fraud required proof that the defendant did not intend to
perform the act promised and had an intent to deceive, a claim of promissory fraud
based on an implied or negligent representation “could not be sustained . . . .”).
Southland Bank v. A & A Drywall Supply Co., Inc., 21 So. 3d 1196, 1210, 1212 (Ala. 2008).
Here, MWIS alleges the Mahorsky Parties made certain representations that they knew
were false, or negligently or recklessly misrepresented the truth, to induce MWIS to indemnify
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Cueto. 	Whether the alleged misrepresentations are for future acts, regardless, would still be
actionable as promissory fraud under Alabama law. Therefore, MWIS has sufficiently pled facts
to state its fraud-based claims.
C. 	MWIS’s reliance on any of the alleged oral misrepresentations is unreasonable due
to the provisions of the indemnity agreements
MWIS argues there was a special or confidential relationship between it and the Mahorsky
Parties that would render reasonable its reliance on the Mahorsky Parties’ representations despite
the terms of the Agreements. Doc. 93 at 12-25.
A misrepresentation amounts to fraud when “‘one party[ ] misrepresent[ed] a
material fact concerning the subject matter of the underlying transaction and the
other party[ ] rel[ied] on the misrepresentation to his, her, or its detriment in
executing a document or taking a course of action.’” 	Johnson Mobile Homes of
Alabama, Inc. v. Hathcock, 855 So. 2d 1064, 1067 (Ala. 2003) (quoting Oakwood
Mobile Homes, Inc. v. Barger, 773 So. 2d 454, 459 (Ala. 2000)) (emphasis
omitted). However, it is not enough for the party claiming fraud to simply show
that there was a misrepresentation upon which he or she relied. See, e.g., Foremost
Ins. Co. v. Parham, 693 So. 2d 409, 421 (Ala. 1997). Rather, the party claiming
fraud must also demonstrate that his or her reliance on the misrepresentation was
reasonable. Wright Therapy Equip., LLC v. Blue Cross & Blue Shield of Alabama,
991 So. 2d 701, 706 (Ala. 2008) (“This Court has stated that ‘fraudulent-
inducement claim[s] [are] governed by the “reasonable-reliance” standard.’”
(citation omitted)).
Under the reasonable-reliance standard, this Court has repeatedly affirmed that “a
plaintiff who is capable of reading documents, but who does not read them or
investigate facts that should provoke inquiry, has not reasonably relied upon a
defendant's oral representations that contradict the written terms in the documents.”
AmerUs Life Ins. Co. v. Smith, 5 So. 3d 1200, 1208 (Ala. 2008). 	As this Court
explained in Alfa Life Insurance Corp. v. Colza, 159 So. 3d 1240, 1252 (Ala. 2014),
[w]e do not think it unreasonable to conclude as a matter of law that,
in this day and age, any adult of sound mind capable of executing a
contract 	necessarily 	has 	a 	conscious 	appreciation 	of 	the 	risk
associated with ignoring documents containing essential terms and
conditions related to the transaction that is the subject of the
contract.
Reasonable reliance is an element of a fraud claim. This Court has repeatedly held,
as a matter of law, that evidence of reasonable reliance is lacking when a plaintiff
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fails to read documents that contradict the alleged misrepresentations. Alfa Life Ins.
Corp., 159 So. 3d at 1254-55; Foremost Ins. Co., 693 So. 2d at 421; Brushwitz v.
Ezell, 757 So. 2d 423, 430 (Ala. 2000); Syx v. Midfield Volkswagen, Inc., 518 So.
2d 94, 98 (Ala. 1987).
. . .
The duty-to-read rule places a duty on the signee to read a contract before signing
it, rather than creating some duty on the defendant. Alfa Life Ins. Corp. v. Reese,
185 So. 3d 1091, 1104 (Ala. 2015). This Court's prior decisions have repeatedly
affirmed “the strict duty of a party to read the documents he or she is provided in
connection with a transaction -- a duty that is limited only by the extremely narrow
grounds set forth in Potter v. First Real Estate Co., 844 So. 2d 540 (Ala. 2002).”
Colza, 159 So. 3d at 1255. Under those extremely narrow grounds, “the duty-to-
read rule may be avoided when . . . there are special circumstances or a special
relationship between the parties or the plaintiff suffers from a disability rendering
him or her unable to discern the contents of the document.” Reese, 185 So. 3d at
1104 (citing Potter v. First Real Estate Co., 844 So. 2d 540, 548-51 (Ala. 2002)).
Brickhouse Cap., LLC v. Coastal Cryo AL, LLC, 393 So. 3d 467, 473-74, 476-77 (Ala. 2023).
The Supreme Court of Alabama summarized Potter as follows:
In Potter v. First Real Estate Co., 844 So.2d 540 (Ala.2002), the plaintiffs' real-
estate agent told them that she represented them as buyers as much as she
represented the sellers of the property the plaintiffs were purchasing. Nevertheless,
when she was asked whether the property being purchased was in a flood plain, the
agent stated that it was not, showing the plaintiffs an almost illegible survey. The
sales contract stated that the property was not in a flood plain. At the closing, the
plaintiffs were provided with another copy of the survey, and the agent again
assured them that the property was not in a flood plain, contrary to what appeared
in a document presented at closing. Under those circumstances, we concluded that
there was evidence of a special relationship between the plaintiffs and their
acknowledged real-estate agent, together with evidence indicating that the agent
had employed an artifice at the closing that lulled the plaintiffs into a false sense of
security as to the contents of a document the plaintiffs were unable to read. 	We
reversed the summary judgment in favor of the real-estate agent and her company.
Smith, 5 So. 3d at 1210.
As to the existence of a special or confidential relationship between MWIS and the
Mahorsky Parties, the Alabama Supreme Court has articulated the circumstances under which such
duties exist:
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[A fiduciary duty exists when] one person occupies toward another such a position
of adviser or counselor as reasonably to inspire confidence that he will act in good
faith for the other's interests, or when one person has gained the confidence of
another and purports to act or advise with the other's interest in mind; where trust
and confidence are reposed by one person in another who, as a result, gains an
influence or superiority over the other; and it appears when the circumstances make
it certain the parties do not deal on equal terms, but, on the one side, there is an
overmastering 	influence, 	or, 	on 	the 	other, 	weakness, 	dependence, 	or 	trust,
justifiably reposed; in both an unfair advantage is possible. 	It arises in cases in
which confidence is reposed and accepted, or influence acquired, and in all the
variety of relations in which dominion may be exercised by one person over
another.
K & C Dev. Corp. v. AmSouth Bank, N.A., 597 So. 2d 671, 675 (Ala. 1992) (citations omitted).
Here, MWIS alleges it had used MGI to “secure bonds on other MWIS projects, including
other bonds from Aegis, and Mahorsky and [MGI] held a position of trust by virtue of that
position,” Mahorsky “spent years cultivating a personal as well as professional relationship with
representatives of MWIS, including [Landers] and [Dollar], in order to gain their trust,” and as a
result, “the Mahorsky Parties and MWIS enjoyed a fiduciary relationship.” Doc. 78 at 15. Further,
MWIS alleges its agents told Bingaman and Mahorsky “they did not understand the indemnity
proposal, or the potential risks or benefits of such an arrangement” since MWIS had not before
participated in an indemnity agreement and Jones “had limited or no knowledge or experience as
to what acting as a cross-indemnitor entailed.” Id. MWIS also alleges it did not have a relationship
with Cueto and had no prior experience with contracting work for the federal government, while
the Mahorsky Parties “had extensive experience with, and intimate knowledge of federal
contracting work.” Id. at 16. Based on MWIS’ allegations, the Court finds MWIS has sufficiently
pled the Mahorksy Parties had superior knowledge of the federal contracting work that underlies
the Agreements as well as MWIS’ lack of knowledge of such and dependence on the Mahorsky
Parties’ representations such that MWIS has plausibly pled a fiduciary duty existed between
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MWIS and the Mahorsky Parties. 	Consequently, the duty to read rule would not apply to
provisions of the Agreements that contradict the Mahorsky Parties’ alleged misrepresentations.
As 	to 	whether 	MWIS 	reasonably 	relied 	on 	the 	Mahorsky 	Parties’ 	alleged
misrepresentations, the Court finds certain of the Mahorsky Parties’ alleged misrepresentations -
including the representations that MGI and/or Brick Procurement would perform funds control
and project monitoring, and MWIS would receive a teaming agreement with Cueto and have first
right to complete the Projects if Cueto was unable to complete the Projects - are not directly
contradicted by the provisions of the Agreements, and Aegis has not cited contradictory language
in 	the 	Agreements. 	Further, 	MWIS 	has 	plausibly 	alleged 	it 	reasonably 	relied 	on 	the
misrepresentations to its detriment.
V. 	CONCLUSION
Accordingly, Plaintiff Aegis’s Motion to Dismiss Counterclaim of MWIS, or Alternatively
for Judgment on the Pleadings and Incorporated Memorandum of Law (Doc. 91) is DENIED.
Nothing in this ruling precludes the parties from reraising in a summary judgment motion the
arguments that are presented in the instant motion since the Court may consider evidentiary
submissions under a different standard.
DONE and ORDERED this 18th day of August 2025.
/s/ Terry F. Moorer
TERRY F. MOORER
UNITED STATES DISTRICT JUDGE
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