Insurance

• Publication year: 2016

Insurance

Maren R. Cave

Stephen Schatz

Bradley S. Wolff

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Insurance

by Maren R. Cave^* Stephen Schatz^** and Bradley S. Wolff^***

I. Introduction

A number of matters of first impression in Georgia were addressed during this survey period, including who bears the burden of establishing whether a vehicle is "uninsured," whether the use of a formula in establishing diminished value is bad faith, and what the trigger date is for coverage for claims of malicious prosecution and negligent repair. Additionally, the Georgia Supreme Court squarely and definitely addressed whether lead-based paint is a "pollutant" for purposes of a pollution exclusion in a Commercial General Liability (CGL) Policy.¹

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II. Uninsured Motorist Coverage

A. Does the Insured or the Insurer Bear the Burden of Proving Whether a Liability Insurer's Denial of Coverage was "Legally Sustainable"?

In last year's survey,² we reported on the Georgia Court of Appeals decision holding that where a tortfeasor's liability carrier has denied coverage, and where the Uninsured Motorist (UM) policy defines an "uninsured motor vehicle" to include one for which the liability carrier has "legally denied" coverage, it is the UM carrier's burden to prove such denial was not "legally sustainable" to avoid coverage.³ In Travelers Home & Marine Insurance Co. v. Castellanos,⁴ the Georgia Supreme Court reversed that decision.⁵ The court held that because "an insured claiming an insurance benefit 'has the burden of proving that a claim falls within the coverage of the policy,'"⁶ the insured in the case bore "the burden of presenting evidence that [the tortfeasor's] vehicle was an uninsured motor vehicle under the UM provisions of the Travelers policy."⁷

The relevant policy provided coverage for damages caused by motor vehicles "to which a liability bond or policy applies at the time of the accident but the bonding or insurance company . . . legally denies coverage,"⁸ and the court held that "coverage [cannot] be said to have been legally denied unless the denial is, under applicable law, legally sustainable."⁹ Thus, where the UM claim was premised on the liability carrier's denial of coverage, the insured "must show that this denial was legally sustainable."¹⁰

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B. Non-duplication Clauses do not Preclude Recovery for Uncompensated Losses Although Workers' Compensation and Medical Expense Benefits Paid Exceed UM Limits

In Mabry v. State Farm Mutual Automobile Insurance Co.,¹¹ the Georgia Court of Appeals held that an insured who had recovered workers' compensation benefits and medical expense payments that exceeded UM policy limits was still entitled to recover under the UM policies despite provisions in the policies against the payment of damages "paid or payable" under workers' compensation or those paid under the medical payments coverage of the same or a similar policy.¹² State Farm contended it was entitled to a set-off for amounts already paid, and because those amounts exceeded the UM limits of the insured's policies, it had no UM exposure.¹³ The trial court agreed with this argument and granted summary judgment.¹⁴

In reversing, the court of appeals held State Farm was not entitled to set off the amounts paid to the extent the insured still had uncompensated losses and that the UM coverage extended "to the entire gap between his losses and his relevant recovery" up to the available limits.¹⁵ Those uncompensated losses included categories of damages, such as pain and suffering, future medical expenses and future lost income, for which no payment had been made, as well as the difference between the actual amounts of the insured's past medical expenses and lost wages and the amounts paid by insurance.¹⁶ Accordingly, "the policies obligated State Farm to pay for Mabry's personal injury damages that were not compensated (up to the UM policy limits)."¹⁷

C. Priority of Coverage Where the Insured is a Limited Liability Company

In a matter of first impression, the Georgia Court of Appeals decided in Sentinel Insurance Co. v. USAA Insurance Co.¹⁸ that a personal automobile policy issued to the injured party's spouse provided primary cov-

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erage ahead of a commercial automobile policy issued to a limited liability company of which the injured person was a co-owner. The insured vehicle involved in the underlying accident was driven by Thomas, an owner of JK Lakeside, a Georgia LLC, and was insured by Sentinel under a commercial policy. JK Lakeside was the only named insured and the LLC co-owned the vehicle (with Thomas) and paid the premiums for the policy. United Services Automobile Association (USAA) issued a personal auto policy to Thomas' spouse and she, but not the LLC or the vehicle, was covered as an insured under that policy.¹⁹

In order to determine the priority of the policies, the court employed the "more closely identified with" test because Thomas did not pay premiums for either policy.²⁰ The issue to be decided was whether Thomas was more closely identified with the policy insuring her business and the vehicle she co-owned or with the policy issued to her spouse.²¹

In its analysis, the court looked to Southern Guaranty Insurance Co. v. Premier Insurance Co.,²² a case that also dealt with priority of coverage between a family and a business policy.²³ There, the court determined that the plaintiff more closely identified with the business policy, rather than the policy of her spouse, because she was the sole proprietor of her business, and because obligations or benefits incurred by her business were individual in nature, and were in fact her obligations or benefits individually.²⁴ The court of appeals held the plaintiff's business "simply was not a distinct entity capable of being the true named insured on the contract," so it would "def[y] logic to hold that she shared a closer relationship with her husband than with herself."²⁵

In contrast, in Travelers Indemnity Co. v. Maryland Casualty Co.,²⁶ the plaintiff was injured in the course of her employment while driving a vehicle owned by her employer, was insured by her employer's business policy, and was also covered under her mother's household family policy. That court concluded the plaintiff more closely identified with her mother's policy than her with her employer's, where the employer was a separate legal entity.²⁷ In Sentinel, the court of appeals held a limited

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liability company, even one whose business is operated by a single owner, is a separate legal entity from the owner and more like the corporation in Travelers than the sole proprietorship in Southern Guaranty.²⁸ Therefore, "Thomas was more closely identified with her family policy than with the business policy."²⁹

D. Ambiguous Notice Provision Construed Against Insurer

The Georgia Court of Appeals found an ambiguity in a policy's requirement that the insured give the company prompt notice of an accident where the injured person was a resident relative and not a named insured. In King-Morrow v. American Family Insurance Co.,³⁰ Melissa King-Morrow was involved in an accident and perfected service on her insurer, American Family Insurance Company (AFIC), when she sued the other driver. At the time of the accident, King-Morrow lived with her daughter, whose policy with AFIC covered relatives living in the policyholder's household. AFIC did not learn of the accident until two years after its occurrence and disclaimed coverage due to King-Morrow's failure to comply with the required notice condition under the policy.³¹

The policy required prompt notice if you have an accident, and the term "you" was defined as the policyholder and the policyholder's spouse.³² The policy also provided that "[e]ach person claiming any coverage of this policy must also . . . cooperate with us and assist us in any matter concerning a claim or suit."³³ The court held that, "given the policy's limited definition of 'you,'" a covered relative could understand the policy to require only policyholders and their spouses to provide prompt notice of an accident and that the notice provision was ambiguous.³⁴ The court therefore construed the provision in favor of King-Morrow, even though it acknowledged that it was "very likely" AFIC had "intended its notice provision to apply to anyone claiming coverage."³⁵

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E. Physical Contact with Cargo on a Vehicle is not Physical Contact with a Vehicle

In American Alternative Insurance Co. v. Bennett,³⁶ the insured's windshield was struck by a log carried by a passing unidentified logging truck. No one else witnessed the accident. Bennett served his employer's insurer, American Alternative Insurance Company (AAIC), with his suit for damages caused by the shattered glass.³⁷ The court of appeals held for AAIC, "because no actual physical contact between the trucks occurred and no eyewitness was present to corroborate Bennett's account of the incident,"³⁸ so Bennett could not satisfy the requirements of Official Code of Georgia Annotated ( O.C.G.A.) section 33-7-11(b)(2).³⁹ The court emphasized the clear language of the statute, which mandates, absent eyewitness corroboration of the accident, that there must be "actual physical contact" between the vehicle owned or operated by the unknown tortfeasor and the person or property of the insured for there to be coverage.⁴⁰ The court of appeals distinguished the facts of this case from one involving contact with an "integral part" of an unknown vehicle⁴¹ and found it to be more like several other cases where "this Court repeatedly has declined to extend coverage to . . . situations not involving actual physical contact" with a vehicle but contact with something secured to or falling from a vehicle.⁴²

III. Other Automobile Insurance Issues

A. Thirteen Month Delay in Providing Notice to Insurer Found to be "Unreasonable as Matter of Law"

In Progressive Mountain Insurance Co. v. Cason,⁴³ the United States Court of Appeals for the Eleventh...