Insurance

• Publication year: 2014

Insurance

Stephen L. Cotter

Stephen M. Schatz

Bradley S. Wolff

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Insurance

by Stephen L. Cotter^* Stephen Schatz^** and Bradley S. Wolff^***

I. Introduction

No dramatic reversal of direction or case of first impression occurred this survey period.¹ Rather, the courts continued to clarify and refine the fine lines of Georgia insurance law. Multiple opinions help carriers to better handle time-limit demands and to effectively reserve rights to known coverage issues. After decades of confusing opinions, it was finally made crystal-clear that an "occurrence" can exist where the damage is to the insured's work. The Great Recession brought Georgia an abundance of insurance rulings related to the risks encountered by financial institutions.

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II. Automobile Insurance

A. Bad Faith

It has long been the established law in Georgia that an insurer may be liable for an excess judgment against its insured if the insurer acted in bad faith or was negligent in its refusal to settle a personal injury claim within the policy limits.² In Southern General Insurance Co. v. Holt,³ the Georgia Supreme Court held that an insurer could be liable for bad faith where it failed to respond to a time-limited demand for policy limits when "the company has knowledge of clear liability and special damages exceeding the policy limits."⁴

Whether an insurer can be held liable for the failure to settle a claim when the special damages are less than the policy limits had not been specifically answered until a decision from the Georgia Court of Appeals during this survey period.⁵ In Baker v. Huff Liberty Mutual Insurance Co.,⁶ the court rejected an insurer's argument that it was entitled to summary judgment on a bad faith claim because the injured party's special damages were approximately one-third of the policy limits.⁷ The court, interpreting Holt and Cotton States Mutual Insurance Co. v. Brightman,⁸ held that those cases "cannot be construed as holding that it is always reasonable for an insurer not to respond to a time-limited offer to settle within the policy limits when special damages do not exceed the policy limits."⁹ Rather, the true test is "whether the insurance company acted reasonably in responding to a settlement offer."¹⁰

However, the court held that the insurance company was nevertheless entitled to summary judgment.¹¹ The court held that the first demand the insurer received failed to provide sufficient information to compel a reasonably prudent insurer to conclude the value of the case equaled or exceeded the policy umits.¹² Additionally, it determined the insurer

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was prevented from fully investigating the claim due to the claimant's attorney's revocation of a medical-records release and refusal to allow his client to be interviewed.¹³ Additional medical information and bills were later provided by the claimant's attorney with a second time-limited demand for the policy limits.¹⁴ But, within the time for responding to that demand, the attorney sent another letter stating that the claimant was "willing to accept $100,000 to compensate him for his pain and suffering only."¹⁵ This offer, the court held, was not an offer to fully settle a claim within the policy limits, and therefore, the insurer had no duty "to engage in negotiations concerning a settlement demand that is in excess of the insurance policy's limits."¹⁶

In Tiller v. State Farm Mutual Automobile Insurance Co.,¹⁷ the United States Court of Appeals for the Eleventh Circuit held that third-party claimants lacked standing to sue State Farm Mutual Automobile Insurance Co. (State Farm) when directly asserting claims for fraud and bad faith arising out of State Farm's use of the so-called 17c formula for computing diminished value claims.¹⁸ The court held that the proposed class action plaintiffs were precluded from their direct action by the general rule that "a party not in privity of contract may not bring a direct action suit against the liability insurer of the party alleged to have caused damage absent an unsatisfied judgment against the insured, legislative mandate, or as permitted by a provision in the insurance policy in issue," which requires that the plaintiff obtain a judgment against the at-fault driver before proceeding against the insurer.¹⁹ Related litigation pends in Georgia courts.

B. Hospital Liens

Following the Georgia Supreme Court's 2011 decision in MCG Health, Inc. v. Owners Insurance Co.,²⁰ the Georgia Court of Appeals held in MCG Health, Inc. v. Eight²¹ that a hospital is entitled to a lien for the full amount of its billed charges even where it has been paid-by a patient's health insurer-all that the hospital is entitled to be paid under

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its contract with that insurer.²² Right had health insurance with Blue Cross, and the insurance company's contract with the hospital provided for the payment of reduced rates for services and the hospital's agreement not to bill insured patients for the difference between the billed amount and the agreed reduced rate. Thus, when Blue Cross (and the tortfeasor's carrier under a medical-payments coverage) paid the hospital the agreed-upon amount for Right's treatment, there was no debt owed to the hospital. The hospital nevertheless filed a lien for the amount of its original charges. When Right received a settlement offer from the tortfeasor, he demanded the hospital cancel its lien. The hospital refused, and Right brought suit to have the lien declared void and cancelled. The trial court granted Right summary judgment.²³

The court of appeals reversed, holding that since Right was entitled to collect the full amount of his medical bills from the tortfeasor, and section 44-14-470 of the Official Code of Georgia Annotated (O.C.G.A.)²⁴ gave the hospital a lien on Right's cause of action for the reasonable charges incurred in the treatment, the hospital's lien was valid for the amount of its reasonable charges billed but unpaid because of the contractual discount.²⁵ The court held:

The absence of debt owed to the Hospital under the contract with Blue Cross, and the Hospital's agreement in the contract not to balance-bill Blue Cross members to collect the difference between the reduced charges and the billed charges, cannot be construed as a waiver or preclusion of the Hospital's lien rights under [the statute].²⁶

In Hospital Authority of Clarke County v. Geico General Insurance Co.,²⁷ the Georgia Supreme Court held that the statute of limitations for a medical provider's action to foreclose on its lien under O.C.G.A. § 44-14-473(a)²⁸ begins to run upon the occurrence of the last event enumerated in the statute, not the first.²⁹ Thus, where a settlement agreement was reached and later finalized by the execution of a release, the hospital's action to recover on its lien was held to be timely, although

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it was filed more than one year after the settlement agreement was reached, because it was filed less than one year after the date the release was executed.³⁰

C. Uninsured Motorist Cases

The Georgia Supreme Court answered two certified questions from the United States District Court for the Northern District of Georgia regarding the 2008 amendments to the Uninsured Motorist Act³¹ and an umbrella policy in Wilson v. Automobile Insurance Co.³² Wilson involved a personal umbrella insurance policy originally issued in 2001 and renewed annually thereafter. The insureds did not reject uninsured motorist (UM) coverage in writing.³³ Therefore, pursuant to Abrohams v. Atlantic Mutual Insurance Agency,³⁴ UM coverage in an amount equal to the liability limit would have been implied into the policy.³⁵ However, O.C.G.A. § 33-7-11³⁶ was amended in 2008, effective January 1, 2009, to provide that "[t]he coverage required under [OCGA § 33-7-11(a)(1)] excludes umbrella or excess liability policies unless affirmatively provided for in such policies or in a policy endorsement."³⁷ The amendments also included a notice requirement, codified at O.C.G.A. § 33-7-11(b)(1)(D)(ii)(III), requiring that

[f]or private passenger motor vehicle insurance policies in effect on January 1, 2009, insurers shall send to their insureds who have not rejected coverage pursuant to [OCGA § 33-7-11(a)(3)] a notice at least 45 days before the first renewal of such policies advising of the coverage options set forth in this division.³⁸

Wilson was injured in a collision in October 2010. The Wilsons made a claim against their insurer, who denied that the umbrella policy provided any UM coverage due to the effect of the 2008 amendment. The Wilsons brought suit. The trial court certified two questions to the Georgia Supreme Court, asking whether the offer and rejection requirements of O.C.G.A. § 33-7-11 apply to an umbrella policy renewed

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on or after January 1, 2009, and whether the notice requirements of the statute apply to umbrella policies.³⁹ As to the first question, the supreme court first rejected Wilson's argument that the 2008 amendment was an unconstitutional retroactive impairment of contract obligations because the amendment only affected policies issued or renewed after its effective date.⁴⁰ Next, the court held that nothing else regarding the amendment to the statute itself would require UM coverage, which was implied into a policy by operation of law before January 1, 2009, to continue to be implied upon renewal after the date of enactment.⁴¹ The court noted, however, that other principles of statutory or common law might still require that the implied UM coverage continue.⁴² On the question regarding the notice requirement of O.C.G.A. § 33-7-11(b)(1)(D)(ii)(III), the court held that it would be "nonsensical" to require insurers to give notice of the types of UM coverage available when no such coverage was required or being offered.⁴³

McGraw v. IDS Property & Casualty Insurance Co.⁴⁴ also examined an insurer's compliance with the requirements of O.C.G.A. § 33-7-11. McGraw was insured by IDS in a...