Insurance - Maximilian A. Pock

• Publication year: 1995

Insuranceby Maximilian A. Pock

I. Introduction

The Georgia Supreme Court and Georgia Court of Appeals have handed down over eighty insurance cases during this past survey year.¹ A surprising number of these are cases of first impression. The Uninsured Motorist Act² spawned about thirteen percent of the total volume of decided cases, a fact which is not surprising if one keeps in mind that the general litigation proneness of uninsured and underin-sured legislation is a well-documented national phenomenon.³ It is estimated that one of five drivers in this country is uninsured. This can hardly be the case in Georgia. Yet, one must remember that even under Georgia's compulsory liability regime, insureds often discover that their policies provide no coverage for specific cars or specific occurrences.⁴

The Georgia Motor Vehicle Accident Reparations Act,⁵ Georgia's ersatz version of no-fault legislation, cast a long shadow into the present, and managed to generate about nine percent of the total volume of decided cases. When one considers that the Act received a decent burial in 1991, this is a bit surprising.⁶

Eighteen of the eighty bills and resolutions introduced in the 143rd Georgia General Assembly became law. Since all are quite detailed and some are omnibus bills amending a host of different statutory provisions, a space-limited survey of this kind cannot begin to do them justice. Collectively, they bear testimony to the nonretrograde and orderly evolution of Georgia law as it relates to policy contents, intermediaries, and insurance institutions in general. Two examples will bear out this assertion. The first is the creation of the insurer-financed Special Insurance Fraud Fund "for the purpose of funding the investigation and prosecution of insurance fraud."⁷ The second is the mandate that accident and sickness insurance carriers make available optional "coverage for bone marrow transplants for the treatment of breast cancer and Hodgkins disease."⁸ With this simple stroke of the pen, the legislature put an end, at least in Georgia, to a highly contentious controversy that continues to plague many sister states. One last general observation is perhaps in order: User-friendly "easy reading" automobile policies and homeowner's policies now definitely dominate appellate litigation. They are in the process of accumulating salubrious judicial gloss which refines their meaning without interpolation or evisceration and thus make them much more useful in the legal market place than the recondite and gnarled policies of yore.

To provide continuity and enhance readability, the cases selected for expatiation will, as far as possible, be organized and discussed under the chapter headings and rubrics employed during the past three decades.

II. Assignments

An assignee stands in the shoes of the assignor. Absent estoppel, waiver, or third party beneficiary clauses,⁹ the obligor may assert against the assignee all those defenses arising out of the underlying contract which it could have asserted against the assignor.

In Owens v. Allstate Insurance Co.,¹⁰ the victim of an automobile accident obtained a default judgment against the "guilty" party who had totally ignored the lawsuit. Subsequently, the judgment debtor assigned to the victim any contractual claims he had against his liability insurer "for the amount of the judgment."¹¹ When the insurer denied liability, the victim brought an action against it for the amount of the default judgment as well as bad faith penalties and attorney fees. The court held that the judgment debtor's abject failure to cooperate with his insurer by forwarding suit papers and assisting in the investigation of the occurrence served as a defense against the insured assignor and hence could be asserted against his assignee.¹² The court also held that even in the absence of any such defense, the victim had no standing to collect statutory bad faith damages or attorney fees because the duty to pay such damages runs only to an insured who is a party to the contract and not to the victim, who is but a contingent third party beneficiary.¹³ Furthermore, an assignment "of the judgment" or "for the amount of the judgment" does not furnish standing to recover statutory damages in excess of the amount assigned.¹⁴

It should be noted that the court did not directly hold that the right to recover statutory damages was so personal as to thwart any attempts to assign it.¹⁵

What are the jural relationships created by a post-occurrence assignment of claims under a health insurance policy to a health care provider? In North American Life & Casualty Co. v. Riedl,¹⁶ the court of appeals held that such transfer was but a partial assignment of prospective proceeds which created a joint interest and not a full assignment of the policy itself.¹⁷ As such, it created joint rights qualifying both the assignor and the assignee as real parties in interest.¹⁸ The Georgia Supreme Court disagreed.¹⁹ An assignment of proceeds effected by appropriate language of present transfer is nevertheless a valid assignment, even though it leaves the assignor's rights in the underlying contract intact.²⁰ As such it divests the assignor of the specific claim assigned and leaves the assignee as the only real party in interest entitled to assert the transferred claim.²¹ However, an action brought by the assignor should not be dismissed until the assignee has been given "a reasonable opportunity to ratify or join the action ... or to be substituted for [the assignor]."²²

The supreme court distinguished this situation from cases involving a mere direction or authorization to the insurer-obligor to make direct payments to a third party, which does not rise to the dignity of an assignment.²³ It also suggested in dicta that an assignor may still assert the assigned claim in his own name "if the assignee consented to the assignor bringing suit or . . . reassigned the benefits to the assignor or . . . refused or neglected to bring such an action."²⁴

III. Cancellation, Nonrenewal, and Lapse of Insurance

Does a fire insurance carrier have to notify the insured and the designated lienholder loss-payee of the lapse of the policy and its nonrenewal for nonpayment of the renewal premium? In Southern General Insurance Co. v. Tippins Bank & Trust Co.,²⁵ the court held that it does not.²⁶ The 1984 amendment of section 33-24-46 of the Official Code of Georgia Annotated ("O.C.G.A.") on "cancellation or nonrenewal of certain property insurance policies" which struck the section in its entirety,²⁷ defined "nonrenewal" as "a refusal by the insurer ... to renew"²⁸ and provided that "[n]o insurer shall refuse to renew a policy . . . unless a written notice of nonrenewal is mailed or delivered in person to the named insured."²⁹ Gone was the former language defining "nonrenewal" as the "failure or refusal by an insurer to renew"³⁰ and the former requirement for informing lienholders of "cancellation and nonrenewal" of policies.³¹ In view of the legislative history and the clear language of the 1984 amendment which focuses not on the "failure" (the fact of nonrenewal upon lapse of a policy) but on the insurer's affirmative "refusal" to renew (an expression of unwillingness to renew),³² the court concluded that "it is clear to us that the legislature intended to remove from the insurer the duty to send notice to either the insured or any lienholders that a policy was about to terminate unless it was an unwillingness or refusal on the insurer's part that resulted in termination or cancellation."³³

The effect of this decision seems hardly cataclysmic. It does not affect cancellations during the policy term³⁴ or "affirmative" nonrenewals by the insurer.³⁵ Furthermore, most policies are kept in escrow by lienholders which routinely monitor their status. The situation may be further alleviated by contract. Thus, the New York Standard Fire Policy, the grandfather of all fire policies, which has entered most states' regulatory scheme, provides that lienholders be given ten days written notice of cancellation.³⁶ Similarly, the new standard "easy-reading" homeowner's policy provides that "if we decide to cancel or not renew this policy the mortgagee will be notified at least [ten] days before the date cancellation or renewal takes effect."³⁷ The popular standard or union mortgage clause which gives the lienholder bullet-proof protection by providing that the mortgagee's insurance "shall not be invalidated by any act or neglect of the mortgagor"³⁸ may also ease the situation. Yet, it should be noted that the language imposing a contractual requirement for notification in policies and standard mortgage clauses may pose some of the same issues as those raised in Tippins. Does it apply to automatic termination and nonrenewal upon lapse of the policy?

What is necessary for effective notification? In Continental Insurance Co. v. State Farm Mutual Insurance Co. ,³⁹ the court reaffirmed that a notice of cancellation need not be received.⁴⁰ Evidence that the notice was mailed to the insured's last address of record and obtaining as a receipt a stamped "PORS" list from postal authorities is all that is required.⁴¹

In Moore v. Scottsdale Insurance Co.,⁴² the supreme court had an occasion to establish the minimum requirements for such receipt from postal authorities. The O.C.G.A. sets up two requirements for effective notification.⁴³ First, that the notice "shall be mailed to the last address of record and shall be dispatched by at least first-class mail."⁴⁴ Second, that the sender obtain a "receipt provided by the United States Postal Service or such other evidence of mailing as prescribed or accepted by the United States Postal Service."⁴⁵ There was evidence that the insurer had in fact mailed the notice to the last address of record. However, the receipt from the post office was but a rubber-stamped "computer-generated list of policy-holders to whom mailings were being sent"...