Insurance - Maximilian A. Pock

• Publication year: 1994

Insuranceby Maximilian A. Pock^*

I. Introduction

The current survey year has again yielded a rich harvest of insurance cases.¹ Georgia appellate courts have handed down more than ninety decisions.² Several are cases of first impression in Georgia, while many others have applied or adapted traditional doctrine to a novel factual matrix. These cases merit exegesis and discussion in varying degrees of specificity. Although arising in an insurance integument, the remaining cases concern general substantive law,³ narrow administrative or technical questions,⁴ or pervasive evidentiary and procedural issues.⁵ They are better discussed under another title or heading.

Perhaps one impressionistic and general observation is in order. The new wave, "easy reading" policies now percolating through our court system in increasing numbers have, on the whole, kept their promise. They are indeed more user friendly. Their only disadvantage seems to be that they have, by the stroke of the pen, rendered obsolete the interpretive judicial gloss generated by the gnarled prose found in policies of yore.⁶

The narrow editorial confines of this Survey have imposed selections, which may appear less inclusive than the subject matter warrants. This is not a random decision, but rather an enforced choice.

To promote continuity, the materials selected will, as far as possible, be discussed under the chapter headings employed in previous years.

II. Agents, Brokers, and Other Intermediaries

Brokers, who have only a "hunting license" to obtain insurance, are employed by applicants and owe them a confidential or fiduciary duty. Independent agents, who represent two or more insurers, are also employed by applicants and owe them a confidential or fiduciary duty during at least the advisory or negotiation stage until they effect coverage with a specific insurer.⁷ Ordinary agents, who represent a single insurer from the outset, owe no such duty. They sell a product and are, in most respects, no different from sales representatives who work for a new car dealership.⁸ This means applicants must deal with them at arms' length and exercise prudence on their own behalf. It also means the duty to read is a core modality of the relationship.

This is brought into stark relief by the textbook case of Hyde v. Acceleration Life Insurance Co.⁹ Plaintiff sued a group health insurer for imputed fraud, alleging he lost his coverage when the insurer's agent "duped him into prematurely cancelling an existing . . . policy by promising [him] that he would be covered under a replacement policy."¹⁰ Plaintiff alleged the agent tried to convince him and his fellow employees to switch to another insurer by assuring them the new policy would be effective immediately, and they would all be covered for pre-existing conditions because they already represented an actuarily insurable group.¹¹ After the agent made her presentation, she gave each member of the group an application. The application stated there would be no coverage until its acceptance, and applicants answering any of the seven designated health questions in the affirmative would not be approved.¹² The application also contained the customary anti-waiver or modification clause.¹³ Plaintiff admitted he signed the application and "entered a 'yes' response to the first health question, affirming that he had undergone open heart surgery."¹⁴ His signature appeared directly above the agent's signed certification that she had properly recorded the applicant's responses and advised him not to terminate existing insurance pending notification of acceptance by the new insurer.¹⁵

The Georgia Court of Appeals upheld a summary judgment for the insurer.¹⁶ Even if the agent had been guilty of a gross misrepresentation,¹⁷ the plaintiff had, '"in the exercise of common prudence and diligence,'"¹⁸ absolutely no right to rely upon it.¹⁹

In the reverse, although cognate, case of Burkholder v. Ford Life Insurance Co. ,²⁰ the court of appeals held an insurer was not estopped from relying upon an applicant's misrepresentations in regard to his health as a defense, unless the agent taking the application had actual and specific knowledge of the applicant's condition.²¹ It was not enough that the agent's knowledge was constructive in the sense "that the agent should have known of a medical problem from the applicant's physical appearance or should have inquired further."²²

III. Assignment of Potential Insurance Proceeds

Does an owner of a medical benefits policy who has partially assigned the proceeds to a health care provider, after sustaining an insured loss, continue to have the right to recover such proceeds from the insurer in his own name? In North American Life & Casualty Co. v. Riedl,²³ the court of appeals held he did not.²⁴ Although the assignor's ownership status in the policy remains unaffected by such a partial assignment of a chose in action deriving from it, he no longer has standing to sue solely in his own name or solely as assignor for the use or benefit of the assignee.²⁵ The real party in interest,²⁶ who '"by the substantive law, has the right sought to be enforced,'"²⁷ must now prosecute or join the action.²⁸

After becoming aware of the assignment, the debtor-insurer acts at its peril when it pays the assignor. At that point, the debtor-insurer may object, but the action cannot be dismissed "on the ground that it is not prosecuted in the name of the real party in interest."²⁹ The trial court is enjoined to allow a reasonable time after such objection "for ratification of commencement of the action by, or joinder or substitution of, the real party in interest"³⁰ before granting a dismissal.³¹

IV. Cancellation, Nonrenewal, and Lapse of Insurance

Georgia's procedures for cancellation and nonrenewal of insurance policies operate with the precision of a guillotine because they exact strict compliance. The procedures are lengthy, replete with incorporations by reference, and relatively complicated. It is not surprising insurers occasionally blunder in their endeavors to terminate their contracts. In Bank of Toccoa v. Cotton States Mutual Insurance Co.,³² the insurer made three mistakes in seeking to "divorce" its insured.

First, the insurer sent a cancellation notice providing only fourteen days notice instead of the statutory "'30 days from the date of mailing or delivery.'"³³ Second, it gave as reason for cancellation that '"THIS RISK DOES NOT MEET OUR ELIGIBILITY REQUIREMENTS.'"³⁴ The insurer tried to cure this in the course of litigation by asserting the reason was shorthand "'for reasonable suspicion of criminal activity"'³⁵ based on a newspaper report indicating the insured had been arrested on a counterfeiting charge.³⁶ Third, the insurer assumed the original policy was properly cancelled; therefore, it failed to send a timely nonrenewal notice.³⁷ The court of appeals held the fourteen day cancellation notice was fatally defective and rejected the insurer's plea that "the policy should be 'deemed' to be cancelled 30 days after the notice date in such cases."³⁸ The court of appeals also found the stated basis for cancellation was dehors any of the eight authorized reasons for cancellation specifically listed in the statute.³⁹ Conceding, arguendo, that the real basis for cancellation was reasonable suspicion, such cancellation would still be invalid because the statute authorizes cancellation only where there is '"a conviction record, criminal or traffic.'"⁴⁰ Since the insurer's assumption that it had cancelled the policy faltered on the facts, the insurer should have sent a nonrenewal notice. The failure to do so extended the term of the original policy for another six months.⁴¹

What is the posture of affairs when the insured fails to meet the obligations regarding premium payments or pays by a check which "bounces"?

In Boarders v. Global Insurance Co. ,⁴² the court of appeals reaffirmed that the answer depends upon whether the policy at issue is a new or renewal policy.⁴³ A new policy requires a ten-day cancellation notice.⁴⁴ A renewal policy, however, requires no cancellation notice and may be voided at its inception.⁴⁵ The character of the policy is a matter of construction that is normally a legal question for the judge to deside.⁴⁶ Furthermore, in order to qualify as a renewal policy, the policy must be issued by the same insurer and "'provid[e] no less than the coverage contained in the superseded policy.'"⁴⁷ In Boarders, the facts showed the insured signed a "Renewal Statement" which contained in bold-type a clear provision that '"COVERAGE WILL BE NULL AND VOID'" if a premium check is returned because of insufficient funds.⁴⁸ Since the policy did not etiolate the coverage provided by the original policy, the trial court, in granting a summary judgment for the insurer, was justified in concluding that it was intended to serve as a renewal policy requiring no specific cancellation notice.⁴⁹

Another nonpayment case eluded summary disposition because of its peculiar facts. In Morgan v. Georgia General Insurance Co.,⁵⁰ the insureds bought a new automobile policy and paid premiums in installments under an arrangement with a premium finance company.⁵¹ They received a renewal offer from the insurer which "stated a total amount for the premium and provided a space for a check mark indicating the insured's desire to finance the premium through" the same premium finance company.⁵² The court of appeals held the insured's mailing of the signed and properly marked renewal offer created a bilateral contract committing the insurer to instant coverage in consideration of the promise to pay the premium in installments.⁵³

The question regarding the acceptance of the offer created a fact issue for the jury, which precluded summary judgment for the insurer.⁵⁴

Proper timing is also an issue pervading cancellation cases. The Official Code of Georgia Annotated ("O.C.G.A.") provides that cancellations for failure to pay...