Insurance - Ralph F. Simpson

• Jurisdiction: United States,Federal,Georgia
• Publication year: 1997
• Citation: Vol. 49 No. 1

Insuranceby Ralph F. Simpson^*

I. Introduction

The volume of cases that reached the appellate courts of Georgia during this survey period was greater than last year. The courts decided slightly over fifty cases this year that dealt with insurance issues. Most of these cases originated from the trial courts on declaratory judgment actions. Indeed, over twenty of the cases reviewed in this Article are declaratory judgment actions. The current trend seems to be for the insurer to file a declaratory judgment action to determine coverage issues while attempting to stay the case on the merits that gave rise to those issues. The reason for this is perfectly understandable.

Two cases decided during the survey period illustrate the danger of an insurer not seeking a declaration of its obligations under the terms of the policy. The first of these, Adams v. Atlanta Casualty Co.¹ related to a driver exclusion endorsement. The Adams' son was the excluded driver under the policy issued to his parents. He had an automobile collision, and after suit was filed arising from the collision, the Adamses claimed coverage under the Atlanta Casualty policy. Thereafter, Atlanta Casualty, by letter, informed the Adamses that an investigation showed their son was operating the vehicle, and because he was an excluded driver under the policy, "there [was] no coverage afforded by [the] policy for this loss."² Atlanta Casualty then filed a petition for declaratory judgment, but the underlying action was not stayed and resulted in a verdict in favor of plaintiff. Almost a year after the judgment was entered, Atlanta Casualty moved for summary judgment in the declaratory judgment action. In the motion, Atlanta Casualty contended that no coverage and no duty to defend existed because of the named driver exclusion. The trial court granted the motion for summary judgment without explanation.³

The question before the court of appeals was whether this case was appropriate for a declaratory judgment.⁴ The Adamses contended that Atlanta Casualty had waived its right to seek a declaratory judgment because it had earlier denied coverage. The Georgia Court of Appeals agreed.⁵ "When a declaratory judgment cannot guide and protect the petitioner regarding a future act, no declaratory judgment is authorized."⁶ The court considered four factors in determining whether a declaratory judgment was appropriate: "(1) a demand for payment had been made; (2) the company had not yet acted to deny the claim; (3) legitimate questions existed about the validity and applicability of the policy clause; and (4) Georgia law did not provide a clear answer."⁷ In this case, because Atlanta Casualty had denied the claim and removed any doubt regarding its duties under the contract of insurance, it was not met with uncertainty on future acts, and declaratory judgment therefore would not he in the case.⁸

The second case, Jefferson Insurance Co. v. Dunn,⁹ underscores the need for an insurance company to use the declaratory judgment action procedure. In this case, plaintiff, Dunn, sustained permanent brain damage after he was beaten by a manager of the Jolly Fox Lounge that was insured by Jefferson. Jefferson had issued a policy covering Jolly Fox in the amount of $50,000. When the suit was originally filed, plaintiff offered to settle before the trial for the $50,000 limit. Jolly Fox directed the insurance company to settle for the policy limits, but Jefferson refused and also refused to defend the suit relying upon an assault and/or battery exclusion endorsement. Jefferson did not issue a reservation of rights letter and never sought a judicial declaration of its rights and duties under the policy. A judgment was rendered in favor of plaintiff for $250,000 compensatory damages and $750,000 punitive damages.¹⁰

After this judgment was entered, Jefferson retained counsel to appeal and entered into a settlement agreement with Jolly Fox. In the agreement, Jolly Fox released all its claims under the Jefferson policy in payment of $5,500. Dunn brought suit and alleged that Jefferson obtained the release with the intention to delay or defraud plaintiff from satisfaction of the $1,000,000 judgment. The result of this second suit was a judgment in favor of Dunn for $1,500,000 compensatory damages and $3,000,000 punitive damages.¹¹

On appeal, Jefferson attempted to argue the coverage issue. In response, the court of appeals held that "Jefferson is estopped to argue no coverage by its failure to enter a pretrial reservation of rights and pursuing a declaratory judgment action promptly after discovering facts indicating the absence of coverage."¹² The court relied upon the rule of Richmond v. Georgia Farm Bureau Mutual Insurance Co.¹³ that requires the insurer first give the insured proper unilateral notice of its reservation of rights and then take steps to prevent the main case from going into default or to prevent the insured from being prejudiced and seek immediate declaratory judgment relief including a stay of the main case.¹⁴ The court affirmed the judgment in the second case and held that under the facts of the case Jefferson "'failed to establish a reasonable ground for contesting the claim and thus, had acted in bad faith in refusing to make payment [and in refusing to defend its insured].'"¹⁵ Thus, when there is any question regarding coverage, the most prudent course of action for an insurer to follow is the procedures outlined in Dunn .

II. Automobile Insurance

A. Policy Construction

A number of the automobile cases considered by the Georgia Court of Appeals this year dealt with exclusionary provisions of the policy. In

Middlebrooks v. Atlanta Casualty Co. ,¹⁶ the court of appeals reaffirmed the rule that any named driver exclusion is enforceable if the exclusion agreement is supported by consideration between the parties.¹⁷ The case is instructive on how to prove the consideration. In Middlebrooks, the agent who sold the policy testified that the agreement to issue the policy was conditioned on the insured's consent to the named driver exclusion. This was sufficient evidence of consideration to satisfy the court.¹⁸

In a somewhat contradictory opinion, the court of appeals determined that an FBI agent was not insured under his policy while driving a "non-owned car" furnished to him by the FBI for business use.¹⁹ Under the policy issued to the driver, a "non-owned car was any car, other than an 'insured car,' and 'which [was] not owned by or furnished or available for regular or frequent use.'"²⁰ The court determined there was no coverage provided for the driver's use of a non-owned car without permission and "the uncontroverted evidence [was] that [the driver] did not have permission to use the employer-owned car for any personal errand, thus, there was no coverage afforded [him] during any personal use of the employer-owned car."²¹ However, the court also stated that the record did not disclose whether the driver was driving the employer-owned vehicle for business or personal use at the time of the underlying incident.²² Thus the opinion is contradictory unless the court of appeals is trying to say that this opinion does not preclude coverage if it is shown that the incident occurred while the driver was using the vehicle for a permitted purpose.

Another permissive use case, Harding v. Georgia General Insurance Co.,²³ afforded an opportunity for the court of appeals to apply the Georgia Supreme Court decision in Hurst v. Grange Mutual Casualty Co.²⁴ Harding construed the "reasonable belief permissive use exclusion.²⁵ The dispute in the case sub judice arose from an incident in which the insured's son was alleged to have intentionally struck another person with a car following a verbal altercation. The son, Patrick, made several contradictory statements concerning whether he knew at the time of the incident he did not have permission to use the vehicle.²⁶ In determining that a jury question was presented, the court explained that to prevail on a motion for summary judgment under this exclusion, an insurer must prove either that the driver actually believed that he did not have permission, or that he had no reasonable basis for his belief if he mistakenly believed that he had permission.²⁷ Because the sole evidence of Patrick's actual state of mind was determined by the court to be his sworn statement and there was impeaching evidence regarding that statement, a material issue was created that only the jury could decide.²⁸ Therefore, the court denied summary judgment to the insurer.²⁹

In Georgia Farm Bureau Mutual Insurance Co. v. Burch,³⁰ the "family exclusion" that is generally found in auto policies was attacked. Farm Bureau had issued a $25,000 liability policy to Ms. Robertson's mother. Ms. Robertson lived with her mother and was listed on the declarations sheet as an additional driver. She allowed plaintiff Burch to drive the car and was riding with him when he had an accident that caused her injuries. The specific exclusion limited coverage for bodily injury to the named insured or any family member to the extent the limits of liability of the coverage exceeded the limits of liability required by law.³¹ At the time of the accident, Georgia law required liability limits of $15,000 for bodily injury to one person in one automobile accident.³² The court of appeals simply held that the exclusion did not violate public policy.³³ The court further opined that even if the exclusion was found to be contrary to public policy, it would still be "enforceable as to amounts in excess of the statutory minimum cover-age."³⁴

An interesting fact situation gave the Georgia Court of Appeals an opportunity to allow a jury to determine whether a truck and trailer were "borrowed" at the time of an incident that gave rise to a wrongful death action.³⁵ A commercial lines policy issued to Franklin denned "insured" as one "who is using, with the 'permission' of said named insureds, 'a...