Insurance - Stephen L. Cotter, Stephen M. Schatz, and Bradley S. Wolff

• Publication year: 2010

Insurance

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

I. Introduction

This survey year, from June 1, 2009 to May 31, 2010,¹ brought significant developments to a broad array of insurance fields. Both the Georgia Supreme Court and the United States Court ofAppeals for the Eleventh Circuit held that a cancellation notice for nonpayment of a premium can also contain an offer to reinstate upon payment in the "grace" period. The supreme court has strictly enforced basic concepts of "offer and acceptance" in the context of time-limit policy demands containing less than complete release and indemnity terms, thereby appearing to put insurers in "catch 22" situations with their insureds. A "safe harbor" is getting more difficult to find. An oral reservation of rights can be valid, but an insurer's failure to sufficiently reserve its rights, while undertaking the insured's, waives those rights. Complex

* Partner in the firm of Swift, Currie, McGhee & Hiers, Atlanta, Georgia. Mercer University (B.A., 1971); Mercer University, Walter F. George School of Law (J.D., cum laude, 1974). Member, Mercer Law Review (1973-1974). Member, State Bar of Georgia; American Bar Association; Georgia Defense Lawyers Association; Defense Research Institute; International Association of Defense Counsel.

** Managing Partner in the firm of Swift, Currie, McGhee & Hiers, Atlanta, Georgia. University of Virginia (B.A., with distinction, 1985); University of North Carolina at Chapel Hill School of Law (J.D., 1988). Member, State Bar of Georgia (Member, Tort and Insurance Practice and Litigation Section); Defense Research Institute.

*** Partner in the firm ofSwift, Currie, McGhee & Hiers, Atlanta, Georgia. Vanderbilt University (B.A., cum laude, 1983); University of Georgia School of Law (J.D., cum laude, 1986). Member, State Bar of Georgia; Defense Research Institute; International Association of Defense Counsel.

1. For analysis of Georgia insurance law during the prior survey period, see Bradley S. Wolff, Stephen L. Cotter & Stephen M. Schatz, Insurance, Annual Survey of Georgia Law, 61 MERCER L. REV. 179 (2009).

140 MERCER LAW REVIEW [Vol. 62

preemption issues were addressed in various courts, perhaps heralding

more to come from recent attempts to federalize health insurance.

II. Automobile Insurance

During the survey period, the courts decided several cases important to practitioners handling automobile cases. Among these are decisions involving the issues of who is an "insured," how many "accidents" arise out of multiple impacts, and the effect of a limited release on an uninsured motorist carrier's (UMC) right to subrogation. We begin with a discussion of the uninsured motorist (UM) cases, focusing on previously unexplored questions addressed in cases involving UM coverage.

A. Uninsured Motorist Coverage

1. Who Is an "Insured" in a Policy Issued to a Corporation? We discussed in last year's article the court of appeals decision

in Staton v. State Farm Automobile Insurance Co.,² which allowed the stacking of policies issued to a corporation.³ The Georgia Supreme Court granted certiorari in State Farm Mutual Automobile Insurance Co. v. Staton⁴ and reversed the court of appeals decision.⁵

Staton was driving a vehicle owned and insured by Smyth & Helwys Publishing, Inc. (Smyth & Helwys), his employer, when he was injured in a car wreck. State Farm insured this vehicle and two other vehicles owned by Smyth & Helwys. The UM policy limit for each vehicle was $100,000. Staton wanted to stack all three policies to recover up to $300,000 in UM coverage.⁶ State Farm argued that Staton could not stack the policies because he was not the "named insured" on any ofthe policies.⁷ The insurance policies stated that the named insured was the "first person named" on the declarations page.⁸ The first and only name on the declarations page was the corporation's name, Smyth & Helwys.⁹

The court of appeals held that Staton could stack the policies because Staton was the named insured on all three policies.¹⁰ The court reasoned that the term "named insured" was ambiguous because "(1) the

2. 294 Ga. App. 208, 669 S.E.2d 164 (2008).

3. Id. at 213, 669 S.E.2d at 168; see also Wolff et al., supra note 1, at 187-88.

4. 286 Ga. 23, 23, 685 S.E.2d 263, 264 (2009).

5. Id. at 26, 685 S.E.2d at 266.

6. Id. at 23-24, 685 S.E.2d at 264.

7. Id. at 24, 685 S.E.2d at 264-65.

8. Id. at 24, 685 S.E.2d at 265.

9. Id. at 23-24, 685 S.E.2d at 264-65.

10. Id. at 24, 685 S.E.2d at 265.

2010] INSURANCE 141

'named insured' was defined as 'the first person named in the declarations'; (2) the policy defined a 'person' as a 'human being'; and (3) Smyth & Helwys, the corporate entity named as insured on the declarations page, was not a human being."¹¹ The court held that Staton was a named insured because Staton was the first person identified in the declarations—he was named as the first licensed driver. The court also held that the evidence showed Staton reasonably expected the policies to be stacked.¹²

In a 5-2 decision, the supreme court reversed the court of appeals and rejected its analysis.¹³ The majority opinion which was written by Justice Thompson, held "that the term 'named insured' is not ambigu-ous."¹⁴ In reaching its decision, the supreme court explored general rules of contract interpretation.¹⁵ For example, one rule of contract interpretation that the court explored is that an ambiguity exists if a term is "subject to more than one reasonable interpretation."¹⁶ Furthermore, if an ambiguity exists, it will be construed against the insurer.¹⁷ However, when only one reasonable construction of the language is possible, there is no ambiguity, and the contract must be interpreted as written.¹⁸ Under these rules, the supreme court held that the term "named insured" was not ambiguous because only "Smyth & Helwys" appeared on the declarations page, which made it clear that Smyth & Helwys was the named insured.¹⁹ The court further explained that written words, such as the name appearing in the declarations, prevail when they conflict with preprinted portions of policies, such as the definition of "person" as a "human being."²⁰ Justice Carley and ChiefJustice Hunstein dissented and argued in favor of affirming the court of appeals decision.²¹

One month after the decision was issued in Staton, in Banks v. Brotherhood Mutual Insurance Co.,²² the court of appeals applied the

11. Id.

12. Id.

13. Id. at 25-26, 685 S.E.2d at 265-66.

14. Id. at 25, 685 S.E.2d at 266.

15. See id. at 25-26, 685 S.E.2d at 265-66.

16. Id. at 25, 685 S.E.2d at 265.

17. Id.

18. Id. at 25, 685 S.E.2d at 266 (quoting Cotton States Mut. Ins. Co. v. Bowden, 136

Ga. App. 499, 500, 221 S.E.2d 832, 833 (1975)).

19. Id.

20. Id.

21. Id. at 26, 685 S.E.2d at 266 (Carley, P.J., dissenting).

22. 301 Ga. App. 101, 686 S.E.2d 872 (2009).

142 MERCER LAW REVIEW [Vol. 62

supreme court's Staton holding.²³ Banks, a City of Toccoa (City) employee and the pastor of a church, was injured in an automobile collision while driving a service truck owned by the City. Banks recovered workers' compensation benefits from the City and sought to recover UM coverage from Brotherhood Mutual Insurance, which insured a church van that Banks was permitted to drive. The insurance policy's declarations page listed "Hollywood Church of God Inc." as the named insured.²⁴ The policy provided that "[i]f the named insured is '[a] partnership, limited liability company, corporation or any other form of organization,' then anyone occupying the covered vehicle is insured."²⁵

Banks argued that the named insured, Hollywood Church ofGod Inc., was a nonexistent entity and that an ambiguity therefore existed as to who the named insured was.²⁶ Banks cited the general rule that all ambiguities must be construed against the insurer and construed liberally to provide coverage, and argued that pursuant to this rule he should be considered the named insured under the policy.²⁷

The court of appeals determined that under the terms of the policy, which read that "[i]f the Named Insured is designated in the Declarations as . . . [a] form of organization, then . . . [a]nyone occuping a covered auto" is to be considered an insured, the term "organization" was to be assigned its dictionary meaning.²⁸ The court further held that the church could be considered "a form of organization"; thus, the court determined that the policy was clearly intended to show that the church was the named insured.²⁹ Accordingly, because Banks was not occupying the insured vehicle at the time of the incident, he was not entitled to UM coverage under the policy.³⁰

2. Limited Release Does Not Affect Subrogation Rights of a Carrier. A decision on the question involved in Ramos-Silva v. State Farm Mutual Insurance Co.³¹ has been long awaited. The limited liability release statute³² was enacted in 1992,³³ but it took until 2009

23. See id. at 102-03, 686 S.E.2d at 874-75.

24. Id. at 101-02, 686 S.E.2d at 874.

25. Id. at 102, 686 S.E.2d at 874 (second alteration in original).

26. Id.

27. Id. at 103, 686 S.E.2d at 874-75.

28. Id. at 103-04, 686 S.E.2d at 875 (first alteration in original).

29. Id. at 104, 686 S.E.2d at 875.

30. Id.

31. 300 Ga. App. 699, 686 S.E.2d 345 (2009).

32. O.C.G.A. § 33-24-41.1 (2005).

33. Ga. H.R. Bill, Reg. Sess., § 1, 1992 Ga. Laws 2514, 2514-16 (codified at O.C.G.A.

§ 33-24-41.1).

2010] INSURANCE 143

to get an answer as to whether an injured party's release ofa tortfeasor precludes subrogation against the tortfeasor by the injured person's UMC.³⁴

The question at issue in Ramos-Silva arises because a limited liability release acts as a personal release ofthe tortfeasor, thus the release only allows additional claims to be prosecuted by the injured person against insurance carriers.³⁵ However, pursuant to section 33-7-11(f) of the

Official Code of Georgia Annotated (O.C.G.A.),³⁶ a UMC that pays its

insured is entitled to subrogation against the tortfeasor.³⁷...