Insurance - Stephen L. Cotter and C. Bradford Marsh

• Publication year: 2000

Insuranceby Stephen L. Cotter^* and

C. Bradford Marsh^**

I. Introduction

Although last year the Georgia General Assembly actively worked on managed care and the appellate courts stymied subrogors, legislation was light and appellate litigation routine this survey year. Many appellate opinions were reminders of coverage processing requirements (send the sixty-day "bad faith" demand for payment). Other opinions applied established insurance law principles to particular fact patterns (does every road wreck in Georgia have an appellate coverage decision?). All concerned are having some difficulty adjusting to Georgia's gradual departure from the traditional "four corners" coverage test analysis. The supreme court did breathe life into the hope for liability coverage for sexual harassment, ebbing the tide of adverse coverage opinions.

II. Homeowners

In a dozen cases, the court of appeals refined the meanings of the "intentional act" exclusion and the "business pursuits" exclusion while also enforcing other terms and conditions of homeowners' policies, given the evidentiary records presented.

Georgia Farm Bureau Mutual Insurance Co. v. Garzone¹ denned "a builders' risk" policy when no previous Georgia case or statute offered a definitive meaning.² Garzon, a builder, had a speculative home destroyed by fire. Garzon demanded the insurer pay the face amount of the policy under section 33-32-5(a) of the Official Code of Georgia Annotated ("O.C.G.A."), which mandates such payment for the total loss of a residential structure while exempting a builder's risk policy.³ Finding the contractor's speculative dwelling was still under construction, the court deemed the policy a builders' risk policy.⁴ It is not necessary in Georgia for a builders' risk policy to have a "permission to complete" clause in the policy.⁵

Two decisions enforced, as a matter of law, the "intentional act" exclusion. First, in Georgia Farm Bureau Mutual Insurance Co. v. Vanuss,⁶ a complaint alleging intentional, repeated violations of riparian rights was sufficient as a matter of law to demand a declaration of noncoverage.⁷ While stressing that City of Atlanta v. St. Paul Fire & Marine Insurance Co.⁸ extends an insurer's obligation to consider facts beyond the four corners of the complaint if the insured notifies the insurer of such additional facts, the court found that the insured had not put the carrier on notice of any mitigating facts.⁹ This decision points out the advisability of tendering early not only the suit papers, but also the insured's side of the story, so an insurer's duty to defend might be extended and invoked, if appropriate. Second, the court of appeals in Brown v. Ohio Casualty Insurance Co.¹⁰ again enforced intentional act policy terms creating a joint obligation between coinsureds in a difficult fact pattern.¹¹ Plaintiff, Louise Brown, had her home and its contents damaged by her estranged husband, Johnny Mack Brown. Both Johnny and Louise Brown were on the deed and the mortgage.¹² The insured, Louise Brown, argued that the intentional act clause, which excluded intentional acts "by or at the direction of an insured" did not apply because her estranged husband had quit-claimed his interest in the property.¹ The court found that by reason of continued joint exposure on the mortgage, Johnny Brown did have an insurable interest, and, hence, the consequences of his intentional acts were excluded.¹⁴ The court followed Fireman's Fund Insurance Co. v. Dean,¹⁵ which held that the phrase "an insured" created a joint obligation.¹⁶ The court in Fireman's Fund distinguished Richards v. Hanover Insurance Co.¹⁷ because the latter held that an intentional act clause employing a different phrase, "the insured," created a several obligation, which would not penalize the innocent coinsured.¹⁸

The courts further defined the term "business pursuit" in the absence of policy definitions. In Larson v. Georgia Farm Bureau Mutual Insurance Co.,¹⁹ the insurer denied coverage under the homeowner's policy of an electrical engineer and owner of a machine-shop fabrication business that built hydraulic cable lifts for automobiles and motorcycles. The insured based the claim on exposure relating to his first and only cable car system. The electrical engineer constructed the cable car system for cost plus twenty percent, and numerous aspects of the insured's ongoing business were involved in the fabrication and construction.²⁰ As in the seminal case of Brown v. Peninsular Fire Insurance Co. ,²¹ the homeowners' policy lacked a definition of "business pursuits." Following Brown's use of the Webster's New International Dictionary definition of a business as '"a usufal] commercial or mercantile activity,'" the court found that this insured's "principal vocation consisted of machine work and building lifts."²² Hence, the "business pursuits" exclusion applied to deny coverage.²³ The court distinguished Southern Guaranty Insurance Co. v. Duncan,²⁴ wherein an auto mechanic's auto racing activities were not incident to the usual mechanic's work, and Brown, wherein a real estate broker was not considered customarily engaged in property development.²⁵ In Nationwide Mutual Fire Insurance Co. v. Erwin,^2e the court held that an occupation, within the meaning of the business pursuits exclusion, could be nothing more than attempting to find a job.²⁷ After the insured had been terminated from her position with a law firm, her former employer asserted defamation claims against her, all of which allegedly arose out of matters following termination.²⁸ Keying in on Jefferson Insurance Co. of New York v. Dunn,²⁹ the court stressed that the focus must be on the acts themselves and their connection to furthering the insured's business at the time of their commission.³⁰ The court specifically noted that "[n]one of the alleged tortious acts arose out of or was logically connected with her looking for a job."³¹ Hence, posttermination statements and actions would not seem to be barred by the business pursuits exclusion under the Erwin ruling.

The court of appeals further refined the "negligent entrustment" exclusion for motorized land vehicles, having previously held that this exclusion was not vague or ambiguous.³² In Georgia Farm Bureau Mutual Insurance Co. v. Huncke³³ an ATV operated by a nonrelative, nonresident of the insured caused injury four hundred yards from the insured's residence.³⁴ The only arguable exception to the exclusion of the entrustment by the insured of a motorized land conveyance was exception four, which stated that the entrustment exclusion did not apply to a "conveyance not subject to motor vehicle registration which is . . . used to service an insured's residence."³⁵ The court found that an ATV used for children's recreation and to scout fields was not "used to service an insured's residence."³⁶ While recreational use may be a benefit to the insured, the exception applies when the recreational benefit is related to the residence.³⁷

The courts considered a variety of conditions to homeowners' policies. In Parks v. State Farm General Insurance Co.,³⁸ the court enforced an unwritten clause requiring the insured to bring any actions against the insurer within one year of the loss.³⁹ Because the coverage was provided as a binder, or temporary insurance, it was governed by O.C.G.A. section 33-24-33 and '"deemed to include all the usual terms of the policy.'"⁴⁰ Testimony was uncontradicted that State Farm would have incorporated such a clause in a written policy.⁴¹

In Williams v. Mayflower Insurance Co.,⁴² another insured unsuccessfully attempted to avoid a "nonassignment" clause. The insured tried to avoid the clause by asserting that premiums had been paid and, therefore, the insured performed his obligations under the policy.⁴³ The appeals court refused to consider this issue because it was not raised in the lower court, despite substantive support for the avoidance of a nonassignment clause in such circumstances.⁴⁴ Insureds fared better with giving notice of the occurrence. In Newberry v. Cotton States Mutual Insurance Co. ⁴⁵ a year after a physical altercation occurred, an intentional tort claim was filed against insured Newberry. Cotton States received timely notice of the lawsuit, but it claimed that the insured's delay of more than a year in giving notice of the occurrence breached his obligation to provide timely notice.⁴⁶ As is customarily the case in this area, the court found a jury question existed, noting that the insured raised two excuses sufficient to submit the issue to a jury: 1) the insured's belief that the matter would be handled under a workers' compensation claim; and 2) the insured's belief that the policy would not afford coverage for the given factual situation.⁴⁷ While the first justification for not reporting a remote tort liability theory is clearly established in Georgia law, the second justification seems to legitimize a plea of ignorance that previously has not been considered a justification for failing to report the occurrence.⁴⁸

III. Accident, Health, and Life Insurance

Last year's legislative activity in the area of managed care/health insurance has not yet brought cases to the appellate courts. Only one follow-up piece of legislation⁴⁹ was passed, which requires public access to updated provider lists every sixty days.⁵⁰ Senate Bill 464⁵¹ declares discrimination against a victim of "family violence" in accepting an application, insuring, renewing, or terminating a policy as unfair.⁵² It also disallows inquiry into or the disclosure or transfer of information regarding an applicant's or insured's status as a victim of family violence.⁵³

A. Health Insurance

In the area of health insurance case law, several interesting opinions of the court of appeals discussed and decided how and to what extent providers could be paid or were restricted in receiving payments. In Health Horizons, Inc. v. State Farm Mutual Automobile Insurance Co....