Insurance - Stephen L. Cotter, C. Bradford Marsh, and Bradley S. Wolff

• Publication year: 2001

Insuranceby Stephen L. Cotter^*

C. Bradford Marsh"and

Bradley S. Wolff"

I. Introduction

Both the Georgia courts and General Assembly liberalized extracontra-ctual remedies by which recalcitrant insurers are exposed to penalties for wrongful delay in payment of legitimate well documented claims. Georgia courts continue to consistently find a duty of defense in all manner of gray cases, even when the same fact situation admittedly does not give rise to a duty to indemnify. While often giving effect to the "reasonable expectations" of insureds in areas not clearly addressed by the text of policies, the courts have enforced the clearly articulated terms and conditions actually appearing in insurance contracts.

II. Homeowners Insurance

There were "slim pickins" in the area of homeowner insurance policies this survey year. The Georgia Court of Appeals gave broad meaning to the "usual to non-business pursuits" exception to the business pursuits exclusion (i.e., the exclusion did not apply, so coverage was afforded) in

Georgia Farm Bureau Mutual Insurance Co. v. Gaster.¹ The insured real estate agent presented a real estate offer to a client in her home. While moving from the dining room to the living room, the agent fell, giving rise to a claim of negligent maintenance. Georgia Farm Bureau claimed that interpreting the exception to the exclusion so broadly would render the exclusion wholly ineffective.² The court responded by stating that the maintenance of the premises was not related to business and, to avoid the exception, "the instrumentality of the injury in question [must be] directly connected to the insured's business pursuits activities," and cited multiple examples of such connectivity.³

In Allstate Insurance Co. v. Hamler,⁴ the court again considered the enforceability, in the context of suspicious losses, of the standard "Duties In Event of a Loss," a condition precedent which generally requires the production of requested information and documentation. In reversing the trial court's denial of summary judgment, the court carefully explained the legitimacy of such insurer requests when a question of fraud is raised by the facts.⁵ Requests for tax returns and certain bills were justified as relating to "financial motive." Similarly, credit card and other statements, as well as hospital and medical records, could have related to proof of the insured's whereabouts at relevant time periods.⁶ However, the court distinguished supreme court precedent Halcome v. Cincinnati Insurance Co. ,⁷ because Halcome did not totally fail to comply with the policy provisions.⁸

III. Property Insurance

In York Insurance Co. v. Williams Seafood, Inc. ,⁹ the Eleventh Circuit certified to the supreme court the question of whether a policy covers damage caused by a sink hole collapse, which was precipitated by a flood, when the policy specifically covers losses caused by sink hole collapse but excludes "regardless of any other cause or event that contributes concurrently" damage caused by flood.¹⁰ The supreme court applied the normal rules of insurance contract construction and held the sink hole coverage could not be limited by the exclusion for damage by flood.¹¹ The court further held that allowing such an exclusion would render portions of the policy superfluous and would not accord with the way a "layman" would understand the policy.¹²

In Hairston v. Travelers Casualty Surety Co.,¹³ the Eleventh Circuit enforced a twelve month statute of limitations within which claims must be brought exclusively in federal court under the National Flood Insurance Program ("NFIP").¹⁴ The court rejected plaintiff's contention that language in the governing statute, 42 U.S.C. Sec. 4072,¹⁵ which provides a claimant "may institute" an action in district court, is somehow permissive as to court systems.¹⁶ Thus, the appellate court held the federal court had exclusive jurisdiction over the action and filing in the state court did not toll the statute of limitations.¹⁷

The Georgia Court of Appeals, in the case of Holloway v. State Farm Fire & Casualty Co.,¹⁸ considered the insurer's varying obligations to pay prejudgment interest on unliquidated losses. Holloway made claims under a Personal Articles Floater ("PAF") policy with State Farm for basement flooding.¹⁹ The court held that '"where liability is not disputed but where the amount of damage is disputed, the amount is unliquidated.'"²⁰ Only after the entry of judgment would the claim become liquidated.²¹ Hence, it affirmed the denial of prejudgment interest on the water damage portion of the claim because the amount of damage was contested.²² However, '"when the only issue contested by the insurer is the existence of coverage and not the amount of the claim then the claim is properly considered liquidated'" for the purposes of the liquidated damages demand and prejudgment interest.²³ The court of appeals held that "[a]n award of prejudgment interest for liquidated damages is mandatory rather than discretionary and is awarded as a matter of law."²⁴ The damage amount for the stolen rug portion of the case was considered "liquidated" because the PAF policy showed an "agreed value" for the personal property insured.²⁵

In Stagl v. Assurance Co. of America,²⁶ "collapse" was revisited, this time in a policy language context that required a loss to be "accidental." In this close case, a pro se homeowner may have benefitted from seasoned insurance coverage counsel. The homeowner claimed that a "collapse" under his builder's risk policy was presented by defective construction of the foundation walls.²⁷ The court distinguished Georgia precedent by pointing out the lack of any articulated "accident" or proof of severe impairment or an imminent collapse.²⁸ As in other areas of insurance coverage analysis, one should begin with the text of the particular policy in considering whether a collapse occurred.

IV. Automobile Insurance

A. Liability Insurance

1. Coverage

a. Definitions and Exclusions. It is axiomatic that insurance is a matter of contract, and parties to an insurance contract may include or exclude coverage for specific risks or losses at will so long as the contract does not violate state law or public policy. Thus, in automobile insurance cases, coverage questions typically arise in the context of definitions and exclusions contained in the policy. Such was the case in Rutledge v. Auto-Owners Insurance Co.,²⁹ a single vehicle accident case in which the court of appeals was called upon to determine the meaning of "relative" under Georgia law and a policy of automobile insurance.

In Rutledge, Auto-Owners Insurance Company filed a declaratory judgment action contending it had no duty to defend the driver of its insured vehicle because the driver's familial relationship with the named insured ended upon the death of her sister, who was the named insured's wife. Rachel Rutledge was driving a pickup truck owned by John Thomas. Rhonda Jackson was a passenger in the vehicle. John Thomas had been married to Shirley Thomas, who was Rachel Rutledge's sister.

Mrs. Thomas died in October 1994, nearly two years before the accident. John and Shirley Thomas had a sixteen year old son, Chris Thomas. The insurance policy issued by Auto-Owners to John Thomas provided liability coverage for the named insured, any person using the vehicle with permission, and for "any relative who lives with you." The term "relative" was not defined in the liability portion of the policy. It was undisputed that Rachel Rutledge was living in the home of John Thomas and his son Chris on the date of the accident. The sole question for the court was whether Rutledge remained a "relative" of John Thomas despite the death of her sister, Shirley Thomas. Auto-Owners contended Rutledge and Mr. Thomas were no longer relatives since the death of Shirley Thomas terminated their relationship of affinity.³⁰ The trial court agreed and found "[t]he relationship between defendant Rutledge and John Thomas was that of brother-in-law and sister-in-law. That relationship ended upon the death of Shirley Thomas."³¹

The court of appeals, relying upon Georgia Power Co. v. Moody,³² reversed the trial court decision, holding the relationship created by affinity survived the death of Shirley Thomas because of her son.³³ On appeal, the Georgia Supreme Court stated:

The general rule is that the husband is related by affinity to the blood relatives of the wife, and the wife is likewise related to the blood relatives of the husband. This relationship by affinity is dissolved by the death of either party to the marriage which created the affinity provided the deceased party left no issue living.³⁴

Thus, the court held although Auto-Owners could have defined "relative" differently in its policy, without a more restrictive definition, the company was bound to provide coverage for Rachel Rutledge because she remained a relative of John Thomas despite the death of her sister.³⁵

The importance of the exact language used in a policy regarding coverage determinations was highlighted in Georgia Farm Bureau Mutual Insurance Co. v. John Deere Insurance Co.³⁶ Insurer (Georgia Farm Bureau) contended it had no duty to defend or indemnify its named insured, Larry Spence, in a suit for damages arising out of a collision Spence caused while driving a car owned by his employer while under the influence of alcohol. John Deere Insurance Company insured the employer, Five Star Dodge, Inc. Georgia Farm contended John Deere owed the duty of coverage to Spence. The facts of the case revealed Spence and two other employees of Five Star drove from Macon to Atlanta to attend a baseball game. Dennis Henry, the general manager of the dealership and Spence's supervisor, took a car from the dealership's inventory to drive to the game. During the baseball game, all three of the men drank beer. After the game, Henry asked Spence to drive the vehicle and Spence rear ended a car on...