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

• Publication year: 2011

Insurance

by Stephen M. Schatz*

Stephen L. Cotter** and Bradley S. Wolff**

I. Introduction

What constitutes an "occurrence," as defined by a commercial general liability policy, was again a significant focus of the appellate courts during the survey year.¹ The Georgia Supreme Court finally resolved opposite positions taken by federal courts and state courts in Georgia, deciding that negligent faulty workmanship by a contractor resulting in damage to other property constitutes an occurrence.² However, when an insured acts negligently, but with foresight, expectation, or design, such conduct will not be a covered occurrence.³ The Georgia Court of Appeals also reinforced the correct legal standard to consider when

* 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; Council on Litigation Management.

** 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.

*** Partner in the firm of Swift, 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 Stephen L. Cotter, Stephen M. Schatz & Bradley S. Wolff, Insurance, Annual Survey of Georgia Law, 62 Mercer L. Rev. 139 (2010).

2. See Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., 288 Ga. 749, 752, 707

S.E.2d 369, 372 (2011).

3. Id.

deciding whether an insured is justified in failing to provide timely notice of a claim to its insurer.⁴

In the property insurance policy arena, the doctrines ofimplied waiver and estoppel based upon the conduct of an insurer or agent generally cannot create coverage under a policy where coverage does not otherwise exist.⁵ Moreover, courts continue to show their propensity to enforce policy language as clearly written, even if the insured contends such enforcement is unfair under the circumstances.⁶ Also, diminution of value is not a recoverable loss under commercial property policies.⁷ In addition, an assignment of a claim cannot overcome a forfeiture of coverage caused by the voluntary payment doctrine.⁸ Moreover, suit limitation clauses that are not less than two years are enforced and are not extended to the six-year statute oflimitations for breach ofcontract claims.⁹ Lastly, a policy of title insurance covers a forged deed.¹⁰

With respect to auto insurance policies, a liability carrier's payment ofa hospital lien does not reduce the limit ofliability available to pay an uninsured motorist claim.¹¹ Courts remain split on whether an insurer must offer uninsured motorist coverage when doing so would conflict with sovereign immunity or with specific limitations of a statutorily-created insurance company.¹² The lack of timely notice defense is available to an automobile insurer when the insured does not provide notice, even though the carrier is aware of the accident through other sources.¹³ A renter of a vehicle who violates the rental agreement may

4. See Forshee v. Emp'rs Mut. Cas. Co., 309 Ga. App. 621, 626, 711 S.E.2d 28, 33 (2011).

5. Mahens v. Allstate Ins. Co., No. 1:10-CV-174-TWT, 2011 WL 1321578, at *4 (N.D.

Ga. Apr. 1, 2011).

6. See Thornton v. Ga. Farm Bureau Mut., 287 Ga. 379, 382, 695 S.E.2d 642, 645 (2010).

7. Royal Capital Dev., LLC v. Md. Cas. Co., No. 1:10-CV-1275-RLV, 2010 WL 5105157, at *3 (N.D. Ga. Dec. 2, 2010).

8. S. Mut. Church Ins. Co. v. ARS Mech., LLC, 306 Ga. App. 748, 753, 703 S.E.2d 363,

367 (2010).

9. Jenkins v. Allstate Prop. & Cas. Ins. Co., No. CV 110-043, 2011 U.S. Dist. LEXIS 31393, at *14-15 (S.D. Ga. Mar. 21, 2011).

10. Fidelity Nat'l Title Ins. Co. v. Keyingham Invs., LLC, 288 Ga. 312, 312, 702 S.E.2d

851, 852 (2010).

11. State Farm Mut. Auto. Ins. Co. v. Adams, 288 Ga. 315, 318-19, 702 S.E.2d898, 90102 (2010).

12. Compare Ga. Interlocal Risk Mgmt. Agency v. Godfrey, 305 Ga. App. 130, 134, 699 S.E.2d 377, 379 (2010), with VHF Captive Ins. Co. v. Pleitez, 307 Ga. App. 240, 242-43, 704

S.E.2d 476, 479 (2010).

13. Lankfordv. State Farm Mut. Auto. Ins. Co., 307 Ga. App. 12, 15-16, 703 S.E.2d436,

440 (2010).

forfeit coverage provided by the rental company.¹⁴ Finally, in several factually diverse cases, courts addressed whether a driver who causes an accident qualifies as a permissive user thereby entitling the driver to coverage under an automobile liability policy.¹⁵

II. Commercial General Liability Policies

A. "Occurrence" in Construction Defect Cases

As highlighted in last year's survey, over the last several years federal and state courts in Georgia have been reaching seemingly opposite conclusions in interpreting what constitutes an "occurrence" under a commercial general liability (CGL) policy in construction defect cases where an insured's faulty workmanship allegedly causes damages.¹⁶ Federal courts have taken the position that such damages do not constitute an occurrence because the allegedly defective work was not an accident, but rather an injury "accidently caused by intentional acts."¹⁷ Georgia courts have held that if negligent construction is alleged, then the negligent conduct constitutes an accident and is therefore an occurrence.¹⁸

The Georgia Supreme Court has now addressed the issue in American Empire Surplus Lines Insurance Co. v. Hathaway Development Co.¹"⁹ Hathaway Development Co. (Hathaway), a general contractor, sued its plumbing subcontractor, Whisnant Contracting Co. (Whisnant), for allegedly negligent work performed on three projects.²⁰ on one project, Whisnant failed to install the correct size pipe as specified in the contract. on another project, Whisnant incorrectly installed a dishwasher supply line. on a third project, Whisnant improperly installed a pipe

14. See Hix v. Hertz, 307 Ga. App. 369, 369, 705 S.E.2d 219, 220 (2010).

15. See Clayton v. S. Gen. Ins. Co., 306 Ga. App. 394, 394, 702 S.E.2d 446, 448 (2010); Conklin v. Acceptance Indem. Ins. Co. 306 Ga. App. 585, 587, 702 S.E.2d 727, 729 (2010).

16. See Cotter et al., supra note 1, at 164, 166.

17. Hathaway Dev. Co. v. Ill. Union Ins. Co., 274 F. App'x 787, 791 (11th Cir. 2008) (quoting Owners Ins. Co. v. James, 295 F. Supp. 2d 1354, 1364 (N.D. Ga. 2003)) (internal quotation marks omitted). For a discussion of the decision in James, see Stephen M. Schatz et al., Insurance, Annual Survey of Georgia Law, 56 Mercer L. Rev. 253, 260-62

(2004).

18. See, e.g., Custom Planning & Dev., Inc. v. Am. Nat'l Fire Ins. Co., 270 Ga. App. 8, 10, 606 S.E.2d 39, 41 (2004) (citing SawHorse, Inc. v. S. Guar. Ins. Co., 269 Ga. App. 493,

498-99, 604 S.E.2d 541, 546 (2004)). For a discussion of the decision in SawHorse, see

Stephen M. Schatz et al., Insurance, Annual Survey of Georgia Law, 57 Mercer L. Rev.

221, 230-32 (2005).

19. 288 Ga. 749, 707 S.E.2d 369 (2011).

20. Id. at 750, 707 S.E.2d at 370.

that later became detached under hydrostatic pressure.²¹ It is important to note that each of these acts or omissions caused damage to other adjacent property being built by Hathaway.²²

Whisnant's insurer, American Empire Surplus Lines, denied coverage under its CGL policy on the basis that the negligent workmanship was not an occurrence.²³ The policy defined occurrence as "an accident, including continuous or repeated exposure to substantially the same, general harmful conditions."²⁴ The trial court found that the claims against Whisnant were not an accident as contemplated by the policy and granted summary judgment to the insurer. The court of appeals reversed, holding that Whisnant's acts were occurrences because Whisnant's negligent workmanship caused damage to surrounding properties.²⁵

The supreme court analyzed the definition of accident set forth in Black's Law Dictionary²²⁶ and Georgia case law, and confirmed that an accident is "an unexpected happening rather than one occurring through intention or design."²⁷ Accordingly, the court held that an occurrence can arise "where faulty workmanship causes unforeseen or unexpected damage to other property."²⁸ Such is true even though Whisnant's negligent workmanship was performed intentionally.²⁹ "[A] deliberate act, performed negligently, is an accident ifthe effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly."³⁰ Therefore, the supreme court upheld the court ofappeals reversal ofsummary judgment for the insurer.³¹

In his dissent, Justice Melton followed the rationale of the federal court cases.³² Because Whisnant's plumbing work was done intentionally, it could not be an accident.³³ Relying upon the plain language of

21. Id. at 752, 707 S.E.2d at 371-72.

22. Id. at 750, 707 S.E.2d at 370.

23. Id.

24. Id. (internal quotation marks omitted).

25. Id.

26. Black's Law Dictionary 16 (9th ed. 2009).

27. Am. Empire, 288 Ga. at 751, 707 S.E.2d at 371 (quoting City of Atlanta v. St. Paul Fire & Marine Ins. Co., 231 Ga. App. 206, 208, 498 S.E.2d 782, 784 (1998)) (internal quotation marks omitted).

28. Id. at 752, 707 S.E.2d at 372.

29. Id.

30. Id. (alteration in original) (quoting Lamar Homes v. Mid-Continent Cas. Co., 242 S.W.3d 1, 8 (Tex. 2007)) (internal quotation marks omitted).

31. Id.

32. Id. at 752-53, 707 S.E.2d at 372 (Melton, J., dissenting).

33. Id. at 753, 707 S.E.2d at 372.

the policy, coverage for an occurrence would only be...