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

• Jurisdiction: United States,Federal,Georgia
• Publication year: 2004
• Citation: Vol. 56 No. 1

Insuranceby Stephen M. Schatz^*

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

I. Introduction

Across the board, courts strictly applied insurance contracts as they were written. Typical of this survey year, insureds went zero for five in attempts to escape from their responsibility to read their policies. Public policy arguments did not seem to work. At the end of the survey year, the Georgia Court of Appeals further clarified the application of coverages in complex areas of insurance for "advertising injury" and "construction defects."

II. Homeowner's Insurance

Those responsible for a passenger death resulting from a motorbike's operation off their property could not obtain liability coverage from any one of three carriers in Harkins v. Progressive Gulf Insurance Co.¹ The court of appeals rejected an intriguing and sophisticated interpretation of Progressive's automobile policy language regarding "an insured," holding that the court should effectuate each provision of the policy and interpret the policy in a way that harmonizes the provisions.² With respect to Mr. Harkins, he received no coverage because he was not operating the vehicle.³ Likewise, with respect to Great Northern's homeowner's policy in favor of Larry Harkins, the court of appeals rejected the argument that the clear "motorized land vehicle" exclusion would yield when there was an alternative "covered" theory of liability, such as negligent supervision.⁴

Distinguishing Guaranty National Insurance Co. v. Brock,⁵ wherein the enforcement of an exclusion would have deprived the policyholder of all coverage, thereby defeating the underlying purpose of that policy, the court in Harkins explained that the Great Northern policy afforded coverage for such motorized land vehicles in a variety of circumstances, including while the vehicle was in storage and while the vehicle was used on the resident's premises.⁶ Hence, enforcement of the motorized land vehicle exclusion⁷ did not frustrate the purpose of the policy.⁸ The court of appeals further held, under the Federal Insurance Company's ("Federal") excess liability policy,⁹ that a "motor bike" was a "motorcycle" in the face of an argument that a motorcycle, for licensure purposes, would have certain safety equipment that was not on this motor bike.¹⁰ The Federal policy did not adopt the motorcycle definitions found in Georgia licensure law.¹¹ Finally, the court declined to read out the requirement in Barbara Harkins's USAA automobile policy, that the involved vehicle be a covered automobile.¹² A valiant effort was made on behalf of Harkins, but the court did not accept Harkins's argu-ments.¹³

Several Georgia appellate decisions dealt with public policy arguments, rejecting them in the context of the cases in which they arose. In Manning v. USF&G,¹⁴ a case of first impression, Georgia deter- mined, along with the majority of states,¹⁵ that a homeowner's policy excluding events "arising out of the use of a motor vehicle" excludes coverage even when an alternative theory of liability existed, for example, dramshop liability, which was not explicitly excluded.¹⁶ The court noted that Georgia courts had repeatedly rejected the "concurrent cause" analysis¹⁷ urged in this context in decisions such as Dynamic Cleaning Service, Inc. v. First Financial Insurance Co.¹⁸ By the policy's express terms, which the court would enforce as unambiguous, the exclusion focused on "'the genesis of [the client's] claims—if those claims arose out of [that partner's] culpable conduct . . . coverage need not be provided.'"¹⁹

In Baldwin v. State Farm Fire & Casualty Co.,²⁰ the court of appeals, honoring freedom of contract and public policy interests, rejected an attempt to read out of the policy the "resident of the household" exclusion located in the homeowner's policy.²¹ The mother of the deceased, who was also the defendant's former spouse, sought to recover for the wrongful death of her son due to an accident at defendant father's home. The mother argued that the standard resident of the household exclusion in a homeowner's policy should not be enforced on the grounds of public policy. She drew support from GEICO v. Dickey,²² a compulsory automobile liability insurance decision.²³ The court in Baldwin held that there was no similar expression of public policy with respect to homeowner's insurance.²⁴ The court declined to extend the trump of public policy, noting that "the parties are left free to contract in a manner that leaves gaps in coverage . . . ."²⁵ Such a decision is consistent with the national trend to reject similar public policy arguments outside the context of when they truly apply, compulsory automobile insurance.²⁶

In MacIntyre & Edwards, Inc. v. Rich,²⁷ a decision concerning the duty to read, the court refused to excuse an insured's failure to examine a renewal policy that did not contain unlimited replacement cost coverage, but imposed new specific limits on coverage.²⁸ The insured argued that the exception to the duty to read, established by Wright Body Works v. Columbus Interstate Insurance Agency,²⁹ which involved a co-insurance clause, did not apply when the change was readily apparent, plain, and unambiguous. Additionally, there was no showing of reliance on the agent's expertise to minutely examine the nuances of such a policy.³⁰ While the rule in Wright Body Works imposes responsibility on an agent for minute examination of nuances of coverage, the court in MacIntyre properly held that the exception to the duty to read would not be expanded to eliminate the duty to read most normally encountered and understandable insurance terms.³¹

In Tripp v. Allstate Insurance,³² the court enforced the "intentional act" exclusion,³³ employed by Allstate in its standard form policies, in Georgia and elsewhere.³⁴ Tomlinson, putative insured, admitted that he intended to buy marijuana and was holding a pistol grip twelve-gauge shotgun in his hand when he walked in the restaurant's back door. He also claimed he did not know the gun was loaded, it discharged accidentally, and he lacked the subjective intent to harm anyone.³⁵ This type of scenario is often repeated when a tortfeasor seeks coverage despite an intentional act exclusion.³⁶ Allstate's policies provide for exclusion stating: "We do not cover any bodily injury or property damage intended by or which may reasonably be expected to result from the intentional acts or omissions of any insured person which are crimes _{. . . ."}37

The court reviewed numerous opinions of other states involving identical Allstate policy language, determining that the courts generally upheld this exclusion as a matter of law.³⁸ The Georgia court in Tripp followed, affirming summary judgment and concluding that one "who holds a shotgun in his arms for intimidation or perceived personal need for protection-loaded or unloaded-must anticipate that some bodily injury is likely to result to somebody."³⁹ Though the Allstate policy language is a bit stronger for the carrier, the court's decision is consistent with the Georgia Supreme Court's teaching in Roe v. State Farm.⁴⁰ The court has limited patience and tolerance for incredulous assertions apparently made only for purposes of obtaining coverage.

III. Commercial General Liability Insurance

A. Coverage for "Advertising Injury"

Unsolicited facsimiles sent in violation of a consumer protection statute, which violate the recipient's right of privacy, constitute covered "advertising injury" under the standard commercial general liability ("CGL") policy.⁴¹ In Hooters of Augusta, Inc. v. American Global Insurance Co.,⁴² Hooters sought to recover damages from its excess commercial liability carriers for their denial of coverage for a judgment against Hooters arising out of unsolicited fax advertisements it had sent to Georgia business owners' fax machines. In the judgment the court determined Hooters violated the Telephone Consumer Protection Act ("TCPA")⁴³ and held Hooters liable for treble damages.⁴⁴

The policies provided coverage for "advertising injury," which was defined as "injury arising solely out of [the insured's] advertising activities as a result of . . . [o]ral or written publication of material that violates a person's right of privacy . . . ."⁴⁵ In determining whether the TCPA violation constituted an "advertising injury," the court used the following three-prong test: (1) whether the alleged conduct constitutes an "advertising injury" within the meaning of the insurance policy; (2) if so, whether the insured engaged in advertising activity; and (3) if so, whether a "causal connection" existed between the advertising activity and the resulting injury.⁴⁶ In affirming that the alleged conduct satisfied all three prongs of the test, the court held that the facsimiles were sent as part of Hooters' advertising activity and did violate the recipients' "right of privacy."⁴⁷ Because "right of privacy" was not defined by the policy, the court interpreted the phrase according to its common usage to mean "freedom from an unauthorized intrusion" or the "right to be let alone."⁴⁸ The court rejected the insurers' contention that "right of privacy" refers to torts constituting an "invasion of privacy" and, instead, adopted the common understanding of the phrase.⁴⁹ The court then determined that the requisite "causal connection" existed because the advertising itself caused the injury for which coverage was sought; that is, the sending of the facsimiles caused the invasion of the recipients' right of privacy.⁵⁰

To avoid coverage, the insurers relied heavily upon an exclusion in their policy that stated "no coverage is provided for an [a]dvertising injury . . . [a]rising out of the willful violation of a penal statute or ordinance committed by or with the consent of the [i]nsured."⁵¹ The insurers argued that the exclusion applied to prevent coverage because Hooters had been assessed treble damages for willful violation of the TCPA.⁵² In...