The Legal

JurisdictionGeorgia,United States
CitationVol. 24 No. 5 Pg. 0018
Publication year2019
The Legal
Vol. 24 No. 5 Pg. 18
Georgia Bar Journal
April, 2019

GBJ | The Legal

The Peculiarities of Georgia Insurance Law

While Georgia follows the nationwide majority rule on most insurance issues, this article addresses the insurance issues on which Georgia differs.


Under the McCarran-Ferguson Act, insurance coverage is inherently a matter of state law rather than federal law.[1] Accordingly, states have developed different rules, interpretations and standards regarding insurance law. This is somewhat inefficient, but the additional work involved ultimately benefits lawyers, so it is good.

Georgia follows the nationwide majority rule on most insurance issues. In fact, the Supreme Court of Georgia often cites and follows the majority rule when addressing novel coverage questions. This article addresses the insurance issues on which Georgia differs from the nationwide majority.

Choice of Law

Because state insurance law can vary, a forum's choice-of-law rule can be significant. Georgia follows the lex loci contractus rule, which is common among Southeastern states but has been replaced with the most significant contacts rule in the rest of the country.[2] Supposedly a simpler rule, lex loci contractus requires a court to interpret a contract using the law of the state where the contract was finalized.[3] The primary virtues of lex loci contractus were thought to be simplicity and certainty; however, its application has become more complex in modern times, and many other states have abandoned it.[4]

Georgia courts apply a significant exception to the lex loci contractus rule that provides a home field advantage to Georgia lawyers. Under our "presumption of identity" rule, Georgia courts will apply the law of the state where a contract was made only if that state has a statute on point.[5] In the absence of such a statute, Georgia courts must apply Georgia common law.[6]

The basis of the "presumption of identity" rule is that all American states have adopted the English common law, and that the courts of Georgia have (naturally) applied the law better than any other state.[7] Application of the rule was formerly restricted to the original 13 colonies (on the basis that former French and Spanish colonies do not follow the English common law), but our courts later applied the rule to a policy delivered in Wisconsin.[8]

Georgia is unique in requiring a first-party policy to pay for both repair costs and diminished market value after repairs are completed, even if the insurer promised to pay only the lower of these two valuation options. Georgia courts adopted this rule with regard to automobile policies almost a century ago.

In 2016, a federal district court made an "Erie guess" and held that the "presumption of identity" rule is "anachronistic" and should no longer be followed, despite precedent to the contrary from the Supreme Court of Georgia and the U.S. Court of Appeals for the 11th Circuit.[9] Within months, the Supreme Court of Georgia re-established that the rule is still the law in Georgia.[10]

Misrepresentations in Policy Applications

Georgia law is not forgiving to policyholders who misrepresent the facts in their application for insurance. In such a situation, the insurer can, by statute, rescind the policy even if the insured was unaware of the falsity, if the matter is material to the hazard assumed by the insurer, or if, had the insurer known of the falsehood, it would have issued the policy for a higher premium (or not at all).[11] Our neighbors in South Carolina,[12] Florida,[13] Tennessee[14] and Alabama[15] apply different rules.

Property Coverage: Diminution in Value

Georgia is unique in requiring a first-party policy to pay for both repair costs and diminished market value after repairs are completed, even if the insurer promised to pay only the lower of these two valuation options. Georgia courts adopted this rule with regard to automobile policies almost a century ago.[16] The premise was that a car has a lower resale value after repairs (even if the repairs are properly performed) due to a stigma perceived by the marketplace.[17] While that premise seems true, it does not necessarily follow that an insurance policy must cover both repair cost and lost value when the contractual language says otherwise. But that is the law in Georgia. We call it the Mabry rule, after a 2001 Supreme Court of Georgia case requiring automobile insurers to consider lost value when adjusting automobile claims.[18] More recently, the Supreme Court of Georgia extended the Mabry rule to real property.[19]

Liability Insurance-The Duty to Defend

Most states determine an insurer's duty to defend using the "eight corners" rule: if any allegation within the four corners of the complaint against the insured might be covered under the terms within the four corners of the insurance policy, then the insurer must defend.[20] However, states vary in how they apply the "eight corners" rule. Some states apply it strictly, without allowing either the insurer or the insured to bring in additional facts to affect the scope of the duty.[21] Some states, on the other hand, allow the insurer to consider additional facts to restrict their duty.[22]

Georgia follows the nationwide minority rule, which allows a policyholder to expand the scope of this duty by notifying the insurer of additional facts that, if a fair investigation shows to be true, may also trigger the policy. The Court of Appeals of Georgia took this minority rule to the logical extreme in 1998 when an insured woman dragged a bus driver from a bus, kicked the bus driver in the head, beat her with a cane and was convicted of aggravated battery. When faced with a civil suit, the insured woman sought a defense from her insurer. When her insurer denied coverage pursuant to the "expected or intended injury" exclusion, the Court ruled that the insurer breached its duty to defend because it refused to defend without first investigating the insured woman's contention that the injuries were "unintended."[23]

Like most states, Georgia encourages a liability insurer, when confronted with a potentially covered lawsuit against its insured, to provide a defense while reserving the right to reconsider coverage and possibly withdraw the defense later.[24] Further, the higher courts of this state are relatively respectful of insurers' rights when the insurer is asked to defend a case that might not be covered. For example, Georgia does not consider a reservation of rights letter to be a breach of the duty to defend, which allows a policyholder to settle a case without the insurer's consent (as in Florida).[25] Nor does Georgia require absolute specificity in the content of the reservation of rights letter (as in South Carolina).[26] In one recent exception, however, our highest court, in a 4-3 decision, found that an insurer "waived" its rights under the policy's prompt notice condition, even though the insurer specifically reserved those rights in its letter, because the insurer denied coverage on other grounds in the same letter.[27]

Many other states have statutory and/ or common law requiring an insurer defending under a reservation of rights to pay counsel selected by the insured.[28] Georgia does not have such a rule. Perhaps the relic of a more civilized time, the Georgia rule relies on the professionalism of an insurance defense lawyer to identify and address potential conflicts between his client and the insurer.[29] Only when the insurer conclusively denies a duty to indemnify is it required to fund counsel selected by the insured.[30]

Liability Insurance—Interpretation of Exclusions

Georgia jurisprudence is relatively straightforward in allowing insurers to raise policy exclusions to bar coverage. While we apply the same general rule that all states...

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