Georgia Insurance Coverage Decisions

Morrill v. Cotton States Mutual Ins. Co.

, Case No. A08A1391 (Ga. App.

July 24, 2008). Morrill’s father died (self-inflicted gun shot) the same day his

father’s house burned. Morrill on behalf of the estate made claim for pay-

ment of the house and personal property loss. Cotton States paid off the

mortgage and during further investigation concluded that the fire was the re-

sult of arson by his deceased father and denied the personal property loss

claim. Then the ex-wife of the father, who had been living in the house that

burned, sued Morrill for personal property loss. Cotton States provided ROR

liability defense to Morrill. Cotton States then filed a declaratory judgment

action to determine property coverage obligations to the ex-wife and its duty

to defend/indemnify Morrill from the ex-wife’s claim. Morrill counter-

claimed against Cotton States for bad faith refusal to pay personal property

claims. Cotton States settled with the ex-wife, dismissed the DJ then filed

and won summary judgment on Morrill’s counterclaim because personal

property loss claim had expired one year after the date of the fire. The Court

of Appeals affirmed the trial court’s ruling that the insured’s claims for

wrongful denial of coverage for the personal property loss had expired one

year after the date of the fire. The fact that Cotton States had paid the mort-

gage and had investigated the personal property loss for half a year, but de-

clined coverage 5 months before the expiration of the one year period, did not

waive the policy contract period of limitations. Also, interestingly, the Ap-

peals Court found the duty to

defend

Morrill from the ex-wife’s claim was not

subject to the one year limitation period. The Court found that because Cot-

ton States had defended Morrill under ROR, settled the ex-wife’s claim and

filed a declaratory judgment action was not evidence of bad faith stubborn

and litigious conduct as a matter of law.

Recent Cases Of Interest Around The Country

Exxon Shipping Co. v. Baker, 2008 U.S. LEXIS 5263 (June 25 2008):

The

U.S. Supreme Court clearly continues to convey its disapproval of punitive

damages that lack a close relationship to the compensatory award. This case

arose from the

Exxon Valdez

oil spill in 1989. The Plaintiffs were commercial

fishermen, native Alaskans and landowners. The trial proceeded in phases:

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COURT DECISIONS

Noteworthy:

U.S. Supreme

Court Limits Punitive Dam-

ages In Admiralty Cases

As a matter of federal common law, the

Supreme Court holds that maritime

punitive damage award cannot exceed

the compensatory damage award.

Georgia Decisions

One Year Contractual Period To File

Suit Under Standard Fire Policy Still

Applies To Policies Issued Or Renewed

Before

June 20, 2006.

Current regulations require a minimum

2 year period within which the insured

has to file suit on the Policy. Yet, for

policies issued before June 20, 2006,

the one year period is still enforceable

and was not waived by insurer s inves-

tigation and initial negotiations before

denial of coverage.

Recent Cases Of Interest

Around the Country

A Federal Court Permits Discovery Of

Insurer s Reserves In Bad Faith litiga-

tion.

E.D.Louisiana, Katrina case, allowed

discovery of property insurer s reserve

information as insured sued asserting

insurer acted in bad faith in refusing to

pay 60 days after proof of loss.

1

1

th

Circuit upholds longstanding

precedent finding warehouse to ware-

house coverage ceases upon the in-

sured s exercise of dominion and con-

trol of insured cargo.

11th Circuit finds that lumber that had

arrived at insured s temporary ware-

house space before final destination,

not yet USDA inspected, was suffi-

ciently in the insured s dominion and

control under the terms of warehouse

to warehouse coverage for coverage to

cease before the loss event.

Complex Insurance Litigation

and Liability Def

ense

(1) trial on evidence of negligence and recklessness of Exxon and captain, (2) the jury consideration of fault and compensa-

tory damage award and (3) the punitive damage phase against Exxon and the captain. The jury reportedly awarded $507 mil-

lion in total compensatory damages and then awarded $5,000 in punitive damages against the captain and $5 Billion in puni-

tive damages against Exxon. Ultimately the Court of Appeals remitted the punitive damage award against Exxon to $2.5

Billion. The Supreme Court left undisturbed the Ninth Circuit’s decision permitting corporate liability for punitive damages

based on the conduct of managerial employees. The Supreme Court also held that the Clean Water Act did not bar punitive

damages based upon property and economic damages. Finally, it considered punitive damages being awarded under mari-

time law. The Supreme Court considered this a case of first impression as federal common law would govern maritime law.

In reviewing the appropriateness of punitive damages under maritime law, the Supreme Court reviewed the history and pur-

pose of punitive damages and the general state law trends. The Supreme Court noted the “stark unpredictability” of punitive

damage awards and that its past rulings have dealt with the due process considerations for state law based punitive damage

awards.

After considerable review of different historical sources for the setting of permissible ratios for punitive damage awards,

and in consideration of the mean average ratio previously awarded for punitive damages in maritime cases, the Supreme

Court held that a 1 to 1 ratio between compensatory and punitive damages is appropriate for maritime cases governed by fed-

eral maritime law. This resulted in $507 million being the maximum punitive damage award permitted in the case. To what

degree the State Supreme Courts will consider this ruling when determining the constitutional boundaries of punitive dam-

ages under state law is unknown. However, the clear judicial trend of the U. S. Supreme Court is to more tightly limit puni-

tive damage awards.

Brothers Petroleum, LLC v. Underwriters at Lloyd’s,

2008 U.S. Dist. LEXIS

51389 (E.D. La., July. 2, 2008). This E.D. Louisiana Katrina case follows the trend

allowing discovery of a property insurer’s reserve information where the insured

sued asserting that the insurer acted in bad faith in refusing to pay the claim within

60 days after receipt of the proof of loss. The Court provides no explanation for

how it concluded that the insured had shown a “substantial need” for the reserve

information. Yet, we presume it may have been persuaded to allow production of

the reserve information because in the insurer counterclaimed alleging that the pol-

icy was

void

due to fraud by plaintiff. In that instance, a substantial reserve would

reflect substantial internal conflict with that defense. We do note that the Court did

withhold from discovery, as properly privileged documents, those documents gen-

erated after appointment of coverage counsel to represent the insurer’s interest.

Great Southern Wood Preserving, Inc. v. American Home Assurance Com-

pany

, 2008 U.S. App. LEXIS 180962 (11

th

Cir. Aug. 22, 2008). The insured, Great

Southern Wood Preserving, Inc., imports lumber, treats and then distributes the

lumber. At the Port of Gulfport, to assist logistics, the insured entered into a short-

term warehouse space lease with the Mississippi Port Authority to temporarily store

large shipments of lumber prior to moving the lumber to its facilities for treatment.

The insured received large shipments of lumber at the Port of Gulfport on August

FIRM ATTORNEYS

Stay in touch, we are here to b

of service to you.

C. Michael Johnson

404-442-8836

mjohnson@thejohnsonfirm.com

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404-442-8837

ldugoniths@thejohnsonfirm.com

Thomas Wingfield

404-442-8838

twingfield@thejohnsonfirm.com

ADMINISTRATOR

Tatum Fairbank

404-442-8856

tfairbank@thejohnsonfirm.com

Firm No.: 404-442-8834

Firm Fax.: 404-442-8835

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8

th

and 25

th

of 2005. On August 29

th

Katrina hit. All lumber was deemed lost. The insurer denied coverage and Great South-

ern sued alleging bad faith denial of the claim. Great Southern contended that the language of the warehouse to warehouse

clause which reads “in transit and/or awaiting transit until delivered to the final warehouse at the destination” was ambiguous

and that the short-term lease space, being only a holding location before the intended final destination, meant the lumber was

still in transit to the final destination. The trial court disagreed finding that because the lumber was in the short-term leased

space, although used only as a holding and routing facility, it came under the insured’s dominion and control. The Eleventh

Circuit followed the Alabama District Court and held that the language was unambiguous, agreeing that “once the insured

exercised dominion and control over the cargo it no longer was in transit and coverage ceased.” The insured then argued that

at least for the second shipment of lumber, which had not yet been inspected by the USDA, Great Southern lack a right to

control its movement. This necessary and yet uncompleted USDA inspection Great Southern claimed was evidence that they

had insufficient dominion and control over the lumber so that coverage should still apply to that shipment of lumber. The

Eleventh Circuit affirmed the trial court’s ruling finding that once the lumber was in the insured’s temporary leased ware-

house space, the mere fact the USDA had not completed its inspection of the lumber “

did not annul the dominion and control

exercised by Great Southern over the goods held exclusively in its possession

” and, thus, coverage was properly denied.

Best regards,

THE JOHNSON FIRM, LLC

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