Georgia Insurance Coverage Decisions

April 2008

Turner v. Gateway Ins. Co.,

Case No. A08A0635 (Ga. App. April 18, 1008)

The court held that the coverage limitation in a transportation policy could

not be increased through the doctrine of reformation simply based on the fact

that the Federal Motor Carrier Safety Act and its regulations mandated that

the insured carry $5,000,000.00 in liability coverage where no evidence was

presented that the parties mutually intended that a $5.0 million limit be un-

derwritten. The transportation policy held by the insured only provided li-

ability coverage of up to $100,000.00 per person injured and a maximum of

$300,000.00.

In reaching its holding the Georgia Court of Appeals relied on

the fact that insurance contracts are governed by the same rules of construc-

tion applicable to other contracts. (citing

Cuyler v. Allstate Ins. Co.

, 284 Ga.

App. 409 (2007)). The Court of Appeals also noted that “reformation ‘is not

available for the purpose of making a new and different contract for the par-

ties, but is confined to establishment of the actual agreement.” (citing

Lee v.

American Central Ins. Co.

, 241 Ga. App. 650 (1999)). The court stated that

regardless of the public policy arguments that may dictate that motor carriers

must maintain a certain level of insurance, “no authority or policy requires

insurers…to provide ex post facto coverage in amount that exceed what was

actually contracted for and purchased by their insured.”

Traina Enterprises, Inc. v. Cord & Wilburn, Inc. Insurance Agency,

289

Ga. App. 833 (Feb 29, 2008). Broker’s written affirmative representations

prior to procurement and after policy issuance that renewal coverage was

same as expiring policy presents a jury question of agent’s negligence when

agent admitted to receiving written notice from insurer that renewal policy

rescinded coverage for weight of snow collapse resulting in no coverage for

occurrence. Insured had admitted not reading 400 plus page combined pack-

age policy based upon representations from agent that coverage was not

changed from expiring policy. Court of Appeals overturned trial court’s grant

of summary judgment in favor of broker as issues of fact exist as to whether

the agent was liable to insured for its negligence. (

The Johnson Firm, LLC

won this case on appeal

)

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COURT DECISIONS

Georgia Decisions

Regulatory Mandate Does Not Refor-

mation make

Without mutual intent, reformation not

allowed even if regulation requires

higher limits

Broker s Liability

Affirmative representations of duplicate

coverage on renewal, after policy issu-

ance, exposes broker to jury considera-

tion of negligence

Personal Property Value, evidence

Georgia Courts give wide latitude to

insured proving value of personal prop-

erty

Recent Cases Of Interest

Around the Country

Federal District Court of Nevada

Rain exclusion bars coverage for inte-

rior water damage of new construction

Fifth Circuit

5th predicts Mississippi burden of proof

in Katrina slab case under home

owner s property policy

Florida Supreme Court

Only insured and beneficiary can re-

cover attorneys fees in prosecution of

suit against insurer, Surety under equi-

table subrogation cannot

Texas Supreme Court,

Critical Case

Alert on insurer contribution rights

Two insurers provide liability coverage,

the one that pays majority of indemnity

settlement when other insurer refuses

pro rata share, has no contribution or

subrogated rights against recalcitrant

insurer

Kudos

Firm wins appeal reversing summary

judgment.

See,

Traina Enterprises, Inc.

decision.

Firm wins summary judg-

ment.

See,

ACE Property and Casualty

Insurance Company

decision

Complex Insurance Coverage

Litigation and Defense

Allstate Indemnity Co. v. Payton

, 289 Ga. App. 202 (Jan. 16, 2008). Court upholds twenty-year precedent permitting an in-

sured to testify as to the value of her own personal property. After a fire loss, insured submitted a claim for both their real and

personal property losses. The carrier paid for the loss of the dwelling but refused to pay amount demanded for personal prop-

erty. Trial court granted judgment for insurer based upon lack of expert testimony on the value of personal property. The

Court of Appeals reversed citing well established rule set forth by the Supreme Court of Georgia that

“Where a homeowner

or homeowner’s spouse testifies as to either the purchase price or replacement cost of household furnishings, items of per-

sonal clothing and other commonly used personal property destroyed by fire, and as to the approximate date of purchase or

acquisition of each such item, the evidence is sufficient for the jury to find the actual cash values of such common and famil-

iar property.”

Recent Cases Of Interest Around The Country

ACE Property and Casualty Insurance Company vs. Vegas VP LP

, Case No. 2:07-CV-00421-BES-PAL, Federal District

Court of Nevada (May 8, 2008). Additional insured, Vegas VP LP, owner of the high-rise Las Vegas “Metropolis Condomin-

ium,” claimed soft-cost damages resulting from rain water damage, during December 29-30, 2004 rainstorms, to interior

building finishes of the building under construction. ACE P&C brought declaratory judgment primarily to determine the ap-

plication of the rain exclusion. The owner argued that temporary water protection measures (visqueen tarping) suffered dam-

aged from the storm allowing some of the rainwater to enter. ACE P&C contended that the water entered the structure

through unfinished roofs, windows and walls having numerous openings, cracks and gaps with no cover whatsoever. As to

source, location and volume of water entering via different pathways, the parties were is sharp dispute. However, Vegas VP

LP acknowledged that it had no evidence that any damage occurred from the rainstorm to any part of the permanent exterior

building elements (the designed roof, windows or walls), which created an opening through which any rain entered. Both

parties brought motions for summary judgment on the applicability of the rain exclusion. ACE P&C won summary judgment

against Vegas VP LP when the Court ruled that all claims were barred by the rain exclusion.

The Court stated that:

Exclusion S is broad and unambiguous. It excludes coverage for all damage caused by rain entering the Building

unless the “roof, windows, or walls” “first sustain []” windstorm or hail damage through which rain enters. . .

. Though the terms are not defined in the policy, they are not ambiguous. The plain and ordinary meaning of

“roof” describes a permanent structure that covers a building. Likewise, the plain and ordinary meaning of

“window” and “wall” connotes a permanent partition or window fitting designed to bear the load of a roof and

the force of the elements.

. . .

Visqueen tarps, however, do not constitute “roof, windows, or walls” within the meaning of the Policy.

. . .

. . . Here, again, this reading of the Policy is consistent with the decision a builder undertakes as to whether to

begin work on the interior before completing the permanent exterior.

The Court’s decision respected the purpose of the exclusion. If a contractor wishes to take the business risk, to accelerate the

schedule, by beginning the interior finishes prior to constructing a weather tight exterior with the designed buildings ele-

ments, that is a decision the contractor can make at its peril, it is not a risk the insurer must accept and the rain exclusion pro-

tects the insurer from that unwanted risk. This is an important decision and will have national recognition as the first such

ruling applying the rain exclusion to exclude coverage for rainwater damage to the interior of a new building during construc-

tion. Other cases finding the application of the rain exclusion to bar coverage have dealt with renovation of existing build-

ings or new buildings being constructed that are incorporated into existing structures. (

The Johnson Firm, LLC won this case

on summary judgment

)

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Broussard v. State Farm Fire and Casualty Co.

, 2008 U.S. App. LEXIS 7419 (5

th

Cir. April 7, 2008). Fifth Circuit examines

Mississippi law on burdens of proof when all that’s left from Katrina is a building’s concrete slab. Insured claimed that his

house was destroyed by tornadic winds

before

the storm surge. The insured’s policy included two types of coverage; “named

peril” coverage for personal property and “open peril” coverage for the dwelling. The policy also contained an Anti-

Concurrent Cause provision. State Farm denied the insured’s claim on the grounds that the storm surge was the cause of the

damage to the dwelling. Insured filed suit for breach of contract and bad faith. The trial court granted judgment as a matter

of law against the insurer on the dwelling claim because the trial court found “there was no sound evidence upon which a

finder of fact could rationally determine that [State Farm] had met its burden of proof.” The 5

th

Circuit found that under

“Mississippi law a plaintiff has the burden of proving a right to recover under the insurance policy sued on and this basic

burden never shifts from the plaintiff.” However, in reaching its ruling, the 5

th

Circuit stated it rejected State Farm’s argu-

ment that once it established a policy exclusion applied, the burden would shift back to the insured to prove either an excep-

tion to the exclusion or to segregate out non-covered damages. Here, the insurer clearly presented evidence supporting cause

of some degree of dwelling damage by storm surge. Upon that evidence, and without discussing the application of the Anti-

Concurrent Cause language to the exclusion, the Court held that “the ultimate allocation of wind and water damages under

the Broussards’ dwelling coverage is a question of fact for a jury.” In overturning the District Court’s summary judgment

decision for the insured, the 5

th

Circuit also noted that the evidence did not support a punitive damage claim as State Farm

had a reasonable basis to deny the insured’s claim.

Importantly

, for a contrary ruling on shifting burden of proof under Mis-

sissippi law

see

,

Legacy Condominiums, Inc. v. Landmark American Insurance Co.

, 2008 U.S. Dist. LEXIS 655 (S.D. Miss.

Jan. 4, 2008) (Court held burden shifted back to insured to prove the exception to rain exclusion under a property policy

where evidence of rain water damage to building interior was shown).

Continental Casualty Co. v. Ryan Inc. Eastern,

974 So. 2d 368 (Florida Supreme Court, Jan. 24, 2008). Equitable subroga-

tion right held insufficient basis for surety to recover from the insured’s liability carrier under Fla. Stat. §627.428 appellate

attorney’s fees it had expended in successful appeal against insurer. Ryan, a contractor hired to construct a golf course, was

sued by the property owner as a result of damages resulting from contaminated grass supplied by Ryan’s subcontractor. After

liability carrier denied coverage, Ryan’s surety paid $4.7 million in claims, fees and expenses to resolve the dispute. In cov-

erage litigation between surety and liability insurer, liability insurer won at trial court but on appeal was reversed sending

case back down for trial. Surety thereafter sought to recover its appellate attorney’s fees from Ryan’s liability carriers for

successful appeal under section 627.428. However, the Florida Supreme Court reviewing its prior opinions reaffirmed that

“only the named or omnibus insured, the insured’s estate, named beneficiaries, and third parties who claim policy coverage

through an assignment are entitled to an award of fees under section 627.428.” Thus, the equitable subrogation rights

claimed by the surety were insufficient to permit recovery of appellate attorney fees under section 627.428. To recover under

section 627.428, the surety would have to have taken a written assignment of the insured’s rights under the liability policy.

Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co.

, 236 S.W.3d 765 (Tx. 2007).

Critical Case on Insurer Con-

tribution Rights which will be considered by Court’s around the country.

In a significant clarification of an insurer’s rights of

contribution under Texas law, the Texas Supreme Court refused to allow a co-primary insurer to recover against another pri-

mary carrier a pro rata share of settlement monies paid holding that

no rights of contribution or subrogation existed

after the

insured was fully defended and indemnified. After negotiating a settlement of an underlying auto accident claim for $1.5

million, Liberty Mutual sought contribution from a co-primary insurer (Mid-Continent) for its pro rata share of the settle-

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ment. Mid-Continent, having only valued the case at $300,000, refused to contrib-

ute more than $150,000 to the settlement. Liberty Mutual paid the remaining $1.35

million to obtain settlement protecting the interest of the insured, and, in doing so,

stated it was reserving its rights to recover the from Mid-Continent its pro rata

share obligation. Mid-Continent at all times stated it did not agree it owed any fur-

ther monies on the claim. Litigation ensued in the Texas District Court which was

then appealed to the Fifth Circuit. The Fifth Circuit ultimately certified the ques-

tion to the Texas Supreme Court as to whether, under the facts of the case, contribu-

tion between co-primary insurers was permitted under Texas law.

The Texas Supreme Court analyzed Liberty Mutual’s arguments for right of recov-

ery under both the rules of contribution and those of equitable and contractual sub-

rogation, and held that Liberty Mutual made a voluntary payment of Mid-

Continent’s share and that Liberty Mutual was not entitled to reimbursement be-

cause there is no direct contractual duty of reimbursement between these co-

primary insurers, and because the insured

(who was fully defended and indemnified

by the settlement)

had no rights against Mid-Continent to which Liberty Mutual

may be subrogated. As regards the common law

Stowers

duty that an insurer will

be liable if it fails to act in good faith in settlement of covered claims, the Court

found that it did not apply because the settlement demand exceeded Mid-

Continent’s limits and because it did not wish to expand the

Stowers

doctrine to

essentially provide some manner of subrogation remedy between insurers. Thus, where multiple insurers are involved in

coverage disputes concerning allocation of liability under Texas law, the

Mid-Continent Insurance Co. v. Liberty Mutual In-

surance Co., c

ase must be closely considered

.

We expect this decision will result in declaratory judgment proceedings being

filed against co-insurers during the pendency of the underlying case well before final settlement or payment of any judgment.

Best regards,

THE JOHNSON FIRM, LLC

FIRM ATTORNEYS

Stay in touch, we are here to b

of service to you.

C. Michael Johnson

404-442-8836

mjohnson@thejohnsonfirm.com

Laurie Dugoniths

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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