Georgia Insurance Coverage Decisions

Reed v. Auto-Owners Ins. Co.

,

Case No. 2008 Ga. LEXIS 746 (Ga. Sept.

22, 2008):

Mrs. Reed sued her landlord after she was sickened by carbon

monoxide poisoning allegedly caused by her landlord’s failure to properly

maintain the house. The landlord timely notified its general liability carrier

which assumed his defense in the suit filed by Mrs. Reed. Thereafter, Auto-

Owners filed a declaratory judgment action against its insured seeking a judi-

cial determination concerning the application of the pollution exclusion to the

alleged loss. The parties having agreed that the property was owned by the

insured and that Mrs. Reed’s damages resulted from the “discharge, dispersal

and/or release of carbon monoxide”, the only question that remained was

whether carbon monoxide was a pollutant under the terms of the exclusion.

The trial court found that the carbon monoxide poisoning was not excluded

by Auto-Owners’ CGL pollution exclusion. The Court of Appeals reversed

finding that there was no dispute that the carbon monoxide was a “fume and a

gaseous irritant or contaminant” and as such it was clearly a pollutant within

the policy exclusion. The Supreme Court granted certiorari to review the

Court of Appeals’ analysis. The Supreme Court thereafter affirmed and stated

that the appellate court’s analysis was sound. The Supreme Court recognized

the dissent in both the Court of Appeals and by its own justices rested on the

argument that the pollution exclusion was only meant to apply to “environ-

mental pollution” but found that nothing in the text of the exclusion supported

such a reading. The Supreme Court’s holding rejects the growing number of

decisions around the country that have followed

West American Ins. Co. v.

Tufco Flooring East, Inc

., 104 N.C. App. 312, 409 S.E. 2d 692, 698 (N.C.

App. 1991) (holding that the “historical purpose underlying the pollution ex-

clusion and operative policy terms indicate that a discharge into the environ-

ment (i.e. not within a man-made enclosure/building/structure) is necessary

for the clause to be applicable.”)

Auto-Owners Ins. Co. v. Alexander

,

Case No. 2008 Ga. App. LEXIS 973

(Ga. App. August 28, 2008):

The insured had a bad habit of making late

premium payments on her auto insurance. Premium was due on December 1,

2002, but the insured mailed the premium on December 8, 2002. That pay-

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COURT DECISIONS

Georgia Decisions

Georgia Supreme Court holds that

within home carbon monoxide poison-

ing falls within CGL pollution exclusion.

In a relatively un-noticed case, the

Georgia Supreme Court refuses to fol-

low growing trend that

interior

building

pollution damage is not excluded “

envi-

ronmental

pollution” under CGL Policy.

Everything is critical in policy cancella-

tion, including when the insurer mails

out the cancellation notice.

Carrier s late mailing of the notice of

intent to cancel the policy was sent out

after the late premium was actually

received and, therefore, was ineffective.

Recent Cases Of Interest

Around the Country

Texas Supreme Court finally affirma-

tively rejects argument that insured

may, due to prejudice suffered, claim

the right under estoppel or waiver to re-

write an insurance contract to provide

coverage where none existed.

The Court corrects Texas law on the

fundamental doctrine that even preju-

dice to the insured by an insurer under-

taking the defense of any insured will

not justify re-writing the insurance con-

tract to create coverage.

9

th

Circuit construing California law

holds that the fiood exclusion is not

ambiguous.

Excess insurer properly denied on ap-

plication of fiood exclusion after Hurri-

cane Katrina s storm surge damaged

insureds shipyards. In doing so, Court

refused to read ambiguity into excess

policy merely because primary policy

had a more developed fiood exclusion.

Complex Insurance Litigation

and Liability Def

ense

ment was not received by December 12th so the insurer kicked out a notice of intent to cancel. However, her payment was

received by December 13th the same day the insurer finally got around to mailing the notice of intent to cancel. As of the

mailing of the notice of intent to cancel for non-payment the insurer had actually already received the offending late payment.

On January 12, 2003, the insured’s son had an accident. When the insured gave notice of the accident to her insurer, she was

advised that the policy had been cancelled. Eighteen months later, her son was sued by the other driver; thereafter, he filed a

third party action against Auto-Owners arguing that his mother’s policy provided coverage for the loss.

The Court thoroughly reviewed the timing of all relevant payments and notices and stated that the insurer had the right to

issue a cancellation notice when it did not receive the first payment. However, the insurer did not timely issue that notice of

cancellation. O.C.G.A. § 33-24-44 permits an insurance company to cancel a policy for non-payment of premium after de-

livering or mailing written notice of cancellation to the insured at least ten days prior to the effective cancellation date. How-

ever, that notice is only effective if the premiums are actually due. In this case, by the time Auto-Owners was able to send

out its demand for the additional payment (stating the insured had until January 8, 2003 to pay $445.52) it had already re-

ceived Mrs. Alexander’s original late payment; therefore, it could not then issue a notice of intent to cancel for non-receipt of

the premium payment. Hence, the Court found coverage for insured.

Recent Cases Of Interest Around The Country

Ulico Casualty Co. v. Allied Pilots Association, 2008 Tex. LEXIS 769 (Tx. Aug. 29, 2008):

The Allied Pilots Association

(“APA”) had in place a claims-made insurance policy with Ulico Casualty Co. (“Ulico”). The Ulico Policy was set to expire

on August 25, 1999, but extensions of the policy period were granted on two occasions that extended the policy period

through and including October 25, 1999. While APA claimed Ulico agreed to an extended reporting period following the

expiration of the policy, Ulico denied that assertion and there was no evidence that Ulico in writing extended the expiration

date of the policy or the extended reporting period beyond October 25, 1999. On November 5, 1999, APA, through its agent,

first notified Ulico of a suit that had been filed against the APA on October 4, 1999. What turns out to be a critical factor,

APA appointed its own counsel and began defending the suit on its own immediately upon receipt of service of the suit on

October 4, 1999. Ulico did not take over the defense or direct the handling of the defense. By allowing the insured’s own

retained counsel to control the defense, this insulated the insurer from the insured’s claim of prejudice when arguing waiver

and estoppel by the insurer agreeing to pay defense costs under a reservation of rights.

A month after receiving the notice of suit, Ulico wrote to APA and advised that its claim was being reviewed and that it

would soon notify APA of its coverage decision. In March of 2000, Ulico agreed to pay for APA’s defense costs but reserved

its rights as regards any obligation to indemnify APA. APA’s own counsel continued to defend APA. In November of 2001,

Ulico filed a declaratory judgment action seeking a finding of no coverage. The trial court entered judgment in favor of APA

on a finding of waiver and estoppel and granted APA $616,468.55 in damages. The Texas Supreme Court reversed and held

that Ulico’s policy coverage was not in force when first notice of the claim was provided and that the policy could not be

expanded/rewritten to provide coverage by waiver or estoppel. The General Conditions of the policy required that any modi-

fication to the policy be in writing. No writing extended the policy period or allowed the extended reporting period to include

November 5, 1999, the date of first notice of suit. The Court found that the reservation of rights defense, even if prejudicial

to the insured, could not waive Ulico’s argument that the policy was not even in force when first notice of the suit was pro-

vided. The Court stated that “the insurer has neither a ‘right’ nor a burden to assert noncoverage of a risk or loss until the

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insured shows that the risk or loss is covered by the terms of the policy.” In this instance, the insured did not meet that bur-

den. After a review of a litany of Texas cases on waiver and estoppel, the Court did recognize, however, that an insurer’s ac-

tions can result in prejudice to the insured and where that happens estoppel may operate to avoid conditions of forfeiture but

that “estoppel does not work to create a new insurance contract that covers a risk not agreed to by the contracting parties.”

Importantly, the Texas Supreme Court distinguished the prior “Wilkinson

”

decision and rejected that decision’s finding that

coverage can be created where none existed by the insured suffering prejudice from an insurer undertaking a defense. Thus,

the Court stated:

There is no ‘right’ to noncoverage that is subject to being waived by the insurer, even by assump-

tion of the insured’s defense with knowledge of facts indicating non-coverage and without obtain-

ing a valid reservation of rights or non-waiver agreement.

Instead the Court stated that the question of prejudice and any resulting liability of the insurer should turn on whether an

insured is prejudiced as a result of the confiict which may occur in the defense provided by the carrier, an inadequate or ab-

sent disclosure, or other actions of the insurer. If such prejudice occurs, the policy is not re-written to provide coverage;

rather, the insured is merely entitled, under an estoppel theory, to seek to recover damages it can prove it sustained by the

insurer’s actions, which may be difficult to do where the policy provides no coverage and the insurer nevertheless was willing

to pay to defend the insured. The Texas Supreme Court correlated this damage analysis as being “no more subtle or difficult

to prove than other issues of damages from breach of the attorney-client or insured-insurer relationship.”

Northrop Grumman Corporation v. Factory Mutual Insurance Company

,

No.

07-56760 (9

th

Cir. Aug. 14, 2008):

The insured is a global defense contractor with

a large subsidiary headquartered in Pascagoula, Mississippi, which built ships.

Hurricane Katrina severely damaged the Insured’s operations when it struck the

Gulf Coast on August 29, 2005. The reported storm surge near the insured’s ship-

yards was as high as twenty-two feet. The excess insurer denied the insured’s claim

based on the application of the fiood exclusion. The exclusion was part of an “all

risk” policy which provided the insured with $19.8 billion of insurance in excess of

the $500 million in coverage provided by the primary policy.

In finding the fiood exclusion to be unambiguous, the court interpreted the pol-

icy according to its “ordinary and popular sense.” The court noted that lay and

legal dictionaries defined the term “fiood” “as an overfiowing or inundation of wa-

ter over usually dry land.” The court noted that other courts around the country

endorsed the dictionary meanings of the term “fiood” as “the ordinary, plain mean-

ing of the word.” Therefore, the Court found the water damage to the insured’s

shipyards “falls squarely within the ordinary and plain meaning of fiood.”

The court rejected the insured’s argument that the term “fiood” as used in the

excess policy was ambiguous when read in conjunction with the primary policy.

The insured argued that because the primary policy defined fiood to include the

phrase “whether driven by wind or not,” the exclusion of such language in the ex-

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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cess policy to define fiood showed the insurer’s intent to restrict the meaning of fiood not to include storm surges caused by

wind. In rejecting the insured’s argument, the court refused to treat the primary policy and the excess policy as a single con-

tract and looked at the language of the excess policy without reference to the primary policy. The court stated that the omis-

sion of the phrase was “more indicative of a lack of specificity on [the insurer’s] part than an omission evidencing its intent to

narrow its exclusion.” The court also recognized that the primary policy defined “Named Windstorm” and “Wind” and that

those terms were not referenced in the excess policy. Because the primary policy was an “all risk” policy, defining the terms

did not create coverage that the excess policy failed to exclude. Rather, the court found that those terms were defined to ex-

plain when the “Named Windstorm Deductible” would apply. Because the excess policy did not have a windstorm deducti-

ble, it was unnecessary for the excess policy to define or reference those terms.

Best regards,

THE JOHNSON FIRM, LLC

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