Georgia Insurance Coverage Decisions

Trinity Outdoor, LLC v. Central Mut. Ins. Co.,

2009 Ga. LEXIS 280 (June

1, 2009):

A billboard owned by Trinity Outdoor, LLC (“Trinity") fell while

being installed on Trinity’s property, killing the two installers. Trinity re

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ported the accident to its insurer, Central Mutual Insurance Company (“Cen

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tral"), with whom Trinity had a $2 million general liability policy. Central

hired separate counsel for itself and Trinity. It was determined that the manu

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facturer of the billboard improperly installed a bolt on the billboard apparatus

that apparently broke before the accident. Trinity sued the manufacturer and

received a judgment in excess of $700,000. Thereafter, the installers’ family

sued the manufacturer and Trinity.

Both counsel for Trinity and Central’s counsel believed that Trinity was not

liable to the family, but Trinity’s counsel believed the family could have a

viable premises liability claim against Trinity. At court ordered mediation,

the family demanded $14 million to settle the case. The manufacturer’s in

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surer offered $10 million and Central offered $200,000 on behalf of Trinity.

At that time, the family was demanding $1.37 million from Trinity to settle its

liability. The litigation ultimately settled for $12 million with Trinity agreeing

to contribute $954,530 (the $200,000 offered by Central and $754,530 Trinity

had recovered in judgment from the manufacturer).

Central declined to pay the additional $754,530 deeming it to be a voluntary

payment by Trinity not covered under the policy. Central’s policy with Trin

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ity provided

inter alia

“Central will pay only those sums that the insured is

legally obligated to pay;" “Central has the right to defend any suit and settle

any claim;" “no insured shall make a voluntary payment without Central’s

prior consent;" “an insured may only sue to recover on an agreed settlement

or on a final judgment against an insured obtained after an actual trial;" and

“an insured may not maintain a suit against Central unless all of the terms of

the policy have been followed."

Trinity then brought suit against Central claiming Central breached the insur

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ance agreement and refused to settle with the family in bad faith. Trinity also

asserted claims for negligent failure to settle and punitive damages. The

United States District Court for the Northern District of Georgia certified two

questions to the Georgia Supreme Court: “Was a judgment entered against an

insured in excess of policy limits a prerequisite for an action for negligent or

bad faith failure to settle. If not, what did the insured have to prove and what

damages were recoverable."

The Georgia Supreme Court found Trinity’s claim against Central to be un

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tenable when applying the terms of the policy. The Court recited the policy

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COURT DECISIONS

Georgia Decisions

The Georgia Supreme Court an

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swering certified question decides

that insured could not maintain an

action for bad faith failure to settle

in absence of a jury verdict.

The Insured having settled without the

insurer's consent was found to have

made a voluntary payment and was not

entitled to reimbursement from its in

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surer.

The Georgia Court of Appeals reaf

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firms that an insurer does not waive

its right to contest coverage by

electing not to defend its insured.

In advertising injury case, court found

that consent judgment with reservation

of right to contest coverage did not re

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sult in admission of coverage by in

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surer.

Recent Cases Of Interest

Around the Country

Johnson Firm wins victory for American

Home in dispute between carriers re

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garding claim of coverage for charterer

of insured's barge.

Federal Court holds that charterer of

barge hit with $19.2 million liability

judgment for boating accident involving

multiple personal injuries has no cover

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age under barge owner's protection

and indemnity policy.

Loss attributable to faulty workmanship

is not “property damage" under a CGL

Policy.

The 4th Circuit upholds the application

of the “your work" exclusion under a

CGL policy for allegations of faulty

workmanship against a contractor for

work done by the contractor.

Complex Insurance Litigation

and Liability Defense

provisions refusing coverage for voluntary payments and stated there was no question that Trinity’s payment was voluntary.

The Court stated that a voluntary payment does not constitute a legal obligation. Trinity claimed the policy provisions were

unenforceable under

Southern Guaranty Ins. Co. v. Dowse

, 278 Ga. 674 (605 S.E.2d 27) (2004); wherein the Georgia Su

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preme Court refused to permit an insurer to invoke a “no settlement" clause in the policy. The Court noted that

Dowse

does

indicate an insurer cannot

wholly abandon

its insured and then attempt to shield itself with a “no settlement clause," but the

Court distinguished

Dowse

on the grounds that Central provided Trinity with a defense pursuant to the policy which specifi

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cally stated Trinity had no right to make a unilateral settlement or voluntary payment without Central’s permission.

In response to the certified questions, the Georgia Supreme stated that “Trinity cannot maintain an action against Central for

bad faith failure to settle the [family’s] claim in absence of a jury verdict." In light of the Court’s response to the District

Court’s first part of the question, the Court did not reach the remaining issues.

McGregor v. Columbia Nat’l Ins. Co.,

2009 Ga. App. LEXIS 717 (June 23, 2009):

McGregor, an investor, sued Eskin, a

promoter, asserting various tort claims including,

inter alia

, negligent misrepresentation, fraudulent misconduct, and false

advertising. Columbia National Insurance Company (the “CNIC") originally declined to defend the Eskin contending none of

the claims were covered under the policy. McGregor then amended the complaint adding a claim that Eskin “wrongfully

misappropriated advertising ideas and styles of doing business in his advertising." CNIC then accepted the defense of the

Insured and filed a declaratory judgment action disputing coverage for the claims. Ultimately the parties agreed to a settle

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ment, reduced to a consent judgment. McGregor recovered against Eskin and CNIC agreed to dismiss the declaratory judg

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ment action against Eskin. CNIC expressly “reserved all rights to contest coverage with respect to all counts upon which the

judgment is entered." McGregor thereafter filed an action against CNIC to satisfy the consent judgment. Both parties filed

motions for summary judgment. The trial court ruled in favor of CNIC, determining that its initial refusal to defend Eskin did

not bar CNIC from contesting coverage and the policies at issue did not provide coverage for the claims against the Insured.

The Court of Appeals determined that the trial court was permitted to address the question of whether Eskin’s liability was

covered under CNIC’s policy and doing so was not equivalent to a ruling on Eskin’s liability to McGregor (which was re

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solved in the consent judgment). The Court recognized the rule promulgated by the Georgia Supreme Court that “the duty to

defend and the duty to pay are independent obligations."

McGregor argued that CNIC admitted coverage in the consent judgment. However, the Court found that argument to be

without merit as the consent judgment specifically provided that CNIC “reserved all rights to contest coverage with respect to

all counts…" and “the parties shall not be entitled to argue that the judgment as entered or this agreement are admissions by

[the Insurer] or otherwise evidence coverage for ‘advertising injury’ as that phrase is defined in the …policies."

After determining that CNIC did not waive its coverage defenses either by initially declining to defend Eskin or by entering

into the consent judgment, the Court finally considered whether the policy provided coverage for the Claimant’s claims. The

Claimant argued that its claims against the Insured were covered as “‘advertising injury’ caused by an offense committed in

the course of advertising your goods, products[,] or services." For example, McGregor alleged that Eskin’s advertising and

promotional materials contained false representations regarding its specific employment history with well-known investment

firms. The Court concluded that Eskin did not misappropriate McGregor’s advertising ideas or style of doing business or in

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fringe on its copyright, name, or style; as such, McGregor did not have standing to assert claims on behalf of the entities who

allegedly sustained the “advertising injury." The Court went on to find that there was no coverage under the policies as there

was no causal connection between the purported advertising activity such that McGregor’s injuries were actually caused by

Eskin’s misappropriation of McGregor’s investments. The advertising materials were only tangentially connected to the in

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jury.

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Recent Cases Of Interest Around The Country

American Guarantee & Liability Ins. Co. v. American Home Assurance Company

, Case No. 3:04-cv-123 (M.D. Fla. July

6, 2009):

The Johnson Firm, LLC represented American Home Assurance Company in this case. The underlying liability

case involved a tragic boating accident between a pleasure boat and a stationary barge on the Cedar River in Jacksonville in

December of 2001 wherein 8 of the 12 passengers on the pleasure boat were ejected and/or severely injured. The barge was

owned by American Home's insured, Mobro Marine and was bareboat chartered to Superior Construction Company for it to

use in performing bridge work. The bareboat charter required that Superior name Mobro as an additional insured under Su

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perior's primary policy and that Superior indemnify and hold Mobro harmless during Superior's use of the barge. The injured

plaintiffs made demands against Superior and Mobro resulting in Superior and Mobro jointly initiating a limitation and exon

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eration action. Multiple personal injury claims were then asserted by the injured Claimants in the limitation action.

Mobro tendered the plaintiffs’ demands to Superior, and its insurer, Zurich, and demanded a defense and indemnity pursuant

to the bareboat charter. Zurich refused to accept Mobro’s tender and forced Mobro to seek a defense and indemnity from

American Home. American Home honored its obligations to Mobro, providing Mobro with a defense, while at the same time

seeking, on Mobro’s behalf, to enforce Mobro’s right to a defense and indemnity from Zurich. It took more than a year of

demands before Zurich agreed to accept Mobro’s defense.

Mediation was held on the underlying plaintiffs claims in January of 2004. Our firm worked with Mobro’s corporate counsel

to split off Mobro’s negotiations from that of Superior and then to get Zurich to pay to settle Mobro's liability to the claim

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ants. Superior’s liability was not settled at mediation and in December of 2004, Judge Schlesinger (U.S. District Court for

the Middle District of Florida), after a bench trial, ordered that Superior pay $19.2 million dollars in damages to the Claim

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ants. Superior, who had been in a coverage dispute with its primary and excess carriers, Zurich and American Guarantee,

respectively, thereafter reached a settlement with its insurers for the payment of the judgment.

In early 2004, Zurich and AGL filed a declaratory judgment against Superior, Mobro and American Home asserting that nei

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ther Zurich nor AGL had any obligation to defend or indemnify Superior or Mobro and that in fact, Superior was entitled to

coverage under American Home’s Policy. Zurich and American Guarantee sought against American Home the monies Zurich

had paid to settle Mobro's liability and claimed that Superior was an additional assured under the American Home Policy

such that they claimed they were entitled to recover the full $1.0 million limits to help satisfy the judgment they had paid.

Last month, in a decision that was two years in the making, the U.S. District Court for the Middle District of Florida in Jack

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sonville granted American Home summary judgment on all counts of the Complaint filed by Zurich and American Guarantee

as well as the Count of American Home's Counterclaim which entitles American Home to recover from Zurich the attorneys'

fees American Home paid to defend Mobro. The Court applying admiralty law expressly held that Zurich and American

Guarantee had waived their right to contest coverage for Superior under their policies based on their settlement with Superior

which resulted in the payment of the judgment. Furthermore, the Court found that American Guarantee’s suit against Supe

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rior and American Home was not ripe at the time it was filed as American Guarantee had paid no money on behalf of Supe

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rior at that time. Most significantly, the Court held that there was no coverage for Superior under Mobro’s policy as issued by

American Home and that Zurich and American Guarantee’s interpretation of an endorsement to American Home’s Protection

and Indemnity form which contained language which said it “extended coverage to Charterers" did not extend coverage to

Superior as the contracts between the parties expressed no intent for that to occur and the conditions of the endorsement had

not been met.

Breezewood of Wilmington Condominiums Homeowners’ Assoc., Inc. v. Amerisure Mut. Ins. Co.,

2009 U.S. App. LEXIS

14301 (4

th

Cir. (NC) July 1, 2009):

The Insured, a general contractor for a condominium development, was sued by the con

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dominiums’ Homeowners’ Association (the “HOA") for defects in the construction and design of the condominium buildings.

The HOA alleged the buildings required extraordinary repairs and reconstruction of common elements due to water damage.

According to the HOA, the Contractor’s failure to construct the condominium development according to contract resulted in

costs associated with bringing the project into compliance in addition to the cost of addressing the water damage to the inte-

rior caused by the Insured’s work. The general contractor’s insurer, Amerisure Mutual Insurance Company (“Amerisure"),

denied coverage on the ground that the HOA’s complaint did not allege “property damage" caused by an “occurrence."

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The Contractor and the HOA settled for $2 million and an assignment of the Con

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tractor’s rights under its Amerisure Policy. The HOA thereafter alleged in a suit

against Amerisure that Amerisure had breached its duty to defend the Contractor.

The Court recognized “that an insurer’s duty to defend is broader than its duty to

indemnify [with the former] being measured by facts alleged in the pleadings."

Applying North Carolina law, the Court ultimately concluded that the HOA’s alle

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gations did not allege “property damage" covered by the CGL policy issued by the

Insured. North Carolina law requires property allegedly damaged to have been

undamaged or uninjured at some previous point in time. There was no allegation

that the defective work had been done by a subcontractor. The Court found that

the allegations of the underlying complaint squarely alleged faulty workmanship

and damages associated with repairing the deficient construction. Such allegations,

including the cost to bring the project into compliance with the HOA’s contractual

expectations, do not constitute property damage. Regarding coverage for the “qual

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ity of the insured’s work," the Court noted, “business risks are the purposes of per

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formance bonds, not liability insurance policies."

The Court expressly noted that under North Carolina law “not only is the cost of

repair or replacement of faulty workmanship not “property damage," but neither is

damage to the insured’s own work that is “caused by" such faulty workmanship.

In this instance the HOA’s own complaint alleged that the Contractor’s faulty

workmanship caused water damage to the completed work and as such, it could not

be “property damage" under North Carolina law. The Court found that conclusion

to be consistent with a reading of the policy as a whole, which contained a “your

work" exclusion to coverage. We note that the Court did review several Fourth

Circuit cases that addressed the subcontractor exception to the “your work" exclu

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sion and found it inapplicable in this case as the work at issue had been completed

by the Contractor.

Best regards,

THE JOHNSON FIRM, LLC

FIRM ATTORNEYS

Stay in touch, we are here to be

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

Monique W. Hudson

404-442-8842

mhudson@thejohnsonfirm.com

ADMINISTRATOR

Tatum Wingfield

404-442-8856

tatum@thejohnsonfirm.com

Firm No.:

404-442-8834

Firm Fax.:

404-442-8835

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KUDOS TO MEMBERS OF

THE JOHNSON FIRM, LLC TEAM

Congratulations to Mike for his induction into the Federation of Defense

and Corporate Counsel and thanks to all of you that assisted in that

process. Mike has now accepted the role of State Representative for

the FDCC in Georgia and is also a vice chair for the Insurance Cover

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age Section of the FDCC.

Congrats also to Laurie and Thomas for being named “Rising Stars" for

2009 by Atlanta Magazine.