Georgia Insurance Coverage Decisions

Transportation Insurance Company v. Piedmont Construction Group, LLC,

2009 Ga. App. LEXIS 1308 (November 13, 2009):

The insured contractor,

Piedmont Construction Group, LLC, was hired by Middle Georgia College to

perform renovation work to one of its historic buildings. While undertaking

its work, a plumbing contractor hired by Piedmont, started a fire while solder

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ing copper pipes. The fire completely destroyed the roof and the entire sec

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ond .oor of the building as well as caused extensive damage to the rest of the

building. Piedmont turned to its insurer, Transportation Ins. Co., when it was

sued by the college for the damages to the building. Transportation refused to

defend and indemnify Piedmont and was then named as a third party defen

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dant to the suit.

Transportation adopted a very broad construction of its business risk exclu

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sions claiming that it had no obligation to defend or indemnify Piedmont be

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cause exclusions (j)(5) and (j)(6) provided that the policy does not cover ei

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ther “(5) that particular part of real property on which you or any contractors

or subcontractors working directly or indirectly on your behalf are performing

operations, if the ‘property damage’ arises out of those operations; or (6) that

particular part of any property that must be restored, repaired or replaced be

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cause ‘your work’ was incorrectly performed on it." Transportation asserted

that the phrase “that particular part of real property" referred to the entire

building because Piedmont’s renovation work involved plumbing throughout

the building.

The trial court extensively reviewed Georgia law finding coverage and

granted Piedmont bad faith damages against Transportation. Transportation

appealed ignoring the trial court’s admonishment that its arguments had been

without merit. The Court of Appeals fully embraced the trial court opinion

and held Transportation

and its counsel

liable for frivolous appeal penalties.

The Court of Appeals, in the clearest opinion yet by the Georgia appellate

courts, stated that the business risk exclusions cited by Transportation only

exclude coverage for the damage to the product or work itself, not accidental

damage that occurs to other property not being specifically worked on by the

insured. The court laid out the factors to be considered regarding the applica

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tion of the exclusions which include: (1) the type and extent of work the con

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COURT DECISIONS

HAPPY HOLIDAYS!!

From our family to yours,

may you have a safe and

relaxing holiday and a

prosperous New Year!

Georgia Decisions

Georgia Court of Appeals hammers

point that business risk exclusions

have limited application under

Georgia law in CGL policy.

Court hits insurer with bad faith dam

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ages and frivolous appeal penalties for

its denial of coverage and pursuit of

appeal.

Georgia Court of Appeals decides

denial of coverage does not waive

insured's condition precedent obli

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gations under Policy.

Court said conditions still applied but

accepted notice of loss from claimant

as satisfaction of condition precedent

under the Policy.

Other Recent Cases Of

Interest Around the Country

Alabama Supreme Court permits

contribution for shared fault.

The Court holds that where the parties

by prior agreement agree to indemnify

for the other's fault, rights of indemnity/

contribution will be enforced.

Texas rules in what may be novel

ruling nationally that duty to indem

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nify may exist even if there was no

duty to defend.

The Court said it can defer resolution of

the duty to indemnify until the facts are

proven in the underlying lawsuit.

Complex Insurance Litigation

and Liability Defense

tractor is performing at the time of the accident, and (2) the extent that the damages resulting from the accident exceeded the

contractor’s contractual duties. The Court of Appeals distilled the key question to be whether the payment of proceeds under

the policy causes the insurance company to become the guarantor of the quality of the work. If the answer is yes, the busi

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ness exclusions apply.

Applying these principles, the court read “that particular part" as meaning only the room where the plumbing work was

taking place and the actual plumbing work itself. The court went on to say that “the damage to the rest of the building clearly

resulted from an unpredictable business accident that consequently created additional work outside the original contractual

obligations." It further stated that Piedmont was not seeking coverage for the work it had already performed but rather for

damage that resulted from an accident due to its subcontractor’s negligence.

The Court of Appeals then turned to the trial court’s finding of bad faith against Transportation and again applauded the

trial court’s analysis. The trial court had held that Transportation had acted in bad faith in its failure to defend Piedmont

when it did not even consider the “obvious possibility" that there was coverage for at least some portion of the damages out

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side of the business risk exclusions. Furthermore, as regards its failure to indemnify Piedmont, the court found Transporta

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tion’s position to be frivolous and unfounded. Transportation relied on one case and ignored a significant amount of prece

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dent against it and as such, the court found that the trial court was “eminently justified" in its finding of bad faith. In one last

show of disdain for Transportation, the Court of Appeals held that Transportation’s appeal was also frivolous and awarded

Piedmont $5,000 worth of penalties which were assessed against both Transportation and its counsel. It stated that “ignoring

a trial court’s warnings regarding the lack of merit of a claim supports an assessment of frivolous appeal penalties."

Hathaway Development Co. v. American Empire Surplus Lines Ins. Co.,

2009 Ga. App. LEXIS 1321 (November 16,

2009):

General contractor, Hathaway Development Company, hired a subcontractor to do the plumbing work at three con

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struction sites. After problems arose with the plumbing at all three sites, Hathaway sued the subcontractor for negligent con

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struction and obtained a default judgment in the amount of $187,696, which it sought to collect from American Empire, the

subcontractor’s insurer. American Empire denied the claims. Hathaway sent American Empire a copy of the complaint it filed

against the subcontractor and brought an action against American Empire. American Empire denied the liability on several

grounds and the trial court granted summary judgment to American Empire holding that its insured, the subcontractor, failed

to give notice of Hathaway’s suit, that Hathaway’s claims did not arise out of a covered “occurrence," and the claims were

excluded by the policy terms. Hathaway appealed arguing American Empire waived any requirement of compliance with

conditions precedent when it denied coverage, or in the alternative that American Empire had sufficient notice of the claim,

the incidents were “occurrences" and none of the contractual exclusions applied to defeat its claim.

On appeal, the Court found that American Empire did not waive its right to require compliance with the conditions

precedent by denying the claim because Hathaway derives its rights under the policy through the insured subcontractor and is

entitled to recover only if all conditions precedent have been complied with by the subcontractor. The court then found that

American Empire did have sufficient notice of the claim as Hathaway itself had provided notice to the insurer within a month

of the occurrence. American Empire argued that it never received notice of the claim directly from its insured, the subcontrac

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tor, therefore it was not liable under the policy. The Court of Appeals disagreed. The court explained that the only purpose of

notice is to enable the insurer to inform itself properly concerning the accident, so that it may investigate the circumstances,

prepare for a defense, if necessary, or be advised whether it is prudent to settle a claim arising there from. It makes no differ

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ence who gives the notice, so long as a reasonable and timely notice is given; thus, notice directly from Hathaway as the

party claiming against the insured subcontractor was sufficient to fulfill the contractual condition of notice.

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Hathaway also argued that the trial court erred in concluding the damage was not caused by an “occurrence" defined in

the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

The Court of Appeals again agreed with Hathaway. The court noted that while construction defects constituting a breach of

contact are not covered by CGL policies, “negligently performed faulty workmanship that damages other property may con

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stitute an ‘occurrence’ under a CGL policy." Hathaway’s default judgment against the subcontractor was based on its claim of

negligence, not breach of contact. Accordingly, the trial court erred in concluding that the incidents were not “occurrences" as

provided by the policy.

The court held that Exclusion (n), excluding damage to “your work" if “such product, work, or property is withdrawn or

recalled from the market…because of a known…defect," did not apply to Hathaway’s claim as the exclusions such as Exclu

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sion (n) only applied to “products" and it declared that buildings were not “products." Likewise, the court stated that the pol

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icy’s Exclusions (j)(5) and (j)(6) did not operate to exclude coverage for Hathaway’s claims. While the Court agreed that

those exclusions would be applied differently if Hathaway was making its claim as an additional assured under the Policy,

Exclusion (j)(5) excluded damage caused to property on which the subcontractor was working, which arise out of the subcon

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tractor’s operations. Similarly, Exclusion (j)(6) excluded coverage for property that must be repaired because “your work"

was incorrectly performed on it. Georgia courts agree that an insurance policy exclusion against recovery for damages to

“your work" does not apply to claims against a subcontractor for damage to property on which the subcontractor did not

work. The court considered the application of Exclusion (j)(5) to damage that was caused while the subcontractor was work

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ing on the property and Exclusion (j)(6) to damage caused by the faulty plumbing that occurred after the subcontractor com

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pleted the plumbing and found that neither exclusion defeated Hathaway’s claims. The court, in reversing the grant of sum

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mary judgment to the insurer, based its decision on the fact that the damage claimed was not damage to that part of the prop

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erty where the subcontractor was working, i.e. the plumbing, but to the other property damaged as a result of the faulty

plumbing. This decision is in keeping with the

Transportation

decision discussed above.

Other Recent Cases Of Interest Around The Country

Holcim (US), Inc. v. The Ohio Cas. Ins. Co.,

2009 Ala. LEXIS 266 (Ala. Nov. 13, 2009):

Holcim hired Industrial Serv

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ices of Mobile (ISOM) as a general contractor to work on a project at Holcim’s manufacturing plant in Theodore, Alabama.

Holcim and ISOM entered into an indemnity agreement whereby ISOM agreed to hold harmless Holcim for liability arising

out of ISOM’s actions. The agreement further provided that ISOM would have no obligation to Holcim “to the extent" losses

are attributable to Holcim’s negligence or willful misconduct.

An ISOM employee was seriously injured when he fell through a hole at the manufacturing plant. The employee sued

Holcim alleging negligence, willfulness and wantonness, and loss of consortium. ISOM was not named in the action. Holcim

demanded ISOM defend and indemnify it in the employee’s action. ISOM refused the indemnity demand but ISOM’s general

liability carrier, First Mercury, appointed counsel to represent Holcim. ISOM’s excess insurer, Ohio Casualty, disclaimed cov

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erage for Holcim’s indemnity demand and denied Holcim’s status as an additional assured under its policy. Holcim, together

with its own excess carrier and First Mercury settled with the employee for $5 million. ISOM and its excess carrier did not

contribute any funds to the settlement.

At the same time as settlement discussions were proceeding, Ohio Casualty filed a declaratory judgment action seeking a

ruling from the court that it had no obligations toward Holcim. Holcim filed a counterclaim and brought in ISOM seeking to

recover all or a portion of the settlement monies paid. Both ISOM and Ohio Casualty moved for summary judgment. ISOM

argued that the unambiguous language of the indemnity agreement precluded indemnity for Holcim’s own negligence and that

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was all that was alleged in the Complaint. The court agreed and granted summary judgment in favor of ISOM. Ohio Casualty

traveled under the same argument, and although the court determined that Holcim was an additional assured, it agreed that the

Ohio Casualty policy did not provide coverage for Holcim’s own negligence. The case was then appealed to the Eleventh Cir

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cuit.

Holcim and ISOM argued two different interpretations of the indemnity language before the Eleventh Circuit. ISOM

stuck with its argument that the indemnity agreement did not extend to claims in

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volving any negli

gence of Holcim. Alternatively, Holcim argued that the “to the

extent" language meant that there should be an apportionment of comparative fault

between the parties. The court found both interpretations plausible resulting in the

indemnity terms being ambiguous. This raised the issue of whether Alabama law

would permit the enforcement of an indemnity provision that involved indemnity

for combined or concurrent fault. As this was an issue of first impression, the ques

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tion was certified to the Alabama Supreme Court. The Alabama Supreme Court

rephrased the question to be “whether under Alabama law, an indemnitee may en

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force an indemnification provision calling for the allocation of an obligation or

damages based on the respective fault of the indemnitee and indemnitor."

In answering the question in the affirmative, the Alabama Supreme Court jux

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tapositioned Alabama law that forbids joint tortfeasors from seeking contribution or

indemnity from each other with the fact that Alabama Courts permit the indemnifi

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cation of another for their sole negligence so long as that indemnity obligation is

unequivocally spelled out in their agreement. Therefore, the Supreme Court held

that so long as the parties unequivocally express their intention to apportion their

liability by an agreed-upon formula, the Court would allow it.

Guided by the Alabama Supreme Court’s responses to its certified questions,

the Eleventh Circuit (2009 U.S. App. LEXIS 27305) concluded that the indemnity

agreement was in fact ambiguous and subject to outside factual determination by

the jury as to which reasonable construction was intended by the parties. Thus, the

Eleventh Circuit reversed the district court’s grant of summary judgment to ISOM

and its excess carrier and remanded the case.

D.R. Horton-Texas, Ltd. v. Markel International Ins. Co., Ltd.,

2009 Tex. LEXIS 1042 (Texas Sept. 8, 2009):

Home

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owners purchased a home built by D.R. Horton-Texas, Ltd. Soon after moving in the homeowners discovered the house was

infested with mold. They claimed the mold was caused by latent defects in the chimney, roof, vent pipes, windows, window

frames, and .ashing allowing water to enter the house. The homeowners sued D.R. Horton, alleging D.R. Horton was respon

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sible for the defects and negligent attempts to repair them. Ramirez, a subcontractor, performed the masonry work on the home

as well as some of the allegedly negligent repairs. However, the homeowners only sued D.R. Horton and made no mention of

any work undertaken by Ramirez.

Ramirez was insured under a CGL policy issued by Markel International Insurance Company (“Markel") naming D.R.

Horton as an additional insured for claims arising out of Ramirez’s work. D.R. Horton sought coverage from Markel but it

refused to defend because the homeowner’s petition did not plead facts indicating that D.R. Horton’s liability arose of out

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

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Firm No.:

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Firm Fax.:

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Ramirez’s work. D.R. Horton sued Markel and Markel moved for summary judgment, arguing it had no duty to defend; and

thus, no duty to indemnify. The trial court granted summary judgment in Markel’s favor.

The court of appeals affirmed the trial court’s decision explaining that the eight-corners doctrine precluded D.R. Horton’s

claim that Markel owed it a duty to defend. Citing the Texas Supreme Court’s decision in Farmers Trx. County Mut. Ins. Co. v.

Griffin, 955 S.W.2d 81, 84 (Tex. 1997), the court of appeals held that because Markel had no duty to defend, it also had no

duty to indemnify D. R. Horton. D.R. Horton appealed the judgment on both Markel’s duty to defend and duty to indemnify to

the Texas Supreme Court. D.R. Horton argued that the court of appeals erred by not recognizing the “complaint allegation

rule" exception to the eight-corners doctrine that would allow parties to introduce extrinsic evidence relating to coverage.

Without addressing the existence or application of the “rule," the Court declined the argument as D.R. Horton failed to prop

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erly raise it in the trial court or in the court of appeals.

In considering Markel’s duty to indemnify the Texas Supreme Court first explained that the duty to defend and the duty to

indemnify are separate and distinct obligations of the insurer, with the difference being the time when the duties are deter

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mined. The Court explained that the duty to defend is determined prior to the completion of litigation, whereas the duty to

indemnify arises only once liability has been established. The Court clarified that the duty to indemnify is based on the facts

established in the underlying suit and not merely the allegations plead. The Court held that even if Markel has no duty to de

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fend D.R. Horton, it may still have a duty to indemnify D.R. Horton as an additional insured under Ramirez’s policy depend

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ing on the facts established and the terms and conditions of the CGL policy. The Court explained that its decision in Griffin

was fact specific and should not be construed so broadly as to arrive at the proposition that when a petition does not give rise

to a duty to defend, then proof of those allegations could not give rise to a duty to indemnify. The conclusion in Griffin was

grounded in the impossibility that the drive-by shooting in that case could be transformed by proof of any conceivable facts

into an auto accident covered by the insurance policy.

The Court instructed that it may be necessary to defer resolution of indemnity issues until after the underlying third-party

litigation is resolved where coverage turns on facts actually proven. The Texas Supreme Court reversed the court of appeals

on the duty to indemnify finding that D.R. Horton presented evidence in response to Markel’s summary judgment motion that

raised fact questions regarding Markel’s duty to indemnify sufficient to defeat Markel’s motion.

Best regards,

THE JOHNSON FIRM, LLC

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