Georgia Insurance Coverage Decisions
Nationwide Mut. Fire Ins. Co. v. Kim
, Case Nos. A08A1063,
A08A1064, A08A1065 (Ga. App. Dec. 1, 2008):
The insured,
Kim, during a karaoke dance threw an ice cream scoop across the
room and hit Yang in the face. Yang sued sued seeking punitive
damages first alleging that Kim intentionally threw the scoop and
then amended her complaint alleging negligence and recklessness
disregard constituting gross negligence. Kim claimed that the scoop
slipped and that it was all an accident.
The insurer filed a declaratory judgment action asking the court to
determine that the policy did not provide coverage for the punitive
damages sought because the policy excluded coverage for bodily
injury if
(a) caused intentionally by or at the direction of an insured,
including willful acts the result of which the insured knows
or ought to know will follow, from the insured’s conduct…"
On summary judgment the trial found that because Yang sued for
punitive damages the exclusion applied because the claimant “has
explicitly alleged that the act was intentional or at least evinced an
expectation of harm." The insurer argued in support of this reason
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ing that punitive damages cannot be imposed without a finding of
intentional or willful acts and thus the exclusion would have to apply
to any finding of punitive damages. On this reasoning, the trial court
entered summary judgment declining coverage for any award of
punitive damages.
The Georgia Court of Appeals reversed the trial court’s summary
judgment on punitive damages. In reaching its decision, the court
stated that it was bound by its decision in
Lunceford v. Peachtree
Cas. Ins. Co.
, 230 Ga. App. 4 (1997), in which the court held that an
insurer was liable for punitive damages: “Had [the insurer] wished
not to cover or to exclude punitive damages, it could have done so
clearly and specifically. It did not, and consequently it is bound by
the broad language of the policy."
Thus, the insurer overreached on two arguments. Punitive damages
are insured unless the policy unambiguously excludes coverage for
all punitive damages. Also, an award of punitive damages is not
limited to intentional or willful acts, punitive damages can be
awarded for acts re.ecting wanton disregard for the consequences.
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COURT DECISIONS
Georgia Decisions
The Georgia Court of Appeals
reaffirms policy covers punitive
damages for non-intentional acts
.
The Court held that the intentional acts
exclusion did not preclude coverage for
punitive damages as the jury could find
evidence of maliciousness or wanton
disregard for consequences
A liability policy has provides no
coverage if the insured's acts are
intentional regardless of the lack of
intent to cause bodily injury.
Georgia Court of Appeals holds the
definition of occurrence is not met if
insured intended sexual contact and
negligent misunderstanding of claim
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ant's consent to sexual acts does not
make event an occurrence.
Recent Cases Of Interest
Around the Country
Co-Insurer cannot recover propor
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tionate amount of settlement from
another co-insurer.
The Fifth Circuit, applying the rule set
forth in a recent Texas Supreme Court
case, held that an insurer could not
seek contribution from a co-insurer
through subrogation because the in
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sured no longer had any rights of con
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tribution against the other co-insurer.
A U.S. District Court declines to
apply a continuous trigger theory to
a loss involving the collapse of a
wall.
In a case before the U.S. District Court
of New Jersey, the court held that ap
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plication of the continuous trigger the
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ory should be confined to its traditional
uses in the arena of environmental pol
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lution.
Complex Insurance Litigation
and Liability Defense
pg_0002
Thus, the appellate court reversed the trial court’s entry of summary judgment, stating that even though the policy
excluded damages caused by intentional acts, “[the insurer] may be obligated to pay such an award (punitive) if the
jury finds evidence of maliciousness or wanton disregard for consequences."
Perry v. State Farm Fire and Cas. Co.
, Case No. A08A2279 (Ga. App. December 22, 2008):
In Perry, the Georgia
Court of Appeals upheld the grant of summary judgment in favor of the insurer. The court held that the insurer had
no duty to defend and indemnify the insured from claims that he deliberately caused alleged bodily injuries. [This
case is the “other side of the coin" from the
Kim
case reported on above.]
The insured sought defense and indemnity under his homeowners policy against claims that he injured a woman as a
result of what the plaintiff’s claimed was
negligent
conduct. [We note that it appears clear the plaintiffs’ claims were
strategically pled to create coverage; thus, the heart of the SJ was the whether the factual evidence could support a
negligence claim or whether no genuine issues existed that the sexual acts were intentional.]
In the underlying suit, the plaintiff alleged that the insured and his wife and another couple played board games at
the insured’s house and then decided to spend the night. The plaintiff wife went to sleep on the couch fully clothed.
The plaintiff claims she was awakened early in the morning when the homeowner insured husband was in the act
having intercourse with her and removing her clothes. The plaintiff also claimed that the insured took photographs
of her during various stages of undress. The plaintiffs claimed the defendant husband was intoxicated and he failed
to take reasonable steps to insure that plaintiff wife consented and thus injured her by his negligent conduct. In short,
plaintiffs sought to stretch the claims of negligence to cover damages for battery, invasion of privacy, loss of consor
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tium and punitive damages.
The insured husband testified in deposition that he woke up in the middle of the night and went to find the plaintiff.
He admitted that he performed oral sex on the plaintiff and began to have intercourse with her when he stopped be
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cause he did not have a condom. The insured husband claimed that not a word passed between them but he believed
that the plaintiff was willingly participating in the sexual acts. He also said he was intoxicated. [Note, while the
plaintiffs pled to set up a negligence claim, the insured defendant husband’s testimony admitted intentional sexual
contact with a woman he believed consented to the acts. Thus, the act was intentional, his construction of her state
of mind may have been in error due to negligence/intoxication.]
In upholding the grant of summary judgment, the court noted that the insurer was obligated to defend the insured
against covered claims even if the claims were eventually proved to be baseless. However, the court also stated that
the insurer had no obligation to defend the insured for uncovered claims: “An uncovered claim ‘is not groundless
within the meaning of the policy, but simply one for which liability insurance is not afforded and which the insurer
did not undertake to defend ‘though the insured may be liable.’"
The court stated that before determining whether one of the policy’s exclusions negated coverage, there must be a
prima facie showing that the claim is covered by the insuring language of the policy. The policy at issue provided
coverage for “a claim ... for damages because of bodily injury…caused by an occurrence." The policy defined “oc
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currence" as “an accident, including exposure to conditions, which results in: … bodily injury…" The court further
stated that although the policy did not define the term “accident," in the context of a liability policy “accident means
an event which takes place without one’s foresight or expectation or happening rather than one occurring through
intention or design."
The interesting part of this case is the fine line of distinction the court found between the intentional act of sexual
contact and the results of that contact which are dependent on the state of mind (consent or lack thereof) of the
claimant. The court held “occurrence" required an event which takes place without foresight, expectation or design.
Thus, it held the policy covers bodily injury caused by an accidental occurrence, or injury by accidental means but
not an accidental injury. It held an “accidental injury is an injury that is unexpected but may arise form a conscious
voluntary act." The court concluded that because the insured “intended to perform, with foresight, expectation, and
design, the specific acts which caused [the plaintiff’s] alleged bodily injuries," the damages arising out of those acts
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pg_0003
resulted from an intentional act and would not fall within the meaning of an “occurrence." The court further con
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cluded that although there was a question of whether the insured was negligent in thinking the plaintiff consented to
the sexual acts, “it did not change the deliberate character of the event causing the alleged bodily injuries", thus the
policy provided no coverage.
It will be interesting to see if this case is held up as a narrowing of the construction of “an occurrence" so that it ba
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sically renders moot the definition of bodily injury or property damage that often are defined as damages neither
intended or expected from the stand point of the insured. Those definitional limitations have little value if the act
itself (not the expectation of injury resulting from the act) must be accidental and take place without foresight, ex
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pectation, and design in order to have, in the first instance, a covered occurrence.
Recent Cases Of Interest Around The Country
Nautilus Ins. Co. v. Pacific Employers Ins. Co.
, Case No. 08-40298 (5
th
Cir. December 16, 2008):
In
Nautilus
, the
Fifth Circuit Court of Appeals, construing Texas law, held that a primary insurer could not recover the proportionate
share of a settlement paid by the insurer from a co-primary insurer even though both policies had identical
pro rata
provisions requiring the two insurers to pay a
pro rata
portion of any judgment or settlement if the coverages over
lapped with other primary insurance policies.
The plaintiff insurer and the defendant insurer both issued policies to subcontractors of the claimant and listed the
claimant as an additional insured under their respective policies. The claimant had entered into a contract with
named insured under the Nautilus policy to determine the surface and mineral estates of the properties, and the
claimant entered into a contract with the named insured under the Pacific policy to perform seismic dynamite blast
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ing.
As a result of the surveying and blasting, the claimant was sued by several homeowners for foundation defects. The
claimant filed a claim against its insurer and Nautilus and Pacific. Nautilus and the claimant’s insurer decided to
settle some of the lawsuits for $3.5 million of which Nautilus paid $1.5 million.
Pacific refused to agree to the settlement and proceeded to trial. At the conclusion of the trial, a jury ruled against
thirty of the homeowners, and the court granted summary judgment in favor of the claimant on the rest of the home
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owner’s claims. At the conclusion, Nautilus claimed that it paid more than its proportionate share because Pacific
paid nothing.
Nautilus and the claimant brought suit against Pacific in which Nautilus sought to enforce the subrogation clause in
its policy against Pacific. The clause granted Nautilus the right of subrogation against third parties upon the pay
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ment of claims under the policy. Nautilus claimed that it was entitled to seek compensation, via subrogation, for the
amount it paid in the settlement that Pacific should have paid.
In ruling against Nautilus, the Fifth Circuit relied solely on the Texas Supreme Court’s decision in
Mid-Continent
Ins. Co. v. Liberty Mut. Ins. Co.
, 236 S.W.3d 765 (Tex. 2007). According to the
Nautilus
court, the Texas Supreme
Court stated that a co-insurer does not have a right of contribution against other insurers, “nor will the payment of
the whole loss by any of them discharge the liability of the others." The
Mid-Continent
court did note that the in
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sured still has a right to enforce a contractual obligation of an insurer that does not pay and that a co-insurer seeking
reimbursement can be subrogated to that right.
The
Nautilus
court went on to note that the
Mid-Continent
court stated that when an insured has been fully indemni
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fied, the insured has no right to enforce a co-insurer’s duty to pay its pro-rata share in order to prevent double recov
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ery: once an insured is fully indemnified, it has no rights against its other insurers. The
Mid-Continent
court held “a
fully indemnified insured has no right to recover an additional pro rata portion of settlement from an insurer regard
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less of that insurer’s contribution to the settlement."
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pg_0004
Applying the law set forth in
Mid-Continent
, the Fifth Circuit stated that the claimant had no rights to enforce
against Pacific, meaning Nautilus could not stand in the shoes of the claimant and recover from Pacific.
Nautilus attempted to argue that the holding in
Mid-Continent
applied only when an insurer settled a case to “protect
its own coffers" and that the insurer in
Mid-Continent
settled the case in order to protect its excess coverage pro
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vided under another policy. The Fifth Circuit noted that the existence of an excess policy issued by a primary in
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surer did not impact the
Mid-Continent
court’s decision.
Nautilus also attempted to raise several policy implications which arise from the application of
Mid-Continent
: (1) a
co-primary insurer is less likely to settle if it cannot recover money it pays to settle, (2) a broad reading of
Mid-
Continent
will eliminate rights of subrogation and (3) eliminating the right of subrogation will lead to an unfair dis
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tribution of losses among insurers.
The
Nautilus
court dealt with these arguments by stating that the Texas Supreme Court is the final arbiter of Texas
law, and even if the claimed policy effects would occur, the Fifth Circuit is bound by Texas law. The court went on
to state that the decision in
Mid-Continent
did not eliminate subrogation. The insurer still had a right of subrogation.
The issue was that once subrogated, it had no rights to enforce. Therefore, the court was not swayed by the policy
arguments.
Langan Engineering and Environmental Services, Inc. v. Greenwich Ins. Co.,
Case No. 07-2983 (JAG), 2008
U.S. Dist. LEXIS 99341 (D.N.J. Dec. 9 2008):
In
Langan
the court refused to apply the continuous trigger theory
of occurrence to trigger coverage for a wall collapse under a CGL policy. The court also discussed New York State’s
rules with regard to late notice.
In
Langan
, the insured was hired by the owner of property in New York to perform engineering and related services
on the existing conditions of a wall and to recommend short term and long-term measures for monitoring, maintain
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ing, and repairing the wall. A large section of the wall collapsed on May 15, 2005. Portions of the falling wall dam
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aged the sidewalk and roadway below. Part of the debris also hit and damaged personal property of third parties.
The owner, as a result of the damages, sued the insured and others. The owner alleged that the insured committed
professional negligence and breached its engineering agreement. The owner also sought damages against the con
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tractor for defective construction. As a result of the underlying suit, the insured initiated an action against the con
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tractors CGL policy which named the insured as an additional insured (the “Contractor’s CGL Policy") and against
its CGL policy (the “Insured’s CGL Policy").
The contractor’s insurer moved for judgment on the pleadings that there was no coverage under the Insured’s CGL
Policy because the collapse occurred outside the effective policy period of the policy. The insured argued that the
claims in the underlying suit alleged that actual property damage occurred during the policy period and that the un
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derlying suit also alleged continuous damage during the policy period.
The court ruled that the collapse occurred outside of the policy period and rejected both of the insured’s arguments.
In reaching its conclusion, the court noted that the policy period for the Insured’s CGL Policy was in effect from
May 20, 2003 through September 1, 2004.
In rejecting the insured’s first argument that the underlying suit alleged physical damage during the policy period,
the court noted that while the underlying suit did allege that damage to the wall existed during the policy period, it
never alleged that the insured caused any of the actual property damage. The court found that the underlying suit, in
fact, alleged that the contractor was responsible for the damage. The court also noted that the insured’s complaint
against the contractor’s insurer alleged that “the property damage forming the basis of the Underlying Claims is the
Wall collapse on May 12, 2008." Based on the foregoing the court held that the actual damage occurred more than
eight months after the expiration of the Insured’s CGL Policy.
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pg_0005
The court also rejected the insured’s continuous trigger theory. The insured argued that actual damage occurred dur
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ing the policy period as well as after it expired. The insured argued that the underlying complaint alleged “property
damage, consisting of the continuous movement, deterioration, increasing cracks, and developing bulges in the wall,
was apparent when [the insured] first entered the site years before the collapse of the wall."
In reaching its holding against the insured, the court reviewed New Jersey law with regard to occurrences. Accord
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ing to the court, policies cover losses that occurred during the policy period and that when an insured has been cov
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ered by several policies over a period of time, determining when an occurrence took place is critical in determining
which insurer is liable. The court also noted that the Third Circuit determines when an occurrence happened by
when the injurious effects of the occurrence took place. The court recognized that under New Jersey law, “courts
may reasonably treat the progressive injury or damage as an occurrence within each of the years of a [CGL] policy,"
but that the Third Circuit has only applied the continuous trigger theory in limited, appropriate situations involving
environmental contamination and asbestosis exposure. The court held that it was not willing to extend the theory
beyond its traditional applications.
The court also held that the more than two year delay in notice to the contractor’s insurer was not unreasonable as a
matter of law. In reaching its holding the court reviewed New York law with regard to late notice under a liability
policy. According to the court, New York law requires compliance with the notice provisions of a policy as a condi
-
tion precedent to coverage: “While there is no precise formula to determine what constitutes timely compliance with
notice provisions, courts generally construe policy clauses requiring notice
‘as soon as practicable,’ to require notice ‘within a reasonable time after
the duty to give notice has arisen.’" The court also stated that an insured’s
failure to give notice by proof that the insured either lacked knowledge of
the occurrence or had a reasonable belief of non-liability.
The insured argued that it had a reasonable excuse for its late notice be
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cause it did not know that the owner intended to sue it or that the owner
would plead claims against it based on the allegations it pled against the
contractor. The court held that the insured put forth a colorable claim that
there was an excuse for its failure to provide prompt notice
.
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
ADMINISTRATOR
Tatum Fairbank
404-442-8856
tfairbank@thejohnsonfirm.com
Firm No.:
404-442-8834
Firm Fax.:
404-442-8835
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