Georgia Insurance Coverage Decisions

Insurance Co. of the State of Penn. v. APAC-Southeast, Inc.

, 2009 G. App.

LEXIS 478 (April 17, 2009)

. In

APAC-Southeast,

the Georgia Court of Ap

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peals affirmed a summary judgment granted by the trial court finding APAC,

a General Contractor, was an additional insured under a policy issued by the

defendant excess carrier to a Subcontractor, Costello Industries, Inc. The Sub

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contract required the Subcontractor to procure insurance on behalf of the

General Contractor.

The Subcontract provided, “All such insurance shall be written by insurers

acceptable to [the General Contractor] having minimum coverage of

$1,000,000 combined single limit, on an “occurrence" basis and not on a

“claims made" basis. All policies, except for worker’s compensation policies,

shall name [the General Contractor] as an additional insured with primary

coverage (with any other third-party coverage provided for [the General Con

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tractor] to be deemed as excess only) …."

The Subcontractor, procured The Liberty Mutual Policy providing primary

coverage up to a limit of $1 million per each “occurrence." The Liberty Mu

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tual Policy contained an omnibus additional insured endorsement including as

an additional insured “any person or organization to whom you [the Subcon

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tractor] are obligated by a written agreement to procure additional insur[ance]

coverage…" The Subcontractor also obtained the excess liability policy is

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sued by the defendant, ICSOP from the same broker. The Excess Policy pro

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vided an additional $10 million in coverage per each “occurrence," over and

above the coverage provided in the underlying insurance policies issued to the

Subcontractor, including the Liberty Mutual Policy. The Excess Policy was

silent as to coverage for additional insureds but instead contained a “follow

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ing form" provision stating “the coverage provided by this policy shall follow

the terms, definitions, conditions and exclusions of the [Liberty Mutual Pol

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icy]." The Court concluded that the definition of additional insured contained

in the Liberty Mutual Policy was thereby incorporated into and made part of

the Excess Policy.

Three people were seriously injured while driving through the construction

zone where the Subcontractor was performing its work under the Subcontract.

The injured individuals filed suit against a number of defendants, including

the General Contractor and the Subcontractor. The General Contractor de

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manded the Subcontractor indemnify and defend it from any and all cost in

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curred in the suit. Liberty Mutual acknowledged that the General Contractor

was an additional insured and agreed to undertake the General Contractor’s

defense, however the Excess Carrier did not. Ultimately, the General Contrac

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tor settled the suit without contribution from the Excess Carrier.

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COURT DECISIONS

Georgia Decisions

The Georgia Court of Appeals de

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clares party an additional insured

under follow the form provision of

excess policy.

Court construed additional insured pro

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vision in primary form as applying to

the excess policy even though the un

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derlying contract did not require excess

coverage.

The Georgia Court of Appeals reaf

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firms parties' right to cap liability

without contravening public policy.

The Georgia Court of Appeals held that

parties may contract between them

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selves for caps in liability just not com

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plete avoidance of liability.

Recent Cases Of Interest

Around the Country

The California Court of Appeals

enforces right of equitable contribu

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tion against an insurer that previ

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ously settled all claims with its in

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sured.

The Court held that the insurer's set

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tlement with its insured and the timing

thereof had no bearing on its equitable

obligation to share in the defense costs

expended by

other equally obligated

insurers.

CGL pollution exclusion unambiguously

excluded carbon monoxide dispersed

into apartment.

The 5

th

Circuit decided that the normal

emission of carbon monoxide from an

apartment furnace falls within the plain

meaning of the terms “discharge," “dis

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perse," “seep," and “release."

Complex Insurance Litigation

and Liability Defense

The General Contractor then filed the subject suit against the Excess Carrier alleging it was an additional insured under the

Excess Policy and demanding damages as a result of the Excess Carrier’s failure to settle the claim within the $10 million

policy limit and also bad faith for the Excess Carrier’s failure to defend the General Contractor. The Excess Carrier argued

that the Additional Insured Endorsement, incorporated into the Excess Policy, extended additional insurance coverage to a

non-insured “only to coverages and limits of insurance required by written agreement." Thus, because the Subcontract did not

require the Subcontractor to procure a general liability policy with limits in excess of $1 million, the Excess Carrier asserted

that the Excess Policy did not provide additional insured coverage to the General Contractor.

The Georgia Court of Appeals agreed with the Excess Carrier in that the additional insured coverage under the Excess Policy

extended “only to coverages and limits of insurance required by written agreement." The Court also agreed that the Subcon

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tract did not require coverage in excess of $1 million. However, the Court noted that the inquiry did not end there. The Court

pointed out that while the Subcontract

did not

require the Subcontractor to procure excess insurance coverage it

did

require

the Subcontractor to procure “additional insured" coverage for the General Contractor on “all policies" the Subcontractor

procured relating to the work it performed for the General Contractor.

The Court found that “all policies" included within its expansive ambit any comprehensive general liability polices providing

excess coverage that were procured by the Subcontractor. The Court rejected the Excess Carrier’s argument that “all poli

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cies" was limited to the specific types of polices that the insured was required to procure under the Subcontract. The Court

stated that to give effect to all of the contractual terms, “all policies" must be construed as greater in scope than “required

insurance" under the Subcontract.

The Excess Carrier further argued that the term “all policies" being used within the same sentence of “primary coverage"

shows the term “all polices" cannot encompass excess insurance polices. The Court also rejected this argument, finding that

the intention was to require primary coverage be exhausted before any other polices procured by the General Contractor; not

to draw a distinction between a primary and excess policy procured by the Subcontractor. The Court concluded that the Ad

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ditional Insured Endorsement in the Liberty Mutual Policy, which extended additional insured coverage “only to coverages

and limits of insurance required by written agreement," was ambiguous when considering whether it extended additional in

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sured coverage to the specific circumstance where the parties’ underlying written agreement did not require excess insurance

coverage but did require additional insured coverage for any excess policy that was procured. Following the applicable rules

of contract construction, the Court construed the policy in the light most favorable to the insured (here the General Contrac

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tor) and resolved the ambiguity in favor of extending additional insured coverage to the General Contractor under the Excess

Policy.

Precision Planning, Inc. v. Richmark Communities, Inc., 2009 Ga. App. LEXIS 526

(May 8, 2009)

:

Richmark Communi

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ties, a developer hired, Precision Planning, an architect, to design a retaining wall (among other things) in a residential devel

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opment. Paragraph D of their written contract limited the Architect’s liability as to the Developer to $50,000 or the Archi

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tect’s fee, whichever amount was greater. In paragraph E, the Developer was required to indemnify the Architect for “any

liability to a third party in excess of the $50,000/amount-of-fee limit, except for injury or loss caused by the Architect’s sole

negligence or willful misconduct."

The Developer filed suit against the Architect after a retaining wall designed by the architect failed. The Architect moved for

partial summary judgment, seeking to enforce the contractual provision limiting the Architect’s liability to $50,000. The trial

court denied the Architect’s motion, holding the limitation provision violated former O.C.G.A. §13-8-2(b) (2001) and was

therefore void against public policy. The Georgia Court of Appeals reversed, finding the Architect was entitled to partial

summary judgment.

The Court of Appeals warned that extreme caution must be used when declaring a contract void as against public policy as

parties have the right to freely contract on any terms they desire. As a general rule, a party may contract away liability to the

other party for the consequence of his own negligence without contravening public policy, except when such an agreement is

prohibited by statute. Contrary to the Developers argument, the Court noted, by its very language, former §13-8-2 applied

only to “an indemnification or hold harmless provision" and the contract between the parties did not purport to indemnify or

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hold the Architect harmless from damages but simply established a bargained-for cap on the liability of the architect to the

Developer for the Architect’s breach or negligence.

According to the Court, the purpose of former §13-8-2 was to prevent a building contractor or architect from contracting

away liability for accidents caused solely by his negligence, it was the complete avoidance of liability to third parties for sole

negligence in a building contract that the former §13-8-2 prohibited. Here paragraph E specifically excluded the Architect’s

sole negligence from the indemnity obligation of the Developer, thus the Court refused to look beyond the language of the

statute and void the indemnity obligation.

The Georgia Court of Appeals reversed the judgment of the trial court, holding the trial court erred in finding paragraphs D &

E unenforceable and the Architect’s motion for partial summary judgment should have been granted capping liability at

$50,000.

Recent Cases Of Interest Around The Country

Employers Ins. Co. of Wausau v. Pacific Employers Ins. Co.

, 2009 Cal. App. Unpub. LEXIS 3895 (May 18, 2009):

In

Em

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ployers Ins. Co.

, the California Court of Appeals held that a liability insurer who settles all claims under its insurance policies

with its insured is still liable to a co-insurer for equitable contribution for the costs incurred by the co-insurer in defending a

later suit.

The plaintiff insurer provided liability coverage to the insured for five consecutive years. The defendant insurer in the action

provided liability coverage to the insured for eight consecutive years. In December of 2000, the defendant insurer and the

insured entered into a settlement agreement, wherein the insured agreed to terminate all of the defendant insurer’s insuring

obligations in return for payment in the amount of $325,000.00.

After the settlement agreement was entered into, the insured was named as a defendant in more than 200 lawsuits claiming

bodily injury arising out of asbestos exposure. The lawsuits did not generally allege specific dates of exposure. In February,

2003, the insured filed a coverage action against the plaintiff insurer, and the plaintiff insurer filed a cross-complaint seeking

contribution from the defendant insurer for the cost of defending and indemnifying the insured from the underlying suits.

The plaintiff insurer settled the claim brought by the insured. The plaintiff insurer then moved for, and was granted, sum

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mary judgment that the defendant insurer must contribute and reimburse the plaintiff insurer of defense costs.

In affirming the trial court’s grant of summary judgment, the Court of Appeals first established that the policies issued by the

defendant insurer were implicated by the underlying suits. The court noted that under California law, courts apply a continu

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ous trigger of coverage for injuries claimed to have resulted from asbestos exposure, meaning “all comprehensive general

liability policies in effect from the first exposure to asbestos through latency and manifestation of the disease and continuing

until death are triggered."

The court then discussed equitable contribution under California law: “Equitable contribution is the right to recover from a

co-obligor." The court noted that equitable contribution is codified in the California Civil Code and that the right to equitable

contribution arises in the insurance context when two or more insurers are obligated to defend or indemnify the same loss or

claim. Insurers who shared the same level of obligation on the same risk to the same insured were subject to the doctrine:

[Equitable contribution] is the right to recover, not from the party

primarily

liable for the loss, but from a

co-obligor

who

shares

such liability with the party seeking contribution. In the insurance context, the right

to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim,

and one insurer has paid more than its share of the loss or defended the action without any participation by

the others. Where multiple insurance carriers insure the same insured and cover the same risk, each insurer

has independent standing to assert a cause of action against its coinsurers for equitable contribution when it

has undertaken the defense or indemnification of the common insured. Equitable contribution permits re

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imbursement to the insurer that paid on the loss for the excess it paid over its proportionate share of the

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obligation, on the theory that the debt it paid was

equally

and

concurrently

owed by the other insurers and

should be shared by them prorate in proportion to their respective coverage of the risk.

The court noted that California courts previously rejected a contrary rule because it would provide a windfall to the insurer

who refused to defend, hoping some other insurer will provide a defense while it declines to carry out its contractual obliga

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tions: “[A contrary rule] would actually encourage primary insurers covering the same risk to delay responding to an in

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sured’s tender of defense or request for indemnification until some other carrier accepts the tender, in the hope of subse

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quently making a more advantageous settlement with the insured."

In the context of the law of California favoring equitable contribution among insurers, the court addressed each of the defen

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dant insurers arguments. The court rejected the defendant insurer’s contention that the settlement with the insured extin

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guished any equitable contribution obligation owed to the plaintiff insurer. According to the defendant insurer, it owed no

obligation to defend and indemnify the insured from the underlying suits because it had settled all claims before the suits

were ever filed. The defendant argued that a contribution obligation cannot arise in the complete absence of any obligation to

defend or pay insurance benefits.

The court responded by stating that because the contribution is an equitable duty that arises between insurers it is not depend

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ent on the contractual relationship with the insured. The court noted that it had previously held that one insurer’s settlement

with an insured is not a bar to a separate action against that insurer by the co-insurers for equitable contribution or indemnity

because the right of contribution was not contractual. The court found that the previous settlement between the defendant

insurer and the insured did not extinguish the equitable contribution duty: “To hold otherwise would allow defendant to

avoid its share of the defense burden by separately settling with the insured."

The defendant insurer also argued that it had no equitable contribution duty because it settled with the insured before the un

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derlying lawsuits were filed. The court found that the timing of the settlement had no bearing on the defendant insurer’s con

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tribution obligations. The court reasoned, based upon previous case law, that the timing of a settlement with the insured has

no bearing on the duty of equitable contribution. The court also rejected the argument that the defendant insurer never had a

contemporaneous “equal obligation" with the plaintiff insurer. The court focused on the obligation at the time the alleged

injury arose: At the time of loss, each insurer had a potential obligation to defend and indemnity [sic] [the insured] against

claims that might arise from toxic discharge."

The defendant insurer also argued that the “other insurance" clauses in its policy and the plaintiff’s policy precluded contribu

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tion by it because it no longer had valid and collectible insurance and the clauses made clear that any allocation of insurance

obligation can be made only against other valid and collectible insurance.

In rejecting that argument, the court noted that the general purpose of other insurance clauses is to “limit an insurer’s liability

where other insurance coverage exists and to prevent multiple recovery by the insured." The court stated that contribution is

required regardless of other insurance language: “The modern trend is to require equitable contributions on a pro rata basis

from all primary insurers regardless of the type of ‘other insurance’ clause in their policies." Also, the court found that the

settlement with the insured did not render the defendant’s policy invalid or uncollectible because the clause “valid and col

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lectible" generally refers to insurance which is legally valid and is underwritten by a solvent carrier. The settlement agree

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ment did not extinguish defendant’s obligation to equitably share with plaintiff in the cost of the defense of the insured.

The court also rejected the defendant insurer’s argument that affirming the trial courts decision would subvert the strong pub

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lic policy in favor of resolving disputes by settlement. The court stated that other public policy interests and equitable con

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cerns underlying the well established rule of contribution between insurers balanced against the public policies argued by the

defendant insurer and that the defendant provided no support for its argument.

The court focused its reasoning on the distinction between contractual obligations and equitable obligations. It also relied

heavily on the strong precedent in California enforcing equitable contribution between insurers. It is important to note that

the decision was based on California law, and other jurisdictions are likely, we hope, to find that a settlement agreement be-

tween an insured and insurer that is to “terminate all coverage obligations" should extinguish any contribution obligations.

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We also note that sometime after the decision was issued, the Court ordered the decision to remain unpublished, so it will not

be citable as law in California.

Nautilus Insurance Company v. Country Oaks Apartments, Ltd.,

566 F. 3d 452 (5

th

Cir. 2009):

The insured operated an

apartment building in Texas and had purchased a CGL policy from Nautilus. At some point within the policy period, mainte

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nance workers accidently blocked a vent to the furnace that serviced many apartments, including one occupied by Kelly

Schenks, who was pregnant at the time. As a result, carbon monoxide from the burner was dispersed into the apartments in

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stead of being dispersed into the outside atmosphere.

Kelly’s baby had significant impairments after she was born which the Schenks attributed to Kelly’s exposure to the carbon

monoxide. The Schenks sued Country Oaks in Texas State Court and Country Oaks turned to Nautilus for a defense. Nauti

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lus refused to defend or indemnify Country Oaks based on the policy’s absolute pollution exclusion. A suit followed in

which the Court held that the issue involved the legal question of whether carbon monoxide was a pollutant within the mean

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ing of the policy and, if so, whether it was discharged, dispersed, released or seeped into the Schenk’s apartment.

The 5

th

Circuit recognized that in the past it had rejected the argument that a substance must generally act as an irritant or

contaminant to constitute a pollutant under the terms of the exclusion. Instead it has consistently held that the meaning of

“irritant" is plainly understood to be a “substance that produces a particular effect, not one that generally or probably causes

such effects." In this instance, the complaint alleged that Kelly Schenk was exposed to enough carbon monoxide to cause

injury to her daughter

in utero

. The Court found those allegations sufficient to meet the definition of “pollutant" as set out in

the exclusion.

The second part of the equation was the determination of whether there was a dispersal, release, discharge or seepage of the

carbon monoxide to meet the terms of the exclusion. The Court cited several sources for the definitions of these terms as they

were not defined by the Policy. “Discharge" was cited to mean “a pollutant means to emit it." “Release" was held to mean “a

pollutant means to set it free from confinement". The Complaint alleged that unusually high levels of carbon monoxide were

allowed to accumulate in Kelly’s apartment and the Court found that the only means for it to enter the apartment was for it to

first have been emitted by the furnace. It therefore held that “the normal emission of carbon monoxide from an apartment

furnace falls within the plain meaning of the terms ‘discharge,’ ‘disperse,’ ‘seep,’ and ‘release’."

Country Oaks tried to argue that the policy did not apply to contained pollutants or that the discharge or release of the pollut

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ant required a more robust event than the normal emission of carbon monoxide from a home appliance. However, the Court

stated that so long as the pollutant is emitted through one of the enumerated mechanisms and causes bodily injury, the exclu

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sion will apply to bar coverage and the mere fact that the pollutant accumulated into a contained space such as an apartment,

as opposed to into the environment, did not change the analysis.

A NEW ASSOCIATE JOINS THE JOHNSON FIRM, LLC TEAM

Monique received her J.D.,

magna cum laude

, in 2006 from Southern University Law

Center and graduated second in her law school class. During law school, Monique

served as the Executive Editor of the Southern University Law Review. She received

her B.A., with honors, from Florida State University in 2003. Mrs. Hudson comes to us

from the Tampa, FL office of Phelps Dunbar, LLP where she primarily handled com

-

plex insurance coverage and related litigation matters. Monique recently relocated to

Atlanta with her husband, Federico, who is a Funding Resource Specialist with the

Centers for Disease Control. They are the proud parents of a one-year-old daughter,

Reagan Giselle. Monique is admitted to practice in Georgia, Florida and the Federal

Court for the Middle District of Florida.

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Please join us in welcoming Monique Wright Hudson, Esq. to our firm.

We hope you had a happy and safe 4th of July!

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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