Georgia Insurance Coverage Decisions

Thornton v. Georgia Farm Bureau Mutual Insurance Company

, 2009

Ga. App. LEXIS 382, (Ga. App. March 27, 2009):

The Court of Ap

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peals in Thornton v. Georgia Farm Bureau Mutual Insurance Company

(“GFB") granted summary judgment in favor of GFB upholding a finding

that the insured did not file its suit within the one year of the date of loss

and that the insurer’s actions did not constitute a waiver of the policy’s

one-year limitation.

LaGrande Thornton’s home was destroyed by fire in February of 2006.

He immediately notified his insurer, GFB and GFB’s agent promptly

initiated an investigation. GFB’s agent noted in the file early on that the

fire was suspicious based on a prior claim. GFB provided Mr. Thornton

with several advances throughout the course of its investigation and with

each advance, Mr. Thornton signed an agreement acknowledging that the

advance was not an admission of liability and did not modify the re

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quirements of the policy. Within a week of the loss, GFB also sent a let

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ter to the insured expressly advising that he had one year from the date of

the loss within which to file a suit against the insurer.

In April of 2006, an investigator retained by GFB declared the loss to

have been incendiary in origin. At this time, GFB also rejected the in

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sured’s proof of loss as it was submitted without any supporting docu

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mentation. As a result, Thornton retained counsel. Thornton’s counsel

thereafter demanded full payment for the loss. GFB refused the demand

contending that it was still investigating the loss. In May of 2006, GFB

requested examinations under oath of Mr. Thornton and his wife. GFB

made another advance in September of 2006. However, in October of

2006, GFB denied coverage based on its determination that Thornton had

intentionally set fire to his house or caused it to burn and because Thorn

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ton misrepresented or concealed material facts regarding the loss.

Thornton filed suit against GFB in March of 2007. GFB moved for

summary judgment asserting the one year limitation period for filing suit

under the policy. The court did not agree with Thornton that GFB’s ac

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tions in its investigation of the claim constituted a waiver of the limita

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tion period. In holding in favor of GFB, the court cited to O.C.G.A. §33-

24-40 “expressly provides that an insurer does not waive any provision

of the policy merely by investigating a claim or engaging in negotiations

toward a possible settlement of the claim." Furthermore, the court cited

to Supreme Court authority which provides that an insurer’s local agent

or claims adjustor cannot, without express authority of the company,

“waive a policy provision that any action against the insure[r] must be

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COURT DECISIONS

Georgia Decisions

The Georgia Court of Appeals calls

on the State Legislature to institute

legislation that would toll the policy

suit period while a claim is investi

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gated.

Court held that actions of an insurer

and its agent adjustor did not constitute

a waiver of the policy's one year limit

from the date of loss for filing suit.

The Georgia Court of Appeals re

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jects an attempt to extend coverage

by application of the “Products-

completed operations hazard."

The Court refused to extend Completed

Ops coverage to an insured's repairs

made to his own defectively con

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structed roof based on the “owned

property" exclusion in the policy.

Recent Cases Of Interest

Around the Country

The Fifth Circuit gives a narrow

interpretation of the business risk

exclusions in a construction defect

case.

The Fifth

Circuit distinguished between

property damage to defective and non-

defective work and held that the busi

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ness risk exclusions in a CGL policy did

not relieve an insurer of its duty to de

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fend and indemnify an insured for dam

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ages to its own non-defective work.

Indemnity obligation must be

looked at separately from additional

insured obligation.

The 5

th

Circuit decides that a general

indemnity provision in an oilfield serv

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ices agreement has no impact on the

scope of the additional insured cover

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age required by the same agreement.

Complex Insurance Litigation

and Liability Defense

brought within one year of the date of loss." The court considered GFB’s agent’s actions and stated that short of the

agent committing fraud that induces the insured to delay in bringing its action against the insurer, the insured cannot rely

on the agent’s actions to establish a waiver of the policy provision. Most notably, in the conclusion of its opinion, the

court recognized that it was bound by precedent to rule as it did but it stated that “the time has come for the General As

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sembly to examine whether the limitation period for suits against an insurance company should be tolled while a claim is

being processed."

Historical Home Designs Inc. v. Central Mut. Ins. Co

.,

673 S.E.2d 315

(Ga. App. Feb. 6, 2009)

:

The dispute in

His

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torical Home Designs

(“HHD") involved a claim under a commercial general liability policy by HHD, a corporate in

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sured for losses it sustained replacing the roof on a building. HHD constructed a home in Atlanta which was completed

in May of 2002. The construction of the roof of the home was subcontracted to a third party. HHD conveyed the prop

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erty to its president/owner Ronald Ross. Although HHD no longer owned the home, it agreed to sell the home to a

buyer. Prior to the sale, a home inspector discovered that the roof of the home was defectively constructed. HHD agreed

to remove and reinstall the roof as a condition of the sale. Subsequently, Mr. Ross conveyed the property to HHD and it

sold the property to the buyer.

HHD thereafter made a claim for the cost incurred to replace the defective roof. The insurer denied the claim citing the

“own property" exclusion. The exclusion negated coverage for “ ‘property damage’ to [p]roperty you own, rent or oc

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cupy." HHD argued that the “own property" exclusion did not apply and that the “Products-completed operations haz

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ard" term of the policy extended coverage for the loss. The trial court rejected HHD’s arguments and ruled in favor of

the insurer. The Georgia Court of appeals upheld the trial court’s decision. The court addressed the “own property ex

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clusion" and agreed with HHD that the “you" in the exclusion referred only to the insured and not its president. How

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ever, the court said that the exclusion still negated coverage because the relevant inquiry was whether the insured

“owned, rented or occupied the property at the time the loss was discovered or the roof was replaced." Although HHD

sold the house to its president, it maintained an office in the home until it was sold; therefore, the court concluded that

the insured (HHD) occupied the home within the meaning of the exclusion. The court also noted that HHD owned the

property while it was being constructed.

The court also addressed the insured’s argument with regard to the “Products-completed operations hazard." The policy

contained the following definition “Products-completed operations hazard [i]ncludes all ‘bodily injury’ and ‘property

damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’…" The court

disagreed that the completed operations hazard description extended coverage to the insured. The court noted that the

term acted as an exception to certain exclusions in the policy:

For example, Section I.2.j.(6) of the Policy excludes coverage for ‘[p]roperty damage to [t]hat particular part of

any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.’

Section I.2.j. further explains, however, that this exclusion ‘does not apply to ‘property damage’ included in the

‘Products-completed operations hazard.

Because the “own property" exclusion did not have such a limitation, the “Products-completed operations hazard" did

not operate to limit it.

Recent Cases Of Interest Around The Country

Mid-Continent Cas. Co. v. JHP Development, Inc.

, Case No. 05-50796, 2009 U.S. App. LEXIS 1889 (5

th

Cir. Jan. 28,

2009)

:

The loss in

Mid-Continent

arose out of the construction of a condominium project. The owner of the project en

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tered into a contract with the insured for the construction of a four-story, wood frame structure with partial concrete and

masonry bearing walls at the first .oor/garage level, supported by a concrete slab-on-grade foundation. The structure

was to contain five units. One of the units was designated as a model unit and the remaining units were to be partially

finished so the prospective buyers could finish the units. The insured constructed the foundation and masonry walls. The

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insured finished the model unit, but the four remaining units still needed .ooring, plumbing, electrical fixtures and acti

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vation of the HVAC unit.

As a result of the insured’s failure to properly seal exterior finishes, large quantities of water penetrated the interior of the

project through various points. The water damaged materials incorporated into the building such as interior drywall,

studs, framing, electrical wiring, and wood .ooring. The damage occurred prior to the completion of the project.

The contractor refused to repair the damage and complete its work on the project, so the owner hired a contractor to

make the repairs and complete the project at a cost of $2,255,578.53. The contractor hired by the owner attributed

$438,466.77 of that amount to repairing the water damage. The insured submitted a claim to its commercial general

liability insurer for the damages claimed by the owner. The insurer denied the claim concluding that there was no “oc

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currence" or “property damage." The owner sued the insured for breach of contract, breach of warranty, negligence, and

attorneys’ fees.

The insurer filed a declaratory judgment action seeking a declaration that the insured was not entitled to coverage and the

insurer had no duty to defend. The insurer centered its argument on two of the policy’s exclusions. Exclusion j(5) ex

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cluded property damage to “[t]hat 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 op

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erations." Exclusion j(6) excluded property damage to “[t]hat particular part of any property that must be restored, re

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paired or replaced because ‘your work’ was incorrectly performed on it…[this exclusion] does not apply to ‘property

damage’ included in the ‘products-completed operations hazard.’" The trial court held that the exclusions did not negate

coverage.

The Fifth Circuit Court of Appeals upheld the decision of the trial court. The court recognized that both of the exclu

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sions cited by the insured for non-coverage are “business risk" exclusions, “common features in commercial general li

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ability insurance policies that are designed to exclude coverage for defective work performed by the insured."

The court began its analysis of exclusion j(5) by noting the use of the present tense “are performing operations." The

court saw this to mean that the exclusion only applies to damage that occurrs during the performance of construction

operations by insured. The key to the application of the exclusion was whether or not the insured was “performing op

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erations." The insured and the owner of the project argued that the insured was not performing operations because the

work had been suspended at the time the damage occurred. The insurer argued that the insured was performing opera

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tions because the projects had not been completed.

In determining the meaning of “performing operations," the court relied on the ordinary meaning of the terms and con

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cluded that it was “the active performance of work." Based on that definition, the court concluded, “The prolonged,

open-ended, and complete suspension of construction activities pending the purchase of the condominium units does not

fall within the ordinary meaning of ‘performing operations.’" Because the suspension was not a brief halt to work which

might occur at the end of a work day or during inclement whether, but rather a complete cessation of work, the court

concluded that exclusion did not negate coverage.

Exclusion j(6) negated coverage for property damage to “[t]hat particular part of any property that must be restored, re

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paired or replaced because ‘your work’ was incorrectly performed on it…[this exclusion] does not apply to ‘property

damage’ included in the ‘products-completed operations hazard.’" In arguing that exclusion j(6) negated coverage, the

insurer argued that the exclusion applied to all property damage that resulted from the insured’s deficient work. The

court rejected that analysis and held that exclusion j(6) was limited in its application to those parts of the property that

“were themselves the subject of defective work by the insured; the exclusion does not bar coverage for damage to parts

of property that were the subject of only non-defective work by the insured and were damaged as a result of defective

work by the insured." In reaching its conclusion, the court focused on the language of the exclusion referring to “that

particular part" of the property. The court found that the language “distinguish[ed] property that was itself the subject of

the defective work from other damaged property that was either the subject of non-defective work by the insured or that

was not worked on by the insured at all."

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The court concluded that there was no allegation that the insured performed defective work on the interior portions of the

project. The damage to the interior of the project was the result of deficient work on the exterior finishes and retaining

walls which were distinct component parts which were the subject of a separate construction process. Therefore, the

exclusion did not negate coverage for damage to work on the interior of the project that was part of a distinct construc

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tion process.

The decision in

Mid-Continent

is significant because the court addressed two exclusions and gave them narrow construc

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tions. The court defined and clarified that exclusion j(5) applies only while a project is under active construction. This

could have an impact if a project is damaged while construction has been suspended to the lack of financing or the failure

to obtain required permits. The court also addressed the scope of exclusion j(6) to work done by a contractor which is

not defective, but which is damaged as a result of other defective work performed by that same contractor. The court’s

interpretation points to the importance of being able to separate out the different parts of a construction project in the

event there is a loss resulting from defective work.

It is also significant to note that the Court distinguished this decision from a similar case in South Carolina where the

South Carolina court excluded coverage for all damage based on its understanding of the purpose of the business exclu

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sion, which is not to insure normal, frequent or predictable consequences of one’s own business. The court rejected the

view taken by the South Carolina Supreme Court and limited its consideration to the express terms of the policy itself.

Aubris Resources, LP v. St. Paul Fire and Marine Insurance Co.,

2009 U.S. App. LEXIS 8407

(5

th

Cir. (Tx) April

23,

2009):

In October of 2003 an explosion occurred at an oilfield owned by United Oils and Minerals (“UOM"). The

explosion injured two employees of J & R Valley Oil Services (“J&R"), the company that serviced the oilfield. UOM

and J&R had entered a services agreement that required that J&R carry commercial general maritime liability insurance

and name UOM as an additional insured. It also contained a general indemnity provision whereby UOM agreed to in

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demnify J&R for actions arising out of UOM’s own negligence. J&R’s St. Paul Fire and Marine Insurance Co. (“St.

Paul") general liability policy provided that where required by written contract a party would be included as an addi

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tional assured to that policy.

As a result of the accident and the suits filed on behalf of the injured workers, UOM sought additional insured coverage

through St. Paul. St. Paul denied coverage to UOM claiming that the scope of the indemnity obligation under the serv

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ices agreement limited the scope of the additional insured obligation of St. Paul such that UOM had no coverage for

claims arising out of its own negligence. The additional insured portion of the services agreement provided that UOM

would be an additional assured except with respect to any obligations for which United has specifically agreed to indem

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nify J&R. St. Paul argued the indemnity provision and the additional insured obligation had to be read together; UOM

disagreed, arguing that they had to be read independently. The district court agreed with St. Paul’s argument and granted

summary judgment in its favor. The Fifth Circuit thereafter reviewed the case.

Applying Texas law on the interpretation of contracts, the court recounted that if a contract provision has more than one

reasonable interpretation, the court must interpret it in favor of the insured, provided the insured’s interpretation is not

unreasonable and regardless of whether the insurer’s interpretation is more reasonable. The court examined both the

additional insured obligations under the policy and the terms of the services agreement and determined that the services

agreement expressly required the UOM be named as an additional insured. However, the court also recognized that the

additional insured provision of the services agreement specifically excepted out “any obligations for which UNITED has

specifically agreed to indemnify contractor.

UOM directed the court to Texas Supreme Court precedent which stated that the indemnity obligations and additional

insured obligations under a services agreement stand independent from each other for the purposes of determining cover

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age. UOM also argues that the indemnity contemplated by the additional insured provision concerned extra contractual

agreements to indemnify and in this case, UOM had not agreed to indemnify J&R. The Fifth Circuit agreed with both of

UOM’s arguments. The

Evanston

case issued by the Texas Supreme Court was virtually on point to the facts of the in

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stant case and the Fifth Circuit took from that case that “in determining whether there is coverage, a court looks to the

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additional insured provision itself; that indemnity is a separate, and later arising, question from coverage." The separate

indemnity provision in the agreement could not be applied to limit the additional insured obligation under the policy.

It is important to note that the court applied the rules of construction typically

applied to insurance policies when it construed the obligations under the serv

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ices agreement and it did so despite St. Paul’s objections. Applying those rules

of construction, the court said that the exclusionary language in the additional

insured provision could not reasonably be read to exclude from coverage every

incident for which UOM could possibly owe J&R indemnity. The Court re

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ferred to the use of the word “specifically" as used in the additional insured

provision and said that the use of that word can be read to indicate that UOM

agreed to forego additional insured coverage only when it made a separate con

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tractual agreement where it specifically agreed to indemnify J&R. The court

held this argument was reasonable and as such, it construed the policy obliga

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tion in favor of UOM.

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 Wingfield

404-442-8856

tatum@thejohnsonfirm.com

Firm No.:

404-442-8834

Firm Fax.:

404-442-8835

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