Georgia Insurance Coverage Decisions
State Auto Property and Cas. Co. v. Matty
, 2010 Ga. LEXIS 185 (Ga.
March 1, 2010):
In
Matty,
the
Georgia Supreme Court was asked to respond
to a certified question from the U.S. District Court for the Middle District of
Georgia “about how to determine the meaning of the term ‘accident’ in an
automobile liability policy when the word is not expressly defined in the pol
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icy and, more specifically, how to determine if the there has been one accident
or two when an insured vehicle strikes one claimant and then very shortly
thereafter strikes another."
The underlying claim involved a vehicle driven by the insured, which
struck a bicyclist and then struck a second bicyclist, killing the first bicyclist
and injuring the second. An accident reconstruction expert testified that the
second bicyclist was struck just over a second after the first bicyclist was
struck based on the speed the insured was driving when he hit the first claim
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ant. The insured’s policy contained a limit of liability for bodily injury of
$100,000.00 for “each accident" and provided that the limit of liability is the
“maximum limit of liability for all damages resulting from any one auto acci
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dent. This is the most [the insurer] will pay regardless of the number of: 1.
‘Insureds’; 2. Claims made; 3. Vehicles or premiums show in the Declara
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tions; or 4. Vehicles involved in the auto accident." The insurer argued that
the incident which led to the injuries of both bicyclists involved a single acci
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dent, so it was responsible for providing only a single $100,000.00 limit of
coverage. The claimants argued that there were two accidents, so State Farm
had to pay the full limits of its coverage for each of the two accidents.
The Court addressed the contentions of the claimants and identified
three theories employed around the country for construing the word “acci
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dent" when it is not defined in a policy. The Court dismissed the claimants’
attempt to define the term “accident" by looking solely to the to statutory
definitions and dictionary definitions. The claimants argued that the statutory
definition of “accident" found in O.C.G.A. §1-3-3(2)—meaning “an event
which takes place without one’s foresight or expectation or design"—and the
dictionary definition of the term “event" used in the statutory definition—“[a]
phenomenon or occurrence located at a single point in space-time" and “any
incident, good or bad," necessitated that two impacts cannot be considered
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COURT DECISIONS
Georgia Decisions
The “cause theory" used to define
accident when it is not otherwise
defined by the policy.
The Georgia Supreme Court answers
question in case involving issue of
whether multiple vehicle strikes consti
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tuted one accident or two.
Cancellation notice unequivocally
provided notice that coverage is
ending.
The Georgia Supreme Court held can
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cellation notice unequivocal and valid
even though the notice provided oppor
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tunity to avoid cancellation by payment.
Other Recent Cases Of
Interest Around the Country
The Fifth Circuit holds that a court
must determine if criminal act did
“in fact" occur for purpose of apply
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ing D&O exclusion.
Under Texas law, an insurer could not
unilaterally decide whether or not a
criminal act did “
in fact
" occur without
having expressly reserved that right
within the policy.
U.S. District Court in Texas strictly
applies eight corners rule and re
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quires insurer to defend in deadly
chemical explosion case.
Applying Texas law, the Court held that
once amended, the allegations of the
complaint were not sufficient to trigger
the pollution exclusion even though the
original complaint asserted language
that would have triggered the exclusion.
Complex Insurance Litigation
and Liability Defense
pg_0002
one “event", so there could not have been only one “accident." The Court criticized the claimants’ reasoning, stating “[s]uch
interweaving of inconsistent definitions of words defined in dictionaries with words defined in statutes is a slender reed upon
which to base a clear meaning of a contractual term." The Court also believed that the claimants argument ignored rules of
contract construction that a contract is to be interpreted as a whole and that the purpose is to ascertain the intent of the parties.
The Court reasoned that the policy at issue, viewed as a whole, clearly intended to limit coverage for liability in acci
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dents involving multiple people and multiple vehicles as the limit of liability applied regardless of the number of “Insured,"
“Claims made" or “vehicles" involved. According to the Court, because no accident involving multiple vehicles and multiple
injuries can occur at a single instance, accepting the claimants’ definition would mean that there could never be a single acci
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dent in instances involving multiple people and multiple vehicles, so the single accident limit would be a fiction. The Court
specifically rejected the claimants’ “overly narrow construction of the word ‘accident’." The Court then turned to the
“broader question—which theory for construing the term should be adopted in Georgia when ‘accident’ is not defined."
The Supreme Court of Georgia found there are three theories that have been used by courts around the country to aid in
the construction of the term “accident": (1) the “cause" theory (used by a majority of courts), (2) the “effect" theory and (3)
the “event" theory. Under the “cause" theory, courts look to the number of causes which caused the injuries to determine the
number of “accidents." If there is but one proximate, uninterrupted and continuing cause which resulted in multiple injuries,
there is but one accident. The Court explained that “effect" theory determines the number of “accidents" from the point of
view of the injured person. Therefore, each individual injury constitutes a separate “accident." Under the “event" theory, the
courts look to “the number of events that resulted in the injuries and liability in question." “If the injuries resulted from an
event, ‘unbroken with no intervening agent or operative factor,’ there is but one accident under the policy." Under the event
theory, the event is the collision, so each collision would be a single “accident."
The Georgia Supreme Court adopted the “cause" theory for use in Georgia. In doing so, it noted that it is the theory used
by a majority of jurisdictions. The Court also believed that the “cause" theory recognizes the insuring intent of the parties to
the policy at issue in the case. According to the Court, the cause theory allowed for a definition of “accident" which contem
-
plated instances where a single liability limit would be used for an incident involving multiple people and multiple vehicles.
The Court also noted its belief that the “cause" theory is more consistent with Georgia tort law than the other two theories.
Because liability insurance is designed to cover damages for the tort of the insured and because under Georgia law, liability
for a tort attaches only if the tort proximately causes the injury, defining the number of “accidents’ in terms of causes is con
-
sistent with Georgia law. In reaching its decision, the Court also noted the deficiencies in the “effect" theory, which it stated
is sometimes called the “windfall" theory. The Court stated that the theory had not been applied to automobile liability cases
and that its application would be inconsistent with ascertaining the insuring intent of the parties to the policy.
Reynolds et al. v. Infinity General Ins. Co.,
2010 Ga. LEXIS 239 (Ga. March 15, 2010):
Infinity issued a commercial
automobile insurance policy to Mr. Graham. Several months later, Mr. Graham’s son was involved in a collision, which took
the lives of his two passengers. Wrongful death and survivorship suits were filed on behalf of those passengers and their
families in Federal Court. Infinity sought to join that suit for the purpose of obtaining a declaratory judgment finding that a
“CANCELLATION NOTICE" sent to the insured a month before the accident was effective, and therefore, the policy was
not in force at the time of the collision. After the District Court granted summary judgment in favor of Infinity, the case was
appealed to the 11
th
Circuit and that Court certified the following question to the Georgia Supreme Court:
Was a notice of
cancellation, properly given after a premium was past due, ineffective because it provided an opportunity for an insured to
keep the policy in force by paying the past-due premium within the statutory 10 day period.
The appellants were arguing that
the notice provided was simply a demand for payment and it did not meet the statutory requirement for notice under Georgia
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law. The cancellation notice at issue specifically provided: “we have not received your payment... your insurance policy will
cease at 11:59 P.M. on the cancellation date mentioned above unless we receive your payment before the cancellation date."
The notice further stated that: “[i]f the premium amount listed on this notice is not received by the company before the can
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cellation date specified, your insurance will cease at 11:59 P.M. on that date."
Georgia law permits an insurer to cancel a policy for the non-payment of premiums only after timely mailing a written
notice of cancellation that complies with O.C.G.A. § 33-24-44. The notice need not be in any particular form. However, in
order to be legally sufficient, it must positively and unequivocally state that cancellation is taking place. Under Georgia law,
the statute is to be construed strictly against the insurer as it was designed to give the insurer the responsibility of doing eve
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rything within its power to make certain that the insured is placed on notice that the insurance coverage is being cancelled.
The Court found the notice in the instant case plainly stated, no less than three times, that coverage under the policy would
cease on a certain time and date; and there was nothing in the notice that was misleading or confusing. The mere fact that the
notice contained an option for the insured to avoid cancellation did not alter the clear statement to the policyholder that cov
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erage was being terminated because the premium was not timely paid. The option for payment did not create an ambiguity in
the notice. The Court also cited public policy concerns against finding the cancellation notice fatally .awed because of the
payment option to reinstate coverage, noting that it would undercut the encouragement of the retention of automobile insur
-
ance policies.
As an interesting aside, three of the Justices dissented from the majority opinion arguing that Georgia should continue to
adhere to the general rule that “a notice of cancellation is not effective as such and is really a demand for payment where it
recites that the policy will be canceled if premium is not paid by a certain date." The dissenting justices believed that the no
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tice sent by Infinity did not constitute a present, unequivocal and unconditional cancellation of the policy as required by
Georgia law.
Other Recent Cases Of Interest Around The Country
Laura Pendergest-Holt, et. al. v. Certain Underwriters at Lloyds of London, 2010 U.S. App. LEXIS 5384
(March 15,
2010):
In this insurance coverage dispute, various insureds--each faced with civil and criminal allegations claiming they en
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gaged in a massive Ponzi scheme as executives of a company--sought reimbursement of defense costs under a directors' and
officers' liability policy issued by Certain Underwriters at Lloyds of London (“Lloyds"). Lloyds agreed to reimburse the ex
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ecutives for their defense costs, reserving the right to deny coverage at any time based on the policy terms, including exclu
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sions for fraud and money laundering.
One executive eventually pled guilty and the others pled not guilty to the SEC and criminal actions. Thereafter, Lloyds
advised the executives that they would no longer provide coverage because it had determined, based on the evidence it had,
that Money Laundering as defined and excluded by the policy had occurred. The executives filed a declaratory judgment
action against Lloyds seeking a preliminary injunction requiring Lloyds to pay their defense costs until there was a final
judgment on the merits of the coverage dispute. The judge before whom the criminal trial was pending granted the execu
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tives’ request and prohibited Lloyds from withholding payment for defense costs until a trial on the merits in the criminal
case or such other time as ordered by the court. Lloyds appealed the preliminary injunction to the 5
th
Circuit.
The issues before the 5
th
Circuit were (1) whether Lloyds duties to the insureds ended when it makes an “in fact" deter
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mination concerning the conduct of the insured (subject to judicial review) or whether that determination can only be made
by the court, and (2) whether the court is permitted to examine evidence or whether it is limited to considering only the alle
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gations and the policy language in making a ruling on the defense obligation. The policy only said that the obligation for
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pg_0004
reimbursement would end once “it is determined that the alleged act or alleged acts did
in fact
occur." The terms “deter
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mined" and “
in fact
" were not defined by the Policy.
After a review of the dictionary definitions of these terms, the Court stated that taken together the definitions favored a
judicial decision maker over any other, particularly as the insurer could have unambiguously stated in the policy that it had
the unilateral right to make the decision, but it did not. An examination of the policy by the Court did reveal that certain of
the exclusions contained a requirement for a “judicial determination" or “final adjudication" in order for them to apply and,
when that language applies, courts around the country have consistently held that those terms require an adjudication in the
underlying proceeding, not the coverage action. The Court found this to be significant because it limits the insurer’s recourse
in the event of a settlement in that it cannot later seek a declaratory judgment on the issue in a separate coverage action. This
is not the case under the “
in fact
" language, as that language reserves to the insurer the right to seek a coverage determination
where there has been no final adjudication in the underlying proceeding. Applying this analysis, the Court held that the ex
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clusion was subject to an interpretation in favor of coverage and that the “
in fact
" determination “must be the result of a sepa
-
rate coverage proceeding."
The Court then turned to the question of what evidence the court could con
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sider in making the coverage determination. The executives relied on the eight
corners rule under Texas law to support their claim that only the policy and the
allegations were relevant to the court’s determination of whether the acts did “
in
fact"
occur. The Court found no cases applying the eight corners rule to a duty to
advance/reimburse defense costs such as that presented in the instant case. How
-
ever, the Court said that the policy terms themselves dictated that the underwriters
continue advancing defense costs until the “
in fact"
determination is made, so
there was no issues as to whether the eight corners rule applied. The court was
open to consider any evidence presented in the coverage action in order to make
the “
in fact
" determination. The 5th Circuit therefore affirmed the district court’s
preliminary injunction “only insofar as it provides for coverage until a court de
-
termines otherwise."
National Cas. Ins. Co. v. Orion Transport, Inc.,
2010 U.S. Dist. LEXIS
15004 (S.D. Tex. Feb. 22, 2010). Orion Transport used its trailer to haul away salt
water that allegedly contained dangerous and explosive hydrocarbons and other
explosive chemicals. The chemicals were not completely emptied after the job and
"potentially explosive residue" remained in the trailer. The decedent, a welder, was
hired to complete repairs to the trailer. While performing the requested mainte
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nance, the trailer exploded severely injuring the welder. The welder later died as a
result of his injuries. The welder’s family sued Orion and Orion sought coverage
under its commercial auto policy issued by National Casualty Insurance Company.
National refused coverage arguing that the explosion resulted from a release of the
gaseous residue and was, therefore, excluded under the Pollution Exclusion.
FIRM ATTORNEYS
Stay in touch, we are here to be
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pg_0005
The subject Pollution Exclusion excludes:
‘Bodily injury’ . . . arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration,
release or escape of ‘pollutants’ that are, or that are contained in any property that is: (1) being transported or
towed by, handled, or handled for movement into, onto or from, the covered ‘auto’; . . . [or] (3) being stored,
disposed of, treated or processed in or upon the covered ‘auto.’
The District Court cited the “eight corners" doctrine under Texas law and held that the Court was permitted to look only
to the allegations in the underlying pleadings and the language of the insurance policy without regard to the truth or falsity of
the allegations. The original complaint simply alleged “dangerous and potentially explosive residue was in the trailer, and
that the explosion occurred while [the decedent] performed the maintenance welding." National argued that based on a prior
version of the complaint it was clear the decedent was doing maintenance to address “a leak" but the amended complaint had
been artfully drafted to plead the case into coverage under the National policy. According to National, some kind of release
must be inferred from the facts. The Court disagreed, finding nothing in the amended petition that was the functional equiva
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lent of “discharge, dispersal, seepage, migration, release or escape." The Court also noted that the Pollution Exclusion did not
bar
all
claims arising from a release of a pollutant but only those claims arising from a release in the situations that were ex
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pressly enumerated in the policy. Accordingly, the Court found that National failed to carry its burden of showing that the
pollutant at issue was “transported" and/or “stored" as required by the policy. Employing the “eight corners" doctrine, the
Court held that the Pollution Exclusion did relieve National of its duty to defend where the allegations of the amended com
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plaint did not allege facts supporting a reasonable inference that the release or escape of pollutants occurred in property that
was being transported, towed, stored, disposed of, etc. Orion's motion for summary judgment was granted.
Best regards,
THE JOHNSON FIRM, LLC
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