Georgia Insurance Coverage Decisions

Werner Enterprises, Inc. et al. v. Stanton et al., 2010 Ga. App. LEXIS 21

(January 13, 2010):

Following a motorcycle accident involving a freight

truck, Plaintiffs filed a suit against Werner, its insurer Liberty Mutual and the

driver of the truck. Liberty Mutual’s policy was an “excess policy" providing

$4 million of coverage in excess of Werner’s $1 million in self-insurance.

Liberty Mutual moved for summary judgment arguing that the plaintiffs could

not bring a direct action against it under former OCGA § 46-7-12.1 because

Liberty Mutual was an excess insurer and not a primary liability insurer. The

trial court denied Liberty Mutual’s motion, holding that the code did not ex

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clude excess carriers. The Court of Appeals reversed.

The court relied on an earlier decision wherein it concluded that an excess

policy is not subject to suit under the direct action statute. See

Jackson v.

Sluder

, 569 S.E.2d 893 (Ga. App. 2002). Because the earlier version of

OCGA § 46-7-12.1 contained nearly identical language to provision at bar,

the Court of Appeals found that its earlier decision was applicable. The Court

of Appeals specifically rejected the argument that Warner’s self-insurance and

the absence of any primary insurer some how distinguished its earlier deci

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sion. The court noted that the direct action statute specifically permitted self-

insurance, putting self-insurance on “equal footing" with primary insurance.

Moreover, the Court recognized that excess insurance is not even collectible

until the primary policy is exhausted. Accordingly, the excess insurance

could not be collected until the $1 million self-insurance limit was exhausted.

Since nothing in the direct action statute authorized suit against an excess

insurer, the plaintiffs suing for motor carrier liability were not permitted to

file a direct action suit against Liberty Mutual. Accordingly, the Court of Ap

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peals reversed the trial court’s denial of Liberty Mutual’s motion for summary

judgment.

Other Recent Cases Of Interest Around The

Country

Trinity Universal Ins. Co. v. Emplrs Mut. Cas. Co., 2010 U.S. App. LEXIS 77

(January 4, 2010):

In May of 2008 we issued a Case Update following the

Southern District of Texas’ release of its opinion in

Mid-Continent Ins. Co. v.

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COURT DECISIONS

Georgia Decisions

No direct motor carrier liability ac

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tions against excess insurers in

Georgia.

Georgia Court of Appeals strictly con

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strues O.C.G.A. §46-7-12.1 as preclud

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ing direct actions against excess in

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surer over $1.0 million self-insurance.

Other Recent Cases Of

Interest Around the Country

The Eighth Circuit Court of Appeals

upholds finding that “street creep" is

excluded under property policy.

Applying Nebraska law, Court decided

that policy excluded damages resulting

from faulty workmanship regardless of

whether it occurred on or off the insured

premises.

The Fifth Circuit refuses to extend

Mid-Continent ruling to include a

prohibition against contribution for

defense costs.

Applying Texas law, the Court held that

an insurer paying more than its propor

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tionate share of defense cost can re

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cover the excess from a non-paying co-

insurer.

Louisiana Federal District Court

ultimately construes ambiguity in

favor of the insurer.

The Court applying New York law

looked to extrinsic evidence and found

that the actual intent of the parties sup

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ported a finding of no coverage.

Complex Insurance Litigation

and Liability Defense

Liberty Mutual Ins. Co.,

236 S.W.3d 765 (Tx. 2007). In that opinion, the court found that an insurer’s claim for contribution

and subrogation for settlement monies and defense costs against a non-participating co-insurer were without legal merit. The

court reasoned that the insured had been made whole once the case was settled so there were no subrogation rights for the con

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tributing insurer to pursue. That finding had been based on the Mid-Continent opinion issued by the Texas Supreme Court

back in May of 2008.

In

Trinity

, the insured was a masonry contractor that was engaged in the design, construction and renovation of a hospital

in Texas. The hospital sued the masonry contractor alleging that it was responsible for property damage caused during the im

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provement of the hospital. The masonry contractor tendered the defense to its four insurers. The Appellant insurers agreed to

defend the masonry contractor; however EMC, the Appellee, denied that it had a duty to defend the suit under its policy and

refused to participate in, or contribute to, the defense. All four policies had identical pro-rata “other insurance" clauses. While

the liability case was pending, the three defending insurers filed for declaratory relief against the fourth carrier, asserting con

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tribution and subrogation, based on EMC’s failure to pay its pro-rata share of the defense costs. The trial court citing Mid-

Continent stated the insurers paying the defense costs under reservation of rights had no right to contribution via their “other

insurance" terms finding that a “co-insurer that pays more than its pro-rata share under the ‘other insurance’ clause does so

voluntarily".

On appeal, the 5

th

Circuit first affirmed the district court’s holding that the allegations against the masonry contractor fell

within the scope of the EMC policy, therefore EMC had wrongfully denied its duty to defend. Then, the court considered

whether the insurers that contributed to the defense of the masonry contractor were entitled to reimbursement from EMC for

its failure to participate in the defense. The court found that the appeal presented an issue of first impression, distinguishable

from the issue in

Mid-Continent.

The court explained that

Mid-Continent

concerned the right of contribution or subrogation

against a non-paying co-insurer to recover money paid to

indemnify

a common insured. Essentially, the

Mid-Continent

holding

was that a contributing insurer did not have a right of subrogation because the insured was fully indemnified upon any in

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surer’s payment of the settlement amount. Further,

Mid-Continent

held that there was no right of contribution because the pro

rata “other insurance" clause of each insurer’s policy rendered each insurer’s duty to indemnify “several and independent."

However, the 5

th

Circuit determined that the

Mid-Continent

decision was not binding when it came to an insurer’s duty to

de

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fend

.

The court recognized that each of the insurers had a complete duty to defend the masonry contractor, thereby satisfying

the “common obligation" requirement for a contribution claim under Texas law. Under Texas law, the duty to defend creates “a

debt which is equally and concurrently due by" by all insurers. The 5

th

circuit found that unlike the pro rata “other insurance"

clause applying to an insurer’s duty to indemnify, the insurance contract obligates the insurer to completely defend its insured,

not to provide a pro rata defense. Because EMC did not participate or contribute in the masonry contractor’s defense, the other

insurers made a compulsory payment of more than their fair share of their common obligation to defend their insured--thereby

satisfying the requirements of a contribution claim. Thus, the participating insurers were entitled to recover from EMC a one-

fourth of the portion of the cost of defending the masonry contractor. The 5

th

Circuit’s decision marks a recognition that ex

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panding

Mid-Continent’s

questionable rationale to defense obligations would inevitably result in dragging the insureds through

costly coverage and contribution litigation by the insurers seeking to avoid being saddled with a disproportionate share of de

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fense costs when obstinate co-insurers refuse to defend. While more needs to be done to reverse the overall effect of

Mid-

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Continent

, this is a step in the right direction to bring order among co-insurers of a

common liability.

Wurtele v. Cincinnati Ins. Co.

, Case No. 09-1443, 2010 U.S. App. Lexis 385

(8

th

Cir. 2010):

The U.S. Court of Appeals for the Eighth Circuit upheld the U.S.

District Court for the District of Nebraska’s grant of summary judgment in favor of

the insurer. The Eighth Circuit held that the district court correctly concluded that

the policy at issue excluded the claimed damage to the insured’s home.

The case arose out of a claim Mr. and Mrs. Wurtele made under their home

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owner’s policy issued by Cincinnati Insurance Co. (“Cincinnati") for structural

damage to their home caused by “street creep," which the Wurtele’s defined as “the

lateral movement of rigid pavement resulting from the normal shrinking and expan

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sion of the pavement…" Cincinnati denied the claim based on the application of

two exclusions.

The homeowner’s policy provided coverage for the Wurtele’s dwelling on the

scheduled property but it did not provide coverage to the land, “including the land

on which the dwelling is located." The policy also had two exclusions which Cin

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cinnati relied on in denying the claim. One exclusion negated coverage for loss

caused by “settling, shrinking, bulging or expansion, including resultant cracking of

pavements, patios, foundations, walls, .oors, roofs or ceilings." The other exclu

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sion negated coverage for loss caused by “[f]aulty, inadequate, or defec

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tive…[d]esign, specifications, workmanship, repair, construction, renovation, re

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modeling, grading, compaction…[m]aterials used in repair, construction, renovation

or remodeling."

The Wurteles argued that the shrinking and expanding of pavement in the mu

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nicipal street adjoining their property, which was not part of their property, caused the

damage to their property. They also argued that the faulty workmanship which led to the damage was on the expansion joints

between the driveway and the street, again not arising out their insured property. Because the conditions which led to the

damage were originating within the Wurteles’ property and the Wurteles diligence could not have prevented the damage, the y

argued the exclusions should not apply. The Wurteles contended that the insuring and exclusionary terms of their policy

should only apply to their insured property, i.e. shrinking of insured property or faulty workmanship of insured property. The

Wurteles likened the cause of the loss to that of a neighbor’s tree falling on the house. Cincinnati argued that both the exclu

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sions applied because as the exclusions were stated, it did not matter where the shrinking and expanding or the faulty work

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manship originated. According to Cincinnati, the controlling factor was that the ultimate cause of the damage was an excluded

cause of loss.

In reaching its decision, the district court relied on Nebraska law and principles of contract construction. Under Nebraska

law, courts construe policies as any other contract in order to give effect to the parties’ intentions at the time of writing. When

terms of a contract are clear, courts accord them their plain and ordinary meaning. A contract is ambiguous when a word,

phrase, or provision is susceptible of at least two reasonable but con.icting interpretations, but an ambiguity will not be read

into a policy which is plain and unambiguous in order to construe it against the insurer.

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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Applying the foregoing principles of contract construction, the district court found that the policy explicitly excluded cov

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erage for loss caused by the shrinking or expansion of pavement and that it unambiguously excluded coverage for loss caused

by defective workmanship. Because the clear and explicit exclusions were not written to state they were limited to causes of

loss originating in insured property, the court found that whether the damage was caused by the failure of the Wurteles’ drive

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way to expand into the street or the encroachment of the street into their property made no difference under the terms of the

policy. The court found that the policy’s exclusionary language included defective workmanship of property off the insured

premises, so any faulty workmanship, regardless of its source or location of origin, that caused damage to the dwelling was

excluded by the policy. We anticipate in other jurisdictions, the “reasonable expectations of the insured" argument may be

urged and other courts might reach a different result. However, in jurisdictions that do not seek by judicial construction to

revise the plain wording of the policy, this decision will be followed.

Jefferson Block 24 Oil & Gas, LLC v. Aspen Insurance UK Ltd.,

Case No. 08-cv-4792-JCZ-SS (E.D. La. Jan. 29,

2010):

This case involved a coverage dispute under a $10 million Oil Pollution Act (“OPA") insurance policy which covered

Jefferson Block’s offshore facilities. The dispute was triggered by a leak in a 16-inch pipeline located in the Gulf of Mexico

in 2007 and the resulting claim for $3 million in clean-up costs incurred by Jefferson Block. The coverage issue centered

around whether the policy provided coverage for the 16-inch pipeline. Jefferson Block, along with BlueRock Energy Capital,

Ltd., had acquired ownership of the 16-inch pipeline from Sterling Exploration & Production Co. Although BlueRock shared

50% ownership interest in the company, Jefferson Block exclusively controlled the operations.

Federal law, under the OPA, specifically requires that the “responsible party" of a facility that could have a worst-case oil

spill in excess of 1,000 barrels “maintain evidence of financial responsibility in the amount of $10,000,000." That financial

responsibility can be established by evidence of insurance. There is no dispute that Aspen’s OPA policy as issued to Jefferson

Block was in effect at the time of the loss and that the insurer was timely notified of the claim. The policy was endorsed to

require that New York law apply to any disputes involving coverage.

The insured argued that the policy unambiguously provides coverage for all of Jefferson Blocks “facilities", including the

pipeline at issue. The policy specifically incorporates the OPA (33 U.S.C. § 2701, et seq.), including its definitions. While the

underwriters did not dispute that the pipeline is a “facility" as defined under the OPA, they do dispute whether this facility was

one described in “Item 10 of the Declarations" of the policy as required under the insuring term of the policy. The referenced

“Item 10 of the Declarations" simply stated “Schedule of Offshore Area(s) and Facilities thereon: (See attached form MMS-

1021)." The form is one created by the Minerals Management Service, a branch of the Department of the Interior and is re

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quired by the OPA. The form theoretically identifies the applicant’s “Covered Offshore Facilities" (“COF"). The COF’s in

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volve only those facilities which have a worst-case oil spill potential in excess of 1,000 barrels. OPA only requires the evi

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dence of insurance for those facilities. The MMS-1021 is a companion to form MMS-1019. MMS-1019 allows the applicant

to check either “general" which means that the applicant is insuring all of its facilities or to select “schedule" which means it is

insuring only the specifically identified portions of its facilities. It is the selection of “schedule" on the MMS-1019 that trig

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gers the requirement to fill out MMS-1021. The court carefully examined those facilities listed on the MMS-1021 and found

that the form coupled with the Policy language created an ambiguity with regard to what was covered under the Policy.

Under New York law, if it is determined that a provision of an insurance policy is capable of two different meanings, such

that it is ambiguous, the court is to examine extrinsic evidence to determine the parties’ intent. If after an examination of the

extrinsic evidence, the court is unable to determine the parties’ intent, the policy will be interpreted in favor of coverage. Ap

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plying New York’s rule of policy interpretation to the instant case, the court first said that both parties agreed to the incorpora

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tion of the MMS-1021 into the policy and, as such, it was appropriate for it to consider the related federal regulations to inter

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pret that form. The regulations demonstrated that Jefferson Block may have had an obligation to list this particular pipeline on

its MMS-1021 but that the regulations were not clear on that point. However, evidence came out with regard to the clear in

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tention on behalf of Jefferson Block to limit the identification of its facilities on the MMS-1021 in an effort to avoid being

charged more insurance premium. Jefferson Block had obtained expert support to ensure it properly complied with the regula

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tions and because of that Jefferson Block knew that it would not be able lump this particular pipeline in with its other facilities.

Although there were ambiguities in this case, the court refused to apply the “reasonable expectations" doctrine and find in

favor of coverage without also considering that in this instance the insured had completed the application and it chose not to

identify the pipeline in its MMS-1021 form. Moreover, because it made that choice, the insured could not have reasonably

expected that it was going to be insured for that pipeline. The primary purpose of the policy was to ensure OPA compliance as

required by federal law. The policy was not intended to cover all of Jefferson Block’s facilities and nothing in the record re

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.ected any attempt by Jefferson Block to negotiate coverage beyond that requirement. Therefore, based on the extrinsic evi

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dence, the court held that there was no coverage in this instance.

Best regards,

THE JOHNSON FIRM, LLC

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