Georgia Insurance Coverage Decisions
Boatright et al. v. Old Dominion Ins. Co.,
2010 Ga. App. LEXIS 462
(May 17, 2010)
:
Mr. Boatright was injured while working on a construction
site. He brought a personal injury action against various defendants, including
Johnson’s Kan Do Construction, Inc. (“Kan Do"). Kan Do was insured by
Old Dominion. Old Dominion brought a declaratory judgment action against
Boatright, Kan Do, and the other defendants to determine whether the claims
against Kan Do were subject to certain policy exclusions, including the exclu
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sion for claims brought by employees of Kan Do for bodily injury arising out
of and in the course of their employment. Boatright argued that the exclusion
did not apply to his claims because he was an independent contractor rather
than an employee. The Georgia Court of Appeals disagreed with Boatright
and affirmed the trial court’s grant of summary judgment to the insurer.
Noting that the policy did not define “employee," the Court of Appeals
looked to prior precedent which answered the question by examining whether
the alleged employer assumed the right to control the time, manner and
method of executing the work. The Court found that the undisputed evidence
showed that Kan Do employed Boatright as Kan Do paid him weekly, pro
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vided the necessary tools and materials, instruction and supervision for his
work. Moreover, Boatright was subject to discharge by Kan Do. Neither the
fact that Kan Do treated Boatright as self-employed for tax withholding pur
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poses nor the fact that Boatright may have also taken instruction from the
property owner precluded a finding that Boatright was an employee of Kan
Do.
In such instances where the insurer has failed to follow the provisions
of the statute, the Georgia Courts have held not only is the settlement not en
-
forceable against the Plaintiff, but even if the Plaintiff does not seek to undo
the settlement, the insurer is left with no subrogation rights against other
joint-tortfeasors.
In dismissing Boatright’s other arguments, the Court of Appeals brie.y
noted that Boatright, as a claimant, did not have standing to claim that Old
Dominion was estopped from challenging coverage because it assumed the
defense of Kan Do without first reserving its rights. Boatright also argued that
Old Dominion could not challenge coverage because it failed to file the de
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COURT DECISIONS
Georgia Decisions
Court of Appeals upholds applica
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tion of employee exclusion in a
CGL policy and determines em
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ployment status as a matter of law.
The Court also reminds that a claimant
does not have standing to challenge
the timing of an insurer's reservation of
rights or the filing of a declaratory
judgment action.
Court of Appeals says that Natural
Gas is not necessarily a pollutant.
Pollution exclusion held not to apply
when “but for" cause of claimant's inju
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ries was employee negligence.
Other Recent Cases Of
Interest Around the Country
Eastern District of Virginia rules in
favor of insurer in Chinese Drywall
case under homeowner's policy.
U.S. District Court found that multiple
policy exclusions applied and that cor
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rosion damage was not ensuing loss
under the policy.
Third Circuit finds faulty workman
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ship is not an occurrence under
Pennsylvania law.
The Court also reaffirmed that where
damage to third party property occurs
due to faulty workmanship which is
reasonably foreseeable it cannot be
considered an occurrence under a CGL
policy.
Complex Insurance Litigation
and Liability Defense
pg_0002
claratory judgment in a timely manner, thus prejudicing Kan Do. Again the Court disagreed. The Court held that where Kan
Do did not object to the reservation of rights letter, Old Dominion was not required to file a declaratory Judgment action
within any particular time period, or at all, to avoid estoppel. Finally Boatright argued that Old Dominion breached its obliga
-
tion to defend Kan Do by not providing Kan Do a defense to the insurer’s declaratory judgment action. The Court held Old
Dominion had no obligation to defend the insured against its coverage action.
Barrett v. National Union
Fire Ins. Co. of Pittsburgh,
2010 Ga. App. LEXIS 448 (May 11, 2010):
Mr. Barrett worked
for CVC, a company that works with Atlanta Gas Light Company (AGL) on the installation of natural gas pipelines. At the
relevant time, CVC had a primary CGL policy with CNA and an excess CGL policy with National Union. AGL was an addi
-
tional assured on both of those policies.
Mr. Barrett was injured while assisting AGL employees with the installation of taps on a main gas line installed by CVC.
During the installation, a plug fell into a valve and Mr. Barrett and two AGL employees made several attempts to retrieve it.
Eventually Mr. Barrett went down into an excavation ditch to make a last attempt to retrieve the plug. Although he was suc
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cessful in his efforts, Mr. Barrett spent more than two hours in the ditch without supplied air. The ditch was a confined space
and natural gas accumulated creating an oxygen-deficient atmosphere. Mr. Barrett suffered a permanent and disabling brain
injury as a result of his exposure to this atmosphere.
Barrett and his wife sued AGL alleging that his injuries resulted from the negligent and reckless conduct of AGL's em
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ployees. Specifically, the Barretts alleged that Barrett was under the supervision of both of the AGL employees working on
the tap installation and that each of these employees “had obtained the highest level of safety training offered by [AGL]."
This training included instruction on how to test for oxygen levels, the requirement that respirators or supplied air be used in
confined spaces where natural gas might accumulate and how to use such respirators or supplied air. Barrett, however, had
never received any safety training regarding working with “live" gas and “had always been told [that natural gas] would not
hurt him." All of the AGL witnesses deposed in the underlying lawsuit testified that the use of respirators and supplied air
was required in a confined area. Additionally, the Barretts’ expert witness testified that AGL’s failure to test for oxygen levels
in the excavation ditch and to consider that ditch a "confined area," once there had been prolonged exposure to natural gas,
constituted negligence, and showed a reckless indifference towards the safety and welfare of those working in the ditch.
The Barretts settled the case with AGL for $2 million. AGL’s primary insurer paid its $1 million policy limits towards the
settlement. National Union, AGL’s excess carrier, disclaimed coverage under its policy for the Barretts’ claim and paid none
of its $1 million in excess insurance coverage. The Barretts sued National Union asserting tort, breach of contract and insur
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ance bad faith claims. National Union filed an answer and motion to dismiss asserting that the Barretts’ claim against AGL
was excluded from coverage under its insurance policy by the pollution exclusion clause. The pollution exclusion clause pro
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vided that the policy would not apply to “any liability arising out of the actual or threatened discharge, dispersal, seepage,
migration, release, or escape of Pollutants anywhere in the world." The trial court granted AGL’s motion to dismiss relying on
the Georgia Supreme Court’s decision in
Reed v. Auto-Owners Ins. Co.
, which it felt supported a finding that natural gas was
a pollutant. The Court of Appeals reversed.
The Georgia Supreme Court in
Reed
held that carbon monoxide was a pollutant and acted as an irritant or contaminant
where the claimant claimed she was poisoned by exposure to the gas due to a defective heating system in her rental house.
The Court of Appeals found that
Reed
was fact-specific and did not apply to Barrett’s claims where Barrett did not allege he
was poisoned by the natural gas or harmed by its release. Barrett claimed that he was injured by the negligence of AGL em
-
ployees that allowed the gas to accumulate creating an oxygen-deprived atmosphere, it was the lack of oxygen that injured
Barrett. The Court declined to find that natural gas is a pollutant where there was nothing in the record to show that it is
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pg_0003
viewed as an irritant or contaminant, rather the evidence showed that exposure to natural gas is not necessarily dangerous
when the supply of oxygen is not impeded.
The Court also found that it would violate the public policy of Georgia to allow National Union to sell a liability policy
containing an exclusion for damages resulting from such natural gas to a company whose main business involves the han
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dling of natural gas. Thus, even if the pollution exclusion precluded coverage for Barrett’s injuries, the Court stated that the
exclusion would not be enforced because it violated public policy.
Finally, the Court found that a question existed as to whether Barrett’s injuries “arose out of" his exposure to the natural
gas. The Court explained that while the phrase “arising out of" found in a coverage provision is construed broadly, the phrase
is construed narrowly when found in an exclusionary clause such as the pollution exclusion at bar. Applying the “but for"
test traditionally used to determine cause-in-fact for tort claims, the Court held that the allegations of the complaint indicated
that the release of the natural gas, standing alone, did not cause Barrett’s injures, therefore, the Court could not conclude that
his injuries “arose out of" the release of that gas.
Other Recent Cases Of Interest Around The Country
Travco Insurance Company v. Larry Ward
, 2010 U.S. Dist. LEXIS 54387 (E.D. Va. June 3, 2010):
This case repre
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sents one of the many decisions that are starting to be issued by various courts across the South on defective Chinese drywall.
The suit at issue involved a declaratory judgment filed by Travco against Mr. Ward for claims he made under his home
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owner’s policy as a result of the presence of defective Chinese drywall in his home. Mr. Ward had separately sued his builder
in the multi-district litigation currently ongoing in Louisiana.
Mr. Ward submitted a claim under his homeowner’s policy issued by Travco for essentially two categories of damages:
1) the cost for the removal and replacement of the defective drywall and 2) a claim for the damage done by corrosion caused
by the drywall to other property, such as his A/C unit, garage door and .at screen televisions. Travco raised several defenses
to coverage contending that: 1) the drywall did not sustain direct physical loss; 2) damage caused by the defective drywall
was excluded as loss caused by a latent defect, faulty materials and pollutants and 3) damage to metallic surfaces fell within
the exclusion for corrosion.
Initially the Court did find that Mr. Ward’s home suffered direct physical damage and that the cost of removing and re
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placing the Chinese drywall did come within the policy coverage. Travco argued without success that there had been no
physical loss because the drywall was functional and had no visible damage. However, the defendant successfully argued
that because the policy included “loss of use" within the definition of property damage, the Wards’ home had indeed suffered
property damage sufficient to constitute direct physical loss under Virginia law. In so holding, the Court recognized that the
majority of cases decided on the issue favored this argument in situations where the property was rendered unusable by
physical forces. In this case, the Wards had to move out of the house. The insured having satisfied its burden to establish a
loss contemplated by the coverage of the policy, the burden shifted to Travco to prove that the loss came within one of the
exclusions to that coverage.
The Court first looked at the “latent defect" exclusion. The parties agreed that in order to be a latent defect under Vir
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ginia law, the defect must be “integral to the damaged property by reason of
its
design or manufacture or construction." (Em
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phasis in original.) With that understanding, it was clear to the Court that the latent defect exclusion did not apply to the
damage to the Wards’ other property, but it did find that the exclusion applicable to the cost for the removal and replacement
of the defective drywall itself. The reason being that there was no question that the Wards’ home suffered from defects that
were integral to the homes design, manufacture or construction as the drywall was integral to the Wards’ home.
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pg_0004
The Court then turned to the “Faulty Materials" exclusion. Travco argued that this exclusion applied to all of the damage
being claimed by the Wards. The Wards in turn argued that this exclusion did not apply because the drywall was serving its
intended function and had not caused damage to itself. The Court was skeptical of that argument and stated that the drywall
was “not serving its purpose as a component of a livable residence." It went on to say that other courts have held that the
faulty materials exclusion can apply regardless of whether the good is performing its intended purpose. The Court also noted
that the Wards themselves had repeatedly asserted in their Complaint against the builder that the drywall was defective and
that in itself weighed in favor of applying the exclusion. In holding that the exclusion applied, the Court noted that it strongly
disagreed with the recent decision issued in Finger v. Audobon, stating that that decision contradicts the clear weight of
authority on this issue.
As regards the corrosion exclusion, the Wards argued that the loss was not caused by corrosion but instead it was caused
by the gasses emitted by the drywall. The Court disagreed and stated that the majority of jurisdictions hold that a corrosion
exclusion applies regardless of what caused the corrosion or how it occurred. In this instance, the damage to the Wards’ A/C
system and other structural, mechanical and plumbing systems was “caused by the process of corroding" and to apply the
defendants’ argument would render the corrosion exclusion meaningless as it would also be considered an ensuing loss.
Thus, the corrosion exclusion unambiguously applied to the Wards’ claimed damages.
Next the Court addressed the pollution exclusion and found that it also operated to exclude the losses claimed by the
Wards. The Court recognized that, under Virginia law, the application of the pollution exclusion was not limited to purely
traditional environmental pollution cases. As such, the Court went on to hold that while the drywall itself is not a pollutant,
the gases that it releases are as they constitute irritants and contaminants and both federal and state authorities recognize sul
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fur gases as pollutants.
Finally the Court addressed the Wards’ ensuing loss argument. This issue was readily dismissed as the Court stated that
none of their losses as claimed to that point constituted ensuing losses. “Ensuing loss is a loss that occurs subsequent to the
initial loss. While the loss in this instance occurred gradually over time, it represented one discrete loss from a single discrete
injury, namely the off-gassing of defective Chinese drywall."
While the Court granted Travco’s request for summary judgment, it left open the possibility for the insured to come for
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ward with a later claim for true ensuing damage should such occur.
Specialty Surfaces International, Inc. v. Continental Casualty Co.
, 2010 U.S. App. LEXIS (3rd Cir. June 8, 2010)
:
Specialty Surfaces is a Pennsylvania corporation that manufactures synthetic turf for athletic fields. Empire and Associates,
Inc., a California corporation, is a wholly owned subsidiary of Specialty Surfaces and together both companies manufacture
and sell this synthetic turf under the name “Sprinturf." Empire was retained by a general contractor to install synthetic turf
and drainage systems on football fields for several California schools. The general contractor was charged with preparing the
fields, Empire would install the drainage system provided by Airfield Systems and then it would put the synthetic turf over
the top.
The school district ended up suing Specialty Surfaces and Airfield alleging that the project exhibited significant defects
in materials and workmanship. The school district alleged that Specialty Surfaces, doing business as “Sprinturf," had
breached the terms of its warranties by failing to fix the problems.
At the relevant time, both Specialty Surfaces and Empire were insured by Continental Casualty Co. (“CCC"). Specialty
Surfaces was insured as the named insured and Empire was an additional insured on that policy. At issue was CCC’s duty to
defend Sprinturf in a suit filed by the school district arising out of problems with the synthetic turf.
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CCC denied coverage to Sprinturf explaining that its policy “did not cover Shasta’s claim because ‘the allegations are
solely poor workmanship and/or product’ and ‘any damage that your company can be responsible for would be for improper
installation or defect in the product itself.’" The School District’s Complaint was then amended with Empire being named as
an additional defendant. The allegations remained the same but additional legal claims were added, including breach of war
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ranty claims and negligence claims. CCC thereafter agreed to defend under a reservation of rights but it refused to reimburse
its insured for any defense costs incurred before the suit was amended. Sprinturf then sued CCC in Pennsylvania.
In its DJ action, Sprinturf moved for summary judgment and asserted that CCC was obligated to defend it because the
Complaint alleged property damage to another entity’s work product. CCC filed a cross-motion seeking a declaration that it
had no duty to defend either version of the Complaint because the property damage alleged in the Complaints was not caused
by an occurrence covered under the policy and the policy exclusions precluded coverage. The District Court granted CCC
summary judgment. Sprinturf appealed.
After a lengthy analysis of the choice of law to apply, the Third Circuit determined that Pennsylvania law controlled the
issues under the insurance policy based on the fact that under a significant interests test, Pennsylvania had a greater interest in
the interpretation of the insurance contract than California.
Applying Pennsylvania law to the issues at hand, the Third Circuit stated CCC had no obligation to defend the initial
Complaint as a breach of contract claim “could not constitute an ‘occurrence’ under a commercial general liability policy."
The Court also said that CCC had no obligation to defend the amended complaint because those allegations did not support a
determination that any damage was caused by an occurrence. The claims of damage to Empire’s work based on Empire’s
alleged negligence were claims based on faulty workmanship, not an accident.
Sprinturf tried to counter this by arguing that the damage to the subgrade prepared by the general contractor was damage
to other property that should be covered. However, the Third Circuit said that finding was foreclosed by a prior Pennsylvania
holding (
Gambone,
941 A.2d 706 (2007)
)
which said that damages that “are a reasonably foreseeable result of faulty work
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manship" do not constitute accidents under commercial general liability policies. Here the damage to the subgrade was
caused by leaks that resulted from faulty workmanship. The Court found that damage to be an “entirely foreseeable, if not
predictable result of the failure to supply a “suitable" impermeable liner or properly install the drainage system." Thus, the
damage was not “sufficiently fortuitous" to be considered an occurrence under the policy.
Best regards,
THE JOHNSON FIRM, LLC
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