Seminar: Insurance Coverage & Bad Faith Seminar for Claims Professionals

Posted by CCS on June 03, 2013

2013InsCovEventweb.jpgWe are pleased to announce Carlock, Copeland & Stair we will be hosting an Insurance Coverage & Bad Faith Seminar for claims professionals at the Atlanta Botanical Garden on September 19, 2013.  Topics will include:  insurance coverage and bad faith litigation;  coverage in construction defect claims; first party claims; excess carrier involvement in excess exposure cases; and the ethics of using social media in claims investigations.

Not only will the seminar include five hours of continuing education, but you are also invited to attend a private reception, enjoy full access to the gardens, discover a special exhibit: “Imaginary Worlds – Plants Larger Than Life”, and indulge in an Atlanta Botanical Garden signature event, Cocktails in the Garden.

Space is limited. Register now.

Insufficient Reservation of Rights Bars Insurers Suit For Reimbursement For Settlement of Non-Covered Claims

Posted by Jennifer Stancil on May 20, 2013

The necessity for a complete and detailed reservation of rights letter was the focus of a recent Court of Appeals decision, in Facility Investments, LP v. Homeland Insurance Co. of New York.  Homeland Insurance Co. (“Homeland”) failed to properly reserve its rights under the uncovered loss allocation provision of the policy issued to its insured, Facility Investments, LLC’s (“Facility”), and thus was obligated to pay the full settlement of $1 million – even though a portion of the settlement was based on non-covered claims. 

Facility was sued for negligence, fraud, and intentional misconduct arising from the care of a patient in its nursing home.  Based on exclusions in Homeland’s policy, Homeland reserved its rights for losses arising out of allegations of fraud, malice, or violations of State and Federal regulations.  But, Homeland did not include a reservation of its rights to pursue claims for breach of contract, recoupment, allocation or contribution under the uncovered loss allocation provision of the policy.    

During discovery, the plaintiff developed evidence of fraud by Facility, and demanded payment of the $1 million policy limit.  Three days before the expiration of the time limited demand, Facility requested Homeland settle within the policy limits.  Facility notified Homeland that there were significant charting problems and special damages exceeding $800,000.   

Homeland offered to settle for the policy limits, but requested Facility contribute 50 percent of the settlement pursuant to the uncovered loss allocation provision.  Additionally, Homeland stated it would pursue recoupment of this sum if Facility did not pay its share.  When Facility refused, Homeland sent a reservation of rights regarding its intent to pursue claims under the uncovered loss allocation provision, including breach of contract, recoupment, allocation and contribution.  

After funding the settlement, Homeland sued Facility to recover the portion of the settlement attributable to the non-covered losses.  Facility’s motion to dismiss was denied, but the Georgia Court of Appeals reversed.    

The Court of Appeals stated that when Facility refused to contribute to Homeland’s proposed settlement, Homeland had two options: (1) deny coverage or (2) seek immediate declaratory relief.  The Court held that since Homeland defended and settled the underlying suit with knowledge of the uncovered claims, but failed to timely reserve its rights pursuant to the uncovered loss allocation provision, Homeland waived any right to seek reimbursement for the uncovered amounts of the settlement. 

Georgia Court of Appeals Finds Exclusion Unambiguous in Pizza Delivery Case

Posted by Erica Parsons on May 08, 2013

pizza car.jpgFor years, Georgia courts have wrestled with the issue of whether exclusions, typically contained in auto liability insurance policies, that preclude coverage for damages arising when an automobile is being used to carry persons or property “for a fee” are ambiguous.  In many cases, especially in the context of food delivery, the courts in this State, as well as in the majority of other jurisdictions, ruled that such exclusions were ambiguous because it was unclear whether the phrase “for a fee” referred to the driver’s receipt of any kind of payment in return for transporting the property from any source or whether it meant a specific payment made to the insured for a particular act of transporting property; See e.g. First Georgia Insurance Co .v. Goodrum, 187 Ga. App. 314 (1988); Prudential Property & Cas. Ins. Co. v. Sartno, 588 Pa. 205, 903 A.2d 1170 (2006); United States Fidelity & Guaranty. Co. v. Lightning Rod Mut. Ins. Co., 80 Ohio St.3d 584, 586, 687 N.E.2d 717 (1997); Progressive Cas. Ins. Co. v. Metcalf, 501 N.W.2d 690, 692 (Minn.App.1993); RPM Pizza v. Automotive Cas. Ins. Co., 601 So.2d 1366, 1368–1369 (La.1992); Pizza Hut of America v. West Gen. Ins. Co., 36 Ark.App. 16, 21, 816 S.W.2d 638 (1991).

However, in a case of first impression, the Georgia Court of Appeals appears to have reversed course.  In Progressive Premier Ins. Co. of Illinois v. Newell, the court considered whether Progressive’s policy excluded coverage for damages arising from the use of the insured auto when it was being used to transport persons or property “for compensation or a fee.”  At the time of the accident, Progressive’s insured Newell was delivering a pizza for his employer, Papa John's, when he collided with another vehicle.  Papa John's paid Newell $4.00 per hour plus $1.20 “per house” when he was making deliveries and $7.25 an hour when he was working inside the store.

The Court first considered the litany of cases addressing the “for a fee” exclusion and found that, like Georgia, most jurisdictions have ruled that such exclusions are ambiguous and unenforceable; however, the court also noted that the specific exclusion in question in Newell was slightly different in that it purported to exclude coverage for damages arising from the use of an auto while being used to transport persons or property “for compensation or for a fee.”  As the court explained, “[t]he few courts that have addressed this newer exclusion  in the context of pizza delivery found the addition of the word “compensation” significant and concluded that the exclusion unambiguously applied to the particular facts of the case before them.”

The court reasoned that because “Newell was paid a different hourly wage while delivering pizzas and that he received a per delivery payment of $1.20. . . . the exclusion unambiguously applies to the accident at issue in Progressive's petition for declaratory judgment.”  Accordingly, the Georgia Court of Appeals reversed the entry of summary judgment in favor of Newell.  The court was also careful to warn that because of “the potential for absurd results that could result from a broad application of our holding in this case to one involving a different factual scenario. . . . our holding in this case should not be expanded beyond the particular facts and circumstances now before us.”

Precisely how narrowly this ruling will be applied is yet to be determined.  For now, at least, it appears that insurers of automobiles that are being used to carry pizzas “for compensation or a fee” can reasonably rely on this holding in making coverage determinations.

A Florida Decision Expands Defense Obligations For Insurer

Posted by Elizabeth 'Beth' Albright on April 29, 2013

A dilemma often facing insurers is whether it must retain separate counsel when it has a duty to defend more than one insured under a single general liability policy.  In University of Miami v. Great American Assurance Co., 2013 WL 616156 (Fla. Dist. Ct. App. 3d), an intermediate appeals court in Florida held that a conflict existed in the legal defenses of the University of Miami (“UM”) and MagiCamp, a camp operator, under Great American’s general liability policy issued to MagiCamp, where UM was named as an additional insured. Consequently, Great American was required to appoint separate, independent counsel for the two defendants/insureds.  A strong dissent, however, raised concerns regarding the implications of the decision.

MagiCamp ran a summer swim camp for kids using the pool on the campus of UM.  As a condition for use of the pool, UM was named as an additional insured on the policy issued by Great American.  After a child was injured at the pool, the child’s parents sued both UM and MagiCamp.  Great American retained the services of one law firm to represent both UM and MagiCamp.  UM, however, advised Great American that a conflict of interest existed with one firm representing both defendants, and requested independent counsel.  Great American denied the request and UM retained its own counsel to protect its interests. 

After the underlying case was settled, UM filed a declaratory judgment action against Great American seeking recovery for the attorney’s fees it incurred for the independent counsel retained in the underlying litigation.  The appellate court reversed summary judgment in favor of Great American. 

The appellate court determined that “there exists a conflict in the co-defendants’ legal defenses, based on the allegation of the complaint, that each defendant is directly liable, and the allegations in the answer and affirmative defenses set forth by MagiCamp and UM.” 

Further, the court found that the conflicting legal positions of MagiCamp and UM existed separate and apart from issues of coverage or excess policy limits.  The court reasoned, MagiCamp and UM would have had to imply blame on the other entity to the detriment of the other entity in its defense of the underlying action.  Accordingly, the court found that “this legal dilemma clearly created a conflict of interest between the legal defenses of the common insureds sufficient to qualify for indemnification for attorney’s fees and costs for independent counsel.”

The opinion also included a lengthy and strong dissent raising concerns of expanded coverage obligations, leading to additional litigation.  “The court today opens a new frontier in insurance litigation of benefit only to the legal profession” and further warned that “[t]he future of dual insured claims should not be hard to see.”  The dissent first argued that MagiCamp had no defense to the underlying lawsuit.  Moreover, it was contractually bound to indemnify and hold harmless UM.  Next, it argued that UM’s counsel admitted at oral argument that neither entity sought to prove liability of the other during the course of the underlying lawsuit such that there was no real conflict.  Third, the dissent argued that “a liability insurer’s contractual right to control the defense and indemnity features of its contract is indispensable to the protection of its financial interest in the litigation and thus the product itself.”  Finally, it was argued that the Florida Bar rules and the threat of malpractice would prevent an attorney from representing two entities where there was an inherent conflict of interest amongst them. 

 

L. Elizabeth "Beth" Albright, Attorney
Atlanta Office, Insurance Coverage Practice Group

 

Summary Judgment Denied to Insurer on Bad Faith Claim

Posted by Megan E. Boyd on April 09, 2013

In Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp., the Georgia Court of Appeals affirmed the denial of the insurer’s motion for summary judgment on the issue of bad faith under O.C.G.A. § 33-4-6. 

The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”). Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP offered to its customer. 

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  As a result of Warranty Specialists actions, AGCO paid the claims and then sued Warranty Specialists, seeking relief pursuant to O.C.G.A. § 33-4-6.  The Georgia Court of Appeals affirmed the trial court’s denial of summary judgment to Cassidy Davis on the bad faith claim arising under O.C.G.A. § 33-4-6. 

In its motion, Cassidy Davis argued that AGCO was legally barred from recovering for bad faith because AGCO had not made a demand for payment pursuant to O.C.G.A. § 33-4-6 and thus failed to trigger any duty for Cassidy Davis.  Cassidy Davis relied upon the language of the master liability policy that the insurer ‘agrees to indemnify [AGCO] for all sums which [AGCO] shall be held legally liable to pay in respect to the contractual liability’.  Cassidy Davis argued that the phrase, “legally liable,” meant a judgment must be obtained.  And, since no judgment was obtained at the time demand for payment was made – no payment was due and Cassidy Davis could not be in bad faith – as a matter of law. 

The Court of Appeals, however, found that ‘indemnify’ “has been defined as ‘to reimburse another for a loss suffered because of a third party’s or one’s own act or default.’”  The court also noted that indemnify has also been defined as “’a duty to make good a loss, damage or liability incurred by another.’”  The Court rejected the argument that a judgment was a condition precedent. 

As a judgment against AGCO was not required before a demand for payment could be made, AGCO’s demand for reimbursement satisfied the provisions of O.C.G.A. § 33-4-6.  According to the Court of Appeals, the term ‘indemnify,’ as used in the contract of insurance “is broad enough to include any liability, not just liability resulting from a judgment.”  Thus, Cassidy Davis was not entitled to summary judgment on the bad faith claim. 

Coverage Expands to Design and Engineering Defects under Master Liability Policy

Posted by Megan E. Boyd on April 03, 2013

warranty contract.jpgIn affirming summary judgment for the insured in Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp. the Georgia Court of Appeals relied upon the adage that the scope of coverage is broad.  The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”).  Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP.  

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  When AGCO sued, Warranty Specialists and Cassidy Davis defended the suit on the basis that neither the EPP nor the master policy insured the wheel motor failure because the failure was caused by a design or engineering defect and not due to a mechanical breakdown caused by manufacturing defects in workmanship or materials. 

The Georgia Court of Appeals affirmed the trial court’s grant of summary judgment to AGCO.  The Appellate Court noted that the policy covered the breaking of any part on the RoGator “arising from faults attributable to manufacturing defects in workmanship or materials,” and held that the phrase was broad enough to include breakdown resulting from a design or engineering defect.  Furthermore, the court noted that the policy contained specific exclusions to coverage, but breakdown from design or engineering defect was not specifically excluded.

In finding coverage, the Appellate Court noted that under Georgia law, “where a contract requires a conduct ‘arise out of’ an act, ‘it does not mean proximate cause in the strict legal sense but instead encompasses almost any causal connection or relationship.’”  According to the opinion, “‘nothing more than a slight causal connection is required . . . ’ [Cits.]”  Consequently, the Court held that “the phrase ‘arising from fault attributable to manufacturing defects and workmanship or materials’ is broad enough to include a breakdown or failure related to a manufacturing defect, even where there was a design or engineering defect.” 

Carlock, Copeland & Stair Newsletter

Posted by CCS on March 22, 2013

Check out our winter newsletter, which includes articles on Nursing Home Arbitration - A Glimmer of Hope in Cases Fraught with Bias?; South Carolina Supreme Court Addresses Multiple Malpractice Issues for Real Estate Lawyers; and Beware CSA Scores in Trucking Litigation.

 

Newsletter 9.4.PNG

 

Court Holds Grocery Store's CGL Policy Provides Coverage for Employee Who Was Shot in the Store

Posted by Katherine W. Sullivan on March 11, 2013

In a recent decision, Pennsylvania National Mutual Casualty Insurance Company v. Doscher's Super Markets, issued on May 7, 2012, the Charleston Division of the South Carolina District Court held that Doscher's CGL policy provided coverage for injuries related to the shooting of Doscher's employee, Burton Thorne, Jr., who was shot by another Doscher's employee in the break room.

In the underlying complaint, Thorne asserted a cause of action for negligence based on negligent hiring, training, retention, management, and supervision and alleged that Doscher's failed to make the workplace safe.  Although Penn National initially argued that the shooting was not an occurrence and that the shooting was an intentional act (and thus not covered by the policy), Penn National eventually conceded these arguments and they were not discussed in the opinion.

The Court held that the Employer's Liability Exclusion in the policy does not apply given the facts.  The Employer's Liability Exclusion excludes coverage for bodily injury to an "employee of the insured arising out of and in the course of . . . employment by the insured."  All parties agreed that Thorne alleges bodily injury, that he was an employee at the time of his injuries, and that the shooting occurred in the course of employment.  The only question was whether Thorne's injuries arose out of his employment.  Noting that it is well settled in South Carolina that the term "arising out of" when used in an insurance policy exclusion should be construed to mean "caused by," the Court held that Penn National did not show that Thorne's injuries were caused by his employment.

Finally, the Court held that the Worker's Compensation Exclusion does not apply, because Doscher's "currently has no obligation under a worker's compensation law."  Although Thorne initially filed a worker's compensation claim, he voluntarily dismissed it.  In addition, the state court in the underlying action denied Doscher's summary judgment motion in which Doscher's argued that Thorne's claims were barred by the workers' compensation exclusivity doctrine. 

Therefore, the Court found there was coverage under the Penn America policy for Thorne's injuries relating to the shooting that occurred in Doscher's. 

R. Michael Ethridge, Attorney
Katie Sullivan, Attorney
South Carolina Insurance Coverage Practice Group

Recent South Carolina Case Addressing False Answers on Life Insurance Policy Application

Posted by Michael Ethridge on February 21, 2013

The South Carolina Court of Appeals recently overturned a directed verdict finding no coverage under a life insurance policy where false answers were provided in Shenandoah Life Insurance Company v. Lakeisha Smallwood.  Ms. Smallwood purchased the policy to cover her deceased husband who had twice admitted to medical professionals that he had used alcohol and drugs, particularly cocaine, and believed he suffered from post-traumatic stress disorder (“PTSD”)  following his military service.  Despite these facts, on his life insurance application, Mr. Smallwood denied use of cocaine with the last five years and any diagnosis or treatment for a “mental or nervous disorder, alcohol or drug dependency” within the last ten years.

The trial court granted Shenandoah’s motion for directed verdict at the close of evidence finding that Shenandoah clearly and convincingly proved that Mr. Smallwood intended to defraud Shenandoah with his false denials.  The Court of Appeals reversed finding that Shenandoah failed to prove that Mr. Smallwood intended to defraud Shenandoah, because a reasonable jury could find several plausible explanations for the false answers existed, such as the possibility that Mr. Smallwood desired to keep his drug use and PTSD secret from his family. 

The Court of Appeals distinguished Smallwood from several very similar cases on the bases of differences in the facts concealed relative to the risk insured.  The Court held that the instant matter did not present “one of those rare cases where the only reasonable conclusion from the uncontradicted facts is that [Mr. Smallwood] intended to deceive and defraud” Shenandoah.  Unlike similar cases finding an intention to defraud the insurance company based on concealed facts that related directly to a significantly increased risk of death, the Court of Appeals found that Mr. Smallwood did not associate his drug use with any increased medical risk.  In so doing, the court appeared to rely heavily on the lack of a formal diagnosis of PTSD or drug abuse and the lack of testimony in the record by Mr. Smallwood’s treating physicians that Mr. Smallwood was made aware of the risks associated with PTSD and drug use.

David Harmon, Partner
Carlock Copeland & Stair
40 Calhoun Street
Suite 400
Charleston, South Carolina 29401
843.266.8223
dharmon@carlockcopeland.com

Litigating the Uninsured & Underinsured Motorist Claim Seminar

Posted by CCS on November 26, 2012

Charlie McDaniel, Erica Parsons and Jason Hammer are scheduled to present at the NBI seminar "Litigating the Uninsured & Underinsured Motorist Claim," on Friday December 7, 2012. To register online or to download a brochure to register, visit the NBI website.