Georgia District Court Finds Reservation of Rights to Named Insured Ineffective as to Individual Insureds

Jason M. Taylor | Traub Lieberman Straus & Shrewsberry | February 25, 2019

In Auto-Owners Ins. Co. v. Cribb, 2019 WL 451555 (N.D. Ga. Feb. 5, 2019), the U.S. District Court for the Northern District of Georgia found that an insurer, Auto Owners, was estopped from denying coverage to two individual insureds under a commercial general liability policy issued to B.R. Mountain Homes, LLC.  Specifically, the District Court held that a reservation of rights issued to the Named Insured was ineffective as to two individual defendant-insureds, who were not explicitly included in the original reservation of rights.

In the underlying action, B.R. Mountain Homes was sued by Jimmey Cribb for injuries suffered on a construction site.  Cribb initially sued BR Mount Homes, but later amended his complaint to add claims against James Brian Thurman (“Thurman”) and Richard Scott Davis (“Davis”), who were officers and employees of B.R. Mountain Homes.  Auto-Owners agreed to defend BR Mountain Homes under a reservation of rights issued and addressed to BR Mountain Homes, and retained defense counsel to file an answer on behalf of the company.  When the complaint was amended to add Thurman and Davis as parties, defense counsel filed an answer on their behalf and began defending the individuals.  Auto-Owners, however, did not immediately issue any coverage position letter or reservation of rights to the individuals, who were identified as “Insureds” on the policy.  Ultimately, Auto-Owners filed a declaratory judgment action seeking a coverage determination with respect to several policy exclusions and “late notice” of an occurrence under the policy.

In the coverage action, the insureds argued that Auto-Owners was estopped from denying coverage to Thurman and Davis due to its failure to effectively reserve rights before providing Thurman and Davis with a defense.   The District Court agreed.  According to the court, an insurer that defends an insured in the absence of an express and specific reservation of rights to deny coverage is estopped from later denying coverage.  

The District Court noted that the policy was issued to “Insured: Brian Thurman & Richard Davis DBA BR Mountain Homes, LLC.”  Per the language of the policy, each insured is treated separately for purposes of coverage, by way of the “separation of insureds” provision in the policy.  The first reservation of rights letter was addressed to “BR Mountain Homes, LLC, Attn: Mr. Brian Thurman.”  While Auto-Owners ultimately sent second and third reservation of rights letters to Thurman and Davis respectively, “c/o B.R. Mountain Homes, LLC,” they were not sent until months after Auto-Owners began defending the individuals.  In addition, the first reservation letter was not addressed to Thurman or Davis individually and was sent before Thurman and Davis were ever sued by Cribb.  Thus, the District Court concluded that the first reservation of rights letter was insufficient for the insurer to reserve its rights as to Thurman and Davis, and therefore, ineffective as to the individual insureds.  Under the circumstances, the District Court held that Auto-Owners’ defense of Thurman and Davis in the absence of an effective reservation of rights served to estop Auto-Owners from denying coverage to the them, regardless of the merits of Auto-Owners’ coverage defenses.

Georgia Court of Appeals Holds Lay Witness Can Provide Opinion Testimony on the Value of a Property If the Witness Had an Opportunity to Form a Reasoned Opinion

Gus Sara | The Subrogation Strategist | September 4, 2018

In Woodrum v. Ga. Farm Bureau Mut. Ins. Co., 815 S.E.2d 650 (Ga. Ct. App. 2018), the Court of Appeals of Georgia considered whether the lower court properly disqualified a contractor as an expert witness and excluded the contractor from offering lay opinion testimony regarding the value of a property. The Court of Appeals held that, while the lower court properly disqualified the contractor as an expert witness, it improperly excluded the general contractor’s lay opinion testimony regarding the value of the property. This case establishes that, in Georgia, a lay witness can provide opinion testimony on the value of a property if the proponent of the testimony demonstrates that the witness had an opportunity to form a reasoned opinion.

In Woodrum, the plaintiffs sued their property casualty insurance carrier, Farm Bureau Mutual Insurance Company (Farm Bureau Mutual), because of a dispute over the appropriate value of their insurance claim after a tree fell on their home. The plaintiffs argued that the tree fall caused cracks in the foundation, which diminished the value of the property. Farm Bureau Mutual disagreed with the plaintiffs’ contentions and only paid for repairing the damage. In support of their argument, the plaintiffs introduced an affidavit from the general contractor who made the repairs to their home. The contractor opined, based on his experience and visual inspection of the home, that the cracks in the foundation diminished the value of the property. Farm Bureau Mutual filed a motion to exclude the contractor as an expert witness. The lower court granted the motion and, in addition, excluded the contractor’s lay opinion testimony as to the value of the property. The court then granted Farm Bureau’s motion for summary judgment, which the plaintiffs appealed.

The Court of Appeals agreed with Farm Bureau Mutual that the contractor did not sufficiently describe the methodology by which he formed his opinion, and thus could not offer expert opinion testimony. However, the Court of Appeals held that the lower court erred in excluding the contractor’s lay opinion testimony. The appeals court’s decision was based primarily on Georgia statute OCGA 24-7-701(b), which states that a witness need not be an expert to testify as to a property’s value if he or she has had an opportunity to form a reasoned opinion. In determining whether the contractor had an opportunity to form a reasoned opinion, the appeals court considered whether the contractor had sufficient knowledge, experience and familiarity with the property. The court found that the contractor’s affidavit and deposition testimony established that he had sufficient knowledge and experience in building homes, as well as familiarity with the home and, thus, he could offer a lay opinion as to the diminished value of the home. As such, the Court of Appeals reversed the lower court’s ruling that the contractor could not offer lay opinion testimony on the property’s value and, in addition, reversed the lower court’s decision granting summary judgment in Farm Bureau Mutual’s favor.

The Woodrum decision reminds us that, in Georgia, a witness does not need to qualify as an expert to testify about the diminished value of a property if the witness has had an opportunity to form a reasoned opinion. The Court of Appeals’ holding is helpful to subrogation plaintiffs because the admissibility standard for lay opinion testimony is far less burdensome than the admissibility standards for expert witnesses.

Georgia’s Bad Faith Demand Requirements

Ashley Harris | Property Insurance Coverage Law Blog | March 31, 2018

I’ve previously discussed Georgia’s bad faith demand requirements in Georgia Unfair Claims Handling. A recent Georgia appellate court opinion1 highlights how strictly OCGA § 33-4-6 is construed by the courts.

OCGA § 33-4-6 provides, in relevant part:

In the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after a demand has been made by the holder of the policy and a finding has been made that such refusal was in bad faith, the insurer shall be liable to pay such holder, in addition to the loss, not more than 50 percent of the liability of the insurer for the loss or $5,000.00, whichever is greater, and all reasonable attorney’s fees for the prosecution of the action against the insurer.

Georgia courts have held that to bring a claim under this statute the policyholder must prove:

  1. That the claim is covered by the relevant insurance policy;
  2. That a demand for payment was made by the policyholder at least 60 days prior to filing suit; and
  3. That the carrier’s failure to pay was motivated by bad faith.2

In Thompson v. Homesite Insurance Company of Georgia, the policyholder’s home was damaged when a tree fell on it during a storm. The policyholder sustained damages to her home and expenses to remove the tree and other debris from her property. Homesite’s initial payment for these damages was $1,812.33.

The policyholder disagreed with Homesite’s valuation of her claim, and made a number of complaints to and about Homesite regarding the handling of her claims. Specifically, the policyholder filed a formal complaint with the Georgia insurance commissioner and sent several messages to Homesite representatives in May 2011, inquiring about, and criticizing, the handling of her claims. After receiving documentation of the expenses incurred by the policyholder for removal of the tree and other debris in June 2011, Homesite issued an additional payment for $1,800 on October 6, 2011.

In a letter dated October 12, 2011, the policyholder’s counsel demanded payment for the reimbursement for the policyholder’s tree and debris removal expenses. In this letter, the policyholder’s counsel threatened to file a bad faith claim against Homesite under OCGA § 33-4-6 if Homesite did not properly reimbursement the policyholder for the tree and debris removal expenses. This letter also notified Homesite that the policyholder disagreed with Homesite’s estimate of damages to repair her home.

The parties ultimately went to appraisal and an umpire awarded the policyholder $50,713.69 less the $1,000 deductible and prior payments. Homesite issued payment for the umpire’s award.

The policyholder then sued Homesite claiming that Homesite unreasonably delayed reimbursing her for the tree and debris removal expense and that it had underpaid on the umpire’s award, subjecting Homesite to liability under OCGA § 33-4-6. Homesite moved for summary judgment on these claims.

The court analyzed whether the policyholder’s communications with Homesite were sufficient to support recovery under the bad faith statute. The court concluded that statements by the policyholder to Homesite and the Georgia insurance commissioner that she was unhappy with the progress of her claim were not sufficient to alert Homesite she was considering filing a bad faith claim.

The court held that a demand under OCGA § 33-4-6 must not only express displeasure with the insurer’s handling of the claims process but actually alert the insurer that the insured plans to take legal action for bad faith if the claim is not paid.

The only communication the policyholder had with Homesite in which potential litigation was threatened was the October 12, 2011, letter sent by her counsel. However, this threat of litigation pertained only to the Homesite’s failure at the time to reimburse the policyholder for tree and debris removal expenses. Since Homesite paid the policyholder for those expenses on October 6, 2011, Homesite had already satisfied the specific demand made by the policyholder. As the policyholder never threatened to invoke OCGA § 33-4-6 regarding any remaining portions of her claim with Homesite, the appellate court affirmed the trial court’s grant of summary judgment on the policyholder’s bad faith claim.

While Georgia courts have held that no special language is necessary for the demand under OCGA § 33-4-6, this opinion emphasizes how strictly courts will review and interpret the demands in order to hold carriers liable under the bad faith statute.
1 Thompson v. Homesite Ins. Co. of Georgia, No. A17A1938 (Ga. App. Mar. 14, 2018).
2 BayRock Mortg. Corp. v. Chicago Title Ins. Co., 286 Ga.App. 18, 19 (648 S.E.2d 433) (2007).

Ambiguous Punctuation Can Lead to Insurance Coverage Following a Loss

Marie Laur | Property Insurance Coverage Law Blog | March 27, 2018

A court in Georgia found coverage for a loss based on the presence of a semicolon. In the case Lee v. Mercury Insurance Company,1 the court found coverage for a home destroyed by fire based on the potential ambiguity created by a semicolon.

In Lee, Ronald Lee (“Mr. Lee”) purchased a home in Georgia and allowed his friend, Jim Constable (Mr. Constable”), to live there with his family rent-free. Mr. Lee purchased a homeowner’s insurance policy for the home through an insurance agent. Mr. Lee completed the application over the phone. Since Mr. Lee was not present, he asked the agent if Mr. Constable could sign his name, and the agent replied that that was fine. Mr. Lee alleged that the insurance agent knew that he would not be residing at the home full-time, but would be “stopping in” since he traveled. Mr. Lee stated that the insurance agent knew that Mr. Constable resided at the property instead of Mr. Lee. The answers to the application were typed; one section of the application requested the applicant to “Check all that apply”, and an “X” was marked beside “Primary” and “Occupied by Named Insured.” The “Secondary” and “Additional Residence for Insured” were not marked with an “X.” Mr. Lee, Mr. Constable, and Mr. Constable’s family were listed as residents of the household.

The property was later destroyed by a fire that took Mr. Constable’s life. Mr. Lee filed a claim with the insurance carrier, Mercury Insurance Company of Georgia (“Mercury”), which denied his claim.

Mr. Lee brought suit against Mercury. Mercury moved for summary judgment on the basis that it was misrepresented on the policy application that the home was Mr. Lee’s primary residence, when he did not reside there as required by the policy.

The trial court granted Mercury’s motion and he appealed.

The policy contained the following language:


We cover:

the dwelling on the residence premises shown in the Declarations used principally as a private residence, including structures attached to the dwelling; materials and supplies located on the residence premises used to construct, alter or repair the dwelling or other structures on the residence premises.…
* * * * *
Residence premises means the one, two, three or four family dwelling, condominium or rental unit, other than structures and grounds, used principally as a private residence; where you reside and which is shown in the Declarations.

The appellate court reversed the trial court’s rulings on both motions for summary judgment. The appellate court ruled that the definition of “residence premises” could be read as having two different definitions, based on the placement of the semicolon, which is typically used in, “marking off a series of sentences or clauses of coordinate value.” The court further observed that a semicolon is used to mark, “separate consecutive phrases or clauses which are independent of each other grammatically, but dependent alike on some word preceding or following.” Id. at 734. The appellate court concluded that the above policy language could be read to mean, “the one, two, three or four family dwelling condominium or rental unit, other than structures and grounds, used principally as a private residence” or “where you reside and which is shown in the Declarations.”

Ambiguity in insurance policies is construed in a light most favorable to the insured, which is what occurred in this case. Other courts have ruled in a similar fashion.
1 Lee v. Mercury Ins. Co., No. A17A0624 (Ga. App. Nov. 3, 2017).

Claims Handling Requirements by State – Georgia

Robert Trautman | Property Insurance Coverage Law Blog | March 7, 2018

Steaming ahead on our 50-State claims handling tour, we now pull in to the Peach State – Georgia. Insurance carriers operating in Georgia are subject to both the Unfair Claims Settlement Practices Act1 and regulations that set forth the guidelines they must follow.

An insurer in Georgia must acknowledge receipt of a first party claim within 15 days of the notice of claim being filed.2 The insurer must also provide proof forms and instructions for completing them within 15 days of the notice of claim being filed.3 The failure to provide the proof of loss forms would be considered an unfair claims practice.4 The carrier must affirm or deny coverage within 15 days of receipt of the proof of loss (30 days from the notice of claim if there is no proof of loss required.5 If the carrier needs more time, they must inform the insured within 5 days of the expiration of the applicable time period and advise why more time is needed and an estimate of how much additional time is needed, although the total time period for a claim decision may not exceed 60 days from the notice of claim.6 Once liability has been determined, claims must be paid within 10 days.7

Further, Ga. Code Ann. §33-6-34 provides that the following actions, if flagrant or if committed with sufficient frequency to constitute a business practice are considered unfair claims practices:

(1) Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue;

(2) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;

(3) Failing to adopt and implement procedures for the prompt investigation and settlement of claims arising under its policies;

(4) Not attempting in good faith to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear;

(5) Compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;

(6) Refusing to pay claims without conducting a reasonable investigation;

(7) When requested by the insured in writing, failing to affirm or deny coverage of claims within a reasonable time after having completed its investigation related to such claim or claims;

(8) When requested by the insured in writing, making claims payments to an insured or beneficiary without indicating the coverage under which each payment is being made;

(9) Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form; provided, however, this paragraph shall not preclude an insurer from obtaining sworn statements if permitted under the policy;

(10) When requested by the insured in writing, failing in the case of claims denial or offers of compromise settlement to provide promptly a reasonable and accurate explanation of the basis for such actions. In the case of claims denials, such denials shall be in writing;

(11) Failing to provide forms necessary to file claims within 15 calendar days of a request with reasonable explanations regarding their use;

(12) Failing to adopt and implement reasonable standards to assure that the repairs of a repairer owned by the insurer are performed in a workmanlike manner;

(13) Indicating to a first-party claimant on a payment, draft check, or accompanying letter that said payment is final or a release of any claim unless the policy limit has been paid or there has been a compromise settlement agreed to by the first-party claimant and the insurer as to coverage and amount payable under the contract; and

(14) Issuing checks or drafts in partial settlement of a loss or claim under a specific coverage which contain language which releases the insurer or its insured from its total liability.

As you can see, Georgia is protective of its insureds and make certain the insurance carriers play by the rules. This is especially true given the trend we are seeing now with managed repair programs, Georgia is ahead of the curve by considering it an unfair claims practice for the insurance carrier to not make certain the repairs are done properly.

1 Ga. Code Ann. §33-6-30.
2 Ga. Comp. R. & Regs. 120-2-52-03(1).
3 Ga. Comp. R. & Regs. 120-2-52-03(2).
4 Ga. Code Ann. §33-6-34(11).
5 Ga. Comp. R. & Regs. 120-2-52-03(3).
6 Ga. Comp. R. & Regs. 120-2-52-03(5).
7 Ga. Comp. R. & Regs. 120-2-52-03(4).