American Home Assur. Co. v. Smith

• Decision Date: 15 September 1995
• Docket Number: No. A95A1733,A95A1733
• Citation: 462 S.E.2d 441,218 Ga.App. 536
• Parties: AMERICAN HOME ASSURANCE COMPANY v. SMITH et al.
• Court: Georgia Court of Appeals

Page 441

462 S.E.2d 441

218 Ga.App. 536

AMERICAN HOME ASSURANCE COMPANY v. SMITH et al.

No. A95A1733.

Court of Appeals of Georgia.

Sept. 15, 1995.

Duncan & Mangiafico, George E. Duncan, Jr., Leslie P. Becknell, Atlanta, for appellant.

Walbert & Mathis, David F. Walbert, Charles A. Mathis, Jr., Atlanta, Shelly Tice, Monticello, O. Hale Almand, Jr., Daniel E. Potter, Macon, for appellees.

JOHNSON, Judge.

Denise Hatch Kennedy was referred to R. Douglas Smith, Ph.D., a psychologist, for diagnostic clarification and formulation of a treatment plan for a multiple personality disorder. Smith actually initiated treatment and identified at least four or five separate personalities, known as alters, living inside Kennedy. According to Smith's deposition testimony, the goal of his treatment was to integrate the various alters into a single "host" personality. As part of the therapy, Smith assumed some of the characteristics of the perpetrators of past sexual abuse in order to elicit the "re-experiencing" of traumatic events so that the past trauma could be recognized and resolved. Kennedy suspected the therapy she was receiving from Smith was inappropriate, and she contacted the police. She was fitted with a concealed electronic transmitting device, and several sessions were recorded. During one session, Smith placed Kennedy under hypnosis and suggested that she felt very sensual. He then suggested that he lay beside her and hold her. In another session he asked one of Kennedy's alters, "Sabrina," to present herself. Smith then urged her to please him, and make him happy. He told her to lower her jeans and underclothes so that he could hold her closely and kiss her, ostensibly to create a scenario similar to an event she had previously described involving her father. At that point in the session, Kennedy gave a code word to police who interrupted the session.

Kennedy brought suit against Smith alleging malpractice. His insurance carrier, American Home Assurance Company, filed the underlying declaratory judgment action to determine the scope of coverage available. We granted American Home's application for interlocutory appeal from the trial court's denial of its motion for summary judgment. This appeal presents us with two issues for resolution: First, whether the trial court erred in holding that a special provision relating to sexual misconduct in the Psychologists Professional Liability Policy issued by American Home to Smith, which limits recovery to $25,000 for claims against its insureds arising out of "actual or alleged erotic physical contact," contravenes public policy and is void; ¹ and second, whether the trial court erred in concluding that there was a jury question as to whether Smith's acts constitute sexual misconduct as defined in the policy. The trial court concluded that the special provision in the policy relating to sexual misconduct violates public policy because it penalizes patients who report sexual misconduct of their psychologists, discouraging injured clients from taking action to stop sexual misconduct of psychologists. Because we believe that this conclusion unfairly presumes that an injured plaintiff decides whether to sue based upon the amount of insurance coverage available, and because we find that the freedom to contract for varying levels of coverage for various risks does not, in and of itself, violate public policy, we reverse.

1. While this is a case of first impression in Georgia, several other states have analyzed this provision in terms of whether it violates public policy. ² "It is well settled that contracts will not be avoided by the courts as against public policy, except where the case is free from doubt and where an injury to the public interest clearly appears.... Unless prohibited by statute or public policy, the parties are free to contract on any terms and about any subject matter in which they have an interest, and any impairment of that right must be specifically expressed or necessarily implied by the legislature in a statutory prohibition and not left to speculation." (Citations and punctuation omitted.) City of Pembroke v. Hagin, 194 Ga.App. 642, 643(1), 391 S.E.2d 465 (1990). Insurance policies are not excepted from the general principle of freedom to contract. "An insurance company may fix the terms of its policies as it wishes, provided they are not contrary to law, and it may insure against certain risks and exclude others. If the terms of the contract are clear and express, the courts cannot extend or enlarge the contract by implication or construction so as to embrace an object or limitation distinct from that originally contemplated and not included in the express provisions. In those cases where restrictions or limitations have been imposed by the courts on the right of an insurer to define and limit the risk or liability assumed under the terms of a policy, it has been on the basis of mandatory statutory provisions specifying the minimum coverage to be provided." (Citations and punctuation omitted.) Hulstzman v. State Farm, etc., Ins. Co., 188 Ga.App. 12, 13(2), 372 S.E.2d 9 (1988).

Georgia has a policy of protecting psychotherapy patients from sexual exploitation by therapists, and a psychotherapist who engages in a sexual relationship with his or her patient is guilty of a criminal offense. OCGA § 16-6-5.1. A civil remedy may also be available, although Georgia's...