Colonial Oil Industries Inc. v. Underwriters Subscribing to Policy Nos. To31504670, S97Q0858
| Decision Date | 06 October 1997 |
| Docket Number | No. S97Q0858,S97Q0858 |
| Citation | 268 Ga. 561,491 S.E.2d 337 |
| Parties | , 97 FCDR 3690, 97 FCDR 4010 COLONIAL OIL INDUSTRIES, et al. v. UNDERWRITERS SUBSCRIBING TO POLICY NOS. TO31504670 and TO31504671. |
| Court | Georgia Supreme Court |
Ronald C. Berry, Savannah, for Colonial Oil Industries.
Walter C. Hartridge, Edwin D. Robb, Jr., Bouhan, Williams & Levy, LLP, Savannah, for Underwriters Subscribing to Policy Nos. TO31504670 and TO31504671.
James N. Sadd, Grant G. Morain, Slappey & Sadd, Dorothy Y. Kirkley, Jones, Day, Reavis & Pogue, Atlanta, for Amicus Appellee.
The Eleventh Circuit Court of Appeals certified to this Court questions regarding the scope of an insurer's duty to investigate prior to determining whether to defend a claim brought against its insured and the effect of a wrongful refusal to defend on an insurer's right to raise policy defenses. 1 We conclude that an insurer has no duty to investigate until the insured apprises the insurer of facts that would bring the claim within the policy's coverage. We also conclude that an insurer who has wrongfully refused to defend may raise policy defenses to coverage.
Colonial Oil Industries and Colonial Terminals, Inc. (collectively, Colonial) were insured under a comprehensive general liability policy issued by an insurance underwriters cooperative (Underwriters). The policy provided coverage for defense of even "groundless, false or fraudulent" suits. Colonial was sued by Charles Gay for Colonial's dumping of allegedly hazardous material on property owned by Gay. Colonial notified Underwriters of the dispute, but also informed Underwriters that the material being dumped was not hazardous and was in compliance with Colonial's contract with Gay. Gay subsequently filed suit. Colonial forwarded the complaint to Underwriters and demanded coverage and defense of the Gay suit under its policy with Underwriters. In a letter, Underwriters denied coverage based on several exclusions in the policy, but did not seek a declaratory judgment. After Colonial settled with Gay, it sued Underwriters seeking defense and settlement costs for the failure to defend. The federal district court granted summary judgment to Colonial. 2
1. The first certified question asks whether an insurer has a duty to conduct a reasonable investigation of facts outside those presented in the complaint, or otherwise presented to the insurer by its insured, prior to determining whether to defend a claim brought against the insured. The generally accepted view is that in making a determination of whether to provide a defense, an insurer is entitled to base its decision on the complaint and the facts presented by its insured. 3 The insurer is under no obligation to independently investigate the claims against its insured. This rule is sound policy because the insured is in the best position to investigate and develop facts that will bear on the coverage issue.
2. A different rule, however, applies when the complaint on its face shows no coverage, but the insured notifies the insurer of factual contentions that would place the claim within the policy coverage. The Georgia Court of Appeals held in Loftin v. U.S. Fire Ins. Co., 4 that in this situation the insurer has an obligation to give due consideration to its insured's factual contentions and to base its decision on "true facts." 5 The requirement that an insurer base its decision on true facts will necessitate that the insurer conduct a reasonable investigation into its insured's contentions. 6 To relieve an insurer of any duty to investigate its insured's contentions would allow the allegations of a third-party to determine the insured's rights under its contract. 7 Placing a duty of investigation on insurers in these limited circumstances is not an unreasonable burden, especially in light of the availability of the "procedurally safe course" of providing a defense under a reservation of rights and filing a declaratory judgment action to determine its obligations. 8 An insurer who fails to investigate its insured's contentions and refuses a defense will be liable for a breach of the duty to defend if a reasonable investigation at the time would have established the potential for coverage. 9
The holding in Great American Insurance v. McKemie, 10 is not inconsistent with this rule. In that case, the complaint against the insured clearly showed that the plaintiff's injuries were not covered by the policy and the insured, unlike Colonial, never brought to the insurer's attention facts that would establish coverage. Thus, the insurer was properly held not to have breached its duty to defend.
3. According to the district court's summary judgment order, Underwriters denied coverage because the allegation in the Gay complaint that the material contained "waste" and "pollution" fell within certain policy exclusions. The district court found as a matter of fact, however, that Colonial informed Underwriters of its position that the dredge material did not contain waste or pollution. The district court correctly held that this triggered Underwriters duty to investigate. Because the district court also found that a reasonable investigation would have revealed the possible existence of coverage, Underwriters breached its duty to defend. 11
4. The second certified question concerns the insurer's right to raise policy defenses to coverage after it has made an unjustified refusal to defend. The Georgia Court of Appeals held in McCraney v. Fire and Cas. Ins. Co., 12 that the insurer is not estopped to raise policy defenses. The rationale for this rule is that when the insurer breaches the contract by wrongfully refusing to provide a defense, the insured is...
To continue reading
Request your trial
-
Andrew v. Century Sur. Co.
...the parties did not agree to by extending coverage to non-covered claims. See Colonial Oil Indus. Inc. v. Underwriters Subscribing to Policy Nos. TO31504670 & TO31504671, 268 Ga. 561, 491 S.E.2d 337, 339 (1997) (stating that the duty to indemnify is independent of the duty to defend, and br......
-
Langdale Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh
...however, is an independent obligation from the duty to pay claims against the insurance policy" (citing Colonial Oil Indus. v. Underwriters, 268 Ga. 561, 491 S.E.2d 337, 339 (1997) )). The Court concludes that the duty to defend and the duty/obligation to pay costs of litigation should be t......
-
G & G SERVICES, INC. v. Agora Syndicate, Inc.
...788 S.W.2d 152, 154 (Tex.Ct. App.1990)). A second view, however, as stated in Colonial Oil Industries v. Underwriters Subscribing to Policy Nos. TO31504670 & TO31504671, 268 Ga. 561, 491 S.E.2d 337 (1997), holds that "[w]hen the complaint on its face shows no coverage, but the insured notif......
-
Foliar Nutrients, Inc. v. Nationwide Agribusiness Ins. Co.
...the insurer must reasonable investigate those facts before resting on their initial refusal. Colonial Oil Indus. Inc. v. Underwriters Subscribing , 268 Ga. 561, 491 S.E.2d 337, 338–39 (1997) (answering certified questions from the Eleventh Circuit.) Thus, "the duty to defend is excused only......
-
Allegations Versus “True Facts”: Which Govern the Duty to Defend? Bonus! A Georgia Court Clears Up What the Meaning of “Is” Is
...490 S.E.2d 374, 376 (Ga. 1997). [3] Colonial Oil Industries, Inc. v. Underwriters Subscribing to Pol’y Nos. TO21504670 & TO31504671, 491 S.E.2d 337, 338 (Ga. 1997). [4] JLM Enterprises, Inc. v. Houston Gen. Ins. Co., 196 F. Supp. 2d 1299, 1304 (S.D. Ga. 2002) (“Under such circumstances, an ......
-
Insurance - Stephen M. Schatz, Stephen L. Cotter, and Bradley S. Wolff
...at 812, 586 S.E.2d at 717. 80. See, e.g., Colonial Oil Indus., Inc. v. Underwriters Subscribing to Policy Nos. TO31504670 and TO31504671, 268 Ga. 561, 491 S.E.2d 337 (1997). 81. Pilz v. Monticello Ins. Co., 267 Ga. App. 370, 373, 599 S.E.2d 220, 222-23 (2004). 82. 267 Ga. App. 370, 599 S.E.......
-
Insurance - Stephen L. Cotter and Charles M. Mcdaniel, Jr.
...308, 508 S.E.2d at 729 (citing Penn-American Ins. Co. v. Disabled Am. Veterans, 268 Ga. 564, 565, 490 S.E.2d 374, 376 (1997)). 60. Id. 61. 268 Ga. 561, 562, 491 S.E.2d 337, 338-39 (1997). 62. Anderson, 235 Ga. App. at 309, 508 S.E.2d at 730. 63. Id. 64. Id. at 310-12, 508 S.E.2d at 730-31. ......
-
Insurance - Stephen M. Schatz, Stephen L. Cotter, and Bradley S. Wolff
...224 Ga. App. 557, 563, 481 S.E.2d 850, 852 (1997)). 17. Id. at 745, 618 S.E.2d at 680 (citing Colonial Oil Indus. v. Underwriters, 268 Ga. 561, 562, 491 S.E.2d 337, 338-39 (1997)). 18. Id., 618 S.E.2d at 679-80. 19. Id. at 755, 618 S.E.2d at 686 (Blackburn, P.J., dissenting). 20. See id. at......