Cotton States Mut. Ins. Co. v. McFather, 40032

CourtSupreme Court of Georgia
Citation251 Ga. 739,309 S.E.2d 799
Docket NumberNo. 40032,40032
PartiesCOTTON STATES MUTUAL INS. CO. v. McFATHER, Co-Admr., et al.
Decision Date05 December 1983

J. Franklin Edenfield, Spivey, Carlton & Edenfield, P.C., Swainsboro, for Cotton States Mut. Ins. Co.

Jesse G. Bowles III, Hatcher, Stubbs, Land, Hollis & Rothschild, Albert W. Stubbs, Cuthbert, for Ben McFather, Co-Admins., et al.

HILL, Chief Justice.

This is another case arising from Jones v. State Farm Mutual Auto Ins. Co., 156 Ga.App. 230, 274 S.E.2d 623 (1980) (cert. dismissed, July 7, 1981), overruled in Atlanta Casualty Co. v. Flewellen, 164 Ga.App. 885, 300 S.E.2d 166 (1982), which was itself reversed in Flewellen v. Atlanta Casualty Co., 250 Ga. 709, 300 S.E.2d 673 (1983). Allegedly new issues are presented as to the constitutionality of the Georgia Motor Vehicle Accident Reparations Act, OCGA §§ 33-34-1 et seq. (Code Ann. § 56-3401b) (no-fault insurance act), as well as the question of whether or not, as a matter of law, insurance companies should be subject to bad faith penalties for failing to pay Jones' claims before this court's decision in Flewellen was rendered and became final.

The Jones/Flewellen controversy has centered around the interpretation of OCGA § 33-34-5(b) (Code Ann. § 56-3404b): "Each application for a policy of motor vehicle liability insurance sold in this state must contain separate spaces for the insured to indicate his acceptance or rejection of each of the optional coverages listed in subsection (a) of this Code section and no such policy shall be issued in this state unless these spaces are completed and signed by the prospective insured." (Emphasis supplied.)

In Jones v. State Farm Mutual Auto. Insurance Co., supra, 156 Ga.App. at (1), 274 S.E.2d 623, a panel of the Court of Appeals held that the no-fault act required insurance companies to offer $50,000 coverage for PIP benefits which could be reduced to a minimum of $5000 PIP coverage at the insured's option. The court held that insurance companies, however, were required to obtain written and signed acceptance or rejection of each of these optional insurance benefits. Failing that, "[t]his statute contemplates that insureds who have not had an opportunity to accept or reject the optional no-fault coverage required to be offered under Code Ann. § 56-3404b(a) [now OCGA § 33-34-5(a) ] are deemed to have been given a 'continuing' offer of such coverage from the date of the issuance of the liability policy until 30 days after being given the opportunity in writing to accept or reject the coverage." Jones, supra 156 Ga.App. at p. 234, 274 S.E.2d 623. After the writ of certiorari was granted by this court, it was then dismissed on July 7, 1981.

Thereafter, on December 1, 1982, in Atlanta Casualty Co. v. Flewellen, 164 Ga.App 885, 889-890, 300 S.E.2d 166, the full Court of Appeals in a 5 to 4 decision re-examined and overruled Jones, finding that the separate signature requirement to show acceptance or rejection of each optional coverage literally mandated by the statute, could not have been intended by the legislature, and that it was acceptable under the statute for the insured to indicate approval of the choices made on the form by one signature demonstrating awareness of the availability of the options. In overruling Jones, as opposed to distinguishing it, the majority appeared to have approved the form used in Jones (see 164 Ga.App. at 895, 300 S.E.2d 166).

This court granted certiorari and, on March 3, 1983, in Flewellen v. Atlanta Casualty Co., 250 Ga. 709, 711, 300 S.E.2d 673 (1983), held "that the requirements of subsection (b) are satisfied by two signatures, one for acceptance or rejection of optional PIP and another to indicate acceptance or rejection of vehicle damage coverage." We also concluded that since under the statute $50,000 PIP is the amount the insurer must offer, and that amount must be specifically rejected in writing, "the insured has the right to demand and receive the benefit of $50,000 coverage upon tender by the insured of such additional premium as may be due and filing of proof of loss by the injured party." Id. at p. 712, 300 S.E.2d 673. Rehearing was denied in Flewellen on March 23, 1983.

In the case now before us, Carl and Ann McFather were killed in an automobile accident on August 9, 1979. On October 25, 1979, personal injury benefits of $5,000 each were paid their administrators by their insurer, Cotton States Mutual Insurance Company. After Jones, the McFathers' administrators made demand on October 30, 1981, on Cotton States for the optional PIP benefits for each of their parents. After receiving the demand, Cotton States sought and received an extension of time, until December 21, 1981, in order to decide how to treat such Jones' claims. 1 Such a time extension was needed because OCGA § 33-34-6(b) (Code Ann. § 56-3406b) requires that no-fault benefits be paid within 30 days of a demand and proof of loss by the insured. "In the event the insurer fails to pay each benefit when due, the person entitled to the benefits may bring an action to recover them and the insurer must show that its failure or refusal to pay was in good faith, otherwise the insurer shall be liable for a penalty not exceeding 25 percent of the amount due and reasonable attorney's fees." OCGA § 33-34-6(c) (Code Ann. § 56-3406b) provides additionally that "in the event that an insurer fails or refuses to pay a person the benefits which the person is entitled to under this chapter within 60 days after proper proof of loss has been filed, the person may bring an action to recover the benefits; and if the insurer fails to prove that its failure or refusal to pay the benefits was in good faith, the insurer shall be subject to punitive damages."

Cotton States denied the McFathers' claim for additional PIP benefits on December 17, 1981. The McFathers then filed this suit on February 8, 1982, seeking the 25% penalty, attorney fees and punitive damages under the statutory penalty provisions, for failing to pay their claims within the allotted times. OCGA § 33-34-6(b), (c) (Code Ann. § 56-3406b), supra. The trial court directed a verdict holding that the McFathers were entitled to $90,000 optional PIP benefits as a matter of law, and the jury returned its verdict for $22,500 as the statutory penalty, $36,000 attorney fees and $138,000 in punitive damages. While Cotton States' motion for new trial was pending, we decided Flewellen. Cotton States appeals.

1. Cotton States argues that the no-fault act is unconstitutional on equal protection grounds insofar as OCGA § 33-34-6(b), (c) (Code Ann. § 56-3406b), supra, places the burden upon the insurance company of proving its good faith in order to avoid penalties. Cotton States argues that in all insurance matters other than automobile no-fault, the burden is upon the insured to show bad faith by the insurance company in order to recover penalties. E.g. OCGA § 33-4-6 (Code Ann. § 56-1206); see also OCGA §§ 33-5-58 (Code Ann. § 56-611); 33-7-11(j) (Code Ann. § 56-407.1).

In Atlanta Casualty Co. v. Jones, 247 Ga. 238, 241, 275 S.E.2d 328 (1981), we said: "Nor do we believe the Code section violates equal protection simply because other types of insurers do not have to prove good faith to avoid punitive damages (rather plaintiffs generally have to show bad faith). We cannot say that the legislature has placed automobile insurance carriers in an arbitrary classification for no valid reason." (Emphasis in original.) Although more could be said for classifying no-fault insurance separately from other insurance, suffice it to say that Cotton States' equal protection challenge has already been decided adversely to its contentions here.

2. Cotton States challenges the constitutionality of the no-fault act, as interpreted in Flewellen, on substantive due process grounds. It contends that the state has failed to carry its burden of showing, in light of Flewellen, that the signature requirement coupled with the insureds' right to make a later demand for the higher optional coverage upon tender of the premiums owed is a legitimate means of reaching the admittedly legitimate legislative goal that insureds knowingly and voluntarily reject optional coverage in favor of minimum mandatory PIP coverage. It argues that, as a result of Flewellen, it has been subjected to "economic devastation" because the premiums collected on the $5,000 minimum mandatory PIP coverage are insufficient to pay all the claimants who have had accidents since 1975 and who can now retroactively increase their coverage to $50,000. Furthermore, it points out that it may be subject to penalties, attorney fees and punitive damages for resisting the payment of these claims.

Normally the burden is upon the challenger to show that a statute is unconstitutional. In arguing that the state must bear the burden of proving that the means used are reasonably related to the legislative goal of prompt payment of no-fault benefits, Cotton States relies on Debra P. v. Turlington, 644 F.2d 397 (5th Cir.1981). In Turlington, a class action, a group of minority students, who failed the first Florida functional literacy competency examination required under the Educational Accountability Act as a requirement for graduation from a Florida high school, challenged the test on due process grounds. Many students represented by plaintiffs...

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