COTTON STATES MUT. INS. v. INT. SURPLUS LINES INS.

• Decision Date: 12 November 1986
• Docket Number: Civ. A. No. C85-2367A.
• Citation: 652 F. Supp. 851
• Parties: COTTON STATES MUTUAL INSURANCE COMPANY and Shield Insurance Company, Plaintiffs, v. INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Georgia

652 F. Supp. 851

COTTON STATES MUTUAL INSURANCE COMPANY and Shield Insurance Company, Plaintiffs, v. INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, Defendant.

Civ. A. No. C85-2367A.

United States District Court, N.D. Georgia, Atlanta Division.

November 12, 1986.

Oscar N. Persons, Alston & Bird, Atlanta, Ga., for plaintiffs.

Walton N. Smith, Lord, Bissell & Brook, Atlanta, Ga., for defendant.

ORDER

ROBERT H. HALL, District Judge.

This case, which arose tangentially to the Georgia appellate courts' Jones and Flewellen line of decisions interpreting Ga.Off'l Code Ann. § 33-34-5(b) of the No-Fault Act, involves plaintiff automobile insurance carrier's claim under its professional service liability policy issued by defendant for coverage of the losses it suffered from so-called Jones liability claims. The matter is currently before the court on defendant's motion for summary judgment and plaintiffs' motion for partial summary judgment on the issue of liability.

FACTS

On or about August 29, 1980, defendant International Surplus Lines Insurance Company ("ISLIC") issued insurance policy No. GP19241 to the plaintiffs, under which the plaintiffs were provided insurance company professional liability coverage for a period commencing August 1, 1980 and ending August 1, 1983.

Cotton States, as a Georgia insurance company, had been required since 1975 to provide no-fault automobile insurance coverage to its insurers pursuant to the Georgia Motor Vehicle Accident Reparations Act, Ga.Off'l Code Ann. §§ 33-34-1 to 33-34-14 (the "No-Fault Act"). (Complaint, ¶ 6; Answer, ¶ 6.)

For the purpose of informing insureds of the optional coverages available, Ga.Off'l Code Ann. § 33-34-5(b) requires certain information about the optional no-fault insurance coverage available pursuant to the No-Fault Act to be included in insurance application forms. (Complaint, ¶ 7; Answer, ¶ 7.)

Pursuant to such requirement, Cotton States prepared its application form as it understood the No-Fault Act to require but did not provide a separate signature line to confirm the choice of optional no-fault coverage.

On October 22, 1980, the Georgia Court of Appeals rendered its decision in the case of Jones v. State Farm Mutual Ins. Co., 156 Ga.App. 230, 274 S.E.2d 623 (1980), holding that the No-Fault Act required application forms to include a separate signature line for each of the optional no-fault coverage amounts and that failure of the insurance company to obtain such separate signature resulted in a "continuing offer" by the carrier to provide optional coverage. This "offer" could be retroactively accepted by the insured even after an automobile accident. Id.

The Georgia Supreme Court granted certiorari in the Jones v. State Farm case, and heard oral argument, but in July, 1981, the Supreme Court dismissed its grant of certiorari as improvidently granted. State Farm Mutual Ins. Co. v. Jones, 248 Ga. 46, 280 S.E.2d 837 (1981). See State Farm Fire & Cas. Co. v. Sweat, 547 F.Supp. 233, 238 (N.D.Ga.1982).

Plaintiffs first received a demand for optional PIP benefits pursuant to the Jones decision (hereinafter "Jones claims") on or about August 6, 1981.

On or about December 23, 1981, plaintiffs filed a class action complaint in the Northern District of Georgia, Gainesville Division entitled Cotton States Mutual Insurance Company & Shield Insurance Company v. J.O. Anderson, Jr., Individually and on behalf of all others similarly situated, Civil Action File No. C81-164G, seeking declaratory and injunctive relief from the mounting number of Jones-type claims. By December 23, 1981, plaintiffs had received a total of 53 Jones claims for optional PIP benefits which were an estimated loss of $1,745,000 to plaintiffs.

ISLIC's Insurance Company Professional Liability Insurance, Policy No. GP19241 was cancelled effective October 18, 1982, pursuant to a policy endorsement.

On October 26, 1982, plaintiffs first notified defendant of claims being asserted against plaintiffs for optional PIP benefits under the Jones v. State Farm decision by letter. In response, ISLIC denied coverage based solely on its contention that each of the claims involved failed to meet the policy's $250,000 deductible amount. (Stipulation filed May 16, 1986, Exhibit 1).

In December, 1982, the Georgia Court of Appeals met en banc and overruled its Jones decision in the case of Atlanta Casualty Co. v. Flewellen, 164 Ga.App. 885, 300 S.E.2d 166 (1982). That decision held that one signature on a no-fault application satisfied the statutory requirement.

On March 3, 1983, the Georgia Supreme Court decided the joint cases of Flewellyn v. Atlanta Casualty and VanDyke v. Allstate Insurance, 250 Ga. 709, 300 S.E.2d 673 (1983). The court held that in the absence of a signed rejection in writing as required by the No-Fault Act, a policy provides $50,000 PIP coverage from the time of its inception. Id. at 712, 715, 300 S.E.2d 673.

Cotton States notified ISLIC of the Supreme Court's Flewellen decision by letter. (Brief in Support, Exhibits 5 and 6). In response, ISLIC again denied coverage, again on the basis of its deductible. (Stipulation filed May 16, 1986, Exhibit 2).

Pursuant to the Georgia Supreme Court's Flewellen decision, Cotton States began to pay claims for additional PIP benefits asserted by those insureds whose applications did not meet the Flewellen requirements, no claims having been paid before that time. (Vickers Deposition, pp. 131-32).

In August 1983, Cotton States again advised ISLIC of its claim and its payment of Jones/Flewellen claims and invited ISLIC's advice in dealing with the insured loss. ISLIC again denied coverage upon the basis of its deductible defense. (Stipulation filed May 16, 1986, Exhibits 4 and 5).

ISLIC, so apprised of the requirements placed upon Cotton States by the Georgia appellate courts never objected to Cotton States subsequent payment of claims for additional PIP benefits or offered its advice and assistance to Cotton States as respected the Jones claims, or sought to deny coverage under its professional service policy on any ground other than its deductible argument. (Complaint, ¶ 12; Answer, ¶ 12; Stipulation filed May 16, 1986, Exhibits 1-5).

Cotton States brought this action seeking indemnification for the losses caused Cotton States due to its failure to have provided its insureds a legally sufficient application as respects optional no-fault coverages as held required by appellate interpretation of the No-Fault Act, and contending such loss was caused by Cotton States' acts or omission in the performance of providing a professional service to its insureds.

The amount of Cotton States' loss approximated $3.8 million at the time of the suit. (Complaint ¶ 24). Cotton States' loss has subsequently exceeded $4 million. (Flanders Deposition, at 14-21).

The parties at oral argument stipulated that no genuine issues of material fact remain as to liability, and that this court may decide the liability issues raised in the parties' cross-motions for summary judgment as a matter of law.

DISCUSSION

Defendant, in its motion for summary judgment, raises several defenses against plaintiffs' action on the policy. The court finds merit to defendant's contention that plaintiffs failed to give timely notice under the policy. The court therefore finds that summary judgment for defendant is warranted. Because this finding by the court resolves the parties' cross-motions for summary judgment, and because the other issues raised by the cross-motions are questions of contract interpretation idiosyncratic to these particular parties, the court feels discussion of the nondispositive issues is unnecessary.¹

1. When Notice Was Required Under the Policy

Under the insurance policy issued by ISLIC to Cotton States, Section III entitled "Loss Provisions", paragraph (a) provides that the insured shall:

Upon notice of any claim or of an act or omission which could reasonably be expected to give rise to a claim hereunder, give immediate written notice thereof to the Company.

(Defendant's Brief, Exhibit A).

Defendant argues that plaintiffs were on notice of a potential claim as soon as the Georgia Court of Appeals decided the original Jones case on October 22, 1980, or alternatively that plaintiffs should have notified ISLIC immediately upon receipt of its first Jones claim on August 6, 1981. Defendant contends that, in any event, plaintiff should have notified ISLIC by December 23, 1981 when plaintiff filed a class action suit in the Northern District of Georgia, Gainesville Division involving 53 Jones claims made against plaintiffs. Cotton States Mutual Insurance Company & Shield Insurance Company v. J.O. Anderson, Jr., C.A. No. C81-164G.

Cotton States counters ISLIC's contentions on the notice issue with two primary arguments. First, Cotton States contends it exercised reasonable diligence under the attending circumstances, and therefore, that its notice was timely. Bituminous Casualty Corp. v. J.B. Forrest & Sons, Inc., 132 Ga.App. 714, 719, 209 S.E.2d 6 (1979). In that case, the court reiterated the familiar judicial construction that the term "immediate" means with reasonable diligence and within a reasonable length of time under the circumstances. Id. at 719, 209 S.E.2d 6. Furthermore, in determining what is reasonable diligence and reasonable time the courts will examine the insured's explanation for delay in giving notice.²

Specifically, plaintiff argues that given the litany of litigation following the decision in Jones, and the uncertainty and confusion caused thereby, notice in October 1982 by Cotton States to ISLIC was given within a reasonable time.

In order to resolve this issue, the court must (1) look to the language of the policy and the course of litigation surrounding Code § 33-34-5(b) to determine when a claim under the ISLIC policy arose which would have required notice by Cotton States, and (2) decide whether Cotton States'...