Ga. Cas. & Sur. Co. v. Woodcraft by MacDonald, Inc.

• Decision Date: 29 March 2012
• Docket Number: Nos. A11A2418,A11A2419.,s. A11A2418
• Parties: GEORGIA CASUALTY AND SURETY COMPANY v. WOODCRAFT BY MACDONALD, INC. et al. Woodcraft by MacDonald, Inc. et al. v. Georgia Casualty and Surety Company.
• Court: Georgia Court of Appeals

315 Ga.App. 331

726 S.E.2d 793

12 FCDR 1369

GEORGIA CASUALTY AND SURETY COMPANY

v.WOODCRAFT BY MACDONALD, INC. et al.

Woodcraft by MacDonald, Inc. et al.

v.Georgia Casualty and Surety Company.

Nos. A11A2418, A11A2419.

Court of Appeals of Georgia.

March 29, 2012.

Naveen Ramachandrappa, Atlanta, for Appellant.

Clarence Morris Mullin, for Appellee.

PHIPPS, Presiding Judge.

After obtaining monies pursuant to a subrogation clause of a commercial property insurance policy, Georgia Casualty and Surety Company was sued in connection therewith by Brad MacDonald and his company, Woodcraft by MacDonald, Inc. d/b/a Coachcraft (hereinafter “Coachcraft”). They alleged that they were insured parties, yet had not been made whole for their underlying losses. They sought damages from Georgia Casualty, asserting theories of breach of the insurance policy and bad faith refusal to ensure they were made whole. On cross-motions for summary judgment, the trial court rejected Georgia Casualty's argument that it could not be held liable for pursuing its contractual subrogation rights, but ruled in the insurance company's favor with respect to the bad faith claim. Because the record establishes that Georgia Casualty was entitled to summary judgment with respect to both claims, we affirm in part and reverse in part.

Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” ¹ “In our de novo review of the grant [or denial] of a motion for summary judgment, we must view the evidence, and all reasonable inferences drawn therefrom, in the light most favorable to the nonmovant.” ²

Background Facts

During the night of February 14, 2004, an underground gas pipeline owned and operated by Atmos Energy Corporation fractured beneath Coachcraft's business premises. Natural gas filled the Coachcraft building, and at approximately 1:20 a.m. on February 15, a fire and explosion damaged or destroyed the building and certain of its contents.

Coachcraft was in the business of renovating the interiors of recreational vehicles (RVs). Property that was damaged or destroyed by the fire and explosion included RVs belonging to customers, tools and other personal property belonging to Coachcraft employees, and an RV and personal tools that belonged to the company's owner, Brad MacDonald.

Insurance Coverage and Proceeds Paid

At the relevant time, Coachcraft maintained two insurance policies with Georgia Casualty. One, a commercial garage policy, provided physical damage coverage for customers' vehicles stored on the Coachcraft property. Pursuant to this policy, Georgia Casualty paid $1,307,169 collectively to customers whose vehicles were damaged or destroyed as a result of the fire and explosion.

The other one was a commercial property policy, which covered damage to Coachcraft's building and business personal property, as well as Coachcraft's losses for business interruption and related expenses. Pursuant to this policy, Georgia Casualty paid Coachcraft $220,000 for the damaged building, $100,000 for business interruption, $40,000 for damage to business personal property, and $8,000 collectively to certain Coachcraft employees for damage to their personal property. These payments, totaling $368,000, exhausted all available limits of coverage under this policy. Coachcraft has continued to maintain that the losses it incurred during the fire and explosion exceeded the policy limits.

Subrogation Litigation in Federal Court

In July 2005, Georgia Casualty filed suit as subrogee under the two insurance policies, seeking to recover from Atmos the $1,307,169 paid to the individual owners of damaged personal property and the $368,000 paid to Coachcraft, plus interest, attorney fees and expenses of litigation. According to Georgia Casualty's suit, Atmos had negligently maintained the natural gas pipeline. Atmos removed the case to federal district court. About two months later, in October 2005, Brad MacDonald and Coachcraft intervened as plaintiffs, seeking to recover from Atmos their alleged losses sustained in excess of the commercial property policy.

Asserting a litany of defenses, Atmos contended that it had no liability to any of the plaintiffs. In addition, Atmos filed various indemnification and contribution counterclaims against Brad MacDonald and Coachcraft, alleging that they had been negligent in failing to properly construct and ventilate the Coachcraft building. To support each of its contentions, counterclaims, and affirmative defenses, Atmos provided expert witness testimony.

Georgia Casualty hired and paid for a team of expert witnesses needed to support its liability claims against Atmos and to defend against the counterclaims that were asserted by Atmos against Brad MacDonald and Coachcraft. Then, after discovery, Atmos filed a Daubert motion, which the federal court denied.

Two and a half years after Georgia Casualty filed its subrogation suit, in January 2008, the insurance company and Atmos reached an agreement in principle: Georgia Casualty would accept from Atmos $950,000 in exchange for a complete release of all of Georgia Casualty's claims (totaling $1,675,169). As part of this settlement, Atmos agreed to dismiss its counterclaims against Brad MacDonald and Coachcraft; and Georgia Casualty and Atmos agreed that Brad MacDonald and Coachcraft would be allowed to continue to pursue their claims for damages against Atmos. Georgia Casualty filed a motion to dismiss its complaint against Atmos; and Atmos filed a motion to dismiss its counterclaims against Brad MacDonald and Coachcraft.

But Brad MacDonald and Coachcraft filed an objection to Georgia Casualty's motion to dismiss, and an objection to the settlement between Georgia Casualty and Atmos. They argued that Georgia Casualty was prohibited from settling its subrogation claims with Atmos until such time as they were “made whole.” The federal court conducted a hearing at which counsel for Brad MacDonald and Coachcraft pursued these objections. The court denied the objections, specifically determining that Brad MacDonald and Coachcraft were neither prejudiced nor prohibited from continuing to pursue their non-covered claims against Atmos and stating further that “this will give you something in the case to potentially appeal.” Thereupon, the court approved the settlement and granted the motions to dismiss.

Brad MacDonald and Coachcraft elected not to proceed to trial; they settled with Atmos for $125,000.

The Instant Litigation

Dissatisfied with their settlement amount, Brad MacDonald and Coachcraft made a demand upon Georgia Casualty, asserting that Georgia Casualty was required to pay from the proceeds that it had received from Atmos the amount they claimed would make them whole. (Brad MacDonald would later depose that this amount was approximately $179,130.59—an amount which represented their alleged total losses of $629,605.66, minus $368,000 paid as policy limits by Georgia Casualty, minus $125,000 paid in settlement by Atmos, plus $42,524.93 in attorney fees incurred in federal court.) When Georgia Casualty denied their demand, this lawsuit ensued.

Brad MacDonald and Coachcraft filed a complaint in superior court, alleging that Georgia Casualty had “breached the contract of insurance by not making its insureds whole for their losses prior to accepting a subrogation settlement with the tortfeasor.” ³ According to them, “Georgia Casualty had a duty to ensure that its insureds, the Plaintiffs, were made whole before Georgia Casualty, as subrogee, accepted money from the tortfeasor.” ⁴ They claimed that Georgia Casualtyhad violated “Georgia law and public policy by accepting a settlement from the tortfeasor without its insureds having been made whole for their losses.”

In addition, Brad MacDonald and Coachcraft alleged in their complaint, “Defendants are guilty of bad faith towards its insureds by refusing to ensure that its insureds were made whole for their losses before settling subrogation claims alleged against the tortfeasor and seeking a dismissal from the lawsuit against Atmos Energy.”

Georgia Casualty denied liability and moved for summary judgment, pointing out that it had paid the limits of the policy at issue and arguing further that it could not be held liable for damages under either asserted theory for reason that Georgia law did not impose the duty alleged. In their cross-motion, Brad MacDonald and Coachcraft conceded that Georgia Casualty had paid the policy limits, but maintained that they had sustained losses in excess thereof. They took the position that

The Georgia “made whole” doctrine means that an insurance company exercising subrogation rights must demonstrate that the insured was made whole for its loss before it may participate in a recovery from the tortfeasor.... The law of Georgia requires proof that the insured was “made whole” for its loss before the rights of subrogation vest.

Brad MacDonald and Coachcraft urged from the superior court a ruling to the effect that Georgia Casualty was bound by such duty and therefore could be held liable.

The superior court granted Brad MacDonald and Coachcraft's motion. Citing Florida Farm Bureau Ins. Co. v. Martin⁵ and Garrity v. Rural Mutual Ins. Co.,⁶ the court held that “the ‘made whole’ doctrine is applicable to ... property claims.” Thereupon, it found “Georgia Casualty to be liable to plaintiffs to the extent plaintiffs have not been made whole and that Georgia Casualty has received such sums through subrogation claims.” However, the court granted Georgia Casualty's motion as to the bad faith claim.

Case No. A11A2418

1. Georgia Casualty contends that the trial court erred by granting Brad MacDonald and Coachcraft's motion and denying its motion, maintaining that it breached no duty in...