Hernandez v. Great Am. Alliance Ins. Co.

• Decision Date: 04 October 2022
• Docket Number: A22A1147, A22A1211
• Citation: 365 Ga.App. 511,879 S.E.2d 522
• Parties: HERNANDEZ v. GREAT AMERICAN ALLIANCE INSURANCE COMPANY. Star Residential, LLC et al. v. Great American Alliance Insurance Company.
• Court: Georgia Court of Appeals

365 Ga.App. 511

879 S.E.2d 522

HERNANDEZ

v.GREAT AMERICAN ALLIANCE INSURANCE COMPANY.

Star Residential, LLC et al.

v.Great American Alliance Insurance Company.

A22A1147, A22A1211

Court of Appeals of Georgia.

October 4, 2022

William Thomas Lacy Jr., Lindsey & Lacy, for Appellant in A22A1147.

John David Hipes, Hipes & Belle Isle, Alpharetta, for Appellant in A22A1211.

Michael J. Athans, Robert Peter Marcovitch, Rachael Hope Slimmon, Freeman Mathis & Gary, Atlanta, for Appellee.

Doyle, Presiding Judge.

In this declaratory judgment action, the appellants challenge the grant of summary judgment to Great American Alliance Insurance Company ("GAAIC"). In its ruling, the trial court determined that a GAAIC umbrella insurance policy did not cover an insurance claim made by Star Residential, LLC ("Star"), and Terraces at Brookhaven, LLC ("Terraces") (collectively, the "Insureds"), based on a shooting injury suffered by Manuel Hernandez (collectively with the Insureds, the "Claimants"). Hernandez appeals in Case No. A22A1147, and Star and Terraces appeal in Case No. A22A1211, adopting Hernandez's arguments seeking insurance coverage.¹ The Claimants argue that the trial court erred by ruling that the umbrella policy did not cover the Insureds’ claims because: (1) GAAIC's conduct waived its policy defenses, and (2) the GAAIC umbrella policy did not "follow form" to certain underlying insurance that excluded coverage. Because the trial court correctly interpreted and applied the insurance policies at issue, we affirm.

Summary judgment is appropriate when 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. We review a trial court's summary judgment ruling de novo, construing the evidence and all reasonable inferences favorably to the nonmovant.²

The undisputed record shows that Star and Terraces own and/or operate an apartment complex where Hernandez lived. In May 2017, Hernandez was shot twice in the back by two assailants as he approached the door to his apartment one night. Within days, Star generated an incident report, notified Terraces about the shooting, and notified its primary insurance carrier, Associated Industries Insurance Company, Inc. (a/k/a AmTrust North America; herein "AIIC"). Two weeks after that, counsel for Hernandez notified the Insureds that he represented Hernandez. At that time, the Insureds did not notify GAAIC about any potential claim.

In early December 2017, primary carrier AIIC received a formal demand letter from Hernandez seeking $1.5 million in compensation. The Insureds gave GAAIC notice of the claim on February 2, 2018. A few days later, GAAIC acknowledged the notice and stated that it had logged the matter as "incident only," and it did not expect to take any further action at this time, reminding the Insureds to report the claim to their primary insurance carrier if they had not already.

In March 2018, Hernandez sued the Insureds and served them in April 2018. In May 2018, AIIC sent the Insureds a letter denying coverage and declining to represent the Insureds in the litigation. In June 2018, GAAIC began paying for legal representation for the Insureds. Within a day of initiating representation, on June 20, 2018, GAAIC sent the first of three reservation of rights letters to the Insureds.

Among other things, GAAIC's June 2018 reservation of rights letter noted AIIC's denial of primary insurance coverage of bodily injury because: AIIC only covered injury due to "accident," as opposed to intentional conduct, and AIIC's primary policy also excluded coverage for bodily injury arising from the use of firearms. The GAAIC reservation of rights letter further noted that punitive damages were not covered by its umbrella policy, stating that the umbrella policy

provides coverage, subject to all its terms and provisions, only for the portion of the damages above the ... $1 million general liability primary policy limit identified in the Schedule of Underlying Insurance. As discussed above, the primary insurer [AIIC], which provided a $1 million general liability policy beneath [GAAIC's] Umbrella Policy, has denied coverage based on the Firearms Exclusion in the primary policy. If this coverage denial is correct, then you are responsible for the first $1 million to satisfy any judgment Mr. Hernandez may obtain....

The letter also quoted the basic coverage language in the GAAIC umbrella policy stating that the coverage applied to " ‘bodily injury’ ... caused by an ‘occurrence,’ " and the letter stated that coverage would be subject to the "exclusions, terms, and conditions of this [umbrella] Policy." Although the letter did not quote the definition of "occurrence," the GAAIC policy defines it as an accident, as opposed to intentional conduct, similar to the AIIC policy. Further, the letter stated that GAAIC "reserves the right to rely upon all the terms, provisions[,] and exclusions in its Umbrella Policy and in the underlying primary policy." One of those provisions not explicitly highlighted in the June 20 reservation of rights letter is a portion of the definition of "Insured" stating: "coverage applies only if the [underlying insurance] organization is included under the coverage provided by the policies listed in the Schedule of Underlying Insurance and then for no broader coverage than is provided under such ‘underlying insurance. ’ "³

Eleven months later, in May 2019, GAAIC sent the Insureds a supplemental reservation of rights letter after Hernandez added claims for nuisance and negligence per se. That letter noted that "[t]he same provisions of both [AIIC's] and [GAAIC's] policies discussed in the initial reservation of rights letter apply to Hernandez's additional claims...." Further, the letter stated, "We next draw your attention to the definitions of ‘bodily injury’ ... and ‘occurrence’ under [GAAIC's] policy," later noting that " ‘occurrence’ ... is defined as ‘an accident.’ "

A year later, in May 2020, GAAIC sent a second supplemental reservation of rights letter. In that letter, GAAIC explained that for the Insureds, "the [GAAIC] policy states that ‘coverage applies only if the organization is included under coverage provided by the [underlying policies] ... and then for no broader coverage than is provided under such ‘underlying insurance.’ " Therefore, the letter explained, the AIIC exclusions "apply equally to bar coverage in the [GAAIC] policy," including the firearms exclusion in the AIIC policy.⁴

In August 2020, GAAIC filed the present declaratory judgment action seeking resolution of the coverage issue with respect to GAAIC's policy. Over the ensuing months, GAAIC moved for summary judgment, Hernandez responded, and the Insureds filed a cross-motion for partial summary judgment. Following a hearing, the trial court granted GAAIC's motion for summary judgment and denied the Insureds’ cross-motion for summary judgment. The Claimants now appeal.

1. The Claimants first argue that GAAIC waived its policy defenses when it assumed their defense on June 19, 2018, without timely and specifically reserving its rights to assert its policy defenses. We disagree.

As a general rule,

risks not covered by the terms of an insurance policy, or risks excluded therefrom, while normally not subject to the doctrine of waiver and estoppel, may be subject to the doctrine when the insurer, without reserving its rights, assumes the defense of an action or continues such defense with knowledge, actual or constructive, of noncoverage. But the insurer can avoid estoppel by giving timely notice of its reservation of rights which fairly informs the insured of the insurer's position. To [be] ... sufficient, the reservation of rights must, at a minimum, fairly inform the insured that, notwithstanding the insurer's defense of the action, it disclaims liability and does not waive the defenses available to it against the insured. Additionally, the reservation of rights should also inform the insured of the specific basis for the insurer's reservations about coverage. And importantly, to be effective, a reservation of rights must be unambiguous; if it is ambiguous, the purported reservation of rights must be construed strictly against the insurer and ... in favor of the insured. Finally, the notice cannot be only a statement of future intent, and, once again, must be timely.⁵

In sum, "an insurer is not required to list each and every basis for contesting coverage in its initial reservation-of-rights letter in order to preserve its right to later assert a particular ground for noncoverage, [but] it must act reasonably promptly upon learning of a policy defense."⁶

Here, it is undisputed that within 24 hours of a discussion about assuming the Insureds’ defense, GAAIC sent the Insureds its first reservation of rights letter.⁷ This letter was sufficiently prompt⁸ and quoted the firearms exclusion in the underlying AIIC policy, as well as GAAIC's umbrella coverage provision triggered by an "occurrence," which is defined in GAAIC's policy as "an accident."...