Home Ins. Co. v. North River Ins. Co.
| Decision Date | 28 July 1989 |
| Docket Number | A89A0688,Nos. A89A0687,s. A89A0687 |
| Citation | 385 S.E.2d 736,192 Ga.App. 551 |
| Parties | HOME INSURANCE COMPANY v. NORTH RIVER INSURANCE COMPANY. NORTH RIVER INSURANCE COMPANY v. HOME INSURANCE COMPANY. |
| Court | Georgia Court of Appeals |
Bouhan, Williams & Levy, M. Brice Ladson, Joseph A. Mulherin III, Troutman, Sanders, Lockerman & Ashmore, Daniel S. Reinhardt, William N. Withrow, Jr., Stephen W. Riddell, for appellant.
Drew, Eckl & Farnham, W. Wray Eckl, Stephen R. Kane, for appellee.
Plaintiff North River Insurance Company and defendant The Home Insurance Company provided policies of liability insurance to Intex Products, Inc. ("Intex"), a South Carolina chemical company. The defendant's policy provided "primary coverage to Intex, which coverage included a duty to defend any lawsuits against Intex at the expense of the defendant. The plaintiff's policy was an "umbrella" or "excess" policy which protected Intex against adverse judgments in amounts exceeding the primary coverage up to a limit of ten million dollars. The plaintiff's policy required, and Intex warranted to plaintiff, that certain types and amounts of primary coverage be maintained by Intex, including products liability coverage in an amount of $500,000 for each occurrence.
In 1978 Intex sold several drums of an industrial solvent to Diamond Manufacturing Company ("Diamond"). Diamond used the solvent to clean the fuel tanks of a tugboat, which was being repaired in Diamond's shipyard. On December 26, 1978, a cleaning crew of Diamond employees was overcome by fumes from the solvent. Additional employees breathed the fumes while rescuing the cleaning crew. Twenty-six persons received medical attention as a result of the incident.
Intex notified defendant of the incident on the tugboat via an "Acord" form. The form had been prepared and typed by the independent insurance agent which had obtained the coverage for Intex. The Acord form bore in the space labeled "Bodily Injury" the notation "500,000" and underneath that figure the notation "1,000,000," and following those figures the typed words "Products Liability."
When the Acord form reached defendant's regional office in Charlotte, North Carolina, an experienced claims supervisor attempted to verify defendant's coverage by checking the Acord form against the policy "daily." The "daily" is an abbreviated memorandum of the provisions of an insurance policy from which the entire contract can be reconstructed. The "daily" consists of the declarations page, including a list of the standard forms or clauses which make up a policy, and duplicates of any schedule, lists or other writings which are unique to a particular policy.
When defendant's claims supervisor examined the "daily" for the policy issued to Intex he saw the figures 500,000 and 1,000,000, and concluded that the figures on the Acord form were correct, that is, that the policy issued by defendant to Intex provided coverage of $500,000 for each person to a maximum of $1 million for each accident injuring more than one person. The claims supervisor did not notice that the language of the daily specified that $500,000 was the maximum available for any particular incident or "occurrence," or that $1 million was the aggregate amount available for all occurrences during the policy period. The claims supervisor filled out a "Clerical Instruction Sheet" to show the limits as "500/1000" and checked the "yes" blank on the form in the space labeled "Daily Report Available." A typist then opened a claims file and typed the word "Daily" on defendant's form No. 10-800. That word signaled any defendant's employee who later looked at the form that the coverage shown had been verified against the daily.
Near the end of 1980 three Diamond employees filed lawsuits in federal court against Intex alleging severe personal injuries from breathing the toxic fumes on the tugboat. These three product liability suits sought a total of $4 million for physical and psychiatric injuries. Intex sent the suit papers to its independent insurance agent which in turn sent the complaints to plaintiff and defendant, along with Acord forms.
When the suit papers reached defendant's regional office they were referred to R.M. Morgan, an assistant claims manager. Morgan looked at the Form 10-800 which had been typed in 1979 and saw that the limits were "500/1000" and that the coverage had been verified against the "daily" (in 1979). Because the complaints in federal court were asking for an amount in excess of what Morgan understood defendant's coverage limits to be, Morgan wrote Intex, warning that defendant's policy "affords coverage in the amount of $500,000 for each person to a maximum of $1,000,000 for each accident of more than one person ..." Morgan's letter directed attention to the amount of the claims asserted in the federal lawsuit and recited that it was Intex's "right and privilege to engage counsel, at your expense, to protect your uninsured interest in this litigation." Although Morgan did not know when he wrote the letter whether Intex had excess coverage or not, he also stated that, "If you have policies (sic) available to you under any other insurance policies, it is suggested that you report this matter to such other company ..." Morgan sent a copy of his letter to Intex's independent insurance agent and the agent sent a copy of Morgan's letter and the Acord form to plaintiff.
While plaintiff's claims representative had developed an initial impression, from the Acord form and from figures given on the telephone by defendant's Savannah office, that a million dollars coverage was available for the three claims, this conclusion was reinforced by the receipt of the copy of defendant's letter by Morgan reciting policy coverage in that amount. Plaintiff relied on Morgan's excess letter and on defendant's other assertions. Plaintiff twice examined defendant's claims files which contained the false information as to coverage. Defendant's strategy and course of conduct, including the action of its attorney in the federal litigation, continuously reflected defendant's false assertion about its coverage limits.
During discovery in the federal cases, plaintiff monitored the litigation and periodically prepared detailed evaluations of the damages in each claim in view of the developing medical evidence. While plaintiff's claims personnel had some concern that adverse verdicts might exceed defendant's purported limits of $1 million and thus involve exposure to plaintiff's coverage, plaintiff did not attend settlement conferences in the federal cases since settlement demands were within the purported primary limits. Thus lulled into a passive posture, plaintiff took no active part in the defense or settlement negotiations concerning the federal cases and allocated a reserve of only one dollar for each claimant.
Meanwhile, the three federal cases progressed with jury selection being scheduled for August 27, 1981, and the trial of the first case was to begin on September 2, 1981. On August 7, 1981, the attorney employed by defendant to represent Intex recommended that he be given authority to offer $600,000 in settlement of the three claims. On August 26, 1981, defendant's claims committee decided to authorize $400,000 in settlement of the claims, but directed that the offer not be extended until the three claimants' settlement demands were reduced.
At the time defendant's claims committee met it was anticipated that the three federal cases would be tried separately. However, following jury selection the federal judge announced that the three cases would be consolidated for trial. This precipitated a warning from the attorney retained to represent Intex that such constituted a major change, making defeat even more likely than before, since each victim's account of his emotional and physical injuries would gain credence from the fact that the other claimants were similarly injured. The attorney recommended that defendant pay plaintiffs' demand of $705,000. Defendant offered to settle for $225,000 and finally during trial offered $400,000, which was refused. The three-day trial in federal court concluded with the jury's return of verdicts against Intex totalling $1,250,000.
It was only after the return of the verdict in the federal court cases that defendant discovered its error regarding its coverage limits and asked plaintiff to pay all of the judgment over $500,000. In order to protect Intex from levy or attachment plaintiff paid, but under protest. Plaintiff's offer to arbitrate its dispute with defendant was refused and the filing of the case sub judice followed.
The case sub judice was tried before the State Court of Chatham County sitting without a jury. The state court entered its findings of fact (many of which are incorporated in our statement of the facts) and conclusions of law awarding a judgment in favor of plaintiff and against defendant in the amount of $494,871 special damages, $190,525.33 prejudgment interest and $53,081.33 expense of litigation or a total judgment of $738,477.66, plus court costs. In Case No. A89A0687 defendant appeals from the judgment entered against it. Plaintiff's cross-appeal is Case No. A89A0688. Held:
1. The trial court concluded that when an insurance company defends its insured pursuant to a policy of liability insurance against a claim which seeks damages in excess of the policy's limits and a judgment is returned in excess of those limits, an insurance company which issued a policy of excess or umbrella coverage to that insured is equitably subrogated to any rights the insured might have against its primary carrier for negligent failure to settle. Thus, the trial court found plaintiff to be subrogated to the rights of its insured, Intex, as to claims which Intex might have against defendant, its primary insurer, arising out of the defense of the tugboat claims. While finding no Georgia cases on...
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