Hoover v. Maxum Indem. Co.

• Decision Date: 18 June 2012
• Docket Number: S11G1683.,Nos. S11G1681,s. S11G1681
• Citation: 291 Ga. 402,730 S.E.2d 413,12 FCDR 2564
• Parties: HOOVER v. MAXUM INDEMNITY COMPANY. Hoover v. Maxum Indemnity Company.
• Court: Georgia Supreme Court

291 Ga. 402
730 S.E.2d 413
12 FCDR 2564

HOOVER
v.
MAXUM INDEMNITY COMPANY.
Hoover
v.
Maxum Indemnity Company.

Nos. S11G1681, S11G1683.

Supreme Court of Georgia.

June 18, 2012.

[730 S.E.2d 414]

Lance Alan Cooper, The Cooper Firm, Mathew G. Nasrallah, Robertson, Bodoh & Nasrallah, LLP, Marietta, GA, for appellant.

Philip Wade Savrin, Freeman Mathis & Gary, LLP, Christopher Bryan Freeman, Carlton Fields, P.A., Atlanta, GA, for appellee.

Christopher Bryan Freeman, David M. Leonard, Carlton Fields, P.A., Atlanta, for amici appellees.

[730 S.E.2d 415]

John Stephen Berry, J. Randolph Evans, McKenna, Long & Aldridge, LLP, Atlanta, GA, amici appellants.

HUNSTEIN, Presiding Justice.

[291 Ga. 402]James Matthew Hoover sustained a serious brain injury on October 20, 2004 when he fell while climbing down from the roof of a residence while working for his employer, Emergency Water Extraction Services, LLC (“EWES”). At the time of the accident, EWES held a commercial liability insurance policy issued by Maxum Indemnity Company. Maxum denied coverage and refused to defend, citing the policy's Employer Liability Exclusion.

After Hoover obtained a $16.4 million negligence judgment against EWES, he filed suit against Maxum pursuant to an assignment of claims from EWES, asserting breach of the duty to defend and seeking indemnification. The trial court granted both Maxum's motion for summary judgment finding that EWES failed to provide timely notice of the occurrence and Hoover's motion for partial summary judgment finding that Maxum breached its duty to defend the underlying tort action. The Court of Appeals affirmed the trial court's grant of summary judgment on the timely notice issue and reversed the grant of summary judgment on the issue of Maxum's duty to defend. Hoover v. Maxum Indemnity Co., 310 Ga.App. 291, 712 S.E.2d 661 (2011).

[291 Ga. 403]We granted certiorari to determine whether the Court of Appeals properly analyzed the claim that Maxum waived its right to assert a defense based on untimely notice and whether timely notice of the occurrence was a prerequisite to Maxum having a duty to defend in the underlying tort action. We reverse as to the notice issue, finding that Maxum waived its right to assert a defense based on untimely notice because it did not properly alert EWES that the lack of timely notice would be a potential bar to coverage. We also reverse the Court of Appeals' decision regarding Maxum's duty to defend, finding that since Maxum waived its right to assert a defense related to EWES's failure to give timely notice of the occurrence, timely notice of the occurrence was not a prerequisite to Maxum's duty to defend.

Hoover fell from a ladder while descending from a roof on October 20, 2004, causing a serious brain injury. At the time of the accident, Hoover was employed by EWES. Hoover's supervisor asked him to deliver a ladder to a job site where an independent roofing contractor was making repairs on the roof. Hoover delivered the ladder and the roofer asked him to come to the roof to assist with the repairs. Hoover complied. After several minutes, the roofing contractor asked Hoover to retrieve some materials from the ground. Hoover fell as he was descending the ladder. Hoover's duties as a water extraction technician for EWES did not include climbing on ladders or making roof repairs.

EWES's co-owner, Jeff Owen, visited Hoover in the hospital on the day of the accident. There, Owen spoke with Hoover's step-father, Jerry McEntee, who was an insurance agent. McEntee requested EWES's insurance information and told Owen that he would be contacting Maxum to verify the policy and coverage under the policy. About a week later, McEntee told Owen that he had notified Maxum of the occurrence and had discovered that EWES's policy with Maxum had a $1 million liability limit.

On September 22, 2006, Hoover filed a personal injury lawsuit against EWES and others.¹ Hoover served EWES with a copy of the complaint and EWES's attorney forwarded the complaint to Maxum. Maxum asserts that its first notice of Hoover's injury was EWES's correspondence dated October 19, 2006 enclosing the complaint.²

On October 23, 2006, Maxum responded by disclaiming coverage under the policy and informing EWES that it would not be providing [291 Ga. 404]a defense or indemnification, citing the policy's Employer's Liability Exclusion as the basis for refusing to defend. The letter

[730 S.E.2d 416]

also purports to reserve Maxum's right to claim a number of other defenses, including that “coverage for this matter may be barred or limited to the extent the insured has not complied with the notice provisions under the policy.” The notice provision under the policy provides, “You must see to it that we are notified as soon as practicable of an ‘occurrence’ or an offense which may result in a claim.” The denial letter further stated:

Maxum's specific enumeration of the above policy defenses is not intended as a waiver of any other policy defenses that Maxum may have or that may arise from facts discovered in the future[,] nor should Maxum be estopped from raising additional coverage defenses. Maxum also continues to reserve the right to raise any other coverage defenses, including the right to disclaim coverage on any other basis that may become apparent as this matter progresses and as Maxum obtains additional information.

On February 14, 2007, Maxum filed a declaratory judgment action against EWES. ³ Maxum did not include failure to comply with the notice provisions as a reason for denying coverage in its complaint in that action. Instead, Maxum simply stated that EWES's claims were precluded by the Employer's Liability Exclusion. Maxum did cite EWES's failure to comply with the notice provisions of the policy as a defense in its answer to the third-party lawsuit filed by EWES and in its answer to the complaint in the instant lawsuit. However, in its motion for summary judgment in the third-party action, Maxum again asserted only the Employer Liability Exclusion as a basis for denying coverage.

1. Under Georgia law, where an insurer is faced with a decision regarding how to handle a claim of coverage at the same time a lawsuit is pending against its insured, the insurer has three options. First, the insurer can defend the claim, thereby waiving its policy defenses and claims of non-coverage. Gant v. State Farm Mut. Auto. Ins. Co., 109 Ga.App. 41, 43–44, 134 S.E.2d 886 (1964). Second, the insurer can deny coverage and refuse to defend, leaving policy defenses open for future litigation. Southern Guar. Ins. Co. v. Dowse, 278 Ga. 674(1), 605 S.E.2d 27 (2004). Or, third, the insurer can defend [291 Ga. 405]under a reservation of rights. Id. at 676, 605 S.E.2d 27 (insurer “had a choice when timely notified of the claim pending against its insured-either defend under a reservation of rights or decline to defend”). An insurer cannot both deny a claim outright and attempt to reserve the right to assert a different defense in the future. See Browder v. Aetna Life Ins. Co., 126 Ga.App. 140, 144(2), 190 S.E.2d 110 (1972) (“ultimate denial of liability on another ground constitutes a waiver of forfeiture based on the lack of timely notice”). Cf. Morgan v. Guaranty Nat. Cos., 268 Ga. 343, 344, 489 S.E.2d 803 (1997) (insurer cannot deny a claim and then seek declaratory judgment to determine the propriety of the denial; declaratory judgment is only available where the insurer undertakes a defense but is uncertain how to handle the claim).

A reservation of rights is a term of art in insurance vernacular and is designed to allow an insurer to provide a defense to its insured while still preserving the option of litigating and ultimately denying coverage. National Union Fire Ins. Co. v. American Motorists Ins. Co., 269 Ga. 768, 769(1), 504 S.E.2d 673 (1998). “At a minimum, the reservation of rights must 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.” World Harvest Church, Inc. v. Guideone Mut. Ins. Co., 287 Ga. 149, 152(1), 695 S.E.2d 6 (2010) (Emphasis supplied.) (Citation and punctuation omitted.) Thus, a reservation of rights is only available to an insurer who undertakes a defense while questions remain about the validity of the coverage.

The Court of Appeals erred when it held, contrary to Georgia law, that Maxum could both deny the claim and reserve its

[730 S.E.2d 417]

right to assert other defenses later. When an insurer is presented with notice of a claim and demand for a defense, the “proper and safe course of action ... is to enter upon a defense under a reservation of rights and then proceed to seek a declaratory judgment in its favor.” Richmond v. Georgia Farm Bureau Mut. Ins. Co., 140 Ga.App. 215, 217(1), 231 S.E.2d 245 (1976). Maxum failed to properly reserve its rights to assert a notice defense when it denied EWES's claim on the grounds of the Employer Liability Exclusion and refused to undertake a defense.

The disclaimer language in Maxum's denial letter purporting to reserve its rights to assert certain defenses later was not a reservation of rights in the sense that term is used in the insurance industry. The dissent's assertion that a reservation of rights in the context of a denial of coverage is “a standard and acceptable means of determining one's rights” is a misstatement of the law. As the court held in Richmond, supra, the standard and acceptable procedure for an [291 Ga. 406]insurer to determine its rights is to agree to defend under a reservation of rights and then file a declaratory judgment action. Richmond, 140 Ga.App. at 217, 231 S.E.2d 245.

The dissent's reliance on Brazil v. Gov't Employees Ins. Co., 199 Ga.App. 343, 344(2), 404 S.E.2d 807 (1991) is also inapposite. The facts in the present matter are readily distinguishable from the facts in Brazil. In Brazil, the court held that a...