Jefferson Ins. Co. of New York v. Dunn, A96A2440

Citation482 S.E.2d 383,224 Ga.App. 732
Decision Date07 February 1997
Docket NumberNo. A96A2440,A96A2440
CourtUnited States Court of Appeals (Georgia)

Page 383

482 S.E.2d 383
224 Ga.App. 732, 97 FCDR 441
No. A96A2440.
Court of Appeals of Georgia.
Feb. 7, 1997.
Reconsideration Denied Feb. 20, 1997.
Certiorari Granted June 6, 1997.

Page 385

Hawkins & Parnell, H. Lane Young II, Kimberly A. Houston Ridley, Thomas G. Tidwell, Edward C. Henderson, Jr., Atlanta, for Appellant.

Webb, Carlock, Copeland, Semler & Stair, Thomas S. Carlock, David D. Cookson, Nickerson & Tuszynski, Thomas H. Nickerson, David E. Tuszynski, Atlanta, for Appellee.

McMURRAY, Presiding Judge.

The following chronology is relevant to this appeal from the judgment awarding to plaintiff Charles Adrian Dunn $1.5 million compensatory damages and a total of $3 million punitive damages, based on a jury's special verdict finding against defendant Overground Atlanta, Inc. ("Overground"), and its insurer, defendant Jefferson Insurance Company of New York ("Jefferson"), for conduct seeking to defeat plaintiff from any likely satisfaction of a prior million dollar judgment against Overground: On November 2, 1982, plaintiff sustained permanent brain damage as a result of being brutally beaten by the manager of the Jolly Fox Lounge, which tavern was owned and operated by Overground. Overground was insured under a liability policy issued by Jefferson, with policy limits of $50,000. This policy promised Overground that Jefferson had "the right and duty to defend any suit against the insured seeking damages on account of ... bodily injury[, ... ] even if any of the allegations of the suit are groundless, false or fraudulent...."

Plaintiff brought an action against the Jolly Fox (Overground) for his personal injuries and offered to settle before trial for the $50,000 limits of coverage under Jefferson's policy. The complaint was forwarded to Jefferson with instructions to "[p]lease handle as quickly as possible." Overground "direct[ed] the insurance company [Jefferson] to settle for the policy limits," but Jefferson refused to settle and further refused to defend its insured, relying on an "Assault and/or Battery Exclusion Endorsement," to deny coverage. [224 Ga.App. 733] Overground ultimately retained its own counsel. For aught that appears

Page 386

of record, Jefferson issued no pre-trial reservation of rights; in any event Jefferson never sought a judicial declaration of its rights and duties under the liability policy. As late as February 24, 1987, plaintiff's counsel offered to settle for the $50,000 policy limits while contending that Jefferson could be liable for any excess judgment based upon its refusal to settle.

The personal injury case proceeded to trial and resulted in a jury verdict and a March 18, 1987 judgment awarding plaintiff $250,000 compensatory damages and $750,000 punitive damages on the bases of "negligence, false imprisonment and malicious prosecution...." Only after judgment against its insured did Jefferson retain separate counsel to pursue an appeal in Overground's name, after being informed that "Overground Atlanta, Inc. is in fact a defunct corporation [which] does not have the funds or intention of appealing from the judgment." As early as April 10, 1987, counsel for Jefferson was concerned that plaintiff and Overground would try to " 'set up' " and " 'sand bag' " the insurer over the million dollar judgment. In late January 1988, as the notice of appeal was being prepared, the insurer contemplated "negotiating some settlement of any exposure under the policy direct[ly with counsel for Overground]." By June 1988, the insurer expressly contemplated that Overground would "execute a policy release ... by virtue of [Jefferson] paying some nominal amount [ ... such as unpaid] attorney's fees and/or expenses in connection with this litigation."

The judgment against Overground was affirmed by a majority of this Court on March 31, 1989. Overground Atlanta v. Dunn, 191 Ga.App. 188, 381 S.E.2d 137. There, the whole court held that the jury's verdict that Overground was independently negligent was authorized on the theory of direct liability for negligent supervision of its employee. Id. at 190(1), 191, 381 S.E.2d 137. Overground's application for certiorari was denied. Id. at 923.

On July 5, 1989, Overground entered into a "RELEASE AND SETTLEMENT AGREEMENT" with Jefferson. In exchange for $5,500, representing unpaid attorney fees owed to Overground's retained counsel, Overground released Jefferson from any and all claims of every character "under Policy No. L137830, ... arising from or in any way relating to an incident which occurred on or about November 2, 1982 at THE JOLLY FOX LOUNGE and any events subsequent thereto involving [plaintiff] CHARLES ADRIAN DUNN, the [tort] case [against Overground ... ], or the judgment entered against OVERGROUND ATLANTA, INC." This represented a "full and final compromise of doubtful and disputed claims," including any potential claim against Jefferson for any alleged negligent or bad faith refusal to defend the underlying tort action to the detriment of [224 Ga.App. 734] its insured.

On July 2, 1992, plaintiff Dunn commenced the instant action against Jefferson, Overground, and Overground's counsel. This complaint alleged that the release and settlement agreement entered into when Overground as a judgment debtor was insolvent amounted to a fraudulent conveyance of Overground's sole remaining asset, to the detriment of plaintiff as a judgment creditor. The complaint specifically alleged that Jefferson "obtained The Release from Overground, ... its officers, directors and attorney, with the intention to delay or defraud [plaintiff] Mr. Dunn of full satisfaction of his judgment for $1,000,000 plus interest and costs." It was further alleged that the release was obtained in "bad faith" and in violation of OCGA § 18-2-22. The complaint also alleged a conspiracy, i.e., a "positive or tacit mutual understanding to defraud [plaintiff] Mr. Dunn ..." out of the proceeds of the policy and the value of Overground's claim against its insurer.

Overground never answered this second suit and was held in default. Jefferson denied the material allegations, admitting only that it knew of plaintiff's claim against Overground as of February 9, 1983; that it did not accept plaintiff's pre-trial offers to settle for the policy limits of $50,000; and that its attorneys drafted the release and settlement agreement. Overground's own trial counsel, an original party defendant, was released without prejudice before trial.

In support of his claims of conspiracy and fraudulent conveyance, plaintiff introduced

Page 387

post-judgment documents and correspondence written by Jefferson's attorneys and claims managers, indicating that Jefferson's agents knew that Overground's potential claim against Jefferson for bad faith refusal to defend or settle within the policy limits constituted Overground's only real asset. Consequently, Jefferson undertook to obtain the release and assignment of any such claim from its insured lest Overground assign the bad faith claim to plaintiff, the judgment creditor. Jefferson was advised that counsel was attempting to obtain the release upon payment of a "nominal figure," and that counsel for Overground was being coached to opine that Jefferson's policy afforded no coverage or else that any exposure was capped by the $50,000 policy limits. Plaintiff's Exhibit 82, the handwritten notes of William Everding, reveal Jefferson's institutional perspective: "A policy release does not protect us from the plaintiff. ... Our [Jefferson's] taking a policy release in exchange for $5,500 'legal bills' would not look too good and might buy us too much trouble by reducing our present 'White Hat' status to one of a combination member who was attempting to bypass the legal process by disapating [sic] the Insured's asset (Our Policy) after the judgment." (Emphasis in original.) Counsel was then instructed to inquire whether the "Insured [would] agree not to sue us in bad faith [224 Ga.App. 735] or not assign his rights to the plaintiff if we pay the attorney's fees?"

Answering special interrogatories, the jury found that plaintiff was entitled to $1.5 million in compensatory damages and further found, by clear and convincing evidence, that both Overground and Jefferson should be liable for punitive damages. The jury subsequently found that Jefferson and Overground each "acted ... with specific intent to cause harm," assessing $2 million punitive damages against Jefferson and $1 million punitive damages against Overground. Jefferson's motions for judgment notwithstanding the verdict or for a new trial were overruled, and this appeal followed. Held:

1. Once a case has been submitted to the jury and a judgment rendered on its verdict, the denial of a summary judgment motion is a moot issue. See Metromedia Steakhouses Co., L.P. v. Ray, 219 Ga.App. 716, 717(1), 466 S.E.2d 618; White v. Lance H. Herndon, Inc., 203 Ga.App. 580(1), 417 S.E.2d 383. Jefferson's first enumeration of error is without merit.

2. In its September 2, 1994 order denying Jefferson's motion for summary judgment, the trial court determined that there was coverage under the policy issued by Jefferson "for the separate and independent negligence of Overground Atlanta as found by the jury in the underlying litigation and as affirmed by the Court of Appeals in Overground Atlanta v. Dunn, 191 Ga.App. 188 [381 S.E.2d 137] (1989)." Jefferson contends the trial court erred in granting plaintiff's motion in limine, thereby precluding Jefferson from arguing to the jury that its policy in fact did not cover the personal injuries sustained by plaintiff. Jefferson relies on the recent case of Continental Cas. Co. v. HSI Financial Svcs., 266 Ga. 260, 466 S.E.2d 4 to argue that no coverage exists for Overground's negligent supervision where the root cause of plaintiff's actual injuries was a battery excluded from coverage by the policy's express...

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