NORMAN ENTERPRISES INTERIOR v. DeKalb County

• Decision Date: 04 August 2000
• Docket Number: No. A00A1609.,A00A1609.
• Citation: 245 Ga. App. 538,538 S.E.2d 130
• Court: Georgia Court of Appeals
• Parties: NORMAN ENTERPRISES INTERIOR DESIGN, INC. et al. v. DeKALB COUNTY.

538 S.E.2d 130

245 Ga. App. 538

NORMAN ENTERPRISES INTERIOR DESIGN, INC. et al. v. DeKALB COUNTY.

No. A00A1609.

Court of Appeals of Georgia.

August 4, 2000.

Reconsiderations Denied August 15, 2000.

Certiorari Denied January 19, 2001.

Gorby, Reeves, Peters & Burns, Michael J. Gorby, James W. Standard, Jr., Atlanta, for appellants.

Webb, Carlock, Copeland, Semler & Stair, Edward A. Miller, Jerome B. McNally, Atlanta, for appellee.

ELDRIDGE, Judge.

This case arises because of a fire which occurred at the DeKalb County Jail building on November 28, 1995, while appellants Norman Enterprises Interior Design, Inc. and Dorothea Norman (herein collectively referred to as "Norman Enterprises") were engaged in renovations on the interior of the building. As a result of the fire, DeKalb County sustained $204,362.24 in damages. DeKalb County received insurance payments from its insurer Northbrook Property & Casualty Insurance Company ("Northbrook") in the amount of $104,362.24, leaving an outstanding balance of $100,000 in uninsured losses. Subsequently, DeKalb County and Northbrook brought suit against Norman Enterprises in the State Court of DeKalb County alleging that Norman Enterprises' negligence was the proximate cause of the fire and seeking to recover the full amount of damages.

On January 17, 1998, Norman Enterprises filed an amended answer to DeKalb County's complaint and asserted OCGA § 33-36-3(2)(F) as a personal defense. On February 27, 1998, DeKalb County filed a motion to strike Norman Enterprises' amended answer. On August 12, 1998, Northbrook dismissed its claim against Norman Enterprises with prejudice. At some point during the litigation, Norman Enterprises' insurer became insolvent, and on August 13, 1999, the Georgia Insurers Insolvency Pool ("GIIP"), although not joined as a party to the action, undertook the defense of Norman Enterprises.

Subsequently, the parties filed cross-motions for summary judgment asking the court to construe whether OCGA § 33-36-3(2)(F) is available as a personal defense to an insured whose insurance carrier has become insolvent during the pendency of litigation. DeKalb County argued that such defense was available only to GIIP, while Norman Enterprises asserted that the defense was also available as a personal defense to the insured. Attached to the motions for summary judgment was a joint stipulation of the parties wherein the parties stipulated (1) that DeKalb County sustained $100,000 in damages from the fire of November 28, 1995; (2) that even though DeKalb County had disputed in the litigation that it was negligent, "in an effort to buy their peace and compromise and settle contested claims and to avoid the expense and uncertainty of further litigation, [ d]efendants specifically stipulate that their negligence was the proximate cause of [p]laintiff's damages"; (3) that the stipulation was subject to the "high-low agreement" and other terms set forth in the stipulation; (4) that the stipulation was for use in "this action only and [could] not be used against defendants in any other action"; (5) that Norman Enterprises' insurer became insolvent during the pendency of the lawsuit; and (6) that DeKalb County had a net worth of over $3 million at the time of the fire.

The parties also stipulated that the parties would submit the issue to the trial court by motion and waive the right to a jury trial and that the losing party would appeal the decision of the state court through the appellate courts of this State to a point "where a final decision is obtained regarding the application of the defense." The stipulation contained a "high-low agreement" where Norman Enterprises agreed to pay through coverage and indemnification provided by GIIP the sum of $20,000 as payment for settling the claim regardless of any court's decision and to pay an additional $60,000 through GIIP if the appellate courts decided the issue in favor of DeKalb County. The amount to be paid under the agreement would be either $20,000 or $80,000 and no amount in between. The parties also stipulated that any recovery against Norman Enterprises would be limited to amounts paid by GIIP and that DeKalb County would not be entitled to recover any amounts or enforce any judgment against Norman Enterprises. The stipulation was signed by the attorneys for DeKalb County, by the attorneys for Norman Enterprises, and by Dorothea Norman, individually and as president of Norman Enterprises. However, GIIP did not sign the agreement although it would be primarily liable and any appeal was for its benefit.

On December 21, 1999, the trial court entered an order striking Norman Enterprises' amended answer, denying Norman Enterprises' motion for summary judgment, granting DeKalb County's motion for summary judgment, and awarding judgment in favor of DeKalb County in the amount of $100,000, plus court costs and post-judgment interest at the legal rate of 12 percent per annum. Because of a clerical error, Norman Enterprises did not receive notice of the judgment and missed the statutory time to appeal the decision. On February 11, 2000, the trial court set aside and reentered the December 21, 1999 judgment for the purpose of permitting Norman Enterprises to appeal. It is from this February 11, 2000 order that this appeal arises.

Norman Enterprises' sole enumeration of error is that the trial court erred in denying Norman Enterprises' motion for summary judgment and granting DeKalb County's motion for summary judgment and motion to strike Norman Enterprises' amended answer. Norman Enterprises argues that, since its insurer became insolvent during the pendency of the litigation and DeKalb County had a net worth in excess of $3 million at the time of the insured event, OCGA § 33-36-3(2)(F) provides it with a personal defense of up to $100,000¹ for DeKalb County's claim for damages.

1. The Georgia Insurers Insolvency Pool Act was enacted in 1970. Ga. L.1970, p. 700, § 1. The purpose of such act is

to provide a remedy for covered claims under property and casualty insurance policies when the insurer has become insolvent and is unable to perform its contractual obligations.... The pool shall be responsible for the investigation, adjustment, compromise, settlement, and payment of covered claims; for the investigation, handling, and denial of noncovered claims; and for the management and investment of funds administered by the pool.

(Emphasis supplied.) OCGA § 33-36-2. However, OCGA § 33-36-3(2)(F) specifically provides that a "covered claim shall not include any obligation to insurers, insurance pools, underwriting associations, or any person which has a net worth greater than $3 million at the time of the insured event." The question that must be decided by this Court, therefore, is whether the defense set forth in OCGA § 33-36-3(2)(F), which is available to GIIP, can be asserted by the insured whose insurer has been declared insolvent and whose defense is being maintained by GIIP, when GIIP has not been made a party to the action.

Every insurer authorized to write property or casualty insurance policies in this state is required to be a member of the insolvency pool. OCGA § 33-36-5.

In the event an insurer is determined to be insolvent, the coverage afforded by property and casualty insurance policies issued by such insurer shall, with respect to covered claims, become the obligation of the pool for a period of 30 days from the date of such determination or until policy expiration date if less than said 30 days or until the policy has been replaced by the insurer within said 30 days. The pool shall be deemed to be the insurer for such period with respect and to the extent of the claims with all the rights, duties, and obligations of the insolvent insurer; and the pool is authorized to investigate, adjust, compromise, and settle covered claims or to investigate, handle, and deny noncovered claims.

OCGA § 33-36-9. Hence, it is clear that under the Georgia Insurers Insolvency Pool Act when an insurer becomes insolvent, GIIP must "fulfill the insurer's obligations to the insured." United States v. Rutland, 849 F.Supp. 806, 811 (S.D.Ga.1994).

These obligations, however, are not unlimited. They are defined by the insurance contract between the insured and its now insolvent insurer, e.g., Colwell v. Voyager Cas. Ins. Co., 184 Ga.App. 842, 363 S.E.2d 310 (1987), and they are further limited by operation of the Act, e.g., OCGA § 33-36-3; Claxton Mfg. Co. v. Hodges, 201 Ga. App. 371, 372, 411 S.E.2d 109 (1991). In other words, GIIP stands in the shoes of the insolvent insurer to the extent of the insurance contract and the limitations of the Act.... From this role definition, it is reasonable to presume that GIIP's relationship to its insured and other claimants is similar (although perhaps not identical) to that of regular insurance companies. It is axiomatic that under normal circumstances, a defendant's tort liability is not contingent upon its insurance coverage. Indeed, insurance is a non-issue. Thus, if, for whatever reason, a defendant's insurance company has a contractual defense that would absolve it from having to pay a particular judgment, that defendant cannot assert the defense as a substantive bar to the tort action against it. Moreover, in the event that a judgment is entered against a defendant, the fact that the defendant's insurer has a contractual defense that absolves it of liability does not absolve the defendant of its liability to the plaintiff.

Id. at 811.

The defense set forth in OCGA § 33-36-3(2)(F) is not a defense to the merits of an action, but only limits the assets available from GIIP to satisfy a judgment. The fact that GIIP may have a defense to a future...