Richmond v. Georgia Farm Bureau Mut. Ins. Co.

• Decision Date: 07 October 1976
• Docket Number: No. 1,No. 52702,52702,1
• Citation: 231 S.E.2d 245,140 Ga.App. 215
• Parties: Clyde RICHMOND et al. v. GEORGIA FARM BUREAU MUTUAL INSURANCE COMPANY
• Court: Georgia Court of Appeals

Page 245

231 S.E.2d 245

140 Ga.App. 215

Clyde RICHMOND et al. v. GEORGIA FARM BUREAU MUTUAL INSURANCE COMPANY.

No. 52702.

Court of Appeals of Georgia, Division No. 1.

Oct. 7, 1976.

Rehearing Denied Oct. 27, 1976.

McDonald, McDonald & McDonald, C. Ernest McDonald, Dalton, for appellants.

Fletcher, Watson & Dana, Dennis D. Watson, LaFayette, Mitchell, Mitchell, Coppedge & Boyette, Neil Wester, Dalton, for apellee.

CLARK, Judge.

What steps should be taken by attorneys representing an insured or an insurer respectively under an automobile liability policy when a dispute exists as to coverage? What is the impact of the refusal by insured to comply with an insurer's request for execution of a mutual 'Reservation of Rights?' Can an insurer file an answer for insured in a pending suit during the discussions with its insured as to the coverage problem without creating an estoppel? Is there a state of uncertainty which entitles the insurer to seek a declaratory judgment? Do the facts of this case warrant the holding as a matter of law that there is no coverage because of insured's actions?

Those are some of the questions confronting us in this appeal by an insured from a grant of summary judgment to an insurer in a declaratory judgment action wherein the insurance company obtained a ruling that it was not obligated to provide coverage under its automobile public liability policy to the insured and his son.

On April 28, 1974 Travis Lee Richmond, minor son of appellant, the insured, was driving his father's automobile when the insured automobile hit a pedestrian, Patti Faulkenberry. On that date there was in force a public liability policy issued by the insurer to the insured which covered the vehicle. Immediately after the injured pedestrian was taken to the hospital the insured there volunteered to help pay some of the medical expenses incurred. In fact he voluntarily paid the hospital ($64.60), ambulance service ($20), radiologist ($25) and a medical center ($77.50).

No notice of this occurrence was given the insurance company until January 1975, eight months after the collision. This was after the insured had received a letter from the injured pedestrian's attorney informing him that suit would be filed. The record indicates the claimant had contacted her attorney immediately after the incident and had been advised to delay any action because of her pregnancy.

Upon receipt of this January notice and following some preliminary investigation the insurer sought to have its insured execute an acknowledgment of non-waiver of rights. The insured refused to sign, and instead forwarded insurer a copy of the complaint filed by the injured party and demanded that a defense be entered. Prior to filing its answer the insurer verbally and in writing informed insured and his son that it intended to seek declaratory relief as to whether or not it was responsible to provide an attorney and a defense; that it intended to investigate the accident, the insured's apparent failure to report it for eight months, and the insured's apparent voluntary payment of the injured party's medical expenses; that pending a determination of these issues it would proceed with a defense, but in doing so was not waiving its rights to deny liability under the policy; and that should the insurer be found not obligated to insured under the policy and the facts, then it intended to withdraw from its defense of the claim and provide insured with no benefits under the policy. Held:

1. The insured claims that because he refused to sign the reservation of rights agreement and because he refused to consent to the later unilateral notice of claim of reservation of rights that the insurer waived any defenses it may have had by filing its answer and was therefore estopped to seek declaratory relief. This contention is without merit.

' Where an insurer denies coverage under a particular policy and seeks to relieve itself of its obligation to defend a pending suit against an insured because of circumstances pleaded which cast doubt on the coverage of the policy as applied to those circumstances, there is such an immediacy of choice imposed upon it as to justify an adjudication by declaratory judgment.' Nationwide Mut. Ins. Co. v. Peek, 112 Ga.App. 260, 263, 145 S.E.2d 50, 52. See St. Paul Fire Etc., Ins. Co. v. Johnson, 216 Ga. 437, 117 S.E.2d 459; LaSalle Nat. Ins. Co. v. Popham, 125 Ga.App. 724, 188 S.E.2d 870; Ditmyer v. American Liberty Ins. Co., 117 Ga.App. 512, 160 S.E.2d 844; Pennsylvania Threshermen Etc., Ins. Co. v. Wilkins, 106 Ga.App. 570, 127 S.E.2d 693. A proper and safe course of action for an insurer in this position is to enter upon a defense under a reservation of rights and then proceed to seek a declaratory judgment in its favor. See Southern Trust Ins. Co. v. Eason, 134 Ga.App. 827, 216 S.E.2d 667; Gant v. State Farm Mut. Auto. Ins. Co., 109 Ga.App. 41, 43, 134 S.E.2d 886; Georgia Cas. Etc., Co. v. Turner, 86 Ga.App. 418, 71 S.E.2d 773.

In State Farm Mut. Auto. Ins. Co. v. Anderson, 104 Ga.App. 815, 123 S.E.2d 191 this court held the general rule in Georgia is that a liability insurer who assumes and conducts a defense of an action brought against the insured with knowledge of facts which would constitute non-coverage under the policy without disclaiming liability and giving notice of its reservation of rights is estopped from thereafter setting up such facts of non-coverage. See Winters v. Government Employees Ins. Co., 132 Ga.App. 756, 209 S.E.2d 32; Jones v. Georgia Cas. Etc. Surety Co., 89 Ga.App. 181, 78 S.E.2d 861. An insurer could avoid an estoppel by giving a timely notice of its reservation of rights where such notice fairly informs the insured of the insurer's position. State Farm Mut. Auto. Ins. Co. v. Anderson, 104 Ga.App. 815, 123 S.E.2d 191, supra.

Because he notified his insurer that he did not agree to a defense under a reservation of rights, appellant-insured would have us hold that the insurer by filing an answer had waived its rights, that the rights of the parties thereby accrued, and that therefore the insurer was not entitled to seek declaratory relief. Appellant relies on what is ostensibly the holding of a majority of jurisdictions requiring the consent of an insured to a defense under a reservation of rights, and in further support of his position cites to us our cases of State Farm Mut. Auto. Ins. Co. v. Anderson, 104 Ga.App. 815, 123 S.E.2d 191, supra, and State Farm Mut. Auto. Ins. Co. v. Anderson, 107 Ga.App. 348(2), 130 S.E.2d 144. In neither of these cases did this court reach the question of the necessity of an insured's consent. Comments in each case as to what this court might do should the question arise are mere obiter dicta and we decline to follow them now. In doing so we also decline to follow the majority rule which is too inflexible to be either just or fair. As was said in Trust Co. of Georgia v. Kenny, 188 Ga. 243, 250, 3 S.E.2d 553, 556: 'The quantum of precedent is one way; the quality the other.'

Where the consent of the insured is a requirement for a defense under a reservation of rights the insured's refusal to give such consent places the insurer between Scylla and Charybdis. "By refusing to defend, the company loses all opportunity to contest the negligence of the insured or the injured person's right to recover, and exposes itself to a charge of and penalty for breach of contract. By defending, it incurs considerable expense and may waive the claim of immunity." LaSalle Nat. Ins. Co. v. Ropham, 125 Ga.App. 724, 729, 188 S.E.2d 870, 873, supra. Such a result would be both unjust and contrary to the salutary purposes of the Declaratory Judgment Act and should not be given sanction.

A third, and more desirable, alternative is that followed by the insurer in the case sub judice. Upon discovery or notice of facts possibly constituting grounds of non-coverage the insurance company may seek to enter into a bilateral reservation of rights agreement with its insured. Should the insured refuse to consent to the bilateral agreement an insurer may avoid the sharp horns of the dilemma presented by such refusal by giving the insured a timely unilateral notice of its reservation and non-waiver of rights. This should include notice of its intention to seek immediate declaratory relief. See Southern Trust Ins. Co. v. Eason, 134 Ga.App. 827, 216 S.E.2d 667, supra; LaSalle Nat. Ins. Co. v. Popham, 125 Ga.App. 724, 188 S.E.2d 870, supra; Ditmyer v. American Liberty Ins. Co., 117 Ga.App. 512, 160 S.E.2d 844, supra; Nationwide Mut. Ins. Co. v. Peek, 112 Ga.App. 260, 145 S.E.2d 50, supra.

The cases in Georgia use the disjunctive in referring to the choices available to an insurer: it may enter into an agreement or give a proper notice of reservation of rights. See Winters v. Government Employees Ins. Co., 132 Ga.App. 756, 209 S.E.2d 32, supra; Hembree v. Cotton States Mut. Ins. Co., 132 Ga.App. 556, 208 S.E.2d 568; Finney v. Pan-American Fire Etc., Co., 123 Ga.App. 250(1), 180 S.E.2d 253; Gant v. State Farm Mut. Auto. Ins. Co., 109 Ga.App. 41, 43-44, 134 S.E.2d 886, supra; Jones v. Georgia Cas. Etc., Co., 89 Ga.App. 181, 78 S.E.2d 861, supra.

An insurer may not give an insured a unilateral notice of reservation of rights and thereupon proceed with a complete defense of the main claim absent insured's express or implied consent. This course of action may well result in prejudice to an insured. Upon learning of facts reasonably putting it on notice that there may be grounds for noncoverage and where the insured refuses to consent to a defense under a reservation of rights, the insurer must thereupon (a) give the insured proper unilateral notice of its reservation of rights, (b) take necessary steps to prevent the main case from going into default or to prevent the insured from being otherwise prejudiced, and (c) seek immediate declaratory relief including a stay of the main case pending final...