Southern Guar. Ins. Co. v. Dowse
| Decision Date | 25 October 2004 |
| Docket Number | No. S04G0282.,S04G0282. |
| Citation | 278 Ga. 674,605 S.E.2d 27 |
| Parties | SOUTHERN GUARANTY INSURANCE COMPANY v. DOWSE et al. |
| Court | Georgia Supreme Court |
OPINION TEXT STARTS HERE
Mabry & McClelland, Robert M. Darroch, Nathan W. Kotas, Atlanta, for appellant.
Weisenbaker & Brooks, Eugene C. Brooks, IV, William G. Bell, III Savannah, for appellees.
Certiorari was granted to consider whether the Court of Appeals erred in holding that an insurer that refused to defend or indemnify its insured was estopped from subsequently arguing that a settlement agreement entered into by the insured and a third party relieved the insurer from its obligations under the policy.1 Having reviewed the record, we agree with the Court of Appeals' ruling, but emphasize that the insurer is not estopped from arguing that the claims brought against its insured are not covered under the policy's terms. Therefore, while we affirm the ruling below, we remand this matter for a determination of whether the policy provides coverage for the underlying claims.
The Dowses sued Cutter, Inc., for defective construction and installation of exterior insulation and finishing on their home, alleging negligence, breach of warranty and bad faith. Cutter, Inc., was insured under a general commercial liability policy issued by Southern Guaranty Insurance Co. ("SGIC"), which informed Cutter, Inc., that the claim brought against it by the Dowses was not covered by the policy and that SGIC would not defend or indemnify Cutter, Inc. Cutter, Inc., and its principal, Ulysses Cutter, then reached a settlement agreement with the Dowses. As part of the agreement, Cutter, Inc., withdrew its answer to the complaint and a default judgment was entered against it.2 A hearing was held on the issue of damages, and judgment was rendered for the Dowses, awarding them damages, interest and costs.
The Dowses then filed a garnishment action against SGIC, claiming that Cutter, Inc.'s, insurance policy was a garnishable asset. SGIC answered, arguing that it possessed no funds subject to garnishment, and moved for summary judgment, which the trial court granted.
The Court of Appeals reversed, noting that under the terms of the settlement agreement, the Dowses reserved their right to collect against the SGIC policy. The Court of Appeals reasoned that an insurer that denies coverage and refuses to defend its insured is estopped from asserting that a settlement reached between the insured and a third party relieves the insurer from its obligations under the insurance policy. This Court granted certiorari to review the propriety of that ruling.
1. SGIC claims that the terms of the settlement agreement relieve it of any obligation to make payment to the Dowses. SGIC argues that the Dowse's claim against SGIC exists solely as a derivation of their claim against Cutter, Inc. Because the settlement agreement releases Cutter, Inc., of any obligation to pay damages, SGIC argues that it, too, is relieved of that obligation. We disagree.
The settlement agreement provides that the Dowses would not seek to recover or collect from Cutter, individually, or from Cutter, Inc., "except [the Dowses] may seek to recover any funds available to [Cutter, Sr., and Cutter, Inc.,] as indemnity under [SGIC's insurance policy] .... it being the express intent of all parties hereto to enter into an agreement providing [the Dowses] shall limit their recovery to whatever [they] may recover under the [SGIC policy] ... whether as assignee of the benefits of this policy or as judgment creditor of [the insureds]." Thus, it is clear that the Dowses specifically reserved their claims against Cutter, Inc., to the extent that coverage is provided under the SGIC policy. Accordingly, there has not been a full and complete release of Cutter, Inc., as claimed by SGIC, and its argument to the contrary fails. 3
Furthermore, SGIC is essentially arguing that simply because its insured agreed to settle a claim for which SGIC refused to provide either coverage or a defense, SGIC is relieved of its obligation to pay under the policy. This argument, however, is at odds with both our precedent and learned treatises. Liability policies generally include provisions that prohibit an insured from settling claims without the insurer's approval. These provisions enable insurers to control the course of litigation concerning such claims, and also serve to prevent potential fraud, collusion and bad faith on the part of insureds. However, an insurer has...
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