State Farm Fire and Cas. Co. v. Sweat

• Decision Date: 11 March 1982
• Docket Number: Civ. A. No. C81-2056.
• Citation: 547 F. Supp. 233
• Parties: STATE FARM FIRE AND CASUALTY COMPANY v. Michele Denise SWEAT, et al.
• Court: U.S. District Court — Northern District of Georgia

547 F. Supp. 233

STATE FARM FIRE AND CASUALTY COMPANY v. Michele Denise SWEAT, et al.

Civ. A. No. C81-2056.

United States District Court, N. D. Georgia, Atlanta Division.

March 11, 1982.

Eugene G. Partain, Robert M. Travis, Thomas Harper, Powell, Goldstein, Frazer & Murphy, Richard G. Greer, Greer, Klosik & Daugherty, Atlanta, Ga., for plaintiff.

Laurence A. Marder, Michael Weinstock, Michael Weinstock, P. C., Atlanta, Ga., for defendants.

Mark Dickerson, Asst. Atty. Gen., Atlanta, Ga., for defendant/intervenor.

ORDER

ORINDA D. EVANS, District Judge.

In this diversity declaratory judgment action, Plaintiff State Farm Fire & Casualty Company¹ seeks a declaratory judgment that it has no additional liability to Defendants, its insureds, for no-fault insurance benefits beyond those previously paid. The action is before the Court on State Farm's Motion for Summary Judgment.

1. Background

In 1975, the Georgia legislature enacted the Georgia Motor Vehicle Accident Reparations Act, Ga.Code Ann. § 56-3401b et seq. (the "Act"). The Act does the following:

(1) requires motorists to carry minimum no-fault insurance of $5,000

(2) requires insurers to provide this minimum coverage

(3) requires insurers to offer $45,000 additional, optional no-fault coverage

(4) specifies the manner in which this optional coverage is to be offered

(5) provides stiff penalties for late payment of no-fault benefits in the form of a penalty equal to 25% of the amount due, attorneys' fees and in addition, where payment is made more than 60 days after the proof of loss is filed, punitive damages.²

The parts of the Act most pertinent to this opinion are the following subsections of section 56-3404b:

(a) Each insurer shall also make available on an optional basis the following coverage:

(1) an aggregate limit of benefits payable without regard to fault up to $50,000 per person which may be rejected, or reduced to not less than an aggregate limit of benefits payable without regard to fault of $5,000 per person, by written consent of the policyholder....

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(b) Each application for a policy of motor vehicle liability insurance sold in this State must contain separate spaces for the insured to indicate his acceptance or rejection of each of the optional coverages listed in subsection (a) above and no such policy shall be issued in this State unless these spaces are completed and signed by the prospective insured.

(c) On and after the effective date of this Amendment, all named insureds in existing motor vehicle liability policies who have not previously responded to an offer to accept or reject the optional coverages required to be offered by this Chapter shall be given an opportunity to accept or reject, in writing, the optional coverages required to be offered under this section: Provided, however, that the failure of an insured to notify his insurer of his written acceptance or rejection within 30 days after written notice of the offer has been mailed by the insurer, postage prepaid, by first class mail to the address stated in the policy, shall constitute a rejection of the optional coverage.

The Act became effective on March 1, 1975. In 1977, William Jones applied to State Farm Mutual Automobile Insurance Co. for no-fault automobile insurance. State Farm's agent filled out the application form, apparently based on information given to him by Jones. It was (and still is) the practice of State Farm to offer four levels of no-fault coverage: the required $5,000, as well as coverage of $10,000, $25,000, or $50,000.³ The application form presented to Jones listed each of these coverages, with small blocks labeled "Reject" or "Accept" provided for each of the four levels of coverage. According to State Farm's agent, he advised Jones of the available optional coverages and Jones indicated he did not want them. The agent put a check mark in the "Accept" block for the $5,000 coverage, and also checked the "Reject" blocks for the other three levels of coverage. Jones signed the completed application only once, in the single space provided at the bottom of the application.

On April 24, 1978, Jones was involved in an automobile accident, and suffered injuries covered by his no-fault policy. He filed a claim with State Farm, which after some delays paid the claim up to the policy limit.⁴ Jones had incurred medical expenses that exceeded his coverage, however, and asked State Farm for reimbursement for the additional sums as well. When State Farm refused further reimbursement, Jones brought suit in the State Court of Muscogee County.

The Complaint filed by Jones contained two counts. In Count II, Jones contended that he was entitled to protection under the optional no-fault coverages not included in his policy. His theory was that Ga.Code Ann. § 56-3404(b) required that optional coverages be rejected by the insured's signature in a space next to the "reject" block on the application form. Anything less than that did not effect rejection of optional no-fault coverage. Jones did not contend that his $5,000 no-fault policy provided less coverage than he had requested or intended to purchase. Rather, Count II of his lawsuit simply contended:

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15.

Georgia Code § 56-3404b(b) requires that insurers such as Defendant make available on an optional basis increased coverages for Personal Injury Protection up to $50,000.00 per person, and further requires that the insurer such as Defendant obtain from the insured an acceptance or rejection of such optional coverage.

16.

In the absence of such rejection, an insured is presumed to have Personal Injury Protection equal to the maximum optional coverage, $50,000.00 per person.

17.

Defendant failed to obtain the requisite rejection from Plaintiff of optional Personal Injury Protection coverages, and Plaintiff's Personal Injury Protection coverage was therefore $50,000.00 per person, rather than $5,000.00 per person.

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The precise nature of Jones' cause of action under Count II is unclear from his Complaint. However, it is noted that the Jones opinion describes it, by implication, as a cause of action for reformation of contract.

In Count I of the Complaint, Jones sought attorneys' fees and punitive damages under section 56-3406b(c) for the late payment of the part of his claim which had been paid, albeit tardily.

State Farm filed an Answer to the Complaint, admitting certain averments of Jones' Complaint and denying others. The Answer contained no plea to the jurisdiction. No counterclaim was filed.

Both sides moved for summary judgment on both counts. State Farm's motion was granted; Jones' was denied.

Jones appealed to the Georgia Court of Appeals, which reversed the trial court's entry of summary judgment in State Farm's favor on both counts. Jones v. State Farm Mutual Automobile Insurance Co., 156 Ga.App. 230, 274 S.E.2d 623 (1980).

On Count I, the Court found State Farm's payments had been late; summary judgment in its favor on this count was improper for this reason. It also found summary judgment was properly denied the insured, however, since the question of State Farm's good faith had not been adjudicated.

On Count II, the Court similarly found neither side to have been entitled to summary judgment.

State Farm was not entitled to summary judgment because, the Court held, the Act requires the optional coverages to be offered through the application in accordance with section 56-3404b(b). State Farm's nofault application form did not comply with the requirements of section 56-3404b(b). Specifically, the lack of a signature space next to the "Accept" and "Reject" blocks in the optional coverages section rendered the form deficient. Interpreting sections 56-3404b(a), (b) and (c) together, the court held State Farm had failed to negative the existence of a "continuing offer" of optional no-fault coverage which could only be terminated by (a) the use of a proper application form in the first instance or (b) by the use of a subsequent written instrument meeting the requirements of section 56-3404b(c). The court specifically noted the deposition testimony of State Farm's agent that Jones had been informed (presumably verbally) of the optional coverages and turned them down; it found such testimony to be of no avail to State Farm.

Turning then to Jones' cross-motion, the court found the motion had been properly denied because the record was silent as to whether Jones had received the section 56-3404b(c) written notice which would have terminated the continuing offer of optional coverage. Then, in dicta, the court went on to state that if the facts subsequently (on remand) showed Jones had not received the aforesaid notice, he would be entitled to claim the optional coverage upon tendering the additional premium.⁵ In further dicta, the court stated that "until that time, however, there is no contract for optional coverage to `reform.'" 156 Ga.App. at 234, 274 S.E.2d 623.

In summary, Jones implicitly held⁶ that a penalty for noncompliance with section 56-3404b is the providing of retroactive, post-risk, additional insurance coverages.⁷ This penalty obtains even if the insured verbally evidenced intent to reject optional coverages. In order to exact the penalty, it is not necessary that the insured show specific injury or monetary loss occasioned by the lack of written rejection of the policy; rather, only the absence of written rejection need be shown. This penalty, i.e., the providing of retroactive post-risk insurance coverage, is referred to hereinafter as the "continuing offer penalty."⁸

State Farm and many of its insureds were quick to react to the Jones decision. If the Act provided for a "continuing offer" of optional no-fault coverage of $45,000, and if State Farm's insurance application forms failed to properly terminate this offer, then it was possible for any insured who had signed the same form as William Jones to "accept" the "continuing offer" by...