State Farm Mut. Auto. Ins. Co. v. Bates

• Citation: 542 F. Supp. 807
• Decision Date: 30 June 1982
• Docket Number: Civ. A. No. C81-281R.
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, v. J. B. BATES, Jr., Defendant.
• Court: U.S. District Court — Northern District of Georgia

542 F. Supp. 807

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, v. J. B. BATES, Jr., Defendant.

Civ. A. No. C81-281R.¹

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

June 30, 1982.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Eugene G. Partain, Robert M. Travis, Thomas D. Harper, Powell, Golstein, Frazer & Murphy, Atlanta, Ga., J. Clinton Sumner, Rogers, Macgruder, Hoyt, Brinson & Sumner, Rome, Ga., Richard G. Greer, Greer, Klosik & Daugherty, Atlanta, Ga., for State Farm.

Clifton M. Patty, Jr., Ringgold, Ga., for J. B. Bates, Jr.

Clifford J. Steele, Atlanta, Ga., for Satterly.

William D. Sparks, Mundy & Gammage, Cedartown, Ga., for Camp, Glenn, Bohannon, Johnson and Scoggins.

W. Benjamin Ballenger, Summerville, Ga., for Deering.

Wade C. Hoyt, III, Rome, Ga., for Edwards and Alexander.

William Ralph Hill, Jr. and James A. Secord, Lafayette, Ga., for Pike.

Michael Bowers, Atty. Gen. and Mark Dickerson, Asst. Atty. Gen., Atlanta, Ga., for the State of Ga.

ORDER

HAROLD L. MURPHY, District Judge.

On October 22, 1980, the Court of Appeals of Georgia issued its decision in Jones v. State Farm Mutual Automobile Insurance Company, 156 Ga.App. 230, 274 S.E.2d 623 (1980) (hereinafter Jones or Jones v. State Farm). Jones has left in its wake a flurry of lawsuits in which insurers statewide seek a determination that the implications of Jones do not apply to scores of other identical insureds. That issue is before the Court in these eleven cases.

Jones v. State Farm held that the insurer's failure to obtain separate signatures of the applicant for insurance, indicating the latter's acceptance or rejection of each level of optional personal injury protection (PIP) coverages, did not conform to the requirements of Ga.Code Ann. § 56-3404b(b). The court concluded that § 3404b(b) imposed upon an insurer an evidentiary burden to prove that the insured was offered and rejected the additional PIP coverage. This burden was satisfied only by the separate signatures of the insured on the application form next to each of the various optional PIP coverages the insurer offered. The opinion stated that the insurer could rectify its omissions through Ga.Code Ann. § 56-3404b(c), that is, by giving the insured the opportunity to accept or reject, in writing, the optional coverages required to be offered under Ga.Code Ann. § 56-3404b(a). 156 Ga.App. at 233, 274 S.E.2d 623. The court suggested that, following the § 3404b(a) offer, Jones could accept the offer, tender the necessary premiums, and enforce the resulting contract for additional PIP benefits, even after the initial claim for benefits was satisfied. 156 Ga.App. at 234, 274 S.E.2d 623.

The Supreme Court of Georgia, after initially deciding to review the case, dismissed the writ of certiorari as improvidently granted on July 7, 1981. The motion for rehearing and extraordinary motion for rehearing were denied on July 23, 1981, and July 31, 1981, respectively. State Farm Mutual Automobile Insurance Company v. Jones, 248 Ga. 46, 280 S.E.2d 837 (1981).

The Jones decision, and the Supreme Court's refusal to hear the case, proved a clarion call to countless Georgia automobile liability insurance policyholders (and their attorneys). Following Jones, hundreds of insureds who had received policy benefits for personal injuries in amounts less than the maximum optional coverage under § 56-3404b(b), tendered premiums and made demands upon their insurers for payment of the additional benefits impliedly authorized by Jones.

The insurers (and their attorneys), cognizant of their potentially immense exposure due to these Jones claims, beat a hasty trail to the state and federal courts in Georgia. There they sought a declaration that Jones did not mean what it said, or at a minimum, that there were limits to its implications. Since Georgia law apparently does not allow an insurer to raise its defenses to a claim by its insured through a declaratory judgment action, Baron v. State Farm Mutual Automobile Insurance Company, 157 Ga.App. 16, 18-19, 276 S.E.2d 78 (1981), and because the insurers' citizenship is diverse from that of the majority of their Georgia policyholders, the bulk of the actions are being maintained in federal court.

I

A

In the instant matter, plaintiff State Farm Mutual Automobile Insurance Company (State Farm) brought this declaratory judgment action pursuant to 28 U.S.C. §§ 2201 and 2202. Jurisdiction is predicated upon diversity of citizenship of the parties and an amount in controversy in excess of $10,000.00, excluding costs and interest. State Farm seeks a declaration that defendant Bates is not entitled to personal injury protection insurance coverage benefits from plaintiff in an aggregate amount greater than $5,000.00. In other words, State Farm desires a ruling that Jones does not apply to Bates' demands. In the alternative, State Farm requests reformation of its insurance contract with Bates to provide that Bates' personal injury protection coverage is no greater than $5,000.00.

Bates answered, denying that State Farm is entitled to either the declaration of limited liability or reformation. He counterclaimed for $45,000.00, the extent of the excess PIP coverage he claims he never rejected. In the alternative, he seeks reformation of the contract of insurance to evidence his entitlement to up to $45,000.00 additional personal injury protection benefits.

Before the Court is State Farm's motion for summary judgment.²

B

For a number of years prior to 1975, defendant Bates maintained a policy of automobile liability insurance with State Farm. On January 10, 1975, defendant, or someone on his behalf, signed an application for automobile liability insurance covering his 1965 Ford Falcon automobile. The effective date of the policy, March 1, 1975, coincided with the effective date of the Georgia Motor Vehicle Accident Reparations Act, Ga.Code Ann. § 56-3401b et seq. (also referred to as the No-Fault Law). As such, the terms of the insurance contract had to conform with the dictates of § 56-3404b(b).

The application form contained separate spaces where defendant could accept the additional optional coverages in aggregate amounts of $10,000.00, $25,000.00 or $50,000.00, by placing an "X" in the appropriate space. No "X" appeared in any of the spaces. Consistent with § 56-3403b(b), Bates could not elect to accept less than the $5,000.00 minimum PIP.

Bates was issued policy number 6140 436-C11-11A, which was in full effect on September 22, 1978. On that date, Bates was involved in an automobile accident and sustained personal injuries. Curiously, neither party alleges that Bates sought and received compensation for his personal injuries up to the $5,000.00 benefit limit or that Bates suffered personal injuries requiring compensation of more than $5,000.00. However, by letter dated September 16, 1981, defendant, through his attorney requested that State Farm give Bates the opportunity to accept or reject in writing $45,000.00 additional, optional PIP coverages provided by Ga.Code Ann. § 56-3404b(a)(1). The letter also stated that defendant accepted these optional coverages.

Soon after, State Farm brought this action for declaratory relief. In its motion for summary judgment, State Farm presents a variety of reasons why defendant is not entitled to up to $45,000.00 additional PIP coverage benefits. These contentions, as well as the opposing views of defendant, will be addressed further in this Order.

II

A

In 1974, convinced that there was a better way to handle automobile accident claims, Georgia replaced the traditional tort system with a statutory scheme of no-fault automobile liability insurance. See generally, Appleman, Insurance Law and Practice § 5152. The purpose of the no fault law was to eliminate wasteful litigation over moderate to small claims, and to provide for certain minimal insurance coverage for automobile accident victims. Cannon v. Georgia Farm Bureau Mutual Insurance Company, 240 Ga. 479, 482, 241 S.E.2d 238 (1978). It also intended prompt payment of victims' claims, and ironically, alleviation of collateral litigation. id.

Thus, Ga.Code Ann. Chapter 56-34b requires an owner of a motor vehicle registered in Georgia to have a minimum of $5,000.00 no-fault insurance to compensate insured injured persons. Ga.Code Ann. § 56-3403b(b). Section 56-3404b, the heart of the instant controversy, requires insurers to offer up to $45,000.00 additional, optional PIP coverage. Ga.Code Ann. § 56-3404b(a)(1). This section also specifies the manner in which this optional coverage is to be offered. Ga.Code Ann. § 56-3404b(b) and (c).³

The statute also provides that no insurer may issue a Georgia no-fault automobile liability insurance policy unless it complies with specifics of the statutory scheme, including the minimum coverage requirements. Ga.Code Ann. § 56-3405b(a)(1). Finally, the act provides that the insurer must pay benefits within 30 days after it receives reasonable proof of the fact and amount of loss sustained, in order to avoid imposition of a penalty (up to 25 per cent of the amount due), and attorney's fees. Once it is established that payments were late, the burden is on the insurer to show that its delay was in good faith. Ga.Code Ann. § 56-3406b(b).

B

The present case concerns the interpretation and application of the above statutes, particularly § 56-3404b(b), to the facts of this case in light of the Jones v. State Farm decision. Therefore, a discussion of that opinion is a necessary backdrop to resolution of the parties' claims.

Twice within six months in 1977, Jones applied for no-fault automobile insurance through State Farm. Both times, State Farm's agent completed the application form, and as in this case, the applicant signed on the one space provided for his signature. Neither completed application form showed Jones applying for more than the $5000.00 minimum coverage (basic PIP).

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