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

• Decision Date: 08 July 1992
• Docket Number: No. A92A1275,A92A1275
• Citation: 205 Ga.App. 224,422 S.E.2d 212
• Parties: TERRY v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.
• Court: Georgia Court of Appeals

Page 212

422 S.E.2d 212

205 Ga.App. 224

TERRY v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.

No. A92A1275.

Court of Appeals of Georgia.

July 8, 1992.

Reconsideration Denied July 28, 1992.

Certiorari Denied Oct. 5, 1992.

Federal, Goetz & Cronkright, Charles M. Goetz, Jr., Julie A. Goodwin, Atlanta, for appellant.

Downey, Cleveland, Parker, Williams & Davis, Y. Kevin Williams, Houston D. Smith III, Marietta, for appellee.

Falanga, Barrow & Chalker, Jesse E. Barrow III, Marietta, Steven K. Leibel, Atlanta, amici curiae.

POPE, Judge.

On July 17, 1989, appellant/plaintiff Sharon Terry sustained bodily injuries in a motor vehicle collision. At the time of the collision, plaintiff was the named insured of an automobile policy issued by defendant/appellee State Farm Mutual Automobile Insurance Company. It is undisputed that the policy was in full force and effect at the time of the collision. On February 5, 1991, plaintiff brought this action alleging, inter alia, that defendant in bad faith refused to pay certain medical expenses in a timely manner and seeking to recover penalties and punitive damages pursuant to OCGA § 33-34-6 for defendant's alleged failure to make timely payments.

At the time plaintiff filed suit, OCGA § 33-34-6 was part of the Georgia Motor Vehicle Accident Reparations Act, more commonly known as the No-Fault Act. After plaintiff filed this action, the Georgia Legislature repealed the No-Fault Act effective October 1, 1991. The legislature did not indicate whether it intended the repeal of that statute to have retroactive application. ¹ Shortly thereafter, defendant filed a motion to dismiss or alternatively for summary judgment based upon the repeal of the No-Fault Act. The trial court granted defendant partial summary judgment on plaintiff's claims for penalties and punitive damages pursuant to OCGA § 33-34-6. Plaintiff moved for reconsideration and the trial court denied that motion. Plaintiff appeals those rulings.

Plaintiff contends the trial court's grant of partial summary judgment to defendant was error because the contract issued to her by defendant gives her a vested contractual right to seek penalties and punitive damages from defendant and the legislature's repeal of that statute cannot impair that contractual right. That is, the plaintiff argues that her right to pursue penalties and punitive damages if defendant did not make timely payments as required by OCGA § 33-34-6 was a bargained-for element of her contract with defendant which vested upon her payment of the policy premium. The policy provision upon which plaintiff relies is as follows: "[State Farm] will pay in accordance with the No-Fault Act for bodily injury to an insured, caused by accident resulting from the maintenance or use of a motor vehicle...." No-Fault Act is defined in the policy as meaning "the Georgia Motor Vehicle Accident Reparations Act and any amendments."

It is well-settled in this state that repeal of a law authorizing recovery of a penalty defeats the right to recover such a penalty unless the right has become vested. Spengler v. Employers, etc., Ins. Co., 131 Ga.App. 443, 448, 206 S.E.2d 693 (1974), and cases cited therein. The right to recover a penalty may become vested in either of two ways: (1) the right arises contractually, that is, it is the subject of bargained-for consideration; or (2) the party seeking to recover the penalty has secured a final nonappealable judgment. Id.

In support of her position that she has a vested contractual right to recover penalties and punitive damages against defendant, plaintiff relies heavily on our decisions in Spengler, supra, and Sentry Ins. v. Echols, 174 Ga.App. 541, 330 S.E.2d 725 (1985). Factual distinctions, however, limit the application of those cases to this case. Spengler involved two subrogation cases under the Workmen's Compensation Act. In those cases, the employers paid benefits pursuant to the Act, but then gave notice that they intended to protect their subrogation and lien rights. After they gave notice, the statute entitling the employers to subrogation was repealed. This court held that upon the giving of notice, the employers obtained vested substantive rights that could not impaired by the subsequent repeal of the statute. Spengler, 131 Ga.App. at 446, 206 S.E.2d 693. In Spengler, we distinguished those cases in which a penalty was sought, as in this case. Id. at 447-449, 206 S.E.2d 693.

Plaintiff, however, points to our recognition in Spengler that, although Georgia appellate courts have generally held that the repeal of a law imposing a penalty defeats the right to recover the penalty, nevertheless " 'if the right was a vested one, or was secured by contract, a repeal of the law could not take away the right.' " (Citations omitted.) Id. at 448, 206 S.E.2d 693. We hold, however, that the mere mention within a contract of an act which contains a statute authorizing penalties is not sufficient to secure the right to collect penalties by contract; parties to the contract must specifically include the right to collect penalties pursuant to a statute in the terms of the contract before the right can be considered vested by the contract. Any other interpretation of that language would be inconsistent with the aversion to forfeitures and penalties consistently recognized by the Georgia appellate courts.

Plaintiff cites Sentry Ins., supra, for the proposition that the penalty and punitive damages provisions set forth in OCGA § 33-34-6 are contractual in nature rather than statutory and therefore cannot be impaired by the subsequent repeal of the statute. In that case, we held that claims pursuant to OCGA § 33-34-6 were governed by the six-year statute of limitation applicable to contracts rather than the twenty-year limitation for actions for the enforcement of rights accruing to individuals under statutes, id. at (2). We recognized that the additional recovery authorized by the statute was extra-contractual but was so entwined with the obligations arising from the contract between the parties that the same limitation period should apply to all claims. Id. We are not persuaded that the applicable statute of limitation is determinative of the nature of an insured's claim against an insurer for penalties and punitive damages.

The appellate courts of this state have not had occasion to address the effect of a repeal of a statute authorizing penalties in an insurance context. Teasley v. Mathis, 243 Ga. 561, 255 S.E.2d 57 (1979) (holding that elimination of punitive damages under the No-[205 Ga.App. 227] Fault Act except when there are serious injuries does not violate due process, equal protection, or right of access to courts). The Georgia Supreme Court, however, has addressed that issue in cases involving the repeal of statutory penalties for violation of usury laws. We find those cases persuasive on this issue. As the Georgia Supreme Court recognized in Ward v. Hudco Loan...