Homeowner’s Policies Do Not Cover Auto Accidents

The appellate courts in Georgia have confirmed that homeowner’s policies clearly do not provide coverage for damages arising from the use of a motor vehicle, regardless of who owned or was operating the vehicle.  Although most homeowner’s policies plainly exclude coverage for such damages, plaintiffs in recent months have attempted to argue that the exclusion should only apply when the vehicle belongs to or was being operated by an insured seeking coverage under the homeowner’s policy.  The Court of Appeals rejected this argument and the Georgia Supreme Court denied cert on the issue.

In April, the Georgia Court of Appeals ruled that the motor vehicle exclusion in a homeowner’s insurance policy barred coverage for damages arising from the death of a teenager killed in a car after allegedly drinking alcohol at the insured’s house.  Sauls v. Allstate Prop. & Cas. Ins. Co., 326 Ga. App. 821, 757 S.E.2d 455 (2014), cert. denied Case No. S14C1093 (Sept. 22, 2014).

On the evening of February 18, 2011, the Plaintiffs’ 16-year-old daughter and 17-year-old son visited the home of a 17-year-old friend. The Plaintiffs alleged that, at the friend’s home, their daughter consumed alcohol, which the friend had obtained with the knowledge, consent, or acquiescence of his father.

Later that evening, the plaintiffs’ son, daughter, and some of their friends had left the party in a vehicle driven by the plaintiffs’ son, when he collided with a moving truck that was disabled and extending into the roadway.  Plaintiffs’ daughter was ejected from the vehicle and died from the injuries she sustained in the accident.

At the time of the accident, the friend’s father was the named insured under a homeowner’s policy issued by Allstate Property & Casualty Insurance Company.  When sued by Plaintiff for the death of his daughter, the friend’s father sought coverage under his homeowner’s policy for the claims arising from the death.

Allstate filed a declaratory judgment action, seeking a judicial declaration as to what, if any, coverage obligation it owed the friend’s father — the homeowner. Specifically, Allstate asserted that because the homeowner’s policy excluded coverage for damages arising out of the use of a motor vehicle and because the damages at issue (the death of plaintiff’s daughter) arose from a motor vehicle accident, there was no coverage under the policy. The trial court granted Allstate’s motion for summary judgment, and the plaintiffs appealed; they argued that their claims were based – not on the use of a motor vehicle – but on the conduct of Allstate’s insureds before the accident in furnishing alcoholic beverages, at their residence, to the driver and to their daughter, who were both minors.

The Georgia Court of Appeals rejected the argument.  In affirming the trial court, the Court of Appeals explained that regardless of the plaintiffs’ theory of liability, the claims would not exist but for the use of a motor vehicle and the policy excluded coverage for damages arising from the use of a motor vehicle.  As such, the court ruled that there was no coverage available under the homeowner’s policy for the plaintiffs’ cause of action.

The plaintiffs petitioned the Georgia Supreme Court for certiorari.  In their petition, plaintiffs urged the court to reverse lower courts’ decisions, claiming that the interpretation of the motor vehicle exclusion was too broad.  Plaintiffs alleged that notwithstanding the plain language of the exclusion, which states that it applies to damages arising from the use of any motor vehicle, the exclusion should be narrowly construed so to only apply to those motor vehicles over which the insured have some ownership, possession, and/or control.  In a single page order, the Supreme Court denied the petition and affirmed the decision of the Court of Appeals.

Georgia Court Of Appeals Says “Applicable” Is Ambiguous

The availability of UM coverage in varying circumstances is keeping Georgia’s appellate courts busy.  As claimants look for all available means of recovery, their insurers and the courts are struggling to keep up with a landscape that changes on a near-weekly basis.  Although it has long been the law in Georgia that courts will not strain to find ambiguities where none exist, a recent ruling by the Court of Appeals suggests that it may be willing to at least stretch.

Typically, before an insured can recover UM benefits, he or she must first exhaust the applicable underlying liability limits. However, in Wade v. Allstate Fire & Cas. Co., 751 S.E.2d 153 (Ga. Ct. App. 2013), an insured reached a partial settlement to receive the full limit of one allegedly negligent motorist’s liability insurance limits in connection with a multi-vehicle accident and then sought to recover benefits under his UM policy, though he had not exhausted the liability limits of the two other allegedly negligent motorists.

Bernard Wade, who was insured under an Allstate liability policy with added-on UM coverage in the amount of $25,000.00 per person, was injured in a multi-vehicle accident and filed suit against the other drivers involved in the accident—Fred Bergh, Dale Froman, and James Bruce—alleging that their negligence caused his injuries. Wade also served his insurer, Allstate, with a copy of his suit.

pie chart with money

Wade subsequently settled with Bruce (and his mother who had also been named as a defendant under the family purpose doctrine), through the payment of the full limits of their liability insurance policy in exchange for a limited liability release. Wade then settled his claims against Bergh and Froman, as well as Froman’s employer, for a total sum of $30,000, which was an amount less than the full amount of their respective liability policy coverages. Wade executed a general release with respect to Bergh, Froman, and Froman’s employer and dismissed these defendants with prejudice.

Allstate consented to the dismissal of Bergh, Froman, and Froman’s employer, but it expressly noted that it did not waive any defenses regarding Wade’s claim for UM benefits. Allstate moved for summary judgment, contending that under the UM provision in Wade’s policy, it was not obligated to pay on Wade’s claim for UM benefits since he had not exhausted the limits of the insurance liability protection available to all named-defendants. The trial court granted Allstate’s motion, finding that the UM provision clearly and unambiguouslyOn appeal, however, Wade argued that summary judgment was improper because there had not been a determination as to the extent of his damages and there had been no apportionment of fault as required by law.  Wade contended that he had exhausted the policy limits with respect to one of the defendants but that Allstate’s UM coverage obligation could not be determined until liability of all defendants had been apportioned.  The Court of Appeals agreed. provided that Allstate was not obligated to pay benefits because Wade did not exhaust the limits of insurance for all defendants.

The Court held that the term “applicable” in the exhaustion provision was ambiguous.[1]  The Court explained the because there were multiple tortfeasors, who could not be held jointly and severally liable, then their respective liability carriers were only responsible for the amount of the damages apportioned to each tortfeasor.  “[I]t stands to reason that an individual tortfeasor’s liability insurance is not ‘applicable’ to pay for any other tortfeasor’s damages.”  Although Wade settled with the Bruces pursuant to a limited liability release and the remaining defendants pursuant to a full release, there had been no determination as to the percentage of fault attributable to each.  The Court of Appeals ruled that Wade would be entitled to UM benefits “if there is an uninsured or underinsured motorist who is legally responsible for his damages.”  More precisely, if there were any losses attributable to the Bruces in excess of their policy limits, then Wade would be entitled to UM coverage. Accordingly, the court ruled that Allstate was not entitled to judgment as a matter of law and remanded the case for a factual determination of Wade’s damages and for an apportionment of fault among the defendants.

This holding suggests that UM carriers may face protracted litigation in cases involving multiple tortfeasors, especially if the plaintiff settles with one or more of the defendants before trial for less than the liability limits.  If that happens, then the UM carrier may be forced to try the case in order to determine whether the degree of fault attributable to the settling party (or parties) exceeded their respective policy limits, thus triggering UM coverage.

[1] The exhaustion provision stated, in pertinent part:

[Allstate is] not obligated to make any payment for bodily injury or property damage under this coverage which arises out of an accident involving the use of an underinsured motor vehicle until after the limits of liability for all liability protection in effect and applicable at the time of the accident have been exhausted by payment of judgments or settlement.

Insufficient Reservation of Rights Bars Insurer’s Suit For Reimbursement For Settlement of Non-Covered Claims

The necessity for a complete and detailed reservation of rights letter was the focus of a recent Court of Appeals decision, in Facility Investments, LP v. Homeland Insurance Co. of New York.  Homeland Insurance Co. (“Homeland”) failed to properly reserve its rights under the uncovered loss allocation provision of the policy issued to its insured, Facility Investments, LLC’s (“Facility”), and thus was obligated to pay the full settlement of $1 million – even though a portion of the settlement was based on non-covered claims.

Facility was sued for negligence, fraud, and intentional misconduct arising from the care of a patient in its nursing home.  Based on exclusions in Homeland’s policy, Homeland reserved its rights for losses arising out of allegations of fraud, malice, or violations of State and Federal regulations.  But, Homeland did not include a reservation of its rights to pursue claims for breach of contract, recoupment, allocation or contribution under the uncovered loss allocation provision of the policy.

During discovery, the plaintiff developed evidence of fraud by Facility, and demanded payment of the $1 million policy limit.  Three days before the expiration of the time limited demand, Facility requested Homeland settle within the policy limits.  Facility notified Homeland that there were significant charting problems and special damages exceeding $800,000.

Homeland offered to settle for the policy limits, but requested Facility contribute 50 percent of the settlement pursuant to the uncovered loss allocation provision.  Additionally, Homeland stated it would pursue recoupment of this sum if Facility did not pay its share.  When Facility refused, Homeland sent a reservation of rights regarding its intent to pursue claims under the uncovered loss allocation provision, including breach of contract, recoupment, allocation and contribution.

After funding the settlement, Homeland sued Facility to recover the portion of the settlement attributable to the non-covered losses.  Facility’s motion to dismiss was denied, but the Georgia Court of Appeals reversed.

The Court of Appeals stated that when Facility refused to contribute to Homeland’s proposed settlement, Homeland had two options: (1) deny coverage or (2) seek immediate declaratory relief.  The Court held that since Homeland defended and settled the underlying suit with knowledge of the uncovered claims, but failed to timely reserve its rights pursuant to the uncovered loss allocation provision, Homeland waived any right to seek reimbursement for the uncovered amounts of the settlement.

Georgia Court of Appeals Finds Exclusion Unambiguous in Pizza Delivery Case

pizza carFor years, Georgia courts have wrestled with the issue of whether exclusions, typically contained in auto liability insurance policies, that preclude coverage for damages arising when an automobile is being used to carry persons or property “for a fee” are ambiguous.  In many cases, especially in the context of food delivery, the courts in this State, as well as in the majority of other jurisdictions, ruled that such exclusions were ambiguous because it was unclear whether the phrase “for a fee” referred to the driver’s receipt of any kind of payment in return for transporting the property from any source or whether it meant a specific payment made to the insured for a particular act of transporting property; See e.g. First Georgia Insurance Co .v. Goodrum, 187 Ga. App. 314 (1988);Prudential Property & Cas. Ins. Co. v. Sartno, 588 Pa. 205, 903 A.2d 1170 (2006);United States Fidelity & Guaranty. Co. v. Lightning Rod Mut. Ins. Co., 80 Ohio St.3d 584, 586, 687 N.E.2d 717 (1997); Progressive Cas. Ins. Co. v. Metcalf, 501 N.W.2d 690, 692 (Minn.App.1993); RPM Pizza v. Automotive Cas. Ins. Co., 601 So.2d 1366, 1368–1369 (La.1992); Pizza Hut of America v. West Gen. Ins. Co., 36 Ark.App. 16, 21, 816 S.W.2d 638 (1991).

However, in a case of first impression, the Georgia Court of Appeals appears to have reversed course.  In Progressive Premier Ins. Co. of Illinois v. Newell, the court considered whether Progressive’s policy excluded coverage for damages arising from the use of the insured auto when it was being used to transport persons or property “for compensation or a fee.”  At the time of the accident, Progressive’s insured Newell was delivering a pizza for his employer, Papa John’s, when he collided with another vehicle.  Papa John’s paid Newell $4.00 per hour plus $1.20 “per house” when he was making deliveries and $7.25 an hour when he was working inside the store.

The Court first considered the litany of cases addressing the “for a fee” exclusion and found that, like Georgia, most jurisdictions have ruled that such exclusions are ambiguous and unenforceable; however, the court also noted that the specific exclusion in question in Newell was slightly different in that it purported to exclude coverage for damages arising from the use of an auto while being used to transport persons or property “for compensation or for a fee.”  As the court explained, “[t]he few courts that have addressed this newer exclusion  in the context of pizza delivery found the addition of the word “compensation” significant and concluded that the exclusion unambiguously applied to the particular facts of the case before them.”

The court reasoned that because “Newell was paid a different hourly wage while delivering pizzas and that he received a per delivery payment of $1.20. . . . the exclusion unambiguously applies to the accident at issue in Progressive’s petition for declaratory judgment.”  Accordingly, the Georgia Court of Appeals reversed the entry of summary judgment in favor of Newell.  The court was also careful to warn that because of “the potential for absurd results that could result from a broad application of our holding in this case to one involving a different factual scenario. . . . our holding in this case should not be expanded beyond the particular facts and circumstances now before us.”

Precisely how narrowly this ruling will be applied is yet to be determined.  For now, at least, it appears that insurers of automobiles that are being used to carry pizzas “for compensation or a fee” can reasonably rely on this holding in making coverage determinations.

Summary Judgment Denied to Insurer on Bad Faith Claim

In Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp., the Georgia Court of Appeals affirmed the denial of the insurer’s motion for summary judgment on the issue of bad faith under O.C.G.A. § 33-4-6.

The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”). Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP offered to its customer.

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  As a result of Warranty Specialists actions, AGCO paid the claims and then sued Warranty Specialists, seeking relief pursuant to O.C.G.A. § 33-4-6.  The Georgia Court of Appeals affirmed the trial court’s denial of summary judgment to Cassidy Davis on the bad faith claim arising under O.C.G.A. § 33-4-6.

In its motion, Cassidy Davis argued that AGCO was legally barred from recovering for bad faith because AGCO had not made a demand for payment pursuant to O.C.G.A. § 33-4-6 and thus failed to trigger any duty for Cassidy Davis.  Cassidy Davis relied upon the language of the master liability policy that the insurer ‘agrees to indemnify [AGCO] for all sums which [AGCO] shall be held legally liable to pay in respect to the contractual liability’.  Cassidy Davis argued that the phrase, “legally liable,” meant a judgment must be obtained.  And, since no judgment was obtained at the time demand for payment was made – no payment was due and Cassidy Davis could not be in bad faith – as a matter of law.

The Court of Appeals, however, found that ‘indemnify’ “has been defined as ‘to reimburse another for a loss suffered because of a third party’s or one’s own act or default.’”  The court also noted that indemnify has also been defined as “’a duty to make good a loss, damage or liability incurred by another.’”  The Court rejected the argument that a judgment was a condition precedent.

As a judgment against AGCO was not required before a demand for payment could be made, AGCO’s demand for reimbursement satisfied the provisions of O.C.G.A. § 33-4-6.  According to the Court of Appeals, the term ‘indemnify,’ as used in the contract of insurance “is broad enough to include any liability, not just liability resulting from a judgment.”  Thus, Cassidy Davis was not entitled to summary judgment on the bad faith claim.

Coverage Expands to Design and Engineering Defects under Master Liability Policy

fine printIn affirming summary judgment for the insured in Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp. the Georgia Court of Appeals relied upon the adage that the scope of coverage is broad.  The insured, AGCO Corporation, manufactures and sells agricultural equipment.  With the purchase of a spray applicator known as the RoGator, AGCO offered extended protection plans (“EPP”).  Warranty Specialists sold the EPPs to AGCO and administered the claims.  A master liability policy was secured from Cassidy Davis to provide coverage to AGCO for liability incurred under the EPP.

When wheel motors on the RoGators began to malfunction, claims were filed under the EPP and Warranty Specialists initially paid the claims.  But, when the volume of claims continued to rise, Warranty Specialists ceased processing and paying claims.  When AGCO sued, Warranty Specialists and Cassidy Davis defended the suit on the basis that neither the EPP nor the master policy insured the wheel motor failure because the failure was caused by a design or engineering defect and not due to a mechanical breakdown caused by manufacturing defects in workmanship or materials.

The Georgia Court of Appeals affirmed the trial court’s grant of summary judgment to AGCO.  The Appellate Court noted that the policy covered the breaking of any part on the RoGator “arising from faults attributable to manufacturing defects in workmanship or materials,” and held that the phrase was broad enough to include breakdown resulting from a design or engineering defect.  Furthermore, the court noted that the policy contained specific exclusions to coverage, but breakdown from design or engineering defect was not specifically excluded.

In finding coverage, the Appellate Court noted that under Georgia law, “where a contract requires a conduct ‘arise out of’ an act, ‘it does not mean proximate cause in the strict legal sense but instead encompasses almost any causal connection or relationship.’”  According to the opinion, “‘nothing more than a slight causal connection is required . . . ’ [Cits.]”  Consequently, the Court held that “the phrase ‘arising from fault attributable to manufacturing defects and workmanship or materials’ is broad enough to include a breakdown or failure related to a manufacturing defect, even where there was a design or engineering defect.”

Georgia Court Upholds Unlisted Household Resident Exclusion

The Georgia Court of Appeals recently upheld the validity of an unlisted household resident exclusion in an auto policy and reiterated its prior position that public policy considerations will render otherwise valid exclusions invalid only in limited situations.  In Kovacs v. Cornerstone Nat’l Ins. Co., the insured’s son, driving a vehicle covered under the policy, was involved in an accident with a pedestrian.  The policy application required that the mother list all household residents 15 years of age or older. Id. at *1.  Despite the fact that the son was a resident of the mother’s household over the age of 15, she did not list him on the application. Id.

The policy contained an exclusion for claims arising from a loss involving a vehicle being operated by a “household resident who, at the time of the application, was not listed on the application but who operated a vehicle listed on the application.” Id. at *4.  The Georgia Court of Appeals reiterated its previous holdings that exclusions in auto policies are valid if supported by consideration and  held that the “clear and unambiguous exclusion barred coverage for [the] accident.” Id.

The court rejected the plaintiff’s argument that coverage should be afforded because the plaintiff had no medical insurance to cover bills incurred as a result of the accident. Id. at *5.  The court concluded that because the plaintiff was struck by a driver “whose use of the insured vehicle was…uncovered under the unlisted driver’s exclusion,” public policy did not warrant enlarging coverage. Id.

Apportionment of Damages: What We Know and What Remains Unsettled

Two of our CCS attorneys, Eric Frisch and Joe Hoffman, wrote an article for the August 2012 Georgia Bar Journal titled “Apportionment of Damages: What We Know and What Remains Unsettled.”  In this article, Eric and Joe examine O.C.G.A. § 51-12-33 and analyze how other states have approached apportionment issues.  Click on the image below to read the full article.

8.13.12GABarJournal - Apportionment Article - EJF.CJH_Page_1

Reprinted with permission from the Georgia Bar Journal, Volume 18, Number 1, August 2012. Copyright State Bar of Georgia. Statements expressed within this article should not be considered endorsements of products or procedures by the State Bar of Georgia.

Whether Motor Vehicle in “Use” at Time of Accident Generally Question of Fact

The Georgia Court of Appeals recently issued two opinions addressing the question of when an incident arises out of the “use” of a motor vehicle for purposes of UM coverage.

In Mough v. Progressive Max Ins. Co., a man was shot and killed while riding his motorcycle.  The motorcyclist was involved in a road-rage incident and was clipped by the driver of another vehicle. Id. at *1.  After following the driver of the vehicle to her house, the motorcyclist was shot and killed by the driver’s father. Id.

The motorcyclist’s policy provided uninsured motorist coverage for injury arising out of the “use” of an uninsured motor vehicle. Id. at *1.  The motorcyclist’s parents argued that his death arose out of the “use” of the driver’s vehicle because “without [the vehicle] leading [the motorcyclist] to the barrel of [the shooter’s gun], the occasion for [the motorcyclist] to be shot and killed would not have occurred.” Id.

The Georgia Court of Appeals noted that “‘arising out of’ does not equal proximate cause or require that the injury be directly caused by the use of a vehicle; only a ‘slight causal connection’ between the damages and the use of the vehicle is required.” Id.

In cases involving shootings, the “general rule is that where a connection appears between the ‘use’ of the vehicle and the discharge of the firearm and resulting injury, such as to render it more likely that the one grew out of the other, it comes within the coverage defined.” Id.

Motor Vehicle Exclusion in Homeowner’s Policy: Not Ambiguous and Given Broad Interpretation

Hays v Georgia Farm Bureau Mut Ins Co picture of truck

The Georgia Court of Appeals recently confirmed that the term “use” in motor vehicle exclusions contained in homeowner’s policies is not ambiguous.  In Hays v. Georgia Farm Bureau Mut. Ins. Co., the homeowner’s policy contained a typical motor vehicle exclusion that excluded coverage for bodily injury “arising out of the ownership, maintenance, use, loading or unloading or motor vehicles owned or operated by or rented or loaned to [the insured].”Id.

The homeowner’s friend was injured when the homeowner attempted to lift a portable toilet onto a deer stand on the homeowner’s property using a pulley system tied to the end of the homeowner’s truck. Id.  When the homeowner pulled the truck forward in an attempt to lift the toilet onto the stand, the stand and the homeowner’s friend fell 20 feet to the ground. Id.