Southern District Grants Summary Judgment To Insurer Where Policy Expressly Excluded Coverage For Its Volunteer Workers

The Southern District recently issued an Order granting summary judgment to an insurance carrier because its policy unambiguously excluded coverage for bodily injuries arising out of the use of any vehicle operated by a “volunteer worker.”  McKeel v. Auto-Owners Insurance Co., 2015 WL 1333998 (S.D.Ga. March 24, 2015).

In McKeel, Plaintiff was involved in a motor vehicle accident when Cuong Nguyen improperly turned into the path of her vehicle.  Plaintiff, who was pregnant at the time, suffered injuries in the accident and prematurely delivered her baby.  Unfortunately, the baby died due to the injuries sustained in the accident.  At the time of the accident, Nguyen was a “volunteer worker” of Limelight Bar and Grill, LLC, which was owned by Nguyen’s brother.

Limelight was insured under a commercial general liability policy issued by Auto-Owners that provided bodily injury liability limits in the amount of $1,000,000.  Auto-Owners denied Plaintiffs’ demand for the policy limits because the policy excluded bodily injuries that arose out of the use of an automobile.

Plaintiffs filed a personal injury suit in the State Court of Bryan County and obtained a verdict against Nguyen in excess of $3,000,000.  Nguyen assigned his interest in any claim he may have against Auto-Owners to Plaintiffs.  Plaintiffs then filed a declaratory judgment action to determine if “the insurance policy at issue covers the events giving rise to the underlying lawsuits.”  Auto-Owners filed a counter-claim for declaratory judgment to determine that it has “no obligation to make payment for any amount relating to the [Plaintiffs’] judgment for damages obtained by them in the Underlying Liability Lawsuit.”  Following discovery, Auto-Owners filed summary judgment arguing that Plaintiffs’ claims are unambiguously excluded by the policy.

The policy contains an exclusion that expressly excludes “’[b]odily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto,’ or watercraft owned or operated by or rented or loaned to any insured.”  The Court determined that based on this clear and unequivocal language, the policy does not provide coverage for any bodily injury that is based on the use of a vehicle operated by an insured.

The issue, then, was whether Nguyen was an insured under the Auto-Owners policy.  The policy defined insureds to include “‘volunteer workers’ only while performing duties related to the conduct of your business.”  It was undisputed that Nguyen was a “volunteer worker” at the time of the accident.  The Court concluded that Nguyen was an insured under the terms of the policy.

Because the policy expressly excluded coverage for bodily injury arising out of the use of any vehicle operated by an insured, the Court granted Auto-Owners summary judgment and found that the policy did not provide coverage for the injuries claimed by Plaintiffs in the underlying lawsuit.

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Eleventh Circuit holds that Standard for Georgia ROR is “Adequacy”

In evaluating whether an insurer made a proper reservation of rights (ROR), the Eleventh Circuit Court of Appeals, in an unpublished opinion, held that whether the insurer fairly informed the insured of its coverage position is the proper standard in assessing whether coverage defenses were properly reserved.Wellons, Inc. v. Lexington Ins. Co., 2014 WL 1978412 (11th Cir. May 16, 2014).

Lexington insured Wellons, a company that designed and installed an Energy System for Langboard Industries, Inc., a company that manufactures oriented strand board. On November 20, 2004, during the construction phase of the Energy System, a tube bundle collapsed, resulting in extensive property damage. The Energy System was ultimately placed in service by June 2005.

On September 23, 2005 Wellons provided notice to Lexington, pursuant to the 2004 policy, of the tube bundle collapse. Lexington issued a reservation of rights letter on September 30, 2005. The reservation of rights stated, “this letter is not to be construed as a waiver of any of the terms, conditions, or provisions of the Lexington Insurance Company policy, or of any right or policy defense now or hereafter available to the Lexington Insurance Company.”

Wellons was sued, and on September 18, 2007, Lexington sent a second reservation of rights letter. The second reservation of rights stated, “there may be additional policy conditions that may also preclude coverage and this should not be construed as a waiver of other terms and conditions that may apply.” But Lexington retained counsel to defend Wellons against Langboard, and eventually paid limits under the 2004 policy to resolve this suit.

In February of 2006, after the Energy System had been in operation, leaks developed. Wellons retained a consultant, but the superheater ultimately failed. Langboard demanded that Wellons design and install a new superheater. Wellons agreed, but failed to notify Lexington. On August 17, 2006 Wellons notified Lexington of Langboard’s claim for a new superheater, but also of the consultant’s suit filed June 16, 2006, for non-payment for its services to repair the superheater.

On March 2, 2007, Lexington responded to the August 2006 notice by noting two separate claims were embedded in the notice. And, on March 3, 2007, Lexington sent a third reservation of rights letter – noting that Lexington was investigating this matter under a reservation of rights. Lexington further noted the policy required, for coverage to trigger, that “property damage” be caused by an “occurrence” and also highlighted certain exclusions for “Damage to Property,” “Damage to Your Product”, and “Damage to Your Work.” Lexington also stated that the agreement to replace the superheater was without authorization.

On April 25, 2007, Lexington supplemented its March 2007 letter with another reservation of rights letter. This letter stated there was no duty to indemnify or defend Wellons. Specifically, as no suit was filed, the duty to defend was not triggered. Regarding the duty to indemnify, there was no demand beyond the demand to replace the superheater. This letter also quoted pertinent portions of the policy including definitions of “property damage,” “occurrence” and various exclusions – as in the March reservation of rights letter. This position, however, was disputed by Wellons.

Langboard eventually filed a second suit against Wellons, and Lexington defended Wellons under the aforementioned reservation of rights. A jury awarded Langboard $8.5 million in damages. Wellons sued Lexington for indemnification, arguing that Lexington waived its coverage defenses because it did not adequately reserve its rights.

The Eleventh Circuit thoroughly reviewed Georgia law. Specifically, the court examined World Harvest Church, Inc. v. GuideOne Mutual Ins. Co. 287 Ga. 149, 695 S.E.2d 6, (2010) and Hoover v. Maxum Indemnity Co., 291 Ga. 402, 730 S.E.2d 413 (2012). The Eleventh Circuit held that it did not read World Harvest to overrule Georgia authority on specificity. It noted that Georgia law has repeatedly held that an “insurer” is not required to list each and every basis for contesting coverage in the reservation of rights letter. Kay-Lex Co. v. Essex Ins. Co., 286 Ga. App. 484, 649 S.E.2d 602 (2007).

The Court then held that Lexington’s reservation of rights letters were adequate; “a reservation of rights need not specify each and every potential basis for contesting coverage, as long as the reservation fairly informs the insured that, notwithstanding the defense of the insured, the insurer does not waive its coverage defenses.” The Court also noted that Wellons’ failure to object to the defense provided in the second suit provided implied consent to the defense under a reservation, and thereby implicitly consented to the terms of the reservation, including the non-waiver clauses.

The use of multiple reservations of rights with non-waiver clauses proved critical to avoiding costly indemnity obligations for the insurer, Lexington. Most important to the Court’s analysis was that the reservation of rights letters contained non-waiver clauses that specifically reserved Lexington’s right to assert additional coverage defenses. Caution should be noted with respect to reliance on this opinion as it is not binding precedent upon a Georgia Court. The reasoning, however, is very instructive and useful.

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Georgia Uninsured Motorist Law Governs UM Claim And UM Benefits Awarded Under Umbrella Policy Issued in Indiana

The Georgia Court of Appeals recently held that the Georgia Uninsured Motorist Statute applied to an insurance policy that was issued and delivered in Indiana.  In St. Paul Fire & Marine Ins. Co. v. Hughes, 2013 WL 1924393 (Ga. App.), Appellant St. Paul Fire & Marine Ins. Co. (“St. Paul”) issued a commercial umbrella policy to Townsend Tree Service Co., Inc. (“Townsend”).  One of Townsend’s employees, Appellee Wallace Hughes (“Hughes”), was injured in a motor vehicle accident in August 2005; he sought uninsured/underinsured (“UM”) benefits under the St. Paul umbrella policy.

The trial court granted partial summary judgment to Hughes on his claim that the policy provided UM coverage.  St. Paul appealed, arguing Indiana law applied, and since Indiana law did not require UM coverage at the time the policy was issued, summary judgment in its favor was required.

In its analysis, the Georgia Court of Appeals noted that Georgia’s UM statute in effect at the time of the collision, O.C.G.A. § 33-7-11(a)(a) (2005), applied to policies

“issued or delivered by any insurer licensed in this state upon any motor vehicle then principally garaged or principally used in this state . . . .”

In addition, the statute applied to umbrella policies unless the insured rejected UM coverage in writing.  The court reasoned that because the truck Hughes was driving at the time of the collision was principally used and garaged in Georgia, it was reasonable for the parties to assume that Georgia law applied.

The appellate court thus upheld summary judgment granted in favor of Hughes because St. Paul was licensed in Georgia, the truck was principally used and garaged in Georgia, and there was no written rejection of UM benefits.

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