Georgia Supreme Court: Insurers Waive Defenses Not Raised in Denial Letter

Hoover v. Maxum Indem. Co.
(Ga. June 18, 2012)

The Supreme Court of Georgia recently ruled that an insurer cannot both deny coverage for a claim outright and attempt to reserve the right to assert a different defense in the future. The ruling will undoubtedly pressure insurers into defending insureds where coverage defenses are not initially clear.

In Hoover, the plaintiff fell from a ladder while descending from a roof, causing a serious brain injury. Just before the accident, Hoover, an Emergency Water Extraction Services, LLC (aEURoeEWESaEUR?) employee, delivered a ladder to an independent contractor who was making repairs on a roof. The roofer then asked Hoover to come up to the roof to assist with the repairs. Hoover complied. The roofer then asked Hoover to retrieve some materials from the ground. Hoover fell as he was descending the ladder. His duties as a water extraction technician for EWES did not include climbing on ladders or making roof repairs.

After Hoover filed a personal injury lawsuit against EWES and others, EWESaEUR(TM)s insurer, Maxum Indemnity Company, disclaimed coverage based on the policyaEUR(TM)s EmployeraEUR(TM)s Liability Exclusion. The letter also purported to reserve MaxumaEUR(TM)s right to claim a number of other defenses, including EWESaEUR(TM) failure to comply with the policyaEUR(TM)s notice provision, which required notice of an aEURoeoccurrenceaEUR? as soon as practicable.

Hoover obtained a $16.4 million negligence judgment against EWES and then filed suit against Maxum pursuant to an assignment of claims from EWES, asserting breach of the duty to defend and seeking indemnification. The trial court granted MaxumaEUR(TM)s motion for summary judgment based on EWESaEUR(TM) failure to provide timely notice of the accident, and the appellate court affirmed.

The Supreme Court of Georgia reversed the appellate court, holding that Maxum could not rely on EWESaEUR(TM) breach of the policyaEUR(TM)s notice provision as a defense to coverage because it failed to cite the breach in its disclaimer letter. In so ruling, the court clarified that, under Georgia law, an insurer has three options regarding how to handle a claim of coverage when a lawsuit is pending against its insured. First, the insurer can defend the claim, thereby waiving its policy defenses and claim of non-coverage. Second, the insurer can deny coverage and refuse to defend, leaving policy defenses open for future litigation. Or, third, the insurer can defend under a reservation of rights. The insurer cannot, the court held, disclaim coverage and then reserve its rights to rely on additional policy defenses.

For a copy of the decision, click here.

Richard J. Cohen and Carrie P. Apple

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