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Georgia Supreme Court Finds No Reservation of Rights Where Insurer Denies Coverage

Blogs, Insurance Coverage

In a recent decision, the Supreme Court of Georgia ruled that an insurer cannot both deny coverage for an insurance claim and attempt to reserve the right to assert other defenses in the future. The ruling, explained in greater detail below, will likely encourage insurers to defend lawsuits filed against their insureds where coverage obligations are initially unclear.

In Hoover v. Maxum Indem. Co., Nos. S11G1681, S11G1683, 2012 WL 2217040 (Ga. June 18, 2012), plaintiff James Matthew Hoover (“Hoover”) sustained a serious brain injury when he fell from a ladder while working for his employer, Emergency Water Extraction Services, LLC (“EWES”). Id. at *1. At the time of the accident, Maxum Indemnity Company (“Maxum”) insured EWES pursuant to a commercial liability insurance policy. Id. When Hoover filed a personal injury lawsuit against EWES and others, Maxum denied coverage and refused to defend, citing the policy’s Employer Liability Exclusion. Id. at *1-2. Maxum’s denial letter further purported to reserve the insurer’s right to claim a number of other defenses in the future, including EWES’s failure to provide timely notice of the occurrence as required by the policy’s notice provision. Id. at *2. 

“After Hoover obtained a $16.4 million negligence judgment against EWES, he filed suit against Maxum pursuant to an assignment of claims from EWES, asserting breach of the duty to defend and seeking indemnification.” Id. at *1. The trial court granted Maxum’s motion for summary judgment based upon EWES’s failure to provide timely notice, and the Court of Appeals affirmed. Hoover, 2012 WL 2217040 at *1.

In reversing the determination of the Court of Appeals, Georgia’s highest court held that Maxum waived its right to assert a defense based on EWES’s untimely notice because it failed to properly alert EWES that the lack of timely notice would be a potential bar to coverage. Id. In announcing the Supreme Court of Georgia’s decision, Presiding Justice Hunstein explained that, under Georgia law, insurers have three options when deciding how to handle a claim for coverage at the same time a lawsuit is pending against its insured: (i) defend the claim, thereby waiving any policy defenses and claims of non-coverage; (ii) deny coverage and refuse to defend, leaving policy defenses open for future litigation; or (iii) defend under a reservation of rights. Id. at *2. A reservation of rights, the Court found, “is only available to an insurer who undertakes a defense while questions remain about the validity of coverage. . . . A reservation of rights does not exist so that an insurer who has denied coverage may continue to investigate to come up with additional reasons on which the denial could be based if challenged.” Id. at *3 (emphasis in original).

In an opinion concurring in part and dissenting in part, Justice Melton argued that the majority overstated Georgia law in finding that “an insurer cannot both deny a claim outright and reserve the right to assert a different defense in the future.” Id. at *5-6.