Southern Trust Insurance Company v. Mountain Express Oil Company ( 2019 )

FOURTH DIVISION
DOYLE, P. J.,
COOMER and MARKLE, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules
June 5, 2019
In the Court of Appeals of Georgia
A19A0018. SOUTHERN TRUST INSURANCE COMPANY v.
MOUNTAIN EXPRESS OIL COMPANY.
MARKLE, Judge.
Southern Trust Insurance Co. (“Southern Trust”) appeals from the trial court’s
order denying its motion for summary judgment and granting summary judgment to
Mountain Express Oil Co. (“MEX”) in this insurance coverage dispute. After a
thorough review of the record, and for the reasons that follow, we affirm.
Summary judgment is proper if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law. . . .
Summary judgments enjoy no presumption of correctness on appeal, and
an appellate court must satisfy itself de novo that the requirements of
OCGA § 9-11-56 (c) have been met. In our de novo review of the grant
of a motion for summary judgment, we must view the evidence, and all
reasonable inferences drawn therefrom, in the light most favorable to the
nonmovant.
(Citations and punctuation omitted.) Cowart v. Widener, 287 Ga. 622, 623-624 (1)
(a) (697 SE2d 779) (2010); OCGA § 9-11-56 (c).
So viewed, the record shows that Southern Trust issued a commercial insurance
policy (“the Policy”) to MEX that was in effect during the relevant time period. Per
the terms of the Policy, Southern Trust would
pay those sums that the insured becomes legally obligated to pay as
damages because of “personal and advertising injury” to which this
insurance applies. We will have the right and duty to defend the insured
against any “suit” seeking those damages. However, we will have no
duty to defend the insured against any “suit” seeking damages for
“personal and advertising injury” to which this insurance does not apply.
(Emphasis supplied). “Personal and advertising injury” is defined in the Policy to
include libel and slander claims.
In August 2014, Empire Petroleum filed a civil action against MEX for, among
other claims, breach of contract, injunctive relief, and libel or slander.1 MEX
1
In its second amended complaint dated September 2015, Empire withdrew the
libel/slander claim without prejudice.
2
“immediately” engaged two law firms – Bondurant, Mixson, and Elmore
(“Bondurant”) and James Johnston – to represent it. On September 24, 2014, MEX
called its insurance agent and verbally reported the lawsuit. On October 9, 2014,
Bondurant filed MEX’s answer to the Empire suit, and, the following day, MEX
notified Southern Trust’s insurance agent in writing of the pending lawsuit.2
By letter dated December 29, 2014, Southern Trust notified MEX that its
investigation showed that the Policy did not cover the allegations in the complaint for
the non-libel/slander claims, and it denied coverage and a defense for those claims.
It further advised that it was reserving its rights under the Policy with respect to the
libel/slander claims and had retained the Swift Currie firm (“Swift Currie”) to handle
the defense of the libel/slander claims.
Because MEX had already hired two other firms to handle the suit, and the
discovery process was underway, MEX and Southern Trust agreed that MEX could
2
We need not address whether notice to the insurance agent was sufficient, see
Kay-Lex Co. v. Essex Ins. Co., 286 Ga. App. 484, 489 (1) (a) (649 SE2d 602) (2007),
because counsel conceded at oral argument that Southern Trust was not contesting
timely notice.
3
continue using its lawyers, and Southern Trust would reimburse the attorneys at the
rates it would normally pay Swift Currie.
On January 28, 2015, MEX sent Southern Trust a letter disputing Southern
Trust’s conclusion that the Policy did not provide coverage for the non-libel/slander
claims, stating that it believed the Policy “does provide coverage, indemnification and
defense to MEX . . . for all matters as set forth in the claim.” MEX further wrote, “we
believe that the coverage includes the indemnification and defense to MEX . . . for
the allegations of libel and slander.” Although the letter gave written notice of MEX’s
objections, MEX acknowledged a possible compromise, to be drafted by Southern
Trust, allowing the Bondurant firm to continue handling the defense with
reimbursement from Southern Trust at Swift Currie’s rates.
The parties attempted to memorialize this payment agreement in writing, but
no agreement was ever signed. Nevertheless, between March and July 2015, Southern
Trust reimbursed MEX $40,360 in legal costs for work Bondurant performed related
to the libel/ slander claim. As long as the fee invoice identified the costs as pertaining
to the libel/slander claim, Southern Trust made the payment. This arrangement
continued over the next several months, and during this time, MEX submitted to
4
Southern Trust only the bills related to the libel/slander claim, and paid for the other
claims separately.
The Empire lawsuit settled in October 2016. Later that month, MEX submitted
a demand letter to Southern Trust seeking payment of the entire amount of its
litigation expenses, minus the amount Southern Trust had already paid, for a total of
$728,773. MEX later amended the demand for additional expenses, for a revised total
of $1,197,148.82. Thereafter, MEX filed the instant suit against Southern Trust for
breach of contract and bad faith under OCGA § 33-4-6, contending that Southern
Trust had the duty to defend the entire suit.
MEX moved for partial summary judgment on the issue of liability for breach
of contract, arguing that Southern Trust’s failure to file a declaratory action to
determine its duty to defend all claims barred it from contesting the full amount of
attorney fees.
Southern Trust also moved for summary judgment, arguing that it had fulfilled
its duty under the contract and that MEX breached the insurance contract by rejecting
Southern Trust’s defense.3 According to Southern Trust, it was MEX’s idea to have
3
In this vein, Southern Trust contends that it accepted the duty to defend the
entire action, but that MEX declined. . This is not how the December 29 letter reads.
In fact, the letter explicitly states: “Therefore, by this letter, Southern Trust hereby
5
Southern Trust reimburse MEX for the fees related solely to the libel/slander claims.
Southern Trust further argued that it had acted in good faith to fulfill its contractual
obligations and that MEX rejected its attempts. In response, MEX asserted that it had
the right to select its own counsel due to conflicts of interest Southern Trust created,
and that Southern Trust’s failure to file a declaratory action to determine its duty to
defend precludes it from challenging its obligation to pay the full amount of fees.
The trial court granted MEX’s motion for partial summary judgment and
denied Southern Trust’s motion for summary judgment.4 In a well-written order, the
trial court found that Southern Trust was under an obligation to defend the entire suit
– not just the libel/slander claims – and that its failure to file a declaratory action
waived all of its defenses to the instant suit. The trial court further found that there
was no meeting of the minds to vary the terms of the Policy that would have
permitted Southern Trust to cover only those fees related to the libel and slander
claims. This appeal followed.
denies coverage and informs you that it will not be providing liability coverage,
indemnity or a defense . . . for the claims of breach of contract, conversion, unjust
enrichment, promissory estoppel, right to inspection and audit, permanent injunction
and tortious interference with contracts and business relations claims.”
4
The issues of damages for the breach and whether Southern Trust engaged in
bad faith remain pending in the trial court.
6
On appeal, Southern Trust argues that the trial court erred in granting MEX’s
motion and denying its motion because (1) Southern Trust fully performed its
obligations under the Policy and MEX breached the contract by rejecting Southern
Trust’s defense; (2) it was not required to file a declaratory action under these facts;
and (3) the parties agreed to modify the Policy through an alternate agreement for the
payment of attorney fees. We disagree.
This case presents interesting questions regarding the duty to defend and the
propriety of a declaratory action to settle disputes over the extent of the insurance
company’s obligations. To resolve these issues, we first consider the overall
landscape of this area of the law.
Construction and interpretation of a contract are matters of law for the
court. In Georgia, insurance is a matter of contract, and the parties to an
insurance policy are bound by its plain and unambiguous terms. Thus,
when faced with a conflict over coverage, a trial court must first
determine, as a matter of law, whether the relevant policy language is
ambiguous. A policy which is susceptible to two reasonable meanings
is not ambiguous if the trial court can resolve the conflicting
interpretations by applying the rules of contract construction. We
consider the policy as a whole, to give effect to each provision, and to
interpret each provision to harmonize with each other. Any ambiguities
in the contract are strictly construed against the insurer and insurance
contracts are to be read in accordance with the reasonable expectations
7
of the insured where possible. A word or phrase is ambiguous when it
is of uncertain meaning and may be fairly understood in more ways than
one.
(Citations and punctuation omitted.) Geiger v. Ga. Farm Bureau Mut. Ins. Co., 305
Ga. App. 399, 400-401 (1) (a) (699 SE2d 571) (2010).
It is well-settled that the duty to defend and the duty to indemnify are discrete
obligations. Penn-America Ins. Co. v. Disabled American Veterans, Inc., 268 Ga.
564, 565 (490 SE2d 374) (1997). The duty to defend arises where the claims as
alleged in the complaint potentially fall within the policy coverage. Fireman’s Fund
Ins. Co. v. Univ. of Ga. Athletic Assn., Inc., 288 Ga. App. 355, 356 (654 SE2d 207)
(2007). Any “doubt as to liability and insurer’s duty to defend should be resolved in
favor of the insured.” Penn–America Ins. Co. v. Disabled American Veterans, 268
Ga. 564, 565 (490 SE2d 374) (1997). See also Landmark American Ins. Co. v. Khan,
307 Ga. App. 609, 612 (1) (705 SE2d 707) (2011); Fireman’s Fund Ins. Co., 288 Ga.
App. at 356; BBL–McCarthy v. Baldwin Paving Co., 285 Ga. App. 494, 497-498 (1)
(a) (646 SE2d 682) (2007).
Here, the Policy states: “We will have the right and duty to defend the insured
against any ‘suit’ seeking those damages.” “Suit” is defined in the Policy as “a civil
8
proceeding in which damages because of ‘bodily injury,’ ‘property damage’ or
‘personal and advertising injury’ to which this insurance applies are alleged.”
(Emphasis supplied). By using the term “suit,” instead of “claim,” in the Policy,
Southern Trust obligated itself to defend the entire suit if any of the individual claims
could be covered under the Policy. See Utica Mut. Ins. Co. v. Kelly & Cohen, Inc.,
233 Ga. App. 555, 556 (504 SE2d 510) (1998); see also HDI-Gerling America Ins.
Co. v. Morrison Homes, Inc., 701 F3d 662, 666 (II) (A) (11th Cir. 2012) (interpreting
Georgia law and explaining that “where an insurer has a duty to defend a single claim
the complaint presents, it has a duty to defend all the claims asserted.”).
But Southern Trust failed to perform its obligation. Specifically, in its letter
dated December 29, 2014, Southern Trust informed MEX that it was denying
coverage on the non-libel/slander claims and would not indemnify or defend those
claims. Southern Trust reserved its rights only with respect to the libel/slander claim
and retained counsel to defend that portion of the suit. By refusing to defend the
entire suit under the terms of the Policy, Southern Trust was in breach. See
Occidental Fire & Cas. of N. C. v. Goodman, 339 Ga. App. 427, 431 (4) (793 SE2d
606) (2016) (“An insurer that refuses to indemnify or defend based upon a belief that
a claim against its insured is excluded from a policy’s scope of coverage does so at
9
its peril, and if the insurer guesses wrong, it must bear the consequences, legal or
otherwise, of its breach of contract.”) (citation omitted).
Moreover, in its January 28, 2015 letter, MEX objected to Southern Trust’s
refusal to provide coverage, indemnification, and a defense to the entire suit, as well
as to the reservation of rights with regard to the libel/slander claim. At this point,
Southern Trust was obligated to file a declaratory action to determine the scope of its
responsibilities.
Under Georgia law, where an insurer is faced with a decision regarding
how to handle a claim of coverage at the same time a lawsuit is pending
against its insured, the insurer has three options. First, the insurer can
defend the claim, thereby waiving its policy defenses and claims 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. . . . A reservation of
rights is . . . designed to allow an insurer to provide a defense to its
insured while still preserving the option of litigating and ultimately
denying coverage.
(Citations omitted.) Hoover v. Maxum Indem. Co., 291 Ga. 402, 404-405 (1) (730
SE2d 413) (2012). A reservation of rights must “fairly inform the insured that,
notwithstanding the insurer’s defense of the action, it disclaims liability and does not
waive the defenses available to it against the insured.” (Citation and punctuation
10
omitted.) Hoover, 291 Ga. at 405 (1). A reservation of rights may include a bilateral
agreement between the insurer and the insured, or it can be a unilateral notice of the
reservation by the insurer. Richmond v. Ga. Farm Bureau Mut. Ins. Co., 140 Ga. App.
215, 218 (1) (231 SE2d 245) (1976). Where “the insured refuse[s] to consent to the
bilateral agreement an insurer may avoid the sharp horns of the dilemma presented
by such refusal by giving the insured a timely unilateral notice of its reservation and
non-waiver of rights. This should include notice of its intention to seek immediate
declaratory relief.” (Citation omitted.) Richmond, 140 Ga. App. at 218-219 (1).
Although a declaratory judgment is not necessary where the insured accepts the
insurer’s defense under the reservation of rights, Sims v. First Acceptance Ins. Co. of
Ga., Inc., 322 Ga. App. 361, 363 (2) (745 SE2d 306) (2013), the record here shows
that there was no unequivocal acceptance of Southern Trust’s defense under the
reservation of rights. Thus, Southern Trust was required to file a declaratory action
to preserve its defenses and protect itself from liability for breach of contract and bad
faith. See Richmond, 140 Ga. App. at 218-219 (1).
MEX’s rejection of Swift Currie’s representation and the subsequent agreement
to have Southern Trust pay Bondurant’s fees at Swift Currie rates does not modify the
contract or otherwise alter Southern Trust’s obligations under the Policy. It is
11
undisputed that, although the parties submitted and paid these fees, they were unable
to reduce the agreement to writing.5 Moreover, because the Policy required Southern
Trust to defend the entire suit, MEX was not required to agree to have Southern Trust
do less than it was contractually obligated to do. See, e.g. JNJ Foundation Specialists
v. D. R. Horton, Inc., 311 Ga. App. 269, 272-273 (1) (d) (717 SE2d 219) (2011)
(physical precedent only) (insurance company’s alleged offer to defend only JNJ
Foundations and not D. R. Horton was inconsistent with terms of policy and thus D.
R. Horton was not required to accept less than it was entitled to under the contract).
See also Occidental Fire & Cas. of N. C., 339 Ga. App. at 430 (2) (with regard to
reforming the contract to the prejudice of one party, “the Supreme Court of Georgia
has explained that a party cannot be hurt by reforming the instrument, so as to keep
them from getting what they did not buy.”) (citation and punctuation omitted).
Although the parties are free to modify the terms of a written contract through their
course of conduct, Hanham v. Access Mgmt. Group L. P., __ Ga.__ , *3 (3) ( __ SE2d
__ ) 2019 WL 1006359 (2019), and can waive a breach in the same way, Forsyth
5
The Policy terms could be changed or waived “only by endorsement issued
by [Southern Trust] and made a part of this policy.” Moreover, any such changes
must be in writing. See OCGA. §§ 33-24-1 (a), 33-24-13. No such written
endorsement was ever made to the Policy.
12
County v. Waterscape Svcs., LLC, 303 Ga. App. 623, 630 (2) (a) (694 SE2d 102)
(2010), the record here shows that the parties did not modify the contract, and that
MEX did not waive the breach. Despite MEX’s submission of the libel/slander related
expenses for reimbursement, MEX also notified Southern Trust that it did not accept
the refusal to defend the entire suit. The proper course of action in the face of this
unresolved dispute was for Southern Trust to file a declaratory action. As the trial
court found, the failure to do so is fatal to its claims.6
We therefore conclude that the trial court properly granted partial summary
judgment to MEX and denied Southern Trust’s motion for summary judgment.
Judgment affirmed. Doyle, P. J., and Coomer, J., concur.
6
Having found that the dispute triggered Southern Trust’s obligation to file for
declaratory relief, we need not consider whether MEX breached the Policy or whether
Southern Trust created a conflict of interest.
13