American Safety Indemnity Company v. Sto Corp.
2017 WL 2829274
Ga. Ct. App.2017Background
- Sto manufactured and supplied stucco/coating products; ASIC issued Stucco (2009–2012) and Coating (2010–2012) policies to Sto. Two third‑party suits arose (Crescent Shores, Canal Side Lofts) alleging delamination/blistering of Sto’s products.
- ASIC initially denied coverage for both matters, later agreed to defend each, but Sto contends it never received ASIC’s reservation‑of‑rights letters and that ASIC orally promised defense without reservation.
- ASIC continued defense for extended periods, then withdrew coverage after (a) asserting Sto misrepresented notice timing for Crescent Shores and (b) after a $918,000 jury verdict in the Canal Side case. Sto sued ASIC for breach of contract, declaratory judgment, and bad faith; ASIC counterclaimed to rescind the policies for alleged application misrepresentations.
- Trial court granted Sto summary judgment on breach and declaratory relief (finding ASIC failed to properly reserve rights and thus was estopped) and on rescission (finding waiver/untimely rescission by ASIC), but denied ASIC summary judgment on Sto’s bad faith claim. ASIC appealed.
- The Court of Appeals (majority) affirmed the rulings on estoppel and rescission but reversed the denial as to bad faith, holding ASIC had reasonable factual/legal grounds to contest coverage so summary judgment for ASIC on bad faith was proper. One judge concurred/dissented as to bad faith, arguing a jury should decide.
Issues
| Issue | Plaintiff's Argument (Sto) | Defendant's Argument (ASIC) | Held |
|---|---|---|---|
| Whether ASIC’s post‑denial reservation(s) of rights avoided estoppel | Earlier reservations and later letters/oral notices preserved ASIC’s right to deny; thus no waiver | Prior denials plus failure to timely/methodically notify Sto meant ASIC waived defenses and is estopped from denying coverage | ASIC’s late/post‑denial reservations were ineffective; ASIC estopped from asserting noncoverage (summary judgment for Sto) |
| Whether reservation letters were mailed/received (sufficiency of mailing evidence) | Sto: no record of receipt; no agent or counsel received letters | ASIC: adjuster’s practice and draft letters create fact issue that letters were mailed/received | No evidence of proper mailing/receipt (no postage/address proof); no genuine fact issue — Sto entitled to judgment on lack of effective reservation |
| Whether ASIC timely and validly rescinded policies for alleged application misrepresentations | Sto: any misrepresentations were immaterial or ASIC waived rescission by treating policies as in force and delaying announcement | ASIC: misrepresentations about loss history/products justified rescission when discovered at trial | ASIC failed to timely announce intent to rescind and affirmatively treated policies as in force; rescission counterclaim was waived (summary judgment for Sto) |
| Whether ASIC is entitled to summary judgment on Sto’s OCGA § 33‑4‑6 bad faith claim | Sto: ASIC’s conduct (reversals, post‑verdict actions, and lack of effective reservations) supports a jury finding of bad faith | ASIC: it had reasonable factual and legal grounds to deny coverage; bad faith penalties require no reasonable basis to contest | Majority: ASIC had reasonable grounds; summary judgment for ASIC on bad faith. Dissent: disputed issues of motive/timing create jury question — trial court denial should stand |
Key Cases Cited
- Hoover v. Maxum Indem. Co., 291 Ga. 402 (2012) (explains insurer options: defend, deny, or defend under reservation; reservation must occur when insurer is uncertain)
- World Harvest Church, Inc. v. GuideOne Mut. Ins. Co., 287 Ga. 149 (2010) (reservation of rights must fairly inform insured and specify basis; ambiguous reservations construed for insured)
- Prescott’s Altama Datsun, Inc. v. Monarch Ins. Co. of Ohio, 253 Ga. 317 (1984) (insurer who assumes defense without reserving rights may be estopped from later denying coverage)
- Drawdy v. Direct Gen. Ins. Co., 277 Ga. 107 (2003) (once an insurer denies coverage it is not ‘‘uncertain’’ and cannot later rely on a reservation made only while investigating)
- Burnside v. GEICO Gen. Ins. Co., 309 Ga. App. 897 (2011) (affidavits and detailed mailing procedures can support proof of mailing/receipt)
- Auto‑Owners Ins. Co. v. Neisler, 334 Ga. App. 284 (2015) (bad faith penalties not authorized where insurer has any reasonable ground to contest claim)