Hale Haven Properties, LLC v. Bank of America, N.A.
815 S.E.2d 574
Ga. Ct. App.2018Background
- Hale Haven was mortgagee on a shopping center sold to VPS; security agreement required VPS to insure the property and allowed mortgagee to apply proceeds to debt.
- VPS’s agent (Pack) obtained an Auto-Owners policy in 2011; application listed Hale Haven as mortgagee for property and liability, but the issued policy listed Hale Haven only on the liability section (property section showed “None”).
- In 2013 Auto-Owners issued a $465,346.96 check payable to “VPS ENTERPRISES LLC AND HALE HAVEN PROPERTIES LLC” for hail damage; Pack formed a business with a similar name, opened an account, endorsed/deposited the check, and wired most funds abroad.
- Hale Haven sued Auto-Owners and the banks (Bank of America and Regions) after discovering it received no proceeds; initial state suit was dismissed and a renewal action was filed within six months asserting breach, reformation, enforcement of the check, bad faith, conversion, and fee claims.
- Trial court denied all summary judgment motions; on appeal the Court of Appeals: (a) affirmed denial as to reformation claim, (b) reversed summary judgment denial to Auto-Owners on several other claims as untimely or legally deficient, and (c) affirmed denial of summary judgment to banks on conversion (commercial reasonableness jury issue) but vacated denial as to Auto-Owners’ cross-claim against banks to allow time-bar analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Reformation of policy to add Hale Haven as property mortgagee | Hale Haven: application and evidence show mutual/scrivener mistake; reformation timely under renewal statute | Auto-Owners: Hale Haven negligent for not reading policy; insurer prejudiced by payment | Timely; genuine fact issues on mistake and prejudice — summary judgment properly denied on reformation |
| Breach of insurance policy as written | Hale Haven: insurer breached by failing to pay mortgagee | Auto-Owners: policy unambiguous—Hale Haven not named in property coverage, so no breach | Policy language controls; Hale Haven cannot show breach as written — summary judgment for Auto-Owners reversed as to this claim (i.e., denial was error) |
| Enforcement of lost/destroyed check (OCGA § 11-3-309) | Hale Haven: entitled to enforce/paycheck despite loss | Auto-Owners: claim is new theory not in original suit and time-barred by policy two-year limitation | Claim is a new theory and governed by policy’s two-year limitation; untimely in renewal action — summary judgment for Auto-Owners should have been granted |
| Bad faith and attorney fees under OCGA § 33-4-6 and § 13-6-11 | Hale Haven: insurer refused payment in bad faith and is liable for fees | Auto-Owners: had reasonable basis to deny — VPS made claim and Auto-Owners already paid VPS; §33-4-6 remedies exclusive | No bad faith or fee recovery — insurer had reasonable grounds; summary judgment in Auto-Owners’ favor warranted |
| Banks’ liability for conversion / commercial reasonableness | Hale Haven: Banks accepted and paid check without proper endorsement, converting instrument | Banks: accepted per commercial practice; account-opening documents and apparent name match justified deposit | Whether banks met commercially reasonable standards is a jury question; summary judgment denial was proper for conversion claim |
| Timeliness of Auto-Owners’ cross-claim against banks (fraud/unauthorized signature) | Auto-Owners: sought recovery from banks for negligent payment | Banks: claim time-barred by OCGA § 11-4-406 and deposit agreement (60-day/1-year reporting) | Appellate court vacated denial and remanded for trial court to decide timeliness first (issue not previously ruled on) |
Key Cases Cited
- Birmingham Fire Ins. Co. of Pa. v. Commercial Transp., Inc., 224 Ga. 203 (1968) (renewal statute can preserve equitable claim like reformation when original action timely)
- Ins. Co. of Pennsylvania v. APAC-Southeast, Inc., 297 Ga. App. 553 (2009) (clear contract terms are enforced as written)
- Georgia Farm Bureau Mut. Ins. Co. v. Wall, 242 Ga. 176 (1978) (failure to read an unsigned policy does not bar reformation as matter of law)
- East Tennessee Mtg. Co. v. U.S. Fidelity & Guar. Co., 268 Ga. 536 (1997) (where right flows from insurance contract, contractual limitations govern over general statutory limitations)
- American Central Ins. Co. v. Lee, 273 Ga. 880 (2001) (standard mortgage clause creates separate contract protecting mortgagee’s interest independent of insured)
- Lawyers Title Ins. Corp. v. Griffin, 302 Ga. App. 726 (2010) (elements and summary judgment standard for OCGA § 33-4-6 bad faith claim)