Lead Opinion
Plaintiff North River Insurance Company and defendant The Home Insurance Company provided policies of liability insurance to Intex Products, Inc. (“Intex”), a South Carolina chemical company. The defendant’s policy provided “primary coverage to Intex, which coverage included a duty to defend any lawsuits against Intex at the expense of the defendant. The plaintiff’s policy was an “umbrella” or “excess” policy which protected Intex against adverse judgments in amounts exceeding the primary coverage up to a limit of ten million dollars. The plaintiff’s policy required, and Intex warranted to plaintiff, that certain types and amounts of primary coverage be maintained by Intex, including products liability coverage in an amount of $500,000 for each occurrence.
In 1978 Intex sold several drums of an industrial solvent to Dia
Intex notified defendant of the incident on the tugboat via an “Acord” form. The form had been prepared and typed by the independent insurance agent which had obtained the coverage for Intex. The Acord form bore in the space labeled “Bodily Injury” the notation “500,000” and underneath that figure the notation “1,000,000,” and following those figures the typed words “Products Liability.”
When the Acord form reached defendant’s regional office in Charlotte, North Carolina, an experienced claims supervisor attempted to verify defendant’s coverage by checking the Acord form against the policy “daily.” The “daily” is an abbreviated memorandum of the provisions of an insurance policy from which the entire contact can be reconstructed. The “daily” consists of the declarations page, including a list of the standard forms of clauses which make uf a policy, and duplicates of any schedule, lists or other writings whicl are unique to a particular policy.
When defendant’s claims supervisor examined the “daily” for the policy issued to Intex he saw the figures 500,000 and 1,000,000, anc concluded that the figures on the Acord form were correct, that is that the policy issued by defendant to Intex provided coverage o: $500,000 for each person to a maximum of $1 million for each acci dent injuring more than one person. The claims supervisor did no notice that the language of the daily specified that $500,000 was th< maximum available for any particular incident or “occurrence,” o that $1 million was the aggregate amount available for all occurrence during the policy period. The claims supervisor filled out a “Clerica Instruction Sheet” to show the limits as “500/1000” and checked th “yes” blank on the form in the space labeled “Daily Report Availa ble.” A typist then opened a claims file and typed the word “Daily on defendant’s form No. 10-800. That word signaled any defendant’ employee who later looked at the form that the coverage shown ha< been verified against the daily.
Near the end of 1980 three Diamond employees filed lawsuits i: federal court against Intex alleging severe personal injuries froi breathing the toxic fumes on the tugboat. These three product liabi’ ity suits sought a total of $4 million for physical and psychiatric inji ries. Intex sent the suit papers to its independent insurance ager which in turn sent the complaints to plaintiff and defendant, alon with Acord forms.
While plaintiff’s claims representative had developed an initial impression, from the Acord form and from figures given on the telephone by defendant’s Savannah office, that a million dollars coverage was available for the three claims, this conclusion was reinforced by the receipt of the copy of defendant’s letter by Morgan reciting policy coverage in that amount. Plaintiff relied on Morgan’s excess letter and on defendant’s other assertions. Plaintiff twice examined defendant’s claims files which contained the false information as to coverage. Defendant’s strategy and course of conduct, including the action of its attorney in the federal litigation, continuously reflected defendant’s false assertion about its coverage limits.
During discovery in the federal cases, plaintiff monitored the litigation and periodically prepared detailed evaluations of the damages in each claim in view of the developing medical evidence. While plaintiff’s claims personnel had some concern that adverse verdicts might exceed defendant’s purported limits of $1 million and thus involve exposure to plaintiff’s coverage, plaintiff did not attend settlement conferences in the federal cases since settlement demands were within the purported primary limits. Thus lulled into a passive posture, plaintiff took no active part in the defense or settlement negotiations concerning the federal cases and allocated a reserve of only one dollar for each claimant.
Meanwhile, the three.federal cases progressed with jury selection being scheduled for August 27, 1981, and the trial of the first case was to begin on September 2, 1981. On August 7, 1981, the attorney employed by defendant to represent Intex recommended that he be
At the time defendant’s claims committee met it was anticipated that the three federal cases would be tried separately. However, following jury selection the federal judge announced that the three cases would be consolidated for trial. This precipitated a warning from the attorney retained to represent Intex that such constituted a major change, making defeat even more likely than before, since each victim’s account of his emotional and physical injuries would gain credence from the fact that the other claimants were similarly injured. The attorney recommended that defendant pay plaintiffs’ demand of $705,000. Defendant offered to settle for $225,000 and finally during trial offered $400,000, which was refused. The three-day trial in federal court concluded with the jury’s return of verdicts against Intex totalling $1,250,000.
It was only after the return of the verdict in the federal court cases that defendant discovered its error regarding its coverage limits and asked plaintiff to pay all of the judgment over $500,000. In order to protect Intex from levy or attachment plaintiff paid, but under protest. Plaintiff’s offer to arbitrate its dispute with defendant was refused and the filing of the case sub judice followed.
The case sub judice was tried before the State Court of Chatham County sitting without a jury. The state court entered its findings of fact (many of which are incorporated in our statement of the facts) and conclusions of law awarding a judgment in favor of plaintiff and against defendant in the amount of $494,871 special damages, $190,525.33 prejudgment interest and $53,081.33 expense of litigation or a total judgment of $738,477.66, plus court costs. In Case No. A89A0687 defendant appeals from the judgment entered against it. Plaintiff’s cross-appeal is Case No. A89A0688. Held:
1. The trial court concluded that when an insurance company defends its insured pursuant to a policy of liability insurance against a claim which seeks damages in excess of the policy’s limits and a judgment is returned in excess of those limits, an insurance company which issued a policy of excess or umbrella coverage to that insured is equitably subrogated to any rights the insured might have against its primary carrier for negligent failure to settle. Thus, the trial court found plaintiff to be subrogated to the rights of its insured, Intex, as to claims which Intex might have against defendant, its primary insurer, arising out of the defense of the tugboat claims. While finding no Georgia cases on point, the trial court adopted the holding of the Ohio Supreme Court in Centennial Ins. Co. v. Liberty Mut. Ins. Co.,
Defendant contends the trial court erred in concluding that plaintiff was equitably subrogated to the rights of Intex since such an extension of the doctrine of equitable subrogation (that is in the context of excess and primary insurer) fails to advance the underlying public policies. However, we reach the contrary conclusion since placing the excess insurer in the shoes of the insured advances the public interest in obtaining prompt and just settlement of claims. The existence of excess or umbrella coverage must not relieve the primary insurer of its responsibility to accept reasonable settlement offers lest, in those situations where a claim exceeds the amount of primary coverage, the primary insurer be encouraged to attempt to place its financial burden upon the excess insurer.
2. In addition to plaintiff’s claim in its capacity as subrogee of Intex for negligent failure to settle, the pleadings and evidence presented a separate claim based on the Restatement of Torts 2d, § 552 as adopted in Robert & Co. Assoc. v. Rhodes-Haverty Partnership,
The trial court concluded that plaintiff, standing in the shoes of Intex, was reasonable in relying upon the defendant’s negligently prepared excess letter, both as a matter of fact and as a matter of law. This conclusion by the trial court obviously refers to plaintiff as sub-rogee of Intex but relates to a claim predicated on the false representations by defendant concerning its coverage limits. Thus, the trial court’s judgment is predicated at least in part upon a third theory, that Intex had a right to recover for the misrepresentation as to coverage, which right could be asserted by plaintiff as subrogee of Intex.
Insofar as plaintiff was subrogated to the rights of Intex, plaintiff is put in the place of Intex, entitled to recover all that was available to Intex but also subject to any defenses which could have been asserted against Intex. Liberty Mut. Ins. Co. v. Alsco Constr.,
Nonetheless, it does appear that the judgment against defendant is predicated, at least in part, upon an erroneous theory of law. The trial court’s reliance upon an erroneous legal theory requires reversal. Wood v. Dan P. Holl & Co.,
3. While in Division 1 we accepted the reasoning of Centennial Ins. Co. v. Liberty Mut. Ins. Co.,
Defendant also contends the trial court erred in its factual find ing that defendant was negligent in failing to alter its trial strategy after the August 27, 1981, announcement of the federal court whicl changed the procedure to be used in the trial of the tugboat cases
4. The trial court erred in finding plaintiff’s damages to be liquidated. “A liquidated claim is for an amount certain and fixed. Conversely, a claim is unliquidated when there is a bona fide contention as to the amount owing. Ryan v. Progressive Retailer Pub. Co.,
5. The trial court erred in awarding plaintiff expenses of litigation under OCGA § 13-6-11. In order to authorize such an award it is necessary that one of the three statutory conditions exists. The trial court predicated its award on its ruling that defendant was guilty of constructive bad faith and was stubbornly litigious.
The trial court stated its finding that defendant did not act in bad faith at any time. The trial court then proceeded to award expenses of litigation under a theory of constructive bad faith. We find no authority under either Georgia law (or the foreign authority cited by the trial court) for the trial court’s theory of constructive bad faith which is apparently somehow derived from constructive fraud. Additionally, as bad faith and constructive bad faith, as conceived by the trial court, are distinctive and the latter is not included among the statutory conditions authorizing an award of expenses of litigation under OCGA § 13-6-11, the award predicated on that theory was error.
Neither was the trial court’s conclusion, that defendant was stubbornly litigious in resisting the claim of plaintiff as subrogee of Intex for the misrepresentation of coverage, well founded. Since plaintiff
6. Finally, in the cross appeal, Case No. A89A0688, the plaintiff raises four enumerations of error, all of which are addressed to the trial court’s finding that some payment for the liability of Intex by plaintiff was inevitable and determining that such inevitable contribution was $205,000, which amount was used to reduce the amount of plaintiff’s damages. Plaintiff contends it is entitled to recover all of the sum which it paid under its coverage of Intex, and that we should adopt a clear line rule to govern the determination of damages when a primary carrier misinforms an excess carrier as to the coverage it provides the insured. However, the purpose of damages is to place an injured party in the same position as it would have been in had there been no injury or breach of duty, that is, to compensate for the injury actually sustained. Plaintiff’s clear line rule while offering simplicity would afford a windfall to the excess insurer and depart from the basic tenet that compensation, not enrichment, is the basis for the award of damages. Smith v. Overby,
7. In Divisions 1 and 3 we have addressed two of defendant’s enumerations of error which are directed (at least in part) to overturning the trial court’s conclusions regarding plaintiff’s claim, as sub-rogee of Intex, for damages arising from defendant’s negligent failure to settle the federal cases. Thus, as these enumerations are without merit, the trial court’s conclusions as to this claim are not affected by this opinion.
In Division 2 we determined that the trial court’s judgment was predicated at least in part on an erroneous theory of law and thus requires reversal. Accordingly, the judgment in Case No. A89A0687 is reversed and the case remanded for the entry of a new judgment which should include a redetermination on the issue of plaintiff’s entitlement to recover expenses of litigation.
Judgment reversed and case remanded with direction in Case No. A89A0687. Judgment affirmed in Case No. A89A0688.
Concurrence Opinion
concurring specially.
Appellee-plaintiff was proceeding under two theories. The first theory of recovery was that appellee was subrogated to the claim that Intex, its insured, would have for appellant-defendant’s negligent failure to settle. This theory is discussed in Division 1 and I concur in
The second theory of recovery was that appellee had its own direct action against appellant based upon the negligent misrepresentation made to Intex as to the limits of coverage. See Robert & Co. Assoc. v. Rhodes-Haverty Partnership,
Accordingly, I concur in the majority’s conclusion that the trial court’s judgment is predicated in part upon an erroneous legal theory. In my opinion, however, that error relates to the direct action theory and not the so-called alternative third theory of recovery. Therefore, I would not address the merits of the illusory third theory but would simply reverse and remand for the entry of a new judgment which applies the correct legal principles to the issue of appellant’s liability under the direct action theory. As to this direct action theory, the trial court “ ‘has not considered all of the evidence in the light of correct and applicable legal principles [.] [Accordingly,] the case should be remanded to the [trial court] for further findings. [Cit.]’ [Cit.]” Williams v. Morrison Assur. Co.,
I concur in the reversal and remand for the entry of further findings as to the appellee’s entitlement to recover the expenses of litigation. The issue of appellee’s entitlement to recover the expenses of litigation should be redetermined after the trial court readdresses the issue of appellant’s liability pursuant to correct legal principles.