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Great American Alliance Insurance Company (“GAAIC”) was granted summary judgment when the trial court determined that a GAAIC umbrella policy did not cover an insurance claim made by Star Residential, LLC (“Star”) and Terraces at Brookhaven, LLC (“Terraces,” collectively, ” Insured”, based on a gunshot wound suffered by Manuel Hernandez (together with the insured, the “Claimants”).
IN Hernandez v. Great American Alliance Insurance Company Star Residential, LLC et al. v. Great American Alliance Insurance Company, No. A22A1147, A22A1211, Court of Appeals of Georgia, Third Division (Oct. 4, 2022), the appeals court resolved the dispute.
Appellants argued that the trial court erred in holding that the umbrella policy did not cover the insureds’ claims because:
- The GAAIC’s conduct waived its political defence, and
- The GAAIC’s umbrella policy “did not follow the form” of certain underlying policies which excluded coverage for firearms events.
The undisputed record showed that Star and Terraces owns and/or operates an apartment complex where Hernandez lived. In May 2017, Hernandez was shot twice in the back by two assailants as he approached the door of his apartment one night.
Within days, Star generated an incident report, notified Terraces of the shooting and notified its primary insurer, Associated Industries Insurance Company, Inc. (a/k/a AmTrust North America, herein “AIIC”). Two weeks after that, Hernandez’s attorney notified them that he was representing Hernandez. At that time the insured did not notify the GAAIC of any potential claims.
In early December 2017, the primary operator AIIC received a formal demand letter from Hernandez demanding $1.5 million in compensation. The insured notified the GAAIC of the claim on 2 February 2018. A few days later, the GAAIC confirmed the notification, stating that they had logged the matter as “incident only”, and they did not expect to take any further action at this time, reminding the insured to report claim to their primary insurance company if they have not already done so.
Hernandez sued the insureds and served them in April 2018. In May 2018, AIIC sent a letter to the insureds denying coverage and refusing to represent the insureds in the litigation. In June 2018, the GAAIC began paying for legal representation for the insured. Within a day of the representation being initiated, on 20 June 2018, the GAAIC sent the first of three reservation of rights letters to the insured.
Among other things, the GAAIC’s June 2018 disclaimer letter noted the AIIC’s denial of primary bodily injury coverage because: the AAIC only covered damage due to “accident,” as opposed to intentional conduct, and the AAIC’s primary policy also excluded coverage for bodily injury arising from the use of firearms.
The GAAIC policy defines it as an accident, as opposed to intentional conduct, similar to the AIIC policy. In May 2020, the GAAIC sent a second supplemental disclaimer of rights. In that letter, the GAAIC explained that for the insured, “the [GAAIC] the policy states that “coverage applies only if the organization is included under coverage provided by [underlying policies] . . . and then for no broader coverage than is provided under such ‘underlying policy.'” Therefore, the letter explained, the AIIC-excluded exclusions apply equally to bar coverage in [GAAIC] policy,” including the firearms exemption in the AIIC policy.
THE DECLARATORY RELIEF
GAAIC sued seeking a declaratory judgment to resolve the coverage issue with respect to GAAIC’s policy. The trial court granted the GAAIC’s motion for summary judgment and denied the insured’s motion for summary judgment. The appellants now appeal.
It is undisputed that within 24 hours of a discussion of adopting the insured’s defence, the GAAIC sent its first reservation of rights letter to the insured. This letter was prompt enough, citing the firearms exclusion in the underlying AIIC policy, as well as the GAAIC’s umbrella coverage provision triggered by an “event,” which the GAAIC policy defines as “an accident.”
This quick disclaimer letter was sufficient to notify the insured that even if GAAIC had initiated its coverage of a legal defense, it would still rely on the terms, definitions and provisions of the umbrella policy; that the underlying insurance (cited in the reservation of rights letter) likely did not cover injuries caused by firearms; and that GAAIC did not waive its policy defenses which were implicated in the terms of the GAAIC policy or the underlying AIIC policywhich policy the GAAIC cited in the reservation of rights letter.
In sum, the record demonstrated that the GAAIC acted in good faith in providing a defense under a reservation of rights, and in light of the specific language of the original reservation of rights letter, the Court of Appeals declined to penalize the GAAIC for further clarifying those positions in the supplemental reservation of rights .
The Court of Appeal concluded that the district court rightly concluded that:
- the insured are correctly identified as members of the DPUM risk purchasing group covered by the umbrella policy,
- the insured purchased AIIC as the underlying insurance for the umbrella policy, and
- the umbrella policy is not broader than the underlying AIIC policy purchased.
- Otherwise, according to the GAAIC’s definition of “insured”, if the AIIC policy is not included as underlying insurance, the umbrella policy does not apply.
In light of the controlling language and structure of the GAAIC insurance agreement, the trial court did not err in holding that GAAIC’s umbrella coverage could not be extended beyond the underlying policy and the court properly granted summary judgment to GAAIC and denied the insureds’ claim about partial judgment.
Insurance policies are contracts regardless of whether they are primary or umbrella/excess policies. Because the claim was based on the fact that Hernandez was shot in the back twice, the firearms exception applied, and because it applied in the underlying coverage, it did not apply in the umbrella. A disclaimer letter, even if it does not cover all possibilities of coverage, especially when it is covered by supplementary reservations, cannot act as a waiver of the insurer’s rights and obligations because its intention is the opposite: to prevent waiver.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and email@example.com. Subscribe and receive videos limited to Excellence in Claims Handling subscribers at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.
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