Summary
In Anderson, the Georgia Court of Appeals held the insurer's notification to the insured that any defense undertaken by the insurer "shall not be construed as a waiver of the right to deny liability at any time" was effective despite its lack of specificity.
Summary of this case from Wellons, Inc. v. Lexington Ins. Co.Opinion
39056.
DECIDED NOVEMBER 2, 1961. REHEARING DENIED NOVEMBER 20, 1961.
Action on insurance policy. Whitfield Superior Court. Before Judge Davis.
Pittman, Kinney Pope, H. E. Kinney, L. Hugh Kemp, for plaintiff in error.
Mitchell Mitchell, Erwin Mitchell, D. W. Mitchell, contra.
A liability insurer, which with knowledge of a ground of forfeiture or noncoverage under an insurance policy assumes and conducts the defense of an action brought against the insured, is thereafter estopped in an action upon the policy from asserting such forfeiture or noncoverage. However, the insurer may avoid the estoppel by giving timely notice fairly informing the insured that, notwithstanding its defense of the action, it disclaims liability and does not waive the defenses available to it against the insured.
DECIDED NOVEMBER 2, 1961 — REHEARING DENIED NOVEMBER 20, 1961.
This case arose out of the following facts; On October 8, 1959, the defendant (plaintiff in error) issued an automobile liability insurance policy to Henry C. Parks. During the period covered by the policy the insured while driving the insured vehicle had a collision in which the plaintiff (defendant in error) was injured. The plaintiff made a claim and later sued and obtained a verdict and judgment against Parks. The defendant refused to pay the judgment. The plaintiff then sued the defendant for the amount of the judgment against Parks.
The defendant filed an answer to plaintiff's petition denying liability to the plaintiff, in which it alleged: Parks had induced the defendant to issue the policy by representing on his application therefore that no insurer had within the past three years canceled or refused to issue automobile insurance to him. This representation was stated in the policy as a warranty. The representation was false and fraudulent, was known by Parks when he made it to be false; and the defendant would not have issued the policy had it known the truth. On May 31, 1960, the plaintiff signed an "Authorization for Claim Service and Non-waiver of Rights" authorizing the defendant ". . . to investigate, negotiate, settle, deny or defend any claim arising out of an accident occurring on or about 1-10-1960," and stating: "It is agreed that such actions shall not waive any of the rights of the undersigned or of the Company under any contract of insurance." On May 31, 1960, the defendant notified Parks that any defense undertaken by it "shall not be construed as a waiver of the right . . . to deny liability at any time under any policy . . . issued to" Parks. The defendant filed an answer in the suit on June 7, 1960. Defendant wrote plaintiff's attorney on June 7, 1960, that it was handling the defense ". . . under a reservation of rights because of a possible misrepresentation on the part of Henry C. Parks at the time he made application for a policy of insurance to cover his 1959 Rambler automobile which was involved in this accident"; that no action taken by defendant should be construed as a waiver of its right to deny liability; that defendant reserved ". . . the right to deny liability whether by reason of the above mentioned possible coverage questions or any other violation or coverage question which may have come to our knowledge or shall hereafter come to our knowledge." The defendant rescinded the policy and returned the premium to Parks as soon as it learned of the misrepresentation. In its letter of rescission, dated June 8, 1960, the defendant notified Parks that it had knowledge of the misrepresentation, and stated that it would treat the policy as void from inception, and that any defense of the suit undertaken by the defendant should not be construed as a waiver of the defendant's right "to refuse payment of any judgments, claims or to otherwise become obligated" under the rescinded policy. The defendant refused to settle plaintiff's claim against Parks. Parks ". . . hired and paid J. B. Headrick, a Dalton attorney, to represent his interest and said J. B. Headrick participated in the trial, was present when the jury was selected, and assisted in striking the same, and the record so shows. However, during the noon hour the said J. B. Headrick, after conferring with Mr. D. W. Mitchell, of counsel for plaintiff, announced he was withdrawing from the case."
The plaintiff's general demurrer to the answer was sustained "for the reason that said answer does not set forth any defense." The case proceeded to trial, and the plaintiff introduced evidence of his judgment against Parks and that it had not been paid. The court granted a directed verdict for the plaintiff and entered judgment thereon. The defendant filed a motion for new trial and an amendment thereto. The court denied the motion for new trial as amended. On the rulings of the court sustaining plaintiff's general demurrers to its answer, directing a verdict for plaintiff, and refusing to allow the defendant to introduce any evidence in support of its answer, the defendant assigns error.
It is the law of Georgia and "The general rule supported by the great weight of authority . . . that if a liability insurer, with knowledge of a ground of forfeiture or noncoverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground of forfeiture or noncoverage." Jones v. Ga. Cas. c. Co., 89 Ga. App. 181, 185 ( 78 S.E.2d 861); 81 ALR 1326, 1327; 38 ALR2d 1148, 1150. "The general rule of estoppel is . . . limited by the principle that a liability insurer may avoid the operation of the rule by giving the insured timely notice that, notwithstanding its defense of the action against him, it has not waived the defenses available to it against the insured. Such notice, to be effective, must fairly inform the insured of the insurer's position, and must be timely, although delay in giving notice will be excused where it is traceable to the insurer's lack of actual or constructive knowledge of the available defense." 38 ALR2d 1148, 1151. The consent of the insured to the non-waiver notice "either may be express or may be implied for [sic] the insured's tacit acquiescence in the insurer's unilateral reservation of rights"; e.g., where the insured, after receiving such notice, permits the insurer to continue the defense of the suit. 29A Am. Jur. 580, § 1467; 38 ALR2d 1148, 1175; Ancateau v. Commercial Casualty Ins. Co., 318 Ill. App. 553 ( 48 N.E.2d 440, 443); Salonen v. Paanenen, 320 Mass. 568 ( 71 N.E.2d 227, 232).
The case of Jones v. Ga. Cas. c. Co., 89 Ga. App. 181, supra, recognizes that estoppel will not work against a liability insurer, notwithstanding the insurer's participation in the defense of an action against the insured, if the insurer gives timely notice to the insured that it has not waived the benefit of a defense. 38 ALR2d 1148, 1161. However, there is no direct holding in Georgia on this point. We will here follow the general rule recognized in the Jones case.
The plaintiff does not contend that the facts alleged in the answer do not show that the insurance contract was void, nor deny the rule of estoppel, but does contend that the notice given by the defendant to Parks was insufficient to inform Parks that the defendant reserved the right to deny liability because there was no contract; that the only reservation of right was to deny liability under the contract, recognizing the fact that there was a contract. With this contention we cannot agree. Irrespective of the effectiveness of the "Authorization for Claim Service and Non-waiver of Rights" signed by Parks on May 31, 1960, the language of defendant's letter of May 31, to Parks was broad enough to cover a denial of liability on the ground the policy was void, whether or not there was any breach of a warranty expressed in the policy. This was followed on June 8 — only one day after the defendant filed an answer — by a letter informing him of the specific reason for their denial of liability. The notice was timely and sufficient to fairly inform the insured of the insurer's position. Insurors Indemnity c. Co. v. Archer, 208 Okla. 57 ( 254 P.2d 342); Gordon v. Massachusetts Bonding Ins. Co., 229 N.Y. 424 ( 128 N.E. 204); McGee v. U.S. Fidelity c. Co., 53 F.2d 953 (1st Cir. 1931).
In none of the cases cited by the plaintiff and none examined by this court is it held that when an insurer defends an action after giving the insured timely and sufficient notice that it is not waiving its right to deny liability, and the insured does not reject the insurer's defense under this condition, the insurer is nevertheless estopped to deny liability for a judgment against the insured.
The sustaining of plaintiff's general demurrer to the answer, therefore, was error. Accordingly, it is unnecessary to pass on defendant's other assignments of error.
Judgment reversed. Felton, C.J., and Bell, J., concur.