Georgia Case Alert: Dunn v. Columbia Nat’l Ins. Co. (N.D. Ga., 2019)

Insurer Learns that the Easy Way Out Can Turn a $100,000 Problem into an $11,000,000 Loss

Monday was a very bad day for Columbia National Insurance Company (“Columbia Nat’l”). The federal district court for the Northern District of Georgia held that plaintiffs in an underlying motor vehicle accident were entitled at least $4,000,000 and up to $11,500,000 from the insurance company. The Court held that Columbia Nat’l breached its duty to defend its insured, and negligently failed to settle the underlying case.

Columbia Nat’l issued two policies to its insured Lawson Air Conditioning and Plumbing Co. (“Lawson Plumbing”); a primary policy with $1,000,000 limits, and an umbrella policy with $3,000,000 limits. The underlying case revolved around a family who was hit by a truck driver (“Patterson”) while leaving a Walmart in Gainesville, Georgia. The truck was a “covered auto” on a business auto policy issued to Lawson Plumbing.

Despite the insurance policy clearly defining “insured” to include permissive users of a business automobile, Columbia Nat’l denied coverage to the driver of the business auto on the sole basis that he was not a permissive driver at the time of the accident. After the Plaintiffs filed their lawsuit in state court against the driver and Lawson Plumbing, Columbia Nat’l retained counsel to defend Lawson but not Patterson.

Because Columbia Nat’l failed to provide a defense to Patterson, he did not file an answer and went into default. Prior to the state court trial, Columbia Nat’l settled the Plaintiffs’ claims against Lawson Plumbing for $125,000 but refused to fund a settlement to resolve the Plaintiffs’ claims against Patterson.

The state court lawsuit proceeded with Patterson as the sole defendant. Before trial, Columbia Nat’l realized that it could be on the hook for any amount a jury awarded to the Plaintiffs for their claims against Patterson. Columbia Nat’l attempted to provide a defense to Patterson but he rejected the insurer’s defense. Patterson represented himself at the state court trial, and the jury eventually returned a verdict against Patterson for $11,500,000.

Patterson, and the Plaintiffs filed an insurance coverage action in federal court to hold Columbia Nat’l responsible for its decision not to defend Patterson, and the eventual jury award. In the coverage action, Columbia Nat’l argued that it was not liable for the accident because Patterson was using the truck for personal use at the time of the accident. The insurer also raised as an affirmative defense that it was no coverage existed under its insurance policies because Patterson breach his duty to cooperate under the policies and failed to mitigated damages.

The federal court quickly dispensed with Columbia Nat’l’s argument that Patterson was not a permissive user and held that the record evidence supported a finding that Patterson was given the truck as a job perk, including for personal use. Below are key takeaways from this ruling.

1. Insurer Cannot Enforce Contractual Duties of an Insured – including Duty to Cooperate – after Insurer Denies Coverage.

The federal district court rejected Columbia’s argument that Patterson breached his duty to cooperate and instead held that Patterson had no duty to cooperate after Columbia Nat’l issued its denial letter. “Simply put, where an insurer refuses to defend an action on the ground that the claim was within the coverage of the policy, it is in no position afterward to claim that the insured failed to cooperate or assist in a defense that he was denied.” Order at 25.

2. Court found that Patterson’ acceptance of a defense after Columbia Nat’l first denied coverage would have been against Patterson’s interest.

As discussed above, Columbia Nat’l attempted to provide a defense to Patterson after it denied coverage when it realized it could be on the hook for any award attributed to Patterson. However, in the decision that Court noted that “Patterson makes a compelling argument that not only did he have no duty to accept Columbia Nat’l’s representation after they denied coverage but doing so would have put him in a worse position because he would have waived all claims the Court has just found he rightfully had against Columbia Nat’l.” Order at 31.

3. Insurer should have brought a declaratory judgment action to address coverage question.

The opinion notes several times that Columbia Nat’l failed to bring a coverage action to address its question on whether Patterson was covered under the terms of the Policies. “Columbia never filed a declaratory judgment action in this case. Instead of curing the breach, the Court views Columbia Nat’l’s later attempt to defend Patterson as further confirmation that Columbia Nat’l blatantly ignored Georgia’s strong policy preference for defending possible insureds while filing a declaratory judgment to clarify coverage.” Order at 14.

This is particularly damning opinion for Columbia Nat’l. The opinion lays out several steps in the claim handling where it appears the insurer was asleep at the wheel. This is a textbook case of where the insurer likely wanted to save the $50,000 on filing a coverage action, and the $20,000 to hire separate counsel for Patterson, and wound up with an almost certain $11,500,000 loss on its books. For insurance companies this case provides a cautionary tale. For the policy holder, it confirms what Georgia law has consistently held, after an insurer issues a denial, the policyholder has no duty to comply with requests from the insurer.

If you have any questions athis case or Georgia insurance law please reach out to Austin Bersinger at austin@bersingerlaw.com.