Policy Language Requires Insurance Company to Defend Corporate Insured Against Entire Lawsuit

As is almost always the case, policy language makes the difference in what is covered and what is not covered. Recently, this was illustrated when the Georgia Court of Appeals upheld a summary judgment grant for Mountain Express Oil Company in a claim against its liability insurer Southern Trust Insurance Company. See Southern Trust Insurance Company v. Mountain Express Oil Co., 828 S.E.2d 455 (2019).

In the original case, Empire Petroleum sued Mountain Express Oil Company for claims of breach of contract, injunctive relief, libel or slander, and others. Southern Trust only reimbursed Mountain Express for a partial defense, claiming the policy did not cover Empire’s non-libel/slander claims.

Once the original case settled, Mountain Express filed suit against Southern Trust for breach of contract and bad faith. Its position was that Southern Trust was obligated to pay the entire cost of defending the case.

In deciding in favor of Mountain Express, the Georgia Court of Appeals cited language from the policy that stated: “[the insurer] will have the right and duty to defend the insured against any ‘suit’ seeking those damages.”

Because the policy language used the word “suit,” the court said the insurance company obligated itself on a lawsuit by lawsuit basis. Had the company used the word “claim” in the policy language, it could have paid the defense for only the covered claims.

When Southern Trust did not defend the entire lawsuit, it was found to be in breach of contract to Mountain Trust.

The Court of Appeals also stated that Southern Trust failed to maintain its options for a defense against the claims by Mountain Trust. Under Georgia law, insurance companies have three options when responding to claims that involve a lawsuit against and insured policy holder: the insurer can (1) defend the claim, thereby waiving its policy defenses; (2) deny coverage and refuse to defend; or (3) defend under a reservation of rights.

If the insurance company chooses to defend its policyholder by maintaining a reservation of rights and the policy holder refuses to consent to this defense arrangement, the law requires the insurance company to seek declaratory relief.

The Court of Appeals held that Mountain Express clearly did not accept the defense offered by Southern Trust. The fact that Southern Trust did not seek declaratory relief was “fatal” to the insurance company in defending itself against the claims made by Mountain Express, according to the trail court. The Court of Appeals agreed with the trial court’s assessment.

The court found that Mountain Express did not accept the defense provided by Southern Trust and thus Southern Trust was required to seek declaratory relief. According to the court, Southern Trust’s failure to do so was “fatal to its claims.”

Holding and Takeaway

Using the word “suit” as opposed to “claim” in insurance policy language obligated the insurance company to provide a broader defense against every claim made in the lawsuit against its policy holder. By not following the prescribed legal remedies for preserving its reservation of rights, the insurance company did not protect the legal rights of its insured, and in this case was held responsible to its policy holder.

It is important for policy holders to pay close attention to contractual language and challenge their insurance company when the insurer fails to meet its contractual responsibilities.

To discuss a bad faith claim or for additional information, contact Austin Bersinger at (404) 965-3692.