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Insurance Coverage Update
Georgia, Virginia, Wisconsin Coverage Updates
March 15, 2019

Bad Faith Failure to Settle – Georgia

First Acceptance Ins. Co. of Georgia, Inc. v. Hughes
--- S.E.2d ---, 2019 WL 1103831 (Ga. Mar. 11, 2019)

The Georgia Supreme Court held that an insurer’s duty to settle arises only when it is presented with a valid offer to settle within policy limits. Ronald Jackson (Jackson) was involved in a multi-vehicle accident that resulted in his own death and serious injuries to other drivers and passengers. Jackson's auto insurer, First Acceptance Insurance Company of Georgia, Inc. (First Acceptance), agreed that Jackson's liability was clear and that the damages exceeded the $50,000 per accident policy limit. Two of the accident claimants sent a series of letters to First Acceptance, offering to settle their claims at the available policy limits. The letters did not impose a deadline for First Acceptance’s response to the settlement offer, and before First Acceptance responded, the claimants revoked their settlement offer. First Acceptance subsequently offered to pay the policy limits to settle the claims, but its offers were rejected.

Following a jury trial, the claimants obtained a $5 million judgment against Jackson's estate. The estate sued First Acceptance for the entire judgment and punitive damages and attorney's fees, alleging that First Acceptance acted in bad faith by failing to accept the settlement offer before it was withdrawn. The Georgia Supreme Court rejected the argument that an insurer's duty to settle arises when it knows or reasonably should know that settlement of a claim within policy limits is possible. The Supreme Court instead held that an insurer's duty to settle arises only once it receives a valid offer to settle within the insurer's policy limits. The Supreme Court recognized that a valid settlement demand is a condition precedent to a bad faith failure-to-settle claim and because the claimants never imposed a deadline by which First Acceptance was required to accept their settlement offer, First Acceptance was never put on notice that its failure to accept the offer by a specific date would constitute rejection of the offer. Therefore, as a matter of Georgia law, First Acceptance had not acted in bad faith by refusing to accept the settlement offer before it was withdrawn.


Claims Made and Reported – Fourth Circuit (Virginia Law)

Gateway Residences at Exch., LLC v. Illinois Union Ins. Co.
--- F.3d ---, 2019 WL 963238 (4th Cir. Feb. 28, 2019)

The U.S. Court of Appeals for the Fourth Circuit held that an insurer did not have any obligation to pay for a $910,148 judgment won by an apartment complex against the insured for faulty workmanship because the policy only covered claims made and reported during the policy period. In 2014, an apartment building owned by Gateway Residences Exchange LLC (Gateway) caught fire after generators in the building were improperly installed by the insured, Mechanical Design Group (MDG). One month after the fire, MDG went out of business. Thereafter, in September 2016, Gateway sued MDG for damages arising out of the fire and won a default judgment of $910,148 plus attorney's fees. MDG’s insurer, Illinois Union Insurance Company (Illinois Union), denied coverage to MDG on the grounds that MDG’s policy expired in 2015, and the claim was not reported until 2016.

Gateway filed suit against Illinois Union seeking to collect on its judgment. The district court, however, granted summary judgment in favor of Illinois Union on the grounds that the policy only covered claims made and reported during the policy period, and MDG’s claim was reported after the policy’s expiration. The appellate court ultimately affirmed the district court’s ruling and recognized that under a claims-made-and-reported policy, “[i]f no claim is reported, no coverage is triggered, even if the events underlying the claim took place during the policy period. And after the policy expires, the insurer's potential liability ends.” Therefore, Illinois Union was not responsible for payment of the default judgment.


Knowing Violation of Rights Exclusion – Wisconsin

Bend Mut. Ins. Co. v. Ixthus Med. Supply, Inc.
--- N.W.2d ---, 2019 WL 963358 (Wis. Feb. 28, 2019)

The Wisconsin Supreme Court ruled that the knowing violation of rights exclusion does not relieve the insurer of a duty to defend its insured when the underlying complaint alleges at least one claim that does not depend on whether the insured acted with knowledge that it violated the rights of another. In the underlying lawsuit, Abbott Laboratories (Abbott) accused Ixthus Medical Supply Inc. (Ixthus) of importing, advertising and subsequently distributing boxes of Abbott's international glucose test strips in violation of statutes relating to trademark copyright law. Though West Bend Mutual Insurance Company (West Bend) had issued a commercial general liability policy to Ixthus, it ultimately denied coverage for Ixthus against the underlying lawsuit based, in part, on the knowing violation of rights exclusion.

The Wisconsin Supreme Court, however, upheld the lower court’s ruling that West Bend was obligated to defend Ixthus. The Wisconsin Supreme Court held that “[t]he knowing violation [of rights] exclusion will preclude coverage at the duty-to-defend stage only when every claim alleged in the complaint requires the plaintiff to prove the insured acted with knowledge that its actions would violate the rights of another and would inflict personal and advertising injury.” The Supreme Court ultimately concluded that “[e]ven though the complaint generally asserts Ixthus acted wrongfully and with knowledge that it was defrauding Abbott, West Bend is not relieved of its duty to defend because this complaint alleges at least one potentially covered advertising-injury claim, which does not depend on whether Ixthus acted with knowledge that it was violating Abbott’s rights or with knowledge that it was inflicting advertising injury.”


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