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Posts Tagged ‘Court of Appeals’

Kentucky Court of Appeals Reminds Plaintiffs They Bear a “Tall Burden” in Proving Bad Faith

Posted on: June 26th, 2019

By: Barry Miller

A Kentucky Court of Appeals decision adopted a federal court’s observation that Kentucky bad faith decisions fall into two broad categories. One category reflects “a more expansive approach to a finding of bad faith,” analyzing facts where the insurer’s conduct was oppressive and the facts establishing liability were clear. The second category represents the “greater number” of Kentucky cases which follow the “standards set forth in the landmark case of Wittmer v. Jones.”

In Wittmer the Supreme Court of Kentucky states three elements that a bad-faith claimant (whether first or third party) must meet: (1) The insurer must be obligated to pay the claim under the terms of the policy; (2) The insurer must have lacked a reasonable basis to delay or deny payment; and (3) The insurer must have known or been conscious of the fact that it lacked a reasonable basis to delay or deny. Later Kentucky cases make it clear that a claimant must show proof of all three.

According to the Messer court, the claimant thought his case fell into the “more expansive” category of bad faith claims, but instead it fell into the second and failed to meet the Wittmer standards. First, the case presented a legitimate coverage question. There was a question about whether the tortfeasor’s use of the insured vehicle was permissive, and if it was not, the claim was excluded. Messer makes it clear that an insurer does not have to prevail on a coverage question to avoid bad faith; the insured’s claim need only be reasonably debatable. Because coverage was debatable here, Messer could not meet the first Wittmer element of proving that Universal was obliged to pay his claim under the terms of its policy.

This was true even though Universal settled the claim against the tortfeasor. Liability also remained in doubt because that settlement occurred before the jury could decide the questions of liability and apportionment. The settlement did not foreclose the liability issue; under Kentucky law “settlements are not evidence of legal liability, nor to the qualify as admissions of fault.” Nor did the insurer’s reserves, which were discoverable, constitute evidence of coverage, liability, or fault.

The Court of Appeals concluded that Messer never produced evidence eliminating the possibility that a jury could have held him 100 percent at fault for causing the accident. Thus, it was reasonable for the insurer, throughout the case, to challenge the allegation that the tortfeasor was not liable for causing the accident, or for Messer’s damages.

Messer has 30 days to ask the Supreme Court of Kentucky for discretionary review. It can take the Supreme Court several months to consider such motions. If the Court of Appeals’ decision is allowed to stand, this opinion represents an important synthesis of Kentucky bad faith opinions that will remind bad faith plaintiffs of the “tall burden of proof” in a bad faith claim.

If you have questions or would like more information, please contact Barry Miller at [email protected].

Georgia Court of Appeals Concludes the Term “Affiliate” is Ambiguous

Posted on: February 4th, 2019

By: Jake Carroll

In Salinas v. Atlanta Gas Light Company,[1] the Georgia Court of Appeals’ recently examined whether Georgia Natural Gas (“GNG”) and Atlanta Gas Light Company (“AGLC”) were “affiliates.” Both AGLC and GNG were owned and controlled, either directly or through an intermediary, by a company named AGL Resources, Inc.

In Salinas, AGLC sought to dismiss Plaintiff’s claims and compel arbitration. In support of its argument, AGLC relied on a term in GNG’s service agreement that required the Plaintiff to arbitrate any disputes with GNG’s “affiliates.” However, since the term “affiliate” was not defined in GNG’s agreement, the Court of Appeals looked at how the term “affiliate” is defined in the Georgia Code, Black’s Law Dictionary, and other jurisdictions, and ultimately determined that the term is ambiguous. The Court of Appeals construed the agreement against GNG—the drafter of the contract—and as a result, AGLC could not demand arbitration of Plaintiff’s dispute.

While the Court of Appeals did not set-out a specific definition for “affiliate,” the Court’s analysis provides a couple of practice tips to anyone involved in drafting, reviewing, or enforcing contracts, including commercial agreements, government contracts, or insurance policies.

  1. Define Your Terms: The Salinas Court may not have had to address the meaning of “affiliates” if the Agreement had defined the term. But, since the term was not defined, the Court looked elsewhere, including other jurisdictions, the Georgia Code, and the dictionary to determine its meaning. Including a definitions section is an easy way to set out the agreed-upon meaning of a term throughout a contract, and should not be overlooked.
  2. Be Explicit: If there is a certain sibling or parent corporation that should be a beneficiary of a contract, consider listing the specific “affiliates” to which the contract or agreement should apply.
  3. Check Your State’s Code: The Court noted that the term “affiliate” is defined over 20 times in the Georgia Code, and the definitions vary. For example, in the context of financial institutions, an affiliate is an entity that controls the election of a majority of directors, trustees of a financial institution, or an entity that owns or controls 50 percent or more of the financial institution. O.C.G.A. § 7-1-4 (1). In Georgia’s Corporations Act, the definition of affiliate is broader: “a person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person.” O.C.G.A. § 14-2-1110 (1).[2] Depending on the type of corporate entity, “affiliate” may not include every entity in a corporate structure, and certain rules regarding ownership and control may be relevant.

If you need help with this issue, or any other commercial law questions, Jake Carroll practices construction and commercial law, is licensed to practice in Georgia and Florida, and is a member of Freeman Mathis & Gary’s Construction Law and Tort and Catastrophic Loss practice groups. He represents corporations and manufacturers in a wide range of litigation and corporate matters involving breach of contract, business torts, and products liability claims. He can be reached at [email protected].

[1] 347 Ga. App. 480; 819 S.E.2d 903 (2018).
[2] See also O.C.G.A. § 18-2-71 (1) (B) (“Affiliate” has multiple definitions, including “[a] corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the debtor or a person who directly or indirectly owns, controls, or holds with power to vote 20 percent or more of the outstanding voting securities of the debtor[.] …”).

In the Land of Insurance Coverage, Specificity is King

Posted on: December 13th, 2018

GA Court of Appeals Finds Insurer Must Cover Millions in Damages Because of Policy Ambiguities

By: Brandon Howard

Whenever a court suspects an insurance policy is “ambiguous,” anxiety strikes the minds of both coverage counsel and insurers alike. For coverage counsel, combating an alleged ambiguous provision of a policy typically occurs on the back-end, after an incident has occurred and the claimant or plaintiff has already made underlying allegations of liability. As a result, coverage counsel can only advise clients or litigate matters within the framework of any given insurance policy’s established language. Yet, as policy issuers, insurers are uniquely positioned to monitor trends in litigation, on the front-end, in an effort to anticipate and revise policy language which may appear ambiguous in light of unique or uncommon facts. By proactively taking on vague policy provisions, a prudent insurer may avoid unanticipated exposure and a public battle over any alleged ambiguities during litigation.

Recently, in Nat’l Union Fire Ins. Co. v. Scapa Dryer Fabrics, Inc., 2018 Ga. App. LEXIS 634 (Ga. Ct. App. Oct. 26, 2018), the Georgia Court of Appeals demonstrated how a pair of ambiguous policy provisions can expose an insurer to millions of dollars in unanticipated liability. In that case, over a period of five years, the primary insurer, National Union, issued commercial general liability policies to an entity selling asbestos-containing dryer felts (Scapa). Three of the policies had $1 million occurrence/aggregate limits, while the last two policies purported to cap the insured’s liability limits for any one occurrence at $7.2 million. Citing the policies’ non-cumulation and limit erosion provisions, National Union argued that its duty to indemnify Scapa was discharged when the Scapa’s liability reached $7.2 million. Scapa, however, argued that both the non-cumulation and limit erosion provisions were ambiguous, thus allowing it to “stack” the limits of each of the primary policies, for a total coverage limit of $17.4 million.

On appeal, the Georgia Court of Appeals held that Scapa was allowed to stack the coverage limits of the five National Union policies because the policies’ non-cumulation clauses were ambiguous. The policies provided that if “[Scapa] has been provided with more than one policy by [National Union] covering the same loss/losses, the limit of liability stated in the schedule of this endorsement is the total limit of [National Union’s] liability for all damages which are payable under such policies. Any loss incurred under this policy shall serve to reduce and shall therefore be deducted from the total limit of [National Union’s] liability.” Confronted with this language, the Court concluded that the non-cumulation provision is ambiguous because “[it] does not indicate whether the limit applies to [each discriminate] policy period only or to the aggregate period under the original and renewed policies.” Construing the policy in favor of the insured, the Court held that the non-cumulation provision did not apply in the aggregate and, therefore, Scapa could stack its policy limits to gain an additional $10.2 million in coverage beyond what National Union contended was due.

On the issue of policy limit erosion, the Court also sided with Scapa. National Union had argued that, under its policies, the liability limits were eroded by the costs expended to defend Scapa against liability. For support, Scapa pointed to the policy, which provides that the limits of liability are reduced by “all expenses incurred by [National Union], . . . in any claim, suit[,] or other action defended by [National Union].” The Court noted, however, that National Union’s limits “[are] eroded only by the total sums that National Union ‘become[s] obligated to pay due to’ any bodily injury or . . . property damage.” The erosion provision, according to the Court, “is ambiguous as to whether such expenses include defense costs National Union is obligated to pay solely as part of its contractual duty to defend (as opposed to those sums it is legally obligated to pay by reason of the liability imposed upon Scapa by law for damages).” Again, construing the policy in favor of the insured, the Court held that National Union’s limits were not eroded by the costs incurred defending Scapa.

If you have any questions or would like more information, please contact Brandon Howard at [email protected].

Who’s Liable for Letting the Dogs Out?

Posted on: October 23rd, 2018

By: Wes Jackson

“Cry ‘Havoc!,’ and let slip the dogs of war.”

William Shakespeare, Julius Caesar act 3, sc. 1.

 

Havoc indeed—in a case argued before the Georgia Supreme Court on October 10, two pit bulls slipped out of a tenant’s backyard gate with a broken latch and then mauled a woman walking her smaller dogs nearly two blocks away from the home. Police had to fatally shoot both dogs to end the attack, and the woman was life-flighted to a hospital where she stayed for seven days and was left disfigured after multiple surgeries.

The question before the Court was whether the landlord could be liable for the attack. The trial court entered summary judgment in the landlord’s favor because the plaintiff could not show the landlord had any prior knowledge of the dogs’ propensity for violence. The Georgia Court of Appeals reversed, holding that the question of the landlord’s liability should have been submitted to a jury.

The case exemplifies how thorny questions of proximate causation can jeopardize a defendant’s hopes at summary judgment. For example, the Court of Appeals found the trial court erred by failing to properly consider the fact that the landlord had known the gate latch was broken but failed to repair it. Additionally, the parties argued before the Court whether a landowner’s failure to keep the premises in repair could, as a matter of law, proximately cause an injury that happens more than two blocks away from the property. Given these arguments, the Supreme Court’s decision will likely either extend or limit the scope of landlords’ liability for injuries caused by their tenants or those that occur off the property.

The case is Tyner v. Matta-Troncoso et al., S18G0364. If you have any questions about this case or its impact on landlord liability, premises liability, or dog attack cases in Georgia, feel free to contact Wes Jackson at [email protected].

Let’s Eat Grandma! Punctuation Matters

Posted on: July 19th, 2018

By: Ted Peters

California Corporations Code Section 1601 provides certain rights to shareholders of corporations doing business in California.  Specifically, as the statute currently reads, corporations are required to open their books and records upon written demand from any shareholder as long as the purpose of the demand is “reasonably related” to the shareholder’s interests.  In 2016, the California Court of Appeal in Innes v. Diablo controls, Inc., 248 Cal.App.4th 139 (2016), held that Section 1601 did not require a corporation to produce records in any particular place; rather, the corporation was required only to produce records in the state where they were located, even if outside of California.

On February 13, 2018, California Representative Brian Maienschein (R) sponsored a bill that would amend Section 1601.  In June, and without a single “no” vote against it, the California Legislature enacted the bill, AB 2237 (Maienschein).  Governor Jerry Brown signed the bill into law on July 9, 2018.

A redlined version of the changes to Section 1601 clearly illustrates that the amendments, which go into effect next year, effectively reverse the holding from Innes.  Specifically, when a shareholder demands an inspection, the records are to be made available for inspection “at the corporation’s principal office in [California], or if none, at the physical location for the corporation’s registered agent for service of process in [California].”  The amendment also provides an alternative procedure which would permit the shareholder to elect to receive the corporation’s books, records, and minutes by mail or electronically, as long as the shareholder agrees to pay the reasonable costs for copying or converting the requested documents to electronic format.

Thus, it is now clear that corporations doing business in the State of California will be required to produce records in California, regardless of where the records are maintained.  The significance of this change is obvious enough, but wait, there’s more… When amending the statute, the legislature made another minor change to the first sentence of the statute.

Previously, what was open to inspection were “The accounting books and records and minutes of proceedings…”  As amended, what will be open to inspection will be “The accounting books, records, and minutes of proceedings…”  The insertion of two commas seems innocent enough, but could lead to a heated debate as to the scope of shareholder inspections in general.  The term “accounting” in the original statute could have been interpreted to modify just “books” or both “books and records.” With the amendment, however, it would seem that “accounting books” and “records” are two separate things and a corporation might be justified in refusing to produce “accounting records” to the extent they differed from “accounting books.”

Maybe the drafters of the amendment were simply sticklers for the proper use of punctuation and thought it best to tidy the statute up.  Or maybe they intended to narrow the scope of what records corporations are required to produce.  Or perhaps the change was intended to send no message at all.  Why does it matter and who really cares?  Well, punctuation does matter, even one little comma.  At least grandmothers around the globe think so; there is a world of difference between  “Let’s eat Grandma” and “Let’s eat, Grandma.”

If you have questions or would like more information, please contact Ted Peters at [email protected].