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In Hoover v. Maxum Indemnity Co., the Supreme Court of Georgia held that an insurer had waived a defense by failing to raise it in its initial letter denying the claim. The standard applied by the court in Hoover is that an insurer responding to a Georgia policyholder’s claim must (1) afford coverage; (2) defend under a reservation of rights; or (3) deny coverage. Hoover v. Maxum Indemnity Co., 730 S.E.2d 413, 416 (Ga. 2012). And, if the insurer denies coverage, it must state in the letter each specific ground for denial. In Hoover, the court held that because the insurer’s denial letter did not list the insured’s failure to comply with the policy condition governing notice, the insurer was barred from later relying on such failure as a defense to coverage. 730 S.E.2d at 418.
The Northern District of Georgia recently relied on Hoover in a dispute over defense cost coverage for alleged False Claims Act violations. SavaSeniorcare LLC v. Starr Indemnity & Liability Co., No. 1:18-CV-01991-SDG, 2020 WL 5820643 (N.D. Ga. Sept. 29, 2020). In their initial denial letters, both the primary and the excess insurers relied on a single policy exclusion to deny above a $1 million sublimit in the primary policy. After litigation commenced, the insurers asserted additional grounds to deny coverage, including late notice of claim.
Relying on Hoover, the insured moved for partial summary judgment on the insurers’ defenses not asserted in their respective denial letters. The court rejected the insurers’ argument that Hoover should be limited to the duty to defend, and not to indemnity policies that reimburse defense costs. The court also rejected the insurers’ argument that they did not deny coverage but rather only limited coverage to the $1 million sublimit, finding that a limited recognition of coverage constitutes a denial of any other coverage.
The Hoover and SavaSeniorcare rulings provide insurers with an incentive to complete their investigations and to specify all coverage defenses in their denial letters.
If you have questions about this topic please contact Kristin Ingulsrud at [email protected], or any member of FMG’s Insurance Coverage and Extra-Contractual Liability Practice Group. The firm provides these services nationally with more than 50 insurance coverage attorneys across the country. If your inquiry is COVID-19 related, please contact our Coronavirus Task Force Team for more information.