Waving Goodbye to Coverage Defenses

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Estopped in the Name of Coverage: Litigating the Effect of ROR and Denial Letters
Waving
Goodbye
Coverage Defenses:
Litigating the Effect
Denial Letters
to
of
Seth M. Friedman1
Weissman, Nowack, Curry & Wilco
Atlanta, Georgia
Christopher C. Meeks
Weissman, Nowack, Curry & Wilco
Atlanta, Georgia
1
Seth M. Friedman is partner and Christopher C. Meeks is an associate at the law firm of
Weissman, Nowack, Curry and Wilco, P.C., located at 3500 Lenox Road, Atlanta, GA 30326.
Email: [email protected]; [email protected]
I.
Introduction
When presented with a pre-suit claim or request for defense coverage, an insurer generally has
three options: defend, deny coverage and refuse to defend, or defend under a reservation of rights
and seek a declaratory judgment, if necessary. Each option has its own set of consequences for
the insured and the insurer, and a decision as to which option to pursue should be thoroughly
considered prior to taking any action. Unfortunately, though, information at the outset of a claim
is often limited, making the decision of whether to reserve rights and defend or deny all the more
perilous. An overly conservative approach favoring a defense under a reservation of rights will
ultimately lead to defending uncovered or excluded claims at a much higher rate and, thus,
expending defense dollars and company resources unnecessarily. Conversely, an overly-cavalier
approach favoring the denial of questionable claims could also lead to additional litigation against
the insurer and, in some states, extra-contractual liability, if the insurer is found to have
wrongfully denied coverage. See Flannery v. Allstate Ins. Co., 49 F. Supp. 2d 1223, 1227 (D.
Colo. 1999) (citing cases setting forth differing treatments for insurers that wrongfully deny
coverage).
While risks exist with either course of action, sometimes a denial is appropriate. In many
instances, an insurer’s decision to deny must be made quickly so that it can advise an insured to
seek their own counsel to respond to or answer a claim or suit. Accordingly, an insurer intent on
denying coverage for a particular claim can only include in its declination letter those grounds
that it is aware of or that it believes are applicable at the time the decision to decline is made.
However, additional grounds supporting a denial are often discovered after sending the
declination letter, including new grounds based on the insuring agreement, exclusions, or
conditions that may not have been apparent originally. Therefore, because new defenses can
frequently come to an insurer’s attention post-denial, insurers often reserve their rights to raise
new or additional grounds for a denial along with the stated grounds for the denial.
2
Generally, such reservation of rights are the accepted method for an insurer to decline coverage
while avoiding any subsequent argument that the insurer waived any grounds for denial not stated
in the declination letter. Allan D. Windt, 1 Ins. Claims & Disputes § 2:25 n.2 (6th ed.) However, a
recent decision from the Supreme Court of Georgia specifically disapproved of this practice. The
following explores the state of the law concerning denials of coverage and the recent expansion
of wavier in Georgia and highlights the issues posed by such broad rules concerning waiver.
II.
Waiver and Denials.
“A waiver is the intentional relinquishment of a known right.” 1 Ins. Claims & Disputes § 2:25.
Waiver becomes an issue with regard to denial letters when an insurer refuses to defend a claim
on certain grounds but does not assert other potentially applicable grounds until a later date. Id.
How those unasserted grounds are treated can vary from by state, depending on how strictly an
insured is required to show an insurer’s intent to waive, with most states requiring insureds to
show evidence of some express or implied intent to waive. Additionally, most states recognize a
difference between grounds based on the terms of the insuring agreement and exclusions
(“coverage” grounds) and a policy’s warranties and conditions (“technical” or “forfeiture”
grounds). See Enoka v. AIG Haw. Ins. Co., 128 P.3d 850, 867-68 (Haw. 2006); Potesta v. U.S.
Fid. & Guar. Co., 504 S.E.2d 135, 147, 149-50 (W.Va. 1998). In the vast majority of states,
insurers cannot waive “coverage” grounds in a denial letter; however, some states allow insurers
to waive “technical” or “forfeiture” grounds under various circumstances.
One of the seminal cases in this area of law is Waller v. Truck Insurance Exchange, Inc., 900
P.2d 619, 636 (Cal. 1995), where the California Supreme Court held that, in order for a party to
show that an insurer waived grounds not asserted in a denial letter, the party must show by clear
and convincing evidence that the insurer evidenced an express or implied intent, either through
words or actions, to relinquish its rights under the policy. In other words, intent to waive is not
evidenced by the insurer’s failure to raise a policy defense in a declination letter. Id.
Although the Waller court did not engage in a thorough survey of each state’s jurisprudence on
waiver, the court noted that, of the thirty-three (33) states which had considered the issue at the
3
time, thirty-two (32) had agreed with “the California rule.” Id. (citing Albert J. Schiff Assocs., Inc.
v. Flack, 417 N.E.2d 84 (N.Y. 1980); Tobi Eng’g, Inc. v. Nationwide Mut. Ins. Co., 574 N.E.2d
160, 162 (Ill. App. 1st Dist. 1991); Terre Haute First Nat’l Bank v. Pac. Employers Ins. Co., 634
N.E.2d 1336, 1337 (Ind. Ct. App. 1993); Berg & O’Connell, Waiver and Estoppel Without
Waste: Titan Corp. v. Aetna Casualty & Surety Co., 17 Ins. Lit. Rptr 13, 19 n.59 (1995)).
The Waller court did not discuss if there was any distinction between policy defenses based on
“coverage” grounds versus “technical” or “forfeiture” grounds. Id. However, other cases have
made the distinction in a manner consistent with “the California rule,” holding that an insurer can
waive “technical” or “forfeiture” grounds, but not “coverage” grounds, by implied waiver through
conduct that warrants an inference of intent to relinquish a known right. See Enoka, 128 P.3d at
868 (citing Creveling v. Gov’t Employees Ins. Co., 828 A.2d 229 (Md. Ct. App. 2003); Utica
Mut. Ins. Co. v. Klein & Son, Inc., 460 N.W.2d 763, 767 (Wis. Ct. App. 2006); Potesta, 504
S.E.2d at 147, 149-50 (citing Best Place v. Penn Am. Ins. Co., 920 P.2d 334 (Haw. 1996); U.S.
Fire Ins. Co. v. Fleekop, 682 So. 2d 620 (Fla. Dist .Ct. App. 1996); Albert J. Schiff Assocs., Inc.,
417 N.E.2d 84).
Under this rule, an insurer does not automatically waive a defense simply because it does not
mention it in a declination letter, and an insurer can protect itself from waiver by specifically
disclaiming any intent to waive and reserving the right to assert additional defenses at a later date.
1 Ins. Claims & Disputes § 2:25 n.2 (citing Universal Fire & Cas. Ins. Co. v. Jabin, 16 F.3d
1465, 1470 (7th Cir. 1994); Nat’l Tea Co. v. Commerce & Indus. Ins. Co., 456 N.E.2d 206, 213–
14 (Ill. App. 1st Dist. 1983); Allied Steel Const. Co. v. Employers Cas. Co., 422 F.2d 1369, 1371
(10th Cir. 1970); Stargatt v. Avenell, 434 F. Supp. 234, 245-46 (D. Del. 1977); Tibbs v. Great
Cent. Ins. Co., 373 N.E.2d 492, 493 (Ill. App. 5th Dist. 1978); Roberts v. Jersey Ins. Co. of N.Y.,
457 S.W.2d 244, 248 (Mo. Ct. App. 1970); Havas v. Atlantic Ins. Co., 614 P.2d 1, 2 (Nev.
1980)). This rule represents the majority position. Enoka, 128 P.3d at 868; Creveling, 828 A.2d
229, 243-44 (citing cases); Potesta, 504 S.E.2d at 146-47 (citing cases); W.C. Crais, III,
Annotation, Comment Note: Doctrine Of Estoppel Or Waiver As Available To Bring Within
4
Coverage Of Insurance Policy Risks Not Covered By Its Terms Or Expressly Excluded
Therefrom, 1 A.L.R.3d 1139, §§ 3-4 (1965 & Supp. 2005).
Several other states, including Michigan and Alabama, have adopted a narrower rule that protects
“coverage” grounds from waiver but automatically finds waiver of any “technical” of “forfeiture”
grounds that are not set forth in a denial letter. See Lee v. Evergreen Regency Co-op. & Mgmt.
Sys., Inc., 390 N.W.2d 183, 185 (Mich. Ct. App. 1986) (“once an insurance company has denied
coverage to an insured and stated its defenses, the company has waived or is estopped from
raising new defenses.” (citing Smith v. Grange Mut. Fire Ins. Co. of Mich., 208 N.W. 145 (Mich.
1926); Castner v. The Farmers Mut. Fire Ins. Co. of Van Buren County, 15 N.W. 452 (Mich.
1883); 1 A.L.R.3d 1139)); Home Indem. Co. v. Reed Equip. Co., Inc., 381 So. 2d 45, 50 (Ala.
1980) (“Where an insurer specifically disclaims liability because of one ground of forfeiture, it
waives all other grounds of forfeiture which might have been stated but were not. [Cit.] Similarly,
an insurer who disclaims liability solely on a theory of noncoverage thereby waives his defenses
with respect to any grounds of forfeiture which might have been raised.” (citing St. Paul Fire &
Marine Ins. Co. v. Smith, 194 So.2d 830 (Ala. 1967); Auto-Owners Ins. Co. v. English, 94 So.2d
397 (Ala. 1957))).
However, other states also permit the waiver of “coverage” grounds. See also Tate v. Charles
Aguillard Ins. & Real Estate, Inc., 508 So. 2d 1371, 1375 (La. 1987) (requiring intent to waive
but holding “that waiver may apply to any provision of an insurance contract . . . even though the
effect may bring within coverage risks originally exclude or not covered.”); Armstrong v.
Hanover Ins. Co., 289 A.2d 669 (Vt. 1972) (insurer waived right to assert any policy defenses
when it raised a single defense in its denial letter but did not reserve its right to raise new
defenses). For example, New York has enacted a statutory scheme for the issuance of denial
letters that applies where a policy was issued or delivered in New York, the accident took place in
New York, and the claim involves bodily injury or wrongful death. N.Y. Ins. Law § 3420(d)(2).
This statute requires insurers to issue a disclaimer letter “as soon as reasonably possible,” and an
insurer’s failure to raise a condition or exclusion as a ground for disclaimer waives the insurer’s
5
right to later assert the ground as a defense. Zappone v. Home Ins. Co., 432 N.E.2d 783 (N.Y.
1982).
A related issue concerns when an insurer’s decision to decline defense coverage is incorrect.
Consistent with the majority rule and the minority rule discussed supra, most states have found
that an insurer that breaches the duty to defend retains the right to contest indemnity coverage.
Flannery, 49 F. Supp. 2d at1227-28 (citing cases and identifying Georgia, Wisconsin, Florida,
Texas, New Mexico, Kansas, Hawaii, Massachusetts, Indiana, North Dakota, Minnesota,
Alabama, Kentucky, California, New York, Idaho, and Maryland as allowing insurers to contest
indemnity coverage even after an incorrect denial of defense coverage). However, a minority of
states, including Washington, North Carolina, Mississippi, Illinois, Alaska, Connecticut, and
Rhode Island, hold that insurers which breach the duty to defend are precluded from raising
coverage defenses for the duty to indemnify. Id. (citing cases).
Therefore, the decision to deny should be guided by considerations of whether the insurer will be
allowed to subsequently raise additional grounds for the denial, if the grounds are incorrect,
whether the insurer will be able to assert defenses as to the duty to indemnify.
III.
The Expansion of Waiver for Denials under Georgia Law.
In Hoover v. Maxum Indemnity Co., 730 S.E.2d 413 (Ga. 2012), the Georgia Supreme Court
reached a landmark decision that significantly rewrote Georgia law concerning waiver of policy
defenses in denial letters and created new risks for insurers that decide to deny claims. At issue in
Hoover were the claims of an employee (Hoover) of Maxum’s insured (EWES) who was injured
while assisting an independent contractor at a job site. Id. at 415. Following the accident,
Hoover’s stepfather asserted that he notified Maxum of the accident within a week; however,
Maxum claimed that its first notice of the accident did not come until it received a copy of
Hoover’s personal injury lawsuit against EWES two years later. Id. If Maxum’s claim was true,
the two year delay in receiving notice of the accident would have constituted late notice as a
matter of law. See Bituminous Cas. Corp. v. J.B. Forrest & Sons, Inc., 209 S.E.2d 6 (Ga. Ct. App.
1974) (four month delay unreasonable as a matter of law). However, when Maxum disclaimed
6
coverage under the policy four days later, the only ground asserted for the denial was the policy’s
Employers' Liability Exclusion. 730 S.E.2d at 415-16.
Consistent with the safeguards discussed under the majority rule supra, the denial letter also
contained a section reserving Maxum’s right to assert other defenses, including late notice, and
advising that:
Maxum’s specific enumeration of the above policy defense is not intended as a
waiver of any other policy defenses that Maxum may have or that may arise from
facts discovered in the future nor should Maxum be estopped from raising
additional coverage defenses. Maxum also continues to reserve the right to raise
any other coverage defenses, including the right to disclaim coverage on any
other basis that may become apparent as this matter progresses and as Maxum
obtains additional information.
Id. at 416.
Subsequently, three lawsuits developed from Maxum’s denial: a declaratory judgment action filed
by Maxum, which was later dismissed;2 a third-party suit by EWES in Hoover’s personal injury
lawsuit; and a suit by Hoover to collect his judgment against EWES from Maxum. Id. As with the
denial letter, Maxum’s complaint in the declaratory judgment action only raised the Employers
Liability Exclusion as a ground for denying coverage; however, Maxum’s answers in the other
two suits both asserted late notice as a defense. Id. In the suit filed by Hoover, Maxum and
Hoover filed cross motions for summary judgment. Hoover v. Maxum Indem. Co., 712 S.E.2d
661, 663 (Ga. Ct. App. 2011). The trial court granted both motions, finding that Maxum breached
its duty to defend EWES but did not breach the duty to indemnify because notice was untimely as
a matter of law. Id. Both Hoover and Maxum appealed the trial court’s ruling.
The Georgia Court of Appeals affirmed the grant of summary judgment to Maxum and reversed
the grant of summary judgment to Hoover, finding that the breach of the policy’s notice condition
relieved Maxum of any obligation it may have had to defend or indemnify EWES in the
underlying lawsuit. Id. at 664-66. Hoover argued that Maxum waived the late notice defense by
failing to include it in the denial letter; however, the Court of Appeals rejected this argument,
holding that there was no evidence to establish a waiver under Georgia law, which, at the time,
2
Under Georgia law, an insurer that denies coverage cannot seek a declaration of its rights under
Georgia’s Declaratory Judgment Act. Morgan v. Guar. Nat’l Cos., 489 S.E.2d 803 (Ga. 1997)
7
required a showing that an insurer “expressly or impliedly took a position indicative of its intent
not to enforce satisfaction of the timely notice requirement.” Id. at 666 (citing Brazil v. Gov’t
Employees Ins. Co., 404 S.E.2d 807 (Ga. Ct. App. 1991)). The Court of Appeals credited the
reservation of rights language in the denial letter, including the mention of the late notice defense,
as “establish[ing] that Maxum did not expressly or impliedly waive the notice defense.” Id.
(citing Kay-Lex Co. v. Essex Ins. Co., 649 S.E.2d 602 (Ga. Ct. App. 2007); Brazil, 404 S.E.2d
807). At the time, the Court of Appeals’ decision in Hoover was consistent with the majority rule.
Compare id. with Waller, 900 P.2d at 636.
The Georgia Supreme Court’s decision in Hoover removed Georgia from the states that adhere to
the majority position in favor of a rule that strictly construes denial letters against insurers,
regardless of any actual or implied intent. 730 S.E.2d at 416-18. Key to the Supreme Court’s
decision is its drawing of a strict dichotomy between “denials” and “reservation of rights.” Id. at
416. Relying on an insurer’s three options in responding to a claim discussed supra, the Supreme
Court found that Maxum’s reservation of rights to raise new grounds, such as late notice, was
ineffective because “an insurer cannot both deny a claim outright and attempt to reserve the right
to assert a different defense in the future.” Id. (citing Browder v. Aetna Life Ins. Co., 190 S.E.2d
110 (Ga. Ct. App. 1972); Morgan v. Guar. Nat’l Ins. Co., 489 S.E.2d 803) In other words, the
Supreme Court’s decision in Hoover specifically limited “reservation of rights” to situations
where an insurer undertakes a defense. Id. (“a reservation of rights is only available to an insurer
who undertakes a defense while questions remain about the validity of the coverage.”).
In the Supreme Court’s view, the “proper and safe course of action” is for an insurer to address
questionable claims by entering into a defense under a reservation of rights and then seek a
declaratory judgment. Id. at 417 (quoting Richmond v. Ga. Farm Bureau Mut. Ins. Co., 231
S.E.2d 245 (1976)). That way, the insured will receive a defense while the insurer retains the right
to deny coverage pending its investigation. Id. Under a denial, however, the Court held that
“[o]nce the claim has been denied, the matter would not progress and Maxum would have no
need to obtain additional information unless it was later served with a third-party complaint with
regard to coverage.” Id. Thus, once an insurer makes the decision to deny, that decision forever
8
fixes the grounds for the denial, regardless of what new or additional information may become
available to the insured. Id.
Hoover places Georgia closer in line with states such as Michigan and Alabama that
automatically waive “technical” or “forfeiture” grounds that are not raised in an insured’s denial
letter. Compare id. with Lee, 390 N.W.2d at 185; Home Indem. Co., 381 So. 2d at 50. Hoover
recognized that “technical” and “forfeiture” grounds are not favored under Georgia law and that
“courts infer waiver of non-essential parts of an insurance contract that are penal in nature.” 730
S.E.2d at 418 (citing James v. Pa. Gen. Ins. Co., 306 S.E.2d 422 (Ga. Ct. App. 1983); N.Y.
Underwriters Ins. Co. v. Noles, 115 S.E.2d 474 (Ga. Ct. App. 1960)). As with most other states,
such “non-essential parts” do not include items such as the insuring agreement or exclusions, but
the Georgia Supreme Court has not completely ruled out the possibility that certain “coverage”
grounds could be waived. Prescott’s Altama Datsun, Inc. v. Monarch Ins. Co. of Ohio, 319
S.E.2d 445, 446-47 (Ga. 1984).
Further, it appears that Hoover is limited to questions of waiver relating to the duty to defend.
Bank of Camilla v. St. Paul Mercury Ins. Co., 939 F. Supp. 2d 1299, 1305 (N.D. Ga. 2013)
(Hoover did not apply to policy which only provides a duty to pay costs, i.e., indemnify).
However, at least one federal court has held that Hoover applies to both the duty to defend and
the duty to indemnify, magnifying the potential effect a waiver may have on an insurer’s liability,
even if limited to “technical” or “forfeiture” grounds. Latex Const. Co. v. Everest Nat’l Ins. Co.,
11 F. Supp. 3d 1193, 1204-05 (N.D. Ga. 2014).
The dissenting justices rejected the majority’s conclusion that Georgia law does not permit
insurers to “both deny a claim outright and reserve the right to assert a different defense in the
future,” finding it inconsistent with then-existing Georgia law and the majority of other states that
have adopted the majority rule. 730 S.E.2d at 419-20 (citing Sahan v. Sahan, 988 S.W.2d 529,
534 (Mo. 1999); Waller, 900 P.2d at 636; Guberman v. William Penn Life Ins. Co. of N.Y., 538
N.Y.S.2d 571 (N.Y. App. Div. 2d Dept. 1989); Ladd Const. Co. v. Ins. Co. of N. Am., 391 N.E.2d
568 (Ill. App. 3d Dist. 1979); Consol. Rail Corp. v. Hartford Acc. & Indem. Co., 676 F. Supp. 82
(E.D. Pa. 1987); Miss. v. Richardson, 634 F. Supp. 133, 136 (S.D. Miss. 1986); City of Pigeon
9
Forge, Tenn. v. Midland Ins. Co., 788 F.2d 368, 371 (6th Cir. 1986)). The dissent argued that the
Georgia decisions relied upon by the majority were actually consistent with the majority rule in
that those decisions recognized that “[t]he mere assertion of one defense cannot be considered the
waiver of other defenses, absent some statement or conduct showing an intent to waive.” Id. at
419-21 (citing Browder, 190 S.E.2d 110). Under this precedent, the dissent asserted that
Maxum’s reservation of rights was sufficient to preserve its right to assert late notice in the
subsequent coverage litigation. Id. at 421. Nonetheless, it now appears that Georgia has joined the
minority of states which automatically waive any “technical” or “forfeiture” grounds that are not
specifically raised in a denial letter. Id. at 416-18.
IV.
The Practical Effect of Limiting Insurers to the Defenses in the First
Denial Letter.
An insurer that denies coverage always does so “at its own peril” because, by denying coverage,
the insurer loses the ability to control the defense of the claim and, in many circumstances,
litigate the underlying facts pertaining to the claim. See Dowse, 605 S.E.2d at 29 (“An insurer that
refuses to indemnify or defend based upon a belief that a claim against its insured is excluded
from a policy's scope of coverage does so at its peril, and if the insurer guesses wrong, it must
bear the consequences, legal or otherwise, of its breach of contract.”); Ladner Co., Inc. v. Guar.
Ins. Co., 347 So. 2d 100, 104 (Ala. 1977) (citing Bandy v. Avondale Shipyards, Inc., 458 F.2d
900 (5th Cir. 1972); Cadwallader v. New Amsterdam Cas. Co., 152 A.2d 484, 488 (Pa. 1959)).
Decisions such as Hoover dramatically increase those perils. 730 S.E.2d at 421. The most
extreme of those perils is the extra-contractual penalties insurers may face in certain states for the
wrongful denial of claims. Flannery, 49 F. Supp. at 1227. However, the practical effects of cases
such as Hoover create even more immediate perils for insurers that deny coverage. Chief among
these are the pressures placed on an insurer’s investigation from the outset of receiving notice of a
claim. See Hoover, 730 S.E.2d at 421. As recognized by the dissent in Hoover, insurers who wish
to deny a claim will essentially be required to do so blindly, relying solely upon the information
provided at the outset of the claim and without the benefit of additional information that could be
10
developed in a subsequent investigation or through discovery in litigation. Id. As a result, the
insurer “must scramble to come up with all possible defenses in good faith,” a task that will
require insurers “to attempt to list all defenses in their initial denial letter” without giving strong
reasons why any particular defense applies. Id.
However, this shotgun approach to denials benefits neither insurers nor insureds because it does
not allow either to communicate concerning a denial and converts the first few days or weeks
following notice into the most important period of time for a claim, even though information
about the claim is still developing. In other words, contrary to the assumptions of the Court in
Hoover, a denial does not have to be the end of the road for an insurers and insured’s relationship
concerning a denied claim. Instead, it should be in the best interests of insurers and insureds to
communicate concerning denials to determine whether the issues that prompted the denial can be
clarified or if it is possible to amicably resolve the claim. Further, a legal environment that
encourages communication can also be beneficial to insurers and insureds because it can give
each an indication of how reasonable the other side is going to be and how best to protect their
interests, including the initiation of litigation, if necessary. Thus, a denial without the ability for
bilateral communication and investigation actually creates more uncertainty for all parties than
would otherwise exist.
Further, for insurers, a legal environment that encourages a shotgun approach to denials may
actually create even more reasons for courts to throw out or ignore grounds as ambiguous because
the insurer lacked sufficient information to adequately describe why the defense applied. See
World Harvest Church, Inc. v. Guideone Mut. Ins. Co., 695 S.E.2d 6 (Ga. 2010) (“the reservation
of rights must fairly [and unambiguously] inform the insured”) (cited by Hoover, 730 S.E.2d at
416); Gen. Accident Ins. Group v. Cirucci, 387 N.E.2d 223 (N.Y. 1979) (insurer waived
improperly described late notice defense in denial letter). In essence, Hoover creates a catch-22
for insurers in relation to which defenses the insurer should list or how to describe how they
apply, i.e., an insurer must describe all of the grounds that apply without conducting an adequate
investigation but cannot know which defenses apply unless it conducts an adequate investigation.
Hoover, 730 S.E.2d at 416-18.
11
The issues created by this catch-22 are further exaggerated by the fact that an insurer’s right to
investigate is essentially foreclosed from the instant the insurer denies coverage. Id. at 417, 421.
As the dissent points out, this limitation on the insurer’s rights provides a strong incentive for
insureds to limit the information they provide to insurers at the outset of the claim and creates an
even greater potential for fraud. Id. at 421. Savvy or dishonest insureds with knowledge of the
limitations on the insured’s ability to investigate could simply withhold information in the hopes
of creating more uncertainty that would either force the insurer to defend when it should have
denied coverage or deny coverage on less than all grounds while the insured retains knowledge of
a “technical” or “forfeiture” ground that may have actually applied to the claim. See id.
Of course, the intent behind Hoover and other decisions applying the minority rule is not to
encourage insurance fraud; however, by increasing the perils and risks associated with denying
coverage, the Georgia Supreme Court and others courts have announced a clear intent to
encourage insurers to defend more claims under a reservation of rights than they otherwise would
in states which adhere to the majority rule. Id. at 416-17, 421.
V.
Conclusion.
The Georgia Supreme Court’s decision in Hoover significantly rewrote Georgia law on waiver
for insureds that are considering the denial of a claim, removing Georgia from the list of states
that followed the majority rule requiring some evidence of intent before an insurer can be found
to have waived a policy defense. Now, Georgia joins a minority of states that find waiver
whenever an insurer denies coverage on less than all “technical” or “forfeiture” grounds available
to the insurer. The practical effect of this minority rule is to encourage insurers into defending
more claims under a reservation of rights by effectively restricting an insurer’s right to investigate
claims. In the short-term this rule may seem more beneficial to insureds; however, the long term
effects of this rule may force insurance companies to spend defense dollars they might not
otherwise have to spend and, by extension, likely raise the cost of insurance.
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