In Hoover v. Maxum Indemnity Company, a majority of the Supreme Court of Georgia ruled that an insured cannot disclaim coverage on one ground and reserve its right to disclaim on another. The Court, applying Georgia law, reversed the Georgia Court of Appeals’ ruling that an insurer had no duty to defend its policyholder.
Hoover sued his employer for injuries he sustained after falling from the roof of a residence nearly two years earlier. Maxum, the employer’s commercial liability insurer, denied coverage and refused to defend, citing the policy’s Employer Liability Exclusion. Maxum’s disclaimer letter reserved the right to disclaim on other bases, including the extent to which the employer had not complied with the notice provision.
Maxum then brought a declaratory judgment action, but did not include failure to comply with the policy’s notice provisions as a basis for the denial of coverage in its complaint. Maxum later cited the notice issue as a defense to a third-party action by the employer. However, when it filed its summary judgment motion in that action, Maxum only asserted the Employer Liability Exclusion. After the liability case went forward to a judgment of $16.4 million, the employer assigned its insurance claims to Hoover who then sued Maxum.
The trial court granted summary judgment to Maxum on the delayed notice issue; the Georgia Court of Appeals affirmed the decision. The Georgia Supreme Court reversed on the notice issue determining that Maxum waived its right to assert untimely notice because it solely relied on the Employer Liability Exclusion. The Court explained that an insurer faced with a claim of coverage while an underlying lawsuit is pending has three options under Georgia law: defend the claim and waive policy defenses; deny coverage and refuse to defend; or defend under a reservation of rights.
The Court concluded that identifying the potential policy provision at issue, without more, would not be sufficient to reserve rights to disclaim that provision. Such “boilerplate language,” the majority wrote, does not fairly inform the insured that the insurer intended to pursue denial on that ground. The Court also noted that a reservation of rights “is only available to an insurer who undertakes a defense while questions remain about the validity of the coverage. . . . A reservation of rights does not exist so that an insurer who has denied coverage may continue to investigate to come up with additional reasons on which the denial could be based if challenged.” Because Maxum did not defend the claim, the Court held that Maxum had not reserved its rights properly, with the consequence that the defense was waived.
The opinion changes the standards for preserving coverage defenses, at least under claims subject to Georgia law. Hoover raises the importance of insurers stating all bases for denial to avoid waiving defenses by stating that additional defenses “may” apply. Hoover also incentivizes insurers to defend more claims, pursuant to a reservation of rights, until its investigation is completed, in order to avoid potential waiver of coverage defenses.