Focusing on the Insured’s Post-Loss Actions, or Lack Thereof, in Coverage Litigation
Georgia federal courts have recently illustrated how an insured’s post-loss efforts — or lack thereof — can negate or limit the amount of their potential recovery in litigation, specifically with regards to enforcement of the loss settlement provisions and notice conditions in the insurance policy.
Marchman v. Grange Mut. Ins. Co. is the principal Georgia case when it comes to the enforcement of the loss settlement provisions in an insurance policy. 232 Ga. App. 481, 500 S.E.2d 659, 661 (1998). In Marchman, the policy’s loss settlement provision stated, “[w]e will pay only an amount equal to the actual cash value of your damaged property until the actual repair or replacement is complete.” The Court of Appeals found the policy unambiguously required the insured to complete repairs before he could recover additional benefits under the policy in excess of the actual cash value of the damages.
In Elder v. State Farm Fire & Cas. Co., the U.S. District Court for the Northern District of Georgia reinforced Marchman by upholding a policy’s time limitation for incurring and recovering replacement costs. 1:19-CV-05077-SDG, 2021 WL 4048789 (N.D. Ga. Aug. 2, 2021). In Elder, the insured claimed he was entitled to additional payments for the replacement of his roof. Before litigation, State Farm issued replacement cost benefits as the insured submitted documents that suggested the roof replacement was complete. However, the insured used only a fraction of the insurance payments for various repairs and did not actually replace his roof. The District Court granted summary judgment in State Farm’s favor because the insured failed to replace his roof “within two years after the date of loss,” as the policy’s loss settlement provision required. The District Court held that State Farm did not waive its right to demand strict compliance with the loss settlement provision by issuing replacement costs based on its incorrect assumption that the roof was replaced. The insured was still required to incur additional costs beyond what State Farm paid within two years of the loss if he wished to recover additional replacement cost benefits.
Elder also demonstrated how the insured’s post-loss actions affected his ability to demand appraisal under the policy. The insured filed a motion to compel appraisal in response to State Farm’s motion for summary judgment. The District Court denied the motion for two reasons. First, it relied upon Lam v. Allstate Indem. Co., which held that a policy’s appraisal provision can only be used to resolve dispute of value, not coverage. 327 Ga. App. 151, 755 S.E.2d 544 (2014). In Elder, the court found the insured’s failure to replace the roof transformed his demand to appraise the roof’s replacement cost value into a coverage dispute. Though the opinion was not this explicit, the court seemed to recognize the insured was using appraisal to avoid his failure to satisfy the conditions of the loss settlement provision.
Second, the District Court held the insured’s appraisal demand was untimely. As appraisal is a contractual method of determining the value of loss, the District Court used another contract term, the policy’s one-year suit limitation provision, “as a litmus test” for finding the demand was untimely.
“The right to require an appraisal is not indefinite as to time but must be exercised within a reasonable period of time . . . or the right to demand appraisal is waived.” Elder, 2021 WL 4048789, at *3.
Likewise, in Currie v. Auto-Owners Insurance Company, the reasonableness of the insured’s post-loss actions determined the outcome of his case. 1:20-CV-02160-ELR, 2021 WL 4354188 (N.D. Ga. Aug. 12, 2021), aff'd 2022 WL 401540 (11th Cir. Feb. 10, 2022). In Currie, the insured’s policy required him to provide “immediate notice” of losses and claims. Auto-Owners denied the insured’s personal property claim arising out of a November 2018 house fire because he did not provide notice of the loss until October 2019. The District Court granted Auto-Owners’ motion for summary judgment.
On appeal, the insured argued there was a jury question as to whether his 11-month delay was justified. To justify his delay, the insured contended he reasonably relied on a representative of his mortgage company who allegedly told him he had no insurance on his property, that he was too distraught to recall name of his insurer and that he could not find the identity of his insurer or agent because documents were lost in the fire. While an insured’s justification is usually a question for the jury, a trial court may find that an insured’s late notice is unreasonable as a matter of law based on the circumstances of the case.
In Currie, the insured’s failure to exercise reasonable diligence after the loss was his downfall. Noting that the insured made only one call to his mortgage company, the District Court found his “lack of diligence particularly troubling” because the policy had been renewed several times before the loss and the insured had received insurance proceeds from Auto-Owners within one year before the fire. Further, the District Court noted that “Georgia law clearly requires that [a]n insured without a copy of the policy . . . make an effort to ascertain the policy's terms.” 2021 WL 4354188, at *8. The insured in Currie made no such effort. The Eleventh Circuit Court of Appeals affirmed the grant of summary judgment to Auto-Owners. 2022 WL 401540, at *3.
Importantly, in both cases, the claims professionals adjusted the claims in a reasonable and timely manner. In Elder, the insured submitted several estimates that had questionable values. Nonetheless, the adjusters promptly reviewed each document and issued replacement cost benefits as soon as they received documents that suggested the roof replacement was complete. In Currie, the insurer hired a fire investigator to prepare an origin and cause report as well as an independent adjuster to analyze the loss, despite the insured’s eleven-month delay. In both cases, the claims professionals documented and reserved any coverage issues and concerns. Simultaneously, they adjusted the claims as if no issues existed. Elder and Currie show how the insured’s conduct after loss, by itself, can determine the outcome of litigation, particularly when there is no reason to question the adjustment of the claim.
EDITOR'S NOTE: Mark T. Dietrichs and Christine H.L. Russell of Swift, Currie, McGhee & Hiers, LLP, successfully represented the insurers in both Currie and Elder.
Attorney Contact Info
Christine H. L. Russell
christine.russell@swiftcurrie.com
404.888.6177