Colony Bank v. Hanover Insurance Company
Filing
36
ORDER denying 9 Motion for Partial Summary Judgment; granting in part and denying in part 22 Motion for Summary Judgment. Ordered by Judge Clay D. Land on 11/09/2011. (CGC)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
COLUMBUS DIVISION
COLONY BANK,
*
Plaintiff,
*
vs.
*
HANOVER INSURANCE COMPANY,
*
CASE NO. 4:10-CV-131 (CDL)
Defendant.
*
O R D E R
A fire caused substantial damage to an historic textile
mill that had been converted into rental and special event space
near the banks of the Chattahoochee River.
Plaintiff Colony
Bank (“Colony”) holds a mortgage on the property and seeks to
recover
insurance
proceeds
from
Defendant
Hanover
Insurance
Company (“Hanover”), which insured the property shortly before
the
fire,
listed
Colony
as
a
loss
payee
in
its
commercial
insurance policy, and failed to notify Colony when the insurance
coverage
was
not
renewed
by
the
owner
of
the
property.
Plaintiff contends that Hanover’s failure to notify it of the
nonrenewal
of
the
policy
caused
the
policy
to
renew
automatically for an additional policy term, which would include
the date of the fire.
Hanover responds that under the Georgia
statute, which it argues applies here, the only consequence of
Hanover’s
failure
to
notify
Colony
of
the
named
insured’s
nonrenewal
of
the
extending
coverage
following
the
policy
for
policy’s
was
an
that
Colony
additional
termination
had
thirty
date,
and
the
days
option
of
immediately
since
the
fire
occurred beyond that thirty day period, no coverage exists.
Presently pending before the Court are the parties’ cross
motions for summary judgment.
For the reasons set forth below,
the Court grants in part and denies in part Hanover’s summary
judgment
motion
(ECF
No.
22)
judgment motion (ECF No. 9).
and
denies
Colony’s
summary
The Court concludes that a genuine
fact dispute exists on Colony’s breach of contract claim based
on Hanover’s failure to notify Colony that it had not renewed
the
policy.
summary
Accordingly,
judgment
on
that
the
parties
claim.
To
are
the
not
extent
entitled
that
to
Colony
claims that Hanover breached the contract by failing to pay the
claim when Colony made the demand, the Court finds that such a
claim fails.
The Court also finds that no genuine fact dispute
exists on Colony’s bad faith claim and that Hanover is entitled
to judgment as a matter of law on it, so Hanover’s motion for
summary judgment as to the bad faith claim is granted.
SUMMARY JUDGMENT STANDARD
Summary judgment may be granted only “if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
Civ. P.
56(a).
Fed. R.
In determining whether a genuine dispute of
2
material fact exists to defeat a motion for summary judgment,
the evidence is viewed in the light most favorable to the party
opposing summary judgment, drawing all justifiable inferences in
the opposing party=s favor.
U.S. 242, 255 (1986).
Anderson v. Liberty Lobby, Inc., 477
A fact is material if it is relevant or
necessary to the outcome of the suit.
Id. at 248.
A factual
dispute is genuine if the evidence would allow a reasonable jury
to return a verdict for the nonmoving party.
Id.
FACTUAL BACKGROUND
The following facts are undisputed for purposes of summary
judgment
unless
otherwise
noted.
Hanover
issued
insurance
policy number FHA 0012156 (“Policy”) to River Mill, LLC (“River
Mill”).
that
are
The Policy covered eight buildings owned by River Mill
located
(“Property”).
at
3715
First
Avenue
in
Columbus,
Georgia
The Policy lists Colony as a mortgage holder on
the Property and as a loss payee.
The original policy period
for the Policy was May 10, 2007 to May 10, 2008.
River Mill purchased the Policy through insurance brokerage
firm J. Smith Lanier (“JSL”).
JSL employee Robert Culpepper
handled the placement of coverage for River Mill.
Tom Schoen, a
commercial lines underwriting manager at Hanover, worked with
JSL on the issuance of the Policy.
In July of 2007, Hanover conducted a Loss Control Survey at
the Property and determined that the Property was underinsured
3
and
that
there
was
a
vacancy
at
the
Property
because
Mill’s largest tenant had terminated its lease.
River
Schoen called
Culpepper on the telephone and told him that “something would
have
to
change”
regarding
Schoen
Dep.
96:19-23,
Schoen
said
that
ECF
Hanover
the
No.
would
Policy
12.
to
these
According
have
Culpepper Dep. 15:1-16, ECF No. 13.
due
to
to
cancel
issues.
Culpepper,
the
Policy.
Culpepper asked Schoen not
to cancel the Policy and told Schoen that he would replace the
coverage.
Culpepper
asked
Schoen
not
to
send
notice
of
cancellation to River Mill.
Sometime prior to August 24, 2007, Schoen emailed Culpepper
and stated:
Robert, I really need to move forward with this. I am
going to set this up for a midterm cancellation and I
am going to use a[] 9/1 date.
I haven’t heard what
the plan for the occupied section is so I will include
that piece as well. Tom.
Def.’s Statement of Undisputed Material Facts in Supp. of Def.’s
Mot. for Summ. J. [hereinafter Def.’s SMF] Ex. 1, Schoen Dep.
Ex. 2, Email chain between T. Schoen & R. Culpepper, Aug. 24,
2007, ECF No. 24-9 at 15.
the
email,
Schoen
Dep.
On August 24, 2007, Schoen re-sent
47:11-23,
and
prefaced
it
with
following message:
I am sorry I never heard back from you on this.
I
would have liked to know that you had this taken care
of before I non renewed. But at this point, I have to
assume you are placing it elsewhere. Tom.
4
the
Def.’s SMF Ex. 1, Schoen Dep. Ex. 2, Email chain between T.
Schoen
&
R.
Culpepper
Culpepper,
responded:
expiring carrier.
Aug.
24,
“Tom...We
2007,
are
ECF
placing
No.
24-9
15.
with
cover
at
the
We will have this done by 08-31-07.
Robert.”
Id.
Hanover’s
computer
Thanks,
Later that day, Schoen entered an order into
system
instructing
that
the
Policy
be
canceled effective September 1, 2007 without notice.
The Policy stated that if Hanover decided to “cancel or
nonrenew” the Policy, Hanover would “mail or deliver notice of
[its action] . . . to the first Named Insured and lienholder, if
any, at the last mailing address known to [Hanover].”
Def.’s
SMF Ex. 1, Schoen Dep. Ex. 1, Policy, Georgia Cancellation and
Nonrenewal Endorsement at 2, ECF No. 24-4 at 4.
The Policy is
silent on the consequences of a failure to send a cancellation
or nonrenewal notice.
On
August
Memorandum”
to
30,
JSL,
2007,
which
Hanover
stated
sent
that
the
a
“Cancellation
cancellation
was
effective September 1, 2007 and that the Policy was “cancelled
at company request.”
Pl.’s Statement of Material Facts to Which
There is No Genuine Issue to be Tried [hereinafter Pl.’s SMF]
Ex.
F,
Cancellation
Memo.,
ECF
No.
10-5.
Hanover
refunded
$26,968.00 to River Mill as a pro-rata reimbursement of the
premium paid for the Policy.
Id.
Hanover did not provide a
notice of cancellation or a notice of nonrenewal to Colony.
5
It
is
undisputed
that
River
Mill
obtained
property
insurance coverage for the Property from Harleysville-Atlantic
Insurance Company (“Harleysville”).
It is also undisputed that
under the Harleysville policy, the policy limits for coverage on
the River Mill event center were raised from $1 million to $2.75
million, but the new policy did not cover all of the buildings
that
had
been
covered
under
the
Policy
issued
by
Hanover.
Colony was not listed as a loss payee on the new policy issued
by Harleysville.
According to Hanover, this omission was due to
a mistake made by JSL.
Def.’s SMF Ex. 6, Yarbrough Dep. 83:10-
23, ECF No. 24-21.
In April 2008, River Mill sought to refinance its loan from
Colony to pay interest only for six months.
Colony approved the
interest-only payment request on May 1, 2008.
Colony and River
Mill closed the refinanced, interest-only loan on May 14, 2008.
The
refinance
documents
included
an
“Agreement
to
Provide
Insurance” for the Property.
That document, which was executed
on
Hanover
May
policy
14,
2008,
covering
effective
dates
lists
the
are
the
Property
and
“05-10-2007
To
Policy
states
as
that
05-10-2008.”
the
the
insurance
Policy’s
Def.’s
SMF
Ex. 2, Roberts Dep. Ex. 3, Agreement to Provide Insurance, ECF
No. 24-11 at 3.
On October 30, 2008, the Property sustained damages as a
result of a fire.
Harleysville paid River Mill $2,303,800.12
6
under its policy for damages caused by the fire.
Def.’s SMF Ex.
15, Proof of Loss Policy Release & Subrogation Agreement, ECF
No. 24-33 at 3.
It is undisputed that the event center was
fully repaired to Colony’s satisfaction.
On August 19, 2010,
Colony filed a claim under the Hanover Policy for the damages in
the amount of $4,736,448.
In its demand letter, Colony asserted
that the Policy was still in effect in October 2008.
Pl.’s SMF
Ex. J, Letter from P. Daughtery to Hanover, Aug. 19, 2010, ECF
No. 10-8. Hanover contends that the Policy was no longer in
effect at the time of the fire and has not paid Colony’s claim.
DISCUSSION
I.
Breach of Contract – Failure to Pay Claim
The first issue the Court must address is whether there is
a genuine fact dispute that Hanover breached its contract with
Colony by failing to pay Colony’s claim.
For this claim to be
viable, the Policy must have been in effect as to Colony on
October 30, 2008.
Colony contends that it had a contract with
Hanover separate from the contract Hanover had with River Mill
because
Colony
Colony
argues
coverage
as
was
that
of
listed
as
although
September
1,
the
loss
Hanover
2007,
payee
attempted
the
on
to
coverage
the
Policy.
cancel
the
remained
in
effect as to Colony because Hanover never provided Colony with
notice of the cancellation as required by the Policy and by
statute.
Thus, due to the alleged ineffective cancellation,
7
Colony contends that the Policy remained in effect until the
original policy period expiration date, which was May 10, 2008.
This argument, however, does not support an extension of the
Policy through the date of the fire loss, which was October 30,
2008.
To capture the fire loss within the policy period, Colony
argues that after the Policy was automatically extended to the
end
of
the
original
policy
period
due
to
the
ineffective
cancellation, Hanover then had an obligation to notify it that
the Policy was not being renewed.
Because of Hanover’s failure
to notify Colony of nonrenewal in May 2008, Colony maintains
that the Policy remained in force as to Colony for another year
after
that
original
end
of
the
policy
period,
which
would
the
Court
include the date of the fire loss.
In
response,
Hanover
contends
that
even
if
accepts Colony’s argument that the Policy was in effect until
May 10, 2008 due to an ineffective cancellation of the Policy,
the
law
does
automatically
not
support
renewed
for
Colony’s
another
argument
year
after
that
the
that.
Policy
Hanover
maintains that the only consequence of its failure to notify
Colony
of
the
nonrenewal
of
the
Policy
was
an
extension
of
coverage for a maximum of thirty days after the Policy would
have expired had coverage continued to the end of the original
policy period.
8
The
between
Court
the
finds
cancellation
insurance policy.
differently
that
than
Georgia
and
the
law
makes
nonrenewal
a
of
distinction
an
existing
Georgia law also treats commercial policies
automobile
and
residential
policies.
The
“cancellation” of an insurance policy by an insurance company
“shall
be
accomplished
as
prescribed
except as otherwise provided.1
in”
O.C.G.A. §
33-24-44
O.C.G.A. § 33-24-44(a).
Under
O.C.G.A. § 33-24-44(b), the insurer must provide written notice
of
a
“cancellation”
to
the
insured
and
“any
lienholder.”
O.C.G.A. § 33-24-44 does not explain the consequences of failure
to provide proper notice of cancellation.
failure
to
provide
notice
of
noncancellation of the policy.”
In certain contexts,
cancellation
“results
in
Bank of Toccoa v. Cotton States
Mut. Ins. Co., 211 Ga. App. 389, 391, 439 S.E.2d 60, 62 (1993)
(construing
notice
requirement
of
O.C.G.A. §
33-24-44(b)
and
O.C.G.A. § 33-24-45(d) when bank sought to recover for the loss
of a car that was collateral for a loan); accord O.C.G.A. § 3324-45(d) (stating that, for automobile insurance policies, “[n]o
1
An automobile or residential real property insurance policy must be
canceled in accordance with O.C.G.A. § 33-24-44; failure to cancel
such a policy in accordance with O.C.G.A. § 33-24-44 renders the
attempted cancellation ineffective.
O.C.G.A. §§ 33-24-45(d); 33-2446(c).
For other types of insurance, notice must comply with
O.C.G.A. § 33-24-44 if the cancellation is “for failure of the named
insured to discharge when due any obligations in connection with the
payment of premiums” or “for any reason” if the policy “has been in
effect for less than 60 days.” O.C.G.A. § 33-24-47(a). Cancellations
that do not fall under O.C.G.A. § 33-24-47(a) are governed by
O.C.G.A. § 33-24-47(b) and (c).
9
notice of cancellation of a policy to which this Code section
applies
shall
be
effective
unless
mailed
or
delivered
as
prescribed in Code Section 33-24-44”); see also O.C.G.A. § 3324-46(c)(1)
(providing
that,
for
residential
real
property
insurance policies, cancellation is not effective unless it is
mailed
For
or
delivered
purposes
of
in
accordance
summary
with
judgment,
O.C.G.A. §
Hanover
33-24-44).
assumes
that
the
Policy was in effect as to Colony until May 10, 2008, and the
Court
finds
no
reason
to
challenge
that
assumption.
The
question presented is whether the Policy was in effect after
that and, if so, for how long.
Colony argues that because the Policy required Hanover to
provide Colony with notice of nonrenewal and because Hanover did
not
provide
the
required
notice,
the
Policy
renewed for another policy period—one year.
argument,
address
Colony
the
relies
effect
of
in
an
part
on
a
insurance
automatically
In support of this
number
of
company’s
cases
failure
establish effective cancellation of an insurance policy.2
2
that
to
The
See Reynolds v. Infinity Gen. Ins. Co., 287 Ga. 86, 91, 694 S.E.2d
337, 340 (2010) (stating in dicta that automobile insurance policy
remains in effect until statutory cancellation notice requirements of
O.C.G.A. §§ 33-24-44 and 33-24-45 are met); Cresent Hills Apartments
v. Admiral Ins. Co., 277 Ga. 396, 399, 589 S.E.2d 96, 99 (2003)
(finding, in case where O.C.G.A. § 33-24-44 applied to cancellation of
commercial real estate insurance policy, that insurance company had
not established effective cancellation of the policy because it could
not prove that the notice was mailed within the time required by
O.C.G.A. § 33-24-44); Nationwide Mut. Fire Ins. Co. v. Bridges, 140
Ga. App. 242, 242, 230 S.E.2d 491, 492 (1976) (finding no cancellation
10
Court does not find the cancellation cases analogous to the
situation
presented
here—an
lienholder of nonrenewal.
alleged
failure
to
notify
a
See Banks v. Aetna Cas. & Sur. Co.,
189 Ga. App. 758, 758, 377 S.E.2d 685, 686 (1989) (cancellation
and nonrenewal are not synonymous).
Colony has not cited a case or statute that is directly on
point regarding an insurance company’s duty to send a notice of
nonrenewal of a commercial real property insurance policy to a
lienholder.
Hills,
One of the cases relied upon by Colony is Cresent
where
the
Georgia
Supreme
Court
answered
a
certified
question from the Eleventh Circuit Court of Appeals regarding
whether
an
insurance
requirements
cancellation
of
of
company
had
complied
O.C.G.A. § 33-24-44(b)
a
commercial
real
with
with
property
regard
insurance
Cresent Hills, 277 Ga. at 398, 589 S.E.2d at 98.
Supreme
Court
established
could
not
found
effective
prove
that
that
the
the
notice
required by O.C.G.A. § 33-24-44.
98-99.
insurance
cancellation
of
was
the
the
mailed
to
its
policy.
The Georgia
company
policy
notice
had
not
because
it
within
the
time
Id. at 398-99; 589 S.E.2d at
Neither Crescent Hills nor O.C.G.A. § 33-24-44 addresses
of fire insurance policy where insurance company did not make “any
effort” to comply with predecessor to O.C.G.A. § 33-24-44 by sending
notice of cancellation to the insured); Employers’ Fire Ins. Co. v.
Pa. Millers Mut. Ins. Co., 116 Ga. App. 433, 438, 157 S.E.2d 807, 811
(1967) (finding that residential real estate insurance policy remained
in effect as to mortgagee because insurance company did not give
notice of cancellation to mortgagee as required under predecessor to
O.C.G.A. §§ 33-24-44 and 33-24-46).
11
nonrenewal
of
insurance
policies,
however;
and
therefore,
Cresent Hills does not apply to this nonrenewal case.3
Colony also relies upon Bank of Toccoa v. Cotton States
Mutual Insurance Co., 211 Ga. App. 389, 439 S.E.2d 60 (1993).
In Bank of Toccoa, the bank sought to recover for the loss of a
car it insured.
The insurance company argued that the bank
could not recover because the insurance company had canceled the
policy.
The
cancellation
Georgia
was
not
Court
effective
of
Appeals
because
found
the
that
insurer
did
the
not
comply with policy or statutory requirements regarding notice of
cancellation.
Id. at 390-91, 439 S.E.2d at 62-63.
further
that
provided
found
under
“[b]ecause
O.C.G.A. §
no
notice
33-24-45(e)(1),
3
of
The court
nonrenewal
the
policy
was
was
Colony stresses that the Cresent Hills court required that the
insurer follow the cancellation notice requirements of O.C.G.A. § 3324-44(b) even though the insurer decided to cancel the policy because
of the building’s condition five months after the policy was issued.
Cresent Hills, 277 Ga. at 397, 589 S.E.2d at 97.
Colony also notes
that under the present version of O.C.G.A. § 33-24-47, cancellation
for failure to pay premiums and cancellation for any reason when the
policy has been in effect for less than 60 days is governed by
O.C.G.A. § 33-24-44, while other terminations—including cancellations
and nonrenewals—are governed by O.C.G.A. § 33-24-47(b).
Therefore,
Colony appears to suggest that Cresent Hills stands for the
proposition that O.C.G.A. § 33-24-44 applies to all cancellations,
even those that appear from the language of O.C.G.A. § 33-24-47 to be
covered by that statute. The precise holding of Cresent Hills is that
the insurer’s method of mailing its notice did not comply with
O.C.G.A. § 33-24-44(b). Cresent Hills, 277 Ga. at 399, 589 S.E.2d at
99. The Cresent Hills court did not explain why it applied O.C.G.A. §
33-24-44 rather than O.C.G.A. § 33-24-47(b).
Even if the court’s
holding had addressed this issue, Cresent Hills and O.C.G.A. § 33-2444 address the notice required for a cancellation of an insurance
policy, not the notice required for a nonrenewal.
12
extended under its terms for an additional six months[.]”
Id.
at 392, 439 S.E.2d at 64.
In reaching its holding in
Court
of
45(e)(1),
Appeals
which
specifically
applies
insurance policies.
only
Bank of Toccoa, the Georgia
relied
to
on
O.C.G.A. §
automobile
O.C.G.A. § 33-24-45(a).4
and
33-24-
motorcycle
O.C.G.A. § 33-24-
45(e)(1) provides that “[n]o insurer shall refuse to renew a
policy
to
which
this
Code
section
applies
unless
a
written
notice of nonrenewal is mailed or delivered in person to the
named insured.”
O.C.G.A. § 33-24-45(e)(1).
Under the statute,
notice of nonrenewal must be mailed to the insured and “the
lienholder.”
O.C.G.A. § 33-24-45(e)(1).
The court in Bank of
Toccoa found that the effect of a failure to provide written
notice of nonrenewal to the lienholder as required by O.C.G.A. §
33-24-45(e)(1)
was
that
the
policy
automatically
renewed
for
another term.
Bank of Toccoa, 211 Ga. App. at 392, 439 S.E.2d
at 64.
Colony
appears
to
acknowledge
that
no
Georgia
statute
required Hanover to send notice of nonrenewal to Colony; Colony
contends that the source of the duty was contractual.
Colony
argues that the “only difference between this case and Bank of
Toccoa is the source of the duty to provide notice of non4
O.C.G.A. § 33-24-46 has a nonrenewal notice provision that is nearly
identical to the provision in O.C.G.A. § 33-24-45. O.C.G.A. § 33-2446 applies only to residential real property insurance policies.
O.C.G.A. § 33-24-46(a).
13
renewal” and that Bank of Toccoa provides “definitive guidance
regarding continuation of coverage when some source imposes a
duty upon an insurer to provide notice of non-renewal and the
insurer fails to comply with its obligation.”
Pl.’s Reply in
Supp. of Pl.’s Mot. for Partial Summ. J. 10, ECF No. 26.
Court disagrees.
that
when
a
The
Bank of Toccoa stands for the proposition
statute
requires
that
notice
of
nonrenewal
be
provided and further provides that an insurer shall not refuse
to renew a policy without first providing the statutory notice,
then
the
legal
consequence
of
failing
to
give
the
required
notice is that the policy is automatically renewed.
Colony
points
to
no
statute
applicable
to
commercial
policies that provides that the failure to notify a lienholder
of
nonrenewal prevents an insurer from failing to renew the
policy.
The Georgia statute that was crucial to the holding in
Bank of Toccoa does not apply in the commercial real property
insurance context.
That statute states that an insurer cannot
refuse to renew an insurance policy unless it provides notice to
the
insured
lienholder.
by
delivering
notice
to
the
insured
and
any
O.C.G.A. § 33-24-45(e)(1); accord O.C.G.A. § 33-24-
46(d) (similar provision in residential real property insurance
context).
It logically follows that, under O.C.G.A. § 33-24-45,
if an insurer does not provide proper notice of nonrenewal, then
the refusal to renew is invalid.
14
The Georgia legislature did
not,
however,
fashion
a
similar
rule
for
other
types
of
insurance policies, such as commercial real property insurance
policies.
O.C.G.A. §
33-24-47
applies
to
the
present
case,
which
involves a nonrenewal that is not covered by O.C.G.A. § 33-24-45
(automobile
and
motorcycle
insurance)
(residential real property insurance).
or
O.C.G.A. §
33-24-46
Unlike O.C.G.A. § 33-24-
45 and O.C.G.A. § 33-24-46, O.C.G.A. § 33-24-47 does not state
that an insurance company shall not refuse to renew an insurance
policy
unless
Rather,
it
provides
O.C.G.A. §
prior
notice
33-24-47
states
that
of
an
the
nonrenewal.
insurance
company
shall send notice of nonrenewal to the insured and that if it
does not do so, the insured can purchase additional coverage for
thirty days beyond the policy’s termination date.
33-24-47(b)-(c).
O.C.G.A. §
Unlike O.C.G.A. § 33-24-45 and O.C.G.A. § 33-
24-46, which require notice of nonrenewal to the insured and any
lienholder,
O.C.G.A. §
33-24-47
only
requires
notice
to
the
insured.
Based
on
the
foregoing,
it
is
clear
that
there
is
no
statutory support for Colony’s argument that Hanover’s failure
to
provide
renewal
of
proper
the
notice
insurance
of
nonrenewal
policy.
results
Moreover,
in
the
automatic
Policy
in
question does not provide that Hanover must renew the Policy if
it does not give notice of the nonrenewal to Colony.
15
Therefore,
the
Court
cannot
conclude
that
the
Policy
was
automatically
renewed for another year when Hanover failed to send notice or
that the Policy was still in effect at the time of the loss.
Colony contends that a different result is counseled by
Waco Fire & Casualty Insurance Company v. Jones, 180 Ga. App.
26, 348 S.E.2d 547 (1986) (superseded by statute as stated in S.
Gen. Ins. Co. v. Tippins Bank & Trust Co., 213 Ga. App. 176, 178
444 S.E.2d 331, 333 (1994)).
In Waco Fire, the insurer provided
a one-year policy of insurance on retail grocery store.
policy was set to expire on March 1, 1983.
company
offered
the
insured
a
renewal,
The
Though the insurance
the
insured
never
responded, and the insurer never notified the mortgagee of the
impending expiration date.
no
policy
of
insurance
Georgia’s former code provided that
“in
which
the
interests
of
any
lienholders named in the policy are protected by a loss payable
clause may be canceled or nonrenewed by an insurer so as to
destroy the protection afforded by the policy for the interests
possessed by the lienholders unless notice of the cancellation
or nonrenewal or a copy thereof is sent to the lienholders in
the manner provided for in Code Sections 33-24-44 and 33-24-45.”
O.C.G.A. § 33-24-47 (1983).
The Georgia Court of Appeals in
Waco Fire concluded that the legislature intended to place the
burden on the insurer to notify a “loss payee who never had any
16
inkling or notice that the mortgaged property was not covered by
insurance.”
Waco Fire, 180 Ga. App. at 27, 347 S.E.2d at 548.
The rationale of
Waco Fire,
however,
does not
apply to
extend coverage past the expiration date in this case for the
simple
reason
that
the
statute
construed
in
Waco
Fire
was
subsequently amended by the legislature and the present statute
applicable
to
this
case
statute in Waco Fire.
is
substantively
different
than
the
Waco Fire’s holding depended on the fact
that the statute in effect at the time provided that no policy
of insurance “‘in which the interests of any lienholders named
in the policy are protected by a loss payable clause may be
canceled
or
nonrenewed
by
an
insurer
so
as
to
destroy
the
protection afforded by the policy for the interests possessed by
the lienholders unless notice of the cancellation or nonrenewal
or a copy thereof is sent to the lienholders in the manner
provided
for
in
Code
Sections
33-24-44
and
33-24-45.’”
Waco
Fire, 180 Ga. App. at 26, 347 S.E.2d at 547 (quoting O.C.G.A. §
33-24-47 (1983)).
Georgia’s legislature rewrote the statutes at issue in Waco
Fire, striking O.C.G.A. § 33-24-47 in its entirety and rewriting
O.C.G.A. § 33-24-46 to “limit[] the notice requirement to those
situations in which the insurer ‘refused to renew’ a covered
policy” and not provide for situations where there was a failure
to renew caused by the insured’s failure to pay premiums.
17
S.
Gen. Ins. Co. v. Tippins Bank & Trust Co., 213 Ga. App. 176, 178
444
S.E.2d
331,
333
(1994).
Unlike
the
version
of
O.C.G.A. § 33-24-47 described in Waco Fire, the current statutes
provide: (1) an insurer may not refuse to renew a residential
real property insurance policy unless notice is provided to the
insured and the lienholder, O.C.G.A. § 33-24-46(d); and (2) for
policies governed by the current version of O.C.G.A. § 33-24-47,
a notice of nonrenewal shall be sent to the insured, and the
consequence of failure to provide notice is an opportunity for
the insured to purchase additional coverage, O.C.G.A. § 33-2447(b)-(c).
For all of these reasons, Waco Fire does not apply
to extend coverage past the expiration date in this case.
For the reasons set forth above, the Court rejects Colony’s
argument that the Policy automatically renewed for another year
when
Hanover
failed
to
send
Colony
notice
of
nonrenewal.
Hanover is therefore entitled to summary judgment on Colony’s
breach of contract claim for failure to pay Colony’s claim.
II.
Breach of Contract – Failure to Notify Colony of Nonrenewal
Colony
contends
that
even
if
the
Policy
did
not
automatically renew, Colony is entitled to damages flowing from
Hanover’s breach of its duty to notify Colony of the nonrenewal.
As discussed above, the Policy required Hanover to send notice
to
Colony
Def.’s
SMF
if
it
Ex.
decided
1,
to
Schoen
cancel
Dep.
18
or
Ex.
nonrenew
1,
the
Policy,
Policy.
Georgia
Cancellation and Nonrenewal Endorsement at 2, ECF No. 24-4 at 4.
For purposes of the present summary judgment motion, Hanover
admits
that
Colony.
it
did
not
provide
any
notice
of
nonrenewal
to
Hanover argues, however, that O.C.G.A. § 33-24-47(c)
provides the remedy for the breach of contract; that remedy is
that Colony could purchase additional coverage for thirty days
beyond the Policy’s termination date, so Colony cannot recover
damages due to a loss that occurred more than thirty days beyond
the Policy’s termination date.
The Court disagrees.
While O.C.G.A. § 33-24-47(c) provides the minimum
notice
requirements for an insurance policy like the one at issue in
this
case,
an
insurance
company
stricter notice requirements.
may
certainly
contract
for
E.g., Powell v. Lititz Mut. Ins.
Co., 419 F.2d 62, 65-66 (5th Cir. 1969).5
If the Policy here had
contained the text of O.C.G.A. § 33-24-47(c), then Colony would
have been on notice that the remedy for Hanover’s failure to
provide a notice of nonrenewal was to permit Colony to purchase
additional
coverage
termination date.
for
thirty
days
beyond
the
Policy’s
In other words, Colony would be on notice
that it needed to monitor the Policy’s expiration date.
See,
e.g., Tippins Bank & Trust Co., 213 Ga. App. At 177, 444 S.E.2d
at 332 (1994) (finding that O.C.G.A. § 33-24-46 requires insurer
5
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981)
(en banc), the Eleventh Circuit adopted as binding precedent all
decisions of the former Fifth Circuit handed down prior to the close
of business on September 30, 1981.
19
to
send
notice
of
nonrenewal
only
if
nonrenewal
is
due
to
insurer’s unwillingness or refusal to renew, so it is incumbent
on the insured and lienholder to monitor the policy’s expiration
date).
Here, however, the Policy stated that notice of nonrenewal
would be provided to the lienholder, and the Policy did not say
what happened as a consequence of Hanover’s failure to notify
the lienholder.
Accordingly, based on the Policy, Colony could
expect to receive a notice of nonrenewal and was not put on
notice that it would need to monitor the Policy’s expiration
date.
Therefore,
the
Court
rejects
Hanover’s
argument
that
Colony cannot, as a matter of law, recover damages due to a loss
that
occurred
more
than
thirty
days
beyond
the
Policy’s
termination date.
The remaining question is whether there is a genuine fact
dispute as to whether damages reasonably flowed from Hanover’s
breach of the contract.
The Court finds that there is.
A
reasonable factfinder could conclude based on the present record
that Hanover’s failure to send the nonrenewal notice prevented
Colony from knowing that the Policy had not been renewed and
that it was not listed as the loss payee on any insurance policy
covering the Property; under such circumstances, Colony would be
able to recover damages based on the loss.
On the other hand, a
reasonable factfinder could conclude based on the present record
20
that Colony knew because of the refinance documents, well before
the loss, that it was not covered under the Policy, yet failed
to replace the coverage; under such circumstances, the damages
would not be caused by Hanover’s breach of its duty to notify of
the nonrenewal but by Colony’s own actions.
these
questions.
Accordingly,
neither
A jury must resolve
party
is
entitled
to
summary judgment on Colony’s claim that Hanover breached the
contract by failing to notify Colony of the nonrenewal.
III. Bad Faith Claim
Under Georgia law, an insurer is liable for a bad faith
penalty and reasonable attorney’s fees “[i]n the event of a loss
which is covered by a policy of insurance and the refusal of the
insurer to pay the same within 60 days after a demand has been
made by the holder of the policy and a finding has been made
that such refusal was in bad faith.’”
O.C.G.A. § 33-4-6(a).
Colony contends that Hanover acted in bad faith as a matter of
law when Hanover denied its claim under the Policy.
Colony
further argues that even if Hanover did not breach its duty to
pay
Colony’s
statute
for
claim,
Hanover
breaching
its
is
liable
duty
to
under
notify
the
bad
Colony
faith
of
the
33-4-6(a),
the
nonrenewal.
To
prevail
on
a
claim
under
O.C.G.A. §
insured must prove “(1) that the loss is covered by the policy;
(2) that after the insured demanded payment, the insurer refused
21
to pay the covered loss for more than 60 days prior to suit
being filed; and (3) that the insurer acted in bad faith in
refusing to pay.”
Balboa Life & Cas., LLC v. Home Builders
Fin., Inc., 304 Ga. App. 478, 482, 697 S.E.2d 240, 244 (2010).
“Bad faith is shown by evidence that under the terms of the
policy
upon
which
the
demand
is
made
and
under
the
facts
surrounding the response to that demand, the insurer had no good
cause for resisting and delaying payment.”
Atl. Title Ins. Co.
v. Aegis Funding Corp., 287 Ga. App. 392, 392, 651 S.E.2d 507,
508 (2007) (internal quotation marks omitted).
“Good faith is
determined by the reasonableness of nonpayment of a claim.”
Id.
“Because the damages are in the nature of a penalty, the statute
is strictly construed and the right to such recovery must be
clearly shown.”
Id.
“Although the question of good or bad
faith is ordinarily for the jury, the insurer is entitled to
judgment as a matter of law if it has reasonable grounds to
contest the claim or the question of liability is close.”
Id.
In this case, the Court finds that Hanover had reasonable
grounds to contest the claim and that no reasonable factfinder
could conclude otherwise.
Therefore, Hanover is entitled to
summary judgment on Colony’s bad faith claim.
above,
Colony
asserted
its
claim
against
As discussed
Hanover
under
the
theory that Hanover’s failure to notify Colony of the nonrenewal
automatically renewed the Policy for another term.
22
Pl.’s SMF
Ex. J, Letter from P. Daughtery to Hanover, Aug. 19, 2010, ECF
No. 10-8.
The Court has rejected Colony’s primary argument and
found as a matter of law that the failure to provide notice of
the nonrenewal
Policy.
did not automatically extend the term of the
Hanover took this same position in denying Colony’s
claim and certainly was reasonable in doing so.
Therefore,
Colony cannot base its bad faith claim on Hanover’s failure to
pay the claim when the theory on which Colony asserted its claim
has been directly rejected by the Court as a matter of law.
Moreover, even if the Court is ultimately wrong in its legal
conclusion, one cannot say that the law was so clear in favor of
coverage that the refusal to pay was in bad faith.
The Court also rejects any argument by Colony that
its
breach of contract claim based on Hanover’s failure to notify it
of the nonrenewal gives rise to a bad faith claim.
distinction
may
appear
subtle,
the
Court
Although the
finds
that
a
significant difference exists between a claim for breach of a
provision in an insurance contract and a claim for failure to
pay under the terms of an insurance contract.
has
found
for
purposes
of
summary
Here, the Court
judgment
that
Hanover
contractually committed to provide notice to Colony if it did
not renew the insurance contract and that by failing to give
that notice, Hanover breached that contractual commitment.
This
breach provides Colony with a breach of contract claim that
23
arises from a provision in the Policy that is independent of and
unrelated to whether coverage exists under the Policy.
This
type of claim is distinctly different from a claim that coverage
exists
under
the
Policy,
which
is
the
type
supports a bad faith refusal to pay claim.
of
claim
that
The Court finds the
duty to defend cases cited by Colony to be inapposite because in
those cases the breach of the duty to defend depended on a
finding that coverage arguably existed under the policy.
minimum, the two were inextricably intertwined.
At a
Here, the Court
finds that the breach of contract claim for failure to notify of
nonrenewal is distinctly separate from the coverage question.
Therefore, the Court finds the bad faith failure to pay statute
does not apply to Colony’s breach of contract claim.
the
foregoing,
Hanover
is
entitled
to
summary
Based on
judgment
on
Colony’s bad faith claim.
CONCLUSION
The
Court
grants
in
part
and
denies
in
part
Hanover’s
summary judgment motion (ECF No. 22) and denies Colony’s summary
judgment motion (ECF No. 9).
The Court concludes that a genuine
fact dispute exists on Colony’s breach of contract claim based
on Hanover’s failure to notify Colony that it had not renewed
the policy at issue.
Accordingly, the parties are not entitled
to summary judgment on that claim.
To the extent that Colony
claims that Hanover breached the contract by failing to pay the
24
claim when Colony made the demand, the Court finds that such a
claim fails.
The Court also finds that Hanover is entitled to
judgment as a matter of law on Colony’s bad faith claim, so
Hanover’s motion for summary judgment as to the bad faith claim
is granted.
IT IS SO ORDERED, this 9th day of November, 2011.
S/Clay D. Land
CLAY D. LAND
UNITED STATES DISTRICT JUDGE
25
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