Pepper v. Covington Specialty Insurance Company et al

Filing 54

ORDER GRANTING 41 Motion for Summary Judgment and GRANTING 43 Motion for Summary Judgment. Signed by Judge Thomas W. Thrash, Jr on 6/22/2017. (btql)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
KHRISTOPHER PEPPER,
Petitioner,
v.

CIVIL ACTION FILE
NO. 1:16-CV-693-TWT

COVINGTON SPECIALTY
INSURANCE COMPANY, et al.,
Respondents.

OPINION AND ORDER

This is a declaratory judgment action. It is before the Court on the Respondent
Prime Rate Premium Finance Corporation, Inc.’s Motion for Summary Judgment
[Doc. 41] and the Respondents Covington Specialty Insurance Company and RSUI
Indemnity Company’s Motion for Summary Judgment [Doc. 43]. For the reasons
stated below, Prime Rate’s Motion for Summary Judgment [Doc. 41] is GRANTED
and Covington and RSUI’s Motion for Summary Judgment [Doc. 43] is GRANTED.
I. Background
On October 9, 2013, the Petitioner Khristopher Pepper was shot in the arm
while visiting the gas station located at 4160 Fulton Industrial Boulevard, Atlanta,

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Georgia.1 The gas station was owned at the time by Petroleum Realty, II, LLC and
Florida Fuel Partners, LLC, and was leased to ASI Retail & Sales, Inc.2 Prior to the
shooting, on March 19, 2013, Covington issued a Commercial General Liability
Policy to ASI with a policy period from February 28, 2013 to February 28, 2014.3 In
order to pay the premium on the Policy, ASI entered into a premium finance
agreement with Prime Rate, in which Prime Rate agreed to advance the loan proceeds
for the full premium.4 In addition, the premium finance agreement gave Prime Rate
power of attorney with authority to cancel the Policy if the insured failed to pay the
monthly loan payment within fifteen days of the due date.5
On June 3, 2013, having not received that month’s required payment, Prime
Rate mailed a “10 Day Notice of Intent to Cancel” the Policy to ASI, stating that the

1

Respondents Covington and RSUI’s Statement of Material Facts ¶ 1
[hereinafter “Covington SOF”].
2

The property was first leased to Mitamurshed Enterprise and Petroleum
Realty DBA, which eventually became ASI.
3

Id. at ¶ 3. While the Policy was originally given to Mitamurshed, a Policy
Endorsement was eventually issued amending the declaration page to change the
named insured from Mitamurshed to ASI. The Endorsement also added Petroleum
Realty and Florida Fuel Partners, the owners of the gas station property, as additional
insureds under the Policy. Id. at ¶ 7.
4

Id. at ¶ 4.

5

Id. at ¶ 5.

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Policy would be canceled effective June 18, 2013, for nonpayment unless payment
was received before that date.6 That date came and went, and having still not received
payment, Prime Rate mailed a Notice of Cancellation to ASI and requested that
Covington cancel the Policy.7 Accordingly, Covington canceled the Policy, effective
June 18, 2013.8
As stated above, Pepper was shot in the arm while at the gas station in October.9
Nearly two years after the shooting, on August 11, 2015, Pepper filed his Complaint
in the underlying personal injury action against ASI, Petroleum Realty, and Florida
Fuel Partners.10 RSUI – Covington’s parent company – issued a coverage disclaimer
to ASI on September 29, 2015, denying coverage because the Policy had been
canceled prior to the shooting.11 Eventually, the parties mediated the underlying action
and arrived at three settlements.12 In the first settlement, ASI agreed to a consent

6

Id. at ¶ 9.

7

Id. at ¶¶ 10-11.

8

Id.

9

Respondent Prime Rate’s Statement of Material Facts ¶ 20 [hereinafter
“Prime Rate SOF”].
10

Id. at ¶ 21.

11

Id. at ¶ 23.

12

Id. at ¶ 24.

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judgment in favor of Florida Fuel Partners and Petroleum Realty for $1,500,000 and
ASI’s rights to recovery from the Policy.13 In the second settlement, ASI and Pepper
entered into a separate consent judgment in favor of Pepper, also for $1,500,000 and
ASI’s rights in the Policy.14 And in the third settlement, Florida Fuel Partners and
Petroleum Realty agreed to assign their rights in the first consent judgment against
ASI to Pepper.15 In short, after all the settlements were entered into, Pepper was left
with the right to recover up to $1,500,000 from the Policy.
Pepper then filed the current action against Covington, RSUI, and Prime Rate
on March 4, 2016, pursuant to the rights he received via the settlement. At issue is
whether the Respondents Covington and RSUI were required to defend ASI, Florida
Fuel, and Petroleum Realty in the Petitioner’s underlying lawsuit seeking
compensation for personal injuries, and whether the Respondent Prime Rate is liable
in any way for canceling the Policy. Pepper seeks a declaratory judgment stating that
the cancellation of the Policy was defective and that it should have been in effect at
the time of the shooting. As a result, Pepper also seeks an award from the Respondents
in an amount equal to the Settlement Agreements.

13

Id. at ¶ 25.

14

Id. at ¶ 26.

15

Id. at ¶ 28.

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II. Legal Standard
Summary judgment is appropriate only when the pleadings, depositions, and
affidavits submitted by the parties show no genuine issue of material fact exists and
that the movant is entitled to judgment as a matter of law.16 The court should view the
evidence and any inferences that may be drawn in the light most favorable to the
nonmovant.17 The party seeking summary judgment must first identify grounds to
show the absence of a genuine issue of material fact.18 The burden then shifts to the
nonmovant, who must go beyond the pleadings and present affirmative evidence to
show that a genuine issue of material fact does exist.19 “A mere ‘scintilla’ of evidence
supporting the opposing party’s position will not suffice; there must be a sufficient
showing that the jury could reasonably find for that party.”20

16

FED. R. CIV. P. 56(a).

17

Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970).

18

Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).

19

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).

20

Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990).

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III. Discussion
A. Wrongful Cancellation of the Policy
Put simply, the Petitioner argues that Prime Rate improperly canceled the
Policy, the Policy should have been in effect at the time of the shooting, and that as
a result one or all of the Respondents should have to pay Pepper for his injuries, as
determined by the Settlement Agreements. There can be no doubt that the cancellation
notice was inadequate under Georgia law. When premium finance companies, like
Prime Rate, seek to exercise power of attorney to cancel an insurance policy, Georgia
law imposes certain notice requirements they must comply with first.21 At least ten
days before canceling a policy, a premium finance company must notify the insured
of its intent to do so (known as the “10 Day Notice”).22 At the end of that 10 day
period, it must then notify the insured that its policy is actually being canceled (the
“Cancellation Notice”).23
It is this latter notice that has created the problem in this case. Georgia law not
only requires that the Cancellation Notice be sent, but also specifies some of the

21

O.C.G.A. § 33-22-13.

22

Id. § (b).

23

Id. § (c)(1).

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information it must contain.24 In particular, the statute states that the Cancellation
Notice “shall inform the insured that any payment received after the mailing or
delivery of notice to the insurance company to cancel the policy will not reinstate the
policy.”25 In this case, the Cancellation Notice contained no such statement.26
Although the Cancellation Notice did inform the insured that the Policy would be
canceled if payment was not received, it did not inform the insured that the Policy
would not be reinstated should payment be received after the due date. Consequently,
because the statute requires this information to be included in a Cancellation Notice,
the Policy was wrongfully canceled.
B. Respondents’ Potential Liability
After determining that a policy was wrongfully canceled, the question becomes
which parties are liable, if any, for the improper cancellation. Many states have
statutes similar to Georgia’s that require premium finance companies to follow certain
procedures before canceling an insurance policy. Often, the language of these statutes
is nearly identical to O.C.G.A. § 33-22-13.

24

Id.

25

Id. (emphasis added).

26

See Prime Rate’s Resp. to Pepper’s Mot. for Summ. J., June 19, 2013
Notice of Cancellation, Ex. H. [Doc. 41-8].
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Among these states, there have emerged two approaches to assigning liability
for a failure to properly notify a policyholder. The first approach, as followed by New
York, New Jersey, and Connecticut, places liability upon the insurance company.27
These courts hold that this is the appropriate remedy, despite the lack of wrongdoing
on the part of the insurance company, for two basic reasons. First, the purpose of these
statutes is to prevent these situations from coming up in the first place. The statutes
requiring “notice of intent to cancel is intended to help an insured keep his policy
from lapsing, not to give him recourse against a finance company once the hardships
of not having coverage have already befallen him.”28 These courts reason that
allowing insurance companies to escape all liability after the fact would put the
insured in a worse position than he had been before through no fault of his own.
Secondly, these courts fear that public policy would be undermined by placing
such a potentially large burden on premium finance companies. Liability for an entire
insurance policy is grossly disproportionate to the potential profits made from the

27

See Precision Mech. Servs., Inc. v. T.J. Pfund Assocs., Inc., No.
CV98-0416692, 2003 WL 21659672, at *1 (Conn. Super. Ct. June 19, 2003); Basic
Image, Inc. v. Transamerica Ins. Fin. Corp., 241 A.D.2d 424, 426, 660 N.Y.S.2d 433
(1997); Kende Leasing Corp. v. A.I. Credit Corp., 217 N.J. Super. 101 (App. Div.
1987).
28

Precision Mech. Servs., 2003 WL 21659672, at *6 (internal quotations

omitted).
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interest on a premium finance loan. The worry for these courts is that “[f]aced with
such additional potential liability, ‘qualifying banks and lending units might well
decline to act as premium financing agencies.’”29 After all, it is the insurance company
that is in the business of providing insurance, not the premium finance company. As
the Basic Image court put it, “the premium financing agency does not ‘buy the risk.’”30
This was also Georgia’s approach prior to 1995.31 But in that year, the Georgia
legislature added subsection (c)(2) to O.C.G.A. § 33-22-13, which reads:
The receipt of the [Cancellation Notice] by the insurer shall create a
conclusive presumption that the premium finance company has fully
complied with all the requirements of this Code section, that the insurer
is entitled to rely on such presumption, and that the cancellation of the
insurance contract or contracts is concurred in and authorized by the
insured. No liability of any nature whatsoever shall be imposed upon the
insurer as a result of . . . the failure of the insurance premium finance
company to comply with any of the requirements of this Code section.32
The Eleventh Circuit, in a two page unpublished per curiam opinion interpreted
this language to mean that not only are insurance companies shielded from any

29

Id. at 427 (quoting Home Mut. Ins. Co. v. Broadway Bank & Trust Co.,
53 N.Y.2d 568, 577, 428 N.E.2d 842, 846 (1981)).
30

Basic Image, 241 A.D.2d at 426, 660 N.Y.S.2d at 435.

31

See, e.g., Georgia Mut. Ins. Co. v. Gardner, 205 Ga. App. 458, 459
(1992) (affirming judgment against insurer where the premium finance company had
failed to comply with notice requirements).
32

O.C.G.A. § 33-22-13.

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tortious or contractual liability arising from a wrongful cancellation, but they are also
relieved of any responsibilities under a policy that was wrongfully canceled.33 In
other words, regardless of whether a policy was canceled properly or not, the die is
cast, so to speak. Thus, the Policy having been canceled after Covington and RSUI
received a cancellation notice from Prime Rate, Covington and RSUI are both off the
hook for the Policy.
The alternative approach some states have taken, including Illinois and
Vermont, places liability upon the premium finance company.34 In Carr v. Peerless
Ins. Co., the Supreme Court of Vermont found that statutory language nearly identical
to Georgia’s included an implied right of action against the premium finance
company.35 Following the factors the Supreme Court laid out in Cort v. Ash,36 the
Supreme Court of Vermont found that the statute was intended to provide protections
33

Kolencik v. Stratford Ins. Co., 195 F. App'x 855, 857 (11th Cir. 2006)
(“regardless of whether [the insured] was in default at the time [the Defendant]
received the notice, the premium finance statute insulates [the Defendant] from
liability...”). Though not binding, the Eleventh Circuit’s opinion is persuasive given
the lack of other authority addressing the issue.
34

See Universal Fire & Cas. Ins. Co. v. Jabin, 16 F.3d 1465, 1468 (7th Cir.
1994); Carr v. Peerless Ins. Co., 168 Vt. 465, 473 (1998) (“...we conclude that we
should infer the existence of a private right of action in favor of the insured and
against the premium finance company.”).
35

Id.

36

See Cort v. Ash, 422 U.S. 66 (1975).

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to insureds, and allowing a private right of action was “necessary to enforce the
prohibition on the cancellation of the insurance by the premium finance company
without giving proper notice.”37 Those two factors, in addition to the culpability of the
premium finance company as the wrongdoer, led Vermont and Illinois to allow suit
against premium finance companies, up to and including the limit on the insurance
policy in question.
However, this option also seems to be foreclosed. Georgia has taken a strong
stance against implied causes of action. In 2010, Georgia enacted O.C.G.A. § 9-2-8(a),
which states that, “[n]o private right of action shall arise from any Act enacted after
July 1, 2010, unless such right is expressly provided therein.”38 Though O.C.G.A. §
33-22-13 was enacted well before July 1, 2010, the clear opinion of Georgia’s
lawmakers “certainly counsels against...find[ing] new implied civil causes of
action.”39 Of course, this does not prevent the Petitioner from seeking to recover using
some other cause of action, such as those found in the laws of torts or contract. But
given Georgia’s clear policy against implied causes of action, and the lack of any
authority indicating otherwise, this Court finds that there is no implied cause of action
37

Carr, 168 Vt. at 474.

38

O.C.G.A. § 9-2-8(a).

39

Anthony v. Am. Gen. Fin. Servs., Inc., 287 Ga. 448, 459 (2010) (finding
that there was no implied civil cause of action arising from a criminal statute).
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on the part of a third party beneficiary of the insurance contract for failure to adhere
to the requirements of O.C.G.A. § 33-22-13 when the policy has in fact been canceled.
Prime Rate’s motion for summary judgment must therefore be granted.
IV. Conclusion
For the reasons stated above, the Respondent Prime Rate’s Motion for
Summary Judgment [Doc. 41] is GRANTED, and the Respondents Covington and
RSUI’s Motion for Summary Judgment [Doc. 43] is GRANTED.
SO ORDERED, this 22 day of June, 2017.

/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge

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