Old Republic National Title Insurance Company v. Hartford Accident Indemnity Company

Filing 42

ORDER GRANTING Defendant's 27 Motion for Summary Judgment. Plaintiff's 29 Motion for Summary Judgment is DENIED. Both 28 & 33 Motions for Hearing are DENIED. Signed by Judge Richard W. Story on 05/09/13. (sk)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
GAINESVILLE DIVISION
OLD REPUBLIC NATIONAL
TITLE INSURANCE COMPANY,
Plaintiff,
v.
HARTFORD ACCIDENT AND
INDEMNITY COMPANY,
Defendant.

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CIVIL ACTION NO.
2:12-CV-0004-RWS

ORDER
This case is before the Court on Defendant’s Motion for Summary
Judgment [27], Defendant’s Motion for Hearing Regarding Motion for
Summary Judgment [28], Plaintiff’s Motion for Summary Judgment [29], and
Plaintiff’s Motion for Hearing Regarding Motion for Summary Judgment [33].
After reviewing the record, the Court enters the following Order.
Background
In a prior declaratory judgment action against Vincent Fitzgerald
(“Fitzgerald”) and Rhett Burruss (“Burruss”) and their law firm Fitzgerald and
Burruss, LLC (“F&B”), Hartford Accident and Indemnity Company
(“Hartford”) obtained a default judgment from this Court that it had no duty to

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provide coverage under a professional liability policy and that the policy was
rescinded (the “Hartford Declaratory Judgment Action”). (Defendant’s
Statement of Material Facts (“Def.’s SMF”), Dkt. [27-18] ¶ 1.) Subsequent to
this Court’s ruling, Old Republic National Title Insurance Company (“Old
Republic”) obtained a consent judgment against Fitzgerald and F&B for various
professional negligence claims (the “Consent Judgment”). (Id. ¶ 2.) In the
present action, Old Republic seeks to recover the amount of the Consent
Judgment from Hartford.

Hartford-F&B Professional Liability Policy
F&B purchased a professional liability insurance policy issued by
Hartford, which named Fitzgerald, Burruss and F&B as Insureds (the “Policy”).
(Id. ¶ 3.) The Policy was issued for the period beginning August 28, 2008
through October 27, 2008, renewed for the policy period October 27, 2008
through October 27, 2009, and renewed again for the policy period October 27,
2009 through October 27, 2010. (Id. ¶ 4.) The Policy was a “claims made and
reported” policy, meaning that it covered only claims made and reported during
the Policy period. (Id.)

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Fitzgerald initially applied for the Policy on August 18, 2008.
(Defendant’s Reply to Plaintiff’s Response to Defendant’s Statement of
Material Facts (“Def.’s Reply SMF”), Dkt. [39] ¶ 5.) The application contained
a number of questions to be answered “yes” or “no.” (Def.’s SMF, Dkt. [27-18]
¶ 5.) These questions are routinely asked of applicants seeking lawyers’
professional liability insurance through Hartford, and the answers are used by
Hartford’s underwriting department to make a decision as to whether to accept
the applicant as an insured for the issuance of a policy. (Id. ¶ 6.)
Question No. 10 on the application asks: “Is any member of the firm
aware of any act, error or omission that could result in a professional liability
claim being made?” (Id. ¶ 7.) Fitzgerald answered “no” to this question.
(Def.’s Reply SMF, Dkt. [39] ¶ 7.) In reliance on Fitzgerald’s representations
in the August 18, 2008 application, Hartford issued the Policy. (Id. ¶ 8.) On
August 9, 2010, Fitzgerald completed another application for renewal of
coverage with Hartford. (Id. ¶ 9.) Question No. 8 on the renewal application
asks: “Is any member of the firm aware of any act, error, or omission that could
result in a professional liability claim being made?” Again, Fitzgerald
answered “no.” (Id.) In reliance on Fitzgerald’s representations in the renewal

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application, Hartford renewed the Policy from October 27, 2010 to October 27,
2011. (Def.’s SMF, Dkt. [27-18] ¶ 10.) The Policy was cancelled on December
27, 2010, at the request of the Insureds. (Id. ¶¶ 4 n.1, 11.)
The Policy, effective August 18, 2008 through October 27, 2010,
provided as follows:
Subject to the limits of liability, the company shall
pay on behalf of the insured all sums...by reason of
any act, error or omission...the insured shall become
legally obligated to pay...provided always that: (1)
The insured’s liability arises out of the insured
performing or failing to perform professional services
for others; (2) Such damages result from a claim that
is first made against the insured during the policy
period and is reported in writing to the Company
immediately but in no event later than sixty (60) days
after the expiration of the policy period; ...(4) As of
the effective date of this coverage form, no insured
knew or could have foreseen that such act, error or
omission, or personal injury could result in a claim.
(Id. ¶ 12; Pl.’s SMF, Dkt. [29-1] ¶ 3.) The Policy contains the following
exclusions:
A. This insurance does not apply to:
1. Claims arising out of an act, error, omission, . . .
committed by the insured or at the insured’s direction
with actual dishonest, fraudulent, criminal or
malicious purpose or intent. . .;
...
13. Claims arising from defects in title of which the
named insured had knowledge at the date of issuance
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of such title insurance;
14. Any claim based upon or arising out of breach of
underwriting authority by the insured in his capacity
as title insurance agent.
(Def.’s SMF, Dkt. [27-18] ¶ 13.) In the event of a claim, the Policy provides
that an insured must cooperate with Hartford. Specifically, it provides:
The insured shall cooperate with the company. At the
company’s request, the insured will submit to
examination and interrogation under oath, as
requested by a representative of the company. The
insured, at the request of the company and without
charge to the company, shall: . . . (3) give written
statements to the company’s representatives and meet
with such representatives for the purpose of
investigation and defense.
(Id. ¶ 15.) Further, the Policy states:
No action shall lie against the Company unless, as a
condition precedent thereto, the insured shall have
fully complied with all the terms of the coverage form
and the amount of the insured’s obligation to pay shall
have been finally determined . . . by final judgment
against the insured. Any person who, or organization
which, has secured such judgment . . . shall thereafter
be entitled to recover under this coverage form to the
extent of the insurance afforded by this coverage
form.
(Pl.’s SMF, Dkt. [29-1] ¶ 4.)

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The Policy further provides that all coverage is “subject to the limits of
liability as set forth in the declarations and to all the exclusions, conditions, and
all other terms of this coverage form and the policy which forms part of it.”
(Def.’s SMF, Dkt. [27-18] ¶ 14.) The Policy also states: “In granting coverage
under this coverage form, the company has relied on the representations made
in the process of applying for the policy. All such representations are the basis
of coverage under this insurance.” (Def.’s Reply SMF, Dkt. [39] ¶ 16.) And:
In the event misrepresentations are made or the
insured fails to state facts which materially affect the
acceptance of the risk or the hazard assumed by the
company under this coverage form, this insurance in
its entirety shall be void and of no affect whatsoever. .
. . Any statements or misrepresentations made to any
agent of the company shall be deemed to be made to
the company itself.
(Id.) Finally, the Policy states:
In the event that during the policy period the insured
becomes aware of any act, error, omission, personal
injury, or circumstance [which may give rise to a
claim to which this coverage form applies], . . . the
insured shall as soon as practicable during the policy
period give written notice to the company. . . .
(Id. ¶ 17.)

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On or about September 18, 2000, Fitzgerald’s professional corporation,
Vincent Fitzgerald, P.C., entered into a contract with First American Title
Insurance Company, which appointed Fitzgerald P.C. as its agent for purposes
of issuing title insurance policies in Georgia. (Pl.’s Statement of Additional
Material Facts (“SAMF”), Dkt. [31] ¶ 1.) Hartford alleges that on April 22,
2002, F&B was substituted for Fitzgerald P.C. via amendment and became the
title issuing agent for First American. (Def.’s Reply SMF, Dkt. [39] ¶ 18.)
Hartford alleges that Fitzgerald was involved in at least twelve instances
of professional negligence involving First American from 2005 to 2008, and
that Fitzgerald was directly notified by First American of at least six claims
from 2007 to 2011. (Def.’s SMF, Dkt. [27-18] ¶¶ 19, 21.) Old Republic alleges
that Fitzgerald did not receive some of the notices from First American (the
notices dated November 20, 2007, January 9, 2008, and June 12, 2008), and
alleges that the matters occurring after the August 2008 application date are not
relevant to this action. (Pl.’s Resp. SMF, Dkt. [31] ¶ 21.) Hartford counters
that according to handwritten notes made by Laura M. King, Claims Analyst for
First American, she had direct communications with Fitzgerald regarding the
November 2007 and June 2008 claims. (Def.’s Reply SMF, Dkt. [39] ¶ 21;

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Supplemental Affidavit of Laura M. King, Dkt. [38-1] Ex. 1 (“per Vince
Fitzgerald, has documentation that loan is paid”), Ex. 3 (“Spoke to Vince 6-1908 @ 2:47 – said . . . legal is correct. Does not see any reason to correct deed;
does not agree with examiner.”).) Fitzgerald did not report knowledge of any
potential claims on the 2008 Policy application. (Def.’s SMF, Dkt. [27-18] ¶
22.)

Old Republic-F&B Lawsuit
F&B served as title issuing agent for Old Republic from May 17, 2002
until August 17, 2010. (Id. ¶ 23.) On August 20, 2010, Old Republic brought
suit against F&B and Fitzgerald in Superior Court of Hall County seeking an
accounting for funds received by the defendants under their Agency Agreement
with Old Republic, and damages. (Hall County Complaint, Dkt. [27], Ex. 10).
Old Republic’s Complaint alleges, among other things, that the defendants
misused funds from an escrow account and that defendants were negligent in
failing to pay off multiple security deeds out of loan proceeds. (Hall County
Amended Complaint, Dkt. [27], Ex. 10.)

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Old Republic’s claims were reported to Hartford in September 2010,
during the Policy period. (Pl.’s SMF, Dkt. [29-1] ¶ 6.) Philip Tellerine, Senior
Claims Consultant for Hartford, testified that the act, error or omission upon
which the Homestar and Excel claims (two of the claims in the Old Republic
suit) were based were committed during the Policy Period. (Philip Tellerine
Deposition, Dkt. [29-5] at 8:8-15.) He also testified that he had no evidence or
information that as of the Policy’s effective date, F&B or Fitzgerald knew of or
could have foreseen those claims, stating his belief that the Homestar and Excel
transactions occurred around the middle of the Policy period. (Id. at 8:16-25 9:1-24.) In addition to the Old Republic claims, on September 21, 2010,
Gordon Alexander asserted a claim against F&B alleging that on September 8,
2010, F&B closed a transaction by which the Paul C. Harris Revocable Trust
sold property and received a check from the firm for the net proceeds in the
amount of $126,305.95, but the check from escrow funds bounced. (Def.’s
SMF, Dkt. [27-18] ¶ 25.)
Gregory Leffard, Vice President of Professional Liability for Hartford, is
responsible for development of underwriting practices and procedures and
implementation of the same for Hartford’s Lawyers’ Professional Liability

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Department. (Gregory Leffard Affidavit, Dkt. [27-6] ¶ 2.) He testified that
circumstances that might result in a professional liability claim are an integral
part of the underwriting process, as well as the decision to issue policies,
including the F&B Policy. (Id. ¶ 26; Def.’s SMF, Dkt. [27-18] ¶ 26.) He also
testified that: “Under no circumstances would Hartford have issued a policy to
an insured where there was a perceived high risk of a professional liability
claim, let alone the near certainty of multiple such claims.” (Id.)
On November 23, 2010, Philip Tellerine wrote two letters to Dennis
O’Brien as personal counsel for Fitzgerald. The letters acknowledged claims by
Old Republic and Gordon Alexander against Fitzgerald, addressed Hartford’s
coverage position as to the claims, and stated that Hartford was reserving its
rights as to coverage in light of Hartford’s continuing investigation of the
claims. (Def.’s SMF, Dkt. [27-18] ¶ 27.) On December 27, 2010, Hartford
counsel wrote to O’Brien and requested that Fitzgerald “submit to examination
and interrogation under oath” as required by the Policy. (Id. ¶ 28.) Hartford
was informed by O’Brien that Fitzgerald was unavailable for any type of
examination or cooperation. (Id.)

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Meanwhile, on December 6, 2010, Hartford’s counsel contacted Old
Republic through its attorney, William B. Brown, and requested that Old
Republic provide information to Hartford regarding Old Republic’s
investigation of the activities of Fitzgerald and F&B relating to Old Republic’s
complaint against them. (Pl.’s SMF, Dkt. [29-1] ¶ 8.) On December 14, 2010,
Old Republic provided Hartford a copy of the bank statements of the insureds,
including a CD containing the individual transactions of F&B. (Id.) Old
Republic was then informed that Hartford had retained Carlock Copeland to
represent its insureds in Old Republic’s underlying suit. (James D. Partin
Affidavit, Dkt. [29-6] ¶ 5.) Old Republic was not informed at that time that
Hartford was denying coverage for Old Republic’s claims or challenging the
validity of the Policy. (Id.) Old Republic’s suit against the Hartford insureds
was in default when Old Republic was contacted by Carlock Copeland. (Id. ¶
7.) On February 21, 2011, Old Republic agreed to a Consent Motion to Open
Default, but states that it would not have agreed to the motion if it had known
that Hartford was denying coverage for the claims. (Id. ¶ 16.)
Carlock Copeland undertook the defense of Fitzgerald and F&B in the
underlying Old Republic suit and filed an Answer and Affirmative Defenses

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and Responses to Old Republic’s discovery requests. (Pl.’s SMF, Dkt. [29-1] ¶
15.) Philip Tellerine testified that around February 23, 2011, Hartford
“probably” had in its possession the facts on which Hartford’s own declaratory
judgment action against F&B and Fitzgerald was based. (Philip Tellerine
Deposition, Dkt. [29-5] at 13:22-25 - 14:1-12.) Hartford now alleges that a
substantial portion of its case for rescission was learned in the investigation and
discovery process after it filed is complaint for declaratory judgment. (Def.’s
Response to Pl.’s SMF, Dkt. [37] ¶ 16.)
On March 7, 2011, Carlock Copeland served Interrogatories and Request
for Production of Documents on Old Republic, to which Old Republic was
required to respond. (Pl.’s SMF, Dkt. [29-1] ¶ 17.) James Partin testified that
on March 2, 2011, Peter Werdesheim of Carlock Copeland sent an email to Old
Republic’s attorney asking, “I wonder if there’s any way we can bring about a
global resolution of this mess.” (Id. ¶ 18.) On March 3, 2011, Old Republic
responded to the email in the affirmative, and Carlock Copeland requested a
settlement demand letter from Old Republic regarding its claims against
Hartford’s insureds. (Id.) Werdesheim requested a demand letter “that
emphasizes the arguably covered claims against my clients,” and Old Republic

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responded on March 14, 2011 by making a settlement demand. (Id.) Old
Republic did not receive a response from Hartford or Carlock Copeland to its
settlement demand, nor was it provided with any statement that Hartford was
denying the validity of the Policy or the coverage of Old Republic’s claims
under the Policy. (Id. ¶ 19.) Old Republic filed its required responses to
Carlock Copeland’s Interrogatories and Request for Production of Documents
on April 18, 2011. (Id.)
On or about April 12, 2011, the Policy premium was tendered to F&B.
(Def.’s SMF, Dkt. [27-18] ¶ 29.) Hartford filed a complaint for declaratory
judgment on April 14, 2011, requesting that this Court enter a judgment
rescinding the Policy, or, in the alternative, a declaratory judgment that Hartford
did not have an obligation to provide coverage to F&B. (Id. ¶ 30.) Hartford did
not name Old Republic as a party, even though it was aware of Old Republic’s
claims. (Pl.’s SMF, Dkt. [29-1] ¶ 20.) It was not until April 20, 2011, when
Hartford filed a Motion to Intervene and Stay Proceedings in Old Republic’s
suit, that Old Republic learned that Hartford was denying coverage and validity
of the Policy. (Id. ¶ 21.) In its response to Hartford’s motion, Old Republic
stated that it had not been named as a party to the Hartford Declaratory

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Judgment Action and therefore, any adjudication in that case concerning the
Policy or its coverage would not be binding on Old Republic. (Id.) Ultimately,
F&B failed to respond to Hartford’s complaint and on June 7, 2011, this Court
entered a default judgment that Hartford had no duty to provide coverage under
the Policy and that the Policy was rescinded. (Def.’s SMF, Dkt. [27-18] ¶ 20.)
The Hartford Declaratory Judgment Action alleged that Hartford had
appointed defense counsel to represent Fitzgerald and F&B in the underlying
Old Republic suit under a reservation of rights. (Pl.’s SMF, Dkt. [29-1] ¶ 22.)
The “reservation of rights letters” were dated November 23, 2010, and stated
that Hartford was still evaluating coverage for Old Republic’s claims. (Id.)
The parties consented to extend discovery in the Old Republic suit until August
15, 2011. (Id. ¶¶ 23-24.) On or about July 11, 2011, Carlock Copeland
withdrew as counsel for Fitzgerald and F&B. (Id. ¶ 25.) Soon after, Hartford
withdrew its Motion to Intervene in the Old Republic suit. (Id. ¶ 26.)
On November 8, 2011, Old Republic obtained a Consent Order and Final
Judgment against Fitzgerald and F&B for the total principal sum of
$357,091.33, plus pre-judgment interest of $19,882.31, plus interest at a daily

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rate of $69.44 through the date of judgment. (Id. ¶¶ 27-30.) Old Republic now
seeks to recover the full amount of the Consent Judgment from Hartford.
Discussion
I. Legal Standard - Summary Judgment
Federal Rule of Civil Procedure 56 requires that summary judgment be
granted “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.” “The moving
party bears ‘the initial responsibility of informing the . . . court of the basis for
its motion, and identifying those portions of the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any,
which it believes demonstrate the absence of a genuine issue of material fact.’”
Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259 (11th Cir. 2004)
(quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Where the
moving party makes such a showing, the burden shifts to the non-movant, who
must go beyond the pleadings and present affirmative evidence to show that a
genuine issue of material fact does exist. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 257 (1986).

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The applicable substantive law identifies which facts are material. Id. at
248. A fact is not material if a dispute over that fact will not affect the outcome
of the suit under the governing law. Id. An issue is genuine when the evidence
is such that a reasonable jury could return a verdict for the non-moving party.
Id. at 249-50.
Finally, in resolving a motion for summary judgment, the court must
view all evidence and draw all reasonable inferences in the light most favorable
to the non-moving party. Patton v. Triad Guar. Ins. Corp., 277 F.3d 1294, 1296
(11th Cir. 2002). But, the court is bound only to draw those inferences which
are reasonable. “Where the record taken as a whole could not lead a rational
trier of fact to find for the non-moving party, there is no genuine issue for trial.”
Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
“If the evidence is merely colorable, or is not significantly probative, summary
judgment may be granted.” Anderson, 477 U.S. at 249-50 (internal citations
omitted); see also Matsushita, 475 U.S. at 586 (once the moving party has met
its burden under Rule 56(a), the nonmoving party “must do more than simply
show there is some metaphysical doubt as to the material facts”).

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II.

Defendant’s Motion for Summary Judgement and Motion for
Hearing
Hartford argues that Old Republic’s suit is barred by collateral estoppel

because this Court has already ruled that Hartford has no duty to provide
coverage under the Policy and the Policy was rescinded. (Def.’s MSJ Br., Dkt.
[27-1] at 14-21.) Under Georgia law,1 “a judgment of a court of competent
jurisdiction shall be conclusive between the same parties and their privies as to
all matters put in issue or which under the rules of law might have been put in
issue . . . .” O.C.G.A. § 9-12-40. Collateral estoppel requires proof of the
following elements: (1) identity of an issue that was essential to the prior
litigation and was resolved, (2) by judgment of a court of competent
jurisdiction, and (3) an identity of the parties or their privies. Wickliffe v.
Wickliffe Co., 489 S.E.2d 153, 155-56 (Ga. Ct. App. 1997). Old Republic
argues that collateral estoppel is not applicable because: (1) the issues in the
two cases are not identical, (2) there was no actual litigation of the issues in
Hartford’s Declaratory Judgment Action as the case was terminated by a default

1

The parties agree that the Court must apply Georgia law on collateral estoppel
in this diversity action. (Def.’s MSJ Br., Dkt. [27-1] at 15; Pl.’s Resp. Br., Dkt. [32] at
10.)
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judgment, and (3) there is no privity between Old Republic and the Insureds.2
(Pl.’s Resp. Br., Dkt. [32] at 10-17; Pl.’s MSJ Br., Dkt. [29-2] at 13-16.)
A.

Identity of Issues

Hartford argues that in its Declaratory Judgment Action, the essential
issues were coverage and rescission. (Def.’s MSJ Br., Dkt. [27-1] at 16-17;
Complaint [1] and Order [9], No. 2:11-CV-0094-RWS.) Hartford contends that
Old Republic is now seeking to invoke coverage under the same Policy and
therefore, the same key issues are present and have already been resolved in
Hartford’s favor. (Id. at 17; Complaint, Dkt. [1].) Plaintiff asserts, without
citing any authority or evidence, that “the issues in the two cases are not
identical.”3 (Pl.’s MSJ Br., Dkt. [29-2] at 16.) Thus, without any effective

2

The Court has gleaned Plaintiff’s arguments from a review of the entire
record, including Plaintiff’s brief in support of its motion for summary judgment. The
Court considers all of Plaintiff’s arguments, even though they were not raised in
appropriate filings.
3

Old Republic raises an argument that the causes of action in the Declaratory
Judgment Action and the case at bar are not identical, one being a suit to recover
under an insurance policy and one being a suit for declaratory judgment. (Pl.’s MSJ
Br., Dkt. [29-2] at 15.) However, Plaintiff’s argument speaks to the application of res
judicata, not issue preclusion or collateral estoppel. “Under the doctrine of res
judicata, a judgment on the merits in a prior suit bars a second suit involving the same
parties or their privies based on the same cause of action. Under the doctrine of
collateral estoppel, on the other hand, the second action is upon a different cause of
action and the judgment in the prior suit precludes relitigation of issues actually
litigated and necessary to the outcome of the first action.” Sewell v. Merrill Lynch,
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response from Old Republic, the Court agrees with Hartford that the issues in
the cases are the same.
B.

Litigation of the Issues

Old Republic claims that there was no actual litigation of the issues in
Hartford’s Declaratory Judgment Action because the case was terminated by
default judgment. (Pl.’s MSJ Br., Dkt. [29-2] at 16.) However, in Georgia, a
default judgment serves as a judgment on the merits for purposes of collateral
estoppel. Spooner v. Deere Credit, Inc., 536 S.E.2d 581, 582 (Ga. Ct. App.
2000) (“A judgment by default properly entered against parties sui juris
operates as an admission by the defendant of the truth of the definite and certain
allegations and the fair inferences and conclusions of fact to be drawn from the
allegations of the declaration.”); see also Butler v. Home Furnishing Co., 296
S.E.2d 121, 122 (Ga. Ct. App. 1982) (“In order for the doctrine of estoppel by
judgment to be properly invoked, the judgment relied upon must be on the
merits of the case. A default judgment is considered to be ‘on the merits.’”)
(internal citations omitted); Fierer v. Ashe, 249 S.E.2d 270, 272 (Ga. Ct. App.
1978) (“[T]he judgment of a court having jurisdiction of the parties and of the
Pierce, Fenner & Smith, Inc., 94 F.3d 1514, 1518 n. 3 (11th Cir. 1996) (quoting
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5 (1979)).
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subject matter operates as res judicata, in the absence of fraud or collusion, even
if obtained upon a default. . . . The application of the doctrine of res judicata in
this manner does not deprive a litigant of his right to a day in court. That right
means not the actual presentation of the case, but the right to be duly cited to
appear and to be afforded an opportunity to be heard.”) (internal quotations and
citations omitted).
Therefore, the Court agrees with Hartford that there is no merit to Old
Republic’s conclusory statement that “the Hartford Default Judgment was not a
final judgment on the merits, but instead was a default judgment.” (Pl.’s MSJ
Br., Dkt. [29-2] at 14.) The only authority cited by Old Republic for the
proposition that default judgments do not have preclusive effect is Franks v.
Thomason, 4 B.R. 814 (N.D. Ga. 1980). That case involved a bankruptcy
action to determine the dischargeability of a judgment. The court analyzed and
applied federal law from several circuits to conclude: “The requirement that
issues sought to be estopped must have been ‘actually litigated’ in the prior
proceeding contemplates something more than a one-sided presentation of facts.
Thus, even if the district court did hear evidence concerning liability prior to
rendering judgment, this court would deny collateral estoppel effect to those

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issues necessary to that judgment, on the ground that they were not actually
litigated.” Franks, 4 B.R. at 821-22.
Here, the parties agree that the Court must apply Georgia law on
collateral estoppel. See Semtek Int’l v. Lockheed Martin Corp., 531 U.S. 497,
508-09 (2000) (“Under federal common law an enforcing court should apply
the law of the state courts in the state where the rendering federal court sits
unless the state’s law conflicts with the federal law interest.”); accord Palmer &
Kay, Inc. v. Marsh & McLennan Cos., Inc., 404 F.3d 1297, 1310 (11th Cir.
2005). Under the Georgia authority cited by Hartford, default judgments do
serve as judgments on the merits for purposes of collateral estoppel.4

4

Under Spooner, 536 S.E.2d at 582, the default judgment against the Insureds
operates as an admission by the Insureds of the truth of the definite and certain
allegations and the fair inferences and conclusions of fact drawn from Hartford’s
Complaint. The Complaint alleges that, at the time he applied for the Policy in 2008
and applied for renewal in 2010, Fitzgerald knew of numerous incidents, acts, and
omissions that could have (and did) lead to professional liability claims against him
and his firm, but he did not disclose them to Hartford. (Complaint, Dkt. [1], No. 2:11CV-0094-RWS). Hartford relied on Fitzgerald’s representations when it issued and
renewed the Policy. (Id.) The Complaint states: “F&B, LLC and Fitzgerald’s
material misrepresentation on their application for an insurance policy entitles
Hartford as a matter of law to rescind the policies at issue . . . .” (Id.) The Complaint
further alleges that the claims asserted against F&B and Fitzgerald by Old Republic
were not covered by the Policy because the claims fell within the Policy’s exclusions.
(Id.)
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C.

Privity

Old Republic argues that there is no privity between it and the Insureds
because: it has different rights than those of the Insureds under the 2010 Policy
and therefore, has its own direct claim against Hartford; it was not represented
by the Insureds in the Hartford Declaratory Judgment Action; and it has no
mutual or successive relationship to the Insureds as to the same right of
property. (Pl.’s Resp. Br., Dkt. [32] at 10-17.) Hartford contends, however,
that a judgment creditor like Old Republic derives its rights under the policy
through the insured, and therefore, Old Republic can have no greater rights
under the Policy than the Insureds. (Def.’s Reply Br., Dkt. [38] at 1-6.) The
Court agrees with Hartford.
“A judgment creditor who sues on a policy indemnifying the insured
against claims for damages stands in the shoes of the insured, and a breach of [a
material] clause by the insured relieves that insurer of any obligation to pay the
judgment.” Wolverine Ins. Co. v. Sorrough, 177 S.E.2d 819, 820 (Ga. Ct. App.
1970); see also Commercial Union Ins. Co. v. Bradley Co., 367 S.E.2d 820, 823
(Ga. Ct. App. 1988) (quoting Wolverine Ins. Co., 177 S.E.2d at 820) (“One who
obtains a judgment against the insured and then seeks to enforce it against the

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insurer occupies a like status [to the insured]; he derives his rights under the
policy through the insured, . . . and he is entitled to recover under the policy
only if it appears that all conditions precedent have been complied with.”).
Indeed, in its brief in support of summary judgment, Plaintiff states: “Plaintiff is
a judgment creditor of the Defendant’s Insureds and therefore stands in the
shoes of the Insureds and derives its rights under The 2010 Policy through the
Insureds.” (Pl.’s MSJ Br., Dkt. [29-2] at 21-22 (emphasis added).)
“Privity” covers several types of relationships between a party and a
nonparty, for example, “where the nonparty has succeeded to the party’s
interest in property, where the nonparty controlled the original suit, where the
nonparty’s interests were represented adequately by the party in the original
suit, and where the party and nonparty have concurrent interests in the same
property right.” Hart v. Yamaha-Parts Distribs., Inc., 787 F.2d 1468, 1472
(11th Cir. 1986). By its own admission, Old Republic stands in the shoes of the
Insureds and derives its rights under the Policy through them.5 Therefore, the

5

The Court agrees with Hartford that the authority cited by Old Republic to
show a lack of privity here is distinguishable. (Def.’s Reply Br., Dkt. [38] at 2-6.)
For instance, in Walka Mountain Camp v. Hartford Accident & Indem. Co., 149
S.E.2d 365, 366 (Ga. 1966), the issue was “whether the judgment in the previous suit
by the injured party against the insurer, which adjudicated that the policy as written
did not cover the injury, bars the present suit by the insured to reform the policy so as
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Court finds that the privity requirement is met.
In sum, the elements of collateral estoppel under Georgia law are
satisfied here. The Hartford Declaratory Judgment Action, which resulted in a
final judgment on the merits, involved the same issues and privies, and thus, has
preclusive effect. Therefore, Hartford is entitled to judgment as a matter of law
to recite such coverage.” The court concluded that “This insured is not represented by
the injured party. Nor does it claim under the injured party. Furthermore, it has no
mutual or successive relationship to the injured party as to the same right of
property.” Id. at 367 (emphasis added). Similarly, in Davidson v. State Farm, 288
S.E.2d 832 (Ga. Ct. App. 1982), Stonica v. State Farm, 402 S.E.2d 553 (Ga. Ct. App.
1991), and Cook v. Prudential Prop. & Cas. Ins. Co., 426 S.E.2d 222, (Ga. Ct. App.
1992), the relationships between the insureds and the injured parties were based on
alleged commission of torts, not based on mutual or successive rights in the same
property. Here, by contrast, Old Republic admits that it stands in the shoes of the
Insureds and derives its rights under the Policy through the Insureds.
Furthermore, the Court finds no merit in Old Republic’s argument that it has
different or broader rights than the Insureds under the Policy. Old Republic relies on
Section IIIE of the Policy, which states:
No action shall lie against the Company unless, as a
condition precedent thereto, the insured shall have fully
complied with all the terms of the Coverage Form and the
amount of the insured’s obligation to pay shall have been
finally determined . . . 2. By final judgment against the
insured. Any person who, or organization which has
secured such judgment . . . shall thereafter be entitled to
recover under this Coverage Form to the extent of the
insurance afforded by this Coverage Form. . . .
The Court finds nothing in this provision to suggest that Old Republic has broader
rights than the Insureds. Instead, the provision states that Old Republic may recover
to the extent of the coverage afforded under the Policy, not beyond.
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and its motion for summary judgment is GRANTED.
III.

Plaintiff’s Motion for Summary Judgment and Motion for Hearing
This Court’s previous Order in Hartford’s Declaratory Judgment Action

states:
Judgment is hereby entered in favor of the plaintiff on
the count of the Complaint seeking a declaratory
judgment that there is no coverage under the
insurance policy at issue for claims made against
Stephen Vincent Fitzgerald, Jr. or Fitzgerald &
Burruss, LLC. Furthermore, judgment is hereby
entered on the plaintiff’s claim for rescission on the
insurance contract and the insurance policies at issue
in the case are hereby rescinded and the plaintiff is
relieved of any further duty to defend or provide
indemnity to the defendants in this case.

(Order, Dkt. [9], No. 2:11-CV-0094-RWS (emphasis added).) Therefore, as of
June 7, 2011, the Policy was rescinded. There are no remaining obligations or
rights under the Policy for any party. Consequently, as a matter of law, Old
Republic may not maintain an action to recover under the Policy. Accordingly,
Old Republic’s motion for summary judgment is DENIED.
Conclusion
Based on the foregoing, Defendant’s Motion for Summary Judgment [27]
is GRANTED and Plaintiff’s Motion for Summary Judgment [29] is DENIED.
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Both Motions for Hearing Regarding Motion for Summary Judgment [28, 33]
are DENIED.
SO ORDERED, this 8th day of May, 2013.

_______________________________
RICHARD W. STORY
UNITED STATES DISTRICT JUDGE

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