Capital City Insurance Company Inc. v. Redland Insurance Company et al
Filing
49
ORDER denying 19 & 24 Defendants Motion for Summary Judgment and granting 22 Insurer's Motion for Summary Judgment. The Clerk is directed to ENTER FINAL JUDGMENT in favor of the Plaintiffs. Signed by Chief Judge Lisa G. Wood on 8/28/2012. (csr)
N the anfttb fitatto 3ttrftt Court
for the £out$Jern Motrtet of korgta
Maperoid Atbioton
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Plaintiffs,
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VS.
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FORKS TIMBER COMPANY, INC, AND *
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HERITAGEBANK OF THE SOUTH, AS
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SUCCESSOR-IN-INTEREST TO THE
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TATThALL BANK,
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Defendants.
CAPITAL CITY INSURANCE
COMPANY, INC., and
REDLAND INSURANCE COMPANY
CV 511-039
ORDER
Presently before the Court are three motions for summary
judgment, one filed by Plaintiffs Capital City Insurance
Company, Inc. ("Capital City") and Redland Insurance Company
("Redland") (collectively "Insurers"), Dkt. No. 22, and one by
each of the two Defendants, Forks Timber Company, Inc.
("Forks"), Dkt. No. 19, and HeritageBank of the South
("HeritageBank"), Dkt. No. 24, (collectively "Defendants"). For
the reasons stated below, the Insurers' motion is GRANTED and
Defendants' motions are DENIED.
AO 72A
(Rev. 8/82)
BACKGROUND1
Forks is a logging company that entered into a business
relationship with James Hardwick ("Hardwick") to remove timber
from Hardwick's land. Hardwick represented that he owned the
timber and that it was unencumbered by liens. Pursuant to the
agreement with Hardwick, Forks took no steps to confirm
Hardwick's representations. Forks harvested approximately
eighty thousand dollars worth of timber from Hardwick's
property. 2 Shiver Aff. ¶ 8, Dkt. No. 24, Ex. A.
Unbeknownst to Forks, HeritageBank (or its predecessor-ininterest) held a security interest in the timber. After
learning that Forks had harvested the timber, HeritageBank
initiated a lawsuit in the Superior Court of Bacon County,
Georgia ("Bacon County Litigation"). HeritageBank's complaint
in the Bacon County Litigation asserts that Forks is liable for
conversion of HeritageBank's security interest. Bacon Cnty.
Compi., Dkt. No. 24, Ex. B. Forks contacted the Insurers - the
issuers of Forks's commercial general liability insurance
policies ("CGL Policies") - seeking indemnification and
representation in the Bacon County Litigation. The Insurers
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2
AO 72A
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Few, if any, facts are in dispute. The parties agree about the
circumstances of the timber harvest and the procedural posture of the
underlying litigation, but fiercely disagree about the legal implications of
Forks's conduct. See Insurers' Statement of Facts, Dkt. No. 22, Forks's
Resp., Dkt. No. 37, Forks's Statement of Facts, Dkt. No. 33, and Insurers'
Resp., Dkt. No. 39.
The value of the timber is not material to this action, and may be disputed
later. The fact is provided only for narrative context.
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refused, arguing that Forks's conduct and the resulting harm did
not constitute a covered loss. Specifically, the Insurers
stated that the circumstances of the timber harvest did not
constitute an "occurrence" as the CGL policies define that term.
The Insurers filed this suit seeking a declaratory judgment
regarding the Insurers' obligations under the CGL Policies.
1e1j hi 'Y I]
"Summary judgment is appropriate 'if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law." Fed. R. Civ. P.
56(c); Eberhardt v. Waters, 901 F.2d 1578, 1580 (11th Cir.
1990)). The court must view the evidence and draw all
inferences in the light most favorable to the nonmovant.
Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970) . The
party seeking summary judgment must first identify grounds that
show the absence of a genuine issue of material fact. Celotex
Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). To discharge
this burden, the movant must show the court that there is an
absence of evidence to support the nonmoving party's case. Id.
at 325. The burden then shifts to the nonmovant to go beyond
the pleadings and present affirmative evidence to show that a
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genuine issue of fact does exist. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 257 (1986).
DISCUSSION
The Insurers seek declaratory judgment that "they are not
required nor obligated under law to provide any coverage,
indemnification or defense in regards to the underlying
complaint." Dkt. No. 22, at 6. Forks and HeritageBank are
named defendants in this suit, and both argue that the Insurers
are obligated to defend and indemnify Forks. Forks Mot. Summ.
J., Dkt No. 19; HeritageBank Mot. Summ. J., Dkt. No. 24. All
parties agree that Forks's CGL policies are the controlling
agreements, and that the issue is whether the facts in this case
constitute an "occurrence" under those policies. The parties
further agree that the CGL policies define an occurrence as an
"accident," but that the policies fail to define the term
accident. The parties disagree on whether the facts of this
case constitute an accident under the policies.
On the surface, the Insurers' argument is simple: Forks
intentionally cut down the disputed trees - i.e., Forks meant to
cut down the timber, and did just that - and an intentional act
does not constitute an accident. The Insurers support their
argument by pointing to the underlying Bacon County complaint.
In the Bacon County complaint, HeritageBank asserts that Forks
is liable for conversion, which is an intentional tort. Forks,
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on the other hand, argues that it was negligent in failing to
perform a title search before cutting down the trees, and
therefore an "accident" occurred, as that term is contemplated
by the CGL policy. Forks's Mot. Summ. J. 2, Dkt. No. 19.
I. Insurers' Position
The Insurers rely primarily on Mindis Metals, Inc. v.
Transp. Ins., Co., 209 F.3d 1296 (11th Cir. 2040). Mindis
Metals is a single paragraph opinion, relying almost entirely on
a district court order issued in an unrelated dispute, Macon
Iron & Paper Stock Co. Inc. v. Transcontinental Ins., Co., 93 F.
Supp. 2d 1370 (M.D. Ga. 1999).3
In Macon Iron, the plaintiff, Macon Iron, was in the scrap
metal business. Macon Iron purchased several used railroad cars
from an individual who worked for Georgia Central Railroad.
However, the individual had no authority to sell the cars. Upon
learning of the sale, Georgia Central brought suit against Macon
Iron for racketeering, fraud, conversion, and punitive damages.
Macon Iron's insurers refused to defend the suit, arguing that
the transactions were not covered occurrences. Like the CGL
Policies in this dispute, the commercial general liability
3 Aside from reproducing the Macon Iron opinion, the Eleventh Circuit in
Mindis Metals, offered only a single paragraph of analysis. In that
paragraph, the Eleventh Circuit noted a lack of consensus among
jurisdictions as to whether "intentional conduct premised on erroneous
information" constitutes an "accident" under a commercial general liability
insurance policy. The court stated, however, that no such ambiguity exists
in Georgia: "In Georgia . . . such conduct is not an `accident.'" In
support, the Mindis Metals court attached a copy of the Macon Iron opinion.
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policies in Macon Iron defined an occurrence as an accident, but
did not define accident. Thus, the issue before the Macon Iron
court was whether the transactions, and resulting harm to
Georgia Central, constituted accidents under the CGL policies.
The court held that Macon Iron's conduct did not constitute
an accident. In reaching its conclusion, the court cited a
treatise on insurance law that described an accident as "an
unusual or unexpected event, happening without negligence;
chance or contingency; happening by chance or unexpectedly; an
event from an unknown cause or an unexpected event from a known
cause." Mindis Metals, 209 F.3d at 1300 (quoting 11 Couch on
Insurance § 44:288 at 443 (2d ed. 1982)). The court further
stated: "[M]any `accidents' involve intentional conduct with
unexpected results. But when the result of the intentional act
is said to be unexpected, it is the direct and immediate result
referred to, not the indirect consequences or
legal significance
of a particular act." Id. at 1301 (emphasis added).
Ultimately, the court concluded that there was "nothing
accidental" about Macon Iron's actions or the consequences of
those actions.
The Insurers in the present case are confident that Macon
Iron resolves the issue before the Court. The Insurers state
that Forks's mistake about the absence of encumbrances on the
disputed timber is essentially the same as Macon Iron's mistake
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about the true ownership of the rail cars. Although Forks may
have made a mistake about the legal consequences of its conduct,
the Insurers argue that Forks's actions and the consequences
were purely intentional.
II. Defendants' Position
While the Insurers rely on Macon Iron, Forks and
HeritageBank rely on the Georgia Supreme Court's recent decision
American Empire Surplus Lines Ins. Co. v. Hathaway Devel. Co.,
Inc., 707 S.E.2d 369 (Ga. 2011). In Hathaway, the plaintiff, a
contractor, sued its subcontractor for damages caused by the
subcontractor's faulty workmanship. The subcontractor's faulty
plumbing work caused property damage to neighboring property
being built by the contractor. The subcontractor failed to
answer, and default judgment was entered in favor of the
contractor. The contractor then sought payment from American
Empire, the subcontractor's insurer. American Empire refused to
pay, arguing that the contractor's claim was not covered under
the subcontractor's CGL policy. American Empire argued that the
faulty workmanship performed by the subcontractor was not an
Although Forks and HeritageBank are adversaries in the Bacon County
Litigation, the two are co-defendants in the present matter. Both Forks and
HeritageBank argue that the Insurers are obligated to indemnify and defend
Forks in the Bacon County Litigation. Forks and HeritageBank have filed
motions for summary judgment requesting declaratory judgment in favor of
coverage under the CGL Policies. Dkt. Nos. 19, 24. Because the Defendants
have the same interest in this case, and because their motions for summary
judgment are largely duplicative, the Court addresses the Defendants'
arguments together.
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occurrence because it was not an "accident" as that term is used
in the CGL policy.
The Georgia Supreme Court held that damage to surrounding
property caused by the subcontractor's faulty workmanship was an
"accident" and therefore covered by the policy. Hathaway, 707
S.E.2d at 369. The Hathaway court began by looking at the
commonly accepted meaning of the term accident. The court
stated:
It is commonly accepted that, when used in an
insurance policy, an "accident" is deemed to be "an
event happening without any human agency, or, if
happening through such agency, an event which, under
the circumstances, is unusual and not expected by the
person to whom it happens. . . . [un its common
signification the word means an unexpected happening
without intention or design.
Id. at 371 (citing Black's Law Dictionary, 6th ed.).
The court
further pointed to Georgia case law defining accident as "an
unexpected happening rather than one occurring through intention
or design." Id. (citing City of Atlanta v. St. Paul Fire and
Marine Iris. Co., 498 S.E.2d 782 (1998)). The court concluded
that "an occurrence can arise where faulty workmanship causes
unforeseen or unexpected damage to other property" and rejected
the argument that the faulty workmanship could not be considered
an accident merely because it was performed intentionally. Id.
at 372. The court further stated, "[A] deliberate act,
performed negligently, is an accident if the effect is not the
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intended or expected result; that is, the result would have been
different had the deliberate act been performed correctly." Id.
(citing Lamar Homes v. Mid-Continent Cas. Co., 242 S.W.3d 1, 16
(Tex. 2007)).
Defendants' arguments in favor of summary judgment are
based exclusively on Hathaway. HeritageBank's Mot. Summ. J. 711, Dkt. No. 24-3; Forks's Mot. Summ. J. 3-5, Dkt. No. 19.
Defendants believe that Hathaway significantly changed the
course of Georgia insurance law, which Defendants characterize
as taking an improperly restrictive view of "occurrence" as that
term is used in CGL policies. Forks' Mot. Summ. J. 3.
Defendants assert that Hathaway stands for the proposition that
"a deliberate act (such as cutting this timber) performed
negligently (by not conducting a title examination first) is an
accident if the effect of the intentional acts is not an
intended or expected result." Id. at 4. The Defendants
conclude that "[Hathaway) effectively overrules Macon Iron."
HeritageBank's Resp. 2, Dkt. No. 42.
III. Analysis
Under Georgia law, the allegations contained in a complaint
against an insured "provide the basis for determining whether
liability exists under the terms of the [insured's] insurance
policy." See Georgia Farm Bureau Mut. Ins. Co. v. Hall Cnty.,
586 S.E.2d 715, 717 (Ga. Ct. App. 2003) (holding that
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allegations in a complaint against an insured, asserting that
the insured failed to inform a timber harvester that the county
held a lien on timber, did not constitute an accident as that
term was used in the insurance policy); City of Atlanta v. St.
Paul Fire & Marine Ins. Co., 498 S.E.2d 782, 784 (Ga. Ct. App.
1998). Therefore, the Court must compare the underlying
complaint to the CGL Policies at issue.
In the Bacon County Litigation complaint, HeritageBank
asserts a claim for conversion under Georgia law. See Bacon
County Compi., Dkt. No. 24, Ex. B (titled "Complaint for
Conversion") . Conversion requires "an intentional exercise of
dominion or control over a chattel" which seriously interferes
with the right of another to control the chattel. Restatement
(Second) of Torts § 222A (1965). Nothing in the Bacon County
complaint indicates that HeritageBank seeks to recover under any
other legal theory. 5 It is clear from the Bacon County
Litigation complaint that HeritageBank is asserting a claim for
The Bacon County Complaint also seeks an award of punitive damages under
O.C.G.A. § 51-12-5.1 in connection with the conversion claim. The inclusion
of the request for punitive damages further highlights the fact that
HeritageBank is seeking recovery for intentional conduct on behalf of Forks,
given that punitive damages may only be awarded where a defendants actions
show "willful misconduct, malice, fraud, wantonness, oppression, or that
entire want of care which would raise the presumption of conscious
indifference to consequences." O.CG.A. § 51-12-5.1. See Georgia Farm
Bureau Mut. Ins. Co. v. Hall Cnty., 586 S.E.2d 715, 718 (Ga. Ct. App. 2003)
(observing that by seeking punitive damages in an underlying complaint, the
plaintiff 'explicitly alleged that the act was intentional or at least
evinced an expectation of harm.").
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conversion based on Forks's intentional exercise of dominion and
control over the encumbered timber.
The CGL Policies at issue define an occurrence as an
accident, but do not define accident. Under Georgia law, when
used in an insurance policy, accident is defined as "an event
happening without any human agency, or, if happening through
such agency, an event which, under circumstances, is unusual and
not expected by the person to whom it happens. . . . [I]n its
common signification the word means an unexpected happening
without intention or design.'" Hathaway, 707 S.E.2d at 371
(citing Black's Law Dictionary, 15 (6th ed. 1990); St. Paul, 478
S.E.2d 418, 420 (Ga. Ct. App. 1996)). There is no question that
unintentional acts that cause unintentional injuries constitute
accidents under Georgia law. However, there has been some
dispute over whether intentional acts which cause unintended
injuries can ever constitute an accident. Compare Owners Ins.
Co. v. James, 295 F. Supp. 2d 1354, 1364 (N.D. Ga. 2003)
(holding that injuries caused by intentional acts are not
covered occurrences) with Essex Ins. Co. v. H & H Land Devel.
Corp., 525 F. Supp. 2d 1344, (M.D. Ga. 2007) (questioning
Owners, and holding that an event set in motion by intentional
conduct could constitute a covered occurrence) . However, the
Georgia Supreme Court recently clarified that there are some
instances where a deliberate act, performed negligently, may
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constitute an occurrence. Hathaway, 707 S.E.2d at 372 (holding
that negligent, faulty workmanship which causes damage to
surrounding property may constitute an accident). Although the
full reach of Hathaway is not perfectly clear, 6 the case seems to
eschew any categorical rule that intentional conduct cannot form
the basis of an accident - and thus a covered occurrence - as
that term is used in an insurance policy.
In their motion for summary judgment, Defendants ask the
Court to rule that a commercial general liability insurance
policy covers an insured's decision to harvest timber without
taking steps to ensure the timber is free from encumbrances.
Defendants contend that Hathaway mandates such a result.
However, nothing in Hathaway supports such a broad reading.
Hathaway stands for the proposition that unforeseeable damage to
surrounding property, caused by negligent, faulty workmanship
constitutes an "accident" as that term is used in commercial
general liability insurance policies. Defendants read Hathaway
as holding that any intentional act can give rise to an
"accident" so long as the legal consequences of that act are not
6 The Court is aware of only three opinions citing Hathaway, none of which
clearly define the opinion's scope. See Greystone Const., Inc. v. Nat'l
Fire and Marine Ins. Co., 661 F.3d 1272, 1282 (10th Cir. 2011) (citing
Hathaway as an example of a the trend in cases defining occurrence to cover
damage resulting from poor workmanship); Rosen v. Protective Life Ins Co.,
817 F. Supp. 2d 1357, 1369 (N.D. Ga. 2011) (citing Hathaway for general
contract provisions); IFCO Syss. N. Am., Inc. v. Am. Home Assur. Co., 797 F.
Supp. 2d 660, 669 (D. Md. 2011) (distinguishing between the negligent
workmanship conduct in Hathaway and the conversion occurring in the
principle case, and limiting the applicability of Hathaway to faulty
workmanship cases).
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intended. Hathaway's holding is not so broad. The court in
Hathaway held that "an occurrence can arise where faulty
workmanship causes unforeseen or unexpected damage to other
property." Hathaway, 707 S.E.2d at 372. In support of this
statement, the court rejected the insurer's argument that
[A]cts of [the insured] could not be deemed an
occurrence or accident under the CGL policy because
they were performed intentionally. A deliberate act,
performed negligently, is an accident if the effect is
not the intended or expected result; that is, the
result would have been different had the deliberate
act been performed correctly.
Id. (citing Lamar Homes v. Mid-Continent Cas. Co., 242 S.W.3d 1,
16 (Tex. 2007)) . Taken together, these two statements clarify
that an insurer cannot dispute coverage for damage related to
faulty workmanship based on the fact that the insured
intentionally performed the work. The passages do not state
that any and all intentional acts may form the basis of an
accident, as the Defendants would have the Court hold.
Without some indication to the contrary - either in the
text of Hathaway or from the Georgia courts - this Court reads
Hathaway as limited to faulty workmanship cases. This is not a
case about negligent, faulty workmanship, and, accordingly,
Hathaway does not apply. Furthermore, nothing in Hathaway
indicates that the conduct in this case should qualify as an
accident under a commercial generally liability insurance
policy. Hathaway does not define an accident as intentional
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conduct causing the intended physical consequences, but which
results in unintended legal consequences, as was the case for
Forks. Perhaps, Hathaway opens the door to coverage for a
timber company that negligently cuts down a tree, causing the
tree to fall and crush an automobile on neighboring property.
The case does not, however, support coverage for the intentional
harvesting of timber that the harvester mistakenly believes to
be free from legal encumbrances. Defendants' motions for
summary judgment are based exclusively on Hathaway, and because
that case is not applicable here, Defendants' motions are
denied.
The Insurers also seek summary judgment, relying primarily
on Macon Iron. Notably, Hathaway leaves untouched the principle
described in Macon Iron, that conduct must result in unintended
consequences to be deemed an "accident." In fact, Hathaway
reaffirmed that principle, recognizing that Georgia case law
defines the term "accident" in an insurance policy as "an
unexpected happening rather than one occurring through intention
or design." Hathaway, 707 S.E.2d at 371. Georgia law does not
view erroneous legal beliefs or unintended legal consequences as
the sort of "unintended consequences" necessary to constitute an
accident. See Geor q ia Farm Bureau Mut. Ins. Co. v. Vanhuss, 532
S.E.2d 135, 136 (Ga. Ct. App. 2000) (holding that an insured's
intentional conduct in operating a poultry farm which caused
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trespass and nuisance to neighboring property was did not
constitute an accident); Georgia Farm Bureau Mut. Ins. Co. v.
Meriwether, 312 S.E.2d 823, 823-24 (Ga. Ct. App. 1983) (holding
that an insured's intentional conduct in blocking a road under
the erroneous belief that the road was on his private property
did not constitute an accident). Therefore, in order to
constitute an accident, conduct must result in unintended real
consequences, rather than simply legal consequences.
It was precisely this principle that drove the finding of
no coverage in Macon Iron. In Macon Iron, the court rejected
coverage for intentional conduct that went according to plan,
but that ultimately had unexpected legal consequences. Macon
Iron cannot be distinguished from the present case. Here, as in
Macon Iron, the insured engaged in intentional and deliberate
conduct, and in both cases the insured made a mistake about the
legal consequences of its actions. In fact, in both instances
the insured made a mistake about the ability of an individual to
sell certain items. The only distinction is that Macon Iron
dealt in scrap metal and Forks dealt in timber, which is, of
course, no distinction at all.
Ultimately, the facts of Macon Iron are exceptionally
similar to the ones now before the Court, and there is no
indication - in Hathaway or elsewhere - that the principles
relied on in Macon Iron have been abrogated. Therefore, Forks's
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intentional conduct in harvesting timber under the erroneous
belief that the timber was unencumbered, and failing to perform
a title search, does not constitute an accident as that term is
used in the CGL Policies. Because the conduct does not
constitute an accident, the conduct also does not constitute an
occurrence under the CGL Polices. In absence of an occurrence,
the Insurers are not obligated to defend, provide coverage to,
or indemnify Forks. Accordingly, the Insurers motion for
summary judgment is granted.
For these reasons, Defendants' motions for summary judgment
are DENIED and the Insurer's motion for summary judgment is
GRANTED. The Clerk is directed to ENTER FINAL JUDGMENT in favor
of the Plaintiffs.
SO ORDERED, this 28th day of August, 2012.
LISA DBEY WOOD, CHIEF JUDGE
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
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