AMERICAN SAFETY INDEMNITY CO.
Corp. ("Sto") filed suit against American Safety
Indemnity Company ("ASIC"), asserting breach of
contract, declaratory judgment, and bad faith claims arising
from ASIC's refusal to defend and indemnify Sto for
claims related to stucco products that Sto had supplied to
two building projects. ASIC now appeals the trial court's
order granting summary judgment to Sto on its breach of
contract and declaratory judgment claims and on ASIC's
counterclaim for rescission and denying summary judgment to
ASIC on Sto's claim for bad faith. We reverse the denial
of summary judgment to ASIC on Sto's claim for bad faith,
but affirm in all other respects as set forth below.
"We review a grant or denial of summary judgment de
novo, construing the evidence in the light most favorable to
the nonmovant." (Citation omitted.) Corrugated
Replacements, Inc. v. Johnson, 340 Ga.App. 364, 365 (797
S.E.2d 238) (2017). Summary judgment is proper when there is
no genuine issue of material fact and the movant is entitled
to judgment as a matter of law. OCGA § 9-11-56 (c). So
viewed, the record shows that Sto manufactures and sells
exterior cladding products for residential and commercial
construction, including stucco products and coating finishes.
ASIC issued two sets of insurance policies to Sto. The first,
issued annually from September 1, 2009, to September 1, 2012,
were policies providing coverage for certain stucco products
(the "Stucco Policies"). The second, issued
annually from September 1, 2010, to September 1, 2012, were
policies providing coverage for Sto's coating products,
including a product called Powerflex (the "Coating
Policies"). This case arises from ASIC's eventual
refusal to defend and indemnify Sto in two separate lawsuits
filed against Sto regarding products it supplied in
residential building projects.
Shores is a residential complex in South Carolina that was
completed in 2004. On November 5, 2010, Sto notified ASIC of
a potential claim related to the Crescent Shores complex.
David Paight, ASIC's assigned adjuster, responded via
letter dated November 18, 2010, requesting additional
information and asserting that ASIC's "investigation
and evaluation" was to be conducted under a reservation
of rights. In January 2011, the Crescent Shores
homeowner's association filed a lawsuit against Sto and
others (the "Crescent Shores Suit"), alleging that
Sto's stucco system had started to delaminate and fall
off. On May 20, 2011, ASIC notified Sto via letter that it
was denying coverage, which described in detail various bases
under the policy for denying coverage.
Paight testified at deposition that ASIC later re-evaluated
its position and agreed on September 28, 2011 to defend the
claim, thereafter taking control of the
litigation. Paight also confirmed at his deposition
that his claims notes indicated: "ASIC will provide a
defense for this matter. Will update coverage position to
[Sto] and their broker." And although Paight's
claims notes also indicated "issued N. I. R.O.R., "
which he explained stands for "named insured reservation
of rights to defend, " he had no recollection of whether
he issued a reservation of rights in the Crescent Shores
Suit, nor did he recall ever telling anyone at Sto that ASIC
was defending Sto subject to a reservation of rights.
Paight's records also included a letter addressed to Sto,
dated September 20, 2011, which contained a reservation of
rights (the "Crescent Shores Reservation of Rights
Letter"), but Sto claimed that, despite searching its
paper and electronic files, it had no record of ever
receiving that letter.ASIC continued to defend the Crescent
Shores Suit until April 16, 2013 when it ultimately withdrew
coverage, asserting that Sto had misrepresented when it first
received notice of a claim for the Crescent Shores complex.
Canal Side Lofts.
Side Lofts is a residential complex in Texas completed in
2006. In April 2011, Sto tendered to ASIC a lawsuit filed by
the owner of Canal Side Lofts against Sto and other
defendants asserting claims arising from the alleged
blistering and delaminating of the stucco finish ("Canal
Side Suit"). On May 18, 2011, ASIC responded with a
letter seeking additional information and stating that ASIC
would be conducting its "investigation and
evaluation" under a full reservation of
rights. On June 16, 2011, Sto provided ASIC with
documents detailing the history of the Canal Side project. On
August 1, 2011, after reviewing these materials, ASIC denied
coverage for the claim on the basis that Sto was aware of
problems with the Canal Side Lofts in 2008, prior to the
applicable policy period. This letter also set out in detail
the grounds for denying coverage under the policy.
again responded, explaining that it had not received notice
of the claim prior to the applicable policy period and
enclosing documentation to support its assertion.
Subsequently, ASIC reversed its denial and agreed to take
over the defense of the Canal Side Suit under the 2009 Stucco
Policy. An August 20, 2012 email sent by Paight indicates
that this determination was conveyed orally to both Sto and
Sto's outside counsel. Several months later, Paight
prepared a detailed letter regarding ASIC's agreement to
defend Sto that included a reservation of rights (the
"Canal Side Reservation of Rights Letter").
as in the Crescent Shores Suit, Sto contends, despite a
search of its electronic and paper documents, that it did not
receive this letter. In his deposition, Paight explained that
in this instance, after drafting the letter, he sent it to a
system called "assistant tasks, " where it would
have been assigned to an administrative assistant to mail.
But he has no way of knowing either who received the
assignment or whether that person actually mailed the letter.
Paight also deposed that he does not recall whether he orally
conveyed ASIC's reservation of rights to Sto,
Sto claims that it received no such oral message from ASIC.
ASIC then continued to defend Sto throughout the trial, which
on June 13, 2013 resulted in a jury verdict of $918, 000 in
favor of the plaintiff against Sto. The morning after the
verdict, Paight obtained authority to engage coverage counsel
to evaluate whether ASIC would be able to withdraw coverage
at that point. Then, on July 3, 2013, ASIC notified Sto that
it was denying coverage for the Canal Side Suit.
September 2013, Sto filed suit against ASIC, asserting breach
of contract, declaratory judgment, and bad faith claims. ASIC
counterclaimed, seeking to rescind the policies based on
alleged misrepresentations Sto made in its policy
applications regarding the loss history of Sto's
Powerflex product and the introduction of a reformulated
coating product. After the parties filed cross-motions for
summary judgment, the trial court issued an order granting
Sto's motion on its claims for breach of contract and
declaratory judgment after finding that ASIC failed to
properly convey a reservation of rights and was therefore
estopped from denying coverage as a matter of law. In the
same order, the trial court also granted summary judgment to
Sto on ASIC's rescission counterclaim, finding that Sto
did not make any misrepresentations in its applications and
that ASIC waived its right to rescind the policies. And
finally, the trial court denied ASIC's motion for summary
judgment on Sto's claim for bad faith, finding that
questions of fact exist as to whether ASIC denied the
Crescent Shore and Canal Side claims in bad faith. This
its first enumeration of error, ASIC asserts that the trial
court erred in granting summary judgment to Sto on its
contract and declaratory judgment claims because ASIC's
"multiple reservations of rights" issued prior to
the denial of coverage were sufficient as a matter of law to
avoid estoppel. When an insurer is faced with a decision
regarding how to handle a claim of coverage at the same time
a lawsuit is pending against its insured, the insurer has
three options under Georgia law. "First, the insurer can
agree to defend the claim, thereby waiving its policy
defenses and claims of non-coverage." (Citation
omitted.) Hoover v. Maxum Indem. Co., 291
Ga. 402, 404 (1) (730 S.E.2d 413) (2012). On the other end of
the spectrum, "the insurer can deny coverage and refuse
to defend [the insured], leaving policy defenses open for
future litigation." (Citation omitted.) Id. Or,
under the third option, the insurer can defend the claim
under a "reservation of rights." Id. at
404-05 (1). A reservation of rights is a term of art designed
to allow an insurer to provide a defense while still
preserving the option to later litigate and ultimately deny
coverage. Id. at 405 (1).
an insurer fails to properly reserve its rights, it may be
estopped from later denying coverage. It is well established
under Georgia law that
risks not covered by the terms of an insurance policy, or
risks excluded therefrom, while normally not subject to the
doctrine of waiver and estoppel, may be subject to the
doctrine where the insurer, without reserving its rights,
assumes the defense of an action or continues such defense
with knowledge, actual or constructive, of noncoverage[.]
(Citations omitted.) Prescott's Altama Datsun, Inc.
v. Monarch Ins. Co. of Ohio, 253 Ga. 317, 318 (319
S.E.2d 445) (1984). "The insurer can avoid estoppel by
giving timely notice of its reservation of rights which
fairly informs the insured of the insurer's
position." (Citations and punctuation omitted.)
World Harvest Church, Inc. v. Guideone Mut. Ins.
Co., 287 Ga. 149, 152 (1) (695 S.E.2d 6) (2010).
determining whether a particular notice is sufficient, our
Supreme Court has explained that, "[a]t a minimum, the
reservation of rights must fairly inform the insured that,
notwithstanding the insurer's defense of the action, it
disclaims liability and does not waive the defenses available
to it against the insured." (Citation and punctuation
omitted.) World Harvest Church, 287 Ga. at 152 (1).
"The reservation of rights should also inform the
insured of the specific basis for the insurer's
reservations about coverage." (Citation and punctuation
omitted.) Id. (reservation of rights "cannot be
only a statement of future intent"). Furthermore,
"the reservation must be unambiguous; if it is
ambiguous, the purported reservation of rights must be
construed strictly against the insurer and liberally in favor
of the insured." (Citation and punctuation omitted.)
Id. at 152-53 (1).
focus our analysis then on the timing and content of the
various communications ASIC contends constitute a reservation
of rights. It is undisputed that ASIC, following its initial
investigation into both the Crescent Shores and Canal Side
Suits, denied coverage. The purpose of a reservation of
rights is "to protect both the insurer and the insured
by allowing an insurer who is uncertain of its obligations
under the policy to undertake a defense while reserving its
rights to ultimately deny coverage following its
investigation." (Citation and punctuation omitted.)
Hoover, 291 Ga. at 406 (1). "Thus, a
reservation of rights is only available to an insurer who
undertakes a defense while questions remain about the
validity of the coverage." Id. at 405 (1). For
this reason, an insurer cannot both deny a claim and reserve
its right to assert other defenses later. Id.
Rather, "[w]hen an insurer is presented with a notice of
a claim and demand for a defense, the proper and safe course
of action is to enter upon a defense under a reservations of
rights and then proceed to seek a declaratory judgment in its
favor." (Citation and punctuation omitted.) Id.
ASIC points to several instances where it reserved its rights
before it denied coverage in the Crescent Shores and Canal
Side litigation. However, under Hoover, ASIC cannot
both deny the claims and assert a reservation of rights, and
we fail to see how a previous reservation of rights issued
while ASIC was still investigating the claims would remain
effective post-denial. Hoover, 291 Ga. at 405 (1).
As our Supreme Court has explained, where an insurer has
denied coverage for the claim at issue, the insurer is no
longer "uncertain nor insecure in regard to its rights,
status or legal relations." Drawdy v. Direct Gen.
Ins. Co., 277 Ga. 107, 109 (586 S.E.2d 228) (2003)
(declaratory judgment action not available where insurer
denied coverage). See also Hoover, 291 Ga. at 406
(1) ("reservation of rights ...