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Lee v. Mercury Insurance Co.

Court of Appeals of Georgia

November 3, 2017


          Self, Judge.

         Ronald Lee appeals from the trial court's order granting Mercury Insurance Company of Georgia's ("Mercury") motion for summary judgment and denying his cross-motion for summary judgment on the issue of insurance coverage following a house fire. Lee contends that the trial court erred by concluding that the policy did not provide coverage as a matter of law, asserting that the trial court should have instead concluded that he was entitled to summary judgment in his favor for breach of the insurance contract and the right to recover bad faith damages under OCGA § 33-4-6.[1]He also asserts that genuine issues of material fact exist regarding Mercury's claim that it is entitled to void the policy based upon alleged misrepresentations in his application for insurance. Finally, he argues that the trial court erred in denying his motion to strike the affidavit of Mercury's director of underwriting, as well as denying his motion to compel production of Mercury's claim file.

         For the reasons explained below, we reverse the trial court's grant of summary judgment in favor of Mercury with regard to all issues other than bad faith, grant Lee's motion for summary judgment on the issue of coverage under the policy, and affirm the trial court's denial of Lee's motion to strike and motion to compel. Based upon our conclusion that genuine issues of material fact exist with regard to whether Mercury is entitled to void the policy, Lee cannot yet obtain a recovery under the policy.

         "On appeal, we review the grant or denial of summary judgment de novo, construing the evidence and all inferences in a light most favorable to the nonmoving party." (Citation and punctuation omitted.) Seki v. Groupon, Inc., 333 Ga.App. 319 (775 S.E.2d 776) (2015). So viewed, the record shows that Lee lived with his wife in South Carolina, but traveled frequently as a senior project manager for a company constructing public housing developments. He typically traveled during the week and was home in South Carolina on the weekends. He explained that most projects would take 10-12 months to complete.

         In 2007, Lee frequently traveled between two projects: one in Winder, Georgia, and the other in Crestview, Florida. During this time, Lee's childhood friend, Jim Constable, faced significant financial difficulties because he was caring for his wife, who suffered from a long-term terminal illness, and unable to work. To help his friend, Lee agreed to purchase Constable's home at 7066 Dalmatia Drive in Riverdale, Georgia, pay the mortgage payments, and allow Constable's family to continue living there for free. This arrangement "gave [Lee] a place to stop, plus it helps [Constable] and his family, and [Lee didn't] have to rent motel rooms." Lee explained that he "was traveling constantly, flying through Atlanta. And I'd just stop in there . . . and then go catch another flight the next day."

         In December 2007, Lee purchased the Riverdale house from Constable, and Constable's family continued living on the property. It is undisputed that Constable paid no rent. As part of their arrangement, Constable gave Lee all of the furniture in the bedroom, living room, kitchen, and dining room. Lee wanted the option to rent the house in the event Constable's money problems deteriorated to the point where he had to move out and live with other family members. When Lee first took out the loan in 2007, he stayed at the Riverdale house so many nights each week, his mortgage company considered it his primary residence. Later, he stayed there "maybe one night a week, every other week, or something."

         In 2010, Lee made a claim with a different insurance carrier for hail damage to the Riverdale house. After telling Constable that this carrier planned to increase his premiums as a result of the claim, Constable stated that his friend, Lawrence Arnold, was an insurance agent who could obtain insurance for the house. In his deposition, Lee explained that he talked with Arnold over the telephone to provide him with the information required to complete the application. Because he was not there to sign the application, Lee asked if Constable could sign his name, and Arnold replied, "yes, that's fine." According to Lee, Arnold knew that he would not be living there fulltime; Lee told him that he would "be stopping in . . . because I travel." Lee also testified that Arnold never asked him if he would be living there, because Arnold "knew [Constable] was living there" based upon Arnold's friendship with Constable.

         All of the answers in Lee's application for insurance were typed, consistent with Lee's testimony that he did not personally complete the application. In one section of the application, the directions state, "Check all that apply, " and an "X" is typed in the boxes beside "Primary" and "Occupied by Named Insured"; the boxes beside "Secondary" and "Additional Residence for Insured" are left blank. This section does not include a box identifying the property as rental property. Another section of the policy directs that all residents of the household be listed, including unrelated individuals. Lee's name, followed by the abbreviation "IN, " along with his friend, Jim Constable, and Constable's two children, followed by the abbreviation "OR, " meaning "other" are typed into a column titled "Rel. to Ins."

         On May 5, 2012, the property was destroyed by an accidental fire in which Constable died and one of his daughters suffered serious injuries. After receiving a letter denying his claim for coverage under the policy in December 2012, Lee filed a complaint against Mercury and Arnold alleging various theories of recovery. He later dismissed his claim against Arnold with prejudice.

         During discovery, Lee filed a motion to compel Mercury to produce documents in its claim file. Mercury responded that it had already produced many of the requested documents, as well as a privilege log detailing its attorney-client privilege and work product objections to Lee's remaining requests. The trial court held a hearing, inspected the documents in camera, and then granted Lee's motion in part, but denied it as to documents it determined were protected by attorney-client privilege and the work product doctrine.

         Following the completion of discovery, Mercury filed a motion for summary judgment in its favor based upon (1) the misrepresentation in the policy application that the Riverdale house was Lee's primary residence and (2) Lee's failure to reside at the Riverdale house as required by the terms of the policy. Lee filed a response, a cross motion for summary judgment, and a motion to strike the affidavit of Mercury's director of underwriting, which Mercury filed in support of its motion for summary judgment. Lee asserted that he was entitled to summary judgment in his favor on the issue of coverage under the terms of the policy and Mercury's bad faith. Following a hearing, the trial court granted Mercury's motion for summary judgment and denied both Lee's cross-motion for summary judgment and his motion to strike.

         1. Coverage Under the Policy.

         Lee asserts that the trial court should have granted summary judgment in his favor "as there is sufficient evidence in the record to support a finding of breach of contract."[2] In his view, the policy provisions expressly cover the loss of the Riverdale house due to fire, and this home qualified for coverage under the policy terms. We agree.

Under Georgia law,
[i]t is well settled that insurance policies, even when ambiguous, are to be construed by the court, and no jury question is presented unless an ambiguity remains after application of the applicable rules of contract construction. Because insurance policies are contracts of adhesion, drawn by the legal draftsman of the insurer, they are to be construed as reasonably understood by an insured.

         (Citation and punctuation omitted.) First Financial Ins. Co. v. American Sandblasting Co., 223 Ga.App. 232 (1) (477 S.E.2d 390) (1996). "The policy should be read as a layman would read it and not as it might be analyzed by an insurance expert or an attorney." Cincinnati Ins. Co. v. Davis, 153 Ga.App. 291, 295 (265 S.E.2d 102) (1980). "The insurer, in preparing the language of its policy, has the burden of using language that is clear and precise." Ga. Farm Bureau Mut. Ins. Co. v. Meyers, 249 Ga.App. 322, 324 (548 S.E.2d 67) (2001). "The test is not what the insurer intended its words to mean, but what a reasonable person in the position of the insured would understand them to mean." (Citation and punctuation omitted.) United States Fire Ins. Co. v. Capital Fort Truck Sales, 257 Ga. 77, 78 (1) (355 S.E.2d 428) (1987).

         "[I]f a provision of an insurance contract is susceptible of two or more constructions, even when the multiple constructions are all logical and reasonable, it is ambiguous, and the statutory rules of contract construction will be applied." (Citation and punctuation omitted.) American Strategic Ins. Corp. v. Helm, 327 Ga.App. 482, 485 (759 S.E.2d 563) (2014). When a provision of an insurance contract is ambiguous, a well-known rule of construction is that it will be "construed against the party preparing it and in favor of coverage." (Citation and punctuation omitted.) Fireman's Fund Ins. Co. v. Univ. of Ga. Athletic Assn., 288 Ga.App. 355, 357 (654 S.E.2d 207) (2007). "Ambiguity in an insurance policy may [also] be defined as duplicity, indistinctness, an uncertainty of meaning or expression." (Citation and punctuation omitted.) Alley v. Great American Ins. Co., 160 Ga.App. 597, 599 (287 S.E.2d 613) (1981).

         The "COVERAGE A - DWELLING"[3] portion of Lee's policy with Mercury states:

We cover:
the dwelling on the residence premises shown in the Declarations used principally as a private residence, including structures attached to the dwelling; materials and supplies located on the residence premises used to construct, alter or repair the dwelling or other structures on the residence premises. . . . (Emphasis in original.)

         The policy defines "residence premises" as follows:

"Residence premises" means the one, two, three or four family dwelling, condominium or rental unit, other than structures and grounds, used principally as a private residence; where you reside and which is shown in the Declarations. (Emphasis in original.)

         The policy does not define the term "reside." And nowhere in the policy is there a reference to a "primary residence" or "secondary residence, " much less a definition of these terms.[4] And unlike other insurance policies, it did not include an express condition requiring the insured to reside only at the residence premises. Compare Ga. Farm Bureau Mut. Ins. Co. v. Kephart, 211 Ga.App. 423, 424 (1) (a) (439 S.E.2d 682) (1993) (physical precedent only).

         Based upon the placement of the semicolon in the definition of "residence premises, " a layperson could reasonably understand the defined term to mean "the one, two, three or four family dwelling condominium or rental unit, other than structures and grounds, used principally as a private residence" or "where you reside and which is shown in the Declarations."[5] "Punctuation is an important indicator of meaning." Hill v. Nationwide Mut. Fire Ins. Co., 214 Ga.App. 715, 717 (448 S.E.2d 747) (1994). "The semicolon is normally employed in marking off a series of sentences or clauses of coordinate value, that is, to separate consecutive phrases or clauses which are independent of each other grammatically, but dependent alike on some word preceding or following." (Citation omitted.) Springtime, Inc. v. Douglas County, 228 Ga. 753, 755 (1) (187 S.E.2d 874) (1972). In this case, the definition of "residence premises" could be read by a layperson as having two separate, consecutive clauses (definitions) dependent alike upon the preceding word "means."

         In Georgia Intl. Life Ins. Co. v. Bear's Den, 162 Ga.App. 833, 835 (1) (292 S.E.2d 502) (1982), we addressed ambiguity in an insurance policy caused by the lack of an "and" or an "or" after a comma in policy language defining when the policy became effective. In that case, the insurer asserted that the connective "and" should be inserted after a comma to create three conditions for the policy to become effective, while the insured asserted that the comma separating the first two conditions from the third should be construed as the disjunctive "or." Id. at 834. We held:

Because neither an "and" nor an "or" appears in the provision in question in the instant case, it is not possible to determine from the provision itself whether the conditions to enforceability stated therein are disjunctive or conjunctive. Either construction would be viable. Thus, the provision in the instant case, containing neither a conjunctive nor a disjunctive connective, is inherently ambiguous.[6]

(Citation omitted.) Id. at 835. We are persuaded by this reasoning to reach the same conclusion in this case.[7]

         The dissent states that "the plain language" of the policy "provides that it covers the residence premises and defines such as a private residence where the insured resides." In order to reach this result, however, the dissent must rewrite the policy by removing the semicolon. This we cannot do. "It is the duty of the courts to construe and enforce contracts as made, and not to make them for the parties. The law will not make a contract for the parties which is different from the contract which was executed by them." (Citations and punctuation omitted.) Perkins Hardwood Lumber Co. v. Bituminous Cas. Corp., 190 Ga.App. 231, 232 (1) (378 S.E.2d 407) (1989). See also Moore v. Continental Cas. Co., 746 A.2d 1252, 1256 (Conn. 2000) ("We cannot rewrite the insurance policy by adding semicolons any more than we can by adding words.").

         The dissent's proposed construction of the policy also conflicts with Mercury's internal practices. Kevin Bailey, the director of underwriting for Mercury Insurance Group, testified that Mercury "use[s] the same policy contract for primary or secondary dwelling[s]." But the dissent would require an insured to reside, meaning "dwell permanently or for some considerable time . . . in or at a particular place, " in order to obtain coverage under the policy. Under this interpretation, a secondary residence, such as a beach or mountain home, would be not be covered under the policy form, even though it is undisputed that Mercury used the same policy form to insure secondary residences. Lemieux v. Blue Cross & Blue Shield of Ga., 216 Ga.App. 230, 231 (453 S.E.2d 749) (1994) ("where the contract is ambiguous or open to interpretation, 'all the attendant and surrounding circumstances' must be considered to discover the parties' intention").[8] Reading the definition of "residence premises" to provide an alternative definition as outlined above would provide coverage for secondary residences, consistent with the underwriter's testimony, and prevent future litigation over illusory and worthless policies issued by Mercury for secondary residences. See Isdoll v. Scottsdale Ins. Co., 219 Ga.App. 516, 518 (1) (466 S.E.2d 48) (1995) (rejecting construction of policy that would make coverage afforded by policy illusory). We should avoid a construction that would "hoodwink" insurance purchasers and make a nullity of coverage. United State Fire Ins. Co. v. Hilde, 172 Ga.App. 161, 163 (2) (322 S.E.2d 285) (1984). If Mercury had intended for this policy form to cover only primary residences of an insured, it could have easily done so by using the word "your" in place of "a" in its statement of coverage." The policy would have then read: "We cover the dwelling on the residence premises shown in the Declarations used principally as [your] private residence. . . ." Mercury's failure to do so is consistent with Mercury's use of this policy form, as testified to by its own director of underwriting, to insure both primary and secondary residences.

         To support the claim that we should read the semicolon out of the policy, the dissent cites cases relying upon an anachronistic view of punctuation that are also factually distinguishable. See Ewing's Lessee v. Burnet, 36 U.S. 41, 54 (11 Pet. 41, 9 L.Ed.2d 624) (1837); Bridges v. Home Guano Co., 33 Ga.App. 305, 311 (125 SE 872) (1924). In Bridges, a case not involving the construction of an insurance policy, we cited the Century Dictionary[9] as "tell[ing] us, what is common knowledge, that there is still much uncertainty and arbitrariness in punctuation.'" Id. at 311. We also cited law dating back to 1837.[10] In their treatise on the proper interpretation of legal texts, Justice Scalia and Professor Garner explain why this historic bias against punctuation exists and should no longer be continued in modern times:

No helpful aid to interpretation has historically received such dismissive treatment from the courts as punctuation-periods, semicolons, commas, parentheses, apostrophes. The original reason was understandable enough. Punctuation was considered of small account because it was thought to be "the work of the engrossing clerk or the printer." And again, in the days of yore, it was held that because many legislators voted only on the basis of bills that they heard read aloud-without seeing the printed page-they could take no notice of the punctuation marks. . . .[11]
Commentators have often said that "punctuation is never permitted to control, vary, or modify the plain and clear meaning of the language of the body of the act." This must be a remnant of the former denigration of punctuation that had not been adopted by the legislature; in modern times, we see no rational basis for such a rule. As is the case with other indicators of meaning, the body of a legal instrument cannot be found to have a "clear meaning" without taking account of its punctuation. There is no reason to exclude punctuation from this stage of the inquiry. And we disagree with the position that the use of punctuation as an interpretive aid should be relied on only "when all other means fail."
Punctuation is often integral to the sense of written language.

(Punctuation and footnotes omitted.) Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 161-162 (1st ed. 2012). For example, "[p]eriods and semicolons insulate words from grammatical implications that would otherwise be created by the words that precede or follow them. . . ." Id. at 162. See also In re Hawker Beechcraft, 515 B.R. 416, 424 (S. D. N.Y. 2014) ("Punctuation in a legal text will rarely change the meaning of a word, but it will often determine whether a modifying phrase or clause applies to all that preceded it or only to a part.") (citation and punctuation omitted). Since the publication of this treatise, other courts have cited its view of punctuation favorably. See Navajo Nation v. United States Dept. of the Interior, 819 F.3d 1084, 1093 (9th Cir. 2016) ("Punctuation is a permissible indicator of meaning.") (citation and punctuation omitted); Maple Drive Farms v. Vilsack, 781 F.3d 837, 847 (II) (A) (6th Cir. 2015) ("No intelligent construction of a text can ignore its punctuation.") (Citation and punctuation omitted); In re Hawker Beechcraft, supra.

         Moreover, the Bridges case does not require a different result here. Instead, it should be viewed as appropriately applying the exception to the maxim that the rules of grammatical construction usually govern unless they are contrary to the intent of the parties. See OCGA § 13-2-2 (6).[12] In that case, the contract provision at issue stated: "'In case of destruction of our mills, in whole or in part, or stoppage by strikes or other causes, we reserve the right to cancel all or any part of this contract; and the company reserves the right to ship all or part of this contract as they may deem expedient.'" 33 Ga.App. at 305. The defendant drafted the clause and contended that the clause after the semicolon should "be considered independently of the preceding part of the sentence, and thus as attaching an unconditional reservation of the right to ship only such part of the fertilizers as it might deem expedient." Id. at 308. After examining other provisions in the contract, we concluded that the defendant's interpretation of the contract would render other provisions in the contract "wholly superfluous" and read "the right to ship all or part" of the order as dependent upon the previously stated conditions. Id. at 310-311.

         We expressly recognized, however, that

[i]t might be possible for a case to arise in which all other considerations were evenly balanced and that the difference between these marks of punctuation might, like a feather's weight, turn the scale to one side rather than the other; but this is not a case of that character. The punctuation of an instrument may be considered when the meaning is doubtful, but it can not control if the meaning otherwise plainly appears.

(Citations and punctuation omitted.) Id. As this is not a case in which an intent contrary to the punctuation used by the insurance company in drafting the policy plainly appears, we cannot ignore the semicolon.

In sum, it has long been settled that even
if, notwithstanding the arrangement of the clauses in the sentence and the punctuation of the same, the words, [at issue], could be construed as applying to and modifying the other clauses in the sentence, such a construction could not be adopted, for it would be construing an ambiguous stipulation in an insurance contract most favorably for the insurer and most unfavorably against the insured, which is exactly the reverse of the law.

Massachusetts Mut. Life Ins. Co. v. Boswell, 20 Ga.App. 446, 451 (93 SE 95) (1917). Accordingly, we reverse the trial court's grant of summary judgment in favor of Mercury, as well as its denial of Lee's motion for summary judgment in his favor, on the issue of coverage under the policy.

         2. Misrepresentations in the Application. Lee asserts that the trial court also erred by granting summary judgment to Mercury based upon its conclusion that a misrepresentation in the policy application voided the policy. We agree.

         OCGA § 33-24-7 provides:

(a) All statements and descriptions in any application for an insurance policy or annuity contract or in negotiations for such, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties.
(b) Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless:
(1) Fraudulent;
(2) Material either to the acceptance of the risk or to the hazard assumed by the insurer; or
(3) The insurer in good faith would either not have issued the policy or contract or would not have issued a policy or contract in as large an amount or at the premium rate as applied for or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been known to the insurer as required either by the application for the policy or contract or otherwise.

         In this case, the trial court relied upon subsections (b) (2) and (3) to prevent Lee's recovery under the policy.

         (a) Effect of Uncontradicted Affidavit.

         Before addressing the particular facts of this case with regard to the alleged misrepresentation, our law in this area needs to be clarified; otherwise, "magic words" in the affidavit of an insurance company's employee or agent will be allowed to eviscerate the statutory requirement of "good faith" in subsection (b) (3).

         There are several older panel decisions by this Court which hold that an "uncontradicted affidavit" from an underwriter or agent for the insurer averring that the policy would not have been issued had the true facts been known precludes any genuine issue of material fact with respect to whether the insurer in good faith would not have issued the policy. Burkholder v. Ford Life Ins. Co., 207 Ga.App. 908, 908-909 (1) (429 S.E.2d 344) (1993); Graphic Arts Mut. Ins. Co. v. Pritchett, 220 Ga.App. 430, 432-433 (2) (469 S.E.2d 199) (1995) . In a later whole court decision, this Court clarified the law in this area, but neglected to overrule these decisions. Case v. RGA Ins. Svcs., 239 Ga.App. 1, 2-3 (1) (521 S.E.2d 32) (1999).

         In Case, supra, the only evidence in support of the insurer's misrepresentation claim was an affidavit from the director of underwriting stating that the insurance company would not have issued the policy if it had known a member of the insured's household had a negative driving history. We applied a long-standing rule "that summary judgment can never issue based upon opinion testimony alone, " and reversed the trial court's grant of summary judgment in favor of the insurer. (Citation and punctuation omitted.) 239 Ga.App. at 2-3 (1). The rationale for this rule is that "opinion testimony is always a question of acceptance or nonacceptance on the part of the jury." (Citation and punctuation omitted.) Id. at 2 (1). We explained that we could not "adopt a holding which provides that summary judgment must go to the insurer if the insurer's employee provides his employer with a favorable opinion in the requisite affidavit. The test for materiality of a representation in an insurance application should not be based upon such procedural gaming. . . ." Id. at 2 (1) While the opinion testimony rule has subsequently been limited to cases in which expert testimony is not required, [13] our holding in Case still applies to the affidavit of an underwriter opining that his employer would not have issued a particular policy if additional facts had been disclosed.

Our holding in Case also comports with the plain language of the statute, which places the burden on the insurance company to demonstrate that it "in good faith would either not have issued the policy or contract or would not have issued a policy or contract in as large an amount or at the premium rate as applied for. . . ." (Emphasis supplied.) OCGA § 33-24-7 (b) (3). See also Thompson v. Permanent Gen. Assur. Corp., 238 Ga.App. 450, 451 (519 S.E.2d 249) (1999) (burden of proof on insurer to demonstrate that misrepresentation was material before rescinding policy). In other contexts, the Supreme Court of Georgia has held that "[t]he question of the insurer's good faith (or lack thereof) is one of fact for the jury. . . ." Binns v. MARTA, 250 Ga. 847, 848 (301 S.E.2d 877) (1983). "Good faith is always a question for the jury. Even though the party may swear he acted in good faith, the jury may decide he acted in ...

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