Insurer’s Ability to Dispute Coverage May be Waived by Filing Insured’s Answer Before Giving Notice of Reservation of Rights

Written by: C. Michael Johnson, Esq. and Patrick Fitzgerald, Esq.

In ACCC Ins. Co. of Ga. v. Walker, 2019 WL 4198535 (Ga. Ct. App. Sept. 5, 2019), ACCC Insurance Company of Georgia (“ACCC”) took the rather extra-ordinary step of filing its declaratory judgment action (“DJ”) to determine coverage for an automobile collision on the same day that assigned defense counsel filed the answer on behalf of the insured. When ACCC moved for summary judgment the underlying plaintiff responded that ACCC, due to inadequate reservation of rights waived its defense of noncoverage. The trial court, without discussion as to the relevance of filing the DJ on the same day as filing the answer and without analysis as to the nature of defenses raised or waived in the answer, denied ACCC’s motion for summary judgment finding there was a question of fact whether ACCC, by its telephonic voicemail reservation of rights prior to the DJ and answer, had effectively reserved its right to deny coverage.

On appeal, ACCC argued that it had given sufficient notice of its reservation of rights by leaving a voicemail on its insured’s phone nineteen days before assigned defense counsel filed the answer. The court began by explaining that an insurer “‘is deemed estopped from asserting the defense of noncoverage’ if it ‘assumes and conducts an initial defense without effectively notifying the insureds that it is doing so with a reservation of rights[.]'” Id. at *2 (quoting World Harvest Church, Inc. v. GuideOne Mut. Ins. Co., 695 S.E.2d 6 (Ga. 2010)). The court noted that “the parties do not dispute that ACCC assumed the defense of the action on behalf of the Medranos and filed an answer on their behalf[.]” Thus, whether by the Court’s analysis or the parties lack or raising the issue, the Court seemingly ignored the significance of filing a DJ at the same time an answer was filed in the underlying matter.

From there, the court concluded that there was a question of fact as to whether ACCC’s voicemail, which informed the insured that ACCC was reserving its rights “‘due to coverage concerns,'” “timely and unambiguously” informed the insured of the basis for ACCC’s defense of noncoverage . Accordingly, the court affirmed that summary judgment was properly denied. Id.

There are several problems with the court’s analysis. First, it equates filing an answer with assuming and conducting an initial defense. However, no previous court has found that an insurer assumes and conducts an initial defense merely by assigning counsel who files an initial answer on the insured’s behalf. In World Harvest, for example, the assigned counsel had represented the insured for more than ten months before the insurer issued a reservation of rights. World Harvest, 695 S.E.2d at 9. The court explained that the insurer “irrevocably fixed the course of events concerning the law suit for the first 10 months. Of necessity, this establishes prejudice.” Id. at 12 (internal quotations and citations omitted). The conducting of an initial defense, warranting a legal presumption of prejudice in World Harvest, clearly took into account an actual exercise of control of a defense far beyond merely filing the initial answer, which under Georgia law, may be freely amended without leave of court.

In ACCC Ins. Co., there was no indication that the answer filed admitted to any liability or otherwise contained responses that would warrant a finding that ACCC “irrevocably fixed the course of events.” In point of fact, reasoning of the court in ACCC Ins. Co. reflected no concern as the substance or merits of the initial answer and how, if at all, such an initial pleading warranted the waiver of defenses failing a proper reservation of rights.

The second problem is the pretermitting that the voicemail provided insufficient notice of the rights being reserved by ACCC, its filing of declaratory judgment action setting forth its grounds for seeking a finding of noncoverage, was filed on the same day that assigned defense counsel filed its answer. Thus, well before discovery of any nature could proceed, before responses to request to admit, before any testimony of any nature was taken, ACCC set forth in a formal pleading its coverage defenses. It is an enormous leap beyond World Harvest for the Court to disregard in its analysis (1) the nature of undertaking of the defense – there being no analysis of how the initial answer could be deemed to have irrevocably fixed the course of events for the defense of the insured and (2) how a DJ filed immediately with the answer did not cure any insufficiency there may have been in the voicemail reservation.

If this decision is allowed to stand, it will be held up for the proposition that the filing of a DJ with the answer, or very shortly thereafter, will not cure waiving the defense of noncoverage if an insurer fails to issue and deliver a legally sufficient reservation of rights before even the initial answer is filed. Due to insurers often receiving notice of a filed suit days or weeks after service, and the need to immediately appoint defense counsel to file an answer in order to avoid default, carriers will have to seek extension of time to answer or be pressed into nearly immediate issuance of full reservation of rights before the initial answer, albeit subject to liberal amendment, is filed.