Latex Construction Co. v. Everest National Insurance
Docket: Civil Action No. 1:12-CV-892-RWS
Court: District Court, N.D. Georgia; March 31, 2014; Federal District Court
The Court is addressing Everest’s Motions for Summary Judgment and Latex’s Motion for Partial Summary Judgment regarding an excess general liability insurance policy issued by Everest to Latex Construction Company for the period from January 1, 2007, to January 1, 2008. Latex, a company with over sixty years in the pipe welding business and revenues of $272,464,000 in 2007, procures various insurance types, including general liability and excess liability. The Everest Policy obligates coverage for damages exceeding the limits of the underlying Zurich Policy, which has a $1 million per-occurrence limit. Key provisions of the Everest Policy require prompt notice of occurrences or claims and state that no legal action can be taken against Everest unless all policy terms are fully complied with.
Additionally, Everest provided Claim Reporting Guidelines, which are illustrative and do not modify the policy terms. The background of the case includes a project for Panhandle Eastern Pipe Line Company, where Latex was responsible for various tasks, including welding and hydrostatic testing. On October 23, 2007, a section of pipe failed during hydrostatic testing, and after repairs, it failed a subsequent test. Concerns about the weld quality were raised by Panhandle, leading to a third-party review of potentially flawed welds.
As a result of two pipe failures in October 2007, Panhandle halted operations and invested millions to investigate the welds. National Welding, after reviewing lab results on December 1, 2007, indicated that the welding procedures established by Panhandle could lead to cracking issues. Latex acknowledged a high repair rate for the welds by the end of 2007 but noted it was comparable to other projects. A Panhandle project manager suggested holding Latex accountable for some costs associated with the failures, although Stotz, representing Latex, asserted that there was no wrongdoing on their part.
During a January 4, 2008, conference call, Latex sought to maintain its business relationship with Panhandle, leading to a proposed Agreement Letter sent by Pribble on January 21, 2008. This letter outlined that significant remedial work was needed on the project pipeline and stated that Latex would cover the costs of repairing defective welds due to substandard installation practices. The agreement included a clause that Panhandle would refrain from legal action against Latex as long as Latex fulfilled its obligations.
Latex, however, refused to sign the agreement, responding on January 23, 2008, with a letter from Stotz. In the letter, Stotz disputed the claim that Latex had engaged in substandard practices, attributing the excessive repair rates to a shortage of qualified welders. Although Latex expressed willingness to assist with some repair costs, they emphasized the need to protect themselves from undefined liability and reiterated their position regarding the x-ray subcontractor's responsibility for the situation.
As of January 2008, Latex had not notified any insurers about a potential claim related to the East End Project. By April 2008, rumors emerged regarding a possible lawsuit from Panhandle. On May 30, 2008, Everest informed Latex and five other parties that a lawsuit had been filed on April 3, 2008, seeking damages exceeding $50 million due to issues on the Project. Everest expressed a preference for informal resolution over litigation and recommended that the parties notify their insurers if they hadn’t already.
Timothy Elder, Secretary-Treasurer of Latex, indicated that Latex lacked internal guidelines for handling insurance claims. Latex's practice involved informing Willis, their insurance broker, of claims, relying on Willis to notify insurers. However, the Service Agreement did not explicitly assign that responsibility to Willis. Elder stated that Latex typically reported situations warranting an insurance response and decided to notify carriers about the Panhandle lawsuit in late May or early June 2008.
On June 3, 2008, Elder emailed Willis regarding the Panhandle Litigation Letter, requesting appropriate notifications to protect Latex's interests, implicitly including Everest for the 2007-2008 Policy. Willis notified Zurich of the suit on June 6, 2008, and AIG, Latex’s excess carrier, three days later. A settlement meeting convened on August 18, 2008, where Latex believed Panhandle did not blame them for Project issues. In an attempt to maintain relations, Latex offered $3-4 million to Panhandle, which was rejected.
On August 28, 2008, Elder informed Willis of the settlement meeting and Panhandle's claim for $44 million in damages, requesting Willis to confirm coverage with Latex's insurers. On February 3, 2009, at the request of Zurich and AIG, Latex’s counsel sought copies of all notices sent to its carriers regarding the lawsuit. By that time, Latex had not received any correspondence from Everest. On February 5, 2009, Willis sent official notice of the Panhandle Suit to Everest’s agent. Subsequently, Zurich agreed to participate in Latex’s defense subject to a reservation of rights, indicating that the loss might be covered under the 2007-2008 policy.
On June 11, 2009, Everest notified Latex of its receipt of the Panhandle Complaint and indicated potential lack of coverage under its policy. Everest reserved the right to raise coverage issues previously mentioned by Zurich in its April 8, 2009 letter, as well as any future issues independently. The Everest policy specifies that it does not cover claims not paid by the first underlying carrier, except in cases of exhaustion of limits. Uncertainty remained regarding coverage under Zurich’s policy due to its reserved rights. Everest emphasized its reservation of all rights, remedies, and defenses under its policy and the underlying insurance, explicitly stating that it does not waive any policy terms or exclusions.
On September 17, 2010, Zurich filed a lawsuit against Latex, asserting it had no obligation to defend or indemnify due to Latex's alleged failure to promptly notify Zurich of a potential claim. By May 13, 2011, Everest was aware of the Zurich Suit and that settlement negotiations were ongoing, including an offer from Panhandle to settle claims against Latex. On that date, Latex’s counsel requested Everest to contribute to the settlement beyond Zurich’s policy limits. Everest then amended its previous coverage position, concluding that coverage under its policy did not exist and denying the request. The denial clarified that the Everest policy follows the Zurich policy, questioning the occurrence definition under Zurich’s terms, citing a possible contractual liability exclusion, and indicating that Panhandle's claims for repair and replacement damages were barred by exclusions. Everest stated it had no indemnity obligation until all underlying coverage through Zurich was exhausted, which had not occurred, and thus took no stance on the settlement proposal.
Everest retains the right to modify or withdraw its coverage position if new information affecting coverage emerges. Additionally, Everest can pursue a declaratory judgment action to clarify coverage issues. Following Everest's denial letter, Latex initiated a breach of contract action on March 15, 2012, seeking a judicial declaration regarding Everest's obligations related to the Panhandle Suit. Everest has filed for summary judgment, arguing that Latex's notification of the underlying insurance claim was untimely. Conversely, Latex seeks partial summary judgment, contending that Everest did not adequately reserve its right to contest the timeliness of the notice and has waived that defense.
The legal standard for summary judgment, as outlined in Federal Rule of Civil Procedure 56, requires the movant to demonstrate that no genuine dispute exists regarding any material fact, allowing for judgment as a matter of law. The moving party must inform the court of the basis for the motion and identify relevant evidence. If the moving party meets this burden, the non-moving party must present affirmative evidence to establish a genuine issue of material fact. The facts are assessed based on the applicable substantive law, with material facts being those that could affect the outcome of the case. The court must view evidence and inferences in favor of the non-moving party, and summary judgment may be granted if the evidence is merely colorable or not significantly probative.
Latex argues that the court need not consider the timeliness of its notice due to precedent set in Hoover v. Maxum Indent. Co., which bars Everest from asserting a defective notice defense. The court concurs that Hoover is applicable, noting similarities with the current case, particularly in how Maxum's coverage letter disclaimed coverage while reserving the right to assert other defenses, including notice compliance, which was not mentioned in subsequent declaratory judgment actions.
Maxum cited non-compliance with notice provisions as a defense in a third-party lawsuit and in its response to the Hoover complaint. However, in its motion for summary judgment in the third-party action, Maxum relied solely on policy exclusions for denying coverage. The Georgia Supreme Court, in Hoover II, determined two critical points: (1) Maxum could not deny the claim while reserving the right to assert other defenses later, and (2) any such reservation was deemed defective. As a result, Maxum waived the right to claim a defective notice defense, and Hoover was granted summary judgment on this notice issue.
The same reasoning applies to Everest, which is similarly barred from raising a defective notice defense, making Latex entitled to partial summary judgment on notice. Everest, like Maxum, denied coverage under its policy, stating in a May 18, 2011 letter that coverage did not exist based on three grounds: uncertainty regarding an "occurrence" under the Zurich Policy, the policy's contractual liability exclusion, and property damage exclusions. Everest's denial also included a broad reservation of rights, indicating that it could modify its coverage position if new information arose, and reiterated this in a prior June 11, 2009 letter.
The Georgia Supreme Court clarified that an insurer cannot outright deny a claim while simultaneously reserving the right to assert different defenses in the future. The court emphasized that a proper reservation of rights must inform the insured that, despite providing a defense, the insurer disclaims liability and does not waive available defenses. Maxum failed to correctly reserve its right to assert a notice defense when denying the employer’s claim. Everest's attempt mirrored Maxum's, which, following Hoover II, is not permissible.
In Hoover II, the court determined that Maxum's reservation of rights regarding coverage denial was defective because it failed to clearly inform the employer of its intent to assert a defense based on untimely notice. A valid reservation of rights must adequately inform the insured of the insurer's position. Although Maxum's denial letter referenced the lack of timely notice, the court criticized its "boilerplate language" as insufficient. In the current case, Everest similarly did not raise untimely notice as a defense prior to litigation. Instead, Everest moved to dismiss Latex’s complaint, arguing that the policy did not cover the damages claimed and citing specific exclusions. Everest's initial stance maintained that it owed no duty to Latex, only mentioning defective notice as a defense in its Answer filed on November 20, 2012. Following Hoover II, once Everest denied coverage, it could not later reserve the right to assert additional defenses. Even if allowed to reserve rights, its notice regarding the late notice defense was less clear than that in Hoover II. Throughout the litigation, Everest focused on denying coverage based on policy terms rather than notice issues, effectively waiving the late notice defense. Everest's efforts to differentiate its case from Hoover II were unsuccessful, as prior court decisions cited by Everest do not support its position and do not override the implications of Hoover II. Moreover, Latex’s motion for partial summary judgment aims only to prevent Everest from asserting the late notice defense, not to expand coverage beyond the policy's terms and exclusions. Thus, the applicability of Hoover II remains relevant to this case.
St. Paul Fire & Marine Ins. Co. v. Purdy establishes that an insurer can deny coverage based on the expiration of a policy due to nonpayment of premiums, even after previously relying on a different ground for denial. The court ruled that initial assurances of coverage do not prevent an insurer from later denying coverage, a stance not influenced by prior case analyses. The case contrasts with Kay-Lex Co. v. Essex Ins. Co., where the primary insurer reserved rights while defending the insured, unlike the current case where insurers simultaneously denied coverage and attempted to reserve rights, raising concerns similar to those highlighted in Hoover II. The Hoover II ruling emphasized that simultaneous denial and reservation can obscure the insurer's position to the insured.
In Lloyd’s Syndicate No. 5820 d/b/a Cassidy Davis v. AGCO Corp., the court found that insurers could assert additional grounds for denial after initially denying claims based on a specific policy clause. The decision did not reference Hoover II and centered on the lack of detrimental reliance, a concept related to estoppel rather than waiver, thus not affecting the Hoover II framework. Lastly, Everest's reliance on Bank of Camilla v. St. Paul Mercury Ins. Co. to argue that Hoover II pertains only to the duty to defend was deemed inapplicable, as the current policy entails both a duty to defend and indemnify, unlike the policy in Bank of Camilla, which only addressed defense costs. Hoover involved both duties, reinforcing the relevance of its analysis to the current case.
Maxum disclaimed duties and sought summary judgment, arguing that timely notice was not provided and policy exclusions applied. Hoover moved for partial summary judgment, asserting Maxum breached its duty to defend. The trial court found that Maxum had indeed breached its duty to defend but did not breach its duty to indemnify due to noncompliance with notice requirements. The Court of Appeals affirmed in part and reversed in part, concluding that Maxum's failure to provide timely notice absolved it from the obligation to defend or cover. The Georgia Supreme Court granted certiorari in Hoover II to assess whether the Court of Appeals correctly analyzed Maxum's waiver of its defense based on untimely notice, indicating this question pertains to both indemnification and defense obligations.
Everest argued that Hoover II was distinguishable from its case since it initially reserved rights and did not deny coverage immediately. The court found this argument unconvincing, noting that Everest later denied coverage while amending its reservation of rights. The principles established in Hoover II applied once Everest issued its denial letter. The case of Moon v. Cincinnati Ins. Co. supported this interpretation, demonstrating that an insurer’s initial defense does not preclude subsequent denial of coverage and that the denial letter limits the grounds for coverage denial. Everest's assertion that its conduct did not demonstrate intent to waive the late notice defense was deemed irrelevant, as Hoover II focuses on whether Everest communicated its intention to rely on the defective notice defense. Notably, Everest did not assert this defense until after moving to dismiss based on policy exclusions.
Everest did not initially assert the defense at issue in this litigation, which is not the dispositive period under Hoover II. The court has already addressed Everest’s claimed reservation of all defenses from Zurich's June 2009 letter. The critical fact remains that Everest outright denied coverage while reserving future rights in a generic manner. Everest contends that the principles established in Hoover II should not apply here due to differences in jurisdiction, as Hoover involved a Georgia insured and insurer, while this case involves a Georgia insured, a New Jersey insurer, a loss in Indiana, and a liability suit in Texas. Everest argues that applying Hoover II to this case would force insurers to issue inconsistent coverage determinations based on varying state laws. The court, however, emphasizes that Georgia's public policy mandates the application of its laws to insureds within the state and that there is no requirement for inconsistent determinations. Instead, insurers must provide clear notice of their coverage positions to Georgia insureds, regardless of the underlying jurisdiction. The court finds that the location of parties or losses does not affect the applicability of Hoover II, confirming that Georgia law applies. Everest also argues that even if Hoover II is relevant, there are disputed material facts regarding waiver of its untimely notice defense, but the court states that the undisputed facts—specifically Everest's denial of coverage and reservation of rights—demonstrate waiver of the untimely notice defense under Hoover II. Consequently, Everest's claims based on this defense fail as a matter of law. Given the court’s determination that Hoover II applies, Everest seeks to certify three questions to the Georgia Supreme Court regarding the waiver analysis, the necessity of actions in the underlying litigation for waiver, and whether Hoover applies to both the duty to defend and to indemnify. O.C.G.A. § 15-2-9 permits the certification of such unresolved legal questions to the Georgia Supreme Court.
The Court has determined that the questions related to Hoover II are settled and will not be certified to the Georgia Supreme Court. Everest’s Motion for Summary Judgment (No. 70) is denied, while Latex’s Motion for Partial Summary Judgment (No. 74) is granted. Everest's first Motion for Summary Judgment (No. 54) is denied as moot since it was superseded by the second motion (No. 70), which was unredacted and filed under seal. The facts are drawn from the parties' undisputed statements of material fact.
The Court raises concerns regarding Everest’s reservation of rights letters dated June 2009 and May 2011, noting that these letters lacked clear communication of a notice defense to Latex. Although Everest claimed to reserve all rights, it specifically pointed to provisions that suggested it believed there may not be coverage for the Panhandle lawsuit, which undermined its stance. The June 2009 letter did not mention notice, making it difficult to establish that Latex was adequately informed of Everest's defense position.
Furthermore, the Court interprets that Everest’s earlier reservation of rights was negated by its subsequent denial letter, which clearly outlined its denial of coverage on specified grounds. Everest argues that the Hoover II decision considers not only the denial letter’s content but also the insurer’s conduct during litigation; however, the Court emphasizes that unlike Maxum's explicit reservation of a notice defense in Hoover II, neither of Everest's letters mentioned this defense.
Everest did not assert the defense regarding defective notice at the outset of the litigation, as it first appeared in its Answer filed on November 20, 2012, eight months after the initial Complaint and following its motion to dismiss on different grounds. Everest contends that, as an excess insurer, it had limited information during the Panhandle lawsuit to inform its coverage decision. However, this suggests that a more prudent approach would have been to file a declaratory judgment action with a reservation of rights to clarify coverage issues rather than outright denial. The Hoover II case indicates that insurers should defend under a reservation of rights while seeking a declaratory judgment. Additionally, under the Everest Policy, if there was any belief that the policy could cover the claims against Panhandle, Everest had the option to collaborate with Zurich to manage the lawsuit but chose not to engage. The Court remains unclear on how this situation presents a material factual dispute under the Hoover II framework.
