An Insured’s Right to Independent Counsel in Georgia

Whether the insurer has a right to select counsel for an insured when defending under a reservation of rights is a blurry topic in Georgia.  Under Georgia law, defending under a reservation of rights creates a conflict of interest.  In upholding its duty to defend its insured, the issue becomes whether the insurance company can appoint defense counsel unilaterally on behalf of its insured (as is the case in Florida) or whether the insured can choose their own counsel.  The case law indicates that an insured in Georgia can select their own independant defense counsel, but it must first reject the insurers offer of appointed counsel.  

In conflict situations, if the insurer appoints defense counsel, the insured is entitled to reject appointed counsel and hire their own counsel at the expense of the insurer. See Am. Family Life Assur. Co. of Columbus, Ga. v. U.S. Fire Co., 885 F.2d 826, 831 (11th Cir. 1989) (“The existence of a conflict of interest would have justified American Family in rejecting Boston Old Colony’s offer to provide a defense…. In such circumstances, Boston Old Colony would have been obligated to pay for American Family’s defense.”). 

Even if the insured accepts appointed defense counsel, the insured may still be entitled to hire independent counsel which the insurer may also have to pay for. Util. Serv. Co., Inc. v. St. Paul Travelers Ins. Co., 5:06-CV-207 (CAR), 2007 WL 188237 (M.D. Ga. Jan. 22, 2007) (“Am. Family Life held that the presence of a conflict of interest may enable the insured to retain independent counsel at the expense of the insurer.”).  The right to have the insurer pay for both appointed defense counsel as well as independent counsel is much less clear.  In Util Serv., the court simply made this holding in ruling on a motion to dismiss the insured’s request for independent counsel fees.  The motion to dismiss by the insurer was denied.

Accordingly, although an insured may reject appointed defense counsel in a reservation of rights situation and select their own counsel, the law on whether the insured can simply accept appointed defense counsel AND hire their own independent counsel at the expense of the insurance company is much less clear.

Under Georgia Law, First-Party Insurance Policy Was Not Required to Be Conformed to Two-Year Limitation Period Under Georgia Statute

White v. State Farm Fire & Cas. Co. (11th Cir. 2012)

In a dispute over the enforceability, under Georgia law, of an insurance policy’s requirement that lawsuits against an insurer be brought within one year of the date of loss or damage, the Eleventh Circuit certified the following questions to the Supreme Court of Georgia:

“(1) Did the Georgia Insurance Commissioner act within his legal authority when he promulgated Ga. Comp. R. & Regs. 120-2-20-.02, such that a multiple-line insurance policy providing first-party insurance coverage for theft-related property damage must be reformed to conform with the two-year limitation period provided for in Georgia’s Standard Fire Policy, Ga. Comp. R. & Regs. 120-2-19-.01? and (2) Is this action barred by the Policy’s one-year limitation period?”

The Supreme Court of Georgia answered “no” to the first question and “yes” to the second, prompting the Eleventh Circuit to affirm a district court’s grant of summary judgment in favor of an insurer on the issue.

The Duty to Defend Under Georgia Law

I’ve mentioned this before, but I’m also licensed in Georgia, and often times I’ll get to dive into some Georgia law issues for a change.  One of the fundamental insurance coverage issues in is the duty to defend under Georgia law.  It’s pretty basic, and similar to the duty to defend under Florida law, but there is one little-known wrinkle. 

Duty to Defend Under Georgia Law

An insurer’s duty to indemnify and its duty to defend are separate and independent obligations. Penn-America Ins. Co. v. Disabled Am. Veterans, Inc., 481 S.E.2d 850, 852 (Ga. Ct. App. 1997).  Under Georgia law, “[a]n insurer’s duty to defend is determined by comparing the allegations of the complaint with the provisions of the policy.” Fireman’s Fund Ins. Co. v. Univ. of Ga. Athletic Ass’n, Inc., 654 S.E.2d 207, 209 (Ga. Ct. App. 2007). “Where the complaint filed against the insured does not assert any claims upon which there would be insurance coverage, the insurer is justified in refusing to defend the insured’s lawsuit.” Nationwide Mut. Fire Ins. Co. v. Somers, 591 S.E.2d 430, 434 (Ga. Ct. App. 2003); Old Republic Union Ins. Co. v. Floyd Beasley & Sons, Inc., 551 S.E.2d 388, 392 (Ga. Ct. App. 2001). 

Wrinkle: Duty to Investigate

When the complaint on its face shows no coverage, but the insured notifies the insurer of factual contentions that would be covered, there may be a duty to investigate on the part of the insurer. See Colonial Oil Indus. Inc. v. Underwriters Subscribing to Policy Nos. TO31504670 & TO31504671, 491 S.E.2d 337, 338-39 (Ga. 1997).  In Colonial, the court held:

A different rule, however, applies when the complaint on its face shows no coverage, but the insured notifies the insurer of factual contentions that would place the claim within the policy coverage.  The Georgia Court of Appeals held in Loftin v. U.S. Fire Ins. Co., that in this situation the insurer has an obligation to give due consideration to its insured’s factual contentions and to base its decision on “true facts.” The requirement that an insurer base its decision on true facts will necessitate that the insurer conduct a reasonable investigation into its insured’s contentions. To relieve an insurer of any duty to investigate its insured’s contentions would allow the allegations of a third-party to determine the insured’s rights under its contract. Placing a duty of investigation on insurers in these limited circumstances is not an unreasonable burden, especially in light of the availability of the “procedurally safe course” of providing a defense under a reservation of rights and filing a declaratory judgment action to determine its obligations.