The Georgia Supreme Court ruled that Georgia law does not allow an insurer to both deny a claim outright and attempt to reserve its right to assert a different defense in the future. The court held that a reservation of rights is only available to an insurer which provides a defense. Because the insurer denied coverage on the basis of an Employer Liability Exclusion and refused to defend, the insurer could not subsequently assert a late notice defense. Hoover v. Maxum Indem. Co., 2012 WL 2217040 (Ga. June 18, 2012).
Following a personal injury suit brought by an employee, the insured company turned to Maxum Indemnity Company, its commercial liability insurer, for defense and coverage. Maxum refused to defend and denied coverage, citing the policy’s Employer Liability Exclusion. In its denial letter, Maxum stated that it was reserving the right to assert other coverage defenses, including defenses based on noncompliance with the policy’s notice provision. The employee ultimately obtained a judgment against the company and, as assignee of the company’s coverage claims, brought suit against Maxum. The trial court held that the employer failed to provide timely notice of the occurrence to Maxum, but that Maxum had breached its duty to defend. The appellate court affirmed the notice ruling, but reversed the decision as to Maxum’s duty to defend. The Georgia Supreme Court reversed on both issues.
The Georgia Supreme Court held that (1) Maxum waived its right to assert a defense based on untimely notice because it never disclaimed coverage on that basis, and (2) because Maxum waived the late notice defense, timely notice was not a prerequisite to Maxum’s duty to defend. The court explained that the disclaimer language in Maxum’s denial letter did not constitute a reservation of rights, as that term is understood in the insurance industry, because a reservation of rights accompanies an agreement to defend, not an outright denial of coverage and defense. Alternatively, the court held that even if the denial letter could be construed as a reservation of rights, it was defective because it did not fairly inform the employer that Maxum intended to pursue a defense based on untimely notice. The court stated that “boilerplate language in the denial letter purporting to reserve the right to assert a myriad of other defenses at a later date did not clearly put [the employer] on notice of Maxum’s position.” In reaching that conclusion, the court also noted that in it its declaratory judgment action against the employer, Maxum did not raise the untimely notice issue, did not investigate the employer’s untimely notice during discovery, and did not raise the issue in its summary judgment motion. The court concluded that these failures constituted a waiver of the defense.