Georgia Supreme Court Changes Reservation Of Rights Law

On June 18, 2012, the Supreme Court of Georgia issued Hoover v. Maxum Indemnity Company, Nos. S11S1681, S11G1683, 2012 WL2217040 (Ga. June 18, 2012), dramatically changing Georgia's "Reservation of Rights" law. In short, Hoover held insurers may no longer disclaim coverage under a specific policy provision, while reserving the right to do so under others. Id. at *3. The court held that a carrier waives coverage defenses that do not form the basis of the claim denial. Id. According to Hoover, a carrier cannot "both deny a claim outright and attempt to reserve the right to assert a different defense in the future." Id. at *2.

Hoover arose from a personal injury sustained by plaintiff James Hoover on October 20, 2004, while working for Emergency Water Extraction Services, LLC (EWES). EWES was aware of the accident when it occurred and even visited Hoover in the hospital; yet, EWES did not provide notice of this incident to its commercial general liability insurer, Maxum Indemnity Company (Maxum), at that time. Two years later, in September 2006, Hoover filed suit against EWES and other defendants. EWES tendered the lawsuit to Maxum on October 19, 2006. Maxum disclaimed coverage to EWES on October 23, 2006, relying upon the policy's Employer's Liability Exclusion, and also reserved its right to deny coverage based on EWES's failure to provide timely notice of the accident pursuant to the policy's notice provision.

Hoover obtained a $16.4 million judgment against EWES in the underlying tort case. EWES then assigned its breach of duty to defend and indemnify claims against Maxum to Hoover, who then filed suit. Maxum was granted summary judgment by the trial court, which held EWES did not provide timely notice under the policy. The trial court also granted Hoover's motion for partial summary judgment, finding that Maxum breached its duty to defend the underlying action. The Court of Appeals affirmed summary judgment for Maxum, but reversed summary judgment for Hoover on Maxum's duty to defend.

The Supreme Court of Georgia granted Certiorari to consider: (1) whether or not Maxum had waived the right to assert its notice defense; and, (2) whether or not timely notice was a prerequisite to Maxum having to defend EWES. The Supreme Court sided with Hoover on both issues. As to notice, the court found that Maxum waived its right to assert the notice defense by failing to properly advise EWES that it could be a potential bar to coverage. As to the duty...