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Don't Waive Goodbye To Potential Coverage Defenses

March 31, 2014 BY Sarah Dumbacher

   Adjustment of a claim can be an arduous process in any line of insurance coverage. During adjustment, insurers must enforce strict compliance with the insurance contract or risk possible waiver of available defenses to coverage. The good news for adjusters is that an insurer’s mere investigation of a claim alone does not constitute a waiver of the insurer’s potential defenses. See O.C.G.A. § 33-24-40. However, significant issues can arise when, during the course of an investigation, an adjuster or agent makes a statement or request which may be construed to waive certain requirements under the policy, and thus waive the defense available for noncompliance with that particular policy provision, or simply wait too long before taking certain action on the claim.  

 Under Georgia law, wavier requires the existence of a right, privilege, advantage or benefit which may be waived at the time of waiver; actual or constructive knowledge thereof; and an intention to relinquish such right, privilege, advantage or benefit. Wiley v. Rome Ins. Co., 12 Ga. App. 186, 76 S.E. 1067 (1913).  Both acts and communications by an insurer may constitute a waiver when they would “reasonably lead the insured to believe” that strict compliance with a particular policy provision would not be insisted upon. Brown v. Nationwide Ins. Co., 167 Ga. App. 84, 306 S.E.2d 62, 63 (1983). However, Georgia law is clear that waiver cannot be based upon an insured’s own unilateral assumption or expectation that a policy provision would not be enforced against him or her. Government Employees Ins. Co. v. Gates, 134 Ga. App. 795, 216 S.E.2d 619 (1975).

Recognizing the benefit of an insurer’s full and complete investigation of a claim, Georgia law provides that the following acts by an insurer will not waive any policy provision or any defense: “1) Acknowledgement of the receipt of notice of loss or claim under the policy; 2) Furnishing forms for reporting a loss or claim, for giving information relative to the loss or claim, or for making proof of loss, or receiving or acknowledging receipt of any such forms of proofs completed or uncompleted; or 3) Investigating any loss or claim under any policy or engaging in negotiations looking toward possible settlement of any such loss or claim.” O.C.G.A. § 33-24-40 (2010); Stone Mountain Collision Center v. General Casualty Co., 307 Ga. App. 394, 705 S.E.2d 163 (2010).

            Whether an adjuster has waived a policy requirement through his or her actions will depend on the facts of each case and will generally be a question for the jury to decide. Government Employees Ins. Co. v. Gates, 134 Ga. App. 795, 216 S.E.2d 619 (1975); Worth v. Georgia Farm Bureau Mut. Ins. Co., 174 Ga. App. 194, 330 S.E.2d 1 (1985).  Thus, it is difficult to state with any legal certainty what types of statements or actions constitute waiver and which do not. As illustration, compare the following two court decisions. In Wright v. Commercial Union Ins. Co., the Eleventh Circuit Court of Appeals held that the adjuster’s statement that the insured party “need not worry about whether the claim would be paid” was sufficient evidence for a jury to conclude that the insurer waived policy requirements. 818 F.2d 832, 837 (1987). However, in Cooper v. Glens Falls Indem. Co., the Georgia Court of Appeals held that the adjuster’s statement to the insureds that they “need not further concern themselves about the matter” could not support a claim of waiver. 93 Ga. App. 127, 91 S.E.2d 120 (1955).  To ensure all available defenses are maintained, there are some common forms of waiver that adjusters must be aware of when meeting or communicating with an insured and should conduct themselves accordingly.  

            Waiver of the Application Misrepresentation Defense: Application misrepresentation by an insured can result in a forfeiture of the insurance policy and constitutes a potent defense to fraudulent claims. However, the defense can be waived if an insurer subsequently renews the subject insurance policy. As illustration, in State Farm v. Jenkins, the Georgia Court of Appeals upheld the trial court's conclusion that State Farm had waived its application misrepresentation defense when it mailed to the insured a cancellation notice stating that if the payment was received before the cancellation date, the policy would be renewed and he would be afforded continued coverage. 167 Ga. App. 4, 305 S.E.2d 801 (1983). In determining that the insurance company had waived its application misrepresentation defense, the trial court focused on the fact that the insurer had failed to indicate that it considered the entire policy void or forfeited,” but instead gave every indication to [the insured] that the policy remained in full force and effect."   The court stressed that there is waiver when an insurer accepts premiums following forfeiture.

In a later Court of Appeals decision, Florida Int'l Indem. Co. v. Osgood, 233 Ga. App. 111, 503 S.E.2d 371 (1998), the insurer had learned of the insured’s application misrepresentation, but then sent the insured a notice of cancellation and non-renewal. The notice stated that "in accordance with the terms and conditions of the ... policy that the ... policy will expire effective at and from the hour and date mentioned above [a certain time in the future] and the policy will NOT be renewed."  The court held that the language in the notice focused on the status of the policy and "assure[d] that [the policy] [was] alive and well and will continue through the designated expiration date," despite the insurer’s knowledge at that time of the application misrepresentation. Accordingly, the court held that the insurance company had waived its application misrepresentation defense and was thus barred from asserting that the policy was void ab initio.  

This common waiver often occurs due to lack of communication or miscommunication between claims management personnel and an insurer’s underwriting department about an insured’s misrepresentations. During adjustment of a claim, once it is learned that the insured made certain misrepresentations on his or her insurance application, it is imperative that the adjuster notify the necessary department of the misrepresentations and instruct that no action should be taken with regard to the policy that would indicate to the insured that the policy was in full force and effect. Specifically, the adjuster should confirm that the insurance policy will not be renewed and that no notice of cancellation as seen in the Osgood case will be issued.

Waiver of the Appraisal Provision: Appraisal provisions provide a contractually agreed upon manner for the insurer and insured to resolve a dispute as to the value of a covered loss. S. Gen. Ins. Co. v. Kent., 187 Ga. App. 496, 370 S.E.2d 663 (1988). To invoke this provision, appraisal must typically be demanded in writing by either party once there has been a confirmed dispute as to value. Generally, an appraisal provision is not a condition precedent to filing suit, meaning the appraisal process does not have to be completed prior to the insured filing an action against his or her insurance carrier; however, when an insurer makes a proper demand and names an appraiser, the appraisal provision will be considered a condition precedent to filing suit. Government Employees Ins. Co. v. Hardin, 108 Ga. App. 230, 132, S.E.2d 513 (1963).

It is important to be aware of the appraisal provision as an insurer’s right to demand that an insured complete appraisal before filing suit can be waived if appraisal is not demanded in a timely fashion. See Williams v. S. Gen Ins., 211 Ga. App. 867, 440 S.E.2d 753, 754 (1994). An insurer’s right to require an appraisal is not indefinite as to time and must be exercised within a reasonable period of time depending on the facts of each claim. When determining whether there has been a waiver of the appraisal provision, a Georgia court will likely look to two factors: 1) the length of time between the breakdown of good faith negotiations concerning the amount of the loss and the appraisal demand, and 2) the prejudice to the other party resulting from the delay. See Rebel Tractor Parts, Inc. and Rebel Auction Co. Inc. v. Auto-Owners Ins. Co., 2006 U.S. Dist. LEXIS 86502 (S.D. Ga. November 28, 2006). Thus, once there is a clear dispute regarding the value of a covered loss, an adjuster must not delay in demanding appraisal or the adjuster will risk losing the right to an appraisal and may later subject the insurer to litigation regarding the value of a covered loss that could have been avoided.

Waiver of the Suit Limitations Provision during Settlement Negotiations: Georgia law is clear that “where the insurer by its acts in negotiating for a settlement, has led the policyholder to believe that he will be paid without suit, the insurer cannot take advantage of a provision in the policy which requires the action to be brought in a certain time.” Giles v. Nationwide Mut. Ins. Co., 199 Ga. App. 483, 405 S.E.2d 112 (1991). However, Georgia courts have held that “mere negotiation” for possible settlement unsuccessfully accomplished is not the type of conduct designed to lull an insured into a false sense of security and thereby preclude an assertion of the suit limitations defense. Aaron v. Georgia Farm Bureau Mut. Ins. Co., 297 Ga. App. 403, 677 S.E.2d 419 (2009). Thus, during any settlement negotiations with an insured, it is prudent to make clear that the communication is just that, mere negotiation, and that until an agreement is reached, strict compliance with the terms and conditions of the policy will be demanded.

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

Editorial Board:

H. Michael Bagley