With the rise of the number of roofing claims being filed with insurance companies over the past two years, the Courts are now issuing opinions addressing various coverage issues raised in these types of claims. Judge Lisa Wood of the Brunswick Division of Georgia’s Southern District Court recently considered the validity of the insurance company’s denial of interior water damage based, in part, on the exclusion for damages caused by faulty workmanship of roofers who were in the process of installing a new roof and the viability of the insured’s claims that the insurer waived its defenses. Mock v. Central Mutual Insurance Company, ___ F.3d ___ (S.D., Ga., Brunswick, 2:14-cv-00113-LGW-RSB, January 25, 2016). The Court not only addressed the validity of those defenses, it addressed issues concerning possible waiver of those defenses and the extent of an adjuster’s affidavit testimony that can be admitted.
With the rise of the number of roofing claims being filed with insurance companies over the past two years, the Courts are now issuing opinions addressing various coverage issues raised in these types of claims. Judge Lisa Wood of the Brunswick Division of Georgia’s Southern District Court recently considered the validity of the insurance company’s denial of interior water damage based, in part, on the exclusion for damages caused by faulty workmanship of roofers who were in the process of installing a new roof and the viability of the insured’s claims that the insurer waived its defenses. Mock v. Central Mutual Insurance Company, ___ F.3d ___ (S.D., Ga., Brunswick, 2:14-cv-00113-LGW-RSB, January 25, 2016). The Court not only addressed the validity of those defenses, it addressed issues concerning possible waiver of those defenses and the extent of an adjuster’s affidavit testimony that can be admitted.
In Mock, a tenant reported interior water leaks to the insured. To address the leaks, the insured hired a contractor, who, along with a roofer, began installing a metal roof over the existing foam roof. The installation involved cutting trenches in the existing foam roof. After the trenches were cut, but apparently before the metal roof was installed, a storm approaching caused the contractor to purchase tarps to cover the entire roof. Despite the tarping, rainwater entered the building, and the insured filed a claim for that damage. Central Mutual determined that there was no coverage for the interior water damage because the opening allowing the rainwater to enter was not caused by a covered cause of loss.
In response to the insured’s lawsuit, Central Mutual also defended on the ground that the loss was properly excluded from coverage based on the policy’s inadequate or faulty workmanship provision. That provision precluded coverage except where the excluded cause “results in a cause of loss that is not excluded.” Because faulty workmanship is not a covered cause of loss, and a covered cause of loss did not cause damage to the roof, Central Mutual contended there was no coverage. Both parties file motion for summary judgment.
The Court first rejected the insured’s claim that the policy provisions cited by Central Mutual were ambiguous, thus denying the insured’s motion for partial summary judgment. In response to Central Mutual’s motion for summary judgment, the insured argued that Central Mutual had waived all of the policy’s limitations or exclusions and therefore was estopped to deny coverage. The waiver argument was based on the fact that Central Mutual paid for the interior ceiling damage caused by the same incident and on the same date of loss. The insured further argued waiver because the denial letter issued by the insurer did not contain the exact language contained in the policy and failed to cite the inadequate/faulty workmanship exclusion.
The District Court rejected the insured’s waiver argument relying on Georgia cases holding that the doctrine of implied waiver does not apply to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded therein. For waiver of a defense based on a policy condition or limitation to exist the provision must require “that the insured fulfill certain procedural prerequisites before obtaining proceeds under the policy….” In Georgia, no waiver of an exclusion exists when the exclusion is “designed to limit the risks for which the insurer will provide coverage. [Cits. omitted]. The Court found that the exclusions relied on by Central Mutual were not aimed at placing prerequisites on the insured’s ability to obtain payment of his benefits; rather, the provisions served “to limit the risks for which [Central Mutual] will provide coverage.”
The insured also argued waiver existed on the grounds that the insurer failed to include in the denial letter the correct policy language and the other exclusions on which Central Mutual relied to bar coverage. The Court found there was no waiver because the provisions cited contained only two minor typographical errors and the language cited in the denial letter was sufficient to put the insured on notice that the insurer was relying on other policy exclusions.
In addressing this waiver issue, it is disappointing that the District Court relied on cases addressing waiver in liability claims where the insurer fails to advise the insured of all policy defenses in the reservation of rights letter or in the denial letter. See e.g., Hoover v. Maxum Indem. Co., 291 Ga. 402, 730 S.E.2d 413 (2012). Waiver in liability claims should not be control possible waiver in first party property claims. Unlike liability claims, an insurer in a first party property claim is not required to issue a reservation of rights detailing all of the insurer’s defenses. See Bank of Camilla v. St. Paul Mercury Ins. Co., ___ F.Supp. ___, 2013 WL1333519 (M.D. Ga., Albany Division March 29, 2013). The difference is based on the distinction drawn by the courts between an insurer’s duty to defend and a duty to pay costs, because these duties are separate and independent obligations under the policy. See Penn-America Ins. Co. v. Disabled Am. Veterans, 224 Ga. App. 557, 481 S.E.2d 850, 852 (1997); Home Indem. Co. v. Godley, 122 Ga. App. 356, 177 S.E.2d 105 (1970); Loftin v. U.S. Fire Ins. Co., 106 Ga. App. 287, 127 S.E.2d 53 (1962); National Surety Corp. v. Dunaway, 100 Ga. App. 842, 112 S.E.2d 331 (1959). See also Palmer v. Pacific Indem. Co., 74 Mich.App. 259, 254 N.W.2d 52 (1977); Ladner & Co. v. Southern Guar. Ins. Co., 347 So.2d 100 (Ala.1977); Sloan Constr. Co. v. Central Nat. Ins. Co., 269 S.C. 183, 236 S.E.2d 818 (1977).
Unlike the typical situation in which the insurer’s defenses are set forth in reservation of rights letter in a liability case such as Hoover, an insurer in a first party case is not contesting a duty to provide a defense for the insured to coverage, but rather is contesting that the claim itself is not covered. An insured in a first party case is not forgoing any rights because of lack of specificity on the part of the insurer. Once the company denies coverage for the property damage, insureds knows that they are on their own and that they cannot rely on the insurer to provide coverage. Therefore, unlike a third party in a liability case, an insured in a first party property claim has not been placed in any “inequitable disadvantage” warranting a finding of waiver by the insurer. See Globe & Rutgers Fire Ins. Co. v. Atlantic & Gulf Shipping Co., 51 Ga. App. 904, 181 S.E. 310 (1935)(insurer not estopped to defend suit on policy on ground that accident was not caused by covered peril, although refusal to pay claim was based on alterative grounds). Based on the Court’s application of the liability cases on the issue of waiver, insurers should monitor this case to observe whether this portion of this case is followed by other courts in first part property claims, or confirm the distinction based on the fact that waiver due to a failure to include in a reservation of rights letter or denial letter all of the insurer’s defenses should only apply in liability claims.
Despite the Court’s rejection of the insured’s ambiguity and waiver arguments, the Court denied Central Mutual’s motion for summary judgment on the issue of coverage. The Court found that the insured established that the roof sustained damage through which the rain entered. The Court noted that the ‘question of whether damage occurred, through which rain entered, was separate from the question of whether the damage was the result of a Covered Cause of Loss.” According to the Court, Central Mutual “erred by blending the damage inquiry with that for the cause.” Because the insured established there was damage to the roof by which rain entered, the next issue was whether the damaged resulted from a covered cause of loss. That issue, however, was held to be a disputed issue of fact regarding whether the repairs or the placement of the tarps constituted inadequate workmanship.
Of final importance of the Court’s ruling in this case is the Court striking portions of the independent adjuster’s affidavit in which the inadequacy of the repairs were addressed. The insured moved to strike those portions which addressed the source of the interior water damage arguing these portions contained conclusions rather than statements of fact. The insured also argued that the affidavit contained expert opinions, and does not meet the requirements for admission of lay testimony.
Applying Rule 56(c) and Rule 701, the Court held that portions of the affidavit were admissible because the statements regarding the source of the interior water damage were “rationally based on [the adjuster’s] perception and firsthand knowledge of facts.” The adjuster is allowed to offer the facts and his lay opinion as to the source of the water damage based on his personal observations that will assist in how the water entered through the openings in the roof. The Court, however, found inadmissible those portions of the affidavit in which the adjuster opined that the repairs were inadequate. The quality of workmanship is generally reserved for expert opinion, and because the adjuster was admittedly not an expert, the Court held that his opinions addressing the workmanship should be stricken from the record. Based on this case, where the cause of the loss involves questions of inadequate or faulty workmanship, the insurance company will be best served by retaining an expert to provide an admissible opinion, rather than resting on the testimony of the adjuster.