Grange Mutual Casualty Company v. Adam Bennett

• Court: Court of Appeals of Georgia
• Decided: June 19, 2019
• Docket: A19A0497
• Status: Published

Opinion

FOURTH DIVISION DOYLE, P. J., COOMER and MARKLE, JJ.

NOTICE: Motions for reconsideration must be physically received in our clerk’s office within ten days of the date of decision to be deemed timely filed. http://www.gaappeals.us/rules

June 19, 2019

In the Court of Appeals of Georgia A19A0497. GRANGE MUTUAL CASUALTY COMPANY v. BENNETT et al.

COOMER, Judge.

Pursuant to our grant of a discretionary appeal, Grange Mutual Casualty

Company (“Insurer”) appeals the Hall County Superior Court’s decision to affirm the

State Board of Workers’ Compensation’s (“Board”) ruling that: (1) the Insurer did not

sufficiently raise a void policy defense before the administrative law judge, thus

waiving the defense; and (2) on the merits, the insurance policy was not void. It also

argues the superior court applied the incorrect standard of review in its analysis of the

Board’s findings. For the reasons that follow, we affirm.

In reviewing a workers’ compensation award, this Court must construe the evidence in the light most favorable to the party prevailing before the appellate division. The findings of the State Board of Workers’ Compensation, when supported by any evidence, are conclusive and binding, and neither the superior court nor this Court may substitute itself as a factfinding body in lieu of the State Board.

Laurens County Bd. of Ed. v. Dewberry, 296 Ga. App. 204, 205-06 (674 SE2d 73)

(2009) (footnotes omitted).

So viewed, the record shows that McCormick Enterprises (“Employer”) was

a small construction company primarily involved in greenhouse repair and

maintenance. In 2014, the Employer had workers’ compensation insurance through

Liberty Mutual. When the Employer’s insurance policy came up for renewal, the

Employer contacted its insurance agent and asked if she could find cheaper insurance

with the same coverage. The agent procured a quote from the Insurer.

In completing the insurance application, the agent pulled the Employer’s

business information from the previous Liberty Mutual insurance policy. The Liberty

Mutual insurance application indicated that the Employer performed work outside the

state of Georgia. However, on the Insurer’s application, the agent indicated that the

Employer did not perform work outside of Georgia. The agent testified at the hearing

before the administrative law judge (“ALJ”) that she did not know that the Employer

performed work outside of Georgia, and that she only reviewed the Liberty Mutual

2 policy – but not the Liberty Mutual application – in completing the Insurer’s

application. The agent also classified the Employer’s company as janitorial work on

the Insurer’s application based on the Liberty Mutual policy. She also said that she

sent the completed application to the Employer for review, and that the Employer

signed and returned the application. However, the owner of Employer testified that

the agent emailed him a blank application to sign and that he did not review or

approve the section indicating that his employees did not travel out of state.

Ultimately, the application submitted to the Insurer indicated that the Employer

provided janitorial services, the employees did not travel out of state, and that the

employees did not perform any work above 15 feet.

After the Insurer issued its policy to the Employer, an employee had an injury

while working in Louisiana on August 8, 2014. Employer reported the injury to the

Insurer. The Insurer eventually denied the claim because the injury occurred outside

of Georgia. Employer’s owner testified that he then told the agent that she needed to

fix that issue with the insurance policy, because 85% of the Employer’s work was

outside of Georgia. The agent denied having that conversation and testified that she

did not know the injury occurred out of state.

3 After the August 2014 claim, the Insurer conducted an investigation of the

Employer’s business operations and its workers’ compensation policy. An

underwriter for the Insurer testified that the Insurer would not have issued the policy

if the application correctly indicated that the Employer operated in 30 states, because

the Insurer was not licensed to issue policies in all those states. The underwriter also

testified that the Insurer would not have issued the policy if it had known that the

Employer’s employees were cleaning windows at heights over 15 feet.

During its investigation after the August 2014 claim, the Insurer asked its

general counsel and outside counsel whether the Employer’s application was so

inaccurate that it could immediately void or rescind the policy. The Insurer

determined that it could not void the policy, so it sent a cancellation notice on

December 18, 2014, with an effective cancellation date of March 8, 2015. The Insurer

told the Employer that it was canceling the policy due to the Employer’s out-of-state

operations, and gave the Employer approximately 90 days to find alternative

coverage.

On March 7, 2015, Adam Bennett (the “Employee”) was working for the

Employer. He was hired for a snow-removal job in New York. The Employee was

traveling to the job as a passenger in an Employer-owned truck. While en route, the

4 truck was involved in an automobile accident. The Employee suffered extensive

injuries to his skull and back. He then filed this worker’s compensation claim.

Following the ALJ hearing, Insurer submitted a brief, in which it argued,

among other things, that: (1) its policy did not cover out-of-state work injuries; (2)

Employer’s owner was aware of the terms of the Insurer’s policy yet did not advise

the Insurer of his need for multi-state coverage; and (3) the Insurer would not have

issued the policy if it had received an accurate description of the Employer’s business

operations.

The ALJ found that the Insurer’s policy covered the Employee’s injury.

Specifically, it found that the Insurer, in order to limit coverage to only accidents in

Georgia, was required to amend or endorse the policy with that limitation. When the

Insurer listed “Georgia” on the policy, the Insurer was agreeing to pay workers’

compensation claims under the laws of Georgia. And, under Georgia law, the

Employee’s out-of-state injuries were compensable. The ALJ declined to resolve the

conflicts in the testimony

between the Employer and the Agent regarding the insurance application process

because the main issue for resolution was whether the policy covered the Employee

5 on March 7, 2015. That outcome was determined by the Insurer’s action on December

18, 2017 without regard to the parties’ actions during the application process.

The Insurer then appealed the ALJ’s decision to the Board. In its brief to the

Board, the Insurer argued, among other things, that the insurance policy was void

under OCGA § 33-24-7 due to the Employer’s and the Agent’s false representations

on the application. The Board upheld the ALJ’s finding that the Insurer’s policy

covered the Employee’s injury. Using the same logic employed by the ALJ, the Board

also found that it did not need to address the Insurer’s argument that the policy was

void under OCGA § 33-24-7 in order to resolve the case.

The Insurer appealed to the superior court, and the superior court remanded to

the Board to address whether the policy was void under OCGA § 33-24-7. On

remand, the Board held that the Insurer waived any defense under OCGA § 33-24-7

because the Insurer did not raise the issue before the ALJ. Alternatively, the Board

ruled that the Insurer failed to prove the merits of the void policy defense. The Board

found that the Insurer’s contention, that it would not have issued a multi-state policy

because it was not licensed in all the other states, was not credible or supported by the

evidence in the case, especially given that the policy did cover out-of-state injuries

under Georgia law. The Board also found that the Employer’s misrepresentations

6 were inadvertent, non-material, and insufficient to void the policy under OCGA § 33-

24-7. Upon return of the case, the superior court affirmed the Board’s order, and this

appeal followed.

The Insurer’s arguments in its brief to this Court focus on its void policy claim

under OCGA § 33-24-7. The Insurer argues that it sufficiently raised the void policy

defense at the ALJ hearing, that the Board misapplied the legal standard for

determining whether the insurance policy was void under OCGA § 33-24-7, and that

the superior court erred by applying the any evidence standard to its review of the

Board’s findings, rather than conducting a de novo review. We do not reach the

merits of the Insurer’s arguments because we hold that on the facts of this case, the

Insurer waived the defense that fraud voided the policy ab initio.

As a general rule, “[i]f a party to a contract seeks to avoid it on the ground of

fraud or mistake, he must, upon the discovery of the facts, at once announce his

purpose and adhere to it. Otherwise he can not avoid or rescind such contract.”

Gibson v. Alford, 161 Ga. 672 (5) (132 SE 442) (1926). See also Jones v. Cartee, 227

Ga. App. 401, 402-03 (1) (489 SE2d 141) (1997) (accord).

“Under Georgia law, an insurer seeking to rescind a policy must make an

announcement of the intent to rescind the contract in a timely fashion, as soon as the

7 facts supporting the claim for rescission are discovered.” American Safety Indemnity

Com. v. Sto Corp., 342 Ga. App. 263, 271 (4) (802 SE2d 448) (2017) (citation and

punctuation omitted). Additionally, “after announcing its intent, the insurer must

adhere to the intent to rescind and may waive any defense of rescission by failing to

do so.” Id. (citation omitted). If an insurer, instead of rescission, issues a denial of

coverage and cancels the policy with a future effective date, as the Insurer did in this

case, the right and defense of rescission is waived as a matter of law. Id. at 272. See

also Florida Intl. Indem. Co. v. Osgood, 233 Ga. App. 111, 113-14 (1) (503 SE2d

371) (1998) (“One significant reason for this rule in insurance cases is that leading

the insured to believe the validity of the policy is not questioned lulls the insured into

not purchasing other insurance and thus subjects the insured’s property to continuing

non-coverage.” footnote omitted)).

Here, the Insurer waived a void policy defense when, upon discovery of the

inaccurate information on the application, it informed the Employer that its coverage

would continue for 90 days. If the Insurer believed that the policy was void based on

fraud, it should have immediately rescinded it.

The facts of this case resemble those in Loeb v. Nationwide Mut. Fire Ins. Co.,

162 Ga. App. 561 (292 SE2d 409) (1982). In Loeb, the defendant-insurance company

8 cancelled the plaintiff’s insurance policy when it learned that the plaintiff made a

material misrepresentation on his insurance application. Id. at 561-562. Rather than

returning the premium and rescinding the policy, however, the insurer cancelled the

policy, effective one month from the notice of cancellation, and retained the portion

of the premium covering the period from the policy’s effective date until the date

cancellation became final. Id. at 562. The plaintiff suffered a loss after the insurer

sent the notice of cancellation, but before the cancellation became effective. Id. The

defendant denied the claim based on the insured’s misrepresentation. Id. This Court,

however, held that because the insurer cancelled the policy and retained the premium,

the policy was not void from its inception, and the insurer could not rely on the

insured’s misrepresentation to deny the claim. Id. at 563. In so holding, this Court

stated:

In its letter of notice of termination, [the insurer] advised [the insured] that notice was necessary not only to cancel the coverage but to advise [the insured] to obtain other protection because continuous protection was important. It is clear therefore that [the insurer] did not consider the policy void from December 1 [the effective date] but considered it in effect until June 9, 1979 [the cancellation date].

Id. at 563.

9 We see no distinction between Loeb and the case sub judice. Here, the Insurer

became aware of the Employer’s business operations outside of Georgia in August

2014, when one of the Employer’s workers filed a claim for an injury that occurred

in Louisiana. The Insurer’s legal department, along with an outside law firm,

launched an investigation into whether the policy was rescindable due to alleged

inaccuracies in the insurance application. Both the Insurer and the law firm

determined that the policy could not be voided based on the inaccuracies.

Consequently, the Insurer notified the Employer it was cancelling the policy effective

March 8, 2015. Therefore, the policy remained in full force and effect until that date.

The Insurer relies on American Resources Ins. Co. v. Conner, 209 Ga. App.

885, 888 (434 SE2d 737) (1993) to argue that it did not waive its void policy defense

when it prospectively cancelled the policy instead of immediately rescinding it once

it became aware of the misrepresentations in the insurance application. American

Resources Ins. Co. is distinguishable and does not require a different result here. In

that case, this Court rejected the insured’s argument that the

[insurance company] waived its right to avoid coverage when, instead of rescinding the [insured’s] policy and tendering back the premium upon learning of the purported subterfuge, it canceled the [insured’s] policy prospectively. Because only the endorsements, and not the entire

10 [insured’s] policy, were involved in the subterfuge, and no additional premium had been paid for the endorsements, the principle involved in Loeb is inapplicable here. No basis existed for rescinding the entire policy. [Insurance company] has not sought to avoid paying claims made by legitimate [insured] employees during the period the [insured’s] policy was in effect.

American Resources Ins. Co., 209 Ga. App. at 887, 888 (3) (citation omitted).

Here, the Insurer alleges that the fraudulent misrepresentations by the

Employer and the Agent undermine the validity of the entire policy, not just a portion

of it. Despite its contention now that the policy was void ab initio, the Insurer told the

Employer that it would continue to honor the whole policy for a period of 90 days.

Because it extended coverage for 90 days, the Insurer therefore remained obligated

to pay any valid claims arising under the policy terms within that time period.

Accordingly, the Loeb principle applies, and the Insurer cannot avoid coverage based

on a void policy defense.

Judgment affirmed. Doyle, P. J., and Markle, J., concur.