FOURTH DIVISION DOYLE, P. J., MCFADDEN and BOGGS, 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/
March 26, 2014
In the Court of Appeals of Georgia A13A2024. KHAN v. LANDMARK AMERICAN INSURANCE COMPANY.
MCFADDEN, Judge.
This appeal is from summary judgment rulings by the trial court in a case
involving a dispute over insurance coverage arising from a shooting. Because the case
was properly transferred from state to superior court and because the trial court
correctly ruled that there exist genuine issues of material fact as to the identity and
motive of the shooter, we affirm those rulings. However, because the trial court erred
in concluding that damages for the insurer’s breach of the duty to defend its insured
in an underlying action are necessarily capped by the policy limit, we reverse that
ruling. The record shows that on November 4, 2006, Jamil Khan was shot with a
firearm while in the parking lot of Flashers nightclub. Khan filed a lawsuit against
6420 Roswell Road, Inc. d/b/a Flashers, alleging, among other things, that he was
shot by or at the direction of an employee of Flashers acting in the course and scope
of Flashers’ business. Flashers requested that its insurer, Landmark American
Insurance Company, provide a defense to the suit pursuant to its policy. The policy
excludes bodily injury claims arising from an assault and/or battery unless the assault
and/or battery was committed by a Flashers employee while trying “to protect persons
and/or property.” Landmark refused to defend the action, stating that the incident was
not covered by the policy. After Flashers failed to comply with discovery, Khan
obtained a default judgment against Flashers and was awarded approximately $2.3
million in damages.
Thereafter, as part of a settlement agreement, Flashers assigned to Khan its
claims against Landmark arising out of Landmark’s failure to defend Flashers in the
premises liability lawsuit or to provide insurance coverage. Khan, as assignee of
Flashers, filed the instant action against Landmark in the state court of DeKalb
County, asserting, among other things, a claim for breach of the contractual duty to
defend. Landmark filed a motion to dismiss, while Khan moved for partial summary
2 judgment on the issue of Landmark’s liability for breaching its duty to defend
Flashers in the underlying premises liability suit. The trial court denied Landmark’s
motion to dismiss, but granted partial summary judgment to Khan on the issue of
liability for failure to defend. Landmark appealed, and this court affirmed the rulings.
Landmark American Ins. Co. v. Khan, 307 Ga. App. 609 (705 SE2d 707) (2011).
On remand, the state court transferred the case to the superior court of DeKalb
County. The parties subsequently filed cross-motions for partial summary judgment,
which the trial court ruled on in two separate orders. In the first, the trial court
granted Landmark’s motion for summary judgment as to claims for common law bad
faith and attorney fees under OCGA § 13-6-11. Among other things, the trial court
held that “the default judgment in the ancillary [premises liability] case does not
preclude the Defendant from contesting the identity or motive of the shooter.” In the
second partial summary judgment order, the trial court ruled that Landmark’s “breach
of its duty to defend does not subject [it] to liability exceeding the policy limits set
in the insurance policy obtained by Flasher[s], which is the amount of the insurance
policy’s assault and battery exclusion endorsement, $100,000.” Khan appeals.
1. Transfer.
3 Contrary to Khan’s argument, the state court did not err in transferring the case
to the superior court. It is undisputed that the insurance policy at issue in this case is
a surplus line contract governed by OCGA § 33-5-1 et seq. As mandated by OCGA
§ 33-5-34 (a), an action against an insurer under such a surplus line contract pursuant
to this chapter “shall be brought . . . in the superior court of the county in which the
cause of action arose.” (Emphasis supplied.) Khan’s contention that this is merely a
venue statute, rather than jurisdictional, is incorrect. The code section plainly
establishes that mandatory jurisdiction for such actions is in superior court, and that
the proper venue is in the superior court of the county where the cause of action
arose. Thus, the “transfer [of] the case to superior court . . . was required by Article
VI, Section I, Paragraph VIII of the Georgia Constitution, which provides, under the
heading ‘Transfer of Cases,’ that ‘any court shall transfer to the appropriate court in
the state any civil case in which it determines that jurisdiction or venue lies
elsewhere.’” Blackmon v. Tenet Healthsystem Spalding, 284 Ga. 369, 371 (667 SE2d
348) (2008) (punctuation omitted). See also Uniform State Court Rule 16 and
Uniform Superior Court Rule 19.1 (both providing that a motion in a pending action
that jurisdiction is lacking or that venue is improper is treated as a motion to transfer
the action to another court, and upon transfer the action shall continue in the
4 transferee court as though initially commenced there). Accordingly, the case was
properly transferred to superior court.
2. Landmark’s liability under the policy.
Khan contends that the trial court erroneously denied his motion for partial
summary judgment by finding that genuine issues of material fact exist as to
Landmark’s liability under the insurance policy issued to Flashers. Specifically, Khan
challenges the trial court’s finding that the default judgment in the prior premises
liability case does not preclude Landmark from contesting the identity or motive of
the shooter. We disagree.
By refusing to defend Flashers in the underlying case that resulted in a default
judgment, Landmark
did not waive its right to contest [Khan’s] assertion [in this case] that the insurance policy provides coverage for the underlying claim. Obviously, if the underlying claim is outside the policy’s scope of coverage, then [Landmark’s] refusal to indemnify or defend was justified and it is not liable to make payment within the policy’s limits. This question of whether the policy provides coverage for the claim is separate from the legal consequences of an insurer’s refusal to indemnify or defend.
Southern Guaranty Ins. Co. v. Dowse, 278 Ga. 674, 676-677 (2) (605 SE2d 27)
(2004) (citations omitted). See also McGregor v. Columbia Nat. Ins. Co., 298 Ga.
App. 491, 494 (1) (680 SE2d 559) (2009) (insurer’s election not to defend its insured
5 does not waive its right to contest a claim of entitlement to recovery under the policy
because duty to defend and duty to pay are independent obligations).
As noted above, the policy at issue expressly excludes bodily injury claims
arising from an assault and/or battery unless the assault and/or battery was committed
by a Flashers employee while trying “to protect persons and/or property.” Thus, as
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FOURTH DIVISION DOYLE, P. J., MCFADDEN and BOGGS, 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/
March 26, 2014
In the Court of Appeals of Georgia A13A2024. KHAN v. LANDMARK AMERICAN INSURANCE COMPANY.
MCFADDEN, Judge.
This appeal is from summary judgment rulings by the trial court in a case
involving a dispute over insurance coverage arising from a shooting. Because the case
was properly transferred from state to superior court and because the trial court
correctly ruled that there exist genuine issues of material fact as to the identity and
motive of the shooter, we affirm those rulings. However, because the trial court erred
in concluding that damages for the insurer’s breach of the duty to defend its insured
in an underlying action are necessarily capped by the policy limit, we reverse that
ruling. The record shows that on November 4, 2006, Jamil Khan was shot with a
firearm while in the parking lot of Flashers nightclub. Khan filed a lawsuit against
6420 Roswell Road, Inc. d/b/a Flashers, alleging, among other things, that he was
shot by or at the direction of an employee of Flashers acting in the course and scope
of Flashers’ business. Flashers requested that its insurer, Landmark American
Insurance Company, provide a defense to the suit pursuant to its policy. The policy
excludes bodily injury claims arising from an assault and/or battery unless the assault
and/or battery was committed by a Flashers employee while trying “to protect persons
and/or property.” Landmark refused to defend the action, stating that the incident was
not covered by the policy. After Flashers failed to comply with discovery, Khan
obtained a default judgment against Flashers and was awarded approximately $2.3
million in damages.
Thereafter, as part of a settlement agreement, Flashers assigned to Khan its
claims against Landmark arising out of Landmark’s failure to defend Flashers in the
premises liability lawsuit or to provide insurance coverage. Khan, as assignee of
Flashers, filed the instant action against Landmark in the state court of DeKalb
County, asserting, among other things, a claim for breach of the contractual duty to
defend. Landmark filed a motion to dismiss, while Khan moved for partial summary
2 judgment on the issue of Landmark’s liability for breaching its duty to defend
Flashers in the underlying premises liability suit. The trial court denied Landmark’s
motion to dismiss, but granted partial summary judgment to Khan on the issue of
liability for failure to defend. Landmark appealed, and this court affirmed the rulings.
Landmark American Ins. Co. v. Khan, 307 Ga. App. 609 (705 SE2d 707) (2011).
On remand, the state court transferred the case to the superior court of DeKalb
County. The parties subsequently filed cross-motions for partial summary judgment,
which the trial court ruled on in two separate orders. In the first, the trial court
granted Landmark’s motion for summary judgment as to claims for common law bad
faith and attorney fees under OCGA § 13-6-11. Among other things, the trial court
held that “the default judgment in the ancillary [premises liability] case does not
preclude the Defendant from contesting the identity or motive of the shooter.” In the
second partial summary judgment order, the trial court ruled that Landmark’s “breach
of its duty to defend does not subject [it] to liability exceeding the policy limits set
in the insurance policy obtained by Flasher[s], which is the amount of the insurance
policy’s assault and battery exclusion endorsement, $100,000.” Khan appeals.
1. Transfer.
3 Contrary to Khan’s argument, the state court did not err in transferring the case
to the superior court. It is undisputed that the insurance policy at issue in this case is
a surplus line contract governed by OCGA § 33-5-1 et seq. As mandated by OCGA
§ 33-5-34 (a), an action against an insurer under such a surplus line contract pursuant
to this chapter “shall be brought . . . in the superior court of the county in which the
cause of action arose.” (Emphasis supplied.) Khan’s contention that this is merely a
venue statute, rather than jurisdictional, is incorrect. The code section plainly
establishes that mandatory jurisdiction for such actions is in superior court, and that
the proper venue is in the superior court of the county where the cause of action
arose. Thus, the “transfer [of] the case to superior court . . . was required by Article
VI, Section I, Paragraph VIII of the Georgia Constitution, which provides, under the
heading ‘Transfer of Cases,’ that ‘any court shall transfer to the appropriate court in
the state any civil case in which it determines that jurisdiction or venue lies
elsewhere.’” Blackmon v. Tenet Healthsystem Spalding, 284 Ga. 369, 371 (667 SE2d
348) (2008) (punctuation omitted). See also Uniform State Court Rule 16 and
Uniform Superior Court Rule 19.1 (both providing that a motion in a pending action
that jurisdiction is lacking or that venue is improper is treated as a motion to transfer
the action to another court, and upon transfer the action shall continue in the
4 transferee court as though initially commenced there). Accordingly, the case was
properly transferred to superior court.
2. Landmark’s liability under the policy.
Khan contends that the trial court erroneously denied his motion for partial
summary judgment by finding that genuine issues of material fact exist as to
Landmark’s liability under the insurance policy issued to Flashers. Specifically, Khan
challenges the trial court’s finding that the default judgment in the prior premises
liability case does not preclude Landmark from contesting the identity or motive of
the shooter. We disagree.
By refusing to defend Flashers in the underlying case that resulted in a default
judgment, Landmark
did not waive its right to contest [Khan’s] assertion [in this case] that the insurance policy provides coverage for the underlying claim. Obviously, if the underlying claim is outside the policy’s scope of coverage, then [Landmark’s] refusal to indemnify or defend was justified and it is not liable to make payment within the policy’s limits. This question of whether the policy provides coverage for the claim is separate from the legal consequences of an insurer’s refusal to indemnify or defend.
Southern Guaranty Ins. Co. v. Dowse, 278 Ga. 674, 676-677 (2) (605 SE2d 27)
(2004) (citations omitted). See also McGregor v. Columbia Nat. Ins. Co., 298 Ga.
App. 491, 494 (1) (680 SE2d 559) (2009) (insurer’s election not to defend its insured
5 does not waive its right to contest a claim of entitlement to recovery under the policy
because duty to defend and duty to pay are independent obligations).
As noted above, the policy at issue expressly excludes bodily injury claims
arising from an assault and/or battery unless the assault and/or battery was committed
by a Flashers employee while trying “to protect persons and/or property.” Thus, as
Khan acknowledges, for his injuries to be covered by the policy, he has to prove that
the shooting was committed by a Flashers employee who was trying to protect
persons and/or property. Conversely, Landmark may contest that claim of coverage
by showing that the shooting was not committed by a Flashers employee trying to
protect persons and/or property.
With regard to the identity of the shooter, Khan is correct that the default
judgment in the prior lawsuit established the fact that the shooter was a Flashers
employee because Khan’s complaint in that suit expressly made such an allegation.
A judgment by default properly entered against parties sui juris operates as an admission by the defendant of the truth of the definite and certain allegations and the fair inferences and conclusions of fact to be drawn from the allegations of the declaration. Conclusions of law, and facts not well pleaded and forced inferences are not admitted by a default judgment.
6 American States Ins. Co. v. Walker, 223 Ga. App. 194, 195 (1) (a) (477 SE2d 360)
(1996) (citation and punctuation omitted). Moreover, collateral estoppel precludes the
relitigation of issues already adjudicated between the parties or their privies in a prior
action. Id. Landmark, as Flashers’ insurer, stands in its shoes. Id. at 195 (1) (b).
Accordingly, in this case, the fact that the shooter was a Flashers employee may not
be contested by Landmark and relitigated. See Atlanta Cas. Ins. Co. v. Gardenhire,
248 Ga. App. 42, 44 (1) (545 SE2d 182) (2001).
However, the specific identity of the employee who was the shooter was not
alleged in the complaint of the prior suit and thus was not adjudicated by the default
judgment. Consequently, while the fact that the shooter was a Flashers employee may
not be relitigated, the specific identity of the employee who was the shooter is not
precluded by collateral estoppel and may be contested by Landmark in this case. See
American States, supra at 195 (1) (a) (facts not pleaded are not admitted by a default
judgment). Likewise, the issue of whether that employee/shooter was trying to protect
persons and/or property also was not alleged in the prior complaint and has not been
adjudicated, and therefore that issue also may be contested by Landmark in the instant
case. Id.
7 With regard to this latter issue concerning the shooter’s motives, Khan argues
that he has pointed to evidence in the record establishing without question that the
unidentified shooter’s motive was to protect persons or property. However, the
evidence he cites does not resolve that issue. Rather, the evidence shows merely that
Flashers’ owner claimed that he and his management team had an unwritten policy
between themselves that no employee was authorized to use force unless it was
necessary to protect persons or property, and a Flashers manager speculated that there
would be no reason for an employee to use force other than to protect persons or
property. This claim of an unwritten policy and speculation by the manager simply
do not establish as a matter of law that the person who shot Khan necessarily did so
only to protect persons and/or property, especially since the specific identity of the
shooter has not been established and is still in dispute. Because there remain genuine
issues of material fact as to the identity of the employee who shot Khan and whether
the shooting was committed to protect persons and/or property, the trial court did not
err in denying Khan’s motion for partial summary judgment. See OCGA § 9-11-56
(c).
3. Damages.
8 Khan asserts that the trial court erred in ruling that damages for the claim that
Landmark breached its duty to defend Flashers in the prior suit may not exceed the
policy’s coverage limit of $100,000. We agree.
In Leader Nat. Ins. Co. v. Smith, 177 Ga. App. 267 (339 SE2d 321) (1985),
“default judgments were entered, to the prejudice of insured, far above the policy
limits the insurer would otherwise have been obligated to pay.” Id. at 279 (2)
(citations omitted). Given those judgments, this court addressed the question of
“whether the full amount of the judgments can be recovered when the insurer fails to
defend under an obligation to do so[, o]r, on the other hand, is [the insurer] protected
by the policy limits?” Id. at 277 (2). This court concluded that the insurer was not
necessarily protected by the policy limits, and whether the full amount of the
judgments was recoverable was a jury question that depended upon what damages
were found to flow from breach of the contractual duty to defend. Id. at 279-280 (2).
In a subsequent appeal of the case, the Georgia Supreme Court affirmed the trial
court’s judgment, noting with approval this court’s conclusion that recovery beyond
the policy limits was a jury question depending on what damages flowed from the
breach of the duty to defend. Leader Nat. Ins. Co. v. Kemp & Son, 259 Ga. 329, 330-
331 (380 SE2d 458) (1989).
9 Thereafter, the Georgia Supreme Court, citing its opinion in Leader, further
explained the difference in possible damages for a failure to defend claim brought by
an insured as opposed to the same claim brought by an injured victim:
When the plaintiff is the insured seeking to recover for the insurer’s breach of its contractual duty to defend, there is a factual question whether the breach may have caused the plaintiff to be exposed to greatly increased liability to the injured party. [Cit.] However, when the injured victim sues the insurer for the insurer’s failure to defend an insured tortfeasor, the plaintiff is hard-pressed to establish the harm the plaintiff has suffered as a result of the insurer’s failure to defend the tortfeasor, since, even if the insurer had done its duty, its maximum liability to the injured victim would have been the limits of the insurance policy.
Georgia Farm Bureau Mut. Ins. Co. v. Martin, 264 Ga. 347, 350-351 (3) (444 SE2d
739) (1994) (emphasis supplied).
In the instant case, Khan is not suing Landmark for breach of its duty to defend
Flashers as the injured victim. Rather, he is “suing as assignee[] of the insured
[Flashers], and [therefore], there is a factual question whether the breach may have
caused the [insured] to be exposed to greatly increased liability[.]” Driskell v. Empire
Fire &c. Co., 249 Ga. App. 56, 62 (3) (547 SE2d 360) (2001) (citation omitted).
Indeed, under such circumstances, “where an insurance company fails to offer a
defense, it may be liable to its insured beyond the policy limits to the full amount of
10 the judgment. Here, [Khan] stands in the shoes of the insured and thus may be entitled
to recover an amount in excess of the policy limits. . .[A] jury question exists as to the
extent of [Landmark’s] liability.” Atlanta Cas. Ins. Co., supra at 44-45 (2) (citations
omitted).
We note that Landmark’s reliance on language from Colonial Oil Indus. v.
Underwriters Subscribing to Policy Nos. TO31504670 & TO31504671, 268 Ga. 561,
563 (4) (491 SE2d 337) (1997) is misplaced. Landmark cites Colonial for the
proposition that an insurer’s wrongful refusal to provide a defense entitles the insured
to receive only what is owed under the contract. But as further explained in that
opinion, the breach of the duty to defend “should not enlarge indemnity coverage
beyond the parties’ contract.” Id. In this case the possible damages at issue are not
merely those within the indemnity coverage of the policy, but are those further
damages that may flow from breach of the contract to defend. “The issue of
consequential damages, i.e., judgment in excess of the policy limits, and causation
[that can be traced directly to the failure to defend are] matters for jury determination.
[Cits.]” Thomas v. Atlanta Cas. Co., 253 Ga. App. 199,(558 SE2d 432) (2001).
Because the trial court incorrectly ruled that damages for the failure to defend claim
11 are necessarily limited to the policy’s coverage limit of $100,000, that portion of the
trial court’s ruling is reversed.
Judgment affirmed in part and reversed in part. Doyle, P. J., concurs.
McFadden, J., concurs. Boggs, J., concurs fully and specially.
12 A13A2024. KHAN v. LANDMARK AMERICAN INSURANCE
COMPANY.
BOGGS, Judge, concurring fully and specially.
I agree with all that is said in the majority opinion, but write separately to
emphasize that Khan would not be automatically entitled to recover $2,308,684.70
from Landmark.
Here, the parties filed a consent motion asking the trial court to address
whether any damages would be limited to the policy’s assault and battery exclusion
endorsement of $100,000, or, whether the jury would be allowed to “enter a judgment
for the Plaintiff in an amount up to and including the amount of the default judgment
obtained by Khan against Flashers . . . $2,308,684.70.” While the trial court
concluded, in error, that any damages could not exceed the $100,000 policy limit, I wish to emphasize that the majority does not endorse the alternative potential
recovery posed to the trial court. This is not a case in which a judgment was entered
against a pro se insured following a trial. See Leader Nat. Ins. Co. v. Kemp & Son,
189 Ga. App. 115 (375 SE2d 231) (1988). Rather, here, a default judgment was
entered for Flashers’ failure to complete discovery, and Flashers subsequently settled
with Khan for $100,000. In exchange for the assignment of Flashers’ claim against
Landmark for Landmark’s failure to defend, Khan agreed to “withhold from the
execution of the Judgment against the assets of Flashers.”
Khan is not automatically entitled to $2,308,684.70, the full amount of the
default judgment. As the assignee of Flashers, he could seek only those damages that
are directly traceable to Landmark’s breach of its duty to defend Flashers. See
Thomas v. Atlanta Cas. Co., 253 Ga. App. 199, 204 (3) (d) (558 SE2d 432) (2001).
Generally, where the insured has settled with the injured party and seeks damages for
the insurer's breach of its duty to defend, the damages are limited to the amount of
settlement, expenses and attorney fees. Cf. Ga. Southern & Florida R. Co. v. United
States Cas., 97 Ga. App. 242, 244 (102 SE2d 500) (1958).