State Farm Fire & Casualty Insurance v. Terry

495 S.E.2d 66, 230 Ga. App. 12

• Court: Court of Appeals of Georgia
• Decided: May 5, 1998
• Docket: A97A1545
• Status: Published

Opinions

Johnson, Judge.

This case presents yet another permutation of the “vanishing insurance coverage” dilemma in the context of disputes between automobile insurance carriers and their insureds regarding uninsured motorist insurance.

On July 29, 1993, Kenneth Terry was injured in a motor vehicle collision involving an automobile operated by Undra Davis. The automobile driven by Davis was owned by and rented from McFrugal Auto Rental. Terry sued Davis and served his own uninsured motorist carrier, State Farm Fire & Casualty Insurance Company, within the two-year statute of limitation for personal injuries. See OCGA §§ 9-3-33; 33-7-11 (d); Stout v. Cincinnati Ins. Co., 226 Ga. App. 220 (486 SE2d 195) (1997). State Farm filed an answer in its own name. It thereafter became apparent that Davis was insured up to $50,000 by McFrugal and adequately insured against any larger judgment by an excess policy. Thus, Davis was not an “uninsured motorist” so as to implicate the uninsured motorist coverage provisions of Terry’s automobile insurance policy with State Farm. OCGA § 33-7-11 (d). Accordingly, State Farm requested and received Terry’s consent to dismiss without prejudice State Farm as a party to Terry’s lawsuit against Davis. The consent dismissal was drafted by State Farm, signed by counsel for both State Farm and Terry, and included the following language: “In the event that the plaintiff finds it appropriate to renew an uninsured motorist claim, under circumstances including a withdrawal of coverage by a liability insurer, State Farm will be served in the manner authorized by law and have a full right to defend on liability and damages in this case. Stipulations and defaults by, or Judgments against, the individual defendant will not be binding upon or create exposure by State Farm.”

State Farm did not participate further in any other aspect of the litigation between Terry and Davis. McFrugal, acting as insurer, provided Davis with counsel and defended the lawsuit. On August 29, 1995, Terry obtained a judgment for $50,000 against Davis in the underlying action, for which McFrugal was ultimately responsible as Davis’ insurer. Prior to this time, Terry had not renewed his uninsured motorist claim against State Farm and, in fact, Davis was not an “uninsured motorist” up until and through the date of the judgment.

On October 3, 1995, Terry’s counsel received notice from McFrugal that it had ceased operations as of September 30, 1995, and that there were no funds forthcoming to satisfy the judgment. Thus, more than 30 days after Terry had obtained a judgment against Davis, Davis’ insurance coverage vanished and Davis effectively became an uninsured motorist for the first time.

On October 19, 1995, Terry sent a demand letter to State Farm insisting that it satisfy the $50,000 judgment obtained against Davis. The letter specifically stated, “[t]his is now an uninsured motorist case.” (Emphasis in original.) Citing the dismissal, State Farm replied it had never been re-served in a manner authorized by law, had no obligation to pay the judgment, and would not pay the claim until it had been afforded the opportunity to defend on the merits in court. Terry then filed the action against State Farm which is now before us, seeking to recover the full amount of the underlying judgment against Davis, as well as the 25 percent penalty and attorney fees authorized by OCGA § 33-7-11. State Farm answered the lawsuit and moved for summary judgment, contending that, notwithstanding any judgment, the dismissal agreement preserved its right to defend on the merits. Terry subsequently also filed a motion for summary judgment.

The trial court granted Terry’s motion as to recovery of the $50,000 judgment amount, but denied summary judgment as to Terry’s claim for bad faith penalties and attorney fees. The court also denied summary judgment to State Farm. State Farm appeals. For reasons explained below, we reverse the trial court’s ruling granting summary judgment to Terry, affirm the denial of summary judgment to State Farm, and remand the case with direction. We note that, as Terry admits, there have been no reported cases in Georgia and no comparable cases in other states that have dealt with the particular situation before us.

1. In six enumerations of error, State Farm contends the trial court erred in ruling that Terry was not bound by the dismissal agreement in the original action, in granting Terry’s motion for summary judgment and in denying State Farm’s motion for summary judgment. Under OCGA § 9-11-56 (c), summary judgment should be granted when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. We review de novo a grant of summary judgment, viewing the evidence and all reasonable inferences drawn from it in the light most favorable to the nonmovant. Rice v. Huff, 221 Ga. App. 592, 593 (472 SE2d 140) (1996).

2. Our first task is to ascertain the meaning and effect of the consent order dismissing State Farm as a party in Terry’s original action against Davis. In doing so, we begin by recognizing that this particular consent order constitutes a binding agreement between the parties with regard to their respective rights and obligations. Terry’s arguments that State Farm requested and drafted the dismissal are irrelevant. Both parties signed the dismissal, and the dismissal became a binding contract between the parties. “Competent parties are free to choose, insert, and agree to whatever provisions they desire in a contract. . . unless prohibited by statute or public policy. [Cit.]” Simmons v. Select Ins. Co., 183 Ga. App. 128, 129 (1) (358 SE2d 288) (1987). As discussed more fully below, we find the provisions in the dismissal are prohibited neither by statute nor public policy.

It is well established that contract disputes are particularly well suited for summary adjudication since construction of a contract is ordinarily a matter of law for the court. Burns v. Reves, 217 Ga. App. 316, 318 (1) (457 SE2d 178) (1995). “The cardinal rule of construction is to ascertain the intention of the parties. If that intention is clear and it contravenes no rule of law and sufficient words are used to arrive at the intention, it shall be enforced irrespective of all technical or arbitrary rules of construction.” OCGA § 13-2-3.

We find the dismissal at issue to be clear and unambiguous. The express language of the dismissal provides that in the event Terry elected to renew an uninsured motorist claim against State Farm, he would perfect service upon State Farm “in the manner authorized by law.” Terry further agreed that State Farm would “have a full right to defend [against Terry’s claims] on liability and damages. . . .” Finally, and most importantly, Terry agreed that “[stipulations and defaults by, or Judgments against, [Davis] will not be binding upon or create exposure by State Farm.” (Emphasis supplied.)

The only reasonable construction of this language is that State Farm would be given an opportunity to defend on liability and damages even after a judgment had been rendered against Davis. “It is well established that a court should avoid an interpretation of a contract which renders portions of the language of the contract meaningless. [Cit.]” Bd. of Regents &c. of Ga. v. A. B. & E., Inc., 182 Ga. App. 671, 675 (357 SE2d 100) (1987). Thus, Terry is bound by the terms in the contract to afford State Farm a full right to defend on liability and damages, notwithstanding the fact that a judgment against Davis has already been rendered.

3. In an attempt to avoid the contract, Terry argues that the contract cannot be enforced because its language contravenes the provisions of the Uninsured Motorist Act, OCGA § 33-7-11. We disagree.

OCGA § 33-7-11 (d) provides that a personal injury plaintiff must serve his uninsured motorist provider “as though the insurance company were actually named as a party defendant.” Once served, OCGA § 33-7-11 affords the uninsured motorist provider the right to file defensive pleadings and take other necessary actions. In fact, Georgia law provides that the uninsured motorist provider can answer in its own name, become a party to the litigation, and contest issues of liability, damages and coverage. OCGA § 33-7-11 (d); Langford v. Royal Indem. Co., 208 Ga. App. 128, 129 (2) (430 SE2d 98) (1993). While we agree that this opportunity to contest liability and damages may be waived by the uninsured motorist provider (see Continental Ins. Co. v. Echols, 145 Ga. App. 112 (243 SE2d 88) (1978)), this case does not present a waiver issue.

In Echols, the uninsured motorist provider was served, but unilaterally elected not to participate in the case. The uninsured motorist provider then attempted to force the insured to relitigate the issues. We held that in such a case, the uninsured motorist provider waived his opportunity to contest liability and damages after a judgment was entered against the uninsured motorist. The trial court in this action read Echols to require an uninsured motorist carrier to always litigate the first action or be bound by its result. Such a result is not contemplated by the statute, especially in a case such as the one with which we are presented, where, at the time Terry and State Farm signed their dismissal, Davis was not an “uninsured motorist” because McFrugal was still solvent and remained so until after judgment was entered against Davis.

Moreover, unlike the uninsured motorist provider in Echols, State Farm did not merely sit back and elect not to participate. State Farm obtained a dismissal without prejudice, signed by Terry’s counsel, which provided that State Farm would have a full right to defend on liability and damages if it became necessary for Terry to re-serve State Farm in a manner authorized by law. This dismissal specifically stated that a judgment against Davis would not be binding upon or create exposure by State Farm, reserving State Farm’s rights under the Uninsured Motorist Act. Relying on the contract with Terry, State Farm did not participate in any other aspect of the litigation between Terry and Davis. In addition, unlike the uninsured motorist provider in Echols, State Farm was legally unable to pursue its statutory right to take defensive actions in the case against Davis because it had been dismissed from the case.

Contrary to the trial court’s holding, Terry is not being “penalized for the decision of [State Farm] not to pursue a defense of [its] position.” Terry is merely being held accountable for a contract he entered, a contract which benefited him by (1) saving him the time and expense of litigating with State Farm at a time when it was apparent his action did not involve an uninsured motorist and (2) affording him the ability to re-serve State Farm at a later date without fear that the statute of limitation had expired. The fact that Terry may have to undergo a second trial in this case is a consequence brought about by the timing of the change of Davis’ status from insured to uninsured and the agreement with State Farm. State Farm was certainly entitled to rely upon the agreement contained in the voluntary dismissal.

We further disagree with the trial court that the dismissal language “amounts to a forfeiture of the right to be protected from injury when an uninsured motorist is involved.” The language of the dismissal does not prohibit Terry from recovering uninsured motorist benefits. It does not limit uninsured motorist coverage through provisions or exclusions, as do the cases cited by Terry and the trial court. Rather, the dismissal merely preserves State Farm’s statutory right to defend on the merits as to liability and damages.

Based on the foregoing, we find the dismissal language does not violate the Uninsured Motorist Act but, rather, preserves State Farm’s statutory right to defend the action. Contracts should be given a construction that renders them in compliance with a governing statute rather than in contravention thereof. Langford, 208 Ga. App. at 130 (3) (b) (physical precedent only). Even if this case did not initially fall within the ambit of OCGA § 33-7-11, due process mandates that an uninsured motorist carrier, like any other defendant, be allowed notice and an opportunity to be heard before judgment is entered against it. We find the trial court erred in refusing to enforce the dismissal language.

4. Terry also attempts to avoid the language in the dismissal by claiming that the doctrines of res judicata and collateral estoppel will bar him from pursuing his claim against State Farm. This claim lacks merit.

“Generally, res judicata bars relitigation of any matter of a cause of action that was, or could have been, put in issue and adjudicated in a prior proceeding between the same parties, while estoppel by judgment prevents relitigation in a subsequent suit (involving a different cause of action) a matter which was actually adjudicated in a former case. [Cits.] Neither defense, however, is available unless the subsequent suit is between the same parties or their privies. [Cits.]” Blackburn v. Blackburn, 168 Ga. App. 66, 72 (2) (308 SE2d 193) (1983).

Procedurally, it should be remembered that an uninsured motorist claim is a contract action between the insured and his insurance carrier, even though it proceeds and is tried on tort issues. State Farm &c. Ins. v. Bd. of Regents &c. of Ga., 226 Ga. 310, 311 (174 SE2d 920) (1970). Within the context of this case, the parties will be trying a contract case as though it is the underlying tort case. The predicate to the contract action is State Farm’s right, preserved by the dismissal language, to litigate the issue of liability. Thus, this case is no different than if State Farm had elected to defend in its own name, with the exception that Davis is not a party to this new action.

This being the case, contrary to Terry’s contentions, Davis cannot raise the defenses of res judicata or collateral estoppel because Davis is not a party to Terry’s present action against State Farm. While Davis will, in all likelihood, be called as a witness in the present action, Davis is not a named defendant and is, therefore, not entitled to raise these defenses. Moreover, the original judgment against Davis remains enforceable as to Davis and is res judicata as to Davis, regardless of the outcome of the new action.

Likewise, while Terry could assert the defenses against Davis, he cannot use the doctrines offensively against State Farm, who was not a party to the prior case and did not have a full and fair opportunity to litigate the liability issue. We further find that Terry has waived any such defenses against State Farm due to the language of the dismissal agreement. Even Terry does not argue that he could claim the benefit of these principles.

We also find that State Farm could not raise these principles in a subsequent proceeding since State Farm’s counsel affirmatively stated in open court that State Farm agreed not to raise these affirmative defenses. “Statements of counsel during the trial of a case may be regarded as admissions in judicio.” (Citations and punctuation omitted.) John H. Smith, Inc. v. Teveit, 175 Ga. App. 565, 567 (1) (a) (333 SE2d 856) (1985); Liberty Nat. Bank &c. Co. v. Diamond, 231 Ga. 321, 323 (III) (201 SE2d 400) (1973). Likewise, the statement made by State Farm’s counsel during the motion for summary judgment hearing may be regarded as an admission in judicio, binding on State Farm.

5. Although State Farm has not challenged the initial service of process in either the first lawsuit or the action now before us, State Farm contends it was entitled to summary judgment because Terry has not re-served it with process in the first action. We disagree. Terry satisfied OCGA § 33-7-11 (d)’s requirement that the uninsured motorist carrier be “served as prescribed by law” when he served State Farm in the first lawsuit. He satisfied both that statute and the dismissal’s requirement that State Farm “be served in the manner authorized by law” by serving the complaint and summons in the present action. The trial court, therefore, was correct in denying summary judgment to State Farm.

6. We feel compelled to note that the procedural difficulties in this case were created by the parties, although the absurdity of the law in this area may well create the same procedural situation in the future. Because of the dismissal language, the parties must try this case again as though it were never tried. Terry must amend his complaint consistent with this opinion, and the parties and the court must ignore the fact that a judgment has already been rendered against Davis. At trial, a jury could find that Davis is not liable, thus entitling State Farm to judgment. On the other hand, a jury could find that Davis is liable, in which case State Farm would be liable to the extent of the judgment up to its policy limits.

7. Given the holding in Bohannon v. J. C. Penney Cas. Ins. Co., 259 Ga. 162 (377 SE2d 853) (1989), regarding the statute of limitation issue and the difficulties created by that decision in vanishing coverage situations, such as the ones Justice Weltner anticipated in his Bohannon dissent and the one with which we are presented with in this case, the trial courts need guidance and direction regarding how a plaintiff can preserve his claims under an uninsured motorist contract and how the uninsured motorist carrier can preserve its rights to defend on the merits enjoying the same footing as the tortfeasor, which the court in Bohannon sought to ensure. In Rabun v. Williams, 168 Ga. App. 467, 470 (3) (309 SE2d 624) (1983), this Court incorrectly held that an uninsured motorist carrier properly served was entitled to summary judgment upon a showing that the defendant tortfeasor was not an uninsured motorist at the time of the motion for summary judgment. In view of the problems associated with vanishing coverage situations, it is clear the Rabun holding is incorrect.

Where the possibility exists that coverage will vanish, the proper approach is to grant the uninsured motorist carrier a dismissal without prejudice to either party. This would not only allow the uninsured motorist carrier to be brought back into the case with its full rights to defend on the merits should the case become an uninsured motorist case during its pendency, but it would also preserve the plaintiff’s rights under its contract with the uninsured motorist carrier. Summary judgment is inappropriate because it is premature. Thus, we expressly disapprove and overrule Rabun.

Based on the foregoing, we reverse the grant of summary judgment to Terry, affirm the denial of summary judgment to State Farm, and remand this case with direction to try the case as if it were the original case consistent with this opinion.

Judgment affirmed in part and reversed in part.

McMurray, P. J., Pope, P. J., Smith, Ruffin and Eldridge, JJ., concur. Beasley, J., concurs specially. Andrews, C. J., and Birdsong, P. J., concur in Divisions I, 2, 3 and 4 and dissent in Divisions 5, 6 and 7. Blackburn, J., concurs in part and dissents in part.