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Lawyer, Insurer Penalized for Bringing Appeal
Court of appeals says insurance company apparently took appeal solely to delay resolution of coverage dispute
Fulton County Daily Report
November 24, 2009
A panel of the state Court of Appeals has slammed an insurance company for refusing to defend a contractor against claims resulting from an accidental fire at a Georgia college, hitting both the insurer and its outside counsel with a monetary penalty for filing what the court considered a frivolous appeal.
In an opinion unusual for its critical tone, the appellate panel on Nov. 13 ordered a Bibb County trial judge to make Chicago-based Transportation Insurance Co. and Atlanta lawyer Dennis A. Brown of Buckley Brown each pay the contractor, Georgia-based Piedmont Construction Group, a $2,500 penalty. It upheld Macon Judicial Circuit Superior Court Judge Tilman E. "Tripp" Self III's decision that Transportation Insurance is liable to Piedmont, although it said Self was wrong to decide the amount of the award without the input of a jury.
"Despite receiving an exhaustive, thoroughly sourced, and detailed order from the trial court explaining every aspect of its ruling," Presiding Judge J.D. Smith wrote for the appellate panel, "Transportation proceeded with an appeal not only of coverage in this action but even its duty to undertake a defense of Piedmont. The trial court warned Transportation that this was not a 'close case,' and we agree."
Brown, the lawyer penalized by the court, would say only, "We're exploring options at this point going forward." But Brown's adversary at the Court of Appeals, Duke R. Groover of James, Bates, Pope & Spivey in Macon, came to his defense.
"The lawyer for Transportation acted professionally throughout the case," said Groover. "I think he is a very good lawyer, and I have a lot of respect for him. I think that the positions taken by Transportation were made by Transportation and not their attorney."
Still, Groover maintained that Brown's client was in the wrong. "I do believe that Transportation took those positions in bad faith," said Groover, "because I think Georgia law is clear that they owed the duties to defend and indemnify Piedmont in this case."
The fire from which the case stems occurred at a dormitory on the campus of Middle Georgia College in Cochran. The state university system had hired Piedmont to perform renovations to the building, and Piedmont in turn subcontracted plumbing work for the project. Late the night of March 16, 2005, a plumber's torch left behind after work had stopped for the day ignited a wooden wall stud in the building, causing a fire that destroyed the building's second floor and roof and led to extensive smoke and water damage throughout the building, according to an order by Self.
The Board of Regents of the University System of Georgia demanded $3.23 million in damages from Piedmont and the subcontractor. The subcontractor settled the claim for $1 million, the limit of its insurance policy, but Transportation Insurance refused to even pay for Piedmont's lawyers in the dispute with the university system, as did Piedmont's excess carrier, The North River Insurance Co. In September 2007, the Regents filed suit in Bibb Superior Court against Piedmont, which in turn brought third-party bad faith claims against Transportation Insurance and North River.
Among other arguments, both carriers have relied on identical exclusions in their policies known as "business-risk" exclusions. The exclusions in the two policies tell Piedmont that coverage does not apply to "[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the 'property damage' arises out of those operations" or "[t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it."
The insurers argued that the exclusions applied because the phrase "that particular part of real property" referred to the entire dormitory because Piedmont was performing a renovation of the entire building. Piedmont protested that its renovation was limited to less than one-fifth of the building and that the damage was not due to poor workmanship that resulted only in damage to the contractor's work -- i.e., the basis of a contract claim -- but was caused by an accident that resulted in damage to other property -- the basis of a tort claim.
