Freedom of Contract in Georgia

Insurance Policies are Construed as Written

Insurance is nothing more than a contract. The terms of the contract must be enforced by the courts as long as the wording is clear and unambiguous and the conditions do not violate the public policy of the state. In National Casualty Company v. Georgia School Boards Association – Risk Management Fund, S18Q0757, Supreme Court of Georgia (August 14, 2018) The United States District Court for the Northern District of Georgia asked the Georgia Supreme Court whether National Casualty Company (“National”), a commercial insurer, and defendant Georgia School Boards Association – Risk Management Fund (“Risk Fund”), an interlocal risk management agency, could avoid an “other insurance” clause. It was also asked if Georgia law or public policy precludes a commercial insurance policy that is excess to coverage provided under a Georgia statute.


National and Risk Fund provide overlapping liability coverage to members of the Professional Association of Georgia Educators (“PAGE”), a professional association of teachers and administrators. National issued insurance policies to PAGE that provide liability coverage to PAGE members:

The Policies also contain a provision limiting coverage for liabilities covered by “other insurance” (“Other Coverage Provision”).

Risk Fund’s risk-sharing arrangement is set forth in coverage agreements entered into by Risk Fund and its members (“Coverage Agreements”). Under the Coverage Agreements, Risk Fund provides liability coverage to members and their employees, including PAGE members. Risk Fund’s coverage includes liability coverage for personal injury, bodily injury, property damage, negligent acts, wrongful acts, and sexual abuse. Risk Fund is required to “pay [amounts a] Member becomes legally obligated to pay as damages” and to “defend … Member[s] against any ‘suit’ seeking those damages.” Risk Fund’s members are jointly and severally liable “for all legal obligations” arising under the Coverage Agreements.

From 2014 to 2016, several lawsuits were filed against PAGE members covered under the Policies and the Coverage Agreements (“Covered Members”). National refused to defend or indemnify these Covered Members until coverage under the Coverage Agreements was exhausted. National contended that the Other Coverage Provision in the Policies made it only an excess insurer. Because of National’s refusal to provide primary coverage, Risk Fund defended, indemnified and paid settlement amounts on behalf of the Covered Members, pending resolution of the present amended complaint for declaratory judgment filed by National.


“Other Insurance” provisions describe at which point each policy’s coverage attaches. And, if the two entities providing insurance, attempt to limit their liability to excess coverage if there is other insurance, then the clauses are irreconcilable, cancel each other out, and the liability is to be divided equally between them.

Of necessity, the initial inquiry is the meaning of the insurance policy provisions at issue. The interpretation of an insurance policy is subject to the relevant general rules of contract construction, the cardinal rule being to determine and carry out the intent of the parties. In making the determination of intent, a court is to consider the insurance policy as a whole, and a preferred construction will give effect to each provision, attempt to harmonize the provisions with each other, and not render any of the policy provisions meaningless or mere surplusage. Furthermore, the policy should be read as a layman would read it.

Georgia law provides that insurance companies are generally free to set the terms of their policies as they see fit so long as they do not violate the law or judicially cognizable public policy.

The question is whether there is any Georgia law or public policy justifying a departure from the basic rules of insurance contract construction. Risk Fund argued that the traditional analysis is not applicable when an interlocal risk management fund is involved because public policy dictates that, irrespective of the documents’ bargained-for contractual terms, commercial insurance always should exhaust before any publicly funded risk management monies are spent. But, there is no basis in Georgia law or public policy for such an approach. In fact, the law and public policy concerns dictate quite the contrary.

In enacting OCGA § 20-2-990, et seq., which requires public schools to protect themselves from liability exposure through the purchase of liability insurance and/or contracts of indemnity, the General Assembly sought to address what it termed the “urgent crisis” confronting public education in Georgia. In order to address such crisis, boards of education are permitted to pool their general liability risks to form and become members of interlocal risk management agencies as an alternative to purchasing commercial liability insurance. As reflected in its findings, the General Assembly recognized that the expenditure of public funds to protect against education professionals’ liability, even as pooled in an interlocal risk management fund, is essential to quality education.

There is no requirement that either the insurance purchased or the risk management pool established apply only in excess of any available commercial insurance. The General Assembly expressly authorized the use of public funds for the exact purpose for which interlocal risk management agencies like Risk Fund are formed.

The public policy concerns were considered and addressed by the General Assembly in enacting the statutes. The express preservation of immunities is the way in which the “public purse” is protected.

There is no apparent public policy which would be furthered by the requirement that commercial insurance funds be exhausted before the legislatively mandated public funds set aside to protect education professionals against employment-related liability are used.

The bedrock public policy of freedom of contract would be frustrated if there were such a requirement. In addition, insurance policies are not only a matter of contract, they are also a matter of public concern because rulings in cases involving common policies obviously affect risk and associated insurance rates at a mass level.

Rendering meaningless the bargained-for “other insurance” provisions contained in commercial insurance policies in favor of contemplated publicly funded sources of insurance based on a public policy requiring the exhaustion of all commercial funds would interfere not only with an insurance company’s freedom to contract with its insureds but also undoubtedly adversely affect the premiums paid for liability policies to protect the education professionals of this State.

Insurance contracts are properly construed and applied as written unless prohibited by law or public policy. There is no law or public policy in Georgia which prohibits the found application of the “other insurance” policy provisions at issue and utilization of the priority of coverage analysis.


The US Constitution and the public policy of all sates allow insurers to bargain for specific terms of the contract of insurance. It is improper in Georgia, and everywhere else, to render meaningless a bargained for “other insurance” clause for any reason and specifically to protect the public purse that was protected by the Legislature. Georgia correctly protected the contract.

© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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