Lex Loci Contractus Applied by Eleventh Circuit
In Mt. Hawley Insurance Company v. East Perimeter Pointe Apartments, Miranda Wilder, Constance Irions, Adrian Johnson, Lexington Insurance Company, Ventron Management, LLC, No. 19-13824, the United States Court Of Appeals For The Eleventh Circuit (May 27, 2021) was asked to apply Georgia law on breach of the insureds’ policies requirement for prompt reporting of losses.
The Eleventh Circuit recognizing that Georgia’s courts have always relied on lex loci contractus to decide contractual disputes involving a foreign state’s statutory law, this maxim has also established that Georgia courts hawkishly apply its common law to the exclusion of every other state. In this case, the district court determined that this insurance-coverage dispute rested on the common law; thus, as an Erie-bound district court in Georgia, it decided that the insureds’ two-year delay in notifying their insurers about an occurrence barred coverage as a matter of Georgia common law.
This federal case arose from two state-court lawsuits filed to recover damages for an assault and murder at an apartment complex owned by East Perimeter Pointe Apartments, LP in Decatur, Georgia. Both lawsuits allege that East Perimeter and Ventron Management, LLC, the company contracted by East Perimeter to provide property-management services for the complex, negligently provided security so that they are liable in tort. One seeks to recover personal injury damages and damages for the wrongful death of Marcus Wilder, and the other seeks personal injury damages due to an assault suffered by Adrian Johnson.
Within hours of learning about the shooting, a manager at the apartment complex wrote and emailed an incident report to Ventron’s general counsel and registered agent, Michael Scaljon. Thirteen days later, Ventron received a letter from Evon Williams, the attorney hired to represent the litigants in the state-court lawsuit for Wilder’s murder. In that letter, Williams asked for insurance information, “a copy of all applicable policies with declaration pages,” and for Ventron to “forward our request for information to all affected insurers.”
Mt. Hawley Insurance Company had issued a commercial general liability insurance policy, and Lexington Insurance Company had issued a commercial umbrella liability policy that ostensibly covered the apartment complex. Despite Williams’ letter, however, roughly two years passed before East Perimeter or Ventron notified either insurance company about the murder and assault.
The Mt. Hawley Policy provides that “[i]n the event of any occurrence that may result in a claim against this policy, the insured will immediately report such occurrence and cooperate fully with the following claim adjusting company: RLI ADJUSTING COMPANY.”
Notwithstanding the clear language from both the endorsement provision and the standard provision, Mt. Hawley first received notice two days after Johnson filed his state-court lawsuit although the assault and murder occurred almost two years earlier.
Lexington issued Skinner Select an umbrella policy for excess coverage. Lexington, like Mt. Hawley, understood that Skinner Select did not own East Perimeter’s apartment complex but that it was merely a conduit through which owners and managers of commercial property purchase insurance. Similar to the Mt. Hawley Policy, the Lexington Policy also contains a section for “Duties in the Event of an Occurrence, Claim or Suit.”
Choice of Law
East Perimeter and Ventron (as well as appellants Miranda Wilder, Constance Irions, and Adrian Johnson) contend that California law should govern this lawsuit. In California, an insured’s breach regarding notice provisions doesn’t preclude coverage unless the breach substantially prejudiced the insurer. [Campbell v. Allstate Ins. Co., 384 P.2d 155, 156 (Cal. 1963); Abrams v. Am. Fid. & Cas. Co., 195 P.2d 797 (Cal. 1948).]
California’s notice-prejudice rule requires an insurer to prove that the insured’s late notice of a claim has substantially prejudiced its ability to investigate and negotiate payment for the insured’s claim. With California’s public policy giving strong favor to compensation for insureds over technical forfeitures of coverage, California law places a heavy burden on insurance companies seeking to defend against coverage based on an insured’s breach of a notice provision.
In contrast, Mt. Hawley and Lexington argued that Georgia law governs the insurance-coverage dispute. Unlike California law, Georgia law doesn’t require an insurance company to prove that it was prejudiced by an insured’s breach of a notice provision. Under Georgia law, “when an insurance policy includes a notice requirement as a condition precedent to coverage, and when the insured unreasonably fails to timely comply with the notice requirement, the insurer is not obligated to provide a defense or coverage.” Forshee v. Emps. Mut. Cas. Co., 711 S.E.2d 28, 31 (Ga. Ct. App. 2011).
Georgia’s choice-of-law requirements to determine which state’s law will apply. Since 1847, Georgia has used the lex loci contractus rule to govern contracts. The rule provides that contracts, like insurance policies, are to be governed as to their nature, validity, and interpretation by the law of the place where they are made. Under Georgia law, an insurance contract is made, not where it was executed, but where it was delivered—where the last act essential to the completion of the contract was done.
The Georgia Supreme Court has made it clear that lex loci contractus only permits Georgia courts to consider a foreign state’s law when it involves its statutes or judicial decisions on those statutes. When the Georgia Supreme Court adopted lex loci contractus as its choice-of-law rule, the prevailing view at the time was that there is one common law that can be properly discerned by wise judges, not multiple common laws by which judges make law for their various jurisdictions.
If the law to be applied to a contract dispute by a Georgia court or a federal court in Georgia is judicially-created, then the common law as expounded by the courts of Georgia must govern. Since there is no California statute that directly governs the outcome of this insurance-coverage dispute, the district court correctly applied Georgia, not California, law.
The Mt. Hawley Policy has two important conditions: an endorsement provision and a standard policy provision. The endorsement provision states that “[i]n the event of any occurrence that may result in a claim against this policy, the insured will immediately report such occurrence and cooperate fully with the . . . claim adjusting company[.]” The standard provision states that “You must see to it that we are notified as soon as practicable of an ‘occurrence’ or an offense which may result in a claim.” Nearly identical to the standard provision within the Mt. Hawley Policy, the Lexington Policy states that “You must see to it that we are notified as soon as practicable of an ‘occurrence’ that may result in a claim or ‘suit’ under this policy.”
Based on these provisions, Mt. Hawley and Lexington argue that East Perimeter and Ventron failed to timely report the incidents that occurred at the apartment complex. Notice provisions, like those contained in the Mt. Hawley and Lexington Policies, “must be complied with, absent a showing of justification.” Plantation Pipeline Co. v. Royal Indem. Co., 537 S.E.2d 165, 169 (Ga. Ct. App. 2000). And the notice provisions in both policies are conditions precedent to coverage.
When it comes to an insured’s adherence to notice provisions, Georgia case law is settled. Insurance companies aren’t obligated to defend an insured or provide coverage if the insured unreasonably failed to comply with a conditional notice requirement. This law is drastically different than California law requiring insurance companies to show that a notice-related breach caused substantial prejudice to their ability to investigate or negotiate a claim. Looking at Georgia law, it required East Perimeter and Ventron to give notice of Wilder’s murder and Johnson’s assault with reasonable diligence and within a reasonable length of time in view of the attending circumstances.
Mt. Hawley didn’t receive notice of the shooting until November 13, 2017 23 months after the incident and Johnson’s assaul over 23 months before Mt. Hawley received notice. As for Lexington, 26 months passed before it received notice. Since the Lexington Policy required notice of incidents that “may result” in its involvement, the district court did not err when it concluded, “in view of the attending circumstances,” the prolonged delays in this case were unreasonable as a matter of Georgia law.
The Eleventh Circuit, therefore, concluded that neither Mt. Hawley nor Lexington have a duty to provide a defense or coverage to East Perimeter or Ventron for these incidents.
Since there was no right to apply the notice-prejudice rule in Georgia the conclusions reached by the Eleventh Circuit were clearly reasonable. Even if Georgia adopted the notice prejudice rule a two-year delay in reporting a wrongful death and serious physical injury for two year made it difficult, if not impossible, to conduct a fair and complete investigation of the claims and the eventual lawsuit, would still deprive the insured of the right to a defense or indemnity from the insurers.
© 2021 – Barry Zalma
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 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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