Uncovered Wood Covered

In an unpublished Eleventh Circuit Court of Appeals decision, the court unanimously upheld a Georgia federal court’s ruling that an insured was entitled to coverage for a settlement of both covered and uncovered claims. In this case, the plaintiff hired a contractor to deconstruct a building. The contractor hired a sub-contractor who, it was later determined, performed shoddy work and stole materials, including wood, from the construction site. The plaintiff sued its contractor alleging several negligence, contract and warranty-related claims. The contractor tendered the lawsuit to its insurer, but the insurer refused to defend or indemnify. The plaintiff eventually settled with the contractor with the contractor admitting liability to claims of negligent deconstruction, negligent hiring and retention, and negligent supervision. The plaintiff and the contractor then entered into a consent judgment that did not allocate damages among the various counts of alleged negligence. Subsequently, the contractor assigned its rights against its insurer to the plaintiff.

In evaluating the insurer’s arguments, the court noted that the insurer agreed that negligent hiring, retention and supervision qualified as “occurrences” under the policy but argued that certain exclusions applied. After dismissing the application of the exclusions, the court went on to address covered vs. noncovered claims. In this instance, that part of the consent judgment based solely on defective work would not ordinarily be covered under the policy, but the negligence claims would. In determining that the insurer would be liable for the entire loss, however, the court first noted that, under Georgia law, unallocated consent judgments are enforceable. The court affirmed the district court’s finding that 1) the consent judgment complied with procedures established under Georgia law 2) Georgia common law did not appear to allow an insurer a second bite at the apple when it chose not to participate in the underlying lawsuit, and 3) the settlement was for less than the value of the stolen lumber, so even if the consent judgment wasn’t properly allocated, the recovery was reasonable.

The court also stated that usually, under Georgia law, an insurer is estopped from contesting liability of its insured when it refuses to defend or indemnify but it wouldn’t necessarily, in all cases, prevent an insurer from later contesting coverage. Therefore, the court found that there was nothing in Georgia law that prevented the enforcement of an unallocated consent judgment and therefore, nothing supporting the insurer’s right to contest coverage after it refused to defend and indemnify its insured.

The case is Barr v. Auto-Owners Ins. Co., No. 22-13649 (11th Cir. Aug. 6, 2024).