April 2005

According to the National Highway Traffic Safety Administration, the number of highway deaths attributable to large trucks rose for the second year in a row in 2004, increasing by 3.7 percent and topping 5,000 for the first time since 2002. The increase to 5,169 deaths follows a 1 percent gain in 2003, when truck-related fatalities totaled 4,986. See eTrucker article.
There are certainly many factors, including errors of other drivers. However, inadequate enforcement of trucking safety rules is a key factor. As I review my news feeds on trucking accidents from around the country every day, I am continually struck by the number of horrific truck crashes between about 2 AM and dawn that involve truck drivers from small companies that generally have poorer internal enforcement of hours of service rules than do the larger companies. Time and time again, I see reports of a small company trucker straying out of his lane or crashing into something between midnight and dawn. While the articles seldom identify root causes, the circumstances point to driver fatigue and sleep deprivation.

A litte over two months after the General Assembly passed Senate Bill 3, my extremely unscientific survey indicates that the new new Offer of Judgment rule in OCGA 9-11-68 is getting little use. We are not seeing the kind of massive and abusive use of this rule that many of us had feared. I have heard a number of defense lawyers and insurance claims professionals express concern that use of offers of judgment could come back to bite them, as their companies could wind up paying cash for plaintiffs’ attorney fees and litigation expenses.
Are we seeing the development of the sort of tacit understanding of “no first use” that some of us have been encouraging?

A.M. Best reported on 4/25/05 that “the U.S. property/casualty industry reported improved operating results in 2004 for the second straight year,” and that “for the first time since 1978, underwriting results were profitable, with a combined ratio of 97.9.”
Invested assets were up 17% from 2003, and surplus grew at a 13.5% rate, and return on equity reached 10.8%. The 2004 results reflect growth of earned premiums derived from peak pricing in 2003. However, A.M. Best projects that increasing price competition may slow growth to 4.7% in the coming year. “Strong pricing and restrictive policy terms and conditions over the past two years have played a major role in the industry’s outstanding underwriting performance, and insurers will need to continue their prudent underwriting practices as rates soften.”

Some disability insurance companies have attempted a perplexing defense with insureds whose declining health has led to a period of unemployment prior to filing a claim for disability benefits. The argument is that the sick insured had not been working, had therefore abandoned his occupation, and having no longer having a gainful occupation from which to become disabled is not entitled to disability benefits. The sophistry of this “Catch-22” occupation defense appears to have been rejected in every reported decision in which it was attempted in the absence of a specific contractual requirement.
“Pure poppycock” is the term a federal district judge used to describe the insurer’s assertion of that defense in Norcia v. Equitable Life Assurance Society of U.S., 80 F.Supp.2d 1047 (D.Ariz., 2000). Equitable took the position that its disability insurance policyholder’s occupation at the time of the claim, after a long period of declining health, was that of a “retired / unemployed person.” Forcefully rejecting that defense, the District Court granted the insured’s motion for summary judgment on the contract claim, and in discussing the insured’s claim for bad faith characterized Defendant’s position as “pure poppycock” that was “utterly bereft either of textual support in the language of the insurance contract or the gloss placed on such language by any Arizona case.” That position contrary to the rule of reasonable interpretation of insurance contracts under Georgia law, and is equally bereft of support in any Georgia case. See Giddens v.The Equitable Life Assurance Society of the United States, 356 F.Supp.2d 1313(N.D.Ga.,2004).
In Weaver v. New England Mut. Life Ins. Co., 52 F.Supp.2d 127 (D.Me., 1999), the court rejected the “occupational defense,” holding that the insured’s suit challenging that position stated a claim for intentional infliction of emotional distress, fraud and punitive damages under Maine law. In Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152 (9th Cir., 2002), the court reversed a summary judgment for the insurer based on the “occupational defense” of an insured who was unemployed when she became disabled. Similarly, in Burriesci v. Paul Revere Life Ins. Co., 679 N.Y.S.2d 778 (1998), the court rejected the “occupational defense” and, relying on rules of insurance policy construction identical to Georgia law, held:
By failing to use language that provides that an insured must be actively working at the time that the disability arises, the policy does not unambiguously exclude coverage for unemployed insureds . . . . We reject defendant’s contention that the addition of the term “regularly” to the term “engaged” means only that the policy covers a person who is employed but is not at work when the injury occurs. . . . [D]efendant may not deny benefits to plaintiff because she was temporarily unemployed at the onset of her disability.
See also, Lehman v. Executive Cabinet Salary Continuance Plan, 241 F.Supp.2d 845 (S.D.Ohio, 2003)(Provident wrongly classified occupation where insured retired only because of inability to perform job); Weaver v. New England Mut. Life Ins. Co., 52 F.Supp.2d 127 (D.Me.,1999)(similar position by disability insurer rejected, long discussion of applicability of various causes of action under Maine law).
If an insurer chose to define “occupation” in the policy to require that the insured must be actively working full-time up to the date of disability, it easily could do so. See, e.g., Falik v. Penn Mutual Life Ins. Co., 190 F.Supp.2d 1156, 1160 (E.D.Wis.,2002.); Oglesby v. Penn Mut. Life Ins. Co., 877 F.Supp. 872 (D.Del.,1994). However, in the absence of such a definition in the contract, more reasonable interpretations must apply.

Georgia law does not require total helplessness, or a strict and literal interpretation to total disability income policies, but employs a reasonable interpretation in light of the insured’s customary occupation, experience, education, and physical and mental capabilities.
In Parker v. Prudential Insurance Company of America, 224 Ga.App. 865, 482 S.E.2d 483 (1997), the Georgia Court of Appeals reversed summary judgment for a disability insurance carrier. Due to psychiatric illness, an accountant was able to earn only 20% of what he had previously earned in an executive position. Even under a non-occupational disability policy, the Court held:
[D]isability exists if the condition of the insured prevents him from performing a substantial portion of the duties of his occupation or such other line of work as he might reasonably be expected to follow, considering his education, experience, age, and natural ability. . . . [T]otal disability is properly considered within the context of the insured’s customary and usual vocation. . . . “[T]otal disability” requires only that the insured be unable to perform substantial portions of his ordinary employment or any other employment approximating the same livelihood as he might fairly be expected to follow, given his personal circumstances, including his experience, education, and physical and mental capabilities.
Likewise, in Equicor, Inc. v. Stamey, 216 Ga.App. 375, 454 S.E.2d 550 (1995), a motorcycle policeman who had degrees in fields in which he had no work experience the court rejected the insurer’s denial of disability benefits, reasoning that:
[D]isability exists if the condition of the insured prevents him from performing a substantial portion of the duties of his occupation or such other line of work as he might reasonably be expected to follow, considering his education, experience, age, and natural ability. . . . [T]otal disability is properly considered within the context of the insured’s customary and usual vocation.” . . . “[T]otal disability” requires only that the insured be unable to perform substantial portions of his ordinary employment or any other employment approximating the same livelihood as he might fairly be expected to follow, given his personal circumstances, including his experience, education, and physical and mental capabilities. (Emphasis supplied)
Even earlier cases sometimes selectively quoted by disability insurance companies support this proposition. In Cato v. Aetna Life Ins. Co., 164 Ga. 392(3), 138 S.E. 787 (1927), the court stated:
When the insured is incapacitated from performing any substantial part of his ordinary duties, a case of total disability is presented, although he is still able to perform some parts of his work. Total disability is inability to do substantially all of the material acts necessary to the transaction of the insured’s occupation, in substantially his customary and usual manner. . . . Total disability does not mean absolute physical inability to work at one’s occupation, or to pursue any occupation for wages or gain. . . . 138 S.E. at 788.(emp. supplied)
Similarly, in Prudential Ins. Co. of America v. South, 179 Ga. 653, 177 S.E. 499 (1934),the court held:
[T]he policy should be construed liberally to effectuate the general purpose of the contract, which is to indemnify the insured for the loss of time by reason of incapacity to perform his usual work or carry on his usual business by reason of a happening covered by the policy. . . . There are two lines of authority relating to cases of this kind, one tending to literalism, and the other applying the principle of liberal construction. The authorities which incline to strict interpretation are seemingly in the minority, and this court is committed to the more liberal doctrine. . . . Where a provision in a policy is susceptible of two or more constructions, the courts will adopt that construction which is most favorable to the insured. . . . . Under this policy, any reasonable person would have expected substantial protection, and would never have thought of the disability as one which must incapacitate him to earn the smallest sum in any possible manner. . . . “Total disability,” irrespective of the technical variations in the language employed, should be given a rational and practical construction. . . .We are unwilling to adopt . . . a doctrine, the effect of which would be . . . to reduce all such contracts to nullities, and to make them the instruments of extracting dues from policy holders without creating any liability on the part of the insurers. . . . Under defendant’s theory, the plaintiff might embark in the peanut trade or follow the business of selling shoestrings or lead pencils, or follow some similar calling . . . . [S]uch was not within the contemplation of the parties. In order to carry out the intent of the parties, it is our duty to disregard the broad language used which would have the effect to defeat the purpose of the contract and render it a nullity. (emphasis supplied)
Likewise, in Metropolitan Life Ins. Co. v. Johnson, 194 Ga. 138, 20 S.E.2d 761 (1942), the court held for the insured, a TB victim who was unable to continue operating his store but managed the Elks Club. He was “not performing any substantial part of the duties of his former employment or duties of a similar nature, and cannot be deprived of total disability benefits by reason thereof.” 20 S.E.2d at 762.

The Federal Motor Carrier Safety Administration has determined that bus driver fatigue combined with poor brake maintenance by a trucking company tired driver to kill eight on a Texas church bus in 2003. As is commonly the case, the church that owned the bus was never informed that it was required to comply with Federal Motor Carrier Safety Regulations, including driver medical qualifications. The bus driver, who had chronic insomnia and sleep apnea, had never obtained the required medical certificate. The bus struck a tractor-trailer that had been pulled off on the side of the Interstate when poorly maintained brakes began smoking. See Newsday article.

New Jersey, 4/22/05. At 1:10 AM, a tractor-trailer’s failed to slow in a construction zone, causing a fiery chain-reaction crash killed 3 and and closed a 16-mile section of the New Jersey Turnpike for 15 hours. An investigator described the scene as the “most horrific crash” he had ever seen. The truck driver and two others were burned beyond recognition. The truck that caused the crash was registered to HLC Holdings owned by Henry L. Coia Trucking Inc. The company’s drivers scored just one point above “deficient,” according to the Federal Motor Carrier Safety Administration Web site. The Philadelphia Inquirer article about the crash did not explore driver fatigue and hours of service issues, which are always likely suspects when a trucker from a small trucking company with a poor safety record in involved in an incident indicative of inattentiveness, particularly in the small hours of the night.

A leading scholarly commentator on insurance law has explained the “reasonable expectations” principle as follows:
The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations. R. Keeton, “Insurance Law Rights at Variance with Policy Provisions,” 83 Harv.L.Rev. 961, 967 (1970).
Georgia courts have followed this standard in construing insurance contracts to protect the reasonable expectations of the insured. See, e.g., Georgia Farm Bureau Mut. Ins. Co. v. Meyers, 249 Ga.App. 322, 548 S.E.2d 67 (2001); Ga. Farm Bureau &c. Ins. Co. v. Huncke, 240 Ga.App. 580-581, 524 S.E.2d 302 (1999); Anderson v. Southern Guaranty Ins. Co. &c., 235 Ga.App. 306, 309, 508 S.E.2d 726 (1998).
Ambiguity in an insurance contract is duplicity, indistinctiveness, uncertainty of meaning of expression, and words or phrases which cause uncertainty of meaning and may be fairly construed in more than one way. Allstate Ins. Co. v. Grayes, 216 Ga. App. 419, 422(3), 454 S.E.2d 616 (1995).
Where a term of a policy of insurance is susceptible to two or more constructions, even when such multiple constructions are all logical and reasonable, such term is ambiguous and will be strictly construed against the insurer as the drafter and in favor of the insured. O.C.G.A. § 13-2-2(5); Ga. Farm &c. Ins. Co. v. Huncke, supra at 580, 524 S.E.2d 302; Peachtree Cas. Ins. Co. v. Kim, 236 Ga.App. 689, 690, 512 S.E.2d 46 (1999); Cole v. Life Ins. Co. &c., 236 Ga.App. 229, 511 S.E.2d 596 (1999). Where the phrasing of the policy is so confusing that an average policyholder cannot make out the boundaries of coverage, the policy is genuinely ambiguous. Ga. Baptist Children’s Homes &c. v. Essex Ins. Co., 207 Ga.App. 346, 347(1), 427 S.E.2d 798 (1993).
Exceptions and exclusions to coverage must be narrowly and strictly construed against the insurer and liberally construed in favor of the insured to afford coverage. Nationwide Mut. Fire Ins. Co. v. Erwin, 240 Ga.App. 816, 817, 525 S.E.2d 393 (1999). “[T]he absence of an express provision must be strictly construed against [the insurance company] and in accordance with the reasonable expectations of [the lay insured].” Jefferson-Pilot Life Ins. Co. v. Fraker, 234 Ga.App. 430, 507 S.E.2d 188 (1998); Duncan v. Integon General Ins. Corp., 267 Ga. 646, 482 S.E.2d 325 (1997).
One of the most eloquent court opinions on reasonable expectations of policyholders, Lehrhoff v. Aetna Cas. and Sur. Co., 638 A.2d 889 (N.J.Super.A.D.,1994). In discussing the reasonable expectations of an insured in an automobile policy, the court found a particular provision was:
so well-hidden that only a determined, persistent and experienced reader knowing precisely what information he is seeking would be able even to find the applicable sections of the policy. . . . [An] … insurance policy is a bulky document, arcane and abstruse in the extreme to the uninitiated, unversed and, therefore, typical policyholder. . . . We deem it unlikely that . . . the average . . . policyholder would then undertake to attempt to analyze the entire policy in order to penetrate its layers of cross-referenced, qualified, and requalified meanings. Nor do we deem it likely that the average policyholder could successfully chart his own way through the shoals and reefs of exclusions, exceptions to exclusions, conditions and limitations, and all the rest of the qualifying fine print, whether or not in so-called plain language.
The court in Lehrhoff went on to discuss the reasonable expectations rule as having been “developed over the years to protect insureds from . . . the insurance industry’s ‘unholy mantra’ of ‘we collect premiums; we do not pay claims.’” To that end,
[w]hen members of the public purchase policies of insurance they are entitled to the broad measure of protection necessary to fulfill their reasonable expectations. They should not be subjected to technical encumbrances or to hidden pitfalls and their policies should be construed liberally to the end that coverage is afforded “to the full extent that any fair interpretation will allow.” [Citations omitted]. An important corollary of the reasonable-expectation doctrine, at least in respect of the consumer market, is that reasonable expectations will, in appropriate circumstances, prevail over policy language to the contrary. 638 A.2d 892-3
See also, Universal Underwriters Ins. Co., Recreational Products Ins. Div. v. New Jersey Mfrs. Ins. Co., 690 A.2d 1104, 1110-11 (N.J.Super.A.D. 1997), holding that, “it is the declaration page, the one page of the policy tailored to the particular insured and not merely boilerplate, which must be deemed to define coverage and the insured’s expectation of coverage.” While not a Georgia case, it is consistent with the reasonable expectation rule under existing Georgia law discussed above.

The Fulton County Daily Report (subscription required, $) published an article on 4/20/05, reporting that the tort reform lobby isn’t finished in Georgia. According to the article, there are plans to come back in 2006 with proposals to limit contingent attorney fees with some sort of sliding scale, and to make “collateral sources” (payments that the plaintiff received from her own insurance company) admissible in evidence.
Arbitrary limits on contingent attorney fees sound consumer-friendly to the uninformed at first blush. However, the intent is to make it economically impossible for attorneys to handle big, complex injury cases, and thereby deprive injury victims of competent representation. Lawyers representing plaintiffs in complex tort cases — especially products liability and medical malpractice cases — generally have to devote hundreds of hours of their time with substantial risk of never getting paid, and spend $50,000 to $100,000 or more of their own money on expenses with no chance of repayment if they lose. That is a significant entrepreneurial risk that cannot be taken without the hope of a corresponding significant profit if the case is successful. If contingent attorney fees are capped at a level that makes that investment of time and money prohibitive, trial lawyers will not take those cases, but will migrate to other kinds of legal work, and injury victims will go unrepresented. But of course that is the goal of those who promote such ideas.
The tort reformers claim that the “collateral source rule” under which payments to or on behalf of the injury victim by her own insurer or other sources promote a “double recovery.” The basis of the rule is the highly prejudicial effect on a jury of learning that the plaintiff has already received some money, or that bills have already been paid. Proponents of changing the rule disregard the fact that the victim has generally exercised the prudence to purchase insurance, the benefits of which flow from contract rights.
A big problem with both of these proposals is that they are almost certainly unconstitutional. Unfortunately, some of those who call most loudly for “tort reform” worry about the constitution only when their own rights are impacted.
Contingent fee caps. Section 10 of the U. S. Constitution provides: “No State shall . . . pass any . . . Law impairing the Obligation of Contracts . . . .” This is simply a matter of imposing wage and price controls in order to arbitrarily deny injury victims the right of competent legal representation by fixing unreasonably low fees for services rendered by attorneys. Moreover, to limit the fees to which a plaintiff can contract in order to obtain competent, vigorous representation, without also placing a low cap on the fees a manufacturer or insurance company can agree to pay its law firms, would be a violation of Equal Protection under both state and federal constitutions.
Collateral Source Rule. In 1987, the legislature passed a “tort reform” bill that included admissibility of collateral sources in evidence. The Supreme Court held it unconstitutional. In the case of Denton v. Con-Way Southern Exp., Inc., 261 Ga. 41, 402 S.E.2d 269 (1991), the Supreme Court of Georgia held that provision unconstitutional under the Equal Protection provision of the Georgia Constitution. It is a violation of Equal Protection to inform the jury of the plaintiff’s medical or disability insurance without also informing the jury of the defendant’s liability insurance. What’s sauce for the goose is sauce for the gander.
Conservative. strict construction adherence to the Constitution would bar both of these “tort reform” proposals.

And they call some tort cases frivolous!?
In Caincare Inc. v. Ellison, decided 3/15/05 in the Georgia Court of Appeals, a contract for sale of a pharmacy provided liquidated damages if the buyer failed to cease all use of the old store name within six months. An employee programmed the old name in the header generated by a fax machine which continued sending out faxes bearing the old name beyond the six months. When this was called to its attention, the new owner changed the header. However, the seller sued for breach of contract and sought liquidated damages totally unrelated to the scope of the alleged breach.
The Court of Appeals flushed this frivolous case, but was polite enough not to use the phrase that a federal judge employed to describe an insurance company’s defense in a disability insurance case: “pure poppycock.”
A liquidated damages provision for the misuse of the seller’s brand name in a sales agreement for an existing pharmacy was an unenforceable penalty, since the seller never adequately explained how the damages amount was calculated. See the opinion below.