As a father of three children, I have become intimately familiar with this defense to all manner of allegations (which, yes, often involve property damage). When it comes to coverage disputes, you often see insureds making the same argument for coverage. This is the very situation the parties are facing in a recent declaratory judgment action.[i]

Facts

On April 13, 2022, Fresh Air Homes, Inc. (“FAH”) filed a lawsuit in the state court of Chatham County against E.H. Fortitude, Heath Shelton and Michael Kirvin alleging that E.H. Fortitude and its agents, which had entered into a joint venture with Kirven for construction on a lot adjacent to FAH in Tybee Island, GA, were responsible for the removal of 120 feet of trees and vegetation on FAH’s property without authority or permission. FAH further alleged the defendants had interfered with its possession, ownership and enjoyment of its property and trespassed on its property by entering it and removing trees and vegetation without permission.

Declaratory Judgment Action

Atain issued CGL policies to E.H. Fortitude. Following a reservation of rights to its insured, Atain filed a declaratory judgment action seeking a declaration that there is no coverage under the policies for the claims alleged in the underlying lawsuit. Atain also sought a declaration that, as a result of the policy not affording coverage for the claims, it has no duty to defend or indemnify E.H. Fortitude or Shelton.

Atain argues that:

• The alleged incident was not an “occurrence”, which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
• The incident was excluded from coverage as 1) an expected or intended injury and/or 2) damage to real property on which its contractor or subcontractor is performing operations.

Atain filed a motion for summary judgment arguing that, under Georgia law, an accident is defined as “an unexpected happening without intention or design[ii]”, and that the intentional removal of trees during construction is not an accident and therefore not an occurrence. Atain cited a ruling in the Southern District of Georgia where the court granted summary judgment to an insurer, finding there was no occurrence where an insured was sued for conversion after harvesting trees under the erroneous belief the timber was unencumbered.[iii]

Atain further argued its exclusion for expected or intended injury barred coverage. Atain cited the allegations contained in the underlying suit that “E.H. Fortitude knew that the trees and vegetation were on FAH’s property.” Atain relied on a decision finding similar allegations were a sufficient basis to support an intentional act exclusion.[iv] Finally, Atain argued coverage was excluded as the alleged property damage to real property occurred as the result of its operations.

The insured’s response argued that, under Georgia law, when a genuine dispute as to material facts in an underlying case exist, Georgia courts have declined to reach a resolution in a declaratory judgment action prior to the underlying case being resolved.[v] The insureds further argue that, under Georgia law, the insurer must consider both the allegations and factual allegations presented by its insured[vi].

The insured cited facts disclosed in discovery to distinguish the present case from the cases cited by the insurer. The insureds argued Shelton relied on surveys and strings running along the property line, so any improper removal of timber was an accident. Similarly, they argued that Shelton took all reasonable steps to avoid infringing on the neighboring property and had no idea he had done so, clearly showing it was not an intentional act. Finally, insureds argued they produced evidence from an arborist that no trees were removed from the neighboring property, thus there was no damage from its operations.

Conclusion

This ongoing suit underscores the almost impossible coverage decisions an insurer is required to make, often without the benefit of all of the facts. Insureds will submit almost any claim against them to their insurers, whether or not coverage is actually provided under the policy. The insurer must then decide whether:

• Coverage is provided, wherein you are on the hook for defense and indemnity regardless of where the claim goes, even if it turns out the claim should not be covered by the policy;
• Coverage is denied, wherein you risk being subject to a claim for breach of contract and claims for bad faith; or
• A reservation of rights letter is submitted and/or file a declaratory judgment action is filed wherein you expend costs on determining coverage and/or end up defending a claim for which your policy doesn’t actually provide coverage.

Many of these controversies arise from the definition of an “occurrence” or intentional act exclusions such as those in the Atain case. These decisions are very fact specific. It is vital to gather all of the facts from the very beginning of the claim in order to make the best decision. It is important to talk to the insured, hire an investigator, hire an attorney—to find out everything that possibly may help determine whether or not a claim is covered by the policy.  Otherwise, you may be like me, trying to figure out how your favorite golf club got bent, and whether it was an accident.

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Sources

[i] Atain Specialty Insurance Company v. E.H. Fortitude, Inc., et. al., 4:23-cv-00324-LGW-CLR, U.S. District Court, S.D. GA.

[ii] Taylor Morrison Servs., Inc. v. HDI-Gerling Am. Ins. Co., 293 Ga. 456, 459 (2013)

[iii] Capital City Ins. Co. v. Forks Timber Co., Inc., Case No., No.CV 511-039, 2012 WL 3757555

(S.D. Ga. Aug. 28, 2012).

[iv] City of Atlanta v. St. Paul Fire & Marine Ins. Co., 231 Ga. App. 206, 206 (1998)

[v] Owners Ins. Co. v. Hillstone Restaurant Group, Inc., 2022 WL 16540674 at *6 (N.D. G.A.

October 28, 2022).

[vi] Colonial Oil Indus. v. Underwriters Subscribing to Policy Nos. TO31504670 and TO3150467, 268 Ga. 561, 562 (1997).