PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
_______________ JUNE 27, 2001
THOMAS K. KAHN
CLERK
No. 00-14105
_______________
D. C. Docket No. 99-02369-CV-MHS-1
EDWARD HENNING,
in his capacity as personal representative
of Lora Henning,
Plaintiff-Appellant,
versus
CONTINENTAL CASUALTY COMPANY,
ST. PAUL FIRE & MARINE INSURANCE COMPANY,
Defendants-Appellees.
______________________________
Appeal from the United States District Court
for the Northern District of Georgia
______________________________
(June 27, 2001)
Before BIRCH and HULL, Circuit Judges, and O’NEILL*, District Judge.
BIRCH, Circuit Judge:
*
Honorable Thomas N. O’Neill, Jr., U.S. District Judge for the Eastern District of
Pennsylvania, sitting by designation.
Edward Henning, acting as the personal representative of the estate of Lora
Henning,1 appeals the district court’s grant of summary judgment to Continental
Casualty Company (“Continental”) and St. Paul Fire and Marine Insurance
Company (“St. Paul”) in Lora Henning’s suit to recover a judgment against her
condominium association, Mount Vernon Towers Condominium Association (“Mt.
Vernon”). We AFFIRM the district court’s decision as to Continental, VACATE
the grant of summary judgment to St. Paul, and REMAND.
I. BACKGROUND
This case is the latest in a series of suits filed by Henning in an attempt to
recover for injuries she sustained in 1995. In June 1995, Henning was injured
when she was struck by a motorized cart being driven by Audra Baty, a resident of
Mt. Vernon. At the time of the accident, Mt. Vernon had two insurance policies.
St. Paul provided Mt. Vernon with general liability insurance. Continental was Mt.
Vernon’s professional liability carrier.
Henning sued Baty and Mt. Vernon in Fulton County, Georgia State Court
for negligence. Henning subsequently amended her complaint to add a claim
1
Subsequent to the filing of this appeal, Lora Henning died. Any reference to Henning
should be construed as a reference to her estate where appropriate.
2
against Mt. Vernon for negligent failure to obtain proper insurance.2 Baty did not
respond and a default judgment was entered against her on 21 October 1996 in the
amount of $160,636.86. St. Paul refused to pay the judgment against Baty on the
grounds that she was not an insured under Mt. Vernon’s liability policy. St. Paul
did defend Mt. Vernon, but did not issue a reservation of rights. Mt. Vernon won
summary judgment on Henning’s negligence claims. Henning was denied
summary judgment on the remaining claim of negligent failure to obtain insurance.
The Georgia Court of Appeals affirmed the state court rulings in September 1997.
Henning did not pursue the remaining claim until February 1998. At that
time she filed a new lawsuit against St. Paul in Dekalb County, Georgia Superior
Court, alleging that St. Paul was liable for Mt. Vernon’s failure to obtain proper
insurance. The suit was voluntarily dismissed. Henning then filed a claim against
Mt. Vernon and St. Paul in Fulton County State Court in September 1998. She
claimed that St. Paul should compensate her for the default judgment against Baty
2
O.C.G.A. § 44-3-107(2) requires that condominium associations carry liability
insurance.
The policy or policies shall cover the association, the board of directors . . . and
all unit owners and other persons entitled to occupy . . . for occurrences
commonly insured against arising out of or in connection with the use, ownership,
or maintenance of the common elements or other portion of the condominium
which the association has the responsibility to maintain.
Id.
3
under Mt. Vernon’s general liability policy. She also argued that, if St. Paul was
not liable for the judgment against Baty, then Mt. Vernon was liable for failure to
obtain proper insurance as required by O.C.G.A. § 44-3-107(2). See note 1, supra.
St. Paul refused to defend Mt. Vernon and denied coverage for the claim against
Mr. Vernon.
In May 1999, Henning and Mt. Vernon settled her claim for negligent failure
to obtain proper insurance and Mt. Vernon consented to a judgment against it of
$225,000. In exchange, Henning agreed that she would not seek to execute the
judgment against Mt. Vernon, but rather would pursue any rights that Mt. Vernon
might have against its insurers. Mt. Vernon assigned those rights to Henning.
Neither insurance company participated in the settlement. The $225,000 judgment
was entered against Mt. Vernon. St. Paul then removed the case to federal court on
diversity grounds and won summary judgment on Henning’s claim that St. Paul
was liable for the default judgment against Baty.
In September 1999, Henning filed the instant suit against St. Paul and
Continental. She claims that one or both carriers are liable for the $225,000
judgment against Mt. Vernon for negligent failure to obtain proper insurance. The
district court found that the assignment of Mt. Vernon’s rights under both policies
was valid and conferred standing on Henning to sue. Nevertheless, the court
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granted summary judgment on the claim against Continental on the grounds that
the exclusionary clause of the policy applied and the claim was therefore not
covered by the policy. As to St. Paul, the court found that a more specific clause in
its policy, precluding suit against it where a damages claim has not been litigated
by a trial or a settlement has not been agreed to by St. Paul, was consistent with
public policy against covenant judgments. Accordingly, the district court granted
summary judgment to St. Paul.
II. DISCUSSION
We review a district court’s grant of summary judgment de novo. Levinson
v. Reliance Standard Life Ins. Co., 245 F.3d 1321, 1325 (11th Cir. 2001).
A. The Continental Policy
Continental provided Mt. Vernon with a professional liability policy. That
policy contained an express exclusion that provided:
The Insurer shall not be liable to pay any loss in connection with any
Claim based upon, directly or indirectly arising out of, or in any way
involving any actual or alleged bodily injury, sickness, disease, or
death of any person.
R1-11, Ex. A at 4-5, 12.
Henning argues that her claim is not one for personal injury, but rather for
negligent failure to obtain insurance, and the policy exclusion does not apply.
Under Georgia law, however, the policy exclusion does preclude recovery against
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Continental. In Continental Casualty Co. v. H.S.I. Financial Services, Inc., 466
S.E.2d 4 (Ga. 1996), the Georgia Supreme Court interpreted an exclusionary clause
with similar language to exclude a secondary negligence claim. 466 S.E.2d at 6-7.
In that case, the policy excluded recovery for claims arising out of dishonest or
fraudulent acts by a law firm’s partners. Id. at 5. The underlying injury was the
conversion of escrow funds by one partner to his personal use, but the suit was
brought against the other partners for negligence and malpractice, based on their
failure to supervise the embezzler. Id. The Georgia Supreme Court held that the
negligence claim was not covered by the policy, because, but for the underlying
embezzlement, there could have been no negligence claim against the other
partners in the firm. Id. at 6.
Subsequently, the Georgia Court of Appeals has applied this rule to exclude
coverage for a negligence claim against a bar owner after someone fired a weapon
in the bar, injuring several patrons. Eady v. Capitol Indem. Corp., 502 S.E.2d 514,
514 (Ga.Ct.App. 1998). The owner’s policy excluded claims arising out of an
assault or battery. Id. at 515. The court found that exclusionary clauses using the
term “arising out of” “focus[] solely upon the genesis of a plaintiff’s claims. If
those claims arose out of the excluded culpable conduct, coverage need not be
provided.” Id. at 516. Because Henning’s claim here is based on her underlying
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personal injury claim, the exclusionary clause applies. The grant of summary
judgment by the district court for Continental is AFFIRMED.
B. St. Paul’s Policy
St. Paul’s policy contained an anti-assignment clause which, according to its
terms, precluded the assignment to Henning by Mt. Vernon of its rights under the
policy. The district court correctly found this anti-assignment clause to be invalid
for claims under the policy. Under Georgia law, an assignment of a claim does not
affect the risk insured. Santiago v. Safeway Ins. Co., 396 S.E.2d 506, 507
(Ga.Ct.App. 1990). Accordingly, “the claim of the insured, like any other chose in
action, [can] be assigned without in any way affecting the insurer’s liability.” Id.
at 508.
The district court found, however, that a more specific policy provision
barred recovery by Henning as Mt. Vernon’s assignee.
[T]he policy . . . also specifically provides for the situation at issue
here:
‘No one can sue us on a liability claim until the amount of the
protected person’s liability has been finally decided either by a trial or
by a written agreement signed by the protected person, by us, and by
the party making this claim. Once liability has been determined by
judgment or written agreement, the party making the claim may be
able to recover under this policy, up to the limits of coverage that
apply. But that party can’t sue us directly or join us in a suit against
the protected person until liability has been so determined.’
7
R-2-32, at 7-8 (quoting the St. Paul insurance policy) (emphasis added).
The clause cited by the district court precludes suit against St. Paul for any
damages not determined by jury trial or consensual settlement with St. Paul.
“Under Georgia law, an insurance company is free to fix the terms of its policies as
it sees fit, so long as such terms are not contrary to law.” Cont’l Cas. Co., 466
S.E.2d at 6. Henning argues, however, that two reasons should prevent St. Paul
from denying its liability here.
First, Henning argues that St. Paul cannot challenge the settlement with Mt.
Vernon because it refused to defend Mt. Vernon and participate in settlement
negotiations. Georgia courts have held that “an insurer loses its opportunity to
contest the negligence of the insured or the injured person’s right to recovery by
refusing to defend.” Aetna Cas. & Sur. Co. v. Empire Fire & Marine Ins. Co., 442
S.E.2d 778, 783 (Ga.Ct.App. 1994). The duty to defend a suit, however, is an
independent obligation from the duty to pay claims against the insurance policy.
Colonial Oil Indus. v. Underwriters, 491 S.E.2d 337, 339 (Ga. 1997). Breach of
the duty to defend “should not enlarge . . . coverage beyond the parties’ contract.”
Id. In other words, an insurer is not estopped from asserting the defense of lack of
coverage or other policy defenses even if it wrongfully fails to defend. Id. See
also Aetna Cas. & Sur. Co., 442 S.E.2d at 783 (“[B]y refusing to defend, the
8
insurer does not lose its right to contest the insured’s entitlement to a recovery
under its policy.”).
The clause relied on by the district court to exclude coverage of the claim
was not a proper basis for a grant of summary judgment because St. Paul refused to
defend Mt. Vernon or participate in settlement. St. Paul is therefore barred from
contesting the settlement amount. It is not clear from the record, however, that the
St. Paul policy covered the claim for negligent failure to obtain insurance asserted
by Henning. Accordingly, we vacate the grant of summary judgment against St.
Paul and remand for a determination of whether Henning’s claim was covered by
the policy.
Henning also argues that, even if the policy does not cover her claim for
negligent failure to obtain insurance, St. Paul waived its right to contest coverage
by defending Mt. Vernon without a reservation of rights in the original suit in state
court in which this claim was raised. Under Georgia law, a defense of non-
coverage may be waived “where the insurer, without reserving its rights, assumes
the defense of an action or continues such defense with knowledge, actual or
constructive, of noncoverage.” Prescott’s Altama Datsun, Inc. v. Monarch Ins. Co.
of Ohio, 319 S.E.2d 445, 446 (Ga. 1984). The district court indicated in its opinion
that St. Paul did defend Mt. Vernon in the initial suit without a reservation of
9
rights. The negligent failure to obtain insurance claim was added late in the case,
however, and the suit was apparently abandoned by Hemming after summary
judgment on all other claims was granted to Mt. Vernon. Waiver is an equitable
doctrine, however, and, because we lack sufficient evidence in the record to
determine what specific actions St. Paul may have taken in defense of the original
claim, we remand for the district court to determine whether St. Paul waived any
defense of noncoverage that may otherwise be available to it under the policy.
III. CONCLUSION
Accordingly, for the reasons stated above, we AFFIRM the grant of
summary judgment to Continental. We VACATE the grant of summary judgment
to St. Paul and REMAND for a determination of whether the St. Paul policy
covered a claim for negligent failure to obtain proper insurance, and if not, if St.
Paul waived any defense of noncoverage due to its prior defense of Mt. Vernon
without a reservation of rights.
10