State Farm Mutual Automobile Insurance v. Drawdy

Pope, Presiding Judge.

State Farm filed this declaratory judgment action seeking a determination that it is not liable for damages resulting from a January 1, 1990, collision between vehicles driven by Robert Drawdy and Doris Steedley. State Farm, the insurer of the truck driven by Robert Drawdy, moved for summary judgment, but its motion was denied. We granted State Farm’s application for interlocutory review of the denial of summary judgment, and now reverse.

Robert’s grandfather, Grover Drawdy, purchased a truck from *237McKinna Auto Sales and gave McKinna a check post-dated January 2, 1990. Grover took possession of the truck on December 30, 1989, when he had a State Farm policy of liability insurance on his automobile. A former McKinna employee testified by affidavit that, before allowing Grover to take possession of the truck, he contacted a State Farm agent who orally bound coverage on the truck under Grover’s existing automobile policy. On January 2, 1990, Grover applied for and was issued a new policy on the truck.

The policies on both the old automobile and the new truck required the insured to give State Farm written notice of an “accident or loss” as soon as reasonably practicable as a condition of recovering under the policy. Although Robert told Grover about his accident with Steedley on January 2, 1990, Grover failed to notify State Farm; State Farm did not receive notice of the accident until September 27, 1990, when it was contacted by Steedley’s attorney.

At the time of the collision, Steedley had uninsured motorist coverage in the amount of $15,000 per person under an Allstate automobile liability insurance policy.

1. State Farm first argues that the trial court should have granted its motion for summary judgment because the collision occurred before the effective date of the policy issued on the truck. However, an issue of fact remains regarding whether State Farm orally bound coverage of the truck under Drawdy’s automobile liability insurance policy. State Farm’s argument that the McKinna employee’s testimony as to out-of-court statements made by the State Farm agent constitutes inadmissible hearsay succumbs to the verbal act exception to the hearsay rule. See 2 McCormick on Evidence, p. 101, § 249 (4th ed. 1992). Therefore, the trial court properly denied State Farm’s motion for summary judgment on this ground.

2. State Farm also contends summary judgment should have been granted based on the policy provision excluding coverage for lack of notice by the insured, which was rendered enforceable against Steedley by her access to uninsured motorist coverage. We agree.

“By mandating that all motor vehicle owners have at least $15,000 in liability insurance coverage, the Legislature established the public policy that innocent persons who are injured in accidents involving motor vehicles should be able to recover at least $15,000 of their damages. See Cotton States Mut. Ins. Co. v. Neese, 254 Ga. 335 (1, 2) (329 SE2d 136) (1985); OCGA § 33-34-1 et seq.” Auto-Owners Ins. Co. v. Jackson, 211 Ga. App. 613, 614 (1) (440 SE2d 242) (1994). Based on this public policy of ensuring some recovery for injured third parties, we have held that a lack-of-notice exclusion generally is not enforceable against a third party injured by an insured who fails to notify his insurer. Ginn v. State Farm &c. Ins. Co., 196 Ga. App. 640 (396 SE2d 582) (1990); see also Neese, 254 Ga. at 241.

*238In Neese, the Supreme Court held that a provision in an insurance policy excluding coverage for damages caused while an insured was attempting to avoid arrest was unenforceable against a third party as a matter of public policy. In doing so, it stated that the public’s interests in the case were threefold: “(1) as insureds, to limit the insurer’s risks and thereby keep automobile insurance premiums as low as possible; (2) as members of the public in general to improve safety on the highways; and (3) as accident victims, to have access to insurance funds to satisfy their judgments.” Id. at 341. Giving great weight to the public policy that innocent persons injured in vehicle accidents should have access to some insurance funds, the Court invalidated the exclusion at issue. The Supreme Court in Neese nonetheless recognized that the public’s interests in keeping premium costs down and improving safety on the highways would be fostered by enforcing the exclusion, and explicitly stated that the balancing of interests might produce a different conclusion if the innocent third party had access to other insurance: “We leave to a proper case the question of whether the existence of uninsured motorist coverage would affect the outcome in such a case.” Id. at 341, n. 13.

Travelers Ins. Co. v. Progressive Preferred Ins. Co., 193 Ga. App. 864 (389 SE2d 370) (1989), presented just such a case. In Progressive Preferred, which involved an unlicensed driver exclusion, we considered the competing interests discussed in Neese and held that the exclusion should be enforced as written where the injured third party had access to other insurance funds through uninsured motorist coverage. And in Auto-Owners we followed Progressive Preferred and held that an exclusion for damage intentionally caused by the insured is enforceable against a third party if the third party has access to uninsured motorist coverage. See 211 Ga. App. at 613.

The dissenters suggest that Auto-Owners and Progressive Preferred were implicitly disapproved by language in Cotton States Mut. Ins. Co. v. Starnes, 260 Ga. 235, 238 (392 SE2d 3) (1990) stating that “[t]he policy behind uninsured motorist coverage is to protect the insured’s assets, not the public.” Starnes did not even involve the enforceability of a contractual exclusion in an insurance policy, though it did present the analogous question of the continued viability of the “rule of election” in light of OCGA § 33-34-1 et seq. (the Georgia Motor Vehicle Accident Reparations Act): Given the public policy that innocent persons injured in a vehicular accident should be able to recover at least $15,000 of their damages, should an “additional insured” (in Starnes, a vehicle operator who is not a named insured but is driving the named insured’s vehicle with his permission) be able to choose not to rely on the car owner’s insurance? Rejecting the insurer’s argument that the additional insured and the insurer would be forced into a contractual relationship neither desires, the Court con-*239eluded that the “rule of election” must bow to the public policy of allowing recovery to third persons. However, the Court noted that the “rule of election” could continue if the additional insured has access to an alternative source of liability coverage, as the rule would not conflict with public policy in that circumstance. See 260 Ga. at 237. This holding, of course, is fully consistent with Auto-Owners and Progressive Preferred.

It is further notable that in Starnes there was no evidence that the innocent third party had uninsured motorist coverage. Rather, the insurer had argued that it was never necessary for the additional insured to be covered to protect third parties “because state law requires uninsured motorist coverage.” As the Court noted, however, the basic premise of this argument was simply incorrect, since insureds can choose not to have uninsured motorist coverage. 260 Ga. at 238.

Under the Neese analysis, the relevant question is whether the public policy of ensuring some recovery for the third party is satisfied by the third party’s access to a recovery through uninsured motorist coverage. We answer that question here in the positive. And because the policy of ensuring some recovery is satisfied, the public’s interests in low premiums and safe highways prevail in the Neese balancing process, resulting in a decision to enforce the exclusion. A consideration of the purpose of uninsured motorist coverage and whether the primary purposes of liability and uninsured motorist coverage are the same plays no role in this analysis. Accordingly, the language in Starnes about the purpose of uninsured motorist coverage is irrelevant.

Judgment reversed.

Birdsong, P. J., Andrews, Johnson, and Smith, JJ., concur. Beasley, C. J., Blackburn and Ruffin, JJ., dissent. McMurray, P. J., disqualified.