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Insurer Liable for $5.4 Million Judgment in Defective Auto Repair Case

We often hear about cases in which a person is injured in an accident due to a defect in the manufacturing of a car. But there are also cases in which someone may be injured due to an improper repair made to a car. As with manufacturing and design defects, a bad repair may not be immediately obvious to the driver, yet still produce catastrophic effects months, even years, later.

Lee v. Universal Underwriters Insurance Company

In 2005, a well-known auto manufacturer issued a recall for one of its 2000 model-year vehicles. An owner of one such vehicle brought his car to a Georgia dealership to receive the appropriate repairs. Unfortunately, the dealership’s service technician did not perform the repair correctly, causing damage to the vehicle’s cruise-control cable.

Three-and-a-half years later, this bad repair caused the owner to lose control of the vehicle while driving. The car rolled over and ejected both the driver and his passenger. The driver was killed and his passenger was seriously hurt.

The victims sued the dealership for negligence. The dealership admitted liability and the parties submitted the issue of damages to an arbitrator. The arbitrator ultimately awarded $4.2 million to the family of the deceased driver and another $1.2 million to the injured passenger. A Georgia state judge entered a final judgment on the arbitration award in 2012.

This left the issue of who would actually pay the judgment. At the time of the defective repair, the car dealership had an insurance policy. This policy covered any damages “caused by an occurrence arising out of garage operations.” The victims, contending this applied to the judgment in their case, asked a judge to hold the insurer responsible for the full $5.4 million judgment.

The insurer claimed that it was not responsible because the policy expired in June 2007, more than a year before the accident that killed the driver and injured the passenger. But the courts sided with the victims, who responded the policy covered an “occurrence,” which here referred to the date of the defective repair—in 2005, when the policy was still in effect—and not the date of the accident.

The U.S. 11th Circuit Court of Appeals noted the term “occurrence” was ambiguous. And under Georgia law, any ambiguity in an insurance policy must be “strictly construed against the insurer as the drafter of the document.” In other words, the burden was on the insurer to write any exclusions as precisely as possible. Here, the appeals court said, an “occurrence” could refer to either the “negligent repair”or the accident itself. Since this ambiguity must be resolved in favor of the insured party (the car dealership), the court held the insurer was liable for the victims’ judgment.

The 11th Circuit also rejected the insurer’s attempt to avoid paying the judgment on the grounds that the victims and the car dealership somehow “colluded” to settle the case. The court explained that such an objection—in effect an allegation of fraud—was never properly made before the trial court. The appeals court therefore held the insurer had effectively waived its right to make any such claim.