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When is a Georgia Insurer Not Liable for Accident Coverage Under an Umbrella Policy?

Many Georgia residents take out umbrella policies to provide liability coverage above  and beyond their standard auto insurance. Umbrella policies are especially beneficial to victims who sustain financial losses in excess of the normal car insurance policy. For example, if your injuries following a car accident cost you $500,000 in lost wages and medical expenses, and the other driver’s policy only has a $250,000 limit, an umbrella policy can make up that difference.

Government Employees Insurance Company v. Gordon

Of course, that assumes that the company that issued the umbrella policy does not attempt to disclaim coverage. As we know all too well, insurers will never hesitate to try and avoid paying when they can. Here is a recent federal case involving the application of Georgia law in which a court addressed an insurance company’s attempt to avoid its obligations.

The underlying facts are fairly straightforward. A driver and passenger were traveling in a rental car in Costa Rica. There was an accident, which killed the driver and seriously injured the passenger.

The driver had purchased an insurance policy for the rental car from a Costa Rican company. Separately, he held an umbrella policy from an American insurer. The umbrella policy expressly covered the driver and his spouse, provided the automobile in use was “insured by a primary auto policy.”

The umbrella carrier argued the Costa Rican policy did not qualify as “primary insurance” and it was therefore not liable for coverage of the accident. A federal judge in Georgia accepted this argument, but the U.S. 11th Circuit Court of Appeals in Atlanta reversed that decision.

As the 11th Circuit explained, the terms “primary insurance” and “primary auto policy” are both used in the umbrella policy at different points. While the trial judge assumed these terms were interchangeable, the appeals court said they were not. Indeed, the term “primary auto policy” is “undefined” in the umbrella policy, and the Costa Rican policy did not say one way or the other whether it constituted a primary auto policy. Given this “ambiguity,” the 11th Circuit said that Georgia law required interpreting the umbrella policy in a manner favoring coverage. In other words, when an insurance company drafts a policy with ambiguous language, the ambiguity must be resolved in favor of the policyholder–something the trial judge failed to do in this case.

The way to solve this problem, according to the appeals court, is to look at the “usual and common signification” of the ambiguous term in question. The Court noted that “primary insurance” was “defined as one that ‘provides the first layer of coverage and attaches immediately upon the happening of an occurrence or when a claim is made.’” That does not directly answer the question of what constitutes a “primary auto policy.” The 11th Circuit left it to the trial court to make that determination, with the admonition that it could not rely solely on the definition of “primary insurance” when defining “primary auto policy.”