Last September, a federal appeals court in Atlanta asked the Georgia Supreme Court to rule on a question of state law relevant to a federal lawsuit. The Supreme Court delivered its answer in a unanimous May 11 opinion. The underlying case involves an accident victim’s entitlement to underinsured motorist benefits under an insurance policy.
FCCI Insurance Company v. McLendon Enterprises, Inc.
In September 2011, a school bus owned by Evans County collided with a privately owned truck. The truck’s driver, owner and passengers sued the Evans County Board of Education for negligence. Normally, state agencies like a school district enjoy sovereign immunity from civil suits. But the school district here had voluntarily taken out a $1 million liability policy. Accordingly, the school district settled with the defendants for the maximum limit on the policy, and could not be held liable for any amount beyond that.
The driver, who received $650,000 from the school district, then claimed underinsured motorist benefits from the insurance carrier for his employer’s truck. The insurer rejected the claim and sought a declaratory judgment from a federal district court in Georgia holding it was not responsible for providing coverage. The district court rejected the insurer’s argument and said the driver could recover underinsured motorist benefits even though sovereign immunity prevented him from suing Evans County for the “full amount of his damages.”
The insurer appealed to the U.S. 11th Circuit Court of Appeals, which in turn asked the Georgia Supreme Court to clarify state law on this subject. In its May 11 decision, the Supreme Court agreed with the federal district court the driver could recover underinsured motorist benefits under the facts of this case. The insurance policy itself states underinsured motorist benefits are available when the responsible party’s policy does not pay all compensatory damages the insured is “legally entitled to recover.” Here, the insurer argued this was inapplicable, as Evans County’s sovereign immunity meant the driver was not “legally entitled to recover” anything beyond the county’s own insurance policy.
But the Georgia Supreme Court said it didn’t work that way. By purchasing insurance, Evans County waived its sovereign immunity under Georgia law. By doing so it must be “treated as a private person” for purposes of an underinsured motorist claim. “As the District Court stated,” the Supreme Court said, “Evans County’s ability to compensate [the driver] for his damages is limited to the GSBA $1,000,000 insurance policy. Thus, if damages sustained by [the driver] exceed the $650,000 allocated to him under the GSBA policy and any recovery from other applicable insurance bonds or policies, then he can be made whole only by resorting to the [underinsured motorist] insurance policy.”
Previously, the Georgia Court of Appeals held an accident victim could recover underinsured motorist benefits when sovereign immunity totally barred recovery from the negligent party. Here, the Supreme Court said there was no reason not to apply similar reasoning in a case where sovereign immunity only partially barred recovery. As previously noted by the district court, that would create an odd legal incentive for Georgia municipalities not to purchase any liability insurance at all.