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STATE FARM v. TERRY12/4/1997
This case presents yet another permutation of the "vanishing insurance coverage" dilemma in the context of disputes between automobile insurance carriers and their insureds regarding uninsured motorist insurance.
On July 29, 1993, Kenneth Terry was injured in a motor vehicle collision involving an automobile operated by Undra Davis. The automobile driven by Davis was owned by and rented from McFrugal Auto Rental. Terry sued Davis and served his own uninsured motorist carrier, State Farm Fire & Casualty Insurance Co., within the two-year statute of limitation for personal injuries. See OCGA §§ 9-3-33 and 33-7-11 (d); Stout v. Cincinnati Ins. Co., 226 Ga. App. 220 (486 S.E.2d 195) (1997). State Farm filed an answer in its own name. It thereafter became apparent that Davis was insured up to $50,000 by McFrugal and adequately insured against any larger judgment by an excess policy. Thus, Davis was not an "uninsured motorist" so as to implicate the uninsured motorist coverage provisions of Terry's automobile insurance policy with State Farm. OCGA § 33-7-11 (d). Accordingly, State Farm requested and received Terry's consent to dismiss without prejudice State Farm as a party to Terry's lawsuit against Davis. The consent dismissal was drafted by State Farm,
signed by counsel for both State Farm and Terry, and included the following language: "In the event that the plaintiff finds it appropriate to renew an uninsured motorist claim, under circumstances including a withdrawal of coverage by a liability insurer, State Farm will be served in the manner authorized by law and have a full right to defend on liability and damages in this case. Stipulations and defaults by, or Judgments against, the individual defendant will not be binding upon or create exposure by State Farm."
State Farm did not participate further in any other aspect of the litigation between Terry and Davis. McFrugal, acting as insurer, provided Davis with counsel and defended the lawsuit. On August 29, 1995, Terry obtained a judgment for $50,000 against Davis in the underlying action, for which McFrugal was ultimately responsible as Davis' insurer. Prior to this time, Terry had not renewed his uninsured motorist claim against State Farm and, in fact, Davis was not an "uninsured motorist" up until and through the date of the judgment.
On October 3, 1995, Terry's counsel received notice from McFrugal that it had ceased operations as of September 30, 1995 and that there were no funds forthcoming to satisfy the judgment. Thus, more than 30 days after Terry had obtained a judgment against Davis, Davis' insurance coverage vanished and Davis effectively became an uninsured motorist for the first time.
On October 19, 1995, Terry sent a demand letter to State Farm insisting that it satisfy the $50,000 judgment obtained against Davis. The letter specifically stated, " his is now an uninsured motorist case." (Emphasis in original.) Citing the dismissal, State Farm replied it had never been re-served in a manner authorized by law, had no obligation to pay the judgment, and would not pay the claim until it had been afforded the opportunity to defend on the merits in court. Terry then filed the action against State Farm which is now before us, seeking to recover the full amount of the underlying judgment against Davis, as well as the 25% penalty and attorney fees authorized by OCGA § 33-7-11. State Farm answered the lawsuit and moved for summary judgment, contending that, notwithstanding any judgment, the dismissal agreement preserved its right to defend on the merits. Terry subsequently also filed a motion for summary judgment.
The trial court granted Terry's motion as to recovery of the $50,000
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