Avoiding waiver in first-party insurance investigations

When investigating and adjusting a first-party insurance claim in Georgia, the policy provides several tools by which an insurer can obtain the information necessary to evaluate the merits of a claim and determine coverage for a loss. However, sloppy investigations, premature denials and failure to act in a timely manner can result in waiver and hamper the insurer’s rights.

Policy and coverage defenses

Waiver is the “intentional or voluntary relinquishment of a known right.” [Black's Law Dictionary 1751 (4th ed.1968)]. Waiver may be explicit or implicit; in writing; through verbal statements; or through silence or inaction. However, certain defenses cannot be waived as a matter of law. Under Georgia law, defenses to an insured’s claim based on the terms of the policy fall into two general categories: “policy” defenses and “coverage” defenses.

Under a “policy defense,” an insurer denies coverage based on the insured’s failure to fulfill a condition in the policy. [See Sargent v. Allstate Ins. Co., 165 Ga. App. 863, 865-66, 303 S.E.2d 43 (1983).] Insurers can waive policy defenses since the conditions exist purely for the benefit of the insurer. In contrast, a “coverage defense” arises when the policy does not cover the specific damage in question either because it does not meet the insuring agreement or because it is excluded from coverage. [Andrews v. Georgia Farm Bureau Mutual Insurance Co., 226 Ga. App. 316, 317, 487 S.E.2d 3 (1997)]. An insurer cannot waive coverage defenses.

The contractual suit limitation period, a timely notice condition, failure to protect the property, or any other failure of an insured to comply with their duties after a loss are “policy defenses,” and, thus, can be waived by an insurer. While Georgia courts routinely uphold these defenses in support of an insurer’s denial of coverage, an insurer can be held to have waived such defenses “when its investigations, negotiations, or assurances . . .  led the insured to believe the limitation” or condition would not apply or be enforced. [Stapleton v. Gen. Accident Ins. Co., 236 Ga. App. 835, 835, 512 S.E.2d 645, 645 (1999)]. Georgia courts have held waiver can occur when an insurer “lulls” the insured into believing the claim will be paid, or where a payment is issued with the insurer’s knowledge of and failure to raise a “policy defense.” [Auto-Owners Ins. Co. v. Ogden, 275 Ga. 565, 566, 569 S.E.2d 833, 835 (2002).]

Waiver frequently results due to the premature denial of a claim. Once an insurer has communicated that a claim is not covered, the parties’ rights are fixed, precluding the use of the provisions of the policy to conduct further investigation. [Lathemv Century Ins. Co., 845 F.2d 914, 917 (1lth Cir. 1938); Pennington v. Aetna Ins. Co., 130 Ga. App. 95, 96, 202 S.E.2d, 199, 200 (1973)]. In essence, by denying a claim, the insurer has communicated that it does not require any additional information to determine coverage and, thus, waives its right to conduct further investigation.

After denying a claim, the insurer can no longer insist that the insured provide sworn statements, examinations under oath, proofs of loss, or other documents as it has waived its right to insist on compliance with those conditions by denying the claim. However, a premature denial of a claim can be avoided by ensuring that a denial of coverage is not communicated until the insurer feels confident proceeding to trial with only the information obtained up to the date of the denial. If there is additional information the insurer may require in support of its defenses, the insurer should consider conducting an additional investigation before communicating the denial.

Suit limitation periods

Insurers also frequently run into waiver of contractual suit limitation periods. When an insured fails to timely file suit under the terms of the policy, insureds frequently turn to waiver to try to salvage their untimely suit. To waive a suit limitation defense, “there must be an affirmative promise or other act waiving the limitation, …actual or constructive fraud,” or the insurer must lull the insured into believing that “the claim would in fact be paid without suit.” [Stapleton, 236 Ga. App. at 835, 512 S.E.2d at 647-48 (1999); Ogden, 275 Ga. at 566, 569 S.E.2d at 835 (2002)].

An insured can argue waiver of a suit limitation period when the insurer issues payment, continues to investigate and adjust the claim, or agrees to expand the scope of loss after the suit limitation period expires. However, waiver of the suit limitation period can be avoided by monitoring the deadline for the insured to file suit, and ensuring that it does not issue payment or conduct additional investigation after the suit limitation period expires.

In addition, an insurer’s failure to request a proof of loss, examination under oath or documents on a timely basis may result in a waiver. Where an insured files suit prior to the insurer requesting cooperation with those policy requirements, a court could find those requirements were waived based on the insurer’s failure to request compliance by the insured. As a result, insurance professionals should take special care to timely request compliance with policy conditions and insist upon the insured’s compliance with those conditions throughout adjustment of the claim.

However, there is a counterbalance to the multitude of ways by which an insurer can waive its rights. O.C.G.A. § 33-24-40 permits an insurer to take certain acts in investigating a claim without fear of waiver. Specifically, the statute provides that accepting notice of a new claim, furnishing forms intended to gather information, and investigating a loss or claim does not constitute waiver. Insurers can also avoid waiver by including reservation of rights language in their correspondence with an insured.

While the concept of waiver provides an insured with an opportunity to avoid compliance with the policy conditions and deprive the insurer of its rights under the policy, timely and thorough investigations and clear communications significantly reduce the risk of waiver for insurers in Georgia.

Alex Mikhalevsky represents some of the largest property and casualty insurers in the United States in first-party coverage matters and bad faith litigation. He has significant experience handling claims related to suspected arson, fraudulent theft of property and vehicles, disputes over scope of loss and other coverage issues, both prior to and throughout litigation. Contact him at: alex.mikhalevsky@swiftcurrie.com.

Brittney Sizemore represents insurance companies with a national presence in matters related to arson and fraud, commercial litigation and insurance coverage. Contact her at Brittney.sizemore@swiftcurrie.com.

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