On October 9, 2014, Bondurant filed MEX's answer to the Empire suit.

By letter dated December 29, 2014, Southern Trust Insurance Company, from which MEX had acquired a commercial general liability insurance policy, notified MEX that its investigation showed that the policy did not cover the allegations in the complaint for the non-libel/slander claims, and it denied coverage and a defense for those claims.

Southern Trust further advised that it was reserving its rights under the policy with respect to the libel/slander claims and that it had retained the Swift Currie firm to handle the defense of those claims.

Because MEX had already hired Bondurant to handle the suit, and the discovery process was underway, MEX and Southern Trust agreed that MEX could continue using the firm and that Southern Trust would reimburse the attorneys at the rates it would normally pay Swift Currie.

On January 28, 2015, MEX sent Southern Trust a letter disputing Southern Trust's conclusion that the policy did not provide coverage for the non-libel/slander claims, stating that it believed the policy did “provide coverage, indemnification and defense to MEX . . . for all matters as set forth in the claim.” MEX further wrote, “[W]e believe that the coverage includes the indemnification and defense to MEX . . . for the allegations of libel and slander.”

Although the letter gave written notice of MEX's objections, MEX acknowledged a possible compromise, to be drafted by Southern Trust, allowing Bondurant to continue handling the defense with reimbursement from Southern Trust at Swift Currie's rates, but no agreement was ever signed.

Between March and July 2015, Southern Trust reimbursed MEX $40,360 in legal costs for work Bondurant performed related to the libel/slander claims. As long as the fee invoice identified the costs as pertaining to the libel/slander claims, Southern Trust made the payment. This arrangement continued over the next several months, and during this time, MEX submitted to Southern Trust only the bills related to the libel/slander claims, and paid for the other claims separately.

The Empire Petroleum lawsuit settled in October 2016. Later that month, MEX submitted a demand letter to Southern Trust seeking payment of the entire amount of its litigation expenses, minus the amount Southern Trust already had paid, for a total of $728,773. MEX later amended the demand for additional expenses, for a revised total of $1,197,148.82.

Thereafter, MEX sued Southern Trust for breach of contract and bad faith under OCGA § 33-4-6, contending that Southern Trust had to defend the entire suit.

Southern Trust countered that it had fulfilled its duty and that MEX had breached the insurance contract by rejecting Southern Trust's defense. According to Southern Trust, it was MEX's idea to have Southern Trust reimburse MEX for the fees related solely to the libel/slander claims. Southern Trust further argued that it had acted in good faith to fulfill its contractual obligations and that MEX had rejected its attempts.

In response, MEX asserted that it had the right to select its own counsel due to conflicts of interest Southern Trust had created, and that Southern Trust's failure to file a declaratory action to determine its duty to defend precluded it from challenging its obligation to pay the full amount of fees.

The parties moved for summary judgment.

The trial court granted MEX's motion and denied Southern Trust's motion. It found that Southern Trust had a duty to defend the entire suit – not just the libel/slander claims – and that its failure to file a declaratory action had waived all of its defenses. The trial court further found that there was no meeting of the minds to vary the terms of the policy that would have permitted Southern Trust to cover only those fees related to the libel and slander claims.

The dispute reached a Georgia appellate court, where Southern Trust argued that the trial court had erred in granting MEX's motion and denying its motion because (1) Southern Trust had fully performed its obligations under the policy and MEX had breached the contract by rejecting Southern Trust's defense; (2) Southern Trust was not required to file a declaratory action under these facts; and (3) the parties had agreed to modify the policy through an alternate agreement for the payment of attorney fees.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court explained that because Southern Trust had agreed to defend a “suit” instead of a “claim” in the policy, it was obligated to defend the “entire suit if any of the individual claims could be covered” under the policy.

The appellate court then found that Southern Trust had “failed to perform its obligation.” Specifically, the appellate court said, in its December 29, 2014 letter, Southern Trust informed MEX that it was denying coverage on the non-libel/slander claims and would not indemnify or defend those claims. “By refusing to defend the entire suit under the terms of the [p]olicy,” the appellate court ruled, “Southern Trust was in breach.”

Moreover, the appellate court continued, after MEX in its January 28, 2015 letter objected to Southern Trust's refusal to provide coverage, indemnification, and a defense to the entire suit, as well as to the reservation of rights with regard to the libel/slander claim, Southern Trust “was obligated to file a declaratory action to determine the scope of its responsibilities.”

The appellate court decided that MEX's rejection of Swift Currie's representation and the subsequent agreement to have Southern Trust pay Bondurant's fees at Swift Currie rates did not modify the policy or otherwise alter Southern Trust's obligations under the policy. The appellate court pointed out that, although MEX submitted and Southern Trust paid these fees, they were unable to reduce an agreement to writing. In any event, because the policy required Southern Trust to defend the entire suit, MEX did not have to agree to have Southern Trust do less than it was contractually obligated to do, according to the appellate court.

The appellate court reiterated that, when MEX notified Southern Trust that it did not accept its refusal to defend the entire suit, the proper course of action was for Southern Trust to file a declaratory action. Its failure to do so was “fatal to its claims,” the appellate court concluded.

The case is Southern Trust Ins. Co. v. Mountain Express Oil Co., No. A19A0018 (Ga. Ct. App. June 5, 2019).