Diamonds & Denims, Inc. v. First of Georgia Insurance Company

Court of Appeals of Georgia, Case No. A92A0311, decided March 20, 1992, reconsideration denied April 1, 1992 (Sognier, Chief Judge, for the Court; McMurray, P.J., and Cooper, J., concurring). Our text comes from the Caselaw Access Project (case.law), Harvard Law School’s open archive of published U.S. case law, which reproduces the official reporter at 203 Ga. App. 681. What we removed: the archive’s own metadata block (case name, citations, court, decision date, docket number, archive ID) and its section separators; the reporter’s head-matter caption block printed above the opinion (docket number, party caption, and the parallel citation “(417 SE2d 440)”); and the second block of reporter head matter that the scan dropped into the middle of the text — the decision and reconsideration dates and counsel of record (Glass, McCullough, Sherrill & Harrold, R. Phillip Shinall III, and E. Paul Sabiston for appellant; Drew, Eckl & Farnham and Clayton H. Farnham for appellee). All of that is summarized in this line instead. One placement note, so nothing looks moved: the paragraph beginning “We do not agree with appellee’s contention that Halcome, supra at 744, controls” is the opinion’s footnote, and the archive prints it immediately after that interposed head-matter block. With the head matter removed it sits exactly where the archive placed it, following the paragraph its marker belongs to; we left it there rather than relocate it. Scan repairs, in full — two, both stray marks: “Diamonds & Denims,- Inc.” corrected to “Diamonds & Denims, Inc.” (a hyphen the scan added), and “generalized statements’ with specific requests” corrected to “generalized statements with specific requests” (an apostrophe the scan added). Nothing else in the Court’s text was changed, rejoined, condensed, or paraphrased. Formatting only: the judge’s name line is bolded.

The full opinion

Sognier, Chief Judge.

Diamonds & Denims, Inc. d/b/a Botanical Silks brought suit against its insurance carrier, First of Georgia Insurance Company, seeking damages for the insurer’s failure to pay a fire loss claim. The trial court granted the insurer’s motion for summary judgment made on the ground that Diamonds & Denims’s failure to provide requested financial information barred it from bringing suit under the policy. Diamonds & Denims appeals.

Appellant was engaged in the business of supplying silk plants and flowers and related items to commercial clients from its Augusta base. Gary Sharma and Sarita Sharma, husband and wife, are principal shareholder and president, respectively, of appellant. Gary Sharma testified by deposition that he previously operated a similar business in Texas under two other corporations, but those corporations sold their inventory to appellant when the Sharmas moved to Georgia. Appellant’s business consisted of a small retail outlet operated by sales representative Deborah Collier and the larger commercial operation run by Oni Ortiz from an Augusta warehouse. Both Gary and Sarita Sharma and their employees testified by deposition that all business records were kept at the warehouse except for some relating to the retail sales operations.

On November 3, 1988, appellee issued a commercial property and liability insurance policy to appellant. The warehouse in which appellant’s inventory and records were housed was destroyed by fire on December 18, 1988. Appellant presented a sworn proof of loss on February 28, 1989, asserting a loss of $971,628.50 based on an attached inventory list prepared after the fire and claiming the policy limits of $650,000. Appellee then sent certified letters to Sarita Sharma and appellant’s counsel requesting that she and any employees with relevant knowledge of the claim submit to depositions and produce all books and records proving the loss. In response, the Sharmas, Deborah Collier, and Oni Ortiz appeared for depositions in the spring of 1989. The witnesses produced no documents, explaining during their testimony that all books and records relating to appellant’s inventory, sales, expenses, and loss were destroyed in the fire. During their depositions, the Sharmas did testify that appellant had a bank account and federal tax identification number that were still available and offered to provide that information. Gary Sharma also testified that he maintained customer and supplier records from the former Texas corporations, but stated he had not understood the document request directed to appellant to include the records of the other corporations. In response to queries from appellee’s counsel, he declined to produce income tax returns for the other corporations absent a formal document production request. After the depositions, appellant provided no additional documents to appellee, and appellee apparently made no further document production requests upon appellant or its representatives. On May 31, 1989, appellant’s counsel made a formal demand upon appellee for payment of the claim. Appellee responded on August 2 with a general demand for production of books and records that would allow appellee to verify appellant’s claim, but did not list any specific documents or records it wished to obtain. Appellant then filed this action.

The policy appellee issued provided in pertinent part that in the event of a property loss, appellant must “[p]ermit [appellee] to inspect the property and records proving the loss or damage,” and, upon request, submit to questioning under oath “about any matter relating to this insurance or your claim, including your books and records.” The policy also provided that appellant could not “bring a legal action against [appellee]” unless it fully complied with all terms of the coverage section of the policy. Appellee contended in its motion for summary judgment that under this latter policy provision, appellant’s failure to produce the necessary books and records precluded it from bringing this action.

An insurer is entitled to require its insured to abide by the policy terms, Falagian v. Leader Nat. Ins. Co., 167 Ga. App. 800, 801 (307 SE2d 698) (1983), and the insured is required to cooperate with the insurer in investigation and resolution of the claim. St. Paul Fire &c. Ins. Co. v. Gordon, 116 Ga. App. 658, 660 (158 SE2d 278) (1967). A total failure to comply with policy provisions made a prerequisite to suit under the policy may constitute a breach precluding recovery from the insurer as a matter of law. See Bowers v. Safeco Ins. Co., 187 Ga. App. 229, 230-231 (2) (369 SE2d 547) (1988); Nichols v. Pearl Assur. Co., 71 Ga. App. 378 (1) (31 SE2d 127) (1944). If, however, the insured cooperates to some degree or provides an explanation for its noncompliance, a fact question is presented for resolution by a jury. St. Paul v. Gordon, supra; Nichols, supra at 378 (2). Moreover, the insurer’s failure to act with diligence and good faith in securing the necessary information also will preclude the grant of summary judgment to the insurer on the issue of the insured’s compliance with policy prerequisites. Saft America, Inc. v. Ins. Co. of N. A., 155 Ga. App. 500 (271 SE2d 641) (1980); St. Paul v. Gordon, supra.

In the case at bar, appellant notified appellee that its books and records were destroyed in the fire, and appellee has presented no competent evidence to the contrary. We recognize that in such circumstances the insured is nonetheless obligated to cooperate with the insurer to obtain or reconstruct the information needed from other available sources. See Halcome v. Cincinnati Ins. Co., 254 Ga. 742 (334 SE2d 155) (1985); Bowers, supra at 230-231 (2). However, we do not agree with the trial court’s conclusion that appellant completely failed to meet this duty so as to compel judgment for appellee as a matter of law. The record is devoid of any evidence that appellee provided appellant with detailed lists of the specific documents it sought other than to reiterate in general language the policy requirement for production of “books and records.” Although appellant’s officers did volunteer during their depositions to provide some documentation, there is no evidence in the record to show that appellee either followed up these generalized statements with specific requests, sought releases from appellant in order to obtain records from other sources, or otherwise pursued the matter further. See Wages v. Atlanta Metro Taxicab, 193 Ga. App. 601 (388 SE2d 733) (1989) (insurer not entitled to summary judgment because it failed clearly to invoke its claimed right to certain information); Saft America, supra (summary judgment reversed where insurer failed to designate the time and place for insured’s oral examination). Compare Bowers, supra at 229-231 (1, 2) (summary judgment for insurer appropriate because insurer gave explicit instructions to insured as to how to obtain substitute records but insured refused to comply). Moreover, since many of the documents appellee contends appellant should have produced belonged not to appellant but to other corporations controlled by Gary Sharma, appellant’s officers were within their rights in declining to produce those documents absent proper document production requests. Accord Pennsylvania Millers Mut. Ins. Co. v. Baker, 180 Ga. App. 504, 505 (2) (349 SE2d 527) (1986) (insured not obligated to require spouse to submit to examination by insurer).

We do not agree with appellee’s contention that Halcome, supra at 744, controls, for in that case the insurer made a showing on the record that it suspected fraud before the insureds filed suit, whereas here the only evidence in the record concerning appellee’s suspicions that appellant’s claim was inflated — an analysis prepared by an industry expert at appellee’s request — was submitted to appellee after appellant filed suit. Moreover, the records at issue in Halcome were within the insureds’ possession and control, and they offered no excuse for refusing to produce the requested records.

For these reasons, we hold that questions of fact remain concerning appellant’s compliance with the policy prerequisites and appellee’s diligence in obtaining the needed information. See Hines v. State Farm Fire &c. Co., 815 F2d 648 (11th Cir. 1987). Accordingly, we reverse the grant of summary judgment to appellee.

Judgment reversed.

McMurray, P. J., and Cooper, J., concur.

What it decided

A silk-plant supplier’s Augusta warehouse burned on December 18, 1988, six weeks after the policy was issued. The insured filed a sworn proof of loss claiming $971,628.50 in damage and demanding the $650,000 policy limit, supported by an inventory list assembled after the fire. The insurer asked for depositions and “all books and records proving the loss.” Four people — both owners and two employees — showed up and testified. None of them brought a document. Their explanation was that the records had burned with the warehouse.

The trial court gave the insurer summary judgment: no records, no suit. The Court of Appeals reversed, and it did so on two independent grounds.

First, partial cooperation plus an explanation equals a jury question. The Court set out the rule in one sentence that is worth memorizing: “A total failure to comply with policy provisions made a prerequisite to suit under the policy may constitute a breach precluding recovery from the insurer as a matter of law… . If, however, the insured cooperates to some degree or provides an explanation for its noncompliance, a fact question is presented for resolution by a jury.” These insureds had appeared, testified, told the insurer where the records went, and volunteered that a bank account and a federal tax identification number were still available. That is not a total failure, and it took the question away from the judge.

Second, the insurer’s own conduct defeated its motion. The Court held that “the insurer’s failure to act with diligence and good faith in securing the necessary information also will preclude the grant of summary judgment.” Here the record was “devoid of any evidence” that the carrier ever gave the insured “detailed lists of the specific documents it sought,” as opposed to repeating the policy’s general phrase “books and records.” When the owners volunteered to supply things, no one followed up. No one asked for releases so the insurer could pull records from banks, vendors, or the taxing authorities. Its August 2, 1989 demand was another general one. A carrier that never asked for anything specific cannot win a judgment on the ground that nothing specific was produced.

The Court added a third point that matters in family-business claims: many of the documents the insurer wanted belonged to other corporations the principal had controlled in Texas, not to the insured. As to those, the insured’s officers “were within their rights in declining to produce those documents absent proper document production requests.”

Finally, the Court distinguished the decision the insurer leaned on — Halcome v. Cincinnati Ins. Co., 254 Ga. 742 (1985), a Supreme Court of Georgia case — on two facts. In Halcome the insurer had shown on the record that it suspected fraud before the insureds sued; here the expert analysis questioning the claim reached the carrier only after suit was filed. And in Halcome the records were in the insureds’ own possession and they “offered no excuse for refusing to produce” them.

What it did NOT decide

• It did not hold that these insureds had cooperated. The Court reversed a summary judgment. Its holding is that “questions of fact remain” — for a jury, after a trial. The insured won the right to a trial, not the claim.
• It did not soften the duty to cooperate. The opinion reaffirms it twice. An insurer “is entitled to require its insured to abide by the policy terms.” A total failure to comply with a condition made a prerequisite to suit “may constitute a breach precluding recovery from the insurer as a matter of law.” Nothing here excuses a policyholder who simply refuses.
• It did not hold that destroyed records end the obligation. The opposite: “in such circumstances the insured is nonetheless obligated to cooperate with the insurer to obtain or reconstruct the information needed from other available sources.” Burned books shift the work; they do not cancel it.
• It did not overrule Halcome, and it could not. Halcome is a Supreme Court of Georgia decision; the Court of Appeals distinguished it on the timing of the fraud suspicion and the location of the records. Where a carrier documents its suspicion early and the records are in your hands, Halcome still controls.
• It is not, despite the label often hung on it, primarily an examination-under-oath case. The policy required both records and questioning under oath, and the insureds did sit for depositions. The fight was over documents. If your carrier has noticed an examination under oath and you are deciding whether to attend, this decision is not your authority — see the Tennessee rule in Spears v. Tennessee Farmers, which shows how a refusal to answer questions under oath is treated.
• It made no finding about the claim itself. Whether the loss was $971,628.50, whether the after-the-fire inventory list was accurate, and whether the claim was inflated were all left open.
• It said nothing about bad faith or penalties. No claim under O.C.G.A. § 33-4-6 is discussed. “Diligence and good faith” here is a summary-judgment standard applied to the insurer’s investigation, not a finding of bad faith.
• This was a commercial policy. The insured was a corporation with a warehouse, not a homeowner. The cooperation rules read the same way in homeowner claims, but the facts of this case are a business-records dispute.

Why it matters to policyholders

Explain, in writing, at the time. The two phrases that saved this claim are “cooperates to some degree” and “provides an explanation for its noncompliance.” Silence looks like refusal in a file. A dated letter saying the records you asked for were destroyed in the fire; here is what still exists; here is where else you can get the rest converts a dispositive motion into a jury question.

Make the carrier be specific. A demand for “books and records” is not a request you can fail. This insurer lost its motion because it never produced “detailed lists of the specific documents it sought.” Asking, in writing, for an itemized list of exactly what is wanted, in what form, and by when, protects you twice — you can comply with it, and if the carrier will not write it, the file shows why you did not.

Sign the releases, or say why not. The Court specifically faulted the insurer for never having “sought releases from appellant in order to obtain records from other sources.” Read that from the other direction: when a carrier does ask for releases so it can pull bank statements, supplier invoices, or tax transcripts, refusing without a reason moves you toward the Halcome side of the line. Rebuild what you can — bank and card statements, vendor invoices, IRS transcripts, purchase histories from suppliers, photographs.

Do not confuse this with a condition precedent you can actually forfeit. Georgia enforces post-loss conditions when the insured simply will not perform. Compare Cudd v. State Farm on appraisal as a condition precedent. The lesson of Diamonds & Denims is not that post-loss duties are soft. It is that the record has to show what you did and what the carrier asked for, and that a jury — not a judge on paper — sorts out an honest middle.

Watch the clock while you do it. The Insurance Commissioner’s claim-handling rule, Ga. Comp. R. & Regs. 120-2-52-.03, sets deadlines for acknowledging a claim, for affirming or denying liability after a completed proof of loss, and for paying undisputed amounts. A records dispute that goes quiet for months is exactly the situation those deadlines exist to expose.

Where a public adjuster fits. This is the part of a claim we do every week: reconstructing an inventory and a loss record after the originals are gone, answering document requests item by item, keeping a dated log of what was asked and what was sent, and negotiating the amount of the loss with the carrier. We do not sue insurers, plead bad faith, or claim statutory penalties — that is lawyer work, and when a claim needs it, we refer it out. More Georgia decisions and statutes, in full text, are on the Georgia claim-law page.

Now you know the rule. Enforcing it against a carrier is a different job — and it's ours. A free, confidential case review by a licensed public adjuster takes three taps.

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