Villa Sonoma at Perimeter Summit Condominium Association, Inc. v. Commercial Industrial Building Owners Alliance, Inc.

Court of Appeals of Georgia, Docket No. A18A1760, decided March 7, 2019, reconsideration denied March 25, 2019 (McFadden, Presiding Judge, for the Court; Rickman and Markle, JJ., concurring). The complete opinion appears below. Our text comes from the Caselaw Access Project (case.law), Harvard Law School’s open archive of published U.S. case law, which supplies the opinion as printed at 824 S.E.2d 738. That archive record carries only the South Eastern Reporter citation, so no parallel Georgia Appeals cite is given here. The reporter’s head matter — the caption, the docket number, the decision and reconsideration dates, and the counsel listing (Michael Douglas Robl, William F. Merlin Jr., Ashley Nicole Harris, and Michael N. Poli for the appellant; twenty attorneys for the various appellees) — is summarized in this paragraph rather than printed as opinion text; a caption and a court-and-date line are reprinted above the opinion. Here is the complete list of repairs to the opinion text: the judge’s name line was set in bold; the stray spaces the archive leaves before commas and closing parentheses where the reporter’s italics ended were closed up (for example “Auto-Owners Ins. Co. v. Tracy , 344 Ga. App. 53” became “Auto-Owners Ins. Co. v. Tracy, 344 Ga. App. 53”, and “the ‘participating carrier defendants’ )” became “the ‘participating carrier defendants’)”); passages the opinion sets off as block quotations are rendered as indented blocks; and the opinion’s five footnotes, which the archive prints as an unmarked run of paragraphs after the concurrence line with no inline reference markers, appear at the end below an editorial note of ours, in the archive’s order. Nothing else was changed. No word of the Court’s has been condensed, reordered, or paraphrased.

The full opinion

VILLA SONOMA AT PERIMETER SUMMIT CONDOMINIUM ASSOCIATION, INC. v. COMMERCIAL INDUSTRIAL BUILDING OWNERS ALLIANCE, INC. et al.

Court of Appeals of Georgia. A18A1760. March 7, 2019. Reconsideration denied March 25, 2019.

McFadden, Presiding Judge.

This is an appeal from the trial court’s orders dismissing, for failure to state a claim, a complaint brought by Villa Sonoma at Perimeter Summit Condominium Association, Inc. a/k/a Villa Sonoma Condominium Association, Inc. (“Villa Sonoma”) against various defendants associated with commercial property insurance that Villa Sonoma obtained to cover a condominium complex it operated. Villa Sonoma made a claim for insurance benefits after the complex sustained significant fire and water damage. It argues that it was harmed by a delay in the eventual payment of its claim and that the delay occurred or was exacerbated by the structure of the insurance program at issue, which Villa Sonoma argues had been misrepresented to it when it obtained the insurance. In eight separate counts, Villa Sonoma asserted direct and derivative claims falling into two general categories: claims relating to an alleged violation of OCGA § 33-4-6 for bad faith handling of the insurance claim, and claims relating to alleged fraud or negligent misrepresentation regarding the insurance program. (Although Villa Sonoma’s complaint could also be read to assert additional claims relating to the alleged illegality of the insurance program, Villa Sonoma expressly states in its appellate brief that it is not asserting such additional claims.)

As detailed below, we find no error in the trial court’s dismissal of the counts related to statutory bad faith, because Villa Sonoma cannot introduce evidence within the framework of its complaint to show that it made a proper demand for payment of its insurance claim as required by OCGA § 33-4-6. So we affirm the trial court’s judgment as to the bad-faith-based counts.

However, dismissal is premature as to the counts related to allegations of fraud and misrepresentation. While we agree with the defendants that Villa Sonoma’s complaint did not make these allegations with sufficient particularity, the appropriate remedy is to require a more definite statement. So we reverse the trial court’s judgment as to the fraud-based counts and misrepresentation-based counts, and we remand the case with direction that the trial court treat the motions to dismiss those counts as motions for more definite statement.

1. Applicable legal standards and overview of complaint.

A trial court may dismiss a complaint under OCGA § 9-11-12 (b) (6) for failure to state a claim “where [the] complaint lacks any legal basis for recovery.” Auto-Owners Ins. Co. v. Tracy, 344 Ga. App. 53, 54, 806 S.E.2d 653 (2017) (citation and punctuation omitted). This occurs if

(1) the allegations of the complaint disclose with certainty that the claimant would not be entitled to relief under any state of provable facts asserted in support thereof; and (2) the movant establishes that the claimant could not possibly introduce evidence within the framework of the complaint sufficient to warrant a grant of the relief sought. If, within the framework of the complaint, evidence may be introduced which will sustain a grant of the relief sought by the claimant, the complaint is sufficient and a motion to dismiss should be denied. In deciding a motion to dismiss, all pleadings are to be construed most favorably to the party who filed them, and all doubts regarding such pleadings must be resolved in the filing party’s favor.

Anderson v. Flake, 267 Ga. 498, 501 (2), 480 S.E.2d 10 (1997) (citations omitted). For the purpose of this determination, documents attached to and incorporated into the pleadings are considered to be a part of them. Montia v. First-Citizens Bank & Trust Co., 341 Ga. App. 867, 868-869, 801 S.E.2d 907 (2017). This court reviews a trial court’s ruling on a motion to dismiss de novo, viewing as true all well-pleaded material allegations in the complaint. Auto-Owners Ins. Co., supra. However, “we are under no obligation to adopt a party’s legal conclusions based on these facts.” Id. (citation and punctuation omitted).

So viewed, the allegations in Villa Sonoma’s second amended complaint (the subject of the motions to dismiss) stated that in 2013 Villa Sonoma entered into an agreement for property insurance on a condominium complex it operated. A document evidencing that agreement, titled “Evidence of Commercial Property Insurance,” and a copy of an insurance policy were attached to and made a part of one of the defendants’ answers. (In its complaint, Villa Sonoma describes these materials as the insurance agreement.) The Evidence of Commercial Property Insurance document identified Villa Sonoma as the “Insured,” defendant Commercial Industrial Building Owners Alliance, Inc. d/b/a CIBA Insurance Services (“CIBA”) as the “Producer” (a term defined by Black’s Law Dictionary (10th ed. 2014) as an insurance agent or insurance broker), and “Basic Residential Property - A” as the “Program” (hereinafter, “the program”). In the space on that document reserved for the name and address of the insurance company, it referred to an attached appendix containing a schedule of insurance companies participating in the program. That schedule listed defendant Great Lakes Reinsurance SE f/k/a Great Lakes Reinsurance (UK) PC (“Great Lakes”) as the primary insurance company under the program and numerous other defendants (hereinafter, the “participating carrier defendants”) as excess insurance companies under the program.

Villa Sonoma alleged in its complaint that the insurance program was illegal. It alleged that, under the program and pursuant to separate agreements between certain of the defendants, CIBA functioned as an unauthorized property insurer and “surreptitiously undertook indemnity and insurance obligations to … Villa Sonoma.” It alleged that the nature of CIBA’s role and indemnification and insurance responsibilities and the nature of the indemnification and insurance responsibilities of the participating carrier defendants were misrepresented to it when it decided to obtain the insurance.

On March 20, 2014, a fire damaged a portion of the roof of a building in the condominium complex, and the building also sustained extensive water damage. Villa Sonoma made a claim for this damage with defendant Claims Adjusting Group, Inc. (“CAG”), which Villa Sonoma alleged to be a subsidiary or affiliate of CIBA responsible for assessing and handling its claim. Villa Sonoma alleged that it was harmed when the defendants failed to pay that claim promptly.

Specifically, Villa Sonoma alleged that in the months following the March 20, 2014 fire, it received some payments on its claim but that consultants hired by CIBA or CAG to determine its loss produced flawed estimates as part of an effort by CIBA and CAG to intentionally undervalue and delay paying the claim. Consequently, on October 1, 2014, Villa Sonoma retained a public adjusting firm to assist in the adjustment process and produce an estimate of its loss.

On January 16, 2015, Villa Sonoma’s legal counsel sent a letter to CIBA and CAG, in their capacities as agents for Great Lakes and certain other defendants it jointly describes as the “insurance defendants.” The January 16, 2015 letter demanded that Great Lakes pay it $4,510,752.24 to settle its insurance claim. A copy of this demand letter is attached to and incorporated into Great Lakes’s answer. Over the course of the year following the January 16, 2015 demand, CIBA’s and CAG’s consultants continued to provide Villa Sonoma with estimates of its loss; Villa Sonoma’s public adjuster continued to provide estimates; CIBA, CAG, and two other defendants (jointly described by Villa Sonoma as the “claims handling defendants”) hired an additional consultant which inspected the property jointly with the public adjuster, reviewed the public adjuster’s estimates of the loss, and provided its own estimates; and CAG and Great Lakes made additional payments to Villa Sonoma. The defendants assert that Villa Sonoma’s insurance claim ultimately was paid in full, and Villa Sonoma does not appear to dispute this assertion.

On March 19, 2015, Villa Sonoma filed its initial complaint in this action, and on December 21, 2016, it filed the second amended complaint that is the subject of the motions to dismiss. The defendants moved in three groups to dismiss the second amended complaint for failure to state a claim under OCGA § 9-11-12 (b) (6). The trial court granted those motions with prejudice, and after Villa Sonoma voluntarily dismissed without prejudice another defendant not involved with this appeal, the trial court entered a final order dismissing all claims against all defendants. Villa Sonoma appeals.

2. Counts related to allegations of statutory bad faith under OCGA § 33-4-6.

Villa Sonoma asserted counts against CIBA and Great Lakes for damages under OCGA § 33-4-6, which provides that “[i]n the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after a demand has been made by the holder of the policy and a finding has been made that such refusal was in bad faith, the insurer shall be liable to pay such holder [a specified penalty] in addition to the loss[.]” OCGA § 33-4-6 (a). The trial court dismissed these counts on the ground that Villa Sonoma did not make a proper demand to either Great Lakes or CIBA as required by that statute.

Villa Sonoma also asserted a count against CAG for aiding and abetting the alleged bad faith of Great Lakes and CIBA under OCGA § 33-4-6. The trial court dismissed this count on the ground that the complaint failed to state the predicate bad-faith violation.

We find no error in the trial court’s dismissal of these counts. The requirements of OCGA § 33-4-6 are strictly construed, because that Code section imposes a penalty. Balboa Life & Cas. v. Home Builders Finance, 304 Ga. App. 478, 482 (3), 697 S.E.2d 240 (2010) (citation omitted). And one of those requirements is that the insured make a demand for payment under the policy more than 60 days before filing suit. See OCGA § 33-4-6 (a). See also Stedman v. Cotton States Ins. Co., 254 Ga. App. 325, 328 (1), 562 S.E.2d 256 (2002) (demand for payment is prerequisite to filing bad faith action under OCGA § 33-4-6). Indeed, a “proper demand for payment is essential to recovery” on a claim for an insurer’s bad faith under OCGA § 33-4-6. BayRock Mtg. Corp. v. Chicago Title Ins. Co., 286 Ga. App. 18, 19, 648 S.E.2d 433 (2007) (citation omitted; emphasis supplied).

To be proper, “the demand must be made at a time when immediate payment is due. An insured cannot legally demand immediate payment if the insurer has additional time left under the terms of the insurance policy in which to investigate or adjust the loss.” BayRock Mtg. Corp., supra (citation and punctuation omitted). If the investigation or adjustment of the claim is ongoing, consistent with the policy terms, the insurer is not yet in a position to conclude that the insured had a right to the amount claimed in the demand. See Balboa Life & Cas., 304 Ga. App. at 483 (3), 697 S.E.2d 240 (insurer entitled to summary judgment on statutory bad faith claim where insured did not provide insurer with the information necessary for insurer to conclude insured had right to amount claimed until less than 60 days before suit was filed, and insured made no demand for payment of that amount after supporting information was provided).

The allegations of the complaint disclose with certainty that Villa Sonoma would not be entitled to relief under OCGA § 33-4-6 under any state of provable facts thereunder, because those allegations establish that the investigation into and adjustment of the claim was ongoing when Villa Sonoma demanded payment from Great Lakes on January 16, 2015. The complaint allegations described above indicate that the parties had not agreed on the extent of Villa Sonoma’s loss and were still engaged in investigating and appraising it. Villa Sonoma does not allege that, under the terms of the policy, Great Lakes’s time for investigating and adjusting the loss had expired, and from our review of the policy we find no express time period for investigation and adjustment. So Villa Sonoma could not possibly introduce evidence within the framework of the complaint sufficient to show that the period for investigation and adjustment had ended and immediate payment was due when Villa Sonoma made its January 16, 2015 demand. It follows that Villa Sonoma could not possibly introduce evidence showing that it had made the proper demand required for relief from CIBA or Great Lakes under OCGA § 33-4-6. And because it failed to state a claim that CIBA or Great Lakes was liable to it under OCGA § 33-4-6, Villa Sonoma also failed to state a claim that CAG was derivatively liable for the alleged violation of OCGA § 33-4-6. The trial court properly dismissed these counts.

Given this conclusion, we need not address several of the parties’ other arguments relating to the January 16, 2015 demand letter and the statutory bad faith count: whether to characterize the amount demanded in the letter as a request for actual cash value or replacement cost value, whether Villa Sonoma was required to demand a specific amount in its letter, and whether CIBA was an insurer for purposes of the bad faith count.

3. Counts related to allegations of fraud and negligent misrepresentation.

Villa Sonoma asserted counts for fraud and negligent misrepresentation against CIBA, alleging that CIBA or its agents intentionally or negligently made material misrepresentations and omissions regarding the nature and extent of its indemnification responsibilities under the program and that Villa Sonoma reasonably relied on these misrepresentations to its detriment. Villa Sonoma also asserted counts deriving from the fraud and negligent misrepresentation allegations: counts against the participating carrier defendants for aiding and abetting and vicarious liability in connection with CIBA’s fraud or negligent misrepresentation, and a count against the insurance defendants for civil conspiracy predicated on, among other things, the alleged misrepresentations and omissions regarding the program. In its appellate brief, Villa Sonoma also characterizes its count against the insurance defendants for acting in concert as a claim based on the alleged fraud and negligent misrepresentation, but this connection is not clear from the phrasing of that count in the complaint. Nevertheless, to the extent that count may be construed to derive from the fraud and negligent misrepresentation allegations, we also consider it in this division. See generally Anderson, 267 Ga. at 501 (2), 480 S.E.2d 10 (requiring a complaint to be construed most favorably to the plaintiff for the purpose of deciding a motion to dismiss for failure to state a claim).

The trial court dismissed the counts arising from allegations of fraud or negligent misrepresentation on the ground that Villa Sonoma failed to allege several of the required elements of those torts - misrepresentation, reasonable or justifiable reliance, and damages - with sufficient particularity. See Futch v. Lowndes County, 297 Ga. App. 308, 312 (4), 676 S.E.2d 892 (2009) (elements of negligent misrepresentation); Nash v. Studdard, 294 Ga. App. 845, 848 (1), 670 S.E.2d 508 (2008) (elements of fraud). See also OCGA § 9-11-9 (b) (requiring circumstances of fraud to be pled with particularity). This was error, for the reasons set forth in Roberts v. JP Morgan Chase Bank, N. A., 342 Ga. App. 73, 802 S.E.2d 880 (2017). We explained in that decision that

[t]he tort of fraud requires a willful misrepresentation of a material fact, made to induce another to act, upon which such person acts or avoids acting to his injury. Fraud must be pled with particularity under OCGA § 9-11-9 (b). But in Cochran v. McCollum, [233 Ga. 104, 210 S.E.2d 13 (1974),] the Supreme Court of Georgia held with respect to an initial motion to dismiss … that a claim of fraud should not be dismissed unless it appears beyond doubt that the pleader can prove no set of facts in support of the claim which would entitle him to relief, and that the remedy at that stage of the pleading is not a motion to dismiss but a motion for more definite statement under OCGA § 9-11-12 (e). The only real distinction between negligent misrepresentation and fraud is the absence of the element of knowledge of the falsity of the information disclosed. Accordingly, we consider the two claims in conjunction with each other.

Id. at 78-79 (3), 802 S.E.2d 880 (citations and punctuation omitted).

As described above, Villa Sonoma alleged that CIBA, or its agents acting with information provided by CIBA, made material misrepresentations or omissions regarding the structure of the program and the nature and extent of the indemnification and insurance responsibilities of CIBA and others under the program. It alleged that it entered into the insurance agreement in reasonable reliance on these misrepresentations or omissions. But as we held in Roberts,

[i]t is too early in these proceedings for us to say beyond doubt that [Villa Sonoma] can prove no set of facts in support of the fraud and negligent misrepresentation claims which would entitle [it] to relief. But at the very least [Villa Sonoma] should designate the occasions on which affirmative misrepresentations [or omissions] were made and by whom and in what way they were acted upon. [Villa Sonoma] did not meet the requisite pleading standard, but the remedy is not dismissal of [its] claims. The trial court’s dismissal of the fraud and negligent misrepresentation claims [against CIBA and its dismissal of the claims against other defendants deriving from the allegations of fraud and negligent misrepresentation are] reversed, and the case is remanded with direction to treat the motion[s] to dismiss as to those claims as … motion[s] for a more definite statement under OCGA § 9-11-12 (e).

Roberts, supra at 79 (3), 802 S.E.2d 880 (citations and punctuation omitted).

Judgment affirmed in part and reversed in part, and case remanded with direction.

Rickman and Markle, JJ., concur.

[Editorial note, ours: the archive prints the opinion’s five footnotes as an unmarked run of paragraphs after the concurrence line, with no inline reference markers. They follow, verbatim, in that order.]

The complaint defines the “participating carrier defendants” as Great Lakes and 17 other insurance entities. Since this appeal was docketed, we have granted Villa Sonoma’s motions to dismiss the appeal as to three of those other entities - Arch Specialty Insurance Company, Axis Surplus Insurance Company, and Torus Specialty Insurance Company.

The complaint defined the “insurance defendants” as the “participating carrier defendants” and CIBA.

The other two defendants described by Villa Sonoma as “claims handling defendants” were Certain Underwriters at Lloyd’s of London Subscribing to Policy No. 3187 (“Underwriters”) and Indian Harbor Insurance Company (“Indian Harbor”).

Villa Sonoma asserted this count against all four “claims handling defendants” but later dismissed it without prejudice as to Underwriters and Indian Harbor.

Alternatively, the trial court dismissed the statutory bad faith count against CIBA on the ground that CIBA was not an insurer as that term is defined in OCGA § 33-1-2 (4). Because we affirm the dismissal of the count on the “proper demand” ground, we do not reach the merits of this alternative ground.

What it decided

A fire on March 20, 2014 damaged part of a roof at a condominium complex in Perimeter Summit, and the building “also sustained extensive water damage.” The association’s insurance was written through a program rather than a single company: CIBA was the “Producer,” Great Lakes was the primary carrier, and a schedule of other companies sat above it as excess insurers. Claims Adjusting Group handled the claim.

Payments came, but slowly, and the association believed the consultants’ estimates were low on purpose. On October 1, 2014 it hired a public adjusting firm. On January 16, 2015 its lawyer sent a letter demanding $4,510,752.24. Suit followed on March 19, 2015. The defendants say the claim was eventually paid in full, and the association “does not appear to dispute this assertion.” What was left was a suit about the delay.

The statutory bad-faith counts died on the demand, not on the conduct. Georgia’s penalty statute, O.C.G.A. § 33-4-6, applies where a covered loss goes unpaid for 60 days “after a demand has been made by the holder of the policy.” Because the statute “imposes a penalty,” the court said, “[t]he requirements of OCGA § 33-4-6 are strictly construed.” And the requirement it enforced is one most policyholders have never heard of: a demand only counts if it is made “at a time when immediate payment is due.”

Applying that rule to the association’s own pleading, the court found the adjustment was still underway on January 16, 2015: “the parties had not agreed on the extent of Villa Sonoma’s loss and were still engaged in investigating and appraising it.” The policy contained “no express time period for investigation and adjustment.” So the carrier still had time, immediate payment was not yet due, and the letter was not a proper demand. The § 33-4-6 counts, and the aiding-and-abetting count that depended on them, were properly dismissed.

The fraud and negligent-misrepresentation counts were revived. The association also alleged that CIBA misrepresented “the nature and extent of its indemnification responsibilities under the program” when the insurance was placed. The trial court threw those counts out for failing to plead misrepresentation, reliance, and damages with particularity. That was error. Under Roberts v. JP Morgan Chase Bank and the Supreme Court of Georgia’s decision in Cochran v. McCollum, “the remedy at that stage of the pleading is not a motion to dismiss but a motion for more definite statement under OCGA § 9-11-12 (e).” The court reversed and sent those counts back with direction to treat the dismissal motions as motions for a more definite statement.

So the case splits down the middle: affirmed on statutory bad faith, reversed on fraud and misrepresentation.

What it did NOT decide

• It did not decide that a bad-faith letter must name a dollar figure — or that this one was defective in its contents. The court expressly declined to reach “whether to characterize the amount demanded in the letter as a request for actual cash value or replacement cost value, whether Villa Sonoma was required to demand a specific amount in its letter, and whether CIBA was an insurer for purposes of the bad faith count.” Those questions are still open.
• It did not decide that the carriers behaved properly. This is a ruling on the pleadings. Nothing in the opinion finds the estimates were fair, the pace was reasonable, or the association’s account of events was wrong. The bad-faith counts failed on a procedural precondition that the association’s own complaint could not satisfy.
• It did not set a fixed waiting period. The holding turns on this policy, which the court read and found to contain “no express time period for investigation and adjustment,” and on the state of this adjustment. A different policy with an express deadline, or a claim where the investigation had plainly closed, is a different case.
• It did not hold that the fraud claims are good. The court agreed the pleading was not particular enough. It held only that the cure is a more definite statement, not a dismissal with prejudice. What happened after remand is not in this opinion.
• It did not reach the illegality claims. The complaint could be read to allege the insurance program itself was unlawful, but the association “expressly state[d] in its appellate brief that it is not asserting such additional claims.”
• It says nothing about Georgia’s claim-handling regulation. The opinion never mentions the 15-day and 10-day timelines in Ga. Comp. R. & Regs. 120-2-52-.03. Those regulatory deadlines are a separate track from the § 33-4-6 penalty, and this decision neither applies them nor limits them.
• It says nothing about appraisal, valuation, or the amount that was owed. The opinion uses the word “appraising” to describe the parties’ ongoing loss investigation, not the policy’s appraisal clause.

Why it matters to policyholders

The 60-day demand is a piece of timing, not a piece of stationery. Homeowners and associations are told constantly to “send a demand letter.” Villa Sonoma is the reminder that sending one at the wrong moment is worse than not sending one at all, because the letter itself becomes the evidence that killed the penalty count. The demand has to land after the carrier’s time to investigate and adjust has run out — after you have given them what they asked for, after the record is complete, and while an ascertained amount sits unpaid.

That is the same trap Georgia courts have set twice before. In Primerica v. Humfleet, the demand failed because payment was not yet due when it was made. Compare Hanover v. Hallford, where the court held no magic words are required to demand payment. Put together, the Georgia rule is not about form. It is about when.

The practical fix is boring and it works: demand again. Balboa, quoted in this opinion, involved an insured who supplied the supporting information and then “made no demand for payment of that amount after supporting information was provided.” If the first letter went out mid-adjustment, that is not fatal to the claim itself — but the clock for a penalty count starts from a demand made when payment is due. A fresh, dated demand after the file is complete is how that gets fixed. Which letter counts, and when, is a legal judgment; that is a question for a lawyer, not for us.

The second half of the case is the part carriers do not advertise. A policyholder harmed by how the insurance was sold is not confined to § 33-4-6. Fraud and negligent misrepresentation have their own elements and their own pleading rules, and a defective fraud pleading gets a chance to be fixed rather than a dismissal with prejudice. If you were told you had one insurer and you actually had a program — a producer, a primary, and a stack of excess carriers with different obligations — that is a fact worth pinning down early, in writing, from the policy and the placement documents.

Where a public adjuster fits, and where we stop. This claim had a public adjusting firm in it from October 2014, and the opinion records exactly what that work looked like: producing an estimate of the loss, inspecting jointly with the carrier’s consultant, and staying in the estimate exchange until additional payments were made. That is the job — documenting the damage, pricing the repair, and building a record complete enough that a demand can honestly say payment is due. Filing a § 33-4-6 penalty count, pleading fraud with particularity, and litigating any of it is attorney work, and we refer it out. More Georgia claim law, in full text, is on the Georgia claim-law page.

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