IN THE COURT OF APPEALS OF THE
STATE OF GEORGIA
KATHERINE A. MERRITT,
Appellant,
vs.
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY, et al.,
Appellee.
CASE NO. A00A2079

BRIEF OF THE AMICUS CURIAE COMMITTEE
GEORGIA TRIAL LAWYERS ASSOCIATION

The Georgia Trial Lawyers Association ["GTLA"] is an association comprising members of the State Bar of Georgia. GTLA is committed to the representation of those injured by the wrongdoing or fraud of others and seeks to protect such injured or defrauded persons from overreaching by insurance companies and others with superior knowledge. In that spirit, GTLA is dedicated to the preservation and enforcement of the statutory requirements of O.C.G.A. §33-3-28 that insurance companies fully, completely, and honestly disclosure their insurance limits to those injured persons who properly request the same.

This case presents a situation where an automobile insurance company knowingly misrepresented the amount of coverage available for a catastrophic loss and that misrepresentation induced the claimant to accept the insurance companies offer for the supposed limits of the policy. The insurance company, State Farm, has argued that no settlement agreement was ever reached and even if there was such an agreement, Plaintiff has not been damaged. This amicus respectfully submits that the public policy of the State of Georgia demands that fraudulent parties be denied the right rescind or undo contracts that they induced and that great damage occurs when such fraud is procured.

 I. Fraudulent Parties Cannot Undo Contracts That They Induce

A. The "Contingent Upon" Language Employed by Plaintiff's Counsel Did Not Prevent a Settlement From Being Reached by the Parties

In every agreement each party assumes the other party is telling the truth. This is the basis for all agreements, whether it is expressed in writing (as it was in this case) or not. Such assumptions also provide the basis for fraud claims. In the present case use of "contingent upon" language by Plaintiff's Counsel did nothing more than reiterate this basic assumption underlying any contract and the covenant of good faith which is also assumed in every contract. The limits offer was unequivocally accepted.

B. State Farm Cannot Undo the Deal

In this case State Farm knowingly misrepresented the amount of coverage available for a catastrophic loss and that misrepresentation induced the claimant to accept the insurance companies offer in writing for the supposed limits of the policy. When Plaintiff's Counsel wrote her demand letter for the purported policy limits, and stated the fact that she was relying on State Farm's truthfulness, State Farm was actually given an opportunity to cleanse itself of the fraud it was perpetrating. Instead, State Farm chose to maintain the fraud and consummate a settlement agreement with the plaintiff. Thus, a settlement was reached, and the insurance company forwarded post-settlement release papers and a check. The settlement agreement was reached and was enforceable. Auto-Owners Insurance Co. v. Crawford, 240 Ga. App. 748 (1999). The fact that one of the parties to the agreement was misrepresenting a material fact does not undo the deal. While the agreement may have been voidable at the defrauded party's option, the party with the unclean hands does not have that option. Crews v. Cisco Brothers Ford-Mercury, Inc., 201 Ga. App. 589 (1991). With the deal complete, and the fraud clear, the only issue is the resulting harm.

II. An Insurer's Fraud Harms Not Only The Person They Induce, But The Entire Claims System In Georgia

State Farm has admitted that there is at least an issue of fact as to whether the fraud occurred; the only real rub is whether this fraud caused harm to the Plaintiff. Generally, a party may recover for fraud where he has sustained some pecuniary damage or injury whereby he is put in a position worse than he would have occupied had there been no fraud. See Bridgers v. Investors America, Inc., 154 Ga. App. 206 (1980). While the inducement for settlement in this case is blatant, State Farm says that no harm resulted. In essence, State Farm's argument is this: No harm, no foul, non officit conatus nisi sequatur effectus.(1) Because there are admittedly issues of fact as to whether State Farm committed fraud in the inducement of this settlement, then it must be presumed that the settlement is voidable only at Merritt's option. Thus, the harm is clear.

Once the deal was done, the damages are simply the difference between the amount of insurance that was fraudulently represented ($250,000) and the true amount of insurance as discovered by the Plaintiff ($1,250,000). "In any action based on fraud, the fact finder will simply measure the extent of the plaintiff's damages by examining what the agreement would have been, had the parties known the actual material facts." DiSabatino v. U.S. Fidelity Guarantee Co., 635 F. Supp. 350 (D. Del. 1986); see also Funding Systems Leasing Corp. v. Pugh, 530 F.2d 91 (11th Cir. 1976). The agreement would have been at least $400,000, the amount of State Farm's last offer in this case. Merritt's fraud claim against State Farm should have been allowed to go forward and the trial court erroneously granted summary judgment in State Farm's favor on this issue.

But a even larger issue looms in this case. Other larger harms, outside the context of Merritt's particular burden on the elements of fraud, are at play here. There is harm to the public confidence and trust in the insurance industry and its compliance with the disclosure statute enacted by the public's elected officials. There is harm to the relationship between the bar of this great State and the claims adjusters in the insurance industry. How can the insurance industry ever be trusted by the public or the bar if they can fraudulently misrepresent the available resources to a brain damaged Georgia Citizen without any risk of recourse by this Citizen. More importantly, there is harm to a whole system of settling claims in Georgia for the limits of an insurance policy.

How are injured Georgia Citizens (whether represented by counsel or not) supposed to settle cases with insurance company adjusters when the limits of the insurance company's policy are being tendered? When a injured claimant accepts an insurance companies offer for the limits of an insurance policy that person (whether pro se or via counsel) has relied upon the truthfulness of the insurance companies representation that these are indeed the limits of insurance. This is particularly so when formal requests for coverage have been sent and formal representations in response to those requests have been made pursuant to O.C.G.A. §33-3-28. A whole system of claims handling, from both the claimant's and the insurer's perspective, has developed in the wake of O.C.G.A. §33-3-28. That system is reliant upon truthfulness. Fraudulent inducements by insurers in this context leaves the claimant with its common law fraud remedy: either rescind the contract or affirm the contract and sue for damages occasioned by the fraud. O.C.G.A. §13-5-5; Bill Spreen Toyota, Inc. v. Jenquin, 163 Ga. App. 855 (1982). Merritt in this case chose to preserve both remedies as was her right. Conner v. Conner, 269 Ga. 112 (1998). To deny Merritt this option, is to deny all similarly situated claimants this historic remedy.

The "no harm, no foul" argument only succeeds if State Farm, with unclean hands, is allowed to undo the settlement agreement. This argument was long ago anathematized by the Georgia Courts. State Farm argues that because the check was not cashed and the release was not signed, the settlement was never consummated. State Farm would give Plaintiff a Hobson's choice(2): cash the check, sign the release(3) with knowledge of the fraud and risk waiving all future claims including those of fraud and RICO (the horse nearest the stable door) or hold the check and the release and allow State Farm to claim no harm, no foul (no horse at all). What if the Plaintiff had cashed the check and signed and returned the release and found out about the misrepresentation two days later? Two weeks later? Two months later? Two years later? Would the harm have been any more or less? Is it not State Farm's position that in each of these situations there still is no harm, and therefore no foul? Indeed, their position in order to be logically consistent is just this: as long as the Plaintiff has the right to pursue the full value of the claim she has not been harmed by our fraud. Such result would provide an ready and obvious financial incentive to all insurance companies to misrepresent the limits of their insured's policies in catastrophic cases. If they are caught, no harm, no foul; and if they are not caught, they enjoy a great financial windfall at the expense of the injured Georgia Citizen. This must not be allowed to go on. Surely such a result was not the intent of the legislature when enacting the disclosure statute.

III. The Legislature's Intent In Enacting O.C.G.A. §33-3-28 Was Force Insurance Companies To Honestly Disclose Insurance Limits Without Need For Litigation.

The obvious intent of O.C.G.A. §33-3-28 is to avoid the injustice of fraudulent misrepresentations as to limits as we have in this case and ill gained windfalls that necessary follow from such misrepresentations. The statute itself contains certain failsafes to insure the reliability of such disclosures. It requires that "the request shall set forth under oath the specific nature of the claim asserted and shall be mailed to the insurer by certified mail." This is not simply surplusage. Moreover, the legislature felt it important to place a burden on the insurer to supplement its representations if necessary: "(d) The information provided to a claimant or his attorney as required by subsection (a) of this Code section shall be amended upon the discovery of facts inconsistent with or in addition to the information provided." This intent is made more obvious in reviewing the other portions of this insurance chapter.

33-1-8. Making of false statements; reporting of such statements.

Any director, officer, agent, or employee of any insurance company who willfully and knowingly subscribes, makes, or concurs in making any annual or other statement required by law containing any material statement which is false shall be guilty of a misdemeanor. It shall be the duty of the Commissioner to report all such misrepresentations and false statements to the district attorney of the circuit or county in which they shall occur.

Administrative penalties can also be assessed. O.C.G.A. §33-3-20.

Public policy, as evidenced by this legislation, disfavors overreaching by parties with superior knowledge. State Farm had knowledge of the limits of its policies and the Ms. Merritt did not. Ms. Merritt rightfully relied upon State Farm to truthfully, consistent with the mandates of O.C.G.A. §33-3-28 and §33-1-8, disclose the limits of its insured's policies. This is the case in every one of hundreds of thousands of auto wreck claims in this State. The party with superior knowledge should not be rewarded for the fraudulent use of that knowledge.

While the disclosure portion of this statute does have a criminal and regulatory enforcement mechanism, it does not expressly provide a civil remedy. Indeed, this Court has held that the statute is "directory" in nature. However, it certainly does not preclude civil remedies available at common law or via some other statute. Indeed, violation of the same can provide, as it has in this case, the basis for civil remedies such as fraud and civil RICO. Griffeth v.Principal Mutual Ins. Co., 2000 Ga. App. LEXIS 446, Case No. A99A1835 (March 29, 2000); see also Parris v. State Farm, 229 Ga. App. 522 (1997). Generali v. Southern Sec. Ins. Co., 229 Ga. App. 277(1997) did not preclude this remedy. This Court, when considering the fraud aspect of the claim, "found no misrepresentation was in fact made."

There was no evidence in the record before the trial court that the notice to Southeastern's insured was a material misrepresentation of fact, was made to induce reliance by Generali, or was made with the intent to mislead Generali. To the contrary, Generali contends that Southeastern's act of fraud was in not timely correcting its prior notice stating that there was no coverage, in order to reflect that there was coverage. However, the statement was correct when made, so that failure to correct was not actionable fraud, deceit, or concealment as a matter of law.

See also Griffeth v.Principal Mutual Ins. Co., 2000 Ga. App. LEXIS 446, Case No. A99A1835 (March 29, 2000) ("we have found no Georgia Statute or case law from which it might be inferred that the Insurance Commissioner has exclusive or even primary jurisdiction over such vested legal disputes").

Clearly in this case, State Farm's §33-3-28 declaration was not "correct when made." This case is exactly the sort of case that supports an action for fraud in the context of insurance disclosure. As is often the case, the civil common law, in the form of fraud, provides a reciprocal protection for injured Georgia Citizens who have been defrauded by an insurance company. Fraud is the common law recourse that an individual, such as Ms. Merritt, has against an insurance company that fraudulently misrepresents matter within its superior knowledge. Such a recourse should not be extinguished at the option of State Farm.

Another clear intent of the legislature in enacting this disclosure statute is to avoid unnecessary litigation. Without this disclosure statute all claimants would have to resort to civil litigation for insurance information concerning the tortfeasor. Truthful, honest disclosure pursuant to the statute avoids this unnecessary litigation and promotes settlement. Public policy supports the efficient use of judicial resources and the promotion of tools that lead to settlement. Abuse of this process via fraud should not go unpunished. Merritt's civil remedies of fraud and RICO must be upheld to protect against rampant abuse.

IV. This Court Should Follow The Lead Of Other Courts/States

Almost 15 years ago the Federal District Court for the District of Delaware boldly put a stop to insurance disclosure abuse in that State. See DiSabatino v. U.S. Fidelity Guarantee Co., 635 F. Supp. 350 (D. Del. 1986). In that case, on very similar facts as the case at bar, the correctly held that the "plaintiff may keep what he received and file suit against the ones committing the alleged fraud and recover 'such an amount as will make the settlement an honest one.'" 635 F. Supp. at 355. See also E.I. DuPont De Nemours and Co. v. Fla. Evergreen Foilage, 744 A.2d 457 (Del.1999); Matsuura v. Alston & Bird, 179 F.3d 1131 (9th Cir. 1999)("defrauded tort plaintiffs may stand by their settlement agreements and institute an independent action for fraud."). Georgia law is consistent with a similar ruling in this case: allow Merritt to stand by the settlement and sue State Farm for fraud.

/s/ Mathew G. Nasrallah

1. State Farm has made this argument before. Parris v. State Farm, 229 Ga. App. 522 (1997). As this Honorable Court recognized "it is not a universal truth in insurance disclosure matters that all is well that ends well. Improper insurance reporting may result in liability under proper factual scenarios." 229 Ga. App. at 526. This case presents such a scenario.

2. Tobias or Thomas Hobson (c. 1544-1631) was a carrier at Cambridge who "kept a stable of forty good mounts" but would allow a customer no choice, requiring him to take the horse that stood nearest the stable door or none, "so that every customer was alike well served . . . and every horse ridden with the same justice" (Spectator, No. 512). (Hobson's requirement was humane and fair. But it was so opposed to the spirit of the age, in which every gentleman insisted on preferential treatment, that it attracted great attention.)

3. This is precisely the argument rejected by the Ninth Circuit in Matsuura v. Alston & Bird, 179 F.3d 1131 (9th Cir. 1999), where the court found that a general release did not bar a claim for fraud in the inducement of a settlement.