In Dunn, et al. v. Columbia National Insurance Company, No. 2:17-cv-0246 (N.D. Ga.), an insurance company refused to defend an insured in a personal injury claim contending that the insured failed to cooperate in the defense. The underlying claim stemmed from an automobile accident, where an employee of Lawson Air Conditioning and Plumbing, Inc. (“Lawson”), Ronald Patterson, struck members of the Dunn family with a pickup truck owned by Lawson as the family was walking out of a Walmart store. The Dunn family members suffered bodily injury as a proximate result of the accident.  Patterson admitted fault.

Lawson was insured by two insurance policies issued by Columbia National Insurance Company: a primary policy with a $1 million limit of liability and an umbrella policy with a $3 million limit of liability. The truck was a “covered auto.” Columbia denied coverage, however, contending that Patterson was “not a permissive driver at the time of the accident.” In April 2014, the Dunns sued Patterson and Lawson. Columbia retained counsel to defend Lawson but not Patterson.

Columbia sought to enter an appearance and intervene in the underlying lawsuit but the trial court denied those motions. In January 2016, the Dunns settled with Lawson for $125,000. Columbia did not settle the claims against Patterson. Columbia issued two reservation of rights letters to Patterson and eventually hired attorneys to defend him in the underlying lawsuit. The attorneys filed notices of appearance but Patterson rejected Columbia’s defense. Nevertheless, the attorneys continued to defend Patterson until the trial court removed them for a lack of authority to appear.

Before Patterson’s attorneys were removed, the Dunns offered to settle the claims against Patterson for $1,125,000. Columbia rejected the offer. Patterson, having already admitted liability, saw no reason to participate in his defense and failed to attend his deposition and a court-ordered hearing. As a sanction, Patterson was precluded at trial from questioning witnesses, putting forth argument, presenting an opening statement, or otherwise opposing the Dunn’s proof of damages. The jury returned a verdict against Patterson for $11,500,000.

Patterson sued Columbia for breach of contract for failure to defend and negligent failure to settle. The Dunns brought a direct action claim against Columbia, as judgment creditors, for payment of the judgment against Patterson. In response, Columbia argued that Patterson never requested a defense, breached his contractual duty to cooperate, and failed to mitigate damages. All three parties moved for summary judgment.

The court granted summary judgment in favor of Patterson and the Dunns, and denied summary judgment for Columbia. The court based its decision on its finding that Patterson was a permissive user of the truck and, as such, Columbia had a duty to defend Patterson regardless of whether a defense was specifically requested. The court further found that the Dunns were entitled to recover directly against the insurance policies as judgment creditors.

With respect to the duty to cooperate, the court found that Columbia’s failure to defend Patterson abrogated any duty to cooperate with the insurer The court explained that Patterson was forced to defend himself pro se, and his “shortcomings in doing so are not a defense against liability on the policy.” Finally, the court expressed concern that Columbia failed to conduct a reasonable investigation to discover relevant facts when it declined the Dunn’s offer of settlement, including that Patterson was subject to punitive damages, and the facts were sufficient to conclude that any jury would find that no ordinarily prudent insurer would have declined the Dunn’s offer.

The Dunn case underscores the fact that an insurer’s duty to defend is broad and based on the mere potentiality of coverage and showing of facts sufficient to establish coverage. Denial of coverage without proper investigation can result in an insurer having to provide coverage not only for the duty to defend, but also for a judgment against the insured.  The decision also is a reminder that in some jurisdictions, like Georgia, claimants may proceed directly against liability insurers to recover policy proceeds after obtaining a judgment against the insured.