Southern Guar. Ins. Co. v. Dowse

When the insurer refused to defend the underlying action under a reservation of rights, it waived provisions in the policy against a settlement by the insured and it became bound to pay the amount of any good faith settlement within the policy limits.

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Certiorari was granted to consider whether the Court of Appeals erred in holding that an insurer that refused to defend or indemnify its insured was estopped from subsequently arguing that a settlement agreement entered into by the insured and a third party relieved the insurer from its obligations under the policy.1 Having reviewed the record, we agree with the Court of Appeals’ ruling, but emphasize that the insurer is not estopped from arguing that the claims brought against its insured are not covered under the policy’s terms. Therefore, while we affirm the ruling below, we remand this matter for a determination of whether the policy provides coverage for the underlying claims. The Dowses sued Cutter, Inc., for defective construction and installation of exterior insulation and finishing on their home, alleging negligence, breach of warranty and bad faith. Cutter, Inc., was insured under a general commercial liability policy issued by Southern Guaranty Insurance Co. “SGIC”, which informed Cutter, Inc., that the claim brought against it by the Dowses was not covered by the policy and that SGIC would not defend or indemnify Cutter, Inc. Cutter, Inc., and its principal, Ulysses Cutter, then reached a settlement agreement with the Dowses. As part of the agreement, Cutter, Inc., withdrew its answer to the complaint and a default judgment was entered against it.2 A hearing was held on the issue of damages, and judgment was rendered for the Dowses, awarding them damages, interest and costs.

The Dowses then filed a garnishment action against SGIC, claiming that Cutter, Inc.’s, insurance policy was a garnishable asset. SGIC answered, arguing that it possessed no funds subject to garnishment, and moved for summary judgment, which the trial court granted.

Southern Guar. Ins. Co. v. Dowse

When the insurer refused to defend the underlying action under a reservation of rights, it waived provisions in the policy against a settlement by the insured and it became bound to pay the amount of any good faith settlement within the policy limits.

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