AUTO-OWNERS INSURANCE COMPANY v. KARAN, INC. et al., 272 Ga. App. 620

Blackburn, Presiding Judge. In this interlocutory appeal regarding the right to insurance coverage, Auto-Owners Insurance Company appeals the trial court’s denial of its motion for

summary judgment, contending that it has no duty to extend coverage to its insureds, Karan, Inc. and Divya, Inc. (collectively “Karan”), because Karan failed to notify Auto-Owners of a pending lawsuit as soon as practicable. We agree and reverse.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9-11-56 (c). Adenovo standard of review applies to an appeal from a grant of

summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant. Matjoulis v. Integon Gen. Ins. Corp. 1. The question to be answered in this appeal is: “Does any question of fact remain whether Karan notified its insurer, Auto-Owners Insurance Company, ‘as soon as practicable’ about a slip-and-fall lawsuit brought against it by Philip Richardson, despite the fact that Karan failed to notify Auto-Owners until a default judgment had been entered”?

The principles of res judicata and the undisputed facts of record mandate that the answer to this question is “no.” Auto-Owners contends that the superior court erred by denying its motion for

summary judgment, arguing that, as a matter of law, it had no duty to defend or provide coverage to Karan in an underlying slip- and-fall lawsuit, because: (1) it is undisputed that, in violation of the insurance policy, Karan wholly failed to notify Auto-Owners about the pending lawsuit brought against it by Philip Richardson prior to the entry of a default judgment; and

(2) Karan’s only justification for the delay in notification, namely that it had never been properly served with the complaint because service was given to a temporary employee, was previously rejected by the state court in a prior proceeding. Because Auto-Owners is correct as to both arguments, the superior court erred by denying Auto-Owners’ motion for

summary judgment. The undisputed facts of record show that, on May 23, 2002, Richardson fell in a stairway at a Sleep Inn Motel owned and operated by Karan. On January 24, 2003, Richardson filed suit against Karan in state court, but Karan neither informed Auto-Owners of the suit nor took any measures on its own to answer Richardson’s complaint. As a result, the suit went into default, and, on July 8, 2003, the state court entered a default judgment against Karan.

Karan later forwarded a copy of the default judgment to Auto-Owners, contending that it had not known about Richardson’s suit because proper service had never been perfected. Specifically, Karan contended that the complaint was improperly served on one of its temporary employees. It is undisputed that this was the first time that Auto-Owners was made aware of the lawsuit by Karan.

On September 6, 2003, Karan filed a motion to open default with the state court, specifically and explicitly “on the grounds of insufficiency of service of process,” and Karan filed a brief in support of this motion arguing insufficiency of process exclusively. In its order denying Karan’s motion to open default, the state court directly ruled on Karan’s contention that it had received improper service, stating: “IT IS HEREBY ORDERED that [Karan’s] Motion to Open Default be, and hereby is, DENIED.” See Oden v. Legacy Ford-Mercury; Carter v. Progressive Ins. Co.

In each of these cited cases, this Court affirmed the trial court’s denial of the defendant’s motion to open default and concurred with the trial court’s conclusion that the defaulting party had failed to establish that process was insufficient. Based on the state court’s decision to cite these cases, it is clear that the state court determined that, contrary to Karan’s claims otherwise, Karan failed to prove that it did not receive proper service of Richardson’s suit. Karan did not appeal this finding in the prior case.

On August 25, 2003, Auto-Owners filed the present declaratory judgment action in superior court, requesting a finding that it was not required to provide coverage to Karan regarding Richardson’s fall because Karan failed to notify it of the pending lawsuit as soon as practicable, which is an undisputed violation of the insurance policy. On December 10, 2003, Auto-Owners filed a motion for

summary judgment, and, on January 13,2004, Karan filed a brief in opposition to this motion, once again exclusively arguing that because it never received legal notice of Richardson’s lawsuit, a question of fact remained whether Karan had failed to diligently notify Auto-Owners of Richardson’s action as soon as practicable. No other justification was provided. Citing Fremichael v. Doe, the superior court denied Auto-Owners’ motion for

summary judgment, finding that questions of fact remained regarding Karan’s compliance with the policy’s notice provisions. Fremichael is wholly distinguishable from the present case. Fremichael contained no elements of res judicata or collateral estoppel, no issues regarding service, and no entry of a default judgment prior to notification of the insurance company. Accordingly, it has no relevance to the matter at hand.

Because Karan is bound by the state court’s prior determination that Karan failed to prove improper service, Karan is collaterally estopped from arguing that it received improper service in any subsequent court proceeding. As such, Karan cannot now argue that service was insufficient as a ground that it was, in fact, diligent in waiting to notify Auto-Owners of the suit against it after default, and Karan is therefore left without any viable excuse whatsoever for not notifying Auto-Owners. 2.

The dissent contends that the holding of this majority would yield “the absurd result of foreclosing any inquiry into whether the policy’s notice requirement was [not] fulfilled through a mere showing that service was proper, which the majority now finds as a matter of law.” This is incorrect. The issue here is whether the record supports any question of fact whether Karan notified Auto-Owners of the slip-and-fall lawsuit as soon as practicable. It is undisputed, that without any viable excuse, no notice of the lawsuit was given Auto-Owners until after default had been entered in the case.

There is no question of fact that this failure does not constitute notice “as soon as practicable.” That is the holding of this opinion.

The dissent further argues: “While Karan might be prohibited from arguing the sufficiency of the service as cause for its lack of notice to Auto-Owners, it would not be precluded from arguing that, despite a legally sufficient service upon its agent, its ensuing notice to its insurer was ‘as soon as practicable.’ ” This contention overlooks the fact that Karan makes no other argument that its notice was “as soon as practicable.” Therefore, no question of fact remains regarding Karan’s diligence in notifying Auto-Owners, and the trial court erred by denying Auto-Owners’ motion for

summary judgment. Judgment reversed. Ruffin, C. J., Andrews, P. J., Mikell and Bernes, JJ., concur. Barnes and Adams, JJ., dissent. Matjoulis v. Integon Gen. Ins. Corp., 226 Ga. App. 459 (1) (486 SE2d 684) (1997). Oden v. Legacy Ford-Mercury, 222 Ga. App. 666 (476 SE2d 43) (1996). Carter v. Progressive Ins. Co., 246 Ga. App. 562 (541 SE2d 418) (2000). Fremichael v. Doe, 221 Ga. App. 698 (472 SE2d 440) (1996).