Georgia Defective Product Attorneys

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					                                                                              Volume 13, No. 77 September 2001

OF FITNESS, AND                              by Andrew D. Horowitz
THE NECESSITY                                (404) 885-6145

OF CONSPICUOUS                                  In its February 28, 2001, decision in Hickey v. Bowden et al., the Georgia Court
DISCLAIMERS                                  of Appeals attempted to create a bright-line test to determine when actions alleging
                                             damage to realty begin to accrue under the statute of limitations, O.C.G.A. § 9-3-30.
by Tammy Heimendinger                        That statute imposes a four-year limitations period, which begins to accrue upon
(404) 885-6221                               "substantial completion" of the project at issue. Heffernan v. Johnson, 209 Ga. App.
                                             139, 433 S.E.2d 108 (1993).
   Under the Georgia Tort Reform Act,           The Hickey court held that the date of issuance of a certificate of occupancy
when a defective product is brought          ("CO") marks the "earliest date" a house may be deemed substantially completed
to market, the manufacturer of that                                                                                               (PLEASE TURN TO PAGE 5)
product can be held strictly liable for
injuries or damages incurred. O.C.G.A.
§ 51-1-11.1. For strict liability to apply
to the manufacturer, the product, when        INSIDE THIS ISSUE
sold, must have been defective, and           Implied Warranty of Merchantability, Implied Warranty
                                              of Fitness, and the Necessity of Conspicuous Disclaimers
the resulting injury must have been           by Tammy Heimendinger.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
proximately caused by the defect in the
                                              Appellate Court Links Accrual Date for Damage-to-Realty
product. S.K. Hand Tool Corp. v. Low-
                                              Claims to Issuance of Certificate of Occupancy
man, 23 Ga. App. 712, 479 S.E.2d 103          by Andrew D. Horowitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(1996). Sometimes, the situation may
                                              Analysis of Coverage for Additional Living Expenses
arise where the manufacturer has filed        in First Party Property Insurance Policies
for bankruptcy or has dissolved, and          by Shella Wolff Blaustein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
a consumer is precluded from seeking          Are E-mails Between Attorneys and Clients Protected
damages directly from the manufac-            By the Attorney-Client Privilege?
turer. The consumer may then decide           by Karen Karabinos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
to bring a claim against the merchant         Subsequent Injury Trust Fund Claims: Practical Advice
who sold the defective product. The doc-      by Marion Handley Martin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
trine of strict products liability, under     Hitchcock v. Jack Wiggins, Inc.: The Court of Appeals Examines
the Georgia Tort Reform Act, however,         Georgia Law Regarding Exemptions for Corporate Officers
does not apply to the seller of those         from Workers’ Compensation Insurance Coverage
                                              by Jim Aronowitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
                  (PLEASE TURN TO PAGE 2)

goods, but the retailer or seller may be    breach of warranty arising from defects.          the seller of the chair would be held
held liable under the doctrine of implied   The repair/replacement warranty lim-              liable under the implied warranty of
warranty of merchantability for selling     its the seller's liability only to repair or      merchantability. If the switch was visi-
a defective product. O.C.G.A. §§ 51-1-      replacement of the defective good. A-             bly broken or bent, the implied war-
11.1, 11-2-314(2)(c). Georgia's doctrine    Larms, Inc. v. Alarms Device Mfg. Co.,            ranty of merchantability would not
of implied warranty of merchantability      165 Ga. App. 382, 300 S.E.2d 311 (1983).          apply. The implied warranty of mer-
is designed to give a consumer another      Such a limitation could protect a retailer        chantability would likewise not apply
source from which to seek damages.          from being held liable for physical or            when a consumer is aware of a defect
                                            other injuries sustained by a consumer            before purchasing a product. Smith v.
                                            that resulted from a design defect of             Northeast Georgia Fair Assoc., 85 Ga.
  The doctrine of strict                    which that retailer was not aware. The            App. 32, 67 S.E.2d 836 (1951). For
                                            retailer's damages could effectively be           example, if a consumer is aware that
products liability, under                   limited to the price of the good.                 a particular product is subject to a
the Georgia Tort Reform                                                                       recall and nonetheless purchases that
 Act, however, does not                     1. What Is Implied Warranty                       product, the retailer may avoid liability
  apply to the seller of                    of Merchantability?                                                (CONTINUED ON PAGE 6)
                                                Implied warranty of merchantability
   those goods, but the                     stems from Georgia's version of the
  retailer or seller may                    Uniform Commercial Code. An implied
 be held liable under the                   warranty of merchantability is created              EDITORIAL POLICY
                                            when a merchant of goods sells those
    doctrine of implied                     goods as being fit or the ordinary pur-             The JOURNAL is a publication
 warranty of merchant -                     pose for which such goods are intended.             for the clients of Drew Eckl &
                                                                                                Farnham, LLP, Attorneys at Law,
     ability for selling                    O.C.G.A. § 11-2-314. For the implied
                                                                                                880 West Peachtree Street, P.O.
                                            warranty of merchantability to exist,
   a defective product.                     the seller must be a "regular" merchant             Box 7600, Atlanta, Georgia 30357.
                                            of those same type of goods. O.C.G.A.               It is written in a general format
    A seller makes a warranty of mer-       § 11-2-104(1).                                      and is not intended to be legal
chantability and warranty of fitness for        The implied warranty of merchant-               advice applicable to any specific
a particular purpose, unless expressly      ability applies only to latent defects              circumstance. Legal opinions
excluded. Georgia allows parties to         that are not discoverable through the               may vary when based upon
expressly broaden or narrow implied         exercise of ordinary care or prudence.              subtle factual differences.
warranties of merchantability or fitness,   Patent defects or discoverable latent               All rights are reserved.
but the express waiver or disclaimer        defects are not warranted. For exam-                Editorial Board:
must be clear, certain on that point,       ple, a merchant sells folding chairs. On            H. Michael Bagley
and conspicuous. B.C.S. Financial Corp.     the underside of the chair is a locking              (Editor-in-chief)
v. Sorbo, 213 Ga. App. 259, 444 S.E.2d      mechanism that when pushed in a par-
                                            ticular direction, will hold the chair in           SUBSCRIPTIONS
85 (1994). The seller can also choose
                                            a position for seating. There is a switch           To receive your subscription
to limit the implied warranty of mer-
                                            on the locking mechanism that informs               of the JOURNAL , provide
chantability to the repair or replace-
                                            the user that the chair is locked and it            your name, business affiliation
ment of defective goods. For example,
                                            is safe to sit. The consumer unfolds the            and address to:
a merchant of household appliances
                                            chair, places the switch in the locked              Elaine McIntosh
is permitted to place a warranty limited
                                            position, and sits in the chair. The chair           Drew Eckl & Farnham, LLP
to the replacement or repair of any
                                            collapses and injures the consumer.                  880 West Peachtree Street
problem with an appliance resulting
                                            When the chair is turned over, the                   P.O. Box 7600
from a manufacturer's defect. The
                                            switch still indicates that the chair is in          Atlanta, Georgia 30357
effect of such a limitation is that the
seller will not be liable for consequen-    the locked position. That would be an               or phone (404) 885-6289
tial damages resulting from any alleged     undiscoverable latent defect for which

2                                                                                          Drew Eckl & Farnham, LLP September 2001
by Shella Wolff Blaustein                      incurred by you so that your                    Additional Living Expenses –
(404) 885-6225                                 household can maintain its normal               If you are not able to live in your
                                               standard of living. Payment shall               home due to a covered loss, we
    Found in homeowners insurance              be for the shortest time required               will pay up to $20 per day for
policies is supplemental coverage              to repair or replace the premises               your expenses incurred above
for Loss of Use or Additional Living           or, if you permanently relocate,                and beyond your normal daily
Expenses [ALE] for the expenses                the shortest time required for your             expenses as a result of your cov-
incurred in maintaining one’s house-           household to settle elsewhere. This             ered loss. If your home can be
hold in its normal standard of living if       period of time is not limited by                repaired, we will provide pay-
the insured's residence is made unin-          expiration of this policy.                      ment only for the time reasonably
habitable by a loss covered under the                                                          required to repair the home. If it
policy. [This article will refer generi-                                                       is a total loss, we will pay the $20
cally to both as ALE.] The specific lan-                                                       daily amount until the date we
guage of the policy will determine the
                                                 Common areas of                               pay for the home loss or through
amount and duration of coverage for          dispute between insurer                           the fifth day after we make a writ-
these expenses. ALE coverage provisions      and insured in coverage                           ten offer to settle your loss. In no
commonly provide ALE for the shortest         for ALE is the duration                          event will this benefit be paid for
amount of time required to repair or                                                           an amount greater than 10% of
replace the residence, or to permanently        of time ALE will be                            the liability limit on your home.
settle the insured elsewhere. Coverage        paid or documentation                            In order to obtain payments under
for ALE, also, depends upon the spe-             for the additional                            this coverage, you must provide
cific facts presented in each claim. The                                                       receipts of your expenses prior to
insurer's coverage decision will depend      living expenses claimed.                          our payment.
upon good analysis of the policy lan-
guage as applied to the facts in the                                                            ALE or loss of use limits of coverage
presented claim.                                Some first party property insurance          typically are tied to the shortest time
    Common areas of dispute between          policies, such as the one that follows, limit   required for repair or replacement
insurer and insured in coverage for          recovery of ALE to a specific period of         of the damaged residence, or for the
ALE is the duration of time ALE will         time, for example, nine months:                 insured to permanently settle else-
be paid or documentation for the addi-                                                       where, if not for a stated period of
tional living expenses claimed. Knowl-         a) We will pay the reasonable                 time, up to the limits of coverage on
edge of the specific claim facts is key to     increase in living expenses neces-            the home. On the other hand, a blanket
analysis of effective application of the       sary to maintain your normal                  property insurance policy requires
policy's provisions. Additionally, cov-        standard of living when a loss                analysis of the policy limits, specified
erage often can only be evaluated by           we cover makes your residence                 as a percentage of the current dwelling
reference to other clauses in the policy,      premises uninhabitable.                       replacement cost, in conjunction with
for example, the conditions of payment         Payment shall not exceed nine                 other clauses or conditions contained
and/or limits of coverage provisions.          consecutive months from the time              in the policy, in order to determine the
    The following are common ALE               of loss, or the least time to either:         duration of ALE allowed when the
coverage provisions found in first             1) repair or replace the property             dwelling is replaced. Blanket property
party property insurance policies. The         we cover, using due diligence and             policy Loss Settlement conditions may
first is found in an HO3 Homeowner's           dispatch; or                                  authorize the insurer to pay for repairs
policy, in Coverage D, Loss of Use:            2) if you permanently relocate, the                                         o
                                                                                             or replacement of equivalent r like con -
                                               shortest time for your household                       .
                                                                                             struction Consequently, when present-
  Additional Living Expense.                   to settle elsewhere.                          ing an ALE claim, if the insured repairs
  If a loss covered under this Section                                                       or replaces the dwelling with construc-
  makes the residence premises                  An example of an ALE provision               tion unlike or nonequivalent to the
  uninhabitable, we cover any neces-         found in a Manufactured Homeowner's             insured dwelling, then the insurer may
  sary increase in living expenses           Policy, Section I, is as follows:
                                                                                                              (CONTINUED ON PAGE 4)

Drew Eckl & Farnham, LLP September 2001                                                                                               3

limit payment of ALE to only the time          appellate court found that the insured            exceeded the policy's repair cost limit,
estimated for repair or replacement            testified about the duration she was              the court allowed the insured to
of the insured dwelling with like or           out of her home and the amount of                 recover ALE incurred during dwelling
equivalent construction.                       monthly rent paid for substitute hous-            replacement even though the insurer
                                               ing, and thus, was entitled to the jury           paid only for repair. The court rea-
                                               award of ALE where the insurer failed             soned that the policy covered ALE
                                               to move during trial for directed ver-            incurred "during the time necessary to
    On the other hand,                         dict on the issue of policy application           repair or replace the structure using
    a blanket property                         misrepresentation, thereby precluding             due diligence and dispatch," and since
     insurance policy                          the issue from being raised for the first         the insured was reasonable in his dis-
                                               time on appeal. The case, then, implic-           pute with the insurer over the dwelling
   requires analysis of                        itly sets the standard in Georgia for             loss claim amount, with the insured's
     the policy limits,                        proof of ALE by the insured's testimony           repair estimates exceeding the policy's
specified as a percentage                      about the duration of additional living           repair cost limits, the insured was
 of the current dwelling                       expenses and amount incurred. South-              authorized to recover ALE for time
                                               ern Trust Ins. Co. v. Braner, 174 Ga.             spent replacing the dwelling, though
   replacement cost, in                        App. 247, 329 S.E.2d 569 (1985), rev'd            not replaced by the insurer.
 conjunction with other                        on other gr unds 255 Ga. 117, 3353
                                                           o     ,                                  To recover ALE, the insured, must
  clauses or conditions                        S.E.2d 547 (1985).                                comply with conditions precedent
                                                   The following is a summary of cases           under the policy. Where the insured
 contained in the policy,                      ruling in some way on ALE or loss of              refuses to submit to an examination
  in order to determine                        use and shows the range of precedent              under oath, then ALE may not be
   the duration of ALE                         on the issue:                                     recovered. Nationwide Ins. Co. v.
                                                                                                 Nilsen, 745 So. 2d 264 (Ala. 1998).
    allowed when the                           Right and Condition of Recovery of ALE
  dwelling is replaced.                           Recovery of ALE generally requires             Kinds of ALE
                                               an insurable interest in the insured                 The cost to store a vehicle in a
                                               property. De Witt v. American Family              commercial storage facility, following
    Very little case law exists interpreting   Mut. Ins. Co., 667 S.W.2d 700 (Mo.                destruction by fire of the vehicle's usual
ALE or loss of use clauses in insurance        1984). However, in Highlands Ins. Co.             storage place in the insured's home
policies. The Georgia Court of Appeals         v. Kravecas, 719 So. 2d 320 (Fla. Dist.           garage, may be recovered as ALE. Led-
tangentially reviewed the issue in             Ct. App. 3rd Dist. 1998), a third party           yard v. Auto Wonders Mut. Ins. Co., 137
Nationwide Mut. Fire Ins. Co. v. Wiley,        who buys an insured's damaged home                Ohio App. 3d 501, 739 N.E.2d 1 (Ohio
220 Ga. App. 442, 469 S.E.2d 302 (1996),       may not recover ALE, where the loss of            Ct. App., Cuyahoga County 2000).
where the insurer and insured disputed         use coverage under the policy was to              Ledyard, also, held that the expense of
the value of ALE owed. The insurer             make the insured"whole" for the actual            hiring a private horse care-and-feeding
asserted the insured misrepresented            loss of use. The court in Kravecas                service provider can be recovered as
her legal interest in the property and         found that even though the third                  ALE, even though the insured provided
the character of the home, which was           party assumed the insured's interest              his own care of the horses prior to the
a custom renovated mobile home and             in the damaged property, this did not             dwelling loss, where the hiring was
not brick as stated in the application.        amount to assumption of the insured's             necessitated by the insured's temporary
The Court of Appeals looked to the             loss of use claim where the insured               relocation elsewhere while his dwelling
policy which provided, "[i]f a covered         sold the damaged property before                  was uninhabitable.
loss requires you to leave the residence       actually incurring expenses for loss of              The insured in Snellen v. State Farm
premises, we cover the required increase       use. In Hines v. Allstate Ins. Co., 298 Ill.      Fire & Cas. Co., 675 F. Supp. 1064 (W.D.
in living expenses you incur to maintain       App. 3d 585, 698 N.E.2d 1120 (Ill. App.           KY 1987) failed to recover loss of use for
your normal standard of living. Payment        Ct. 4th Dist. 1998), where the insurance          loss of personal property in excess of
will be for the shortest time required to      policy allowed replacement of the                 her personal property limits, even though
repair or replace the premises." The           dwelling if the estimated repairs
                                                                                                                  (CONTINUED ON PAGE 5)

4                                                                                             Drew Eckl & Farnham, LLP September 2001

she argued that replacement of the            or replace the dwelling or to settle           Co., et al., 510 So. 2d 759 (La. Ct. App.
excess loss of personal property was          permanently elsewhere, and the                 1st Cir. 1987).
necessary to maintain her standard of         insured for more than a year follow-
living. The court reasoned that the pol-      ing the loss fails to repair or replace the    Timing of ALE Claim
icy unambiguously limited personal            dwelling, then ALE was awarded only               The court in Maine v. Mut. Fire Ins.
property loss to the amount specified         for the time it took for the insured to        Co. v. Watson, 532 A.2d 686 (Me. 1987),
in the limits, precluding recovery for        permanently settle elsewhere. Clifton          held that the insured was entitled to
personal property under the policy's          v. Louisiana Farm Bureau Cas. Ins.                               (CONTINUED ON PAGE 7)
ALE provision.

Duration of ALE
   While an insured may be entitled to
recover ALE during the time spent to
repair or replace the dwelling, if incurred
                                              APPELLATE COURT... (CONTINUED FROM PAGE 1)
within the time specified in the policy,
the insured may not recover ALE if steps      under O.C.G.A. § 9-3-30. In so holding,        O.C.G.A. § 8-2-25(a). Indeed, several
are not taken within that time to repair      it reasoned that until the county or munic-    counties and municipalities do not
or replace the dwelling, even if the repair   ipality issued a CO, a home may not be         enforce these building codes.
or replacement could not proceed because      legally occupied, and is therefore not            For instance, according to the
the insurer refused to guarantee payment      substantially completed. The effect of the     "Summary of Local Code Enforcement,”
to the insured's contractor, who agreed       decision is that all actions alleging damage   taken from the Georgia Department of
to finance the construction in the face       to realty must now be brought within           Community Affairs' website, roughly
of denials by lending institutions of         four years of the issuance of the CO.          65% of counties and municipalities
loans to the insureds. Hilley v. Allstate         In reaching this decision, the Hickey      enforce some of the mandatory codes,
Ins. Co., 562 So. 2d 184 (Ala. 1990). Fur-    court recognized that O.C.G.A. § 9-3-30        while 35% do not enforce any of them.
ther, where the policy provides ALE           does not define "substantial completion."      The CABO One and Two Family Dwel-
only for expenses incurred during             It noted, however, that the phrase is          ling Code, which governs residential
repair of the property "as soon as pos-       defined for purposes of the statute of         construction, is only enforced in 55%
sible," those expenses incurred because       repose for damage-to-realty claims,            of the jurisdictions.
of unsubstantiated delay in completing        O.C.G.A. § 9-3-51. That statute imposes           In jurisdictions in which mandatory
repairs may not be recovered, where           an eight-year cap on actions also gov-         codes are not enforced, it is often the
the insurer proved the repairs were           erned by O.C.G.A. § 9-3-30. The court          case that no CO is issued following
estimated to be completed within a            determined that the statute of repose's        construction of new homes and struc-
specified limit of time and the insured       definition of "substantial completion"         tures. If substantial completion requires
could not substantiate the reason for         also applies to the statute of limitations.    the issuance of a CO, then neither the
delay beyond that time. Carlyon v.            By defining "substantial completion" in        statute of limitations nor the statute
Aetna Casualty & Surety Co., 413 So.          terms of the CO date, the court implic-        of repose will ever commence running
2d 1355 (La. Ct. App. 3d Cir. 1982).          itly held that neither the statute of limi-    on claims relating to structures in
                                              tations nor the statute of repose begins       those jurisdictions.
                                              to accrue until the issuance of a CO.             Likewise, builders do not necessarily
   Very little case law                           The Hickey decision presumes that          obtain CO’s – even in counties or muni-
                                              a CO is issued for every residential and       cipalities where they are required – as
 exists interpreting ALE                      commercial building, but this is not the       soon as construction is completed or
  or loss of use clauses                      case. Even though mandatory state-wide         substantially completed. It is not
  in insurance policies                       building codes currently exist, there is       unusual, for instance, for a builder to
                                              no state law requiring counties and            deliberately wait until after an anticipated
                                              municipalities to enforce these codes.         sale of a house to obtain a CO. This often
  However, where the policy affords           These entities may choose to enforce           occurs because purchasers frequently
ALE for the time required to repair           them, but they are not required to do so.
                                                                                                              (CONTINUED ON PAGE 15)

Drew Eckl & Farnham, LLP September 2001                                                                                                  5
by Karen Karabinos                          be protected from discovery by the                tort. In re Sealed Case, 737 F.2d 94, 98-99
(404) 885-6313                              attorney-client privilege 1
                                                                                              (D.C. Cir. 1984). The United States
                                                Generally, the attorney-client privilege      Supreme Court has also permitted the
   With the expanded use of computers       applies only when: (1) the person or              attorney-client privilege to be applied
in all areas of business, including the     company asserting the privilege was a             to those communications between
practice of law, attorneys and clients      client or sought to become a client; (2)          attorneys and the central core manage-
increasingly are using e-mails as the       the person to whom the communication              ment personnel of a corporate client.
preferred method of communication           was made is a member of a bar or his              Upjohn Co. v. United States, 449 U.S.
with one another. The convenience and       subordinate and was acting as a lawyer            383, 101 S.Ct. 677 (1981).
speed of communication are the obvious      in connection with the communication;
advantages of using e-mail to commu-        (3) the communication related to a fact of
nicate. But are these advantages risky,     which the attorney was informed by his
in light of the fact that many litigants    client, without the presence of strangers,
                                                                                                  The court deemed
have begun enlarging document               for the purpose of securing either an               privileged the e-mails
requests to include discovery of "          opinion of law, legal services, or assis-           between the in-house
any and all e-mails?" E-mails between       tance in some legal proceeding, but not            counsel and the outside
attorneys and their clients should          for the purpose of committing a crime or
                                                                                                counsel holding those
                                                                                               communications should
                                                                                                be considered commu -
IMPLIED WARRANTY... (CONTINUED FROM PAGE 2)                                                     nications between an
                                                                                              attorney and client, with
for breaching the implied warranty,         consumer should be protected, and the             the in-house counsel being
presuming there is evidence of the          merchant, who makes a profit from the
consumer's knowledge.                       sale, is in a better position to bear the
                                                                                               considered the agent for
                                            burden of the loss caused by an undis-               the corporate client.
                                            coverable latent defect.
    While negligence is                        Negligence is not an element of breach
                                            of implied warranty of merchantability.              While no court in Georgia has
   not an element, strict                   Under an implied warranty of merchant-            specifically addressed the application
 liability of the manufac -                 ability theory, a seller of the product           of the attorney-client privilege to e-
   turer is distinguished                   warrants that the product is not defec-           mail communications, research has
                                            tive, and no amount of care will relieve          found two jurisdictions that have. At
from the implied warranty                   the seller of liability. Wood v. Hub Motor        issue in McCook Metals v. Alcoa, Inc.,
    of merchantability.                     Co., 110 Ga. App. 101, 137 S.E.2d 674             192 F.R.D. 242 (U.S.D.C. N.D. Ill 2000)
                                            (1964). While negligence is not an element,       was whether plaintiffs could discover
                                            strict liability of the manufacturer is           certain e-mails between in-house attor-
    When a merchant sells a particular      distinguished from the implied warranty           neys or between an in-house attorney
product, that merchant impliedly war-       of merchantability. The injured party             and outside counsel concerning the
rants to his customers that the product     cannot bring a claim against a merchant           patents which were in dispute. The
is merchantable and that the product        under a strict liability theory, but must         court recognized that communications
is fit for the purpose for which it was     rely on the implied warranty of merchant-         among in-house counsel are not com-
intended. Citizens Jewelry Co. v. Walker,   ability statute. O.C.G.A. § 11-2-314.             munications to or from the client, but
178 Ga. App. 897, 345 S.E.2d 106 (1986)         To recover under an implied warranty          found "implicit in present day litiga-
This rule holds true even if the merchant   of merchantability, a consumer must meet          tion with multiple attorneys required
is unaware of any manufacturing defects     three requirements: (1) the seller must           for proper representation [is] that attor-
that could cause injury or damage. The      be a regular merchant of the specific             neys must be allowed to confer with
rationale behind the rule of implied        kind of good; (2) the buyer is justified          each other regarding the representation
warranty of merchantability is that the                       (CONTINUED ON PAGE 9)                            (CONTINUED ON PAGE 10)

6                                                                                          Drew Eckl & Farnham, LLP September 2001

recover ALE, even though the ALE          she spent eating out during the repairs,   on which the insured's ex-wife was
claim was submitted more than 60          with the court awarding her the differ-    co-payee with the insured and mort-
days after fire loss of the dwelling,     ence as ALE.                               gagee. Although the ex-wife had quit
in violation of the policy's condition       According to Fishel v. Yorktowne        claimed her interest in the marital
precedent for reimbursement. The          Mut. Ins. Co., 254 Pa. Super. 136, 385     residence at the time of the spouses'
court reasoned that the policy was        A.2d 562 (1978), the insurer remained      divorce, she remained a named insured
vague about when was the loss, either     obligated to reimburse the insured         on the insurance policy, and the court
when the dwelling loss occurred or        for ALE incurred even in the absence       held, by virtue of her ex-husband's
when ALE was incurred. In light of the    of receipts where the insured acknowl-     default of their divorce agreement, she
ambiguity, the court construed the pol-   edged the ALE arose from an insured        retained an insurable interest in the
icy against in the insurer and awarded    loss, and the insurer knew of the          insured residence to the extent of her
ALE to the insured.                       insured's dwelling damage and was          retained interest. Therefore, the court
                                          aware that other living quarters would     found the delay and penalties incurred by
                                          be necessary during the time the           the insured for late mortgage payment
  The court in Kravecas                   dwelling was uninhabitable. Further,       was caused by the insured's default to
                                          the insurer did not dispute the reason-    his ex-wife rather than by any actions
 found that even though                   ableness or amount of ALE claimed. In      of the insurer; Hence, those additional
 the third party assumed                  a similar vein, in Richards v. Hanover     costs were not recoverable as ALE.
   the insured's interest                 Ins. Co., 250 Ga. 613, 299 S.E.2d 561
                                          (1983), the Georgia Supreme Court con-
in the damaged property,                  cluded that the insured's opinion evi-      The court reasoned that
   this did not amount                    dence about living expenses, at a bare
                                                                                       the insurer otherwise
   to assumption of the                   minimum, sufficiently proved value.
                                                                                      would unfairly benefit,
    insured's loss of use                 Damages for Delay in Payment of ALE            and even awarded
 claim where the insured                      An insurer may become liable to           the insured ALE for
     sold the damaged                     an insured for bad faith or unfair or
                                                                                         meal expenses not
                                          deceptive acts or trade practices if the
 property before actually                 insured can reasonably show his or            proven by receipts.
     incurring expenses                   her residence is uninhabitable, and the
       for loss of use.                   insurer failed to adequately investigate
                                          the claim or to disclose ALE coverage         The foregoing cases highlight the
                                          was afforded under the policy. State       fact-specific nature of ALE claims
Documentation of ALE                      Farm Lloyds v. Nicolau, 40 Tex. Sup.       and the importance of careful analysis
   In Error v. Western Home Ins. Co.      J. 794, 951 S.W.2d 444 (Tex. 1997).        and application of the facts to the pol-
et al., 92 Utah Adv. 15, 762 P.2d 1077    Furthermore, a dispute between the         icy. Application of several policy pro-
(Utah 1988) an insured was allowed        insured and insurer over the value of      visions, including those governing
to recover ALE for loss of use of her     the dwelling damage may not author-        conditions precedents, loss payment
home while it was being repaired, even    ize the insurer to withhold payment on     conditions, property coverage limits,
though she did not incur additional       the insured's ALE claim. Thompson v.       as well as, the ALE or loss of use
rental, because while the property was    Shelter Mut. Ins., 875 F.2d 1460 (10th     clause, must be reviewed to make a
being repaired, she lived in a trailer    Cir. Okla. 1989).                          coverage determination about ALE
she already owned and parked on               The Maine Supreme Court, in            claims. Also, knowledge of the law in
her property. The court reasoned that     Dodge v. United Services Auto. Assoc.,     the jurisdiction applicable to the claim
the insurer otherwise would unfairly      417 A.2d 969 (Me. 1980), held that the     will assist the insurer in concluding
benefit, and even awarded the insured     insured was not entitled to ALE for        whether there is coverage for ALE. The
ALE for meal expenses not proven by       penalties charged by his mortgagee         forgoing cases are a few examples of
receipts, where the insured testified     for late mortgage payment, the delay       existing legal precedent about ALE in
about the normal sum she spent on         caused by the insured's refusal to         the noted jurisdictions and may assist
food compared to what she estimated       accept the insurer's check payment         in the coverage analysis.
Drew Eckl & Farnham, LLP September 2001                                                                                     7
          AT L A N TA                                                                       BRUNSWICK
      880 West Peachtree Street                                                          No. 9 Courtyard, Suite 102
       (street zip code: 30309)                                                             St. Andrews C ourt
            P.O. Box 7600                                                                       P.O. Box 624
     Atlanta, Ge orgia 30357-0600                                                      Brunswick, Ge orgia 31521-0624
          Tel (404) 885-1400                                                                 Tel (912) 2 80-9662
          Fax (404) 876-0992                                         Fax (912) 267-0654
                                             DIRECT DIAL NUMBERS

    Jim Anderson                885-6169   Lisa Higgins            885-6319     Kristi Wallace             885-6109
    Scott Archer                885-6328   Christi Lewis Hodges    885-6424     Rob Welch                  885-6405
    Jim Aronowitz               885-6139   Andrew Horowitz         885-6145     Michelle Whitelaw          885-6307
    Sharon Arzet                885-6308   Kelleen Huang           885-6140     Leslie Williams            885-6207
    Michelle Badaruddin         885-6427   Gary Hurst              885-6423
                                                                                Legal Nurse Consultants
    Mike Bagley                 885-6415   James Janarious         885-6305
                                                                                Marty Morris               885-6357
    Ellen Banov                 885-6143   Karen Karabinos         885-6313
                                                                                Myra Morris                885-6439
    Laura Vickery Benesh        885-6125   Dan Kniffen             885-6411
                                                                                Jeanne Sandecki            885-6330
    Lee Bennett                 885-6406   Barbara Marschalk       885-6322
                                                                                Cindy White                885-6374
    John Blackmon               885-6414   Marion Handley Martin   885-6408
    Shella Blaustein            885-6225   Megan Mathews           885-6142     Paralegals
    Bill Breadfoot              885-6191   Andrew Matteson         885-6306     Patricia Bowman            885-6479
    Andrea Brownridge           885-6224   Hall McKinley           885-6320     Leslie Boyette             885-6452
    John Bruffey                885-6426   David Mellon            885-6130     Cheryl Bravo               885-6135
    Paul Burke                  885-6310   Richard Metzger         885-6217     Bonita Carr                885-6114
    Jeff Burmeister             885-6317   Michael Miller          885-6421     Joanna Coates              885-6446
    Douglas Burrell             885-6163   Steve Miller            885-6316     Marva Craig                885-6354
    Ann Byars                   885-6129   Michael Mills           885-6309     Victoria Fulcher-Raggs     885-6462
    Joe Chancey                 885-6222   Randy Moody             885-6223     Betsy Herndon              885-6453
    Sandra Cho                  885-6413   Brian Moore             885-6108     Lisa Hughes                885-6475
    Elizabeth Clarke            885-6118   Mark Murray             885-6148     Polly Jones                885-6352
    John Corbally               885-6325   Burke Noble             885-6226     Jennifer Ketzler           885-6132
    James Creasy                885-6107   Hayden Pace             885-6144     Julia Lindsey              885-6256
    Will Cummings               885-6112   Jim Poe                 885-6204     Jane Luckett               885-6477
    John DeFoor                 885-6164   Bryan Ramos             885-6141     Mary Joyce McIntyre        885-6438
    Steven DeFrank              885-6326   Jack Reale              885-6404     Mary McQueen               885-6311
    Kathy Dixon                 885-6412   Leigh Reeves            885-6409     Lorri Meyer                885-6233
    Charlie Drew                885-1400   Star-Beth Regan         885-6111     Jacqueline Nagel           885-6239
    Patricia Duffy              885-6425   Brandon Rhodes          885-6127     Alden Reding               885-6479
    Wray Eckl                   885-6327   Terry Rock              885-6419     Cindy Reilly               885-6460
    Dale Ellis                  885-6152   Douglas Rohan           885-6318     Lisa Rose                  885-6158
    Brent Estes                 885-6219   J.C. Roper              885-6417     Julia Steweon              885-6254
    Melanie Eyre                885-6220   Peter Schmidt           885-6324     Beth Tanksley              885-6463
    Clayton Farnham             885-6304   Eric Scott              885-6323     Edith Ussery               885-6347
    John Ferguson               885-6422   David Smith             885-6249     Kelly Wood                 885-6337
    Sandy Fine                  885-6218   Robert Stanley          885-6228
    Hix Green                   885-6208   John Stevens            885-6147     FAX                  (404) 876-0992
    Patricia Guilday            885-6138   Elizabeth Strickland    885-6205     Switchboard          (404) 885-1400
    Jennifer Haynes             885-6229   Bruce Taylor            885-6230
    Tammy Heimendinger          885-6221   Vicky Templeton         885-6126

8                                                                             Drew Eckl & Farnham, LLP September 2001

by Marion Handley Martin                       secure the employee's prior medical         that the employer had knowledge of
(404) 885-6408                                 records from the employer's file, via a     the employee's pre-existing condition
                                               third party request for production of       prior to the occurrence of a new injury,
   Most employers and insurers in              documents, if litigation is pending, or     and that the employer reached an
Georgia are familiar with the existence        with a signed release and the               informed conclusion prior to the occur-
and purpose of the Subsequent Injury           employee's cooperation. The Fund will       rence of the subsequent injury that the
Trust Fund (often referred to as the           require copies of this documentation        pre-existing impairment was perma-
SITF or "The Fund"). Despite this famil-       when and if a claim is submitted.           nent and likely to be a hindrance to
iarity, and despite the fact that every           3. Get the right person to complete      employment or re-employment. This
state-authorized insurer or self-insured       and sign the Employer's Knowledge           is accomplished with the Employer's
must contribute to the SITF each year,         Affidavit. Another pre-requisite to a       Knowledge Affidavit (EKA). In order
many employers and insurers fail to            claim for reimbursement is establishing                      (CONTINUED ON PAGE 1 )
fully investigate and take advantage
of potential claims for reimbursement
from the SITF. This article provides
some practical advice and pointers for
employers and insurers about identify-
ing and perfecting those claims.
                                               IMPLIED WARRANTY... (CONTINUED FROM PAGE 6)
   1. Find out about an employee's
health history. A number of pre-exist-         in expecting that the product is both       that the chair should be comfortable
ing conditions are statutorily presumed        merchantable and reasonably safe for        for sitting, the merchant knows that the
to be permanent, so basing a Fund claim        its intended use; and (3) there must        consumer intends to sit on the chair.
on such a condition should be a "no-                                                .
                                               be privity between the buyer and seller     The second condition requires that the
brainer." Those conditions are listed in       Lamb v. Georgia-Pacific Corp., 194 Ga.      buyer rely on the seller's skill or judg-
O.C.G.A. § 34-9-361, and they include          App. 848, 392 S.E.2d 307 (1990).There-      ment in selecting or furnishing suitable
such common ailments as epilepsy,              fore, under the implied warranty of         goods. Bruce v. Calhoun First National
diabetes, residual disability from polio       merchantability, if a consumer purchases    Bank, 134 Ga. App. 790, 216 S.E.2d 622
myelitis, Parkinson's disease, cardiovas-      a product from a retailer, takes that       (1975). The only difference between the
cular disorders, tuberculosis, hemophilia,     product home and uses that product          implied warranty of merchantability
sickle cell anemia, chronic osteomyelitis,     in the ordinary purpose for which it        and the implied warranty of fitness
and ruptured intervertebral disc. The          was intended, that product breaks           is that under the implied warranty of
employee's personnel file, post-hiring         through no fault of the consumer,           merchantability, reliance on the seller's
medical questionnaire, and medical             and the break was a result of a defect      skill is presumed. For implied warranty
records should be routinelyreviewed for        that the consumer could not have dis-       of fitness to arise, the consumer must
any of these conditions, or any of the         covered before purchasing, then the         show that he relied on the seller's skill
other conditions listed in O.C.G.A. §          retailer would be liable for damages        in selecting a specific item. Further, there
34-9-361. If such a condition is docu-         resulting from the defective product.       is no requirement under the implied
mented, then the savvy claims adjuster                                                     warranty of fitness that the seller be a
or employer should immediately begin           2. What is Implied Warranty of Fitness?     regular merchant of such goods. O.C.G.A.
investigating the viability of a Fund claim.      The implied warranty of fitness is       § 11-2-315. A consumer would typically
   2. Get copies of the employee's             embodied in the implied warranty of         rely on this statute when purchasing
prior medical records. In order to             merchantability. The implied warranty       an item from a non-merchant, such as
enhance the chances of acceptance of           of fitness applies when two conditions      a person selling his used car.
a claim by the Fund, the employer/             are met. The first condition requires the
insurer should be armed with docu-             buyer to have knowledge of the buyer's      3. Limitations and Exclusions From the
mentary evidence of the pre-existing           intended use of the goods. Jacobs Phar-     Implied Warranty of Merchantability.
permanent impairment. Mere                     macy co., Inc. v. Gipson, 116 Ga. App.         As noted, there are ways to limit or
anecdotal claims by an employee or             760, 159 S.E.2d 171 (1967). For example,    exclude exposure to the implied war-
employer will not suffice. The                 a chair merchant sells a chair to a con-    ranty of merchantability or implied
employer/insurer should therefore              sumer, and the consumer comments                             (CONTINUED ON PAGE 15)

Drew Eckl & Farnham, LLP September 2001                                                                                              9

of a client on a privilege basis in the       business advisor to the corporation,            Lazar v. Mauney, 192 F.R.D. 324
same way that clients must be able to         not as an attorney. The Massachusetts           (U.S.D.C. N.D. Ga. 2000).
discuss the advice of counsel amongst         court, however, disagreed and found
themselves on a privileged basis." Id.        that the e-mails were sent "from or to"
at 255. In addition, the court deemed         the employees of Liberty Mutual and                   Disclosure to third
privileged the e-mails between the in-        "to or from" the in-house counsel, and                parties might also
house counsel and the outside counsel.        the e-mails sought legal advice or were
holding those communications should           in anticipation of litigation.                      occur when the wrong
be considered communications between             Therefore, to the extent that e-mails            e-mail address is used
an attorney and client, with the in-house     are between in-house attorneys, out-                 or when a computer
counsel being considered the agent for        side counsel, management personnel
the corporate client.                         or a corporate client's employees con-
                                                                                                    malfunction occurs
   In National Employment Service             cerning legal advice or in anticipation              resulting in e-mails,
Corp. v. Liberty Mutual Ins. Co., 1994        of litigation, such communications                   intended for a client
Mass. Super. LEXIS 84 (Mass. 1994),           should be protected from discovery
the plaintiff sought production of 32         based on the attorney-client privilege.
                                                                                                      or an attorney,
e-mails between lower and middle                 As with other forms of communica-                  erroneously sent to
level corporate employees of Liberty          tions between an attorney and client,                  the wrong party.
Mutual and its corporate counsel. The         the attorney-client privilege can be
Superior Court of Massachusetts first         waived when the e-mail is disclosed to
noted that the United States Supreme          third parties. Under Georgia law, the               To avoid any dispute that an e-mail
Court had extended the attorney-client        privilege belongs to the client, not the        is intended to be a confidential com-
privilege to include communications           attorney, and therefore, the attorney           munication between an attorney and
made by a corporation's employees             has no power to waive the privilege.            the client, the e-mail should contain a
to its attorneys acting at the direction      Peterson v. Baumwell, 202 Ga. App. 283,         statement of confidentiality, such as the
of corporate superiors to secure legal        414 S.E.2d 278 (1991); NationsBank,             following statement used by Drew,
advice. These communications are              N.A. v. Southtrust Bank of Ga., N.A.,           Eckl & Farnham in e-mails to clients:
deemed privileged if the communica-           226 Ga. App. 896, 487 S.E.2d 701 (1997).
tions are within the employees' corpo-        Disclosure might occur when third               This e-mail message and any attached files
rate duties, the employees are sufficiently   parties, who are neither clients nor their      are confidential and are intended solely for
aware that the information is sought from     attorneys, are sent carbon copies of            the use of the addressee(s) named above.
                                              confidential e-mails between an attor-          This communication may contain material
them in order to obtain legal advice,
and the communications are considered         ney and his client. To ensure no waiver                                               opr
                                                                                              protected by attorney-client, work duct,
confidential when made and are kept           occurs, careful attention must be paid          or other privileges. If you are not the intended
confidential thereafter. See Upjohn Co.       to the identity or the person to whom           recipient or person responsible for deliver -
v. United States, supra.                      e-mails are addressed or forwarded.             ing this confidential communication to the
                                                 Disclosure to third parties might            intended recipient, you have received this
                                              also occur when the wrong e-mail                                       or          e
                                                                                              communication in err, and any r view     ,
                                                                                              use, dissemination, forwarding, printing,
     The attorney-client                      address is used or when a computer
                                                                                              copying, or other distribution of this e-mail
       privilege can be                       malfunction occurs resulting in e-mails,
                                              intended for a client or an attorney,           message and any attached files is strictly
      waived when the                         erroneously sent to the wrong party.            prohibited. If you have received this confi -
     e-mail is disclosed                      Such inadvertent disclosures should                                           or,
                                                                                              dential communication in err please
                                                                                              notify the sender immediately by reply e-
       to third parties.                      not constitute a waiver of the attorney-
                                                                                              mail message and permanently delete the
                                              client privilege because there is no
                                              intentional relinquishment of the               original message.
   The plaintiff in National Employment       attorney-client privilege by the client.        1
                                                                                              E-mails may also be protected from discovery
argued that the e-mails were sent to          See Moclaire v. Georgia, 215 Ga.App.            based on the work product doctrine, which will
the in-house counsel in his role as a         360, 415 S.E.2d 68 (1994); see also,            be addressed in a subsequent article by this author.

10                                                                                         Drew Eckl & Farnham, LLP September 2001

to increase the chances of acceptance of   jeopardized when the adjuster fills out     employer's files. Any records that verify
a claim, the employer/insurer should       the Knowledge Affidavit and sends it        the employer's knowledge of the pre-
have the individual who completes          to the employer for signing – the Fund      existing condition should be attached
the EKA be someone with both actual        will investigate, and it sometimes finds    to the affidavit. Such records may
knowledge of the pre-existing perma-       that the employer representative who        include, but are not limited to, employ-
nent impairment, and the authority to      signed the EKA actually knows very          ment applications, employment physi-
make personnel decisions. At the very      little about the pre-existing condition.    cals, medical reports, group insurance
least, it should be completed by some-     Therefore, it is preferable to have the     records, payroll and sick leave records,
one who has significant input in rec-      employer representative complete the        job modification records, other person-
ommending personnel actions. Many          affidavit themselves, in their own words.   nel records referring to the employee's
a claim for reimbursement has been             4. Give teeth to the Employer's         pre-existing condition, or records from
                                           Knowledge Af fidavit. The employer/         prior workers compensation claims.
                                           insurer should be prepared to support           5. Never hesitate to file a Notice
                                           the knowledge affidavit with other          of Claim. Often, the employer/insurer
                                                  employer witnesses, such as co-      disputes that an alleged accident is
                                                   workers or supervisors, and         compensable. Even if such is the case,
                                                      with documentation from the      it is imperative that the employer/
                                                                                       insurer consider, as soon as practicable
                                                                                       after receiving notice that an employee
                                                                                                       (CONTINUED ON PAGE 13)

Drew Eckl & Farnham, LLP September 2001                                                                                       11
by Jim Aronowitz                                A corporate officer or a member of             that the law disregarded the number of
(404}-885-6139                                  a limited liability company who                exceptions for officers when counting
                                                elects to be exempt from coverage              employees for this purpose unless there
    O.C.G.A. § 34-9-2(a) exempts corpo-         under this chapter shall make such                 e                        . Id
                                                                                               wer no non-exempt employees. at 4.
rations with less than three employees          election by giving written certifica-             The employer appealed to the Supe-
"regularly in service" from complying           tion to the insurer or, if there is no         rior Court, which reversed the award
with the Workers' Compensation Act              insurer, to the State Board of Work-           of the Appellate Division on the basis
("the Act"), unless the corporation and         ers' Compensation . . .                        that the ALJ and Appellate Division erred
its employees elect to be bound. More-                                                         as a matter of law when it rejected as
over, O.C.G.A. § 34-9-2.1 allows officers         However, the right of a corporation          evidence copies of written exemptions
to be exempt from coverage. Therefore,        or limited liability company to exempt           submitted by the employer as well as
if an employer employs less than three        its officers or members from coverage            testimony from Jack Wiggins that the
employees (not including the exempt           is limited in several ways. For one, a           exemptions were sent to the insurer.
officers), they are not subject to the Act,   corporation cannot exempt more than              The Superior Court found that this evi-
right? Not exactly.                           five (5) corporate officers and a limited        dence was sufficient to show that the
                                              liability company cannot exempt more             employer complied with the require-
                                              than five (5) members. O.C.G.A. § 34-9-          ments of O.C.G.A. § 34-9-2.1. Id. at 2-3.
                                              2.1(a)(1). In addition, for the written
 The argument went that                       certification of exemption to be in effect,
  if Wiggins was exempt                       the corporate officer or member must              Therefore, if a company
                                              be identified by name. O.C.G.A. § 34-9-
 from coverage the claim                      2.1(a)(2). Finally and most importantly,            consists of an officer
   would not be covered                                                                         who is exempt and two
    under the Act under                         Any employer subject to [the                     employees, it will still
                                                Georgia Workers' Compensation
    O.C.G.A. § 34-9-2(a)                        Act] before the filing of any exemp-
                                                                                                 be subject to the Act.
   because the employer                         tions shall remain subject to [the
   would have less than                         Act] without regard to the number
     three employees.                           of exemptions filed. However, in                   The court also held that when the
                                                the event that there shall be no               corporation was started, the corporate
                                                covered employees once exemp-                  officer exempted himself and there were
                                                tions are elected, no coverage shall           no covered employees. The court opined
   Wendell Hitchcock filed a claim              be required unless and until addi-             that coverage was not required until
against Wiggins Auto Salvage, Inc. The          tional employees are employed.                 the employer had threeemployees. At
employer controverted the claim on the          O.C.G.A. § 34-9-2.1(a)(3).                     the time of Hitchcock's accident, the
ground that Jack Wiggins, a corporate                                                          employer had two covered employees
officer, exempted himself from coverage           The Administrative Law Judge who             and the court held that it was not sub-
pursuant to O.C.G.A. § 34-9-2.1. The argu-    heard the case rejected the employer's           ject to the Act, and would not be until
ment went that if Wiggins was exempt          argument and found that Wiggins failed           it had three employees. Id. at 4-5.
from coverage the claim would not be          to prove he had filed a valid exemption              The Court of Appeals reversed the
covered under the Act under O.C.G.A.          with any insurance company or with the           Superior Court's ruling. In its opinion, the
§ 34-9-2(a) because the employer would        State Board of Worker's Compensation.            Court of Appeals stated that the fact the
have less than three employees. Hitch-        Hitchcock at 2. The Appellate Division           employer tendered as evidence copies
cock v. Jack Wiggins, Inc. d/b/a Wiggins      affirmed this ruling. Both found that the        of papers it allegedly submitted to the
Paint and Body Shop, No. A01A0244,            issue of whether an exemption was filed          insurer did not prove that they were
slip op. at 2 (Ga. App. June 5, 2001).        irrelevant since the employer would be           actually filed. In addition, the Court of
O.C.G.A. § 34-9-2.1(a) provides:              subject to the Act anyway. They reasoned
                                                                                                                (CONTINUED ON PAGE 13)

12                                                                                          Drew Eckl & Farnham, LLP September 2001

suffered an alleged compensable              Merger is usually the hardest element        providing the physician with as much
injury, whether the facts of the case        to prove in a subsequent injury case,        medical information regarding the pre-
might qualify them for reimbursement         but the chances of successfully proving      existing condition as possible, includ-
from the SITF in the event that the          merger can be increased. Obviously,          ing copies of all pertinent medical
claim is ultimately found by the Board       the authorized treating physician for        reports related to both the prior and
to be compensable. If there is even a        the on-the-job injury should be              the subsequent injury. The employer/
remote chance of reimbursement, a            consulted on this issue, but so should       insurer should also make sure that the
form SI "A" Notice of Claim should be        any physicians who treated the prior         doctor understands the concept of
filed with the Fund to toll the statute of   injury or condition. Often, the              merger, and that acceptance of the
limitations. The applicable statute of       employee's personal physician can be         claim by the SITF will not affect the
limitations requires filing the Notice of    of assistance in this regard. The exis-      employee's benefits. A phone call,
Claim, "as soon as practicable," but in      tence of merger requires strong sup-         detailed letter, or even possibly a face-
no event later than 78 calendar weeks        porting medical evidence, so the more        to-face meeting with the doctor might
following the injury or payment of an        medical providers who opine that             be needed.
amount equivalent to 78 weeks of             there is merger, the stronger the claim         7. Make it easy for the Fund to
income or death benefits, whichever is       for reimbursement. The SITF discour-         review your claim . Due to its limited
later. See O.C.G.A. § 34-9-362(a). Filing    ages pre-prepared merger statements          resources, the SITF depends upon
a Notice of Claim and applying for           and suggests that "direct questions          the employer/insurer to supply all
reimbursement following award from
                            an               about merger should be submitted to          relevant material for the claim. They
an ALJ holding a claim to be compen-         the physician, and he/she should be          do not like to receive information
sable will likely be too little, too late.   allowed to review medical evidence           piecemeal, therefore the claim should
    6. Work hard on merger. Before a         and draw his/her own conclusion."            be submitted only when all informa-
reimbursement claim is accepted by           See Georgia SITF, Guidelines for             tion and documentation can be sub-
the Fund, the employer/insurer must          Claims Procedures and Evaluation 11          mitted in one complete package. All
prove that the employee's pre-existing       (2nd Ed. 1998). In lieu of preparing         documentation must be organized in
impairment merged with the subsequent        canned merger statements, then, the          a manner that can be easily reviewed
injury. The three definitions of merger      employer/insurer can increase their          by the SITF. This means separating
are set forth in O.C.G.A. § 34-9-351(1).     chances of getting a favorable report by                       (CONTINUED ON PAGE 14)

HITCHCOCK V. JACK WIGGINS, INC...                                    (CONTINUED FROM PAGE 12)

Appeals determined that the Superior         that "exemptions by corporate officers           What does this mean for employers?
Court could not substitute its judgment      are ineffective to reduce the employee       Employers should not be fooled into
for that of the ALJ or Appellate Division    count for determining applicability of       thinking that if they have less than three
when weighing the credibility of Jack        the Act exceptwhere the exemptions           employees they are not subject to the
Wiggins. Id. at 3.                           reduce the employee count to zero." Id.      Workers' Compensation Act. Exemptions
   Most importantly, the Court of Appeals    at 5-6. However, "once an 'additional        for officers matter only if there are no non-
held that even if Wiggins had filed the      employee' is hired, corporate officers       exempt employees. For example, if an
exemptions with the insurer, the claim       must be included in the total employee       employer has even one employee, all
would still be covered under the Act.        count regardless of whether they are         officers, even if they are personally exempt,
The court disagreed with the Superior        personally exempt from the Act." Id.         need to be counted. If that employer
Court's interpretation of O.C.G.A. § 34-     at 6. Therefore, if a company consists       has two such officers, it will be subject to
9-2.1(a)(3) and joined with the ALJ and      of an officer who is exempt and two          the Act. If an employer has no employees
Appellate Division in their reading of       employees, it will still be subject to the   and two exempt officers, it is not subject
the statute. The Court of Appeals inter-     Act. The exemption only "counts" if          to the Act. However, it will become sub-
preted O.C.G.A. § 34-9-2.1(a) to mean        there are no employees.                      ject to the Act once it hires an employee.

Drew Eckl & Farnham, LLP September 2001                                                                                              13

medical records by provider, putting         Compensation Act to ensure full                within ninety (90) days after the
them in chronological order, eliminat-       reimbursement. The Fund will also              receipt of a formal denial from the
ing duplicates, tabbing Board forms,         not reimburse assessed attorney fees           Fund. See O.C.G.A. § 34-9-363(c).
and attaching appropriate documenta-         or penalties that theemployer/insurer          The SITF strongly encourages resolu-
tion to the Employer's Knowledge Affi-       may be required to pay for mishandling         tion of claims without resorting to
davit. It should go without saying that                                                     protracted litigation, and they are
the employer/insurer should respond                                                         usually quite willing to negotiate.
promptly and courteously to all of the            Merger is usually                         However, failure to timely file for a
Fund's inquiries for additional infor-                                                      hearing with the Board will bar recov-
mation and documentation. And always
                                               the hardest element to                       ery altogether.
use the SITF file number on all corre-          prove in a subsequent                          10. Document your file. Whenever
spondence regarding a claim.                     injury case, but the                       a form is filed, the employer/insurer
   8. Keep handling the claim                                                               should get a stamped-filed copy
appropriately. It is important to
                                               chances of successfully                      returned as proof of the date of filing.
remember that the employer/insurer               proving merger can                         This is especially crucial when filing
remain responsible for adjusting the                be increased.                           a Notice of Claim to toll the statute
claim even after the Fund accepts it as                                                     of limitations, as you may later need
compensable. The Fund is only required                                                      proof that timely notice was filed. It is
to reimburse those indemnity, medical,       any aspect of the claim.                       also wise to keep a copy of all medical
and rehabilitation expenses that the            9. Don't just take "No" for an              records, forms, and correspondence
employer/insurer was legally obli-           answer. If the SITF denies the claim,          sent to the Fund.
gated to pay. Therefore, the                 the employer/insurer should act                    In conclusion, securing Subsequent
employer/ insurer must continue to           swiftly to protect its right to recovery.      Injury Trust Fund reimbursement can be
handle                                       The employer/insurer must file a               one of the single greatest means of con-
the claim in compliance with the             request for a hearing with the State           trolling claims costs. This strategy should,
terms and provisions of the Workers          Board of Workers' Compensation                 therefore, always be front and center in
                                                                                            the employer/insurer's mind.

     Peter Schmidt spoke about Insur-          speakers on “Effective Human                   Century Center Blvd. in Atlanta.
     ance Coverage for “Collapse” and          Resource Management in Georgia,”               This seminar is approved for six
     Related Issues at the September 13,       presented by Lorman Education                  continuing education hours. To
     2001 meeting of the Southern Loss         Services September 21 and 22 at                register for this free seminar, con-
     Association. Peter will be a pan-         the Hilton Atlanta Northwest.                  tact Debbie Davis at 404-885-6137.
     elist speaking about issues and
     concerns to restoration contractors       Dan Knif fen will speak on                     Sandra Cho will be the moderator
     when dealing with mold and                “ADAEEOCFMLALTDSTDOSHA                         of the Advanced ICLE seminar in
     mildew problems in projects at the        WC...Alphabet Soup for Employ-                 St. Simons Island on October 6.
     Executive Leadership Conference           ers” at the Annual Seminar of the              Mike Bagley will speak on legis-
     of the National Institute of Restora-     Georgia State Board of Workers’                lation for the Georgia Employee’s
     tion, Inc. The Conference will be         Compensation.                                  Trust (GET).
     held in Orlando, Florida from
                                               On September 28, the firm                      Mike Bagley was reappointed to
     October 11-13, 2001.
                                               presented an all-day seminar on                the Legislative Advisory Commit-
     Jim Anderson, Joe Chancey                 Workers’ Compensation commenc-                 tee of the SBWC.
     and Dan Kniffen were featured             ing at 9:00 at the Marriott Hotel,

14                                                                                       Drew Eckl & Farnham, LLP September 2001

warranty of fitness. Specifically, to exclude   For example, a merchant cannot place           paragraphs in the document or receipt
or limit either implied warranty of mer-        a limitation of warranty on the back-          or must stand out in some other way
chantability or the implied warranty of         side of a document, in the same font           so as to put the buyer on notice that
fitness, the exclusion or limitation must       and type set as the rest of the document,      the implied warranty of merchantability
be clear, certain on that point, and con-       or place it in small or fine print. Chrysler   is limited or waived. Unless warranties
spicuous. B.C.S. Financial Corp. v. Sorbo,      corp. v. Wilson Plumbing Co., 132              are expressly limited or waived, the
supra The exclusionary paragraph must
      .                                         Ga. App. 435, 208 S.E.2d 321 (1974)            law implies that all parties intended
be readily noticeable to the consumer.          The font should be larger than other           that warranties exist.

want to alter houses, sometimes in              work cannot be determined by reference           on the home on January 1, 1988.
minor ways, sometimes in major ways.            to a CO. Rather, the realities of the              Thirteen years later, on January 1,
Depending on the market and surround-           construction process – ie., when the             2001, the homeowner discovers dam-
ing circumstances, a builder may obtain         job is done – dictates when substantial          age to the home, and files suit on
a CO several months or even years after                                                          March 1, 2001, against the builder
a house has been built. If substantial                                                           and manufacturer. The suit alleges
completion occurs only upon the issuance                                                         damage to the homeowner's realty.
of a CO, the statute of limitations will
                                                   The decision defines
not commence running in some cases              "substantial completion"                          Notwithstanding the fact that the
until long after the actual completion             in terms of whether                         builder finished the entire home four-
or substantial completion of the house.                                                        teen years before the homeowner filed
   Further, the Hickey decision is
                                                 and when a government                         suit, the Hickey decision will support
particularly unfair to architects, engi-           entity carries out a                        the homeowner's contention that the
neers, subcontractors, and product              ministerial duty namely,                       suit was filed within the statute of limi-
suppliers, who generally have no con-                                                          tations. As the county never issued
trol over whether and when a CO is
                                                 an inspection of a home,                      a CO for the home, Hickey provides
issued. These entities do not generally           and issuance of a CO.                        that substantial completion never
supervise or oversee the construction                                                          occurred, and neither the four-year
process, and have no authority, oppor-          completion occurs.                             statute of limitations nor the eight-year
tunity, or occasion to request that a                                                          statute of repose ever began to accrue.
county issue a CO for a home. Still,              To illustrate the decision's potentially     The builder and manufacturer must
these groups may now be subject to              adverse effect, consider the following         therefore defend the suit.
claims for many months or even years            hypothetical:                                     As can be seen, the issuance of the
longer than anticipated by them (and                                                           CO does not necessarily relate to when
intended by the legislature) simply                 Assume a manufacturer supplies             the construction project is substantially
because builders chose, for valid reasons,        materials to a builder on January 1,         or even fully completed. Thus, while
to delay obtaining COs.                           1985. The following year, on January         the Hickey court attempted to define
   Likewise, the decision overlooks the           1, 1986, the builder installs the mate-      substantial completion by using the
fact that not all actions alleging damage         rials on the home. The builder com-          CO date, this date can have no relation
to realty stem from projects that require         pletes all construction on the home          to completion of the construction.
the issuance of a CO. For example, rou-           on January 1, 1987. Although the                Not only is this decision unfair to
tine repair work can give rise to a claim         builder applies for a CO, the county         potential defendants, it will create
under § 9-3-30, but does not normally             inadvertently fails to inspect the           uncertainty amongst homeowners as
require a CO or governmental approval.            home, and no CO is issued. The               well. The decision defines "substantial
Substantial completion of that kind of            homeowner purchases and closes                                (CONTINUED ON PAGE 16)

Drew Eckl & Farnham, LLP September 2001                                                                                                  15

completion" in terms of whether and          unnecessarily and indiscriminately           other hand, where there is undisputed
when a government entity carries out a       favors one group of homeowners over          evidence that substantial completion
ministerial duty – namely, an inspection     another with no apparent rational basis      occurred on a date certain – irrespec-
of a home, and issuance of a CO. For         for the distinction.                         tive of whether a CO was ultimately
those homeowners whose homes were               This article does not intend to suggest   issued – that date should determine
issued CO's, their damage-to-realty claims   that the CO date lacks evidentiary           when the statute of limitations begins
accrue and expire on a date certain.         value. For instance, where there is an       to accrue.
Where no CO is issued, however, the          absence of or conflicting evidence as to         The defendants in Hickey have asked
exact same claims may be filed without       when a house was substantially built,        the Georgia Supreme Court to review the
any identifiable time bar. This arbitrary    the CO should mark the last possible         Court of Appeals' decision. A decision
definition of "substantial completion"       date of substantial completion. On the       is expected by the end of the year.

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