967 F.3d 1216
11th Cir.2020Background
- ECI Management, LLC (insured) managed apartment properties in Georgia and purchased a Real Estate Services Professional Liability Policy from AEGIS for Jul 1, 2016–Jul 1, 2017; the Policy defines “Loss” but expressly excludes (a) disgorgement/return of sums in insured’s possession, (b) fines/penalties, (c) punitive/treble damages, and (d) equitable relief and compliance costs.
- In May 2017 Nichon Roberson sued ECI in Georgia state court (putative class action), alleging ECI withheld security deposits in violation of O.C.G.A. § 44-7-35 and seeking (inter alia) the sum erroneously withheld or treble damages, injunctive/declaratory relief, class certification, and attorneys’ fees.
- ECI timely notified AEGIS. AEGIS initially denied coverage citing certain exclusions (later abandoned one ground) and reserved other defenses; AEGIS later filed a federal declaratory-judgment action asserting that Roberson’s requested relief is excluded from the Policy’s definition of “Loss.”
- The district court granted AEGIS summary judgment, holding none of the relief Roberson sought (including the sum erroneously withheld, treble damages, and equitable relief) qualified as a covered “Loss,” and that AEGIS had not waived its belatedly asserted carve-outs.
- The Eleventh Circuit reversed: it held the Policy’s return/disgorgement carve-out excludes the direct return of security-deposit funds, but attorneys’ fees under § 44-7-35(c) are a compensatory monetary “Loss,” and that possibility suffices to trigger AEGIS’s duty to defend. The court declined to resolve duty-to-indemnify now and remanded.
Issues
| Issue | Plaintiff's Argument (ECI) | Defendant's Argument (AEGIS) | Held |
|---|---|---|---|
| Whether an award of “the sum erroneously withheld” under O.C.G.A. § 44-7-35(c) is a covered “Loss” or excluded as a return/disgorgement | The statute may yield only uncompounded compensatory damages (the sum erroneously withheld), which are covered Losses under the Policy | Statutory award of the sum erroneously withheld is a return/disgorgement of funds in ECI’s possession and falls within Policy carve-out (no Loss) | Majority: the “sum erroneously withheld” is a return of tenant funds in ECI’s possession and is excluded from “Loss” under the return/disgorgement carve-out |
| Whether statutory attorneys’ fees recoverable under § 44-7-35(c) constitute a covered “Loss” | Attorneys’ fees are a compensatory monetary amount for which ECI may be liable and so are covered Losses | Fees are tied to treble damages and therefore part of excluded multiplied damages | Majority: attorneys’ fees are not the same as trebled damages and constitute a potential compensatory Loss; therefore AEGIS has a duty to defend |
| Whether AEGIS waived its right to assert the return/disgorgement carve-out by not raising it in early coverage communications | ECI: AEGIS’s failure to raise the carve-out and its reservation language amounted to waiver under Hoover and related authority | AEGIS: carve-outs are coverage defenses that cannot be waived; insurer may assert coverage defenses in declaratory action | Majority: AEGIS did not waive the carve-outs; they are coverage defenses not subject to waiver under Georgia law |
| Whether duty to defend requires/dictates duty to indemnify at this stage | ECI: finding of coverage for potential uncompounded damages or fees would require indemnity | AEGIS: indemnity depends on merits and exclusions (including intentionality); should not be resolved now | Majority: declines to decide indemnity; duty to defend is broader and exists here because attorneys’ fees could be a covered Loss; indemnity left for later proceedings |
Key Cases Cited
- Elan Pharm. Research Corp. v. Emp’rs Ins. of Wausau, 144 F.3d 1372 (11th Cir. 1998) (duty-to-defend analysis compares complaint allegations to policy language)
- St. Paul Fire & Marine Ins. Co. v. City of Atlanta, 231 Ga. App. 206 (Ga. Ct. App. 1998) (insurer’s duty to defend turns on policy language and complaint allegations)
- Great Am. All. Ins. Co. v. Anderson, 847 F.3d 1327 (11th Cir. 2017) (exclusions strictly construed; ambiguities favor coverage)
- Alea London Ltd. v. Am. Home Servs., Inc., 638 F.3d 768 (11th Cir. 2011) (attorneys’ fees are not typically included within ordinary damages for policy construction)
- Hoover v. Maxum Indemnity Co., 291 Ga. 402 (Ga. 2012) (discussed regarding insurer reservation and waiver doctrines)
- Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997) (summary-judgment standard and de novo review for contract interpretation)