Georgia Interlocal Risk Management Agency v. City of Sandy Springs
337 Ga. App. 340
Ga. Ct. App.2016Background
- Georgia Interlocal Risk Management Agency (GIRMA) provided pooled liability coverage to the City of Sandy Springs under a Contract that covered money damages for Wrongful Acts (including alleged constitutional violations).
- Owners/operators of adult-entertainment businesses sued the City in federal court (Flanigan’s I and II) initially seeking only declaratory and injunctive relief; GIRMA defended both actions, issuing a reservation of rights in Flanigan’s II citing Exclusion E.
- Exclusion E disclaims coverage for “any claim arising out of or in any way connected with any claim seeking equitable relief, redress or any other claim seeking relief in any form other than money damages.”
- Plaintiffs later amended Flanigan’s II to add nominal and compensatory money-damages claims after the City filed a separate nuisance action; GIRMA sent a revised reservation of rights on Feb. 1, 2013, additionally reserving the right to recoup future defense costs.
- After summary judgment in Flanigan’s II on one issue, GIRMA filed a declaratory-judgment action seeking a ruling that Exclusion E bars coverage (and thus no duty to defend) and that GIRMA may recover defense costs from Feb. 1, 2013 forward; the trial court dismissed GIRMA’s suit and GIRMA appealed.
Issues
| Issue | Plaintiff's Argument (GIRMA) | Defendant's Argument (City) | Held |
|---|---|---|---|
| Whether Exclusion E bars coverage and the duty to defend Flanigan’s II | Exclusion E does not apply because the operative complaint includes money-damages claims within the insuring clause | The duty to defend exists because the later-added money-damages claims trigger coverage and GIRMA cannot withdraw defense while potentially covered claims remain | Exclusion E applies: the money-damages claims in the operative complaint "arose out of" earlier claims seeking only equitable relief, so no coverage and no duty to defend |
| Whether GIRMA may recoup defense costs incurred after its Feb. 1, 2013 reservation | GIRMA may recover costs under an implied-in-fact contract or unjust-enrichment theory because City accepted GIRMA’s continued defense after the reservation | City opposes recovery; contends GIRMA failed to preserve or timely assert any right to reimbursement | Court did not reach whether Georgia recognizes reimbursement; held GIRMA forfeited any right by failing to timely reserve it (reservation in 2013 was untimely given GIRMA began defending in 2009) |
Key Cases Cited
- Penn-American Ins. Co. v. Disabled Am. Veterans, Inc., 268 Ga. 564 (insurer excused from defense where complaint shows no coverage)
- Continental Cas. Co. v. H.S.I. Finan. Svs., Inc., 266 Ga. 260 (but-for analysis for exclusion applicability)
- BBL-McCarthy, LLC v. Baldwin Paving Co., 285 Ga. App. 494 (definition of "arising out of" and breadth of causal connection)
- City of College Park v. Georgia Interlocal Risk Mgmt. Agency, 313 Ga. App. 239 (application of insurance-law principles to GIRMA coverage disputes)
- Video Warehouse, Inc. v. Southern Trust Ins. Co., 297 Ga. App. 788 (but-for test: claims arise out of excluded conduct if claim would not exist but for that conduct)
- Jefferson Ins. Co. of New York v. Dunn, 269 Ga. 213 (court will not strain to extend coverage beyond contract terms)
- Builders Ins. v. Tenenbaum, 327 Ga. App. 204 (insurer must act reasonably promptly to preserve noncoverage defenses)