[DO NOT PUBLISH]

In the

United States Court of Appeals

For the Eleventh Circuit

____________________

No. 21-11329

____________________

SKY HARBOR ATLANTA NORTHEAST, LLC, 

CRESTLINE HOTELS & RESORTS, LLP, 

Plaintiffs-Counter Defendants-AppellantsCross-Appellee,

versus

AFFILIATED FM INSURANCE COMPANY, 

Defendant-Counter Claimant-AppelleeCross-Appellant.

____________________

Appeals from the United States District Court

for the Northern District of Georgia

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D.C. Docket No. 1:17-cv-03910-JPB

____________________

Before ROSENBAUM, NEWSOM, and MARCUS, Circuit Judges.

PER CURIAM:

Plaintiffs-Appellants Sky Harbor Northeast, LLC, and Crestline Hotels & Resorts, LLC, seek coverage under an all-risk insurance policy with Affiliated FM Insurance Company (“AFM”) for extensive water and mold damage discovered during a 2015 renovation to the Atlanta Hilton Northeast Hotel (“the Hotel”). AFM 

countersues for fraud and conspiracy, claiming that Sky Harbor 

and Crestline misrepresented and concealed information related to 

the timing of the damage to the Hotel. For the purposes of summary judgment, the parties do not dispute that it rained during the 

policy period, rainwater and water vapor intruded into the building, and the intrusions wet various features of the building’s interior structure. The central question on appeal, then, is whether 

those intrusions that happened during the policy period caused any 

damage. 

Sky Harbor and Crestline point to evidence that the intrusions wet, among other features of the Hotel, the exterior sheathing, the metal framing, the interior wallboard, electrical wiring, 

and the drywall, requiring complete replacement of the damaged 

features. Many of these features are within the interior wall cavity. 

So replacing them requires removing guest-room walls, interior

finishings, and the building’s brick veneer, and the remediation 

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costs run into the millions of dollars. AFM in turn argues that 

whatever damage the rain caused during the policy period was de 

minimis, because these features were already wet and moldy when 

Sky Harbor bought the Hotel and the policy period began. 

After careful review of the record, and with the benefit of 

oral argument, we conclude that a reasonable jury could find for 

either party. But the central question—the degree of damage, if 

any, that the building suffered during the policy period—is one of 

fact. So a jury—not a judge or judges—must decide it. For this 

reason, we vacate the grant of summary judgment in AFM’s favor 

on Sky Harbor and Crestline’s claims for breach of contract, declaratory judgment, and bad faith, and remand to the district court for 

further proceedings on those claims. But we affirm the district 

court’s conclusion that Sky Harbor is not an insured, as well as the 

district court’s grant of summary judgment in Sky Harbor and 

Crestline’s favor on AFM’s counterclaims for fraud and civil conspiracy. 

I. Background

A. The Policy

Sky Harbor purchased the Hotel on November 5, 2013. 

Crestline, a leading provider of hotel-management services, operated and managed the Hotel on Sky Harbor’s behalf.

Crestline amended its existing all-risk insurance policy with 

AFM to add the Hotel to its list of insured locations, effective as of 

the date of Sky Harbor’s purchase. For this coverage, Crestline 

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agreed to pay an additional annual premium. Crestline renewed 

this policy with AFM in 2014 and again in 2015. The policy language is the same across all three policy years. So for simplicity’s 

sake, we refer to “the Policy,” even though three separate policies 

were issued during the time period at issue in this case. 

The Policy broadly “insures against all risks of direct physical loss or damage to insured property except as excluded under 

this policy.” As relevant here, the Policy limits coverage concerning

certain risks—Group II perils—by what is sometimes known as an 

“ensuing loss” or “resulting loss” clause. That is, those perils that 

Group II lists are covered only to the extent that they cause “direct 

physical loss or damage,” in which case the “resulting direct physical loss or damage is covered.” Group II perils include “1. Wear and 

tear, deterioration, depletion, rust, corrosion, erosion, inherent 

vice, latent defect” and “2. Defects in materials, faulty workmanship, faulty construction or faulty design.” So the Policy excludes 

coverage for correcting those defects themselves, but it covers “resulting direct physical loss or damage” from them.

The Policy contains only two perils for which resulting 

losses are not covered if the peril began before the Policy period. It 

does not mention that any other peril—as opposed to the damage 

or loss from that peril—must have occurred during the Policy period for coverage purposes. Specifically, the Policy provides that it 

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does not cover losses caused by earth movement or flood “commencing before the effective . . . date and time of this policy.”1 

Finally, the Policy defines the “Insured” as Crestline and “its 

wholly or majority owned subsidiaries and any interest which may 

now exist or hereinafter be created or acquired which are owned, 

controlled or operated by” Crestline. 

B. Pre-Acquisition Issues

The Hotel is ten floors with two main components. The 

“tower” part of the building contains 272 guest rooms. And a common space, including meeting rooms and a ballroom, comprises 

the low-rise portion of the building. 

Before acquiring the Hotel, Sky Harbor retained multiple 

third-party experts to appraise and evaluate the property. Each of 

these experts indicated that the Hotel was in “overall good condition” as of 2013. The reports found no major defects, deficiencies, 

or deferred maintenance as to the building’s “Substructure,” “Superstructure,” “Windows,” “Doors/Frames,” and “Roof Drainage.” One report noted that, based on statements from the Hotel’s 

then-general manager and its experts’ own survey of the property,

“[t]here was no evidence of window leaks or condensation,” and 

no evidence of “microbial growth and/or water damage.”

1 “Flood,” as the Policy defines it, does not encompass rain or water vapor, 

and neither party argues that this term applies to the circumstances Sky Harbor and Crestline describe in their claims. 

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But not every pre-purchase assessment was glowing. A 2013 

Hilton-issued Product Improvement Plan (“PIP”) included a line 

item for repairing and sealing all windows to correct air infiltration 

into guest rooms. During due diligence, Sky Harbor also reviewed 

seller-provided property-condition reports. A 2003 report mentioned mold in the first-floor ballroom. And a 2005 environmental 

site assessment noted that “there had been historical fungal growth 

problems associated with construction defects/water intrusion issues.” Not only that, but the screening found mold in meeting 

rooms in the Hotel and water damage throughout the site (including the first-floor hallway area), but “[n]o visible fungal growth” in 

any of the hotel rooms.

Another report from the seller, a 2004 condition survey that 

construction consultants conducted, stated that the Hotel “has had 

wide-spread leakage and indoor moisture problems since its 1986 

construction, primarily due to poor masonry flashings and caulking joint problems.” The report detailed a series of evaluations and 

memoranda documenting leakage and moisture problems at the 

hotel starting as early as 1990, only four years after the Hotel’s construction in 1986. The report noted that although “many . . . repair 

efforts” had been undertaken in the building’s history, they appeared to have had “little effect.” To correct these problems, the 

report recommended a multi-million-dollar repair to the building’s 

“exterior envelope.” 

Finally, the seller had commissioned a Property Evaluation 

Report in February 2013, just before listing the property. That

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report found the property to be in “generally below average condition” because of accumulated maintenance issues. In particular, 

the report pointed out “[m]ajor issues” with the exterior facade, 

“water infiltration into the hotel and guest rooms,” and “[a]reas of 

suspect mold growth . . . under windows and behind the wall coverings in several of the guest rooms at the masonry facade locations.” The report suggested numerous repairs to the exterior facade, roof, and guestrooms to remedy these deficiencies at extensive cost. The Hotel’s former owner stated that it did not perform 

any of the major repairs that the report detailed before the former 

owner sold the Hotel to Sky Harbor in November 2013. 

Sky Harbor’s corporate-designee Jerome Yuan, chief investment officer at Sky Harbor’s owner, ASAP Property Holdings, Inc., 

testified that, after reviewing the seller-provided reports and the 

new appraisals we’ve described above, he “didn’t think that there 

was a mold problem or any cause of mold at the hotel” because the 

more recent appraisals did not mention mold, and he did not see 

mold himself when he personally inspected the property. Jerome 

Yuan had toured and inspected the Hotel in 2013, specifically viewing the ballroom, and he saw no evidence of the problems that the 

2003 report mentioned. And he believed that the seller had fixed 

any mold or water intrusion problems that the 2003 report identified, particularly after reviewing the seller’s maintenance and improvement records. 

During its pre-purchase due diligence, Sky Harbor also became aware of a few active “spot” mold problems in approximately 

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twenty or twenty-five of the 272 guest rooms, isolated on one side 

of the guestroom tower at the Hotel. The Hotel’s then-property 

manager thought the mold was “due to moisture seepage through 

the exterior brick facade.” Sky Harbor and Crestline claim these 

issues were not particularly severe and were consistent with regular 

maintenance issues in a facility of that size. They also assert that 

the seller was responsible for remediating the mold identified in the 

guest rooms before the sale. According to Sky Harbor and Crestline, the seller confirmed that it would complete these remediations before closing, and Crestline and Jerome Yuan viewed and 

verified the completed work. As one Crestline employee testified, 

“we were told that the mold was remediated by the seller, that we 

took over a clean hotel.” 

Before issuing the Policy, AFM also performed its own inspections of the Hotel. As Brian Cook, Vice President of AFM’s 

Special Investigations Unit, testified, before insuring a property, 

AFM inspects it to determine whether it is a good or bad risk, and 

AFM discusses any “deficiencies” with the insured. Here, in 2010, 

three years before Sky Harbor bought the Hotel, AFM conducted 

a risk evaluation of the Hotel and insured it under its previous ownership. The evaluation mostly mentioned issues and risks related 

to fire safety, but it did not identify any mold, water damage, or 

water intrusion problems. 

C. Post-Acquisition Issues

Once they were operating the Hotel, Sky Harbor and Crestline became aware of some mold and leak issues. Again, they

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characterize these as “regular maintenance” issues. For example, 

Frank Yuan, Sky Harbor corporate designee and ASAP Property 

CEO, testified that monthly reports by Hotel managers would 

sometimes indicate that there was a faucet or toilet leak, or a spot 

of mold in one room, and that they had taken care of it. Based on 

his experience with hotels, Frank Yuan knew that there would always be “some mold” in a large hotel in a warmer climate, but 

nothing remotely of the “magnitude” later discovered at the Hotel 

during the 2015 renovation. 

Marcy Adams, the Hotel’s General Manager, likewise testified that she didn’t know of any systemic problems with the Hotel, 

such as mold or water damage, before the 2015 renovation. To the 

extent that there had been occasional reports of mold before the 

renovation, management had been able to resolve these “sporadic” 

problems and identify and fix the “case-by-case” causes, such as pinhole leaks in pipes or a toilet overflow.

AFM disagrees, suggesting that mold and water-intrusion issues were systemic and apparent at the Hotel throughout 2014 and 

early 2015. They point out that on August 1, 2014, Sky Harbor and 

Crestline met to discuss, according to the meeting agenda, “[s]ignificant concerns about existing conditions at the property” requiring “significant repairs to window seals and dry rot under bathtubs.” Crestline’s PowerPoint for the meeting included several 

guest reviews that called attention to mold and water damage in

guest rooms, particularly in the bathrooms, in addition to a section 

on pictures of mold found in the guest rooms. According to one 

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of the Crestline employees who worked on the PowerPoint, “the 

mold was evident throughout the building . . . it was not just a very 

isolated area or a room or two . . . .” 

Later that month, on August 25, 2014, Sky Harbor’s project 

manager for the Hotel renovation advised Sky Harbor that “ALL 

windows will need new seals or caulking treatment to stem water 

infiltration.” And a few months later, in December 2014, “severe 

mold” was reported during work in the two model rooms at the 

Hotel.

Problems continued into 2015. In January 2015, Sky Harbor 

asked a consultant, Finite Reimaging, to investigate its water intrusion problems before its planned renovation. While testing two 

guestrooms in February 2015, Finite reported “excessive amounts 

of mold” in both rooms. The mold became visible only when Finite removed the wallpaper. Finite noted that defects with the brick 

and grout lines, caulking, and window seals allowed water to leak 

into the Hotel. These water leaks caused damage to dry wall adjacent to windows, created noticeable water staining in corridors, 

and allowed “significant amounts of mold” to grow in the two 

guest rooms examined. 

AFM claims that it did not learn about any of the pre-existing water-intrusion or mold issues with the Hotel until litigation. 

In other words, AFM claims it did not know about the pre-purchase 

seller reports and assessments, the pre-purchase mold problems in 

the guest rooms, and the spot issues reported throughout 2014 and 

2015 until this case, when Sky Harbor and Crestline provided them. 

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D. The 2015 Renovation

In September 2015, Sky Harbor and Crestline began renovating the Hotel. During this process, they discovered extensive 

mold behind the wallpaper in the guest rooms on the ninth and 

tenth floors. They also learned of roof, plumbing, cladding, and 

window leaks that appeared to have caused the mold and water 

damage to the Hotel.

Plaintiffs retained third party Liberty Building Forensics 

Group (“Liberty”) to investigate the causes and extent of the water 

leaks and mold. Liberty prepared a thirty-one-page “Revised Water 

Damage Report.” It details the water damage the Hotel sustained 

“during recent rainwater events,” including significant storms in 

August 2015. Liberty directly observed “water intrusion through 

the building envelope” and water vapor intrusion during its onsite 

investigation and testing, including during rain events in October 

and November 2015. Similarly, Sky Harbor representative Frank 

Yuan saw “water pouring down from the roof ” to the first floor 

“like water fountains” in October 2015. 

Summarizing its investigation, Liberty surmised that recent 

“rainwater leaks,” including rain events on August 22 and 23, 2015, 

and rain events observed during testing on October 28, 2015, and 

November 1 and 2, 2015, caused water damage in the Hotel. Ultimately, Liberty concluded that during these rain events, water 

leaked “through the no-hub type connections” in the rainwater 

drainage system, “the brick facade, glazing systems, [and the] vertical wall waterproofing and flashing system.” Through these 

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leaks, the rainwater directly wet the framing system, the exterior 

sheathing, roof insulation, wall cavity insulation, the wallboards, 

the electrical and data service conduit systems inside the wall cavity, the drywall, and the interior wall finishings. Water vapor intrusions also occurred through cracks in the brick and glazing facade 

“over the cooling season during July 2015,” resulting in water vapor 

damage to the adjacent wallboard, insulation, and framing systems. Finally, Liberty discovered a malfunction in the building’s 

HVAC system, which exacerbated the damage from the water 

leaks and caused excess condensation. This excess condensation 

and water vapor damaged “the gypsum wallboard, insulation[,] 

metal framing,” and adjacent ductwork and piping. 

Liberty also included estimates of how much water and water vapor entered through various leaks, using testing and the August rain events as examples. According to Liberty, the water and 

water-vapor damage that the leaks caused “necessitate[] the removal and replacement of damaged items” and “controlled remediation techniques” to address the growing mold—a fix that requires the expenditure of tens of millions of dollars.

But the Liberty report left a key question open: did these 

leaky, wet, and moldy conditions begin after Sky Harbor purchased 

the Hotel, or did any of the discovered damage pre-date the Policy 

period? In his deposition, Liberty’s president testified that the conditions “could [have] occurred” earlier in time, such as in the summer of 2012. After all, buildings like the Hotel “go[] through . . . 

cycles” where they get wet in the summertime and dry in the 

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wintertime, so one “could expect” that the building had been previously wetted and then dried through “the same mechanism.” 

But Liberty’s president made two important clarifications to 

this testimony. First, he clarified that such annual damage would 

have been cumulative: each summer wet the interior “at least as 

much as it wetted the previous cooling season . . . . But as you 

move from cooling season to cooling season, the damage is more 

the next cooling season than the prior cooling season if it’s under 

the same condition.” So by Liberty’s reasoning, even if such conditions occurred before 2013, the most recent years that the conditions existed likely produced more damage than any previous year. 

Second, he stated that all the damage in the report “could 

have occurred” in 2015 alone, and that the report’s damages estimates were based on measures of water leakage and water vapor 

intrusions from the 2015 summer. For example, Liberty’s president 

testified that in Liberty’s expert opinion, the storm event in August 

2015 alone caused almost $5 million dollars in damages. Liberty 

specifically estimated the volume of water that flowed through 

roof drains and onto the exterior sheathing during the two-day

storm in August 2015. And in Liberty’s expert opinion, the 22 gallons of water intrusions from the two-day storm wet the exterior 

sheathing to the point it required replacement. By Liberty’s calculations, replacement would cost almost $5 million because it involved pulling the exterior cladding off as well. AFM appears to 

agree that the report “suggest[s] that an August 2015 rainwater 

event caused all of the claimed damage.” 

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E. The Claim and Investigation

Crestline’s insurance broker notified AFM of Crestline and 

Sky Harbor’s claim on September 21, 2015. AFM promptly 

acknowledged the claim and began an investigation, sending out an 

adjuster and a consultant from Engineered Solutions Incorporated 

(“ESI”) to the Hotel the very next day. During this visit, AFM requested any images, reports, or correspondence about mold or related issues at the property. 

The next month, in October 2015, AFM sent Adams, the Hotel’s General Manager, several emails stating that its investigation 

was ongoing, as it was “trying to determine the source of water 

and or moisture which led to the discovered mold growth.” The 

adjuster asked for more information about the mold and related 

issues “to help us determine when the mold might have started.” 

In addition, the adjuster sent a report from ESI, based on a 

visual examination of the ninth and tenth floors of the Hotel only. 

ESI determined that “[d]uring rain events, water has recurrently 

entered the cavity between the brick veneer and presumed building-paper covered wall sheathing . . . . creating an environment 

conducive to mold and mildew growth within the wall.” The report also appeared to attribute the mold growth to long-standing 

issues, such as leakage in the exterior wall, plumbing leaks in the 

interior walls, and recurring condensation in the interior walls that 

occurred “over the life of the building.” In response to these 

emails, Sky Harbor and Crestline asked AFM to wait for additional 

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information, including the Liberty report, before making a final 

coverage determination.

The record reflects that during this period, Sky Harbor and 

Crestline appeared to have had some doubt about whether the Policy covered the damage. As a representative of one of Sky Harbor’s

shareholders said in an email, “If the intent is to try to force the 

insurance company to cover the repairs due to mold, what’s the 

mold clause in the policy[?] . . . . [T]he mold is not a new issue. It 

has been a known entity to the property for years.” 

Because of doubts about coverage, Crestline and Sky Harbor 

internally expressed that “[L]iberty [should] focus[] on only the 

building problems that are ‘compensable’ from an insurance standpoint” in its report. But when Sky Harbor and Crestline received 

Liberty’s initial report, they expressed disappointment that it “had 

provided a series of deficiencies that the insurance company[ ]

would have used in a way to create an extraordinary amount of 

deductibles that would apply to our claim. This of course defeats 

the purpose of maximizing our claim amount.” The initial causation report as to the building’s water damage discusses “leaks observed during rains” as one of its main observations, but the language in its conclusions and summaries refers to water damage 

from leaks generally, rather than rain or specific rain events like the 

August 2015 storms. Because of these deficiencies, Sky Harbor and 

Crestline’s attorneys hoped to “work with Liberty to get rid of their 

analysis that the insurance company would claim would require a 

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ridiculous number of [deductibles]” in the report. Sky Harbor and 

Crestline did not give AFM Liberty’s initial reports until litigation. 

Plaintiffs submitted identical Proofs of Loss in 2016. In the 

Proofs of Loss, Plaintiffs swore that mold and water damage was 

discovered in September 2015 when the renovation work began. 

The revised Liberty report also specifically refers to “rainwater

leaks” as a cause of the water and mold damage. The Proofs of 

Loss claimed over $20 million in damages, including mold and water damage to guestroom drywall and electrical wiring damage. 

In response to these Proofs of Loss, AFM repeatedly indicated that it needed “further information” to determine coverage, 

including “the time and origin of the loss and/or losses and damage sustained.” We understand AFM’s demands to ask Sky Harbor 

and Crestline to parse what degree of mold damage resulted from 

each water intrusion, and the dates and times of those intrusions. 

In response to one of these requests for further information, 

Sky Harbor represented to AFM that it did not observe evidence of 

mold problems in the Hotel during the due-diligence period before 

purchase in 2013, and it did not discover the extensive mold damage 

at the Hotel until September 2015. It also represented that the revised Liberty report contained the information currently available 

to Sky Harbor regarding the dates, times, origin, and scope of the 

losses. Throughout Spring 2016, AFM continued to request more

information and conducted multiple site visits to the Hotel as additional floors were renovated and became available for inspection. 

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On May 20, 2016, AFM rejected the Proofs of Loss. Despite 

denying the Proofs of Loss, AFM continued to investigate, conducting visits to the Hotel in June and July of 2016. 

In late June 2016, AFM informed Plaintiffs that it was exercising its right to take examinations under oath and to examine pertinent documents. AFM conducted these examinations in Fall 

2016. And in August 2016, Sky Harbor produced thirty-seven thousand pages of documents to AFM, representing that the production 

completed the turnover of “all responsive documents” to AFM’s 

requests for information so that “there [wa]s no further reason for 

[AFM] to use allegations of lack of documentation as an excuse for 

its failure to complete its investigation and pay this claim.” AFM 

confirmed its denial of coverage by letter dated January 6, 2017. It 

said that (1) no specific event had caused the losses, (2) that most of 

the losses were excluded under the Policy, and (3) that the losses 

had developed over time and “began well before” the effective date 

of the Policy. 

The next month, in September 2017, Sky Harbor and Crestline filed suit against AFM for breach of contract, bad faith, and a 

declaratory judgment that AFM is obligated to pay their insurance 

claim. During his deposition, Frank Yuan also admitted that Sky 

Harbor was “exploring the possibility” of suing other parties, including the original seller of the building because the mold “really 

happened before we purchased.” AFM countersued, asserting 

fraud and civil conspiracy.

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In April 2019, during litigation, Sky Harbor and Crestline

amended their Proofs of Loss. They adjusted estimates for some 

damages and forwent recovery on other categories of damages. 

The net effect reduced the overall claim amount by roughly $7 million. Some months later, during some of the November 2019 depositions taken, various Sky Harbor and Crestline representatives 

mentioned that Plaintiffs might amend their Proofs of Loss again, 

but Sky Harbor and Crestline never filed any new Proof of Loss or 

amended damages with the court. 

After the parties moved for summary judgment, the district 

court awarded summary judgment in AFM’s favor on all Sky Harbor and Crestline’s claims. Sky Harbor Atlanta Ne., LLC v. Affiliated 

FM Ins. Co., 676 F. Supp. 3d 1302, 1312 (N.D. Ga. 2021). The court 

held that the Policy did not cover Sky Harbor and Crestline’s insurance claim because, as a result of defects that existed since the Hotel’s construction, the losses began before to the Policy period. Id.

at 1308–09. Because “no change [had occurred] to the Hotel resulting from an external event that transformed the property from satisfactory condition to unsatisfactory condition,” the court reasoned 

that Sky Harbor and Crestline lacked coverage. Id. at 1308. And 

because the court found no coverage, there could be no finding of 

bad faith. Id. at 1309. The district court also awarded summary 

judgment in Sky Harbor and Crestline’s favor on AFM’s counterclaims. Id. at 1310. Plaintiffs and AFM appealed. 

II. Standards of Review

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We review de novo a district court’s grant of summary judgment. Alvarez v. Royal Atl. Devs., Inc., 610 F.3d 1253, 1263 (11th Cir. 

2010). We apply the same legal standards as the district court. Id. 

After construing the evidence in the light most favorable to the 

non-moving party, we will affirm if we find no genuine issue of 

material fact and the moving party is entitled to judgment as a matter of law. Id. at 1263–64; FED. R. CIV. P. 56(a). The moving party 

bears the burden of showing that no genuine issues of material fact

exist. Paylor v. Hartford Fire Ins. Co., 748 F.3d 1117, 1121–22 (11th 

Cir. 2014). But once the moving party satisfies that burden, the 

burden shifts to the nonmoving party to point to evidence demonstrating a genuine issue for trial. Id. Overcoming summary judgment requires more than speculation or a mere scintilla of evidence. Id. at 1122. We may affirm summary judgment on any 

ground the record supports. Burton v. Tampa Hous. Auth., 271 F.3d 

1274, 1277 (11th Cir. 2001).

III. Discussion

A. Breach of Contract and Declaratory Judgment

We begin with the district court’s grant of summary judgment in AFM’s favor on Sky Harbor and Crestline’s claims for 

breach of contract and declaratory judgment. Because we conclude that Sky Harbor and Crestline pointed to sufficient evidence 

that the Policy covers their claims, we vacate the district court’s 

grant of summary judgment.

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Under Georgia law,2 an insurance policy is a contract subject 

to the ordinary rules of construction. Am. Strategic Ins. Corp. v. 

Helm, 759 S.E.2d 563, 565 (Ga. Ct. App. 2014). If the policy language is clear and unambiguous, we must enforce it according to 

its plain terms. Id. When a policy does not define terms, we may 

look to dictionaries to elucidate the commonly accepted meaning 

of the word. See Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. 

Co., 707 S.E.2d 369, 371 (Ga. 2011). But when a policy’s language is 

ambiguous and supports more than one reasonable interpretation, 

we strictly construe it against the insurer and in favor of the insured 

and coverage. Am. S. Ins. Co. v. Golden, 373 S.E.2d 652, 653 (Ga. Ct. 

App. 1988). 

We also consider the policy as a whole. That means we give

effect to each provision in a way that harmonizesit with each other. 

S. Tr. Ins. Co. v. Dr. T’s Nature Prods. Co., 584 S.E.2d 34, 35–36 (Ga. Ct. 

App. 2003). 

Finally, the plaintiff bears the burden to prove that it sustained a covered loss. Chix v. Ga. Farm Bureau Ins. Co., 258 S.E.2d 

208, 209 (Ga. Ct. App. 1979). We start with the text of the Policy 

itself. AFM’s Policy broadly “insures against all risks of direct physical loss or damage to insured property except as excluded under 

this policy.” We consider the term “risk” first. Black’s Law Dictionary defines “risk” as “[t]he uncertainty of a result, happening, or 

2 Because the parties did not litigate choice of law in this diversity case, we 

presume that the substantive law of the forum, Georgia, controls. Int’l Ins. Co. 

v. Johns, 874 F.2d 1447, 1458 n.19 (11th Cir. 1989).

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loss; the chance of injury, damage, or loss.” Risk, BLACK’S LAW 

DICTIONARY (12th ed. 2024). In the context of insurance, a risk is 

“[t]he cause of a potential or actual loss; a peril from a specified 

source.” Id. So courts interpret an insurance policy like the one at 

issue here to insure against all uncertain damage or loss, “caused 

by or the result of a peril not otherwise excluded.” AFLAC Inc. v. 

Chubb & Sons, Inc., 581 S.E.2d 317, 318 (Ga. Ct. App. 2003); see

Lipsitz v. Fireman’s Fund Ins. Co. of Ga., 358 S.E.2d 624, 625 (Ga. Ct. 

App. 1987). 

Another key phrase regarding coverage is “direct physical 

loss or damage to.” The Court of Appeals of Georgia has adopted

an analysis for this phrase, so we start there. McMahan v. Toto, 311 

F.3d 1077, 1080 (11th Cir. 2002) (“[A]bsent a decision from the state 

supreme court on an issue of state law, we are bound to follow decisions of the state’s intermediate appellate courts unless there is 

some persuasive indication that the highest court of the state 

would decide the issue differently.”). 

In AFLAC Inc. v. Chubb & Sons, Inc., the Georgia Court of Appeals interpreted a nearly identical phrase—“direct physical loss of, 

or damage to”—while reviewing an all-risk insurance policy. 581 

S.E.2d at 318. Based on the “common meaning of the words and 

the policies as a whole,” it held that the phrase “‘direct physical loss 

or damage’ . . . contemplates an actual change in insured property 

then in a satisfactory state, occasioned by accident or other fortuitous event directly upon the property causing it to become unsatisfactory for future use or requiring that repairs be made to make it 

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22 Opinion of the Court 21-11329

so.” Id. at 319. So under Georgia law, “direct physical loss or damage” in an all-risk policy requires (1) a tangible change to property 

(2) caused by an accident or other fortuitous event. Id.; see also

Henry’s La. Grill, Inc. v. Allied Ins. Co. of Am., 35 F.4th 1318, 1320–21 

(11th Cir. 2022) (adopting the same analysis from AFLAC). 

AFLAC defined “accident or fortuitous event” as “an event 

which happens by chance, unexpectedly, or without known cause; 

one which is undesigned or unplanned.” AFLAC Inc., 581 S.E.2d at 

319 n.5 (emphasis omitted); see also fortuitous event, BLACK’S LAW 

DICTIONARY (12th ed. 2024) (“An event that, so far as contracting 

parties are aware, depends on chance.”). So when we consider

“risk” and “direct physical loss or damage” together, the Policy covers any physical change to the property that an unexpected event

causes, unless the Policy explicitly excludes the causing peril. 

Of course, this language also implicitly requires the damage 

to have happened during the Policy period, not before or after. After all, there is no “risk[] of ” direct physical loss or damage to property if that damage has already certainly occurred. And the insured 

property cannot be considered “changed” if it was insured in the 

same condition—“change” is a relative term. See AFLAC Inc., 581 

S.E.2d at 319 (stating that the terms of an identical all-risk policy 

contemplate “an actual change in insured property then in a satisfactory state, occasioned by accident or other fortuitous event directly upon the property causing it to become unsatisfactory for 

future use”). The same goes for the fortuitous event causing the 

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21-11329 Opinion of the Court 23

damage—it cannot be an accident or an unforeseen event if it has 

already happened. 

Indeed, we have interpreted all-risk policies this way for decades. See Mathis v. Hanover Ins. Co., 192 S.E.2d 510, 511 (Ga. Ct. App. 

1972) (stating that all-risk insurance covers “only extraordinary and 

fortuitous events”); Banco Nacional De Nicaragua v. Argonaut Ins. Co., 

681 F.2d 1337, 1340 (11th Cir. 1982) (under the law of the former 

Fifth Circuit, stating “[t]he plaintiff in a suit under an all-risks insurance policy must show a relevant loss in order to invoke the policy, 

and proof that the loss occurred within the policy period is part and parcel of that showing of a loss” (emphasis added)). To read the Policy 

in any other way would allow insureds to claim damages that occurred before or after the policy period, rendering the policy start 

and end dates virtually meaningless. And as a general rule, “we 

‘avoid any construction that renders portions of the contract language meaningless.’” Cincinnati Ins. Co. v. Magnolia Ests., Inc., 648 

S.E.2d 498, 500 (Ga. Ct. App. 2007) (quoting RLI Ins. Co. v. Highlands 

on Ponce, LLC, 635 S.E.2d 168, 172 (Ga. Ct. App. 2006)). 

Now that we have defined the terms in the insurance policy, 

we apply them to Plaintiffs’ claims. AFM argues that Plaintiffs have 

no claims because Plaintiffs withdrew their initial Proofs of Loss 

when they filed their Amended Initial Disclosures in April 2019. 

Then, AFM contends, Crestline and Sky Harbor withdrew their 

amended claims just before discovery. 

We don’t read the record that same way, though. In April 

2019, Sky Harbor and Crestline did amend their damages 

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24 Opinion of the Court 21-11329

calculations to reflect actual costs incurred. But they did not withdraw the entire Proofs of Loss they initially submitted. 

The Amended Initial Disclosures also make clear that Sky 

Harbor and Crestline maintained their claims for damages. And 

the cited deposition testimony suggested only that Sky Harbor and 

Crestline might amend their claims again to reflect actual costs incurred. At no point did any Sky Harbor or Crestline representative 

state that Sky Harbor and Crestline wished to “withdraw” their existing claims. And no other amendments or changes were made. 

So the damages as stated in the initial Proofs of Loss and as 

amended in the Amended Initial Disclosures stand on appeal. 

Accordingly, we turn to those two documents to determine 

whether Sky Harbor and Crestline’s claims are covered under the 

terms of the Policy. We conclude that Sky Harbor and Crestline

have pointed to evidence of some covered claims. We consider 

each of the elements described in AFLAC—(1) a tangible change to 

the property (2) caused by a fortuitous event—in turn. 

First, we look for a tangible change to the property that occurred during the Policy period. Throughout their Proofs of Loss, 

Sky Harbor and Crestline point generally to various rainstorms 

during the summer and fall of 2015 that led to water and watervapor intrusions in the Hotel, and specifically to a two-day rain 

event in August 2015. Sky Harbor representative Frank Yuan, who 

saw “water pouring down from the roof ” to the first floor “like 

water fountains” in October 2015, observed these intrusions. According to Sky Harbor and Crestline, these intrusions wet various 

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features of the building to the point that they required repair or 

replacement. 

For example, during rain events in 2015, Sky Harbor and 

Crestline say, rainwater leaked through the exterior cladding, causing water damage to the exterior sheathing, metal framing, interior 

gypsum wallboard, and the wall insulation. Accessing and replacing the exterior sheathing requires removing the brick veneer. Because of the difficult repair process, Liberty estimated the cost of 

remediating the damage from the cladding leaks at about $7.5 million. 

Sky Harbor and Crestline also assert that water-vapor intrusions through the brick glazing and cladding systems, rainwater intrusions through the roof, and rainwater intrusions through the 

rain leader pipe likewise worked in concert to cause water damage 

to the wallboard, wall finishes, and electrical systems. Liberty recommended removal of the damaged materials. The total cost incurred for remediating this water damage was about $1.5 million. 

Sky Harbor and Crestline contend that excess water-vapor 

condensation caused by the malfunctioning HVAC system and the 

rainwater intrusions also damaged the fan coil units. The actual 

cost to clean the fan coil units was about $56,000. These damages 

do not include the cost of remediating the mold growth that resulted from the various water and water-vapor intrusions. 

AFM and the district court characterize the damage that the 

Proofs of Loss list as having occurred pre-Policy. But construing 

the evidence in the light most favorable to Plaintiffs, a reasonable 

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26 Opinion of the Court 21-11329

jury could conclude that at least some of the damage happened 

during the Policy period. Plaintiffs have presented some evidence 

that they inherited a Hotel in good condition, with pre-existing 

mold and water damage remediated pre-purchase by the seller. 

And even if a jury believed that some portion of the damage discovered pre-dated the Policy period, that does not necessarily preclude coverage under the Policy. As long as some covered damages 

occurred during the Policy period, Plaintiffs’ claims survive summary judgment. 

As Liberty’s president stated during his deposition, water 

and water-vapor damage have a cumulative effect, with each successive wet season or storm causing greater damage than the previous. So the years that the Policy covered would have been the 

most-damage-inflicting yet in the Hotel’s thirty-year history. Not 

only that, but Sky Harbor and Crestline provided evidence that 

2015 was a particularly bad year for water damage—water was observed running down the entire height of the Hotel, a type of damage that previous reports did not mention—and the broken HVAC 

system compounded the effects of the water intrusions. So a reasonable jury could conclude that at least some of the resulting damage discovered during the renovations occurred during the Policy 

period.

In concluding otherwise, the district court appeared to reason that Sky Harbor and Crestline had to show that the underlying 

construction defects, from which the damages resulted, occurred 

during the Policy period, too. Sky Harbor Atlanta Ne., LLC, 676 F. 

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Supp. 3d at 1308. The district court found that “there was no actual 

change to the condition of the Hotel which was occasioned by an 

accident, external or other fortuitous event” because “[t]he undisputed evidence shows that the origin of the water intrusion was 

the result of defects existing since the original construction of the 

Hotel.” Id. In so reasoning, the district court considered only the 

dates that the construction defects, such as those in the building’s 

envelope and exterior cladding, originated. It did not account for 

whether Sky Harbor and Crestline had shown any other physical 

change that had occurred during the Policy period—such as the 

damage to the wallboards, framing systems, and exterior sheathing

Sky Harbor and Crestline claim resulted from water intrusions 

from rain events in 2015.

In short, under the Policy language, the analysis must focus 

on tangible change, and here, Sky Harbor and Crestline assert the 

tangible change is the damage, not the defect. So emphasis on the 

date and origin of the construction defects is misplaced. 

We also note that the Policy covers damages that result from 

construction defects that pre-date the Policy period. Under Group 

II perils, the Policy does not insure “against loss or damage caused 

by” a list of circumstances, including “1. Wear and tear, deterioration, depletion, rust, corrosion, erosion, inherent vice, latent defect” and “2. Defects in materials, faulty workmanship, faulty construction or faulty design.” But “if direct physical loss or damage 

insured by this policy results, then that resulting direct physical loss 

or damage is covered.” 

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28 Opinion of the Court 21-11329

Black’s Law Dictionary defines “result” as “[a] consequence, 

effect, or conclusion” as a noun, or “[t]o be a physical, logical, or 

legal consequence; to proceed as an outcome or conclusion” as a 

verb. Result, BLACK’S LAW DICTIONARY (12th ed. 2024). So the Policy plainly does not insure against defects or faulty construction itself. 

But the Policy does cover “resulting direct physical loss or 

damage,” that is, a tangible change in the property caused by a fortuitous event, resulting from the underlying defect. In other 

words, the resulting physical damage (or consequences or effects) 

of a construction defect are covered, even if the Policy will not 

cover the cost of repairing the defect itself. 

What’s more, the construction defect need not have occurred during the Policy period for its effects to be covered. The 

Policy contains only two perils or conditions for which losses resulting from construction defects are not covered if the peril or condition began before the Policy period. Specifically, the Policy provides that it does not cover earth movement or flood “commencing before the effective . . . date and time of this policy.” 

No other perils mention that the condition causing loss must 

have occurred during the Policy period for coverage purposes. 

And we must read the inclusion of language in one section of a policy and its exclusion in another to be a considered choice. Macon 

Auto Auction, Inc. v. Ga. Cas. & Sur. Co., 121 S.E.2d 400, 404 (Ga. Ct. 

App. 1961). At bottom, then, while the construction defect need 

not have occurred during the Policy period, a tangible change 

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21-11329 Opinion of the Court 29

resulting from the construction defect must occur during the Policy period. 

In this case, Sky Harbor and Crestline point to enough evidence to create a material issue of fact about whether that occurred. Their evidence suggests that a tangible change in the property—including the damage to the exterior sheathing, metal framing, interior gypsum wallboard, the wall insulation, the fan coil 

units, the wall finishes, and electrical systems—occurred during the 

Policy period, even though the construction defects from which 

they resulted originated before the Policy period.

Second, we look for an accident or fortuitous event, considering whether the event was, “so far as the contracting parties 

[were] aware,” dependent on chance. Fortuitous event, BLACK’S LAW 

DICTIONARY (12th ed. 2024). A reasonable jury could find that the 

water intrusions caused by the rain events were unexpected, from 

Sky Harbor and Crestline’s perspective. Plaintiffs presented evidence that though they were aware of some leakage issues before

the 2015 rain events, they knew nothing of the severe defects in the 

Hotel’s envelope and cladding that could cause significant water intrusions. So while rain is an expected occurrence, excessive water 

and water-vapor intrusions from rain are not. AFM may debate 

exactly how much Sky Harbor and Crestline knew and when. But

that is an issue for a jury, and it defeats summary judgment.

For these reasons, we vacate the grant of summary judgment on Sky Harbor and Crestline’s breach-of-contract and declaratory-judgment claims. 

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30 Opinion of the Court 21-11329

In remanding, we note that AFM raises several additional defenses to coverage, including various exclusions and limits to coverage that it claims apply and conditions precedents that it says Sky 

Harbor and Crestline failed to satisfy and that the district court has 

not yet had reason to address. We leave these defenses to the district court to consider in the first instance.

B. Bad Faith

We also vacate the grant of summary judgment in AFM’s 

favor on Sky Harbor and Crestline’s bad-faith claim. 

Under O.C.G.A. § 33-4-6(a), if an insurer refuses in bad faith 

to pay a covered loss “within 60 days after a demand has been made 

by the holder of the policy,” the insurer is liable to pay the insured 

extra damages and all reasonable attorney’s fees. Courts in Georgia 

have interpreted the statute as requiring the insured to prove three 

elements: (1) the policy covered the claim, (2) the insurer refused 

to pay the claim within 60 days of a demand being made by the 

holder of the policy,3 and (3) the insurer’s failure to pay was 

3 Despite some variation in the phrasing of this element in the case law, Georgia courts routinely interpret the second element of a bad-faith claim as requiring that the insured demanded payment from the insurer “at least 60 days prior

to filing suit.” E.g., Thompson v. Homesite Ins. Co. of Ga., 812 S.E.2d 541, 544 

(Ga. Ct. App. 2018); Cagle v. State Farm Fire & Cas. Co., 512 S.E.2d 717, 718 (Ga. 

Ct. App.1999) (stating that this interpretation is “well-settled” under Georgia 

law); Blue Cross & Blue Shield of Ga./Atlanta, Inc. v. Merrell, 316 S.E.2d 548, 548–

49 (Ga. Ct. App. 1984) (“It has been held that a failure to wait at least 60 days

between making demand and filing suit constitutes an absolute bar to recovery of a bad-faith penalty and attorney fees under this statute.” (emphasis 

added)). A 2007 Georgia Court of Appeals case misstated the element as 

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21-11329 Opinion of the Court 31

motivated by bad faith. Thompson v. Homesite Ins. Co. of Ga., 812 

S.E.2d 541, 544 (Ga. Ct. App. 2018). The district court found that 

Sky Harbor and Crestline could not satisfy the first element, because it found no coverage. Sky Harbor Atlanta Ne., LLC, 676 F. Supp. 

3d at 1309. But as we’ve explained, we conclude that Sky Harbor 

and Crestline point to sufficient evidence to show that at least some 

of their claims may be covered, so the first element is satisfied. Because we reverse on the only element discussed by the district 

court, we remand the case to the district court for consideration of 

the other elements. 

requiring “that a demand for payment was made against the insurer within 60 

days prior to filing suit,” seemingly confusing the insurer’s statutory deadline 

to pay (“within 60 days after a demand”) with a time limitation on the insured’s ability to sue. BayRock Mortg. Corp. v. Chi. Title Ins. Co., 648 S.E.2d 433, 

435 (Ga. Ct. App. 2007). But the Georgia Court of Appeals did not apply its 

misstated rule, instead finding that the plaintiff’s demand was untimely because it was made while the insurer still had time left under the policy’s terms 

to investigate the claims. Id. While this misstated rule has been cited many 

times by Georgia courts and courts in this Circuit, we cannot find any cases in 

either jurisdiction that have actually applied the misstated time limitations or 

interpreted BayRock as changing the second element of a bad-faith claim. See, 

e.g., Thompson, 812 S.E.2d at 544 (citing BayRock for the requirement that “a 

demand for payment was made by the insured at least 60 days prior to filing 

suit” (emphasis added)); Balboa Life & Cas., LLC v. Home Builders Fin., Inc., 697 

S.E.2d 240, 244 (Ga. Ct. App. 2010) (citing BayRock for the requirement that 

“after the insured demanded payment, the insurer refused to pay the covered 

loss for more than 60 days prior to suit being filed”); Cox Enters., Inc. v. Hiscox 

Ins. Co., 478 F. Supp. 3d 1335, 1346 (N.D. Ga. 2020) (citing the misstated rule 

language, but nonetheless finding that plaintiff had stated a claim for bad faith 

when it alleged that “a demand for payment was made more than 60 days prior 

to filing the complaint” (emphasis added)). 

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32 Opinion of the Court 21-11329

C. Insureds

While not an independent claim,4 Sky Harbor and Crestline

argue that Sky Harbor qualifies as an insured under the definition 

in the Policy. Regardless, they claim that this issue is “ultimately 

academic” because Crestline is undisputedly a named insured, so 

Crestline can recover whatever payments AFM owes under the Policy.5 Sky Harbor and Crestline have not shown that Sky Harbor is 

4 In the district court, Sky Harbor and Crestline brought a claim for reformation, arguing that it was a mutual mistake that Sky Harbor was not listed 

as an additional insured under the Policy. Sky Harbor Atlanta Ne., LLC, 676 F. 

Supp. 3d at 1309. The district court found that Sky Harbor and Crestline had 

abandoned this claim when they failed to respond to the arguments regarding 

the claim in AFM’s motion for summary judgment. Id. at 1309–10. But Sky 

Harbor and Crestline also separately argued, as they do now on appeal, that 

Sky Harbor is already an insured based on the existing language in the Policy. 

Id. at 1310.

5 In a footnote in its response brief, AFM contends that despite being named 

in the Policy, Crestline is not entitled to recover the damages asserted because 

Crestline admitted it expended no funds to repair the property, and Crestline 

does not make a claim for any diminution in its management fees. But the 

parties do not dispute that Crestline is a named insured under the Policy. Under Georgia law, then, the Policy dictates the amount recoverable, assuming 

Crestline’s policy was properly taken out on an insurable interest. Ga. Farm 

Bureaus Mut. Ins. Co. v. Franks, 739 S.E.2d 427, 431 (Ga. Ct. App. 2013) (“[O]nce

such an insurable interest is shown to exist, it is the policy at issue . . . that 

determines the amount the insured is entitled to recover.”). And under the 

Policy, Crestline can recover for specified damage to the Hotel. So Crestline’s 

expenditures do not affect its ability to recover under Georgia insurance law 

generally or the Policy specifically. See Am. Ins. Co. v. Bateman, 186 S.E.2d 547, 

549 (Ga. Ct. App. 1971) (finding that it was “completely irrelevant” to the claim 

of insureds that they had no financial liability to their hired construction 

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an insured under the Policy language, so we affirm the district 

court on this issue. 

The Policy defines an “Insured” as Crestline and “its wholly 

or majority owned subsidiaries and any interest which may now 

exist or hereinafter be created or acquired which are owned, controlled or operated by” Crestline. Sky Harbor and Crestline argued 

in the district court, as they do here, that as Hotel management, 

Crestline controlled or operated Sky Harbor’s interest, the Hotel. 

So in Plaintiffs’ view, Sky Harbor qualifies as a named subsidiary. 

The district court disagreed, finding no evidence that “Plaintiff 

Crestline owns, controls or operates Plaintiff Sky Harbor.” Sky Harbor Atlanta Ne., LLC, 676 F. Supp. 3d at 1310.

We agree with the district court. The Policy says that an 

“Insured” is “any interest . . . owned, controlled or operated by” 

Crestline. So even assuming that Crestline controls or operates the 

Hotel, and the Hotel is an “interest” belonging to Sky Harbor, Sky 

Harbor and Crestline still have not shown that Crestline operated 

or controlled Sky Harbor (as opposed to the Hotel). As AFM and 

the district court pointed out, even if we were to swap “interest” 

for “Sky Harbor” in the Policy, Crestline has not shown that it controls or operates Sky Harbor itself.6

company when an insured structure burned down mid-construction, because 

they still had an insurable interest in the property to be built). 

6 Sky Harbor and Crestline’s comparison to Warehouse Investors, LLC v. Affiliated FM Insurance Co., No. 421CV00174JAJHCA, 2021 WL 6752241, at *6 (S.D. 

Iowa Aug. 23, 2021) is inapposite. In that case, at the motion-to-dismiss stage, 

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34 Opinion of the Court 21-11329

Indeed, interpreting the Policy the way that Sky Harbor and 

Crestline suggest would make any hotel owner with which Crestline does business an insured on the Policy. Crestline, “a leading 

provider of hotel management services,” presumably operates and 

controls other hotels on behalf of other owners. Under Sky Harbor and Crestline’s reading of the Policy, we should equate the 

property interest controlled and operated by Crestline with the 

company that owns the hotel. If we did that, any ownership company that works with Crestline would be an insured under this Policy, whether its property was listed on the Policy or not. After all, 

the Policy does not limit the “interest” in the definition of insured

to an interest relating to a property insured under the same policy. 

And there is no evidence that any party to the Policy, either Crestline or AFM, intended for every other client of Crestline to be an 

insured under this Policy. 

an Iowa district court held that identical policy language “does plausibly cover 

[the hotel owner]” because the agreement between the insured management 

company and the hotel owner “plausibly demonstrate[ed] [the management 

company]’s ‘operation’ of [the owner company] by managing its Properties.” 

Id. But as the court in Warehouse acknowledged, its ruling was not comparable 

to the district court’s ruling in Sky Harbor because the district court decided

Sky Harbor at the summary-judgment stage. Id. (distinguishing Sky Harbor Atlanta Northeast, LLC, 676 F. Supp. 3d. at 1310). While it’s possible that by operating the Hotel, Sky Harbor and Crestline could demonstrate that Crestline 

operated Sky Harbor, Plaintiffs make no such demonstration or even argument to that effect on appeal. To the contrary, they assert that “Crestline need 

not operate Sky Harbor itself” for Sky Harbor to be an insured. (Emphasis 

added).

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21-11329 Opinion of the Court 35

In short, Sky Harbor and Crestline’s argument that Sky Harbor is an insured under the Policy definition fails, and we affirm the 

district court on this issue. 

D. Counterclaims

Finally, we consider AFM’s counterclaims. To prevail on a 

fraud claim in Georgia, the plaintiff must show (1) a false representation by the defendant, (2) scienter or knowledge on the defendant’s part that the representation was false, (3) intent to induce the 

plaintiff to act or refrain from acting, (4) justifiable reliance by the 

plaintiff on the misrepresentation, and (5) damages. Nebo Ventures, 

LLC v. NovaPro Risk Sols., L.P., 752 S.E.2d 18, 22 (Ga. Ct. App. 2013). 

Here, AFM points to alleged misrepresentations, concealment of 

documents, and generally bad behavior by Sky Harbor and Crestline during AFM’s investigation of their claims. 

But even construing this evidence in the light most favorable 

to AFM, it’s not clear how AFM actually relied on any alleged misrepresentations. AFM has not shown that its investigation would 

have changed had Sky Harbor and Crestline made no misrepresentations—it argues only that it would not have conducted any investigation at all. We don’t think the record bears that out. Even omitting any alleged misrepresentations, Sky Harbor and Crestline’s

claims required some investigation. And AFM does not argue that 

it can demonstrate reliance in any other way. Because AFM cannot 

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36 Opinion of the Court 21-11329

establish its fraud claim, its claim for civil conspiracy fails, too.7 We 

therefore affirm the district court’s grant of summary judgment on 

AFM’s counterclaims. 

We begin with the issue of what reliance means under Georgia common law. Plaintiffs argue that if AFM did not believe any 

alleged misrepresentations, it cannot now claim reliance. And to 

be sure, some Georgia cases speak of belief as evidence of reliance. 

See, e.g., Pollman v. Swan, 723 S.E.2d 290, 292 (Ga. Ct. App. 2011) (in 

analyzing third-party reliance under a RICO claim, stating “[u]nless

an untrue statement is believed and acted upon, it can occasion no 

legal injury” (citation omitted)); Henderson v. Glen Oak, Inc., 346 

S.E.2d 842, 844 (Ga. Ct. App. 1986), aff’d, 351 S.E.2d 640 (Ga. 1987) 

(holding that appellant failed to prove reliance where he admitted 

at trial that “he never relied on the alleged misrepresentations because he never believed them to be true”). 

But a lack of belief does not necessarily destroy reliance. Rather, under Georgia law, “[i]nducement is the substance of reliance,” not belief. Holmes v. Grubman, 691 S.E.2d 196, 198 (Ga. 2010)

(citation omitted). Belief can demonstrate reliance, but it isn’t a 

necessary component; what we really look for is justifiable action 

or forbearance, based on the misrepresentation. Id. (“[T]he form 

7 Under Georgia law, AFM’s civil-conspiracy claim is entirely derivative of its 

fraud claim. See McIntee v. Deramus, 722 S.E.2d 377, 379–80 (Ga. Ct. App. 2012) 

(recognizing that a claim for civil conspiracy requires a showing that two or 

more parties combined to commit a tort; the conspiracy itself does not furnish 

a cause of action).

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of reliance—action or inaction—is not critical to the actionability 

of fraud.” (Citation omitted)); see also Nebo Ventures, LLC, 752 

S.E.2d at 23 (finding evidence of reliance when the plaintiff stated 

that he would have exercised his right to pursue an audit if he had 

realized that statements were misrepresentations). 

In the investigation context, some Georgia courts have 

found that when an insurer thoroughly investigates and questions 

an insured’s claims, it cannot show that it actually relied on the insured’s representations. Blue Cross & Blue Shield of Ga., Inc. v. Kell, 

488 S.E.2d 735, 740 (Ga. Ct. App. 1997) (holding that the insurer 

could not show that it justifiably relied on misrepresentations 

where it “extensively evaluated” the claims and engaged in extensive correspondence with the parties); see also McEntyre v. Edwards, 

583 S.E.2d 889, 891 (Ga. Ct. App. 2003) (finding no evidence that 

the homeowner relied on the representations made to her by the 

homebuilder when she “questioned almost every action the defendants made,” visited the property in question daily, took pictures of the property as damage occurred, kept a journal detailing 

her concerns, recorded conversations, and hired her own independent expert to monitor the property). But we do not take these cases 

to mean, as the district court did, that a thorough investigation for 

any reason forecloses a claim of fraud by the insurer. Sky Harbor 

Atlanta Ne., LLC, 676 F. Supp. 3d at 1311 (holding that because AFM 

“thoroughly investigated Plaintiffs’ insurance claim,” it could not 

show that it relied on Plaintiffs’ misrepresentations). 

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38 Opinion of the Court 21-11329

For example, if a claim has no coverage on its face, the insurer will summarily deny it and not investigate. But if an insured 

misrepresents its claim, claiming to have coverage when there really is none, the insurer is required to conduct a good-faith investigation despite its suspicions. See O.C.G.A. § 33-6-34(4) (requiring 

an insurer to “attempt[] in good faith to effectuate prompt, fair, and 

equitable settlement of claims submitted in which liability has become reasonably clear”); id. § 33-6-34(6) (prohibiting an insurer 

from “[r]efusing to pay claims without conducting a reasonable investigation.”). In that case, the insurer has detrimentally relied on 

the misrepresentations because it has conducted some investigation when, absent the misrepresentations, it would have been clear 

that none was required. While Georgia courts have not directly 

commented on this theory of reliance, they have stated that insurers can recover damages based on costly and unnecessary investigations. See Tucker v. Colonial Ins. Co. of Cal., 395 S.E.2d 312, 314

(Ga. Ct. App. 1990) (holding that an insurer showed damages based 

on its “extensive and costly investigation”).

This is exactly what AFM argues on appeal. AFM says that 

its extensive investigation is evidence of its reliance on Plaintiffs’ 

erroneous claims. AFM argues that had it known the truth from 

the beginning—about the construction defects and the decades of 

previous mold and water damage—“there would have been no 

need for AFM to retain specialists, conduct [e]xaminations [u]nder 

[o]ath, or incur the expenses of a prolonged claim investigation.” 

So the question before us on appeal, as to the issue of reliance, is 

whether AFM acted or refrained from acting, with respect to its 

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investigation of Plaintiffs’ claims, in reliance on Plaintiffs’ misrepresentations.

In answering this question, we first consider what AFM 

should have known when deciding whether to conduct an investigation, had Plaintiffs made no alleged misrepresentations and had 

they not concealed the various pre-sale reports and assessments. 

Because the district court granted Sky Harbor and Crestline summary judgment on AFM’s counterclaims, we construe the evidence 

in the light most favorable to the nonmoving party, AFM. 

Under AFM’s version of events, Plaintiffs should have disclosed the pre-existing construction defects in the envelope, cladding, and other parts of the Hotel, and the known water and mold 

damage defects caused, such as the twenty-five rooms discovered 

to have mold shortly before the sale. Sky Harbor and Crestline

would still have to report the rain events and resulting water intrusions observed during the Policy period, too—AFM does not argue 

that these events did not happen, just that resulting damage is not 

covered. 

Second, we consider whether any investigation at all was 

necessary, absent Plaintiffs’ alleged misrepresentations. We conclude that it was. Even construing the evidence in the light most 

favorable to AFM, under Georgia law, AFM could not have refused 

to conduct an investigation before denying Sky Harbor and Crestline’s claims. Very early on in its investigation, AFM’s expert attributed the damage at the Hotel to water intrusions from “rain 

events” that occurred “over the life of the building,” which 

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40 Opinion of the Court 21-11329

implicitly includes the three-year Policy period. And from the beginning of their claim, Sky Harbor and Crestline attributed the 

damage at the Hotel to rain events that occurred during the Policy 

period. AFM does not dispute that rain, such as the rain events 

cited in all versions of the Liberty report, did not occur during the 

Policy period. So as Plaintiffs point out, AFM still would have been 

obligated to conduct a reasonable investigation into which damages, if any, were new and covered, even if it ultimately concluded 

that any covered damages were de minimis and fell below the Policy’s deductible amounts. O.C.G.A. § 33-6-34(4), (6).

Even considering its fortuity argument, AFM does not explain how the historical information about the Hotel’s condition or 

Sky Harbor and Crestline’s knowledge of the defects would have 

ruled out coverage without an investigation. For example, AFM 

points to evidence that would allow a reasonable jury to conclude 

that Sky Harbor and Crestline were aware of delayed maintenance 

issues and defects in the building’s envelope, roof, exterior cladding, 

and windows before 2015, so it knew that leaks were certain to occur. But this knowledge would not have told Sky Harbor, Crestline, 

or AFM how the damage that occurred during the Policy period 

happened. Plaintiffs and AFM had to investigate to discover that the 

source of the water intrusions were known defects. So even if a 

jury could conclude that none of the damage that occurred during 

the Policy period was covered because the damage did not extend 

from a fortuitous event, that conclusion would rest on information 

gathered during a necessary investigation. In short, some sort of 

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investigation was necessary, even if Sky Harbor and Crestline had 

divulged all they knew. 

Finally, we consider whether AFM’s investigation could have 

been reduced, as opposed to eliminated entirely. AFM argues that 

it would not have hired consultants, conducted a floor-by-floor inspection of the Hotel, or conducted examinations under oath if it 

had known everything about the Hotel’s pre-existing condition

from the beginning. So we consider those components of AFM’s

investigation and decide whether, construing the evidence in 

AFM’s favor, they could have been eliminated or reduced. 

We think not. Even construing the evidence in AFM’s favor, 

AFM would have needed to hire consultants and conducted an inspection of the Hotel, had it known from the beginning about the 

defects and the pre-existing damage. AFM says it hired experts to 

“analyze[] the cause and origin of [Plaintiffs’] claimed damages.” 

But even if Sky Harbor and Crestline admitted that significant damage pre-dated the Policy, AFM still would have needed to hire consultants to investigate what damage, if any, occurred during the 

Policy period and what the potential causes of any such damages 

were. 

AFM also attributes its floor-by-floor inspection of the Hotel 

to looking for damage caused by rain. But AFM does not counter 

Sky Harbor and Crestline’s evidence that rain events during the Policy period caused water intrusions throughout the Hotel. And it 

does not explain how it could have definitively ruled out the 

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existence of covered loss without a floor-by-floor inspection of the 

Hotel. 

Nor do any facts suggest that AFM could have released its 

expert consultants before they produced their report or inspected 

every floor. AFM needed its expert’s report to identify the likely 

causes of the damage, including the allegedly known defects, which 

it received in October 2015. But the expert report covered only “a 

visual . . . survey of several guest rooms and common areas on the 

9th and 10th stories” and views of the exterior of the building. The 

report specifically disclaimed making any representations “regarding the condition of areas and details of the building that were not 

accessible or closely observed.” Sky Harbor and Crestline alleged 

damages on all ten stories of the building, much of which was not 

visible to anyone until Sky Harbor and Crestline removed wall coverings on each floor during the renovation process. So AFM’s subsequent inspections of the other floors were necessary for its investigation into any damages caused during the Policy period. 

Finally, AFM says it would have cut the examinations under 

oath entirely, had Sky Harbor and Crestline divulged all they knew 

up front. AFM says that it took the examinations “because [Plaintiffs] kept shifting their stories and avoiding AFM’s requests for information.” 

But these examinations happened after AFM rejected Sky 

Harbor and Crestline’s Proofs of Loss. And AFM says that it conducted the examinations because it thought Plaintiffs’ stories were 

inconsistent and Plaintiffs were being evasive. In other words, the 

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examinations were the beginning of AFM’s investigation into 

Plaintiffs’ alleged fraud, rather than the end of its good-faith investigation into Plaintiffs’ claims. Under Georgia law, litigation expenses of that type are recoverable only “where other elements of 

damage are recoverable on the underlying claim[s].” Davis v. Johnson, 634 S.E.2d 108, 110 (Ga. Ct. App. 2006) (citation omitted). So 

if the examinations are the only expense AFM can point to that it 

would not have made absent Sky Harbor and Crestline’s alleged 

misrepresentations, it cannot recover those expenses alone without 

pointing to other “elements of damage.” 

In conclusion, we affirm the district court’s grant of summary judgment on AFM’s fraud claim, and as a consequence, on 

its civil-conspiracy claim as well. 

For the foregoing reasons, we reverse the district court’s 

grant of summary judgment on Sky Harbor and Crestline’s claims 

for breach of contract, declaratory judgment and bad faith, and we 

remand for further proceedings on those claims. We affirm the district court’s holding that Sky Harbor is not an insured and its grant 

of summary judgment on AFM’s counterclaims. 

AFFIRMED IN PART, REVERSED IN PART, and

REMANDED.

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