FIFTH DIVISION

PHIPPS, P. J.,

DILLARD and PETERSON, JJ.

NOTICE: Motions for reconsideration must be

physically received in our clerk’s office within ten

days of the date of decision to be deemed timely filed.

http://www.gaappeals.us/rules

May 24, 2016

In the Court of Appeals of Georgia

A16A0134. GEORGIA INTERLOCAL RISK MANAGEMENT

AGENCY v. CITY OF SANDY SPRINGS, GEORGIA.

PE-005

PETERSON, Judge.

Georgia Interlocal Risk Management Agency (“GIRMA”) appealsthe grant of

a motion to dismissits declaratory judgment action. GIRMA arguesthat an exclusion

in the agreement bars coverage and thus it should not have to continue defending the

lawsuit, and that it is entitled to recoup some of its defense costs. We agree with

GIRMA that the exclusion applies to bar coverage for the underlying lawsuit, thus

freeing GIRMA from its duty to defend.

1 However, we affirm the trial court’sfinding

1The City of Sandy Springsrequested on its motion for reconsideration that we

make clear our opinion does not decide its affirmative defenses of waiver and

estoppel, which were not raised in the City’s motion to dismiss or before this Court. 

It is, of course, axiomatic that “a decision’s holding is limited to the factual context

of the case being decided and the issues that context necessarily raises. Language

that sounds like a holding — but actually exceeds the scope of the case’s factual
that GIRMA is not entitled to recoup defense costs because even if Georgia law

permitted an insurer to recoup defense costs where there is no contractual provision

permitting such recovery, GIRMA did not timely seek to reserve such a right.

GIRMA is a risk-sharing arrangement wherein municipalities contract to pool

their general liability risks. OCGA § 36-85-2. Although technically not an insurance

company or insurer, “[a] municipality that enters a GIRMA coverage agreement in

effect purchases liability insurance.” GIRMA v. Godfrey, 273 Ga. App. 77, 78 (614

SE2d 201) (2005);see also OCGA § 36-85-4. The City of Sandy Springs (the “City”)

participated in the GIRMA program from about December 1, 2005 to May 1, 2012.

The coverage agreement (the “Contract”) obtained by the City provided coverage for

Errors and Omissions — and specifically coverage for money damages incurred by

a Member arising from any Wrongful Act committed during the coverage period

(which includes alleged constitutional violations). 

On June 30, 2006, several owners and operators of establishments offering

nude dancing and/or selling sexually explicit merchandise filed suit against the City

context — is not a holding no matter how much itsounds like one.” Classic Commer.

Servs. v. Baldwin, 336 Ga. App. 183, 190 (784 SE2d 44) (2016) (Peterson, J.,

concurring fully and specially). Asthe City’s defenses of waiver and estoppel are not

at issue on this appeal, nothing in this decision should be understood as deciding

them.

2
in the Northern District of Georgia (“Flanigan’s I”). The suit challenged the

constitutionality of the City’s ordinances regulating adult entertainment industries

within city limits, and sought declaratory and injunctive relief from the City, as well

as compensatory and punitive damages from the then-unidentified city manager.

GIRMA provided the City with a defense in the suit. The plaintiffs subsequently

dismissed the suit voluntarily. 

On October 5, 2009, the plaintiffs refiled their federal suit against the City

asserting the same constitutional challenge, but this time seeking only declaratory and

injunctive relief (“Flanigan’s II”). GIRMA again provided a defense to the suit, but

under a reservation of rights. GIRMA’s reservation of rights letter made clear that

GIRMA was providing a defense to the City in Flanigan’s II but was reserving its

right to deny coverage based on an exclusion in the Contract. In particular, GIRMA

cited Exclusion E, which statesthat coverage does not apply to “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.” 

The first time the plaintiffs amended their complaint, they still did not seek

money damages. The City then filed a separate nuisance action in Fulton County

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Superior Court against the plaintiffs, seeking injunctive relief.2 The plaintiffs, in turn,

filed a second amended complaint on June 20, 2012, seeking nominal and

compensatory damages for the City’s allegedly retaliatory conduct in filing the

nuisance action. 

GIRMA sent a revised reservation of rights letter on February 1, 2013,

indicating that it was still providing a defense, but reiterated its reservation of the

right to deny coverage under, among other things, Exclusion E. In the revised letter,

GIRMA for the first time explicitly reserved the right to recover future advanced

defense costs from that date forward if it was determined that GIRMA was not

obligated to defend the claim. GIRMA requested that the City consent to the

provision of a defense subject to these reservations by signing and returning the letter,

and indicated that the City’s refusal to consent or return the letter as requested would

result in GIRMA immediately filing a declaratory judgment action to determine its

coverage and defense obligations. The City did not sign or otherwise respond to the

revised reservation of rights letter. 

2 The nuisance action also included a catch-all provision in the prayer for relief,

seeking all other relief as the court “deems just and proper[,]” including “damages,

and other monetary relief[.]” 

4
Later in Flanigan’s II, on April 9, 2014, the District Court granted the City’s

motion for summary judgment with respect to the plaintiffs’ claims over the filing of

the nuisance action. Neither party appealed the Court’s order. 

Following the court’s order in Flanigan’sII, GIRMA filed suit against the City

on July 11, 2014, seeking a declaratory judgment that no coverage exists for

Flanigan’s II, GIRMA is not obligated to provide a defense to the City in that

lawsuit, and it is entitled to defense costs starting from the date of its revised

reservation of rights(the “Declaratory Judgment Action”). The Citymoved to dismiss

the suit, arguing GIRMA had a duty to defend as a matter of law and could not

withdraw its defense until the City was protected by a final judgment on all

potentially or arguably covered claims. The trial court agreed, granted the City’s

motion, and dismissed GIRMA’s Declaratory Judgment Action. This appeal followed.

“We apply a de novo standard of review to the trial court’s grant of a motion

to dismiss. A motion to dismiss may be granted only where a complaint shows with

certainty that the plaintiff would not be entitled to relief under any state of facts that

could be proven in support of his claim.” Alcatraz Media, LLC v. Yahoo! Inc., 290

Ga. App. 882, 882 (660 SE2d 797) (2008) (citations omitted). Further, in reviewing

the grant of a motion to dismiss, we “must construe the pleadings in the light most

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favorable to the appellant with all doubts resolved in the appellant’s favor.” Ewing

v. City of Atlanta, 281 Ga. 652, 653 (2) (642 SE2d 100) (2007). Although GIRMA

is not technically an insurance company or insurer, we apply principles of insurance

law in analyzing coverage issues. See, e.g., City ofCollege Park v. Georgia Interlocal

Risk Mgmt. Agency, 313 Ga. App. 239, 243-44 (2) (721 SE2d 97) (2011).

1. The Contract entitled the City to coverage for Errors and Omissions — and

specifically money damages incurred by a Member arising from any Wrongful Act

committed during the coverage period. The Contract’s definition of a “Wrongful Act”

includes alleged constitutional violations, and Flanigan’s II alleged constitutional

violations. GIRMA concedes the allegations in Flanigan’sII constitute a “Wrongful

Act,” bringing the claim within the insuring clause, but argues that Exclusion E

excludes coverage and negates its duty to defend. Therefore, the first issue we must

address is whether Exclusion E operates to exclude coverage for Flanigan’s II under

the policy. If there is no coverage, GIRMA does not have a duty to defend. See PennAmerican Ins. Co. v. Disabled Am. Veterans, Inc., 268 Ga. 564, 565 (490 SE2d 374)

(1997) (where the complaint sets forth true factual allegations showing no coverage,

the insurer is excused from providing a defense). We conclude that the claims arise

6
out of claims seeking equitable relief, Exclusion E applies, and thus GIRMA has no

duty to defend.

Exclusion E of the Contract

Exclusion E states that coverage does not apply to “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.” We have previously

defined “arising out of” to mean “had its origins in,” “grew out of,” or “flowed from.”

BBL-McCarthy, LLC v. Baldwin Paving Co., 285 Ga. App. 494, 498 (1) (646 SE2d

682) (2007). “Moreover, we have also held that the term ‘arising out of’ does not

mean proximate cause in the strict legal sense . . . . Almost any causal connection or

relationship will do.” Id. (citations omitted). In determining whether claims “arise out

of” excluded conduct, we conduct a “but for” analysis. See City of College Park, 313

Ga. App. at 243-45 (2); Continental Cas. Co. v. H.S.I. Finan. Svs., Inc., 266 Ga. 260,

262 (466 SE2d 4) (1996). “Claims arise out of excluded conduct when ‘but for’ that

conduct, there could be no claim against the insured.” Video Warehouse, Inc. v.

Southern Trust Ins. Co., 297 Ga. App. 788, 791 (678 SE2d 484) (2009). 

Contract Provisions And Their Relation to Exclusion E

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When interpreting a contract, we look to that contract’s language. In the

Contract, the capitalized term “Claim” is defined as “a demand against a Member or

by a Member for money damagesfor compensable losses.” Exclusion E usesthe word

“claim,” but does not capitalize it. Although failure to capitalize a term does not

always mean that the uncapitalized term lacks the capitalized term’s specifically

defined meaning, under the circumstances here, we conclude that the word should be

interpreted according to its normal and ordinary usage. As defined in the Contract,

the capitalized term “Claim” means a demand for money damages. But as used in the

exclusion, the uncapitalized term “claim” is intended to mean those demands for

something otherthanmoney damages. Moreover, GIRMA conceded at oral argument

that the term “claim” as used in the exclusion is intended to have its ordinary

meaning, and the City did not disagree.3 Accordingly, in analyzing the applicability

of Exclusion E in the case at hand, we consider the word “claim” according to its

normal and ordinary usage. 

3 This conclusion is bolstered by the bizarre results obtained using the defined

term. Exclusion E would provide that coverage does not apply to: “any [demand . .

. for money damages] arising out of or in any way connected with any [demand . . .

for money damages] seeking equitable relief, redress or any other [demand . . . for

money damages] seeking relief in any form other than money damages.” This

construction would be incoherent. 

8
Under its ordinary usage, a claim is defined as “a demand for something

rightfully or allegedly due” or “a right . . . to something.” Webster’s New World

Dictionary 261 (2d College ed. 1972).4 Here, “claim” used in its ordinary sense is

broad enough to encompass the claims made in Flanigan’s II and in the nuisance

action. The nuisance action asserted claims seeking injunctive relief.5 The first two

complaints in Flanigan’s II did not seek monetary damages for any of the plaintiffs’

claims. But the second amended complaint did, and that is the operative complaint

now at issue in Flanigan’s II. The question, then, is whether the claims in the second

amended complaint arose out of a claim seeking equitable relief or relief in a form

4 We previously noted the definition of “claim” under Black’s Law Dictionary

as a “cause of action” or “demand for money or property,” with “demand” being

defined as an “assertion of a legal right.” See Patterman v. Travelers, Inc., 235 Ga.

App. 784, 786 (510 SE2d 307) (1998), aff’d 272 Ga. 251.

5 We acknowledge that the City also included a catch-all prayer for relief

seeking “such other relief . . . as [the] Court deems just and proper[,]” including

“damages, and other monetary relief against Defendants[.]” But this general catch-all

clause in the prayer for relief does not convert the action into one for monetary

damages where the complaint otherwise fails to set forth a basis for money damages.

Otherwise, all lawsuits seeking “such other relief as the court deems necessary, just,

and proper,” or some variation thereof, as is often included as a matter of course,

would precipitate a duty to defend. See, e.g., Clemons v. State Farm Fire and Cas.

Co., 879 S.W.2d 385, 393 (Tex. Ct. App. 1994).

9
other than money damages, such that it would fall within the exclusion at issue here.

We conclude that they did. 

The claims in the second amended complaint “grew out of” those asserted in

the first two complaints filed in the Flanigan’s II action that originally sought only

declaratory and injunctive relief. The claims in the second amended complaint also

“flowed from” the filing of the nuisance action, because the second amended

complaint specifically asserted an additional claim pertaining to the alleged

implications from the filing of the nuisance action. But for the filing of Flanigan’s

II and the nuisance action, the claimsin the second amended complaint in Flanigan’s

II would not exist. Thus, the claims asserted in the second amended complaint in

Flanigan’s II fall within Exclusion E, and therefore no coverage, and relatedly, no

duty to defend, exists. Insurance coverage is a matter of contract between the insurer

and the insured, and this Court “will not strain to extend coverage where none was

contracted or intended.” Jefferson Ins. Co. of New York v. Dunn, 269 Ga. 213, 216

(496 SE2d 696) (1998). “[A]n insurance company is free to fix the terms of its

policies as it sees fit, so long as such terms are not contrary to law, and it is equally

free to insure against certain risks while excluding others.” Continental Cas. Co., 266

Ga. at 262. 

10
The City’s Hypotheticals

The hypothetical scenarios proposed by the City in its brief do not change our

analysis. The City conjured the following scenarios that it says would give rise to a

parade of horribles resulting from our conclusion that Exclusion E applies:

• The City contracts with a business to maintain a park, but the business bans

demonstrations in the park. A lawsuit is filed against the City and the business

seeking money damages. GIRMA defends, but then the City learns the

business made material misrepresentations during contract negotiations, so the

City files a cross-claim in equity to rescind the contract. Coverage vanishes

because the lawsuit is “connected with any claim seeking equitable relief.” 

• Employees allege the City negligently administersits benefits programand sue

for money damages, and the employees later threaten to release personnel

records that support their case but also reveal confidential information about

other employees not involved in the suit. GIRMA defends, and the City or the

employees whose personal information is threatened seek a temporary

restraining order. Coverage vanishes because the lawsuit is “connected with

any claim seeking equitable relief.” 

11
In each of the proposed scenarios above, the initial action includes a claim for money

damages, out of which a later request for equitable relief arises. But here, the situation

is the converse — that is, the initial action was one for equitable relief that only later

gave rise to a claim for money damages. Prior to Flanigan’s II, the claim at issue did

not only “arise out of” claims seeking equitable relief, they were claims seeking only

equitable relief. Our analysis islimited to specific language in the exclusion: whether

GIRMA’s claim for declaratory judgment “arise[s] out of . . . any claims seeking

equitable relief, redress or any other claim seeking relief in any form other than

money damages.” How coverage may shift under other language in the exclusion in

scenarios imagined by the City does not affect our decision on the actual dispute

before us. The trial court erred in granting the City’s motion to dismiss GIRMA’s

Declaratory Judgment Action, and we reverse. 

2. Because we agree that GIRMA does not have a duty to defend, we must

now address GIRMA’s claim that it is entitled to recover litigation costs in

Flanigan’s II incurred subsequent to the issuance of its revised reservation of rights

letter on February 1, 2013. GIRMA does not point to any provision in the insurance

agreement granting it the right to recoup defense costs. GIRMA instead argues that

the City impliedly agreed that GIRMA would be able to recover defense costs by

12
continuing to accept GIRMA’s defense even after the amended reservation of rights

letter that, as of February 1, 2013, included a reservation of the right to seek

reimbursement of defense costs on uncovered claims, thus creating an implied-in-fact

contract. GIRMA alternatively argues that it would constitute unjust enrichment for

the City to receive a free defense where no coverage exists. The issue of whether

insurers are entitled to recoup defense costs where there is no contractual provision

creating such a right is an issue of first impression in Georgia courts, but we need not

reach that issue here.

We recognize that “[n]ationally, courts are split as to whether an insurer has a

right to reimbursement of defense fees paid where it is determined that the insurer had

not duty to defend.” Illinois Union Ins. Co. v. NRI Const. Inc., 846 F. Supp. 2d 1366,

1374 (N.D. Ga. 2012) (citing Westchester Fire Ins. Co. v. Wallerich, 563 F.3d 707,

714 (8th Cir. 2009)). The “majority” view held by courtsrecognizes an insurer’sright

to reimbursement of defense costs and fees where it is determined that the insurer had

no duty to defend. See Westchester, 563 F.3d at 714. This view is typically supported

by two theories — an implied contract or the quasi-contractual theory of unjust

enrichment. 

13
GIRMA cites authority from the Northern District of Georgia, Illinois Union

Insurance Co. v. NRI Construction Inc., 846 F. Supp. 2d 1366 (N.D. Ga. 2012), in

which the Northern District predicted how Georgia courts would interpret the issue.

Id. at 1374-77 (II)(C)(1). In Illinois Union, the Northern District found the majority

view among the nation’s courtsto be the most persuasive based on theories of implied

in fact contract and unjust enrichment. Id. at 1377 (II) (C) (3). That view holds that

where no contractual provision exists, a right to recoup defense costs still exists

where the insurer timely and explicitly reserved thatright. Id. GIRMA argues Georgia

courts should apply the majority rule recognized in Illinois Union. 

But even if we were to adopt the rule urged by GIRMA,6

its reservation of the

right to seek reimbursement of defense costs was not timely here. GIRMA first began

providing a defense in Flanigan’sII in 2009,subject to itsinitialreservation of rights.

It did not send a revised reservation of rights reserving its right to seek defense costs

until 2013.

7 That GIRMA limited its request for defense costs to those it would incur

6 We make no such holding here. See PDK Labs. Inc. v. DEA, 362 F.3d 786,

799 (D.C. Cir. 2004) (Roberts, J., concurring in part and concurring in the judgment)

(“if it is not necessary to decide more, it is necessary not to decide more.”). 

7 GIRMA sought reimbursement of defense costs from the date of the revised

reservation forward. 

14
moving forward from the amended reservation does not change the analysis as to

whether it acted reasonably promptly in reserving the right in the first instance. See,

e.g., Builders Ins. v. Tenenbaum, 327 Ga. App. 204, 210 (1) (757 SE2d 669) (2014)

(an insurer “must act reasonably promptly” in preserving its rights to assert a

particular ground for noncoverage). If GIRMA actually has a right to recoup defense

costs in this case, then such a right would have existed in 2009, four years before it

atempted to reserve that right. GIRMA arguesthe delay wasreasonable because until

the Northern District’s decision in Illinois Union in 2012, it did not have a basis

under Georgia law to make thisreservation. But GIRMA’s argument misunderstands

the nature of decisions of federal courts interpreting Georgia law. The Northern

District did not make Georgia law in Illinois Union. The court merely predicted how

Georgia courts would rule, and it based this prediction on the same case law available

to GIRMA. Therefore, GIRMA was in the same position and had the same ability to

make such a prediction itself, and to issue a timely reservation accordingly. It did not

do so and cannot now seek to collect despite its failure.

Judgment affirmed in part and reversed in part. Phipps, P. J., and Dillard, J.,

concur.

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