Opinion ID: 4552152
Heading Depth: 2
Heading Rank: 1

Heading: The Policy’s Coverage: General Principles

Text: “To determine whether an insurer owes its insured a duty to defend a particular lawsuit, Georgia law directs us to compare the allegations of the complaint, as well as the facts supporting those allegations, against the provisions of the insurance contract.” Elan, 144 F.3d at 1375; see also City of Atlanta v. St. Paul Fire & Marine Ins. Co., 231 Ga. App. 206, 207, 498 S.E.2d 782, 784 (Ga. Ct. App. 1998) (“An insurer’s duty to defend turns on the language of the insurance contract and the allegations of the complaint asserted against the insured. We look to the allegations of the complaint to determine whether a claim covered by the policy is asserted.” (citation omitted)). “[W]here the complaint filed against the insured does not assert any claims upon which there would be insurance coverage, the insurer is justified in refusing to defend the insured’s lawsuit.” St. Paul Fire & Marine, 231 Ga. App. at 207, 498 S.E.2d at 784. 14 Case: 19-11114 Date Filed: 07/30/2020 Page: 15 of 32 In construing the Policy, we look first to its text, giving the terms used their “usual and common meaning.” See Ga. Farm Bureau Mut. Ins. Co. v. Smith, 298 Ga. 716, 719, 784 S.E.2d 422, 424 (Ga. 2016) (quotation marks omitted). If we find the terms “explicit and unambiguous,” we simply apply the terms as written, “regardless of whether doing so benefits the carrier or the insured.” Id. (quotation marks omitted). Under Georgia law, however, “exclusions from coverage sought to be invoked must be strictly construed,” and “all ambiguities as to policy exclusions are interpreted in favor of coverage because the insurer, having affirmatively expressed coverage through broad promises, assumes a duty to define any limitations on that coverage in clear and explicit terms.” Anderson, 847 F.3d at 1331–32 (quotation marks and alteration omitted). “If the facts as alleged in the complaint even arguably bring the occurrence within the policy’s coverage, the insurer has a duty to defend the action.” St. Paul Fire & Marine, 231 Ga. App. at 207, 498 S.E.2d at 784. ECI identifies two forms of relief Roberson sought pursuant to O.C.G.A. § 44-7-35(c), each of which constitutes a covered “Loss” under the Policy: (1) the unmultiplied amount Roberson would be entitled to as a result of ECI’s alleged statutory violation—i.e., “the sum erroneously withheld”; and (2) attorney’s fees. We address each alleged “Loss” in turn. 15 Case: 19-11114 Date Filed: 07/30/2020 Page: 16 of 32 B. Return of Security Deposit: “The Sum Erroneously Withheld” As quoted earlier, O.C.G.A. § 44-7-35(c) provides that: Any landlord who fails to return any part of the security deposit which is required to be returned to a tenant pursuant to this article shall be liable to the tenant in the amount of three times the sum improperly withheld plus attorneys’ fees; provided, however, that the landlord shall be liable only for the sum erroneously withheld if the landlord shows by the preponderance of the evidence that the withholding was not intentional and resulted from a bona fide error which occurred in spite of the existence of procedures reasonably designed to avoid such errors. (Emphasis added). The parties do not appear to dispute that if Roberson were to receive an award “in the amount of three times the sum improperly withheld,” the Policy’s treble-damages carve-out would apply, at least as to the full multiplied amount. However, whether Roberson would ultimately be entitled to that multiplied amount is a factual question—it turns on whether ECI’s conduct was intentional. If ECI establishes that any wrongful withholding of the security deposit “was not intentional” and “occurred in spite of the existence of procedures reasonably designed to avoid such errors,” Roberson would be entitled only to “the sum erroneously withheld.” See O.C.G.A. § 44-7-35(c). Accordingly, if this unmultiplied amount—“the sum erroneously withheld”—was recovered by Roberson, and if it would constitute a “Loss” under the policy, then ECI could incur coverable losses, and that possibility is enough to require AEGIS to defend the lawsuit. See St. Paul Fire & Marine, 231 Ga. App. at 16 Case: 19-11114 Date Filed: 07/30/2020 Page: 17 of 32 207, 498 S.E.2d at 784. AEGIS therefore maintains a duty to defend ECI unless it is clear under the terms of the Policy that the return of any wrongfully withheld security deposit funds (“the sum erroneously withheld”) is excluded from the Policy’s definition of “Loss.” AEGIS insists any such amount would be excluded from the Policy’s definition of “Loss” because it would constitute a “disgorgement” or “return” of “sums which are or were in the possession or control of” ECI. As quoted earlier from the Policy, “Loss” means “a compensatory monetary amount for which the Insured may be held legally liable, including judgments[,] . . . awards, or settlements[,] . . . but shall not include: (a) any disgorgement, return, withdrawal, restriction or reduction of any sums which are or were in the possession or control of any Insured . . . .” (Emphasis added). To be a covered “Loss” in the first place, the liability must already be “a compensatory monetary amount for which the Insured may be held legally liable.” Therefore, any amounts that would be carved out from the Policy’s definition of “Loss” would necessarily have to be “compensatory monetary amount[s]” in the first place, otherwise there would be no need to exclude them. Thus, our inquiry becomes whether the “compensatory monetary amount” in the amount of “the sum erroneously withheld” by the landlord is a “disgorgement” or a “return” of “sums which are or were in the possession or control” of the Insured ECI. 17 Case: 19-11114 Date Filed: 07/30/2020 Page: 18 of 32 ECI argues that the relief sought cannot constitute a disgorgement because disgorgement is an equitable remedy. However, we need not resolve that issue because the carve-out also excludes from the definition of “Loss” monetary relief constituting “any . . . return, withdrawal, . . . or reduction of any sums which are or were in the possession or control” of ECI. For the reasons explained below, we conclude that the damages representing the return of the security deposit would constitute “any . . . return” of sums “in the possession or control” of ECI and would therefore be excluded from the Policy’s definition of “Loss.” Giving, as we must, unambiguous policy terms their ordinary dictionary meaning, see Michna v. Blue Cross & Blue Shield of Ga., Inc., 288 Ga. App. 112, 114, 653 S.E.2d 377, 380 (Ga. Ct. App. 2007), we must consider “return” to mean “[t]o revert to a former owner” or “[t]o give back to the owner,” see Return, The American Heritage Dictionary of the English Language (3d ed. 1996). Under Georgia law, a landlord must deposit a tenant’s security deposit in an escrow account, and the “security deposit shall be held in trust for the tenant by the landlord or such landlord’s agent except as provided in section 44-7-34.” Ga. Code. Ann. § 44-7-31. Georgia’s security deposit law thus operates under the premise that a tenant’s security deposit remains the tenant’s property, subject to the landlord’s rights to retain or withhold the deposit. 18 Case: 19-11114 Date Filed: 07/30/2020 Page: 19 of 32 Section 44-7-33 requires the landlord to inspect, prepare a final damage list, and permit a tenant inspection within certain times after lease termination, see id. § 44-7-33(b), and section 44-7-34 governs the timing and procedure for a landlord to return or make claims against a tenant’s security deposit, see id. § 44-7-34(a). If a landlord fails to compile and make available the final damage list required by section 44-7-33(b), the landlord “shall not be entitled to retain any portion of a security deposit.” Id. § 44-7-35(a)(3). Similarly, if a landlord fails to provide each of the written statements within the time periods specified in sections 44-7-33 and 44-7-34, such failure “shall work a forfeiture of all the landlord’s rights to withhold any portion of the security deposit.” Id. § 44-7-35(b). Finally, section 44-7-35(c) provides that “[a]ny landlord who fails to return any part of a security deposit which is required to be returned to a tenant” is liable to the tenant in the amount of “the sum erroneously withheld” and potentially treble damages and attorney’s fees. Id. § 44-7-35(c). Consistent with this statutory scheme, Roberson alleges that, pursuant to section 44-7-35(b), ECI forfeited its right to retain her security deposit because it failed to provide Roberson the statutorily mandated final damages list as part of the post-termination procedure. According to Roberson, ECI is therefore a “landlord who fail[ed] to return any part of a security deposit which is required to be returned to a tenant,” and she claims that under section 44-7-35(c), she can recover from 19 Case: 19-11114 Date Filed: 07/30/2020 Page: 20 of 32 ECI either “the sum erroneously withheld” or three times that amount plus attorney’s fees. As noted, section 44-7-35(b) imposes a forfeiture of a landlord’s rights to make a claim against a security deposit. In this context, “forfeiture” means the “loss of a right, privilege, or property because of a crime, breach of obligation, or neglect of duty.” Forfeiture, Black’s Law Dictionary (11th ed. 2019). That provision, coupled with the tenant’s continued rights in the security deposit under section 44-7-31, demonstrates that an award against ECI for “the sum erroneously withheld” constitutes a “return” of Roberson’s money back to her. Therefore, if ECI ultimately is required to transfer any part of the security deposit back to Roberson under section 44-7-35(c)—as demanded by Roberson in her lawsuit— such a transfer would fall within the scope of the Policy’s return carve-out. 7 7 Our dissenting colleague states that “O.C.G.A. § 44-7-35(c) makes the landlord liable for damages in the amount of the security deposit withheld, allowing the tenant to ‘replace’ the missing deposit with any of the landlord’s assets.” Dissent at 25. The dissent argues the penalty provision in § 44-7-35(c) “does not order the return of the deposit, but sets statutory damages for when the landlord fails to return the deposit.” Id. at 27. This argument fails to recognize that the critical language here is the text of the “Loss” definition in the Policy. To be a covered “Loss” in the first place, the sum must be “a compensatory monetary amount for which the Insured may be held legally liable.” The carve-outs then exclude a subset of those compensatory monetary amounts, including those that constitute “any disgorgement” or “any . . . return . . . of any sums which are or were in the possession or control of any Insured.” That the statute sets the compensatory damages—for failure to return any part of a security deposit required to be returned—as “the sum erroneously withheld,” if anything, underscores that the “compensatory monetary amount” for which the landlord is held liable is a “return” of the security deposit “in the possession” of ECI. 20 Case: 19-11114 Date Filed: 07/30/2020 Page: 21 of 32 We therefore conclude that an award of the allegedly wrongfully withheld security deposit would not constitute a “Loss” under the Policy. 8 But this conclusion does not end our analysis, and we now turn to ECI’s argument that any attorney’s fees that it might become obligated to pay as part of the judgment in the Roberson litigation would also fall within the Policy’s definition of “Loss.” C. Attorney’s Fees The Policy clearly obligates AEGIS to cover “all sums in excess of the Deductible amount . . . which the Insured shall become legally obligated to pay as Loss,” and further defines “Loss” to include a “compensatory monetary amount for which the Insured may be held legally liable, including . . . awards.” Thus, the Policy obviously contemplates coverage for any award of attorney’s fees unless, as AEGIS argues, any such fees are otherwise explicitly excluded from the Policy’s definition of “Loss.” 8 ECI also argues that AEGIS waived the disgorgement and return carve-outs by failing to initially raise them as bases for denying coverage. It is undisputed that AEGIS did not assert that the return of any security deposit withheld in contravention of O.C.G.A. § 44-7-33 would constitute a disgorgement or a return until AEGIS filed the instant declaratory judgment action. However, the disgorgement and return carve-outs are properly characterized as coverage defenses. And under Georgia law, such defenses cannot be waived because the doctrines of waiver and estoppel “may not be used to enlarge the coverage contained in a policy of insurance.” Sargent v. Allstate Ins. Co., 165 Ga. App. 863, 865, 303 S.E.2d 43, 45–46 (Ga. Ct. App. 1983) (quotation marks omitted). ECI points to certain broad language in a more recent Georgia Supreme Court decision, Hoover v. Maxum Indemnity Co., 291 Ga. 402, 730 S.E.2d 413 (2012). But the specific defense at issue in Hoover was a policy defense of the sort Georgia courts have long held is subject to waiver, and there is no indication in Hoover that the Georgia Supreme Court intended to upend the longstanding rule that an insurer cannot waive coverage defenses. 21 Case: 19-11114 Date Filed: 07/30/2020 Page: 22 of 32 As laid out above, O.C.G.A. § 44-7-35(c) states that a landlord who fails to return all or part of a tenant’s security deposit in violation of Georgia’s securitydeposit statute is liable for “three times the sum improperly withheld plus reasonable attorney’s fees.” O.C.G.A. § 44-7-35(c). Notably, the statute does not provide for an award of attorney’s fees where the landlord did not act intentionally, since a tenant would be entitled “only” to “the sum erroneously withheld” under such circumstances. Id. The Policy’s treble-damages carve-out, in turn, applies to “any other damages resulting from the multiplication of compensatory damages.” AEGIS characterizes any potential award of attorney’s fees as additional “damages resulting from the multiplication of compensatory damages.” We disagree. First, while it is true that an award of attorney’s fees under the statute, as a practical matter, rises and falls with the award of treble damages, it does not directly flow from those damages. Rather, both the treble damages and the attorney’s fees flow from a finding that that the landlord acted intentionally and in the absence of procedures designed to prevent the wrongful withholding of security deposits. See O.C.G.A. § 44-7-35(c). Second, as this Court has noted in the past in construing an insurance policy, “[u]nder Georgia law, attorneys’ fees, even where recoverable, are not typically included within the ordinary species of damages.” Alea London Ltd. v. Am. Home 22 Case: 19-11114 Date Filed: 07/30/2020 Page: 23 of 32 Servs., Inc., 638 F.3d 768, 780 (11th Cir. 2011) (“That ‘attorneys’ fees’ would be subsumed within the Policy’s reference to ‘damages’ is not consistent with a plain, ordinary-meaning reading of the Policy.”). Accordingly, we conclude that any award of attorney’s fees under O.C.G.A. § 44-7-35(c) would constitute a potential “Loss” under the Policy, and AEGIS therefore maintains its duty to defend ECI. See St. Paul Fire & Marine, 231 Ga. App. at 207, 498 S.E.2d at 784. D. Duty to Indemnify We decline to offer any opinion as to whether AEGIS, in addition to its duty to defend, has any duty to indemnify ECI. The district court concluded there was no duty to indemnify, but that conclusion simply flowed from its conclusion that there was no duty to defend. See Shafe v. Am. States Ins. Co., 288 Ga. App 315, 317, 653 S.E.2d 870, 873 (Ga. Ct. App. 2007) (“[A]n insurer’s duty to defend is broader than its duty to indemnify.”). Under Georgia law, the duty to defend and the duty to indemnify are “separate and independent obligations.” Nationwide Mut. Fire Ins. Co. v. Somers, 264 Ga. App. 421, 424, 591 S.E.2d 430, 433 (Ga. Ct. App. 2003) (quotation marks omitted). We therefore leave for a later date the independent question of whether AEGIS must ultimately indemnify ECI for any particular liability it might incur as a result of the ongoing lawsuit against it. See Trizec Props. v. Biltmore Constr. 23 Case: 19-11114 Date Filed: 07/30/2020 Page: 24 of 32 Co., 767 F.2d 810, 813 (11th Cir. 1985) (affirming a district court’s conclusion that a complaint triggered an insurer’s duty to defend and declining to address any duty to indemnify). For now, it is sufficient for us to say that, under the terms of the Policy, AEGIS maintains its duty to defend ECI in the underlying state court lawsuit.