The U.S. District Court for the Northern District of Georgia in Atlanta recently held that a declaration of non-coverage order in favor of an insurer, where such order specifically declares that the insurer does not owe an insured a duty to defend, does not retroactively eliminate the insurer’s pre-declaration duty to defend.

On November 7, 2022, U.S. District Court Judge Sarah E. Geraghty entered an order[1] finding that an insurer did have a duty to defend a Canadian-based diversified professional services and investment management company (hereinafter “insured company”), in an underlying civil suit in Texas wherein Plaintiffs alleged the insured company to be liable for failing to adequately supervise a corrupt broker, specifically in the time period between the date when the insurer issued a reservation of rights letter and the date a declaration of non-coverage order (including a declaration that no duty to defend existed) was entered in a separate but related suit for declaratory judgment.

The insurer sent the insured company a reservation of rights letter in January 2018 alleging that the insured company had failed to timely report to the insurer that a suit had been filed against it in a Texas state court, claiming it would honor its defense obligations under its professional liability insurance policy, while reserving its rights to withdraw defense and to deny indemnification.  In September 2019, the insurer made an offer of $286,010 for the insured company’s costs of defense in the Texas state court case even though the insured company had already paid more than $1.6 million itself for its own defense.

In March 2018, the insurer filed a petition for declaratory judgment in the U.S. District Court for the Northern District of Georgia in Atlanta seeking to deny coverage to the insured company for its failure to timely report the loss to the insurer.  Notably, at the time the insurer filed its petition for declaratory judgment, the insurer had not made a coverage denial, had not sought to rescind its reservation of rights, and was purportedly still attempting to work with the insured company in defending the underlying lawsuit.  In April 2020, U.S. District Court Judge Orinda D. Evans found that the insured company had in fact failed to timely notify its insurer of the loss and entered an order declaring that there was no coverage for the loss that formed the basis of the Texas state court case.   Significantly, the order[2] entered by Judge Evans also declared that the insurer did not have a duty to defend the insured company but did not address whether a pre-declaration duty to defend existed.

In November 2019, the insured company filed a separate but related suit against its insurer in the U.S. District Court for the Northern District of Georgia in Atlanta for the insurer’s failure to pay the total cost of the insured company’s defense in the Texas suit.  In the insured company’s suit against the insurer, the insured company argued that, notwithstanding the ruling by Judge Evans in the separate but related suit for declaratory judgment, the insurer had a duty to defend up until the time the declaration of non-coverage order was entered, and the insured company also admitted that the ruling from Judge Evans in the separate suit for declaratory judgment of non-coverage placed a cap on the insurer’s defense obligations under the policy.

In her November 7, 2022 order in the insured company’s suit against its insurer, Judge Geraghty rejected the insurer’s argument that its declaration of no coverage and no duty to defend also eliminated any prior duty to defend that existed prior to the order declaring non-coverage being entered.  In other words, the declaration of non-coverage order, which included a declaration that the insurer had no duty to defend going forward, did not retroactively eliminate the insurer’s pre-declaration duty to defend.

Judge Geraghty noted that this issue is one of first impression in Georgia and relied upon general principles of Georgia insurance law as well as persuasive authorities from Massachusetts, Pennsylvania, and Washington in reaching her decision.

The old adage that an insurer’s duty to defend is broader than its duty to indemnify continues to ring true with this ruling.  The message to insurers in Georgia who provide a defense on a reservation of rights basis is clear: even if a declaration of non-coverage order is ultimately entered in which a court explicitly declares that the insurer does not have a duty to defend, any such declaration will not apply retroactively and will not eliminate the insurer’s pre-declaration duty to defend.

[1] Colliers Int’l Atlanta, LLC v. Maxum Indem. Co., No. 1:19-cv-05016, Doc. 92 (N.D. Ga.).

[2] Colliers Int’l Atlanta, LLC v. Maxum Indem. Co., No. 1:19-cv-05016, Doc. 34-10 (N.D. Ga.).

If you have any questions about this update or would like to refer a case in Georgia, please contact our attorneys.

About Payton D. Bramlett

Payton D. Bramlett is an experienced, outcome-oriented attorney in the Savannah office of Boyd & Jenerette, P.A., where he focuses his practice in the areas of insurance defense, general liability, and personal injury litigation including automobile, trucking, and premises liability.  Mr. Bramlett also handles property damage cases including construction defect cases. Throughout his career, Mr. Bramlett has obtained favorable results for clients in both bench and jury trials in some of the most plaintiff-friendly jurisdictions in Georgia.

Mr. Bramlett handles all phases of litigation in state and federal trial and appellate courts, and when possible, resolves cases pre-trial in a cost-effective manner through negotiation, mediation, and other forms of alternative dispute resolution. Mr. Bramlett also assists insurers in navigating time-limited, pre-answer demands and frequently serves as bad faith / excess oversight counsel in complex, high-value claims where extracontractual exposure is likely for insurers.