11th Circuit Holds Insurer Must Defend Lawsuit Where Award of Attorneys’ Fees Was the Only Potentially Covered Relief

The United States Court of Appeals for the Eleventh Circuit, applying Georgia law, has held that an insurer has a duty to defend a lawsuit where an award of attorneys’ fees might constitute covered “Loss,” even though the lawsuit did not otherwise seek covered amounts.  AEGIS Elec. & Gas Int’l Serv. Ltd. v. ECI Mgmt. LLC, No. 19-11114, 2020 WL 4359610 (11th Cir. July 30, 2020).

A property management company was named in putative class action by a former tenant, who alleged the company systematically violated Georgia’s security deposit statute by wrongfully withholding security deposits from departing tenants. Under the applicable statute, a landlord who violates the statute shall be liable for “three times the sum improperly withheld plus reasonable attorneys’ fees,” unless the landlord establishes the withholding was not intentional, in which cases damages are limited to “the sum erroneously withheld.”

The property management company reported the underlying lawsuit under its real estate professional services policy. The insurer denied coverage on the basis that the lawsuit did not seek covered “Loss,” which expressly did not include “disgorgement, return, withdrawal, restitution or reduction of any sums which are or were in the possession or control of any Insured” and “treble damages or any other damages resulting from the multiplication of compensatory damages.”

In the ensuing coverage action, the district court granted summary judgment for the insurer, concluding that none of the relief sought constituted covered “Loss.” On appeal, the Eleventh Circuit reversed, holding that, although an award of treble damages or an award of the allegedly wrongfully withheld security deposit would not constitute covered “Loss,” an award of attorneys’ fees would constitute covered “Loss.” In so holding, the court rejected the insurer’s argument that the award of attorneys’ fees constitutes additional “damages resulting from the multiplication of compensatory damages” because attorneys’ fees could only be awarded if treble damages were awarded. The court instead concluded that an award of attorneys’ fees did not fall within the carve-out to the definition of “Loss” because the award would not directly flow from treble damages and because attorneys’ fees do not constitute “damages.” Accordingly, the court concluded that the insurer had a duty to defend the entire lawsuit because some relief sought was potentially covered.



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