Deciding that certain damages claimed by the underlying case plaintiff were covered “Loss” under a professional services policy, the Eleventh Circuit determined that AEGIS must pay to defend a Georgia landlord in a class action for wrongful failure to return tenants’ security deposits under O.C.G.A. § 44-7-35(c).  The policy defined “Loss” as “a compensatory monetary amount for which the Insured may be held legally liable, including judgments . . . awards, or settlements,” but specifically excluded:

- any disgorgement, return, withdrawal, restitution or reduction of any sums which are or were in the possession or control of any Insured;

- punitive, exemplary, treble damages or any other damages resulting from the multiplication of compensatory damages; [or]

- equitable relief, or fees, costs or expenses incurred by the Insured to comply with any such equitable relief.

The Eleventh Circuit, reversing the district court, decided that AEGIS was obligated to defend the landlord because the plaintiff in the underlying case had demanded attorney’s fees under the Georgia Security Deposit statute, which was covered Loss.  AEGIS contended that attorney’s fees were not covered Loss because they were only available for intentional conduct that would entitle plaintiffs to treble damages, which were excluded under the policy.  The Eleventh Circuit rejected AEGIS’s argument, noting that “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 . . .”  Accordingly, the attorneys’ fees claimed in the underlying case were covered Loss, requiring AEGIS to defend the landlord.

The appellate court did agree with the district court and AEGIS that there was no coverage for the transfer of any part of the security deposit back to the tenant, because such a transfer would fall within the scope of the Policy’s carve-out for “any disgorgement, return, withdrawal, restriction of reduction of any sums which are or were in possession or control of any insured …”  Thus, any defense obligation could not be based on those allegations.

The Eleventh Circuit’s decision follows well-established Georgia law requiring strict construction of any exclusions to coverage and imposing on insurers “a duty to define any limitations on that coverage in clear and explicit terms.”  Because attorney’s fees were not specifically excluded from coverage under the landlord’s policy (and in fact, “awards” were specifically included within the definition of “Loss”), they were covered under the policy and triggered the landlord’s duty to defend.  As the court observed, “[i]f 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,” and the attorney’s fee claim unquestionably fell within coverage of the AEGIS policy.