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Georgia Court Of Appeals Upholds Insurance Exclusion as to Equitable Relief

In a recent Court of Appeals case, Georgia Interlocal Risk Management Agency (“GIRMA”) appealed the dismissal of their request for a declaratory judgment regarding an insurance exclusion regarding providing defense for equitable relief. GA Interlocal Risk Mgt. Agency v. City of Sandy Springs, GA, No. A16A0134 (Ga. App. 2016). GIRMA further requested that it be entitled to recoup defense costs previously spent to defend the City of Sandy Springs, GA (“the City”) from a suit requesting equitable relief. Id. The Court of Appeals held that the plain language of the insurance contract excluded GIRMA from providing a defense to the City, however, the Court refused to rule on the request to recoup defense costs as GIRMA had waited a number of years before requesting recoupment.

In 2006, several adult entertainment establishments (“Flanigans”) brought suit against the City claiming the city ordinances regarding adult entertainment were unconstitutional. Under this suit, Flanigans sought declaratory and injunctive relief as well as compensatory and punitive damages. GIRMA defended the City, however, Flanigans voluntarily dismissed their suit. In October 2009, Flanigans refiled their suit against the City, this time seeking only declaratory and injunctive relief. GIRMA defended, but sent a reservation of rights letter reserving its right to deny coverage based upon the exclusion for defending claims seeking equitable relief. In February 2013, GIRMA sent a revised reservation of rights letter adding the right to recover future advanced defense costs from that date forward. In April 2014, the court in the second suit granted the City’s motion for summary judgment.

GIRMA filed suit in July 2014, seeking declaratory judgment finding that equitable claims were excluded from coverage and that GIRMA was entitled to recoupment of costs for defense of the second Flanigans suit. The trial court dismissed GIRMA’s suit, GIRMA appealed. The Court of Appeals reversed the trial courts dismissal regarding the exclusion, but upheld the dismissal of the recoupment. With regard to the recoupment, GIRMA argued unjust enrichment. The Appellate Court found that GIRMA did not “act reasonably promptly” and, therefore, they were not allowed to recoup their defense costs. The Appellate Court implied that had GIRMA acted promptly, they would likely have been able to recoup their costs. This case has now been appealed to the Georgia Supreme Court.

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