There are several recent developments in Georgia law that could bring major changes for insurers in the areas of apportionment, recoupment of defense costs, and coverage for COVID-19 claims. Keep reading for a breakdown of the key takeaways from each case.

Apportionment

The Georgia Supreme Court’s ruling in Alston & Bird v. Hatcher Management Holdings, LLC has been a thorn in the side of liability insurers ever since the decision was handed down in August 2021. In that case, the Supreme Court held that Georgia’s apportionment statute, O.C.G.A. § 51-12-33, which allows apportionment to nonparties, does not apply to cases involving only one defendant. That holding allowed claimants to file liability lawsuits against a single defendant, leaving that defendant – and its insurer – potentially liable for all damages awarded to the plaintiff, without the ability to apportion damages among other potentially liable non-parties. The Georgia legislature recently rectified the effects of this decision by amending the apportionment statute. The amendment, which went into effect on May 13, clarifies that apportionment to non-parties is permitted in single-defendant cases. Going forward, defense counsel can seek to limit the insured defendant’s liability by apportioning fault to non-parties.

Recoupment of Defense Costs

A federal court in Georgia recently weighed in on the issue of an insurer’s ability to recoup defense costs, an issue that has not been settled by Georgia state courts. In Mt. Hawley Ins. Co. v. East Perimeter Pointe Apartments LP, an insurer sought to recoup costs it incurred defending the insured against a lawsuit in which a court ultimately determined it had no duty to defend, an unsettled issue in Georgia. The policy at issue had no provision explicitly allowing the insurer to recover defense costs where it owed no duty to defend. The insurer reserved the right to recoup in its reservation of rights letter and the insured accepted the defense.

In reaching its decision, the Northern District of Georgia evaluated the majority rule, which allows an insurer to recoup defense costs on an unjust enrichment and implied-in-contract theory. It also looked at the minority rule, which does not allow such recoupment on the theory that doing so in the absence of specific policy language is tantamount to allowing the insurer to unilaterally alter the policy. The court found the minority rule to be persuasive. It determined that if an insurer wanted to reserve the right to recoupment, it must do so in the policy itself. The insurer argued that the policy’s self-insured retention provision allowed it to recoup costs, and the court agreed that it did reserve such a right, but only up to the amount of the retention. Insurers should beware that they will be unlikely to recoup defense costs in Georgia, even though they have reserved the right to do so, unless the policy specifically provides for recoupment.

Coverage for COVID-19 Claims

In the first appellate court ruling applying Georgia law to COVID-19 business interruption claims, the Eleventh Circuit affirmed a district court’s dismissal of a restaurant’s suit seeking coverage for lost pandemic income under its business interruption or civil authority coverages. In Henry’s Louisiana Grill, Inc. v. Allied Insurance Co. of America, the insured asserted that the Georgia governor’s March 2020 shutdown orders triggered its coverage in order to recoup its lost income. In affirming the trial court’s dismissal, the Eleventh Circuit noted the broad consensus developed by federal and state appellate courts finding that COVID-19 shutdown orders cause businesses “intangible harm” rather than the direct physical harm almost uniformly required to trigger such coverage.

The court noted that requiring actual physical damage to property harmonized with the rest of the coverage provision language, which provided income only until the damaged property was “repaired, rebuilt, or replaced.” The policy at issue also contained a virus exclusion, but because the court found no coverage, it did not evaluate its application to the loss.

The Eleventh Circuit had previously issued a similar ruling under Florida law. And on June 6 – three days after this decision was issued – it upheld a dismissal of a COVID-19 case under Alabama law. The Eleventh Circuit has thus made it clear that it will follow the vast majority of jurisprudence on this issue holding that COVID-19 losses are not covered under first-party property policies.