The U.S. Eleventh Circuit Court of Appeals held that Georgia law requires an insurer only to inform the insured that the insurer is defending under a reservation of rights, and does not require an insurer to state specifically the basis for contesting coverage. Wellons, Inc. v. Lexington Ins. Co., 2014 WL 1978412 (11th Cir. May 16, 2014).
The insurer provided CGL coverage and umbrella insurance to a supplier of energy products for construction projects. The claimant, a building owner, sued the insured after products that the insured provided did not function properly. The claimant filed suit. The insurer initially agreed to defend and orally informed the insured that it was reserving its right to deny coverage. Following discovery, the insurer denied the claim after concluding that the alleged defects did not cause property damage, as required for coverage under the policy. The claimant obtained a judgment against the insured, and the insured filed a declaratory judgment action against the insurer, contending that the insurer was estopped from asserting non-coverage because it did not specify the basis on which it was contesting coverage in its reservation of rights. The district court granted summary judgment for the insurer. The insured appealed.
On appeal, the Eleventh Circuit affirmed after concluding that the insurer’s oral reservation of rights was adequate under Georgia law. The Eleventh Circuit interpreted Georgia Supreme Court precedent as only requiring that an insurer “must” inform the insured that it is providing a defense under a reservation of rights, but only suggesting that the insurer “should” inform the insured of the specific basis for the insurer’s reservation of coverage. The Eleventh Circuit held that summary judgment was appropriate because the insurer informed the insured that it was proceeding under a reservation of rights as required by Georgia law.