The Eleventh Circuit has held, in a matter of first impression under Georgia law, that a reservation of rights letter including a right to reimbursement did not entitle insurers to reimbursement of defense costs absent policy language expressly providing for such right. See Continental Casualty Co. v. Winder Laboratories, LLC, __ F.4th __, 2023 U.S. App. LEXIS 17852 (11th Cir. July 13, 2023).
After the insureds were named as defendants in an underlying lawsuit, the insurers agreed to defend the insureds subject to a reservation of rights, including the right to seek reimbursement of defense costs incurred for non-covered claims. The subject policies, however, did not expressly provide for such reimbursement. The insurers commenced a declaratory judgment action, and the trial court ruled that the insurers had no duty to defend because the operative complaint in the underlying lawsuit implicated a policy exclusion. The trial court also ruled that the insurers had no right to reimbursement of the defense costs paid before the no-coverage ruling because, absent a provision in the policy providing a right to such reimbursement, the insurers’ unilateral reservation of rights was insufficient.
On appeal, the Eleventh Circuit affirmed both the trial court’s ruling on the duty to defend and its ruling on reimbursement of defense costs. As to the reimbursement issue, the court determined that the Supreme Court of Georgia would not recognize an insurer’s right to reimbursement of defense costs absent a contractual right to such reimbursement set forth in the policy. In so ruling, the court found that the insurer’s reservation of rights letter did not create a new contractual right to reimbursement because the insurer’s agreement to provide a defense was a preexisting requirement of the policy’s duty-to-defend provisions, and therefore could not be consideration for a new right to reimbursement. The court also disagreed with the insurers’ argument that the insureds were unjustly enriched by their receipt of the defense because it was not unjust for the insurers to fulfill their contractual duty to defend until they obtained a no-coverage ruling from the trial court. In summary, the court stated: “While insurers can certainly contract for a right to reimbursement, they cannot do so in a subsequent reservation of rights after a reimbursement-less bargain has been struck.”