Summary
finding an insurer could not recoup its defense costs where it did not contract for that right, even after the insurer obtained a judgment stating that the insurer "had no duty to defend or indemnify" the insured in connection with the underlying lawsuit
Summary of this case from Colliers Int'l - Atlanta, LLC v. Maxum Indem. Co.Opinion
Civil Action No. 2:19-CV-00016-RWS
2021-04-20
CONTINENTAL CASUALTY COMPANY and Valley Forge Insurance Company, Plaintiffs, v. WINDER LABORATORIES, LLC, Steven Pressman, and Concordia Pharmaceuticals, S.A.R.L., Defendants.
Julie Linhart, Pro Hac Vice, Cna Coverage Litigation Group, Tampa, FL, Roy Xiao, Clyde and Co. US LLP, Maxwell R. Jones, Dentons US LLP, Atlanta, GA, Kathryn Maynard Guinn, Dentons US LLP, Denver, CO, for Plaintiffs. Richard C. Giller, Pro Hac Vice, Pillsbury Winthrop Shaw Pittman LLP, Los Angeles, CA, James William Cobb, Sarah Brewerton-Palmer, Caplan Cobb LLP, Atlanta, GA, for Defendants Winder Laboratories, LLC, Steven Pressman. William Brian Holladay, Martenson Hasbrouck & Simon, Atlanta, GA, for Defendant Concordia Pharmaceuticals, S.A.R.L.
Julie Linhart, Pro Hac Vice, Cna Coverage Litigation Group, Tampa, FL, Roy Xiao, Clyde and Co. US LLP, Maxwell R. Jones, Dentons US LLP, Atlanta, GA, Kathryn Maynard Guinn, Dentons US LLP, Denver, CO, for Plaintiffs.
Richard C. Giller, Pro Hac Vice, Pillsbury Winthrop Shaw Pittman LLP, Los Angeles, CA, James William Cobb, Sarah Brewerton-Palmer, Caplan Cobb LLP, Atlanta, GA, for Defendants Winder Laboratories, LLC, Steven Pressman.
William Brian Holladay, Martenson Hasbrouck & Simon, Atlanta, GA, for Defendant Concordia Pharmaceuticals, S.A.R.L.
ORDER
RICHARD W. STORY, United States District Judge This case comes before the Court on Plaintiffs Continental Casualty Company ("CCC") and Valley Forge Insurance Company's ("VFI") (collectively, "the Insurers" or "Plaintiffs") Motion for Summary Judgment [74] and Defendants Winder Laboratories, LLC ("Winder") and Steven Pressman's ("Pressman") (collectively, "the Insured" or "Defendants") Motion for Summary Judgment [75]. After reviewing the record, the Court enters the following Order.
Background
I. Factual Background
This is a declaratory judgment action brought by Plaintiffs. The case initially focused on whether the applicable insurance policies obligated Plaintiffs to defend and/or indemnify Defendants in the underlying lawsuit brought against Defendants. It has since morphed into a dispute over whether Defendants must now reimburse Plaintiffs for the defense fees and costs that Plaintiffs incurred in their defense of Defendants.
VFI issued a Primary General Liability Policy to Winder for the policy period January 4, 2015 to January 4, 2016. CCC issued an Umbrella Policy to Winder for the policy period July 29, 2015 to January 4, 2016. Both Plaintiffs and Defendants agree that the relevant insuring provisions, definitions, and exclusions in the Umbrella Policy are substantially similar to those in the Primary Policy.
The policies state that any sums that the insured becomes legally obligated to pay as damages because of "bodily injury," "property injury," or "personal and advertising injury" will be paid by Plaintiffs. (Primary Policy, Dkt. [1-1] at 95.) The policies define "[p]ersonal and advertising injury" as, among other things, "[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services," and "[t]he use of another's advertising idea in your ‘advertisement.’ " (Primary Policy, Dkt. [1-1] at 108–09.) The policies also include an exclusion that states that coverage will not be applied to personal and advertising injury, "[a]rising out of the failure of goods, products or services to conform with any statement of quality or performance of the policy period" ("Failure to Conform Exclusion" or "Exclusion"). (Primary Policy, Dkt. [1-1] at 101.) The policies do not include any provision requiring the Insured to reimburse the Insurers for any defense fees and costs.
On January 6, 2016, Concordia Pharmaceuticals, S.A.R.L. ("Concordia") filed a complaint against Winder and Pressman, alleging violations of the Lanham Act, 15 U.S.C. § 1125, and state law ("the underlying lawsuit"). Concordia Pharm. Inc., et al. v. Winder Labs., LLC and Pressman, No. 2:16-cv-00004-RWS (N.D. Ga). The underlying lawsuit ultimately reached a Fourth Amended Complaint after a series of claim dismissals and amendments, and this Court recently granted summary judgment to Defendants Winder and Pressman on all of Concordia's claims against them. (Order on Motions for Summary Judgment, Case No. 2:16-cv-00004, Dkt. [366].)
Plaintiffs defended Winder and Pressman in the underlying lawsuit for over three years under a reservation of rights. Specifically, Plaintiffs issued reservation of rights letters to Winder and Pressman on February 19, 2016, April 17, 2017, December 13, 2017, and July 31, 2018. (Reservation of Rights Letters, Dkt. [1-8].) The February 19, 2016 letter stated that: "VFI specifically reserves its right to seek reimbursement of defense costs incurred on your or Winder's behalf for all claims which are not potentially covered by the VFI Policy." (Id. ) The April 17, 2017 letter purported to incorporate the earlier reservation of rights by reference. (Id. ) The December 13, 2017 letter again incorporated the earlier reservation of rights by reference and additionally stated that the Insurers "reserve their rights to disclaim coverage and seek reimbursement of legal fees and costs." (Id. ) Finally, the July 31, 2018 letter stated:
As set forth in the February 19, 2016, April 17, 2017 and December 13, 2017 reservation of rights letters, which are incorporated herein by reference as though set forth in full, the CNA Insurers reserve their rights to disclaim coverage and seek reimbursement of legal fees and costs.
(Id. )
II. Procedural History
On January 17, 2019, Plaintiffs filed this lawsuit [1], seeking declaratory judgments that they had no duty to defend or indemnify Defendants in connection with the underlying lawsuit and that they were entitled to the reimbursement of defense fees and costs already incurred on behalf of Defendants in that underlying lawsuit.
On September 20, 2019, Plaintiffs moved for judgment on the pleadings [34], seeking the Court's determination that they had no duty to defend or indemnify Defendants in connection with the underlying lawsuit. Defendants opposed Plaintiffs’ motion [41]. On June 17, 2020, the Court granted Plaintiffs’ motion for judgment on the pleadings [54], concluding that Defendants’ insurance policies with Plaintiffs barred coverage for the underlying lawsuit, and therefore that Plaintiffs had no duty to defend or indemnify Defendants in connection with that lawsuit. On July 15, 2020, Defendants moved for reconsideration of the Court's Order [57], a request that Plaintiffs opposed [61]. The Court denied reconsideration [65], standing by its prior decision to grant Plaintiffs’ motion for judgment on the pleadings. In both its Orders, the Court encouraged the parties to confer in an attempt to resolve any remaining dispute regarding Plaintiffs’ request for reimbursement of their defense fees and costs.
Any discussions between the parties regarding the reimbursement issue were unsuccessful, as both parties moved for summary judgment on the issue on November 23, 2020 [74, 75]. Plaintiffs and Defendants each opposed the other's motion [81, 82], and each submitted replies in support of their own motions [86, 87].
Discussion
I. Legal Standard
Federal Rule of Civil Procedure 56 requires that summary judgment be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." "The moving party bears ‘the initial responsibility of informing the ... court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.’ " Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259 (11th Cir. 2004) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). Where the moving party makes such a showing, the burden shifts to the non-movant, who must go beyond the pleadings and present affirmative evidence to show that a genuine issue of material fact does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The applicable substantive law identifies which facts are material. Id. at 248, 106 S.Ct. 2505. A fact is not material if a dispute over that fact will not affect the outcome of the case under the governing law. Id. An issue is genuine when the evidence is such that a reasonable jury could return a verdict in favor of the non-moving party. Id. at 249–50, 106 S.Ct. 2505.
In resolving a motion for summary judgment, the court will "consider the record and draw all reasonable inferences in the light most favorable to the non-moving party." Blue v. Lopez, 901 F.3d 1352, 1357 (11th Cir. 2018). But the court is bound only to draw those inferences which are reasonable. "Where the records taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249–50, 106 S.Ct. 2505 (citations omitted); see also Matsushita, 475 U.S. at 586, 106 S.Ct. 1348 (once the moving party has met its burden under Rule 56(a), the non-moving party "must do more than simply show there is some metaphysical doubt as to the material facts").
Finally, the filing of cross-motions for summary judgment does not give rise to any presumption that no genuine issues of material fact exist. Rather, "[c]ross-motions must be considered separately, as each movant bears the burden of establishing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law." Shaw Constructors v. ICF Kaiser Eng'rs, Inc., 395 F.3d 533, 538–39 (5th Cir. 2004).
II. Both Parties’ Motion for Summary Judgment on Reimbursement Issue [74, 75]
Both parties move for summary judgment on the issue of Plaintiffs’ claim for reimbursement of the defense fees and costs it incurred in connection with the underlying lawsuit against Defendants.
Plaintiffs make several arguments in favor of their reimbursement claim, including that: (1) this Court's precedent mandates reimbursement; (2) they issued multiple valid reservation of rights letters that expressly reserved their right to seek reimbursement of defense fees and costs; (3) they never had any duty to defend Winder and Pressman in the underlying lawsuit; (4) if they did have a duty to defend, that duty has not existed since the 2017 Motion to Dismiss Order or the 2018 Motion to Dismiss Order in the underlying lawsuit; and (5) Winder and Pressman have been unjustly enriched for defense costs they were not entitled to. (Pls.’ Memo. of Law in Supp. of Mot. for Reimbursement, Dkt. [74-8], at 3–16.)
Defendants, on the other hand, argue that Plaintiffs’ reimbursement claim fails for three independent reasons: (1) Plaintiffs have no right to reimbursement for defense fees and costs incurred before Concordia filed its Third Amended Complaint against Defendants, because earlier versions of the complaint appear to have triggered coverage; (2) Plaintiffs have no right to any reimbursement at all because their reservation of rights letters were flawed and therefore did not effectively reserve Plaintiffs’ asserted reimbursement rights; and (3) Georgia law does not recognize an insurer's claim to reimbursement when the insurance policy does not provide for a right to reimbursement. (Defs.’ Br. in Supp. of Mot. for Summ. J., Dkt. [75-1], at 2–3, 9–30.)
Both parties highlight this Court's precedent—or lack thereof—on the issue of an insurer's right to seek reimbursement of its defense costs from the insured when the operative insurance policy does not provide for a right to reimbursement. However, in the time since the parties finished briefing their respective motions for summary judgment, this Court ruled on this same issue in a separate case. Am. Family Ins. Co. v. Abdulmohsen Almassud, No. 1:16-cv-4023-RWS (N.D. Ga), Dkt. [370], at 8–13. The Court will apply its conclusion in that case with equal force here. For the sake of clarity, though, it reiterates its analysis and reasoning here.
No Georgia appellate court appears to have ruled on the question of whether and under what circumstances an insurer can recoup its defense costs when it is determined that the insurer has no duty to defend. See Georgia Interlocal Risk Mgmt. Agency v. City of Sandy Springs, 337 Ga.App. 340, 788 S.E.2d 74, 79 (2016) (declining to decide). And federal courts applying Georgia law have reached opposite conclusions. Compare Illinois Union Ins. Co. v. NRI Const. Inc., 846 F. Supp. 2d 1366, 1373–77 (N.D. Ga. 2012) (recoupment allowed), with Illinois Union Ins. Co. v. William C. Meredith Co., 2009 WL 10669607, at *3–5 (N.D. Ga. June 5, 2009) (no recoupment).
These courts all agree that an insurer could recoup costs if the insurance policy contained a provision allowing it to do so. But when as here, no such provision exists, the authorities diverge on whether an insurer can recoup merely by issuing a valid reservation of rights. As any of the above cases illustrate, the two schools of thought are by now well-established in other jurisdictions and so need not be retraced here in detail. Id.; see also Gerdau Ameristeel US Inc. v. Phoenix Ins. Co., 2020 WL 6821323, at *2 (N.D. Ga. Oct. 2, 2020). It suffices to note that the "majority" approach allows for recoupment under a reservation of rights, applying either an implied contract or unjust enrichment theory, while the "minority" approach does not.
The Court puts "majority" and "minority" in quotation marks because the Restatement challenges this distinction: "Over the past few decades, the pro-recoupment cases have been viewed as stating the majority position, while anti-recoupment cases have been labeled the minority. But in recent years, several state courts, including several state high courts, have faced recoupment of defense costs as an issue of first impression and have rejected a right of recoupment for the insurer, unless that right is established expressly by contract." Rest. of the Law of Liability Insurance § 21, cmt. a (2019).
This Court adopts the "minority" approach. Along with the court in William C. Meredith Co., and the Restatement of the Law of Liability Insurance § 21 (2019), the Court finds that the rationale underlying a no-recoupment default rule makes more sense and believes that a Georgia court deciding the issue would agree. Simply put, "the insurer should not be able to unilaterally alter the terms of an insurance policy." William C. Meredith Co., 2009 WL 10669607, at *3. This follows straightforwardly from the concept of a reservation of rights: the right must be preexisting to be reserved; otherwise an entirely new right is created.
Of course, there is "nothing wrong with the concept of recoupment." Id. at *5. But if a right to recoupment is a benefit that the insurer deems sufficiently important, it can easily secure that right by including it in the policy agreement. Id.; see also Rest. of the Law of Liability Insurance § 21, cmt. a ("The issue of the right to recoup the costs of defending a noncovered legal action is a known uncertainty that the insurer can address in the liability insurance contract."). And requiring the insurer to bear the burden of including that provision makes sense because the insurer is in the better position to dictate the terms of the policy. See Rest. of the Law of Liability Insurance § 21, cmt. a.
In adopting this position, the Court departs from the conclusion in NRI Constr. Inc., 846 F. Supp. 2d at 1376–77. There the court did not attempt to ascertain the "better" position; instead, it looked to Georgia cases addressing a different issue—waiver and estoppel—and extrapolated from those cases to determine that Georgia courts would likely allow for recoupment. Id. (citing Jacore Sys., Inc. v. Cent. Mut. Ins. Co., 194 Ga.App. 512, 390 S.E.2d 876, 878 (1990) ). That is perhaps a valid approach to resolving this issue, but this Court does not follow it. That is because whether an insurance company properly reserved its right to deny coverage—a right undoubtedly included in the insurance policy—is a different question from whether it can recoup costs it itself paid to defend a claim. To extend that rule to this context would transform the insurer's shield into a sword.
Accordingly, the Court holds that, absent a provision in the insurance policy—or some other express agreement—an insurer who issued an otherwise valid, unilateral reservation of rights cannot recoup its defense fees or costs.
In light of that holding, Plaintiffs’ arguments in favor of summary judgment on their reimbursement claim are quickly rejected. They do not allege that the insurance policies in question contained a provision entitling them to reimbursement or allowing them to recoup their defense fees and costs from the Defendants. And while Plaintiffs’ reservation of rights letters include a purported right to seek reimbursement of their defense fees and costs, Plaintiffs do not contend that such letters operate as a separate, express agreement. In sum, then, Plaintiffs are not entitled to reimbursement of their defense fees and costs from Defendants.
Conclusion
For the foregoing reasons, Plaintiffs’ Motion for Summary Judgment [74] is DENIED and Defendants’ Motion for Summary Judgment [75] is GRANTED . Plaintiffs’ claim for reimbursement of their defense fees and costs from Defendants is hereby DISMISSED . Because there are no longer any remaining claims in this case, the Clerk is DIRECTED to TERMINATE this case.
SO ORDERED this 20th day of April, 2021.