This is the case of Colliers International - Atlanta LLC v. Maxum Indemnity Co., in the U.S. District Court for the Northern District of Georgia.

Colliers International - Atlanta LLC, a Canadian-based diversified professional services and investment management giant has been battling it out in federal court against its former insurer, Maxum Specialty Insurance Group (Maxum) a unit of The Hartford, over Collier's request for more than $1 million it incurred in defending allegations that it failed to supervise a corrupt broker.

This week a federal judge in Georgia has ruled that Maxum had a contractual duty to defend Colliers against allegations that Colliers was liable for a corrupt broker until a court of competent jurisdiction found that the duty did not exist.

On Monday, U.S. District Judge Sarah E. Geraghty issued a summary judgment order finding that Maxum Indemnity Co. was obligated to defend Colliers in a Texas case that was prosecuted for nearly three years before Maxum obtained a declaration from a judge in a Georgia district court that says Colliers waited too long to report the lawsuit.

Colliers argued that Maxum secured a ruling from a Northern District of Georgia judge that it had no obligation to defend Colliers in the Texas suit, due to Collier's untimely notice of claim, but that the district court finding does not liberate Maxum from covering $1.6 million in defense costs.

Judge Geraghty also took exception to the declaration freeing Maxum from its coverage obligations. In her order filed on Monday, the judge found that the declaration does not apply retroactively.

The judge said, "If credited, Maxum's argument that a declaration of non-coverage retroactively eliminates an insurer's duty to defend could have profound implications." "An insurer that chooses to defend under a reservation of rights could be incentivized to delay defense payments and or underpay defense costs while hoping for a forthcoming declaration of non-coverage."

In its complaint, Colliers argues that Maxum breached its contractual duty to defend it in the Texas case and did so in bad faith, for which the agency seeks reimbursement the underlying litigation defense costs, as well as damages.

The Texas Case

This dispute arises from a lawsuit filed against Colliers in Texas State Court by plaintiffs, Mattress Firm Inc., a Colliers client, who alleged that former Colliers executive, Alexander Deitch was involved in various acts of corruption, including bribery, receiving kickbacks and self-dealing.

Colliers was first put on notice regarding the corrupt broker allegations in March 2016, but because no actual suit had been filed, Colliers did not report it to its insurer Maxum until June 2017, after it had received a draft copy of Mattress Firm Inc.’s complaint.

Mattress Firm Inc filed its complaint in October 2017. Colliers informed Maxum that it had retained Lewis Brisbois Bisgaard & Smith LLP as its defense counsel and at that time requested Maxum make a determination regarding their coverage position.

Maxum’s Coverage Position

After a review of the claim, Maxum sent Colliers a “reservation of rights” letter in January 2018, claiming that it would honor its defense obligations under its professional liability insurance policy, while also stating that it was reserving its right to withdraw defense and refuse indemnification.

In March 2018, Maxum filed a lawsuit against Colliers, seeking a declaration from the court that it did not have a duty to cover the defense costs for the Texas case. By June 2019, Maxum had not paid any of Collier’s legal defense costs in the underlying suit.

It was not until September 2019, that Maxum paid Colliers $286,010, for what it said represented what the insurer thought was a reasonable defense cost.

Colliers Filed Suit Against Maxum

According to the record, that offer was unacceptable to Colliers which forced them to file suit against Maxum in the Northern District of Georgia in November 2019.

In the Colliers complaint, they allege breach of contract and bad faith over Maxum's failure to pay for its total defense costs and did so in bad faith.

In April 2020, Maxum obtained a declaration from U.S. District Judge Orinda D. Evans finding that Colliers had failed to timely report the Texas case, and therefore the case did not fall within Maxum’s insurance coverage.

At a summary judgment proceeding, Colliers' conceded that the ruling from Judge Evans had "capped" Maxum's defense obligations under the policy. But Colliers argued that it had paid more than $1.6 million defending the Mattress Firm case between June 2017, when it notified Maxum of the action, and Judge Evans' order.

Judge Geraghty, in her order, also agreed with Collier that Maxum had a duty to defend until it obtained the April 2020 declaration. The judge said there didn't appear to be any Georgia case law on the point, but that "bedrock" principles of Georgia insurance law as well as "persuasive authority" from Massachusetts, Pennsylvania, and Washington support her decision.

Judge Geraghty also rejected Maxum's argument that the declaration it received from Judge Evans effectively terminated any obligation it had to defend Colliers in the Mattress Firm case.

Judge Geraghty said, "Maxum's refusal to pay the full amount of Colliers' defense costs in the underlying lawsuit, which is the 'wrong' that Colliers asserts in its breach of contract claim in this suit — did not occur until over one year after Maxum filed the prior declaratory judgment action."

Conclusion

Monday’s ruling will allow this case to proceed to a jury trial, which has now been scheduled to begin on December 12, 2022.