Insurer must defend management company in security-deposit case


A federal appeals court has overturned a lower court and ruled an insurer must defend an apartment management firm in litigation over the return of security deposits but held off on deciding whether it must also indemnify the policyholder.

Former tenant Nichon Roberson filed a putative class-action lawsuit against Atlanta-based ECI Management LLC, alleging the company had wrongfully withheld security deposits of current and former tenants in violation of Georgia’s security deposit law, according to Thursday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in AEGIS Electric & Gas International Services Ltd. vs. ECI Management LLC, Nichon Roberson.

Mutual insurer AEGIS filed suit in U.S. District Court in Atlanta seeking a declaratory judgment that it had no duty to defend or indemnify the policyholder under its real estate professional liability insurance policy, which provided up to $1 million per claim and in the aggregate.

The District Court ruled that East Rutherford, New Jersey-based AEGIS had no duty to defend ECI, and thus no duty to indemnify it. A divided three-judge appeals court panel overturned the lower court and held AEGIS had a duty to defend ECI, focusing on attorneys fees.

“We conclude that any award of attorney’s fees” under Georgia law “would constitute a potential ‘Loss’ under the Policy, and AEGIS therefore maintains its duty to defend ECI,” it said.

The majority opinion said, however, it would “leave for a later date the independent question of whether AEGIS must ultimately indemnify ECI for any particular liability it might incur as a result of the ongoing lawsuit against it.” It remanded the case for further proceedings,

The dissenting opinion states the majority wrongfully interpreted Georgia law.

An AEGIS attorney had no comment while an ECI attorney did not respond to a request for comment.

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