               Case: 13-11512      Date Filed: 05/16/2014      Page: 1 of 32


                                                                    [DO NOT PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                           FOR THE ELEVENTH CIRCUIT
                             ________________________

                                    No. 13-11512
                              ________________________

                         D.C. Docket No. 1:10-cv-01799-WCO

WELLONS, INC.,

                                              Plaintiff - Counter Defendant - Appellant,

                                           versus

LEXINGTON INSURANCE COMPANY,

                                              Defendant - Counter Claimant - Appellee.

                              ________________________

                     Appeal from the United States District Court
                        for the Northern District of Georgia
                           ________________________

                                      (May 16, 2014)

Before PRYOR and MARTIN, Circuit Judges, and GOLD, * District Judge.

GOLD, District Judge:

       Plaintiff-Appellant Wellons, Inc. (“Wellons”) appeals the summary

judgment awarded to Defendant-Appellee Lexington Insurance Company


*
 Honorable Alan Stephen Gold, Senior United States District Judge for the Southern District of
Florida, sitting by designation.
               Case: 13-11512    Date Filed: 05/16/2014   Page: 2 of 32


(“Lexington”). Wellons initiated this action seeking a declaratory judgment that

Lexington is estopped from denying coverage under a commercial general liability

policy and an umbrella policy for an underlying lawsuit against Wellons.

Specifically, Wellons contends Lexington assumed and conducted the defense of

the underlying lawsuit without adequately reserving its rights and, therefore,

Wellons is estopped from asserting any coverage defenses. The parties filed cross-

motions for summary judgment, and the district court granted Lexington’s motion

and denied Wellons’ motion. The district court concluded Lexington was not

estopped from asserting coverage defenses under both the commercial general

liability and umbrella policies. For the reasons stated herein, we conclude Wellons

adequately reserved its rights under the commercial general liability policy and is

not estopped from asserting coverage defenses under either the commercial general

liability or umbrella policy. We accordingly affirm the judgment of the district

court.

                                   I.     FACTS

         Wellons is a privately owned business based in Vancouver, Washington that

manufactures and installs capital equipment for the forest product industry.

Wellons entered into two contracts with Langboard Industries, Inc. (“Langboard”),

a company located in Quitman, Georgia that makes oriented strand board (“OSB”)

for use in home construction and flooring. In the first contract, the Purchase


                                          2
             Case: 13-11512     Date Filed: 05/16/2014   Page: 3 of 32


Agreement dated October 21, 2002, Wellons agreed to design and provide two

Dryer Energy Thermal Oxidation systems (collectively the “Energy System”) to

produce heat energy for the OSB production process. According to Langboard, the

Energy System was to accomplish three tasks: (1) provide sufficient heat energy to

power the OSB production process; (2) incinerate pollutants generated by the OSB

production process; and (3) produce sufficient heat to power a boiler and turbine so

that Langboard could serve as a co-generator of electricity to be sold to Georgia

Power. The total amount of the Purchase Agreement was $13.7 million.

      In the second contract, the Construction Agreement dated October 8, 2003,

Wellons agreed to erect and install the Energy System. The total amount of the

Construction Agreement was approximately $3 million.

      Lexington insured Wellons under two insurance policies for the policy

period September 1, 2005 to September 1, 2006: (1) a commercial general liability

policy, Policy Number 4134867, with a per occurrence limit of liability of $1

million (the “CGL Policy”) and (2) an umbrella policy, Policy Number 0880462,

with a per occurrence limit of liability of $10 million (the “Umbrella Policy”). The

CGL Policy is listed as an underlying policy for the Umbrella Policy. Lexington

also insured Wellons under a commercial general liability policy, Policy Number

0453410, for the policy period September 1, 2004 to September 1, 2005 (the “2004

CGL Policy”).


                                         3
             Case: 13-11512     Date Filed: 05/16/2014   Page: 4 of 32


      The CGL Policy provides coverage for “property damage” (a defined term in

the Policy), but requires that property damage to be caused by an “occurrence”

(also a defined term in the Policy). The Umbrella Policy requires the insured to

“immediately notify [Lexington] of any occurrence which may reasonably be

expected to result in a claim against this policy” and also to “immediately notify

[Lexington] in writing of any claim, along or in combination with any other claims,

to which this policy applies which may exceed 25% of the applicable amount set

forth in the Schedule of Underlying Insurance.”

      On November 20, 2004, during the construction phase of the Energy

System, a tube bundle collapsed, causing extensive property damage. The Energy

System was ultimately placed in service by June 2005.

      On September 23, 2005, Wellons, through its insurance agent, provided

Lexington a notice of claim under the 2004 CGL Policy regarding the tube bundle

collapse. Lexington issued a reservation of rights letter to Wellons on September

30, 2005. The letter stated, “[T]his letter is not to be construed as a waiver of any

of the terms, conditions, or provisions of the Lexington Insurance Company policy,

or of any right or policy defense now or hereafter available to the Lexington

Insurance Company.”

      Langboard eventually filed suit against Wellons in State Court of Brooks

County, Georgia (“Langboard I”). Following its receipt of the complaint and


                                         4
               Case: 13-11512      Date Filed: 05/16/2014     Page: 5 of 32


summons in Langboard I, Lexington, on September 18, 2007, sent Wellons

another reservation of rights letter. The letter stated, “There may be additional

policy conditions that may also preclude coverage and this should not be construed

as a waiver of other terms and conditions that may apply.” Lexington engaged

counsel to defend Wellons and ultimately paid the 2004 CGL Policy limits to

Langboard to resolve Langboard I.

       In February 2006, after the Energy System had been in operation for some

time, leaks developed in the superheater portion of the Energy System. The

superheater, an integral part of the Energy System, is a component of the boiler

and the last section of the boiler where steam passes before being sent to the

turbine. According to Wellons’ president, the superheater needed to be functional

to demonstrate the full capacity of the Energy System. 1

       Wellons determined that the leaks had developed through expansion and

contraction of the header in the superheater, for which adequate physical clearance

had not been provided. Wellons hired Hunt Construction (“Hunt”) to assist with

the modification of the superheater header to enable it to be lifted and the leaks

repaired, and to perform the seal welds.




1
  When asked about Wellons’ position on whether the Energy System was capable of producing
sufficient heat, Wellons’ president testified, “And we had the superheater that needed to be
replaced, you know, to demonstrate the full capacity of the system.”

                                             5
             Case: 13-11512     Date Filed: 05/16/2014   Page: 6 of 32


      After Hunt completed the repairs in early March 2006, testing revealed leaks

in a substantial number of the joints that were seal welded. Hunt repaired the leaks

and left the job site on March 8, 2006, and Langboard put the superheater back in

service. Approximately two weeks later, one of the superheater tubes completely

severed. It was Wellons’ position that Hunt’s faulty repair work caused the tube’s

severance.

      On April 4, 2006, Wellons received a letter from Langboard requesting a

new superheater be designed and installed at its Quitman facility because the

condition of the current superheater was “not conducive to long term operation.”

Wellons, understanding the cost would be $850,000, agreed to design and install a

new superheater for Langboard. Wellons did not immediately provide Lexington

with notice of Langboard’s request to replace the superheater.

      On August 17, 2006, Wellons, through its agent JBL&K Risk Services (now

known as Beecher Carlson) notified Lexington of Langboard’s claim for a new

superheater (the “August 2006 Notice”), in conjunction with Hunt’s filing of a suit

on June 16, 2006 against Wellons in the Superior Court of Cobb County, Georgia

(the “Hunt Suit”) for monies owed on Hunt’s contract with Wellons. The August

2006 Notice described the claimant as “Hunt/Langboard,” and described the

occurrence as “Claimant construction defect. Please contact insured for add’l




                                         6
             Case: 13-11512     Date Filed: 05/16/2014   Page: 7 of 32


information.” The August 2006 Notice referenced the CGL Policy (Policy Number

4134867) and did not reference the Umbrella Policy.

      On March 2, 2007, Lexington informed Wellons through Foltz Martin LLC

(“Foltz Martin”), independent counsel retained by Wellons in August 2006 to

defend the Hunt Suit and advise Wellons on insurance coverage issues, that the

August 2006 Notice had two claims embedded within it: (1) the Hunt Suit for

nonpayment of work performed, as to which Lexington denied coverage on March

2, 2007, and (2) Langboard’s claim for the replacement of the superheater, which

would be addressed in a separate letter.

      On March 5, 2007, Lexington issued a preliminary “Reservation of Rights”

letter to Wellons. The letter stated the claimant was Langboard and indicated the

claim involved “the failure of a Superheater at claimant’s Georgia facility.” In the

introduction of the letter, Lexington stated “there may be a coverage question and

we are investigating this matter under a reservation of rights.” Lexington then

quoted select portions of the CGL Policy, including the portions which require

“property damage” caused by an “occurrence.” Lexington also referred Wellons to

the exclusions for “Damage to Property,” “Damage to Your Product,” and

“Damage to Your Work.” Lexington notified Wellons that its agreement to replace

the superheater without Lexington’s consent may be in violation of the policy

terms. Lexington concluded the letter,


                                           7
             Case: 13-11512     Date Filed: 05/16/2014   Page: 8 of 32


      We are continuing to investigate the coverage on this matter under a
      reservation of rights and will advise you of our position shortly. There
      may be additional policy conditions that may also preclude coverage
      and this should not be construed as a waiver of other terms and
      conditions that may apply. If there is other information relative to this
      matter that may affect our coverage determination, you should advise
      us in writing immediately.

      On April 25, 2007, Lexington supplemented its March 2007 letter with

another “Reservation of Rights” letter. Lexington advised Wellons it currently had

no obligation to defend or indemnify Wellons. With respect to its duty to defend,

Lexington stated it “ha[d] no current obligation to defend Wellons in connection

with the claims being asserted by Langboard” because no lawsuit had been

commenced against Wellons, “and without a suit, the policy does not obligate

Lexington to provide a defense.” Regarding its duty to indemnify, Lexington

explained, “it is unclear exactly what Langboard’s claims of injury are, beyond the

demand that the superheater be replaced. As a result, at this time, Lexington has no

duty to indemnify Wellons ….”

      Also in the April 2007 letter, Lexington quoted portions of the CGL Policy,

including the portions which require “property damage” caused by an

“occurrence.” As in the March 2007 letter, Lexington referred Wellons to the

exclusions for “Damage to Property,” “Damage to Your Product,” and “Damage to

Your Work” and explained why these sections would bar coverage. Lexington also

raised the “Expected or Intended Injury” exclusion and the “Exclusion for Failure


                                         8
             Case: 13-11512     Date Filed: 05/16/2014   Page: 9 of 32


to Supply” and explained how these provisions could apply to Wellons’ claim.

Lexington stated, “Without specifics as to what Langboard is claiming as to the

cause, how Wellons is responsible (negligent) and what the exact damage is, we

can not more specifically address coverage.” Lexington further stated it would

continue its investigation into the facts and circumstances of the claim and invited

Wellons to provide Lexington any additional relevant information. Lexington

concluded, “Lexington continues to reserve all of its rights in connection with this

claim and failure to set forth any policy provision that may be applicable is not

intended to constitute a waiver of any of Lexington’s rights to rely on any

applicable policy provisions or law.”

      Langboard’s complaints about the superheater component eventually

evolved into complaints about the entire Energy System. On May 2, 2007,

Langboard emailed the following letter to Wellons, notifying Wellons of concerns

with the capacity of the Energy System:

      By way of this letter, Langboard is requesting Wellons to put a hold
      on the production of the superheater. We do not believe that at this
      time there is enough available heat from the two Wellon heat sources
      to run the O.S.B. plant and generate steam to run the turbine.
      Langboard is looking into the possibility of going to a power resin
      system that will allow us to run a higher moisture from the dryers
      which would lighten the load on the Wellons units. If this does not
      give us more available heat we may decide to move the turbine
      generator to a more suitable location.




                                          9
             Case: 13-11512    Date Filed: 05/16/2014   Page: 10 of 32


Although this May 2, 2007 email was Langboard’s first written communication to

Wellons regarding the capacity concerns, Langboard had, six months prior,

verbally instructed Wellons to put the superheater on hold.

      On July 13, 2007, Foltz Martin sent a letter to Lexington’s claims adjuster,

David Farrell, disagreeing with Lexington’s coverage position. The letter set forth

Wellons’ position that, although the initial leaks in the superheater were arguably

caused by a defect in the design of the superheater, it was “Hunt’s faulty repair of

the connection between the tubes and the header [that] caused structural damage to

the remainder of the Superheater, and this is the property damage which Langboard

claims.”

      Foltz Martin’s letter also quoted the portions of the CGL Policy requiring

“property damage” caused by an “occurrence” and stated, “The damage to the

Superheater constitutes property damage. One of the tubes broke in two a few

weeks after Langboard resumed operating the Superheater. Many, if not all, of the

remaining tubes suffered non-repairable structural damage.” The letter continued,

      The property damage was caused by an “occurrence.” It resulted from
      Hunt’s negligent welding work at the connection of the tube and the
      header. Wellons is not seeking coverage for the defective work.
      Instead, Wellons is seeking coverage for structural damage and total
      loss of use to the Superheater resulting from Hunt’s poor
      workmanship. Thus, the damage constitutes an occurrence.

      Wellons then demanded Lexington indemnify Wellons for the costs to

replace the superheater on or before July 28, 2007, and advised, if Lexington failed
                                        10
             Case: 13-11512    Date Filed: 05/16/2014   Page: 11 of 32


to do so, “Wellons will construe Lexington’s continued failure to intervene on its

behalf as a denial of coverage and breach of its duty to indemnify under the

policy.”

      Although Foltz Martin’s July 2007 letter did not explicitly mention

Langboard’s concern with the capacity of the Energy System, it is undisputed that

Lexington knew of the capacity claim before Langboard filed suit on the claim. It

is also undisputed that, even before Langboard filed suit, Lexington’s coverage

position assessed not only Langboard’s issues with the superheater, but also

Langboard’s “ongoing claim” that the Energy System’s “production and

cogeneration … had never reached the levels they should have.”

      On October 31, 2007, Langboard filed suit against Wellons in the Superior

Court of Brooks County, Georgia (“Langboard II”). The Langboard II complaint

alleged generally that the Energy System designed and installed by Wellons never

worked as expected. Specifically, the Energy System was never able to meet the

emissions requirements or produce enough heat to simultaneously run the co-

generator. Langboard further contended that Wellons’ improper installation of the

superheaters caused leaks to develop and that Wellons’ attempts to repair the leaks

were inadequate. Langboard sought as damages the repair or replacement of the

Energy System. Langboard also sought compensatory damages for breach of the




                                        11
               Case: 13-11512     Date Filed: 05/16/2014     Page: 12 of 32


Purchase Agreement and Construction Agreement, as well as attorneys’ fees and

costs. 2

         On November 16, 2007, Wellons, through Beecher Carlson, notified

Lexington of Langboard II by emailing a copy of the summons and complaint

directly to David Farrell, the claims adjuster previously assigned to Langboard’s

claim for a new superheater. Neither Wellons nor Beecher Carlson submitted a

new claim form.

         On November 27, 2007, Beecher Carlson contacted Farrell to inquire as to

the status of the complaint and the name of the law firm assigned to handle it.

Lexington responded by email to Susan Towne of Beecher Carlson on November

28, 2007, stating it initially appeared there was no coverage, “but upon reviewing

again there is some question that we may have some limited coverage. I have asked

coverage counsel who was involved in the other related suits to take a quick look

to see if he concurs with our thoughts. Should have an answer within the next few

days.”

         On November 29, 2007, Farrell spoke with Towne and told her Lexington

was going to defend Langboard II under a reservation of rights. 3 Although he did



2
 Although the Langboard II complaint did not specify the amount of damages sought, the total
amount of the Purchase Agreement was $13.7 million and the total amount of the Construction
Agreement was approximately $3 million. Additionally, the cost to replace the superheater, a
component of the Energy System, was $850,000.

                                            12
               Case: 13-11512       Date Filed: 05/16/2014       Page: 13 of 32


not orally specify particular coverage defenses, he stated Lexington’s prior

reservation of rights letters were “in the same mode” and “the issues addressed in

each of the letters are still applicable.”4 Shortly after getting off the phone with

Farrell, Towne entered in Beecher Carlson’s business records, “David/adj has

agreed to provide defense under and [sic] ROR. Will use the same attorney and

same claim. Will forward to the atty to prepare an answer.” Towne then sent an

email to Brad Miller, also of Beecher Carlson, stating, “David agreed to provide a

defense on a ROR.”

       Subsequently, Lexington retained Hall Booth Smith & Slover, P.C. (“Hall

Booth”) to defend Wellons in Langboard II. Hall Booth was already defending

Wellons in Langboard I. Foltz Martin appeared in Langboard II as Wellons’ co-

counsel of record along with Hall Booth, and Foltz Martin and Hall Booth jointly

defended the lawsuit at trial.




3
  Under Georgia law, independent insurance agents of brokers are generally considered the agent
of the insured. Kay-Lex Co. v. Essex Ins. Co., 649 S.E.2d 602, 607 (Ga. Ct. App. 2007).
According to general agency principles, “Notice to the agent of any matter connected with his
agency shall be notice to the principal.” Witcher v. JSD Props., 690 S.E.2d 855, 857 (Ga. 2010)
(citation omitted). Wellons does not dispute Beecher Carlson’s agency relationship, nor does
Wellons argue on appeal that communications with Beecher Carlson do not constitute
communications with Wellons.
4
  Although Towne testified she did not have an independent recollection of her conversation with
Farrell (other than that Lexington would provide a defense under a reservation of rights), she did
not disagree with Farrell’s recollection. On summary judgment, Towne’s inability to
independently recall the conversation does not create a genuine issue of fact.

                                               13
             Case: 13-11512     Date Filed: 05/16/2014   Page: 14 of 32


      On February 25, 2009, Brad Miller of Beecher Carlson sent Farrell a letter

inquiring as to whether the CGL and Umbrella Policies would be available to

satisfy the claims in Langboard II. The letter characterized Langboard II as

involving “Langboard’s claim that the energy system fails to provide sufficient

energy to generate electricity. Specifically, the second lawsuit includes allegations

of faulty repair work performed in February of 2006 by … Hunt … and an alleged

failure of the superheater section of the boiler in March of 2006.”

      On March 20, 2009, Miller sent an email stating,

      I got a voicemail just today from David advising a letter is coming but
      that their position is still one occurrence for the falling over of the
      bundles and the other items are not considered a covered occurrence. I
      have not spoken with him but a letter is forthcoming and we can catch
      up at that time on this issue.

A few days letter, on March 23, 2009, in an e-mail sent to Miller, Kevin Hudson of

Foltz Martin observed, Lexington “is argu[ing] it is excused from both cases

because it contends both cases arise from 1 occurrence.”

      In an email dated June 26, 2009 and letter dated July 1, 2009, Bryan Baer of

Foltz Martin wrote to Farrell and pointed out Farrell had not yet responded to the

question posed in the February 25, 2009 letter regarding coverage under the CGL

and Umbrella Policies. The July 1, 2009 letter also stated, with respect to

Langboard II,

      Langboard contends that the energy systems Wellons provided fail to
      produce sufficient energy to enable Langboard to produce any
                                         14
             Case: 13-11512    Date Filed: 05/16/2014   Page: 15 of 32


      meaningful levels of electricity. This contention has nothing to do
      with the collapse of the heat exchanger, but instead arises out of
      Hunt’s faulty work on the superheater in March of 2006.

      On December 22, 2009, Baer wrote Farrell a letter stating, were Langboard I

to settle with Lexington contributing $1,000,000 toward the settlement, “it is our

understanding that Lexington will continue to defend Wellons in the second suit

[Langboard II].” The letter stated the “first case … involves a collapse of a Heat

Exchanger” and the “second case … involves Langboard’s claim that the energy

system fails to provide sufficient energy to generate electricity and arises from the

negligent repair of the superheater by Wellons’ subcontractor, Hunt Construction,

in March of 2006.”

      On March 12, 2010, Lexington emailed a letter to Baer denying coverage for

the Langboard II claims under the CGL Policy. Lexington noted that discovery and

depositions had been completed, and the facts developed during discovery did not

meet the definition of either “occurrence” or “property damage” under the CGL

Policy. Rather, discovery showed “that the superheaters never operated as expected

and the only damages are for less production of OSB than expected as well as lack

of energy for cogeneration purposes.” Lexington referenced its September 30,

2005 and March 5, 2007 reservation of rights letters and noted that certain

exclusions referenced in those letters may otherwise be applicable if there were an

“occurrence” or “property damage.” Although Lexington denied coverage, it


                                         15
            Case: 13-11512    Date Filed: 05/16/2014   Page: 16 of 32


continued the defense of Wellons in the Langboard II trial, “as … previously

advised.”

      On March 15, 2010, Langboard II was tried to a jury. The jury awarded

Langboard $8,440,764, consisting of $3,425,000 for breach of the Purchase

Agreement and $5,015,764 for breach of the Construction Agreement. Judgment

was entered on the verdict on March 31, 2010. Wellons appealed the verdict to the

Georgia Court of Appeals.

      Around the time of the verdict, although Wellons never provided a formal

notice of claim under the Umbrella Policy, Lexington referred the Langboard II

claims to its excess claim unit. On April 22, 2010, Lexington first asserted its

coverage position under the Umbrella Policy, denying coverage.

      On June 11, 2010, Wellons filed a declaratory judgment action. Wellons

does not contend that the verdict is a covered loss under the CGL Policy or the

Umbrella Policy. Rather, Wellons requests a declaration that Lexington is required

to indemnify Wellons for the jury verdict entered in Langboard II because

Lexington did not adequately reserve its rights and is estopped from asserting its

coverage defenses under either Policy.

      On the parties’ cross-motions for summary judgment, the district court

concluded Lexington was not estopped from denying coverage under the CGL




                                         16
            Case: 13-11512     Date Filed: 05/16/2014   Page: 17 of 32


Policy or Umbrella Policy and entered judgment accordingly. Wellons filed this

appeal from the final summary judgment.

                       II.    STANDARD OF REVIEW

      Our review of a summary judgment order is plenary, and we apply the same

legal standards as those used by the district court. Lindley v. F.D.I.C., 733 F.3d

1043, 1050 (11th Cir. 2013). “Summary judgment is appropriate when there is no

genuine issue of material fact and the evidence compels judgment as a matter of

law in favor of the moving party.” Fed. R. Civ. P. 56(a). The interpretation of an

insurance contract is also a matter of law subject to de novo review. Chalfonte

Condo. Apartment Ass’n Inc. v. QBE Ins. Corp., 561 F.3d 1267, 1274 (11th Cir.

2009).

                              III.   DISCUSSION

      In this diversity action, the federal courts must apply the substantive law of

the forum state, Georgia. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817,

82 L. Ed. 1188 (1938); Horowitch v. Diamond Aircraft Indus., Inc., 645 F.3d 1254,

1257 (11th Cir. 2011). Under Georgia law, “risks not covered by the terms of an

insurance policy, or risks excluded therefrom, while normally not subject to the

doctrine of … estoppel, may be subject to the doctrine where the insurer, without

reserving its rights, assumes the defense of an action or continues such defense

with knowledge, actual or constructive, of noncoverage.” World Harvest Church,


                                        17
             Case: 13-11512    Date Filed: 05/16/2014   Page: 18 of 32


Inc. v. GuideOne Mut. Ins. Co., 695 S.E.2d 6, 9 (Ga. 2010) (quoting Prescott’s

Altama Datsun v. Monarch Ins. Co. of Ohio, 319 S.E.2d 445 (Ga. 1984)). “The

insurer can avoid estoppel by giving timely notice of its reservation of rights which

fairly informs the insured of the insurer’s position.” World Harvest, 695 S.E.2d at

9 (quoting State Farm Fire and Cas. Co. v. Walnut Ave. Partners, 675 S.E.2d 534

(Ga. Ct. App. 2009)). The purpose of a reservation of rights is “to protect both the

insurer and the insured by allowing an insurer who is uncertain of its obligations

under the policy to undertake a defense while reserving its rights to ultimately deny

coverage following its investigation ….” Hoover v. Maxum Indem. Co., 730

S.E.2d 413, 417 (Ga. 2012); see also Ponse v. Atlanta Cas. Co., 563 S.E.2d 499,

501 (Ga. Ct. App. 2002) (insurer has “a right to investigate” whether it has a duty

to defend and indemnify).

      The Georgia Supreme Court’s recent World Harvest decision made clear

that a reservation of rights need not be in writing to avoid estoppel. 695 S.E.2d at

9. The reservation itself must be unambiguous: “At a minimum, the reservation of

rights must fairly inform ‘the insured that, notwithstanding the insurer’s defense of

the action, it disclaims liability and does not waive the defenses available to it

against the insured.’” Id. at 10 (quoting State Farm Mut. Auto Ins. Co. v.

Anderson, 123 S.E.2d 191 (Ga. Ct. App.1961)) (alterations omitted). “The

reservation of rights should also inform the insured of the specific ‘basis for the


                                         18
             Case: 13-11512     Date Filed: 05/16/2014   Page: 19 of 32


insurer’s reservations about coverage.’” Id. (quoting Jacore Sys. Inc. v. Central

Mut. Ins. Co., 390 S.E.2d 876, 878 (Ga. Ct. App. 1990)) (alterations omitted).

      At the heart of this appeal is the specificity required by Georgia law for an

effective reservation of rights. Wellons argues the Georgia Supreme Court’s recent

decisions in World Harvest and Hoover require the insurer to inform the insured of

the specific basis for the reservation. Lexington contends World Harvest and

Hoover do not require such specificity, but rather require only that the reservation

of rights fairly inform the insured that, notwithstanding the insured’s defense of the

action, it disclaims liability and does not waive its coverage defenses. We conclude

a reservation of rights need not specify each and every potential basis for

contesting coverage, as long as the reservation fairly informs the insured that,

notwithstanding the defense of the insured, the insurer does not waive its coverage

defenses.

      We note first that, while the World Harvest court states an insurer “must”

fairly inform the insured that the insurer is providing a defense under a reservation

of rights, it states only that an insurer “should” inform the insured of the specific

basis for the insurer’s reservation of coverage. Id. at 10. We thus read World

Harvest, on its face, to require the insured to fairly inform the insured that it is

defending under a reservation of rights, but to only recommend that the insurer

provide the specific basis for the reservation.


                                          19
               Case: 13-11512   Date Filed: 05/16/2014    Page: 20 of 32


      Further, we recognize that, while the World Harvest states a reservation of

rights “should” inform the insured of the “specific basis for the insurer’s

reservations about coverage.” 695 S.E.2d at 10, the Georgia Supreme Court does

not provide the parameters of this specificity. The opinion, however, cites and

relies on long-standing Georgia law which supports our conclusion that an

effective reservation of rights need not specify every potential basis for the

reservation.

      In World Harvest, the Georgia Supreme Court specifically relied on Georgia

Court of Appeals decisions in Anderson, 123 S.E.2d 191 (Ga. Ct. App.1961) and

Walnut Avenue 675 S.E.2d 534 (Ga. Ct. App. 2009). In Anderson, the Georgia

Court of Appeals held the insurer’s notification to the insured that any defense

undertaken by the insurer “shall not be construed as a waiver of the right to deny

liability at any time” was effective despite its lack of specificity. 123 S.E.2d at 193.

The court held the reservation “was broad enough to cover denial of liability on the

ground the policy was void.” Id.

      Similarly, in Walnut Avenue, a non-waiver agreement stated the defense of

any claim “shall not waive any right [the insurer] may have to deny any obligation

under the policy contract, and shall not waive any rights of the undersigned.” 675

S.E.2d at 539. The Georgia Court of Appeals held this language permitted the

insurer to raise the coverage defense of untimely notice, even though that defense


                                          20
             Case: 13-11512    Date Filed: 05/16/2014   Page: 21 of 32


was not specified in the reservation of rights. Id. at 539-40. In short, Anderson and

Walnut Avenue provide that broad reservation of rights language is sufficient to

protect an insurer from coverage by estoppel. We do not read World Harvest’s

recommendation on specificity, see 695 S.E.2d at 10 (insurer “should” inform the

insured of the specific basis for the reservation), to overrule the very Georgia

authority on which the decision relies.

      Other Georgia authority supports our reading of World Harvest. The Georgia

Court of Appeals has repeatedly held that an insurer “is not required to list each

and every basis for contesting coverage” in the reservation of rights letter. Kay-Lex

Co. v. Essex Ins. Co., 649 S.E.2d 602, 608 (Ga. Ct. App. 2007) (citation omitted);

N. Metro Directories Publ’g, LLC v. Cotton States Mut. Ins. Co., 631 S.E.2d 726

(Ga. Ct. App. 2006) (same); see also Provau v. State Farm Mut. Auto. Ins. Co., 772

F.2d 817, 820 (11th Cir. 1985) (per curiam) (where state supreme court has not

addressed an issue, federal court sitting in diversity is “bound to adhere to

decisions of the state’s intermediate appellate courts absent some persuasive

indication that the state’s highest court would decide the issue otherwise”). One

reason is that the insurer may not know of certain coverage defenses until

discovery has been completed and the insurer has completed its investigation. See

Gov’t Emps. Ins. Co. v. Progressive Cas. Ins. Co., 622 S.E.2d 92, 96 (Ga. Ct. App.

2005) (reservation of rights letter need not list every basis for contesting coverage


                                          21
                Case: 13-11512   Date Filed: 05/16/2014   Page: 22 of 32


because insurer may learn of other grounds during discovery); cf. Hoover, 730

S.E.2d at 417 (purpose of reservation of rights is, in part, to allow insurer to

investigate).

       Finally, we conclude, based on Georgia authority explicitly relied upon in

World Harvest, that the consent of an insured to an insurer’s reservation of rights,

including the terms of the reservation, “may be express or implied [from] the

insured’s tacit acquiescence in the insurer’s unilateral reservation of right[s]; e.g.,

when the insured, after receiving notice, permits the insurer to continue the defense

of the suit.” Anderson, 123 S.E.2d at 193; see also Walnut Avenue, 675 S.E.2d at

540 (“Georgia law … recognizes that an insurer can reserve its rights unilaterally

or with the implied consent of the insured.”); Jacore, 390 S.E.2d at 878 (“By not

objecting to the reservation of rights letter and by permitting appellee to go

forward with its defense of the suit, appellant is deemed to have consented to the

letter’s terms.”).

       Having set forth our interpretation of Georgia law, we turn to the case before

us. We conclude, based on the undisputed evidence of record, that Lexington’s

reservation of rights was adequate under Georgia law, and Lexington is not

estopped from asserting coverage defenses under the CGL Policy. Less than two

weeks following the receipt of the summons and complaint in Langboard II, on

November 29, 2007, Lexington, through its adjuster David Farrell, orally notified


                                          22
             Case: 13-11512     Date Filed: 05/16/2014    Page: 23 of 32


Wellons’ insurance agent that Lexington would provide a defense for Langboard II

under a reservation of rights. Farrell referred the agent to Lexington’s prior

reservation of rights letters and informed her that the issues addressed in those

letters were still applicable. It is undisputed that Wellons’ agent clearly understood

Lexington’s defense of Langboard II was under a reservation of rights: she sent an

email acknowledging the defense was on a reservation of rights and also entered an

internal business record that the defense was on a reservation of rights. Based on

this evidence, we conclude Lexington’s oral reservation of rights was timely and

unambiguous.

      In addition, Farrell’s reference to Lexington’s previous reservation of rights

letters satisfied the requirements for an effective reservation of rights. Both the

March 5, 2007 and April 25, 2007 letters identified specific policy provisions that

may bar coverage. While the April 2007 letter quoted large portions of the policy,

it also provided detailed analysis as to why specific provisions and exclusions may

apply. Lexington’s April 2007 letter is thus a far cry from an insurer cutting and

pasting the entire insurance policy into a letter, with no explanation or analysis.

      We also note that both the March 2007 and April 2007 letters quoted the

CGL Policy requirement that “property damage” be caused by an “occurrence”

(the basis upon which Lexington ultimately denied coverage). While the letters

themselves did not contain an explanation as to how this requirement applied to


                                          23
              Case: 13-11512       Date Filed: 05/16/2014      Page: 24 of 32


Langboard’s claims, the undisputed evidence shows that, by the time Langboard II

was filed, the Policy’s requirement that “property damage” be caused by an

“occurrence” was a central point of the ongoing coverage discussions between

Wellons and Lexington. On July 13, 2007, Wellons’ coverage counsel sent

Lexington a letter explaining in detail Wellons’ position that the structural damage

to the superheater constituted “property damage” and Hunt’s negligent welding

work at the connection of the tube and header, which resulted in total loss of use of

the superheater, constituted an “occurrence.” Therefore, by the time Langboard II

was filed, Wellons knew failure to show “property damage” caused by an

“occurrence” was a potential coverage defense.

       Most importantly, though, Lexington’s March 2007 and April 2007 letters

both contained nonwaiver clauses that specifically reserved Lexington’s right to

assert additional coverage defenses. 5 By permitting Lexington to go forward with

Wellons’ defense in Langboard II with no objection, Wellons implicitly consented

not only to a defense under a reservation of rights, but also to the terms of the

reservation, including the nonwaiver clause contained in the March 2007 and April

2007 letters. Under Georgia law, these nonwaiver clauses were sufficient to protect




5
 That Farrell did not specify in his oral reservation which letters he was referencing is of no
moment, as all of Lexington’s prior reservation of rights letters, including the September 30,
2005 and September 18, 2007 letters, contained nonwaiver clauses.

                                              24
               Case: 13-11512      Date Filed: 05/16/2014       Page: 25 of 32


Lexington’s rights and avoid estoppel. See, e.g., Walnut Avenue, 675 S.E.2d at

539-40; Anderson, 123 S.E.2d at 193.

       Wellons argues the March and April 2007 letters were not proper

reservations of rights, and, therefore, Lexington cannot reserve additional defenses

through those letters. We disagree with Wellons’ position. It is immaterial whether

the March and April 2007 letters themselves adequately reserved Lexington’s

rights under Georgia law. Rather, Lexington’s oral and unambiguous reservation of

rights in November 2007, coupled with the nonwaiver clauses in the March and

April 2007 letters, satisfied Georgia law as to a reservation on Langboard II.

       Wellons further argues that the March and April 2007 letters did not relate to

Langboard II and, consequently, cannot form the basis of the reservation for

Langboard II. More specifically, Wellons contends the March and April 2007

letters involved issues with the superheater component, whereas Langboard II

concerned the capacity of the entire Energy System. Wellons’ argument is

misplaced: the undisputed facts indicate that the superheater and capacity issues

were not as discrete as Wellons suggests.6

       The superheater is a functionally indispensable part of the Energy System’s

ability to generate capacity. Indeed, Wellons’ president testified at his deposition
6
  Although Wellons argues in this suit that the superheater and capacity claims were discrete
issues, in their February 2009, July 2009, and December 2009 letters to Lexington, Wellons’
insurance agent and independent coverage counsel characterized the capacity claim as arising out
of Hunt’s negligent work on the superheater.

                                              25
             Case: 13-11512    Date Filed: 05/16/2014   Page: 26 of 32


that, without a functional superheater, the full capacity of the Energy System could

not be reached. With this functional dependency in mind, it is no surprise that

Langboard’s initial claim for a new superheater evolved into a claim that the

Energy System had insufficient capacity.

      On May 2, 2007, Langboard emailed Wellons its request that Wellons stop

production of a new superheater because Langboard did not believe there was

enough heat available from the Energy System for the OSB production process.

This email was amidst months of discussions between Lexington, on the one hand,

and Wellons, its independent coverage counsel Foltz Martin, and its insurance

agent, on the other, regarding Lexington’s coverage position. It is undisputed that

Farrell became aware of Langboard’s capacity claim before Langboard II was

filed, and, before Langboard II was filed, Lexington’s coverage position assessed

not only Langboard’s issues with the superheater, but also Langboard’s capacity

concerns.

      Hence, by the time Langboard II was filed on October 31, 2007, and well

before Farrell’s oral reservation of rights on November 29, 2007, both parties were

aware that Langboard’s claims against Wellons and Lexington’s coverage

positions under the CGL Policy included not only the superheater claim, but also

the capacity claim. While the March 2007 and April 2007 letters may not have

specifically referenced Langboard’s complaints about the capacity of the Energy


                                        26
              Case: 13-11512     Date Filed: 05/16/2014     Page: 27 of 32


System, we conclude, based on the undisputed evidence before us regarding the

ongoing communications between Wellons and Lexington, that once Langboard II

was tendered and Farrell issued an oral reservation of rights, the oral reservation

coupled with the letters fairly informed Wellons of Lexington’s coverage position

as to Langboard II.

      Wellons next argues, relying on Facility Investments, LP v. Homeland

Insurance Co., 741 S.E.2d 228, 233 (Ga. Ct. App. 2013), that even if the nonwaiver

clauses are valid, Georgia law does not permit Lexington to omit known coverage

defenses. Wellons has not cited any record evidence showing Lexington knew, at

any time before its March 2010 denial of coverage, of facts demonstrating there

was no “property damage” or “occurrence.” See id. at 233. To the contrary,

although Farrell recognized that a lack of “property damage” or “occurrence”

could theoretically apply to bar coverage, these defenses of noncoverage were not

known to Lexington until it concluded its investigation into the underlying suit and

after the close of discovery, at which time it issued its denial letter.

      Finally, we turn to Wellons’ reliance on Hoover v. Maxum Indem. Co., 730

S.E.2d 413 (Ga. 2012), in which the Georgia Supreme Court held an insurer cannot

both deny a claim outright and attempt to reserve the right to assert a different

coverage defense in the future. Id. at 416. Hoover is patently distinguishable from

the case before us, as Lexington did not both deny Wellons’ claim and reserve the


                                           27
             Case: 13-11512     Date Filed: 05/16/2014   Page: 28 of 32


right to assert additional defenses. Rather, Lexington followed the procedure

explicitly approved of in Hoover. Id. at 417. Because Lexington was uncertain of

its obligations under the CGL Policy, it defended Wellons under a reservation of

rights. Following its investigation and based on the facts developed during

discovery, Lexington denied Wellons’ Langboard II claim on March 2010, when it

concluded that the Langboard II claims did not meet the definition of either

“occurrence” or “property damage” under the CGL Policy.

      In sum, we conclude Lexington’s reservation of rights was adequate under

Georgia law, and Lexington was not estopped from asserting coverage defenses

under the CGL Policy. Thus, summary judgment in favor of Lexington as to

coverage under the CGL Policy was proper. We turn now to coverage under the

Umbrella Policy.

      As with the CGL Policy, the sole theory under which Wellons seeks relief

under the Umbrella Policy is that Wellons defended under the Policy without

effectively reserving its rights and is, therefore, estopped from denying coverage.

We conclude Lexington is not estopped from asserting coverage defenses under the

Umbrella Policy because Wellons failed to provide timely notice of a claim under

the Policy and Lexington never defended under the Policy without reserving its

rights, as required for coverage by estoppel.




                                         28
             Case: 13-11512    Date Filed: 05/16/2014   Page: 29 of 32


      Turning first to the issue of notice, the Umbrella Policy required Wellons to

“immediately notify [Lexington] of any occurrence which may reasonably be

expected to result in a claim against this policy” and also to “immediately notify

[Lexington] in writing of any claim, along or in combination with any other claims,

to which this policy applies which may exceed 25% of the applicable amount set

forth in the Schedule of Underlying Insurance.” As Wellons conceded at oral

argument, Wellons never provided Lexington with a formal notice of claim under

the Umbrella Policy. Neither the September 30, 2005 nor the August 17, 2006

notices of claim specified the Umbrella Policy number, while these notices did

specify the 2004 CGL Policy and CGL Policy numbers, respectively. Additionally,

there is no evidence that Wellons’ November 16, 2007 tender of Langboard II

mentioned the Umbrella Policy number.

      Wellons does not contest in its briefs that it never provided Lexington with a

formal notice of claim under the Umbrella Policy, but suggests in a footnote in its

reply brief, as it did at oral argument, that Wellons’ mention of the Policy in its

February 2009 and subsequent letters to Lexington put Lexington on notice of a

claim under the Umbrella Policy. Even if we assume that Wellons’ February 2009

mention of the Umbrella Policy constituted notice, we nonetheless conclude this

notice was not timely.




                                        29
            Case: 13-11512    Date Filed: 05/16/2014   Page: 30 of 32


      Langboard II was filed in October 2007. The damages requested in

Langboard II, including replacement of the Energy System, would likely exceed

the $1 million limit of the underlying CGL Policy. Indeed, Wellons knew that

replacement of the superheater alone would cost $850,000. Wellons also knew the

Purchase and Construction Agreements, pursuant to which the Energy System was

built and installed, were in the amounts of $13.7 and $3 million, respectively.

Wellons’ first mention of the Umbrella Policy in correspondence to Lexington was

in February 2009. A delay of over one year does not constitute “immediate”

notification as required by the Umbrella Policy. Further, Wellons cites no Georgia

authority suggesting Lexington had an obligation to presume notice under the

Umbrella Policy simply because Lexington was the issuer of both the CGL and

Umbrella Policies. Because Wellons did not timely provide Lexington with notice

of a claim under the Umbrella Policy, Lexington was under no duty to defend or

indemnify Wellons.

      Despite having never put Lexington on notice of a claim as required by the

Umbrella Policy, Wellons, relying on American Family Life Assurance Co. of

Columbus, Georgia v. United States Fire Co., 885 F.2d 826 (11th Cir. 1989),

argues Lexington is estopped from denying coverage under the Umbrella Policy.

We conclude otherwise.




                                       30
             Case: 13-11512    Date Filed: 05/16/2014   Page: 31 of 32


       To create coverage by estoppel under Georgia law, an insurer must, without

reserving its rights, assume the defense of the action. See, e.g., Prescott’s Altama

Datsun, 319 S.E.2d at 446. There is no evidence of record on summary judgment

that Lexington assumed the defense of Langboard II under the Umbrella Policy.

Lexington’s March 2007 and April 2007 letters explicitly referenced the CGL

Policy but did not mention the Umbrella Policy. Lexington’s March 2010 denial

letter also mentioned only the CGL Policy and not the Umbrella Policy. Wellons

has presented no evidence that Lexington paid for the defense of Langboard II

under the Umbrella Policy. Additionally, Farrell testified that Lexington’s defense

of Langboard II was under the two CGL policies, not the Umbrella Policy, and

Wellons did not, on summary judgment, provide any evidence to the contrary.

Because Lexington did not provide a defense under the Umbrella Policy, it cannot,

under Georgia law, be estopped from denying coverage under the Policy. See id. at

446.

       American Family, the case on which Wellons predominantly relies, is

wholly distinguishable from this case and does not alter our conclusion that

Lexington is not estopped from denying coverage. Unlike Wellons, the insured in

American Family gave notice to its excess insurer. Moreover, American Family

did not concern coverage by estoppel. Rather, after the excess insurer denied both

defense and coverage, the Court held the excess carrier had a contractual obligation


                                        31
               Case: 13-11512         Date Filed: 05/16/2014        Page: 32 of 32


to provide a defense. 885 F.2d at 832. Nowhere in American Family did the parties

raise, or did this Court discuss, coverage by estoppel. 7

       In summary, Lexington is not estopped from asserting coverage defenses

under either the CGL Policy or the Umbrella Policy. Lexington adequately

reserved its rights before defending Wellons under the CGL Policy. Lexington was

not obligated to defend Wellons under the Umbrella Policy because Wellons did

not provide notice of a claim as required by the terms of the Policy. Additionally,

Lexington did not defend Wellons under the Umbrella Policy, thereby barring a

finding of coverage by estoppel under that Policy. We conclude summary

judgment in favor of Lexington was proper.


       AFFIRMED.




7
  Because we conclude Wellons did not provide notice, as required for coverage under the
Umbrella Policy, and Lexington did not undertake a defense under the Umbrella Policy, as
required for coverage by estoppel, we need not reach whether American Family imposes an
extra-contractual duty to defend under an excess policy. 885 F.2d at 832 (“U.S. Fire became
obligated to defend once it became clear that Boston Old Colony’s policy would not cover
American Family’s liability.”). If we did reach this argument, though, we would conclude the
language is dicta and does not constitute the holding of the case. The American Family Court’s
finding of a duty to defend was clearly pursuant to the terms of that particular excess policy, id.
(“It is true in that in the absence of a contractual obligation U.S. Fire the excess insurance carrier
was not obligated to provide a defense.”; “Because U.S. Fire was contractually obligated to
provide a defense ….” (emphasis added)), and any statement as to an extra-contractual duty is
dicta.

                                                 32
