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"Coverage Defenses" Cannot Be Waived Whereas "Policy Defenses" Can Be, Eleventh Circuit Holds

An insurer cannot waive a “coverage defense” based on a policy exclusion, even where the insurer failed to raise that defense in its initial coverage denial, the Eleventh Circuit recently held. However, insurance companies can waive certain “policy defenses” by failing to raise them in a timely manner. Accordingly, insurance companies operating in Georgia must be familiar with the difference between the two and ensure all defenses are asserted timely to avoid costly litigation and risks of waiver.

In Century Communities of Ga., LLC v. Selective Way Ins. Co., 2023 WL 2237303 (11th Cir. Feb. 27, 2023), an insured brought claims for breach of contract and bad faith arising out of the insurer’s failure to defend underlying litigation involving property damage at a housing development. A homeowner sued the insured, who demanded a defense and indemnification. The insurer denied coverage and notably did not raise any of the policy’s exclusions as a basis for the denial.

The insured filed a breach of contract action in the Northern District of Georgia claiming that the insurer breached its duty to defend and acted in bad faith by denying coverage. In the litigation, the insurer for the first time raised the policy’s pollution exclusion as a defense, and it was granted summary judgment on same. The insured appealed, arguing the insurer waived its ability to raise the pollution exclusion by failing to raise that defense in its pre-suit coverage denial letter. 

The Eleventh Circuit affirmed the District Court’s ruling that the pollution exclusion barred coverage, finding the pollution exclusion is a “coverage defense.” The Court reasoned that a distinction exists between “policy defenses” and “coverage defenses,” and the latter cannot be waived.  A “policy defense” concerns the insured’s failure to fulfill a procedural condition of the insurance policy. A “coverage defense” is an assertion that the insurance policy never covered the loss in question. The Court found that while a “policy defense” is waivable, a “coverage defense” like the pollution exclusion is not. 

In coverage litigation, distinctions between defenses can be crucial. So too can an insurer’s handling of a claim pre-suit. Retaining experienced counsel to navigate these issues can help avoid costly coverage litigation. If you would like to speak to an attorney about a coverage matter, or if you have questions about the content of this update, please contact Seslee Smith, Ryan Burke, or Nathan Miles.


litigation, insurance