GIRMA defends paying Haddix legal bill under contract’s ‘duty to defend’
The agency that provides “risk management” coverage to Peachtree City contends that it was appropriate for it to pay $9,969 for the legal defense of Mayor Don Haddix in a libel lawsuit.
"A liability insurer has a duty to defend its insured against all claims covered under a policy, even those that are groundless, false, or fraudulent," the GIRMA letter said. "If there is even potential, or arguable, coverage, the insurer has a duty to defend." A pdf file of the actual letter is attached at the bottom of this story for download, and the text of the letter follows the story.
But there has been no talk, at least publicly, of the city council reversing its June 7 decision to dock Haddix’s pay by 90 percent to cover the legal fees incurred in the lawsuit filed by former Mayor Harold Logsdon.
Although the lawsuit was filed against Haddix personally and not in his official capacity, Haddix qualified for legal coverage because the statement at the heart of the lawsuit was contained in an email Haddix wrote to a city employee on an official business matter, according to a letter written by the Georgia Interlocal Risk Management Agency Manager George R. Van Leuven.
“Given the fact that the mayor was communicating with a city employee regarding a matter of official business (i.e. changing a city ordinance), it was at least arguable that the mayor was acting ‘for and behalf of’ the city at the time he sent the offending email communication,” the letter stated.
The lawsuit alleged that Haddix libeled Logsdon in the email by claiming that when Logsdon was mayor he was “part drunk” while attending council meetings.
GIRMA’s decision to fund the settled lawsuit forced the city to repay GIRMA for the $9,969 in legal fees because it was under the city’s $25,000 deductible.
The lawsuit was settled in December for $3,000 along with a written apology from Haddix. But the issue flared up again last month when the city council discovered the fact that GIRMA reimbursed Haddix after the mayor directed City Attorney Ted Meeker to write an appeal letter on the matter.
Haddix had not informed his fellow council members of the appeal, and they claimed that circumvented how legal matters are normally handled by the city and discussed in executive (closed) session. Council also contended that Haddix’s legal bills shouldn’t have been covered by the city because he was sued personally and not in his official capacity as mayor.
At its May 17 meeting, council asked staff to write a letter to GIRMA seeking to have the funding reversed.
At its June 7 meeting, council voted 4-1 to cut Haddix’s monthly pay from $750 a month to just under $75 to recoup the costs of the legal bill. Haddix has said he will consider filing a lawsuit in the matter, and he even raised the possibility that he would resign in the face of the pay cut.
While council met Thursday night, the latest GIRMA letter from Van Leuven was not discussed in open session, nor was the possibility of restoring Haddix’s pay raised.
In his letter, Van Leuven points out that the total cost of under $10,000 was more economical than had the matter gone to trial.
“The cost of a declaratory judgment action to have this question decided would have exceeded the amount reimbursed for defense and settlement of the claim,” Van Leuven wrote. “This claim was actually handled in the manner least costly to the city.”
In fact, had GIRMA been aware of the details of the email from the onset of the lawsuit, it would have agreed to have covered Haddix from the beginning, Van Leuven said. A request on May 19, 2011 for GIRMA to cover the lawsuit was filed by City Attorney Meeker, but it was denied by GIRMA’s third party administrator on the basis that “the complaint did not contain allegations the mayor was acting in his official capacity or using computer equipment,” Van Leuven wrote.
However, at that time GIRMA did not receive a copy of the offending email from Haddix to economic development coordinator Joey Grisham, even though there was language saying it was attached to the email request that was forwarded to GIRMA, Van Leuven wrote.
A second request on Sept. 6 from Haddix’s attorney John Mrosek was also denied, again without GIRMA receiving a copy of the email, Van Leuven noted.
It was following the Feb. 29 letter this year from Meeker, which included a copy of the email, that GIRMA decided to cover Haddix for the legal claim, even though the process had already come to a conclusion.
“Had all of the information been presented to GIRMA at the outset, GIRMA’s initial determination would have been to provide a defense under reservation of rights as to coverage, an approach GIRMA normally employs,” Van Leuven said in the letter.
Following is the complete text of the GIRMA letter:
Via Email and Mail
Theodore P. Meeker, III, Esq.
SUMNER MEEKER, LLC
14 East Broad Street
Newnan, Georgia 30263
June 8, 2012
Re: Harold Logsdon v. Don Haddix, Superior Court of Fayette County (Civil Action File No. 2011V-0740).
Dear Mr. Meeker:
On behalf of the Georgia Interlocal Risk Management Agency (“GIRMA”), this letter is directed to you as City Attorney for the City of Peachtree City in response to your letter to me dated May 25, 2012 on behalf of City Council Member Eric Imker and the letter from Council Member Vanessa Fleisch to me dated May 23, 2012. In response to these letters, I will attempt to explain GIRMA’s decisions regarding defense and coverage of the above-styled case.
To understand GIRMA’s decision process, some background regarding GIRMA’s legal framework is necessary. By statute, GIRMA is not an insurance carrier but instead a self-insurance fund created by the General Assembly to allow municipal governments to pool risks. GIRMA enters into a Member Coverage Agreement (“MCA”) with each of its member cities that delineates the relationship between GIRMA, the Named Member, and additional Members who are afforded coverage, to include elected officials, employees, and others. An elected official is treated as a Member while “acting for and on behalf of the Named Member.” Members other than the Named Member are not a party to the GIRMA MCA, but are intended third party beneficiaries of the MCA and have rights under it.
While GIRMA is not insurance, the Georgia courts generally employ insurance principles to interpret the GIRMA MCA. Under the GIRMA MCA, Members are owed a duty of defense and indemnity. A liability insurer’s duty to defend and its duty to pay (i.e., indemnify) are separate and independent obligations. A liability insurer has a duty to defend its insured against all claims covered under a policy, even those that are groundless, false, or fraudulent. If there is even potential, or arguable, coverage, the insurer has a duty to defend.
With this backdrop, this claim was originally tendered for coverage when the complaint was filed against Mayor Don Haddix on May 19, 2011. As City Attorney, you tendered the claim for coverage via email to Kenneth Swanson of Gallagher Bassett Services, Inc., GIRMA’s third party administrator, on May 27, 2011. The complaint named the Mayor individually and not in his official capacity. The complaint stated that an email was sent to Joseph Grisham containing negative information about former mayor Harold Logsdon. While the complaint stated that a copy of the email was attached, the complaint forwarded to GIRMA did not have a copy of the email. On or about June 1, 2011, Mr. Swanson declined coverage after conferring with coverage counsel on the basis that the complaint did not contain allegations that the Mayor was acting in his official capacity or using city computer equipment.
On September 6, 2011, Mayor Haddix’s attorney, John Mrosek, again tendered the claim for defense and coverage stating that the Mayor’s comments were made “in connection with his discharge of official duties.” Aside from this statement, no additional facts were made available. A copy of the complaint without the offending email was again presented. On February 29, 2012, you transmitted a letter to me containing additional facts that Mayor Haddix had requested you to present. By this point, the Mayor had expended $9,969.40 in defense and settlement of the case. Your letter stated, “The email which initiated this matter was sent by the Mayor from his city email address, and was directed to a city employee concerning a matter that was going to be addressed at a future council meeting.” Also, attached to your letter were additional documents, including a letter from Harold Logsdon giving additional context. Mr. Logsdon states that the email includes discussion of ”possible changes to the ordinance governing operational hours of local bars.” Based upon these facts, you conveyed on behalf of the Mayor that he was seeking reimbursement on the basis that he was acting in his role as Mayor when he sent the email.
On the basis of your February 29, 2012 letter, GIRMA reconsidered its position and reimbursed the Mayor. The reason for GIRMA’s change of position was the additional factual information contained in, or attached to, your letter. Given the fact that the Mayor was communicating with a City employee regarding a matter of official business (i.e., changing a city ordinance), it was at least arguable that the Mayor was acting “for and on behalf of” the City at the time he sent the offending email communication.
Had all of the information been presented to GIRMA at the outset, GIRMA’s initial determination would have been to provide a defense under reservation of rights as to coverage, an approach GIRMA normally employs.
GIRMA owes a duty to the City of Peachtree City as well as all other Named Members to resolve claims in an economical and efficient manner. The question of whether the claim was actually one for which indemnity was available never ripened because the case was settled for a very nominal amount. The cost of a declaratory judgment action to have this question decided would have exceeded the amount reimbursed for defense and settlement of the claim. This claim was actually handled in the manner least costly to the City.
GIRMA’s actions and decisions are determined entirely based upon its contractual obligations. GIRMA protects the interests of all covered and potentially covered Members in defense of liability claims. As a matter of policy, GIRMA does not involve itself in political disagreements involving Named Member cities, and political considerations play no role in coverage determinations. A contrary approach would be unfair to elected officials and city employees who depend on GIRMA coverage for their protection and could lead to accusations of bad faith in claim handling.
Whether Mayor Haddix would have been entitled to indemnity from the City — and whether the City is entitled to indemnity from Mayor Haddix for the deductible expense — present issues of local government law distinct from any issues involving GIRMA. GIRMA’s decisions in this matter have been based entirely upon the contractual relationship between itself and the City of Peachtree City and GIRMA’s obligations to Mayor Haddix as an additional Member based upon that contractual relationship. I trust that this information will be useful to the Mayor and Council.
George R. VanLeuven, Jr.
Manager of Risk Management Services
Georgia Interlocal Risk Management Agency
Georgia Municipal Association
|GIRMA letter June 8,2012.pdf||1.17 MB|