Story's 34-page order succinctly summed up the case: "In this insurance dispute, what began as a declaratory judgment action has morphed into a case about recoupment. After American Family Insurance Company managed to overturn on appeal a large verdict against its insured, Mr. Almassud, but before a second trial really got underway, AmFam agreed to settle with the underlying claimant, and it paid the settlement amount.

"Now," wrote Story, "the company wants its money back—from Mr. Almassud."

But, he said, because the insurance policy contained no provision allowing AmFam to recoup its costs for defending a case, despite having issued a "reservation of rights" letter saying it could still deny coverage later.

"In Georgia, it remains an open question whether and under what circumstances an insurer can recoup its defenses costs when it is determined that the insurer has no duty to defend," Story wrote.

"In Georgia, it remains an open question whether and under what circumstances an insurer can recoup its defenses costs when it is determined that the insurer has no duty to defend. No Georgia appellate court appears to have ruled on that question," he said, citing federal and state decisions reflecting both propositions.

"These courts all agree that an insurer could recoup costs if the insurance policy contained a provision allowing it to do so," he said. "But when as here, no such provision exists, the authorities diverge on whether an insurer can recoup merely by issuing a valid reservation of rights."

Story's review of relevant law led him to determine that "the rationale underlying a no-recoupment default rule makes more sense and believes that a Georgia court deciding the issue would agree. Simply put, 'the insurer should not be able to unilaterally alter the terms of an insurance policy,'" he wrote, citing a 2009 Northern District case, Illinois Union Ins. Co. v. William C. Meredith Co.

Almassud is represented by Slappey & Sadd partner Jay Sadd and Richard Dolder.

"The key takeaway of the ruling is that insurance companies cannot use a reservation of rights letter to create rights that don't exist in the policy," Dolder said.

Dolder noted that, while AmFam's case has been trimmed to a breach of contract claim, Almassud's counterclaims including breach of fiduciary duty remain pending.

"We're going to pursue all available claims," said Dolder. "He got sued; he had to hire lawyers. AmFam put him through years of anguish and litigation that should never have occurred."

"The only reason this litigation did occur was AmFam's refusal to settle a clear-liability, high-damages claim when there were multiple opportunities to do so," he said.

AmFam's counsel includes Edward Ruff III, Robert Chemers, Heather Plunkett and Michael Turiello of Pretzel & Stouffer in Chicago and Ryan Burke, Jessica Pardi and Seslee Smith of Morris, Manning & Martin in Atlanta. They did not respond to requests for comment.

The underlying case began in 2012 when Almassud's Jeep hit a minivan driven by Luisa Mezquital's minivan, severely injuring her hand.

Mezquital sued Almassud in Fulton County State Court, and during discovery her lawyers learned the Jeep had been modified for off-road use. Almassud blamed a garage that installed the new gear, and it was added as a defendant, but following a 2016 trial the jury awarded $30.4 million against Almassud; the garage was not apportioned any liability.

Almassud's insurer, AmFam, funded his defense but after the verdict also filed a declaratory judgment action in federal court, arguing that it should not be responsible for Almassud's defense or any potential judgment.

AmFam's arguments included assertions that Almassud had not cooperated with it and falsely told its investigator he had not been driving the Jeep off-road prior to the wreck.

The Georgia Court of Appeals threw out the verdict, and the Georgia Supreme Court declined to hear Mezquital's appeal.

The $11 million settlement was reached during a 2019 retrial; its details were inadvertently made public when AmFam's motion to amend its complaint to include a request for the money it spent defending and settling the case was not filed under seal with the federal court.

Earlier in the litigation Story had ruled that AmFam had a duty to defend Almassud. Last week's order vacated that decision because a jury might find that he failed to cooperate with the insurer.

Even so, he continued, that did not change his finding that "absent a provision in the insurance policy—or some other express agreement—an insurer who issued an otherwise valid, unilateral reservation of rights cannot recoup its costs of defense."

"In light of that holding, AmFam's claims can be disposed of without too much difficulty," Story wrote, nixing its claims for implied contract and unjust enrichment, and for breach of express agreement "which also fails, albeit for a different reason—namely, that no such agreement exists."

Finally, he wrote, the insurer's alternative claims for rescission also failed.

"According to AmFam, the policy is void because Mr. Almassud misrepresented the use of his vehicle in the original insurance application when he failed to disclose his off-roading activities, misrepresentations that were material to the company's decision to issue the policy.

"As such, AmFam says it is entitled to reimbursement for both the costs of his defense and the amount of the settlement payment."

But, said Story, Georgia's Voluntary Payments Doctrine provides that, where all the facts are known and "no artifice, deception, or fraudulent practice was used by the other party," any payments are "deemed voluntary and cannot be recovered."

"Here, AmFam knew of the alleged misrepresentations at the time of the payment," Story wrote.

In fact, he said, the insurer's arguments "are undermined by the basic premise of AmFam's rescission claim: that it owed no duty to Mr. Almassud because the policy was void."

"If AmFam owed no legal obligation to Mr. Almassud, then the payment made on his behalf—before he was subject to any liability—was necessarily voluntary."