North American On-Site, LLC v. Zurich American Insurance Co.

USCA11 Case: 22-12495 Document: 40-1 Date Filed: 10/28/2024 Page: 1 of 15

[DO NOT PUBLISH]

In the

United States Court of Appeals

For the Eleventh Circuit

____________________

No. 22-12495

____________________

NORTH AMERICAN ON-SITE, LLC,

Plaintiff-Appellant,

versus

ZURICH AMERICAN INSURANCE CO.,

Defendant-Appellee.

____________________

Appeal from the United States District Court

for the Northern District of Georgia

D.C. Docket No. 1:20-cv-03741-VMC

____________________

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2 Opinion of the Court 22-12495

Before WILLIAM PRYOR, Chief Judge, ROSENBAUM and ABUDU, Cir-

cuit Judges.

ABUDU, Circuit Judge:

The instant appeal requires this Court to decide whether an

insurance agreement issued by Defendant-Appellee Zurich Ameri-

can Insurance Company covers losses that Plaintiff-Appellant

North American On-Site, LLC (“NAOS”) incurred from the costs

of correcting clerical errors it made in its administration of a retire-

ment plan. In particular, we must determine whether NAOS’s

costs of remediation qualify as damages that it was legally obligated

to pay. Because we answer that question in the affirmative, those

losses were covered by the insurance policies, and we vacate the

district court’s grant of summary judgment in Zurich’s favor.

I. BACKGROUND

In its administration of a 401(k) retirement plan (the “Plan”),

NAOS made numerous clerical errors. Those errors eventually

cost NAOS approximately $500,000, which included legal and ac-

counting fees to investigate and address the errors, corrective con-

tributions to the Plan, and late payments to the U.S. Department

of Labor. At the time of the errors, NAOS was insured under sev-

eral commercial liability policies that Zurich issued (the “Policies”).

After NAOS made payments to correct its errors, it filed a claim

with Zurich for reimbursement of its costs incurred. Zurich denied

the claim, and that denial formed the basis of the instant lawsuit.

NAOS, a Florida limited liability company, is the administra-

tor of the Plan, which provides retirement investment benefits to

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22-12495 Opinion of the Court 3

NAOS’s participating employees. Between 2015 and 2018, NAOS

made clerical errors affecting some of its employees’ contributions

to and participation in the Plan. The errors included (1) a failure to

accurately document, withhold, and invest pre-tax deferrals as

elected by each employee; (2) a failure to include certain Ohio em-

ployees in reports to the Plan’s service provider, resulting in the

improper exclusion of the Ohio employees from the Plan; and (3) a

failure to download and provide the Plan’s service provider with a

deferral rate report each payroll period. These clerical errors re-

sulted in insufficient paycheck deductions for some employees par-

ticipating in the Plan.

Beginning in September 2018, NAOS began to understand

the extent and causes of the errors in its administration of the Plan.

That month, the broker for the Plan, who was not a NAOS em-

ployee, advised NAOS’s plan administrator, James Riley, that the

Plan had “several previous and ongoing operational failures” that

would likely require assistance from an ERISA attorney to correct.

NAOS claimed that it did not notify Zurich of the problems with

the Plan at that time because it had no knowledge of actual em-

ployee errors. The next month, an account manager who serviced

the Plan informed Riley that NAOS was not administering the Plan

properly with respect to auto-enrolling newly eligible participants.

The account manager explained that NAOS could self-correct this

error by adopting a reasonable correction method “placing affected

participants in the same position they would have been had this

mistake not occurred.” He advised that an appropriate self-correc-

tion may include making up missed deferrals.

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4 Opinion of the Court 22-12495

In response to the identified errors, NAOS engaged a law

firm in October 2018 to review the Plan and recommend appropri-

ate corrections. Counsel for NAOS indicated that according to IRS

regulations, NAOS was legally obligated to make corrective contri-

butions to the Plan to maintain the qualified status and tax-deferred

benefits of the Plan. NAOS’s counsel explained that the threat of

plan disqualification from the IRS arose at the moment the errors

occurred and continued until the date that NAOS made the correc-

tions. In addition to the threat of plan disqualification, NAOS’s

counsel advised that failure to make corrective contributions cre-

ated a “snowball effect” that increased the amount required to cor-

rect those errors over time. Based upon counsel’s advice, NAOS

made corrective contributions to the Plan at its own expense.

The corrective contributions required NAOS to pay into the

Plan the amount (or a portion of the amount) that would have been

deferred from employees’ paychecks, plus the earnings that would

have been generated, but for the errors. NAOS made those correc-

tive contributions to the Plan in 2019, amounting to a total of

$309,253.11.

NAOS’s losses tied to its clerical errors were not limited to

the corrective payments. Because of the errors, NAOS was unable

to complete necessary plan audits to timely file certain IRS reports

for the Plan. As a result of NAOS’s untimely filings, in early 2019,

the Department of Labor filed two administrative cases seeking

penalties from NAOS in excess of $74,000. NAOS’s counsel nego-

tiated a $14,800 settlement for those two cases, which NAOS paid

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22-12495 Opinion of the Court 5

in July 2019. In addition, NAOS’s response to and remediation of

its errors resulted in an accrual of $54,003.90 in fees for its account-

ants’ work and $122,782.50 in fees for legal counsel. Overall, the

corrective work to refund the plan and complete proper filings oc-

curred over a period of several months from the end of 2018

through 2019, and NAOS claims that it incurred a total cost of

$500,839.51 to remedy the mistakes it made with respect to admin-

istering the Plan.

As NAOS became aware of and then began to address its

clerical errors, it sought indemnification under applicable insur-

ance policies. At the time NAOS made the above-described errors

and remediation payments, NAOS was insured under the Policies.

NAOS purchased the Policies, which were issued by Zurich, from

its insurance broker, Brown & Brown, Inc., and the Policies con-

tained “Employee Benefits Liability” coverage regarding NAOS’s

administration of its employee benefit programs. As was its prac-

tice with prior claims filed under the Policies, NAOS notified

Brown & Brown of its losses incurred as a result of the errors. In

response, Brown & Brown told NAOS that the Policies did not

cover the type of claim or losses incurred.

After receiving Brown & Brown’s response to the proposed

claim, NAOS sought a new insurance broker. In December 2019,

NAOS changed its insurance broker to Parrish & Gwinn Insurance

Group, LLC. Parrish & Gwinn evaluated NAOS’s insurance poli-

cies in effect at the time, and NAOS expressed its intention to ac-

quire insurance that would cover losses such as those resulting

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6 Opinion of the Court 22-12495

from the clerical errors. After its review, Parrish & Gwinn told

NAOS that no additional insurance was needed because Zurich’s

Policies should have provided coverage for NAOS’s losses arising

from the clerical errors.

Zurich provided NAOS with yearly insurance policies on a

successive basis from 2015 to 2019. In pertinent part, each renewal

policy contained identical “Employee Benefits Liability” coverage

sections. Those sections stated that:

We will pay those sums that the “insured” becomes

legally obligated to pay as damages because of any

act, error, or omission of the “insured” in the “admin-

istration” of the “insured’s” “employee benefit pro-

grams.”

The Policies defined “administration” to include “[h]andling rec-

ords in connection with ‘employee benefit programs’” and

“[e]ffecting or terminating an ‘employee’s’ participation in a plan

included in ‘employee benefit programs.’”

In addition, the Policies contained several conditions for

coverage. First, they specified that “[n]o insureds will, except at

their own cost, voluntarily make a payment, assume any obliga-

tion, or incur any expense without [Zurich’s] consent.” Second,

the Policies stated that they did not apply to claims or suits arising

out of the insured’s liability as a fiduciary under ERISA and the tax

code. Third, the Policies also contained a notice provision, requir-

ing NAOS to notify Zurich “as soon as practicable of any act, error,

or omission which may result in a claim.” Finally, each of the

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22-12495 Opinion of the Court 7

Policies provided that NAOS did not have the right to sue Zurich

“on this Coverage Part unless all of its terms have been fully com-

plied with.”

On January 7, 2020, at NAOS’s request, Parrish & Gwinn no-

tified Zurich of NAOS’s claim seeking insurance coverage for the

costs incurred in correcting its errors in administering the Plan.

That same day, Zurich acknowledged the claim in writing. Ten

days later, NAOS submitted a letter, as requested by Zurich, sum-

marizing the errors and losses for which NAOS sought coverage.

Following a review of NAOS’s submissions, Zurich denied cover-

age for the claim, first through a phone call and then officially

through a March 31, 2020, denial of coverage letter. In the letter,

Zurich stated that “the Policy . . . does not provide defense or in-

demnity coverage to [NAOS] for this Claim.” Zurich gave two rea-

sons for its decision: (1) NAOS “made payments . . . prior to notify-

ing Zurich and without Zurich’s consent” and (2) “[t]he Claim is

for failure to adequately administer ERISA related programs.” The

denial letter also contained a section entitled “Reservation of

Rights,” which purported to reserve other alternative grounds to

deny the claim.

In response to Zurich’s claim denial, NAOS sued Zurich on

August 4, 2020, asserting claims under Georgia law for (1) breach

of contract and (2) bad faith damages pursuant to O.C.G.A.

§ 33-4-6. Zurich raised several defenses, including an assertion that

NAOS’s losses did not trigger the Policies’ coverage agreement be-

cause those losses were not amounts that NAOS was “legally

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8 Opinion of the Court 22-12495

obligated to pay as damages” to any third party who had asserted a

liability claim against NAOS (Zurich’s Third Defense), and that the

Policies did not cover NAOS’s voluntary payments (Zurich’s Fifth

Defense). Zurich later moved for summary judgment on both of

NAOS’s claims, arguing in pertinent part that the insuring agree-

ment had not been triggered because NAOS had no legal obligation

to pay damages to a third party. In addition, Zurich argued that

NAOS’s claims failed because NAOS breached the Policies’ volun-

tary payment and timely notice provisions, and because the alleged

losses fell under the Policies’ ERISA exclusion.

The district court found that NAOS’s losses did not trigger

the Policies’ coverage agreement because those amounts were not

damages that NAOS was legally obligated to pay. The court

granted Zurich’s motion for summary judgment on that basis, and

it did not address any of Zurich’s other arguments. NAOS now

appeals from that order and judgment.

II. STANDARD OF REVIEW

This Court reviews a district court’s grant of summary judg-

ment de novo. Alvarez v. Royal Atl. Devs., Inc., 610 F.3d 1253, 1263

(11th Cir. 2010). Summary judgment is appropriate when a mo-

vant shows that there is “no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.” FED.

R. CIV. P. 56(a). A fact is “material” if it could “affect the outcome

of the suit under the governing law.” Furcron v. Mail Ctrs. Plus, LLC,

843 F.3d 1295, 1303 (11th Cir. 2016) (internal citation and quotation

marks omitted).

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22-12495 Opinion of the Court 9

The party moving for summary judgment bears the initial

burden of showing a lack of dispute as to any material fact. Paylor

v. Hartford Fire Ins. Co., 748 F.3d 1117, 1121 (11th Cir. 2014).

“[O]nce that burden is met[,] the burden shifts to the nonmoving

party to bring the court’s attention to evidence demonstrating a

genuine issue for trial.” Id. Establishing that a genuine dispute of

fact exists requires more than speculation or conjecture. See Cor-

doba v. Dillard’s, Inc., 419 F.3d 1169, 1181 (11th Cir. 2005). How-

ever, on summary judgment, we view the record evidence in the

light most favorable to the nonmovant, and we make all reasonable

inferences in its favor. United States v. Four Parcels of Real Prop., 941

F.2d 1428, 1437 (11th Cir. 1991) (en banc). In addition, we may af-

firm summary judgment on any ground supported by the record.

Burton v. Tampa Hous. Auth., 271 F.3d 1274, 1277 (11th Cir. 2001).

III. DISCUSSION

We proceed in two parts. First, we identify the applicable

Georgia law that governs this dispute involving the interpretation

and construction of insurance policies. Second, we explain that

pursuant to the Policies, NAOS’s losses resulting from its clerical

errors were damages that it was legally obligated to pay and that,

accordingly, they were within the Policies’ scope of coverage.

A. Under the Applicable Georgia Law, Any Ambiguity in

the Policies Is Construed in Favor of Coverage.

Georgia law governs this dispute. Specifically, this appeal

arises from a case originally filed in the Superior Court of Gwinnett

County, Georgia, and removed to the district court based on

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10 Opinion of the Court 22-12495

diversity jurisdiction. Federal courts sitting in diversity jurisdiction

apply the law of the state in which they sit. See Eres v. Progressive

Am. Ins. Co., 998 F.3d 1273, 1278 n.4 (11th Cir. 2021). Under Geor-

gia law, insurance contracts are governed by the rule of lex loci con-

tractus, which provides that a contract is governed by the law of the

jurisdiction in which it was made. Johnson v. Occidental Fire & Cas.

Co. of N.C., 954 F.2d 1581, 1583–84 (11th Cir. 1992). Because Zurich

issued and delivered the Policies, which do not include a choice of

law provision, in Georgia, we apply Georgia law. See id.

In a dispute over insurance coverage, we first look to the

question of insurance coverage generally and then to any applica-

ble exclusions. See Mindis Metals, Inc. v. Transp. Ins. Co., 209 F.3d

1296, 1298 (11th Cir. 2000). Georgia courts interpret insurance pol-

icies according to their plain language and in the light in which a

layman would read the policies. Old Republic Nat’l Title Ins. Co. v.

RM Kids, LLC, 835 S.E.2d 21, 25–26 (Ga. Ct. App. 2019). In addition,

Georgia law generally construes insurance contracts against the in-

surer and in favor of the insured. Brown v. Assurance Am. Ins. Co.,

841 S.E.2d 15, 16–17 (Ga. Ct. App. 2020). Thus, where a policy pro-

vision is subject to multiple reasonable interpretations, we must

follow the interpretation most favorable to the insured and with a

leaning towards coverage. Id.; see also O.C.G.A. § 13-2-2(5) (“If the

construction is doubtful, that which goes most strongly against the

party executing the instrument or undertaking the obligation is

generally to be preferred.”). If a claim is within the scope of a pol-

icy’s coverage, we narrowly construe any exceptions, limitations,

or exclusions to coverage. See Mindis Metals, 209 F.3d at 1300.

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22-12495 Opinion of the Court 11

B. NAOS’s Losses Are Damages that Zurich Was Legally

Obligated to Pay.

Zurich argues that the Policies did not cover NAOS’s claim

because NAOS never incurred any legal obligation to pay damages

to a third party. In particular, Zurich contends that because no

third party pursued a claim against NAOS for damages arising from

the clerical errors, NAOS cannot establish that it was legally obli-

gated to make corrective payments. We disagree.

Pursuant to the Policies, Zurich is required to indemnify

NAOS for those sums NAOS “becomes legally obligated to pay as

damages because of any act, error, or omission . . . in the ‘admin-

istration’ of [NAOS’s] ‘employee benefit programs.’” As an initial

matter, although no lawsuit had been initiated against NAOS to

make the corrective payments, counsel for NAOS advised that

based on IRS regulations, NAOS was legally obligated to make the

payments and that delaying those required payments would have

further increased NAOS’s costs and subjected it to an additional

risk of adverse action from the IRS. In fact, counsel for Zurich con-

ceded that federal law required NAOS to make the corrective pay-

ments.

Moreover, Zurich’s interpretation of “legally required,” at-

tempts to make the second sentence of the relevant provision—

“the right and duty to defend the ‘insured’ against any suit”—a pre-

condition for triggering the preceding sentence which speaks only

to “becom[ing] legally obligated to pay” which, as stated earlier,

was satisfied based on the IRS’s regulations. When read as a whole,

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12 Opinion of the Court 22-12495

the provision merely identifies another basis upon which NAOS

could invoke the policy, but it does not make the filing of a lawsuit

the only basis. See Ryan v. State Farm Mut. Auto. Ins. Co., 413 S.E.2d

705, 707 (Ga. 1992) (establishing that when interpreting insurance

contracts, the court must ascertain the intentions of the parties “by

looking to the insurance contract as a whole”). Even assuming

Zurich’s proposed interpretation of the Policies is reasonable,

Georgia law requires us to apply the reasonable interpretation that

favors coverage. MAG Mut. Ins. Co. v. Gatewood, 367 S.E.2d 63, 67

(Ga. Ct. App. 1988) (“Where [an insurance] provision is susceptible

of two or more interpretations, the court will construe it most fa-

vorably to the insured.” (alteration adopted) (internal citation and

quotation marks omitted)); see also Lunceford v. Peachtree Cas. Ins.

Co., 495 S.E.2d 88, 89 (Ga. Ct. App. 1997) (“[T]he law is clear in this

state that an insurer, having affirmatively expressed coverage in

broad promissory terms, has a duty to define any limitations or ex-

clusions clearly and explicitly.” (internal citation quotation marks

omitted)).

Zurich notes that Georgia courts have not required insurers

to compensate insureds for “voluntary” payments made without

the insurer’s consent. For example, the Georgia Supreme Court

held that an insurer did not need to compensate an insured when

it made a unilateral decision to pay about $1 million to settle a third

party’s claims even though the insurer had offered only $200,000 in

negotiations. Trinity Outdoor, LLC v. Cent. Mut. Ins. Co., 679 S.E.2d

10, 12 (Ga. 2009); see also Hathaway Dev. Co., Inc. v. Ill. Union Ins. Co.,

274 Fed. App’x 787, 791 (11th Cir. 2008) (unpublished) (insured

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22-12495 Opinion of the Court 13

“breached the Policy by undertaking to fix defects and make pay-

ments to residents, albeit with good intention, yet without [the in-

surer’s] prior consent;” such payments were “at [insured’s] peril

and not at the cost of the insurer”).

Here, a Zurich representative conceded that NAOS was “le-

gally obligated” to make the corrective contributions. Zurich does

not now claim that it would have resolved the issues differently had

it been involved. Moreover, unlike in cases like Trinity or Hatha-

way, where the harm caused by the insured was a one-time inci-

dent, NAOS’s errors triggered an immediate and ongoing obliga-

tion to contribute to the Plan to maintain its qualified status. We

do not read Trinity as addressing the compensability of payments

made by an insured to mitigate an ongoing, as opposed to com-

pleted, legal wrong.

To the extent Zurich relies upon the district court’s state-

ment that NAOS’s corrective contributions “were sums that NAOS

would have already paid into the Plan under the terms of the Plan,”

that reliance is misplaced. The clerical errors resulted in NAOS’s

failure to properly deduct contributions from employee paychecks;

thus, NAOS paid “plan contributions out of its own pocket that in

the normal course would have been paid by NAOS employees, not

NAOS.” Moreover, Georgia law compels a finding that even addi-

tional costs incurred by NAOS above and beyond the initial contri-

bution amounts owed to its employee accounts would be damages

covered under the Policies. See, e.g. Greenwood Cemetery, Inc. v.

Travelers Indem. Co., 232 S.E.2d 910, 913 (1977) (finding coverage for

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14 Opinion of the Court 22-12495

punitive damages where the insurer agreed to pay sums “which the

insured shall become legally obligated to pay as damages for men-

tal anguish” because the word “for” is ambiguous and therefore

should be strictly construed against the insurer (cleaned up));

Lunceford, 495 S.E.2d at 89–91 (construing “damages for which any

insured person is legally liable because of bodily injury and prop-

erty damage” broadly in favor of coverage, including punitive dam-

ages). Because NAOS’s corrective payments qualified as damages

it was legally obligated to pay given its clerical errors in the admin-

istration of its employee benefits programs, the Policies covered

the insurance claim at issue. 1 Zurich is not entitled to summary

judgment on NAOS’s breach of contract claim on the basis of Zur-

ich’s coverage defense.

Finally, this Court declines to address here Zurich’s addi-

tional defenses raised in support of its denial of coverage. At both

summary judgment and on appeal, Zurich presented additional de-

fenses that were included in its March 2020 denial letter. On

1 The parties also heavily dispute whether Zurich’s failure to mention its cov-

erage defense in the denial of coverage letter constituted a waiver of that de-

fense. This Court has previously distinguished between coverage and policy

defenses under Georgia law, and we have found that the former may not be

waived while the latter may. See AEGIS Elec. & Gas Int’l Servs. Ltd. v. ECI Mgmt.

LLC, 967 F.3d 1216, 1226 n.8 (11th Cir. 2020). However, as noted by one mem-

ber of that panel, the insurance waiver issue remains “a vexing and disputed

issue of Georgia law.” Id. at 1228 n.1 (Wilson, J., concurring in part and dis-

senting in part). Here, Zurich’s coverage defense fails for the above reasons,

regardless of whether it was waived. Accordingly, we need not answer this

non-dispositive question of state law.

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22-12495 Opinion of the Court 15

appeal, neither party addressed those arguments at length, which

is understandable, given that the district court’s judgment relied on

neither. 2 Because those defenses were not initially addressed by

the district court, we decline to address them for the first time on

appeal. See Stansell v. Revolutionary Armed Forces of Colombia, 45

F.4th 1340, 1348 (11th Cir. 2022) (explaining that “we are a court of

review, not a court of first view” (alterations adopted) (quoting Cal-

lahan v. U.S. Dep’t of Health & Hum. Servs., 939 F.3d 1251, 1266 (11th

Cir. 2019))). Accordingly, we remand this case to the district court

for further proceedings, which may include consideration of Zur-

ich’s other defenses. 3

IV. CONCLUSION

For the foregoing reasons, we VACATE the district court’s

grant of summary judgment in favor of Zurich as to both of

NAOS’s claims, and we REMAND this case for further considera-

tion in accordance with this opinion.

2 Although the district court acknowledged that there was significant overlap

between Zurich’s coverage defense and its voluntary payment defense, it did

not expressly rule on the latter.

3 The district court’s dismissal of NAOS’s bad faith claim was premised on its

grant of summary judgment as to NAOS’s breach of contract claim. Because

we vacate the grant of summary judgment on the breach of contract claim,

we also vacate the judgment on the bad faith claim.