May 16th, 2018

Sloan is alive and well in South Carolina

By, Laura L. Locklair, Esq.

South Carolina and Florida are not always aligned in their treatment of issues affecting insurers and policyholders, but the states are in agreement that an insurer’s duty to defend is several, personal and not subject to division by or contribution from other carriers. Cont’l Cas. Co. v. United Pac. Ins. Co., 637 So.2d 270, 272-7 (Fla. 5th DCA  1994) (holding that insurer is not entitled, pursuant to right of equitable subrogation or contribution, to recover from another insurer costs of defending mutual insured); Sloan Constr. Co. v. Cent. Nat’l Ins. Co. of Omaha, 269 S.C. 183, 236 S.E.2d 818, 820 (1977) (an insurer is not entitled to divide duty to defend nor require contribution from another absent specific contractual right); Auto-Owners Ins. Co.  v. Travelers Cas. And Sur. Co. of Am., No. 4:12-cv-3423, 2014 WL 3687338 (D.S.C. July 22, 2014 aff’d, 597 (4th Cir. 2015).  As a result, where two or more insurers insure the same risk for the same insureds (be it a named insured or an additional insured) and the policies at issue provide for a defense, the insured is entitled to seek its costs of defense from any or all of the insurers but, absent other contractual rights, the defending insurer(s) cannot require contribution from the other carriers or seek to subrogate the expenses of that defense.

South Carolina and Florida, along with a few other states, find themselves in the minority in the refusal to grant insurers a right to recover portions of the defense costs paid from other carriers.  Id.; Fid. & Cas. Co. of N.Y. v. Ohio Cas. Ins. Co., 482 P.2d 924, 926 (Okla. 1971).   These minority courts recognize that each insurer contracted to defend, at its own expense, any suit within the terms of its policy.  Sloan, 269 S.C. at 186 (finding that an insurer’s duty to defend is irrelevant to the rights and duties existing between the insured and another carrier). As a result, compelling each carrier to provide a full defense to its insured requires no more of the insurer than what it was obligated to do under its insurance contract with the insured.  While potentially draconian from the carriers’ perspective, the minority rule protects the insured’s rights to the full benefits of the insurance policy and entitles the insured to recover 100% of its defense costs from any one carrier. Moreover, because insurers cannot sue one another seeking a pro-rata share of attorneys’ fees incurred in providing a defense to the mutual insured there is a corresponding reduction in the number of lawsuits and burden on the judiciary.  Cont’l Cas. Co., 637 So.2d at 273.  Courts in South Carolina and Florida also have reasoned that the threat of bad faith actions, and the corresponding exposure of policy limits and extra-contractual damages, are sufficient to prevent additional carriers from shirking their defense obligations after one carrier picks up the defense of the shared insured.

The majority of courts which recognize an insurer’s right to contribution or to have defense costs shared in some way include the following: (1) Alaska, Marwell Constr., Inc. v. Underwriters at Lloyd’s, London, 465 P.2d 298, 313 (Alaska 1970); (2) Arizona, Nat’l Indem. Co. v. St. Paul Ins. Cos., 150 Ariz. 458, 724 P.2d 544, 545 (1986); (3) California: Cont’l Cas. Co. v. Zurich Ins. Co., 57 Cal.2d 27, 17 Cal.Rptr. 12, 366 P.2d 455, 460-62 (1961); (4) Colorado: Nat’l Cas. Co. v. Great Sw. Fire ins. Co., 833 P.2d 741, 747-48 (Colo.1992); (5) Connecticut:  Travelers Cas. & Surety Co. of Am. V. Netherlands Ins. Co., 312 Conn 714 (2014); (6) Cargill, Inc. v. Ace American Ins. Co., 784 N. W. 2d 341 (2010); (7) New Jersey: Marshall v. Raritan Valley Disposal, 398 N.J. Super. 168, 940 A.2d 315, 320 (2008); (8) North Carolina: Medical Mut. Ins. Co. of NC v. American Cas. Co. of Reading, PA, 721 F. Supp.2d 447, 464 (E.N. N. C. 2010); (9) Pennsylvania: J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa 29, 626 A.2d 502, 209 (1993); (10) Utah: Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 137-38 (Utah 1997); and (11) Washington: Mut. Of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wash.2d 411, 191 P.3d 866, 872-74 (2008). These cases suggest that permitting contribution and/or subrogation between insurers guarantees that co-carriers honor their obligations to defend their mutual insured and that no one carrier is unfairly saddled with the burden of funding the entire defense.  Specifically, such courts conclude that permitting coinsurers to recover from one another creates strong incentives for prompt and proactive involvement by all responsible carriers, reduces the incidence of carriers that avoid their duty to defend in the hope that other insurers will defend and relieve them of the expense, and promotes the efficient use of resources of insurers, litigants, and the court.

Insurers in South Carolina, Florida and like-minded states continue to look for opportunities to create a cause of action for equitable contribution, permit subrogation, or to otherwise alter the minority rule.  However, the South Carolina District Court for the Charleston Division recently affirmed the Sloan rule in FCCI Insurance Company v. Island Pointe, LLC, et al., Case No. 2:17-cv-1976.  In that declaratory judgment action arising out of the construction of a condominium complex in Charleston, South Carolina, FCCI sought declarations regarding the coverage available to its named insured and general contractor for the project, Complete Building Corporation (“Complete”).  While FCCI agreed to defend Complete in the underlying action, FCCI also sought a declarations that Complete qualified as an additional insured under policies issued to Complete’s subcontractors and that the carriers for Complete’s subcontractors were required to contribute to Complete’s defense fees and costs.  In granting motions to dismiss filed by the carriers for Complete’s subcontractors, the court determined that the doctrines set forth in Sloan and Auto-Owners applied and precluded FCCI’s claims.  Specifically, the court opined that because “FCCI is not a party to any contract between [Complete’s subcontractors and their insurers]” FCCI “cannot compel the [subcontractors’ insurers] to defend Complete in the underlying suit. FCCI at *8-9.  Importantly, while insurers may not have the right in South Carolina to compel participation of the other carriers in the defense of a shared insured, the Island Pointe case does not hold that a policyholder is prohibited from all implicated insurers even when another carrier is already defending it.

Ultimately, under either the majority or minority rule, the insured is entitled to payment of 100% of its defense costs per its policy/policies.  However, the differences in the law can have practical and meaningful effects on the number and scope of the lawsuits to which the policyholder may be a party, its duties in those cases, and potentially even its tender obligations.

April 11th, 2018

WHERE ONE ASKS FOR THEIR DECLARATIONS MATTERS: DECLARATORY JUDGMENT ACTIONS IN FLORIDA STATE AND FEDERAL COURTS

by, Michael W. Leonard, Esq.

Insurance coverage disputes involving both the duty to defend and indemnity necessarily result in the filing of actions seeking declaratory judgments as to both.  The jurisdiction where a party, whether it be the insured or insurer, files for relief matters.  Florida and federal courts have their own respective declaratory judgment statutes and they are not identical.  These differences may likely lead to different timelines in the litigation process.
Florida’s declaratory judgment statute gives both county and circuit courts’ jurisdiction within their respective jurisdictional amounts to declare rights, status and other equitable and legal relations.  §86.011 Florida Statues.  This statute goes on to read in relevant part that: “[T]he court may render declaratory judgments on the existence or nonexistence” of any immunity, power, privilege or right whether it now exists or may arise in the future. Id. (emphasis added).
The federal statute governing declaratory actions provides that: “[I]n a case of actual controversy . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201. (emphasis added).   Although the highlighted differences between the two statutes may seem subtle, how courts have interpreted their respective statutes matters.

The Distinction Between Duty to Defend and the Duty to Indemnify
Before analyzing the differences between the two statutes and the cases interpreting them, it is important to recap the differences between the duty to defend and indemnify.  As we all know, the duty to indemnify is separate and distinct from the duty to defend. Northland Cas. Co. v. HBE Corp., 160 F. Supp. 2d 1348, 1360 (M.D. Fla. 2001). The duty to defend is broader than the duty to indemnify and depends “‘solely on the allegations in the complaint[s] filed against the insured.’” Id. “[T]he duty to indemnify is dependent upon the entry of a final judgment, settlement, or a final resolution of the underlying claims by some other means.” HBE Corp., 160 F. Supp. 2d at 1360; see also Westport Ins. Corp. v. VN Hotel Grp., LLC, 761 F. Supp. 2d 1337, 1348 (M.D. Fla. 2010) (“Except where there is no duty to indemnify for want of a duty to defend, an insurer’s duty to indemnify is dependent on the outcome of a case . . .”). “[W]hereas the duty to defend is measured by the allegations of the underlying complaint, the duty to indemnify is measured by the facts as they unfold at trial or are inherent in the settlement agreement.” HBE Corp., 160 F. Supp. 2d at 1360; see also Stephens v. Mid-Continent Cas. Co., 749 F.3d 1318, 1324 (11th Cir. 2014) (an insurer’s duty to indemnify “is narrower [than the duty to defend] and is determined by the underlying facts adduced at trial or developed through discovery during the litigation.”; “In other words, to determine whether there is a duty to indemnify, one looks at the actual facts, not only those that were alleged in the state court complaint.”).

The Federal Declaratory Judgment Act and Cases Interpreting Same
The Federal Declaratory Judgment Act, since its inception, has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants.” Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). The United States Supreme Court has “repeatedly characterized the Declaratory Judgment Act as an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant.” Id. at 286-87.  A district court thus always has discretion whether to entertain an action for a declaratory judgment. Cas. Indem. Exch. v. High Croft Enters., Inc., 714 F. Supp. 1190, 1193 (S.D. Fla. 1989) (citing Brillhart v. Excess Ins. Co., 316 US 491 (1942) and Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111 (1962)); see also Angora Enters., Inc. v. Condo. Ass’n. of Lakeside Village, Inc., 796 F.2d 384, 387 (11th Cir. 1986) (“the district court could have properly refused to address the merits of the claim by resort to its inherent discretion to decline to entertain a declaratory action.”). The Eleventh Circuit has declared that the Act “only gives the federal courts competence to make a declaration of rights; it does not impose a duty to do so.” Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328, 1330 (11th Cir. 2005).  As such, “[g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation should be avoided.” Id. (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)).

The Federal Declaratory Judgment Act provides that a declaratory judgment may be issued only in the case of an “actual controversy,” which must be immediate, substantial and continuing and must create a “definite, rather than speculative threat of future injury.” 28 U.S.C. §2201 et seq.; Emory v. Peeler, 756 F.2d 1547, 1552 (11th Cir. 1985). The Act is a grant of jurisdiction only as to those rights and liabilities that are immediate and real, or that are certain to arise. See, e.g., Calderon v. Ashmus, 523 U.S. 740, 746-47 (1998).  The “case or controversy” requirement of the Constitution limiting federal court jurisdiction similarly requires that “a plaintiff must have suffered some actual injury that can be remedied or redressed by a favorable judicial decision.” Nat’l Advertising Co. v. City of Ft. Lauderdale, 934 F.2d 283, 285-86 (11th Cir. 1991).  As such, federal courts have broad discretion to either dismiss without prejudice or stay unripe claims. Pro Net Global Ass’n, Inc. v. U.S. Liab. Ins. Co., Nos. 3:02-cv-396-J-32TEM, 3:02-cv-617-J- 32TEM, 2004 WL 6062923, at *2 (M.D. Fla. Mar. 8, 2004) (citing Wilton, 515 U.S. at 288).
Because an insurer’s duty to indemnify generally depends on the outcome of the underlying dispute against the insurer’s insured, federal court courts have held that an insurer’s duty to indemnify is not ripe until the underlying suit is resolved, and thus either dismiss or stay the claim involving the declaration of rights involving indemnity. See, e.g., Summit Contractors, Inc. v. Amerisure Mut. Ins. Co., No. 8:13-CV-295-T-17TGW, 2014 WL 936734 (M.D. Fla. Mar. 10, 2014) (dismissing for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) request for declaration as to a carrier’s duty to indemnify for pending underlying claims as unripe); Allstate Prop. & Cas. Ins. Co. v. Tomlinson, No. 2:14–cv–1940–HRH, 2015 WL 3439129 (D. Ariz. May 28, 2015) (same); Pro Net, 2004 WL 6062923 (dismissing request for declaration as to a carrier’s duty to indemnify until underlying actions are resolved); Mid-Continent Cas. Co. v. Gozzo Dev., Inc., No. 17-CV-80362, 2017 WL 3578846, at *1 (S.D. Fla. July 19, 2017).

For example, in Mid-Continent Cas. Co. v. Nassau Builders, Inc., No. 3:16-CV-921-J-34JRK, 2017 WL 1191383 (M.D. Fla. Mar. 31, 2017), the Middle District of Florida stayed a declaratory action case until the underlying action was resolved. Importantly, the court noted that the duty to indemnify will “necessarily turn on complex factual findings and issues of Florida law which are currently pending in the Underlying Action before the state court.” Id. at *2.

Florida’s Declaratory Judgment Statute
Florida courts, in deciding issues involving the duty to indemnify, have found it important to determine whether the issue of coverage is dependent on the resolution of factual issues in the underlying action.  If the declaratory action was not dependent on the factual issues in the underlying action courts would not abate or dismiss the declaratory action and instead determine the indemnity issue.  For example, in the case of Britamco Underwriters, Inc. v. Central Jersey Invs., Inc., 632 So. 2d 138, 139 (Fla. 4th DCA 1994), the court held that where issue of coverage was not dependent on the resolution of fact issues common to underlying litigation, it was appropriate to determine in declaratory action prior to conclusion of underlying suit.  Likewise, in Travelers Ins. Co. v. Emery, 579 So. 2d 798, 800-02 (Fla. 1st DCA 1991), the issue of coverage under a business pursuits exclusion was appropriate for declaratory action prior to filing of underlying action where resolution of this issue leaves material issues in underlying action unaffected. In Allstate Ins. Co. v. Conde, 595 So. 2d 1005, 1008 (Fla. 5th DCA 1992), the appellate court noted that under unusual circumstances where the underlying complaint alleges two alternative, mutually exclusive theories of liability, a court may look beyond the allegations of complaint and determine facts that will answer the duty to defend issue and also thereby answer the duty to indemnify issue.
As such, when the theories of liability in the underlying action and the factual issues associated with indemnity were intermingled, Florida state courts were more likely to abate or dismiss the indemnity issues and allow the facts to develop in the underlying action.  In Home Insurance Company v. Gephart, 639 So. 2d 179 (Fla. 4th DCA 1994), the insurer was not entitled to a declaration of the duty to indemnify where the case involved some of the same factual questions that were present in the underlying action and where theories of liability were not mutually exclusive.  Marr Investments, Inc. v. Greco, 621 So. 2d 447 (Fla. 4th DCA 1993), is another example.  In Marr, a bar owner sought a declaration obligating its insurer to defend it against claims by a patron.  Id.  On appeal, the court found that the trial court’s finding that there was no coverage was premature and therefore the issue of indemnity was not ripe. Id. at 449.   The appellate court stated that the duty to indemnify should be deferred until liability was decided in the underlying action.  Id.
In 2005, the Florida Supreme Court heard the case of Higgins v. State Farm Fire and Casualty Company, 894 So. 2d 5 (Fla. 2005). The facts of Higgins are relatively simple.   The initial allegation of the complaint filed alleged that while visiting Mrs. Bradley, the estranged wife of Mr. Higgins, Mr. Higgins came to her home and intentionally assaulted Mrs. Ingalls.  Id.  Mrs. Ingalls thereafter field her amended complaint wherein she alleged that the actions of Mr. Higgins were negligent.  Id.  Mr. Higgins demanded that State Farm, the homeowner’s carrier, provide him a defense and indemnity for the claims being asserted.  Id.  State Farm filed a declaratory action as to the duty to defend and indemnify and argued that despite the negligence label, the alleged conduct was still willful and intentional and therefore excluded under the homeowner’s policy.  Id. at 8.  The declaratory action proceeded to trial and the jury found that Higgins actions were intentional.  Id.  On appeal, the Fourth District Court of Appeal found that it was appropriate for the declaratory action to decide whether Higgins’ conduct was excluded under the policy. The appellate court also certified the following question to the Supreme Court:
May the insurer pursue a declaratory action in order to have declared its obligation under an unambiguous policy even if the court must determine the existence or nonexistence of a fact in order to determine the insurer’s responsibility?
Id. at 9.
The Florida Supreme Court agreed with the Fourth District that sections 86.011(2), 86.051, 86.071, and 86.101, Fla. Stat., support the conclusion that an insurer may pursue a declaratory action which requires a determination of the existence or nonexistence of a fact upon which the insurer’s obligations under an insurance policy depend.  The Court went on to state that:
We conclude that it is illogical and unfair to not allow insureds and insurers to have a determination as to whether coverage exists on the basis of the facts underlying a claim against an insurance policy. Why should an insured be placed in a position of having to have a substantial judgment against the insured without knowing whether there is coverage from a policy? Why should an insurer be placed in a position of either paying what it believes to be an uncovered claim or being in jeopardy of a bad faith judgment for failure to pay a claim? These are precisely the issues recognized by this Court in other contexts that are intended to come within the purpose of the declaratory judgment statute’s “relief from insecurity and uncertainty with respect to rights, status, and other equitable or legal relations.
Id. at 15.  The Court thus concluded that the Florida declaratory judgment statutes authorize declaratory judgments in respect to insurance policy indemnity coverage and defense obligations in cases in which it is necessary to resolve issues of fact in order to decide the declaratory judgment action.  Id. at 16.
In light of this holding, some carriers are of the mindset that Florida now permits, in all instances, the filing of a declaratory action in state court which will allow them to determine early on both the issue of defense and indemnity.  However, this reading of Higgins is not accurate. Important to the Supreme Court’s ruling was the fact that depending on the determining of the factual issue, the claims asserted would be either covered or not. In this regard, the Court went on to site to the factors identified in Allstate Insurance Co. v. Conde, 595 So.2d 1005, 1008 (Fla. 5th DCA 1992), which a court should consider when analyzing whether to allow the factual issues of indemnity to be decided ahead of the underlying action.  Id. at 15.  One consideration is what issues are involved in the two actions.  Id.  In Conde, like the Higgins action, the issue was whether all claims against the insured arose from acts which were intentional or negligent (covered or uncovered).  Id.
Another factor which a court should weigh is whether proceeding to a decision as to the insurance indemnity issue will promote settlement and avoid the problem of collusive actions between claimants and insureds in order to create coverage where coverage does not exist under the true facts.  Id. at 16.  As noted by the Conde court, pleadings can create a perfect conspiracy between plaintiff and defendant in the underlying action. Id.   As quoted by the Supreme Court in Higgins, the Conde court went on to state that:
The plaintiff pleads negligence in a case like this because he wants a deep pocket from which to satisfy a judgment or, even better, to obtain a settlement. Normally when a defendant is sued on a theory that is inadequately pleaded, he gets the claim dismissed or, if the claim is invalid under controlling law, he gets a summary judgment. But in cases such as this the normal antidotes for invalid claims do not work. An insured defendant is often totally committed to the negligence pleading of the plaintiff because as long as the negligence claim is included in the complaint, the insured must be provided a defense on the intentional tort claim, a benefit he would not have if the spurious negligence claim were missing.
Id. at 17.
Finally, a court should weigh the fact that that there are cases with insureds who have resources independent of insurance and that it would be immaterial to the claimant whether the insured’s conduct was covered or not covered by indemnity insurance.  Id.  To hit this point home, the Supreme Court stated:
We agree with Judge Diamantis that the resolution of the timing issue in accord with International Surplus Lines Insurance Co. v. Markham, 580 So.2d 251 (Fla. 2d DCA 1991), in which the court indicated that the duty to defend issue should be resolved early but the insurance indemnity action abated until after the underlying tort action is final, may be necessary in some cases. But, for the reasons stated above, we believe that there are factors which weigh in favor of trying the indemnity coverage issue first.
Id.
Importantly, the circumstances of each case may dictate where the appropriate jurisdiction is to file a declaratory relief action based on the above case law.

March 6th, 2018

The Court of Appeals holds that loss of use of real property constitutes “property damage” under CGL Policy

By, Mark A. Boyle, Esq.

Many lawsuits involving real property and defective construction claims include claims for damages that do not constitute physical damage to tangible property. Generally, COMMERICAL GENERAL LIABALITY (“CGL”) carriers eschew coverage for such claims.  The recent decision in Mid-Continent Cas. Co. v Adams Homes of Northwest Florida, Inc., No. 17-12660, 2018 WL 834896 (11 Cir. Feb. 13, 2018) clearly makes loss of use claims—even where no physical damage to tangible property occurs—potentially covered claims under CGL policies in Florida.

Adams Homes of Northwest Florida (“ADAMS”) was sued by a series of homeowners in an integrated community in which the residents were allotted common access to amenities including golf courses, restaurants, a marina, and shops. ADAMS built a series of homes within the development. The homeowners in the development eventually sued ADAMS claiming “homes, the streets adjacent to the homes, and the common areas they have access to, are now prone to flooding “which has made “[Homeowners’] ordinary use or occupation of their property physically uncomfortable” and “disturb[ed] the [Homeowners’] free use … of their property.” Homeowners sued ADAMS in state court seeking damages for ADAMS’ alleged negligence in failing to ensure the installation of adequate drainage.

Mid-Continent Casualty Company (“MCC”) insured ADAMS under a series of commercial general liability policies which included the standard INSURANCE SERVICES OFFICE’s (“ISO”) CGL property damage definition. Under those policies, MCC had the “right and duty to defend the insured against any ‘suit’ seeking damages because of ‘bodily injury’ or ‘property damages’ covered thereunder.” The policy defined property damage as follows:

  1. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
  2. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.

 

MCC began defending ADAMS under a reservation of rights but also asserted a declaratory relief action in which MCC attempted to disclaim both the duty to defend and the duty to indemnify. The trial court agreed with MCC that the claims of the Plaintiff did not constitute “property damage” as that terms was defined under the CGL policy.

The 11th Circuit disagreed relying both on the plain language of the policy and a Florida intermediate appellate court decision, McCreary v. Florida Residential Prop. and Cas. Joint Underwriting Ass’n, 758 So.2d 692, 693 (4th Dist. Ct. App. 1999).  In McCreary, the court determined that the actions of the defendant ultimately rendered the Rebalko’s property unsafe and unsecure; thereby resulting in loss of use. Id. at 695. In response to MCC’s response argument that the water was “relatively harmless” and not likely to cause “an immediate danger”, the Court noted:

“But the absence of allegations that the storm water run­off is placing Homeowners in immediate danger does not counsel a different result. Physical discomfort in the use of property, like insecurity and unsafety in the use of property, raises the specter of loss of use. Although it is unclear whether the physical discomfort caused by the run-off is severe enough to prevent Homeowners from using their property, the same was true of Rebalko’s allegations in McCreary. Rebalko did not allege he stopped using his property because of the McCrearys’ dogs; rather, Rebalko alleged he felt insecure and unsafe in its use. Like Rebalko, Homeowners are entitled to have any ambiguity about whether the physical discomfort caused by the run-off was severe enough to cause loss of use resolved in their favor. “If the allegations of the complaint leave any doubt as to the duty to defend, the question must be resolved in favor of the insured.” Lime Tree Vill.Cmty., 980 F.2d at 1405.

Thus, the Court held that there was a duty to defend.

In addition to its holding that a potential loss of use claim required a defense under the CGL policy the 11th Circuit held that the fact that the damages in questions were “purely economic” did not bar the claims under the circumstances of this case noting “We have not found any support for applying the principle that general-liability policies do not cover purely economic damages in a case like this one.”

Until the ADAMS v MCC decision, most of the focus in insurance litigation for defective construction involved the question of whether or not the “property damage” definition had been met by a showing of physical injury to tangible property.  See U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007), Auto-Owners Ins. Co. v Pozzi Windows Co., 984 So. 2d 1241 (Fla. 2008). The ADAMS v MCC decision now gives a potential claimant under a CGL policy two avenues for pleading into coverage: 1. physical damage to tangible property; and/or 2. loss of use.  Practitioners who wish to plead their claims into coverage should plead either or both elements as applicable.

 

 

February 23rd, 2018

The Aftermath of Hurricane Irma: The Battle Royale for Insurance Coverage

by, Katherine L. Sloan, Esq.

Five months have passed since Hurricane Irma devastated much of the State of Florida. Unfortunately, for many homeowners affected by the devastating storm, the true battle is just beginning. As Floridians report devastating losses to their insurance carriers, many find that these reports are met with either a lack of response from the carrier, or the offer of a settlement check that does not even begin to scratch the surface towards repairing their damaged homes.

It is important for homeowners to be aware that in the State of Florida (and a few other jurisdictions across the country), Section 627.7142, Florida Statutes outlines a Homeowner Claims Bill of Rights detailing the rights of a personal lines residential property insurance policyholder who files a claim with his or her insurance carrier. In fact, in many cases, insurance carriers must provide this Homeowner Bill of Rights to a policyholder within fourteen days after receipt of a claims communication. Under this Homeowner Bill of Rights, the policyholder has a right to:

  1. Receive acknowledgment of their claim within 14 days after the claim was communicated to the insurer.
  2. Receive communication from the insurer as to the claim being covered in full, partially covered, or denied, or a written statement that your claim is being investigated, within 30 days after the company receives the policyholders completed proof of loss form.
  3. Subject to any dual interest noted in the policy, receive full payment of the claim, the undisputed portion of the claim, or the denial of the claim within 90 days.
  4. Free mediation of your disputed claim, offered through the Division of Consumer Services, under most circumstances and subject to certain restrictions.
  5. Neutral evaluation of a disputed sinkhole claim if the claim is due to sinkhole damage and is covered under the policy.
  6. The availability of assistance with any insurance claim or questions pertaining to the handling of your claim from the Division on the notice.

A homeowner dealing with his or her insurance company in the aftermath of Hurricane Irma would be wise to make sure that emergency repairs necessary to prevent further damage are completed and documented. It is also critical to take photographs both before and after any repairs that are completed to document each and every undertaking at the property. To the extent that the repairs are not an emergency and do not require immediate attention, it is important that a homeowner contact the insurer prior to undertaking these types of repairs to provide the carrier with an opportunity to inspect the home. It also never hurts to obtain estimates from licensed general contractors to properly assess the amount of damages at issue. Finally, it is critical for a homeowner to carefully read all correspondence—including any settlement checks that may contain policy release language—from the insurance carrier and cooperate by providing information that may be requested.

Navigating an insurance claim can be a confusing and arduous process. It is always best to consult with an attorney that specializes in insurance coverage disputes to assist in the process.

 

 

 

 

February 9th, 2018

ELEVENTH CIRCUIT REAFFIRMS THAT FLORIDA’S EIGHT CORNERS RULE DETERMINES A CARRIER’S DUTY TO DEFEND

By, Alex Brockmeyer, Esq.

 

Generally, Florida requires an insurance carrier assess its duty to defend based on the allegations set forth in the operative complaint and the provisions of the pertinent insurance policy. Jones v. Fla. Ins. Guar. Ass’n, Inc., 908 So. 2d 435, 443 (Fla. 2005). This standard is often referred to as the “eight corners” rule. Certainty regarding a carrier’s defense obligation is, as Judge Zehmer explained in Baron Oil Co. v. Nationwide Mut. Fire Ins. Co., 470 So. 2d 810 (Fla. 1st DCA 1985), the reason why Florida utilizes this standard:

 

The Florida Supreme Court in National Union Fire Insurance Co. v. Lenox Liquors, Inc., supra, held that if coverage was not indicated by the allegations of the complaint, later stipulations filed in the action which indicate that insurance coverage would apply do not create a duty to defend. We hold that the reverse is also true. The later filings below, which tended to indicate that the damage claims pursued against appellant/insured were not covered by the insurance policy issued by appellee, do not defeat the duty to defend. Were this not the case, the indefiniteness as to whether the insurer should begin or should continue to defend a suit would create another major issue in many insurance lawsuits, placing insurer and insured on opposing sides. We think that result would not well serve either. With a duty to defend set by the initial pleading, each party knows his standing and need not examine every new document filed to determine if the claims may be focusing on noncovered damages.

 

 

Id. at 814 (quoting Kings Point West, Inc. v. North River Ins. Co.,412 So. 2d 379, 380 (Fla. 2d DCA 1980)) (emphasis added).

In Higgins v. State Farm Fire and Casualty Company, 894 So. 2d 5 (Fla. 2004), the Florida Supreme Court, among other issues, considered whether an insurer’s duty to defend is determined based on the underlying complaint’s allegations. Id. at 9. Ultimately, the Court reaffirmed the Florida’s commitment to the eight corners rule. Id. at 10.

In doing so, however, Higgins acknowledged that an exception to the eight corners rule might exist that would permit the use of a declaratory action to adjudicate a factual issue upon which an insurer’s duty to defend depended. Id. at 10 n. 2. Importantly, however, Higgins made clear this could only occur in the rare scenario where the “duty to defend is based on factual issues that would not normally be alleged in the underlying complaint.” Id. (emphasis added).

Since Higgins, carriers have attempted to extend this narrow exception beyond that contemplated by the Florida Supreme Court. One of the more recent attempts occurred in Addison Insurance Company v. 4000 Island Boulevard Condominium Association, 2017 WL 6616690 (11th Cir. 2017). In 4000 Island, the carrier attempted to expand the exceptions to the eight corners rule to include instances where the operative complaint’s allegations are “unsupported by evidence….” Id. at *7. According to the carrier, Higgins entitled it to venture outside the eight corners of the operative complaint and turn the duty to defend analysis into a fact-intensive inquiry. Id. The Eleventh Circuit squarely rejected this contention:

 

In Higgins, the Florida Supreme Court, answering a certified question from a lower state appellate court, held that Florida’s declaratory judgment statutes “authorize declaratory judgments in respect to insurance policy indemnity coverage and defense obligations in cases in which it is necessary to resolve issues of fact in order to decide the declaratory judgment action.” Higgins, 894 So.2d at 15. The Florida Supreme Court concluded, in other words, that a declaratory judgment action does not become unavailable to an insurer merely because some issue of fact is disputed. Id.

Higgins in no way abrogated the normal principles of summary judgment. Nor did it hold, as [carrier] contends, that any time an insurer disputes a fact, the insurer is “entitled to a determination of such facts … particularly where the underlying allegations at issue appear baseless.” To the contrary, Higgins expressly reaffirmed the eight corners rule: “[A]n insurer’s obligation to defend is determined solely by the complaint if suit has been filed.” Id. at 10. And the very next year, the Florida Supreme Court reaffirmed the eight corners rule again in Jones, 908 So.2d at 442-43. We find no reason to disturb the district court’s application of this settled Florida law.

Id. The Eleventh Circuit’s opinion in 4000 Island is an important because it reaffirms Florida’s commitment to the eight corners rule and the certainty the rule promotes.

 

 

January 26th, 2018

Putting the Cart Before the Horse: Why Insureds Should Avoid Litigating Issues of Indemnity Prior to Determining Liability

By Meagan R. Cyrus, Esq.

Frequently in the context of third-party liability coverage disputes, an insured is battling on two fronts: 1) the underlying liability action and 2) the insurance declaratory judgment action. In some scenarios, the insured has little control over either, as the insurer, in anticipation of an insured seeking to judicially enforce its rights under the policy, will race to its preferred forum in order to seek a declaration as to the coverages afforded under the policy prior to significant factual issues being decided in the underlying liability action.

From the perspective of an insured seeking to have defense obligations determined as soon as possible, as the monetary resources expended in the underlying action can become burdensome without insurer participation, this route can be advantageous. However, insureds should be leery of allowing the carrier to proceed on claims regarding indemnity issues, as doing so could force it to take conflicting positions in the underlying liability action and the insurance declaratory judgment action. For example, many insureds in a construction defect matter take the position that property damage did not occur. However, in order to be afforded coverage under a standard commercial general liability policy for such claims, same is required.

It is well established that the duty to indemnity is separate and distinct from the duty to defend. See Northland Cas. Co. v. HBE Corp., 160 F. Supp. 2d 1348, 1360 (M.D. Fla. 2001). Therefore, courts will generally entertain a motion to stay indemnity claims, pending the outcome of the underlying matter. See e.g., Summit Contractors, Inc. v. Amerisure Mut. Ins. Co., No. 8:13-CV-295-T-17TGW, 2014 WL 936734 (M.D. Fla. Mar. 10, 2014); Great Lakes Reinsurance PLC v. Leon, 480 F. Supp. 2d 1306 (S.D. Fla. 2007); Cincinnati Ins. Co. v. Franck’s Lab, Inc., et al., No. 5:12-cv-406-Oc-10PRL (M.D. Fla. Sept. 17, 2013).

 

 

 

September 26th, 2017

POST-IRMA: ARE YOU COVERED?

By Justin M. Thomas, Esq.

Earlier this month, majority of Floridians experienced the passing of Hurricane Irma.  Unfortunately, the risks associated living in the state of Florida include tropical weather such as hurricanes and tropical storms.  In Southwest Florida, those risks and the ensuing damaging resulting from those risks are now readily apparent.  As the area and the state begin to recover, it is important not to forget about the steps commonly taken to insure against the losses associated with unexpected and catastrophic events, like Hurricane Irma.  Namely, insurance for real property, personal property and loss of business or business interruption.

Property/Homeowners’ Insurance

A large majority of Floridians have purchased an insurance product to protect their most valuable investment, their home.  In addition to insuring the structure from loss, the property contained inside is also likely insured up to a certain limit.  If structural or property damage was sustained, the following steps should be taken:

  1. Locate your insurance policy and read the coverages afforded under it.

 

  1. In the event of recognized damage, immediately place your insurer on notice of the loss.

 

  1. Document all damages to your home and property, as this will be requested from your insurer. Photographs and an inventory of damages are a simple way to keep track of the loss and quickly provide to your insurer when requested.

 

  1. Follow up with your insurer to make sure that your claim is opened and being processed so as to quickly begin the steps forward to recovering from this unfortunate event.

 

  1. If your property is in danger of sustaining further loss, seek the permission of your insurer to employ efforts to mitigate further loss.

 

  1. In the event that your insurer fails to respond to your attempts to initiate a claim or respond to your inquiries, contact the state of Florida Department of Insurance Consumer Helpline at (1-877-693-5236) and consider seeking the advice of competent legal counsel experienced with handling similar claims.

 

Commercial Property and Business Interruption Coverage

The losses associated with serious weather events, such as Irma, do not just damage homes and impact the personal lives of Floridians.  Mother Nature’s powerful force has unyieldingly damaged the property of Florida’s economic base of small businesses as well.  Commercial property insurance is the product device to protect a business’s real and personal property.  An additional coverage available for businesses is that of business interruption insurance. This insurance provides coverage to a business for the losses sustained due to the inability or reduced ability of a business operate in the event of disaster or loss.

While no business owner can forecast the future, those that have purchased commercial property insurance and business interruption are not without support to recover from Irma’s recently inflicted loss. The steps outlined above with respect to homeowners insurance will apply equally to a commercial property claim. In addition, consider the following:

  1. Identify all available coverages for both property and if applicable, inventory maintained by the business.

 

  1. Confirm the notice requirements in the policy in the event of a loss and immediately report the loss or potential loss to your carrier.

 

  1. Maintain accurate records of the events leading up to the disaster, during the disaster and following the event so as to be able to provide the insurer with the necessary information to evaluate and adjust the loss.

 

In closing, although the recent events associated with Irma have inevitably disturbed the lives and damaged the property of many Floridians, recovering for those losses from your insurer is one positive step towards returning to some sense of normalcy.

August 14th, 2017

INSURER CANNOT HAVE ITS CAKE AND EAT IT TOO: FLORIDA SUPREME COURT INTERPRETS “AT OUR REQUEST” LANGUAGE IN THE ADDITIONAL PAYMENTS PROVISION

By Meagan R. Cyrus, Esq.

As insurance policies changed from, historically, ones of indemnity to those of liability, insurers commanded a greater control over settlements and the defense of the insured in the third-party context. Logically, as the insurers would ultimately pay the price of the defense and indemnity, it follows that insurers would accordingly find such control necessary to protect their own interests. Notably, this control takes form in the commonly included “Voluntary Payment Provision”, barring an insured from unilaterally settling a claim.

The Supreme Court of Florida recently recognized this control over defense and settlement in its July 13, 2017 decision, in GEICO v. Macedo, No. SC16-935. The Court affirmed the First District Court of Appeal in holding that the Additional Payments section of the policy covered costs and attorneys’ fees awarded against the insured. Following an automobile accident, the third-party claimant filed suit against the insured and later served the insured with a proposal for settlement that was rejected. After a verdict was entered in favor of the claimant, fees and costs were also awarded pursuant to Section 768.79, Florida Statutes.

GEICO contended, however, that the policy did not cover the fees awarded in the underlying action, because the Additional Payment section only made reference to costs incurred by an insured at GEICO’s request.

ADDITIONAL PAYMENTS WE WILL MAKE UNDER THE LIABILITY COVERAGES

  1. All investigative and legal costs incurred by us.

. . . .

  1. We will upon request by an insured, provide reimbursement for the following items:

. . . .

(c) All reasonable costs incurred by an insured at our request (emphasis added).

The Court disagreed, holding that not only was the section ambiguous, giving rise to an interpretation in favor of coverage, but that such an interpretation did not account for the “Voluntary Payment Provision” in which an insurer has the sole authority to settle a claim on behalf of an insured. Therefore, GEICO’s interpretation failed to construe the policy as a whole. Wash. Nat’l Ins. Corp. v. Ruderman, 117 So. 3d 943, 948 (Fla. 2013).

Because GEICO, under the policy, had the sole discretion to settle the case, and failed to do so, it did not have to “request” that the insured accept or reject the settlement offers. Furthermore, the insured did not even have the option to grant such a request, as the Voluntary Payment Provision granted GEICO complete control over the settlement process. Accordingly, “[i]t follows that any cost or fee incurred as a result of GEICO exercising its authority and control is something that it intended to pay.”

The Macedo decision further emphasizes the control wielded by the insured in the context of settlement. An Insurer justifiably cannot choose to exercise its control over settlement and simultaneously argue that it is not in control.

July 17th, 2017

Builders Risk Insurance v. Commercial General Liability Insurance

By, Amanda K. Anderson, Esq.

 

Introduction

An insurance professional or coverage attorney may have experience in first-party coverage or third-party coverage, but often not both. When a mid-construction casualty like a fire or collapse occurs, the loss is likely to implicate both a builder’s risk policy – a first party coverage usually purchased by the owner – and commercial general liability (CGL) policies purchased by the general contractor and subcontractors.

  1. Different Types of Applicable Coverage
  2. Builder’s Risk Coverage

Courts have described builder’s risk coverage as “‘a unique form of property insurance that typically covers only projects under construction, renovation, or repair and insures against accidental losses, damages or destruction of property for which the insured has an insurable interest.” Vision One, LLC v. Philadelphia Indem. Ins. Co., 276 P.3d 300, 303 n.1 (Wash. 2012) (quoting Fireman’s Fund v. Structural Sys. Tech., Inc., 426 F. Supp. 2d 1009, 1025 (D. Neb. 2006)). The policy pays only for damage to the construction project itself. Id. “A typical builder’s risk policy provides work site insurance on a building, renovation, or construction project for property as it is brought to the site and made part of the improvements on the property.” John V. Garaffa & Heidi Hudson Raschke, The Valuation of Losses Under Builder’s Risk Policies, Brief, Fall 2010, at 50–51.

Although builder’s risk policies are not standardized, they are typically “all risk” policies – meaning that they cover all direct physical loss to covered property, except where exclusions apply. Builder’s risk policies, with varying language, typically exclude loss caused by defective workmanship, but not ensuing loss from covered causes like fire. 4 Bruner & O’Connor Construction Law § 11:234; see, e.g., Vision One, 276 P.3d at 308.

The authority on builder’s risk policies is sparse, but there are at least two state Supreme Court decisions on the scope of the faulty workmanship exclusion. In Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So. 2d 161 (Fla. 2003), the Florida Supreme Court addressed an exclusion for “[l]oss or damage caused by fault, defect, error or omission in design, plan or specification,” with an exception for “physical loss or damage resulting from such fault, defect, error or omission in design, plan or specification.” Id. at 165. When a pre-occupancy inspection of a condominium revealed serious structural deficiencies, the project owner sought coverage for $4.5 million in corrective costs, claiming that the exclusion did “not exclude any costs for work that necessarily damages or destroys portions of the insured property as a result of required remediation or repair of defective property.” Id. at 164. Rejecting this argument, the court held that “[n]o loss separate from, or as a result of, the design defect occurred,” and that the owner was “not entitled to recover the expenses associated with repairing the design defect. To hold otherwise would be to allow the ensuing loss provision to completely eviscerate and consume the design defect exclusion.” Id. at 168.

In Vision One, 276 P.3d at 302, the Washington Supreme Court addressed the scope of coverage for a building collapse caused by defective shoring for concrete slabs. Shortly after the concrete subcontractor finished pouring the first section of the floor, “the shoring underneath the concrete gave way. The framing, rebar, and newly poured concrete came crashing down onto the lower level parking area, where the wet concrete eventually hardened. It took several weeks to clean up the debris, repair the damage, and reconstruct the collapsed floor.” Id. To illustrate the scope of the faulty workmanship exclusion, the court analogized the case to one where faulty wiring work causes a fire: “the ensuing loss clause would preserve coverage for damages caused by the fire. But it would not cover losses caused by the miswiring that the policy otherwise excludes. Nor would the ensuing loss clause provide coverage for the cost of correcting the faulty wiring.” Id. at 307. Because collapse was a covered peril, and because the framing, rebar, and poured concrete were not themselves defective, the court affirmed that there was coverage for the non-defective items damaged in the collapse – but not for the defective shoring. Id. at 510–11, 519–22.

  1. General Liability Coverage

In the event of a mid-construction event like a collapse or fire, the scope of coverage under a CGL policy differs from the coverage under a builder’s risk policy. The standard CGL insuring agreement provides that the insurer will pay “[1] those sums that the insured becomes legally obligated to pay as damages [2] because of [3] ‘bodily injury’ or [4] ‘property damage’ [5] to which [the] insurance applies.” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.) (numbering added). Each of those five parts of the insuring agreement distinguishes a CGL policy from a builder’s risk policy.

First, the “legally obligated to pay as damages” requirement is central to the distinction between first-party and third-party coverage. The CGL coverage is fundamentally narrower, incorporating concepts of fault and legal responsibility that do not apply under first-party coverage.

Second, however, the “because of” language broadens the scope of potentially covered damages. Economic loss, standing alone, is not “property damage” under a CGL policy. Allan D. Windt, 3 Insurance Claims & Disputes § 11:1 (6th ed.). Nevertheless, the “because of” language means that a liable party’s CGL policy may pay consequential economic damages (id.), which a builder’s risk policy does not.

Third, in a catastrophic event like a fire or collapse, individuals may sustain “bodily injury” within the CGL insuring agreement. A builder’s risk policy does not pay for such bodily injury.

Fourth, the scope of “property damage” is similar, but not identical, to the risk of direct physical loss under a builder’s risk policy. “Property damage” is defined, in principal part, as “[p]hysical injury to tangible property, including all resulting loss of use of that property.” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.). “Physical injury to tangible property” is similar in scope to “risk of direct physical loss” under a builder’s risk policy. Compare Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241, 1249 (Fla. 2008), with Swire, 845 So. 2d at 168. Nevertheless, there is a division of authority whether “rip and tear” damage – injury to undamaged property in the course of remedying an uncovered condition – can, standing alone, constitute “property damage.” Compare Desert Mountain Props. L.P. v. Liberty Mut. Fire Ins. Co., 236 P.3d 421 (Ariz. Ct. App. 2010), aff’d, 250 P.3d 196 (Ariz. 2011), with U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 2015 WL 7792557, at *7 (Tex. Dec. 4, 2015). There is no comparable authority finding coverage for “rip and tear” under a builder’s risk policy. Moreover, “property damage” under a CGL policy – unlike loss under a builder’s risk policy – can include third-party damages, such as when a fire spreads to another property or forces nearby businesses to shut down.

Fifth, a CGL policy’s ongoing operations exclusions may apply more broadly than the defective work exclusion under a builder’s risk policy. Exclusion J5 applies to property damage to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.). Exclusion J6 applies to property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it,” but J6 “does not apply to ‘property damage’ included in the ‘products-completed operations hazard.’” Id.

The most widely cited case on the meaning of the phrase “particular part” is Columbia Mut. Ins. Co. v. Schauf, 967 S.W.2d 74 (Mo. 1998). Schauf held that exclusion J5 “denies coverage for more than just damage to the insured’s work … by excluding from coverage damage to the particular part of property on which the insured is performing operations.” Id. at 77. During the construction of a new home, a subcontractor hired to “paint, stain, or lacquer all interior and exterior surfaces” accidentally started a fire while cleaning his equipment immediately after spraying lacquer on the kitchen cabinets. Id. at 76. Exclusion J5 barred coverage under the subcontractor’s policy for any damage to the kitchen cabinets, but not to the fire damage to the rest of the home. Id. at 81. However, Florida courts appear to have moved toward a more liberal interpretation of these exclusions. See American Equity Ins. Co. v. Van Ginhoven, 788 So. 2d 388 (Fla. 5th DCA 2001) and Essex Ins. Co. v. Kart Const., Inc.,
2015 WL 4730540 (M.D. Fla. Aug. 10, 2015). For other examples, see Allan D. Windt, 3 Insurance Claims and Disputes § 11:18A (6th ed.), and 4 Bruner & O’Connor Construction Law § 11:100. Thus, the CGL ongoing operations exclusions – unlike the builder’s risk defective workmanship exclusion – can bar coverage for physically injured property other than the defective work itself.

When it comes to evaluating a case’s settlement value, a CGL insurer faces the prospect of paying the cost of defending its policyholder in the liability action. An insurer for a subcontractor often faces a second set of defense costs – if the general contractor is named as an “additional insured” on the subcontractor’s policy, the insurer may also pay a share of the general contractor’s defense costs. Indeed, because many CGL policies limit “additional insured” coverage to injury arising out of the named insured’s ongoing operations, e.g., Weitz Co., LLC v. Mid-Century Ins. Co., 181 P.3d 309, 312 (Colo. Ct. App. 2007), mid-construction damage is more likely than post-completion damage to trigger an obligation to defend a general contractor under its subcontractors’ insurance policies.

  1. Particular Questions that Arise
  2. “Other Insurance” Clauses

A CGL policy’s “other insurance” clause typically states that the “insurance is excess over … (a) Any of the other insurance, whether primary, excess, contingent or on any other basis … (i) That is Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for ‘your work.’” Commercial General Liability Coverage Form (2013), Miller’s Standard Insurance Policies Ann. (7th ed.). This clause has been held to refer “solely to first-party property coverage.” Colony Ins. Co. v. Ga.-Pac., LLC, 27 So. 3d 1210, 1214 (Ala. 2009).

It does not appear that courts have addressed the mechanics of how a third-party liability coverage and a first-party property coverage can be primary or excess to one another. But, as discussed in the next section, the more pressing question is the scope of a builder’s risk insurer’s subrogation rights after it pays for a loss.

  1. Risk Transfer

Effective risk management is an important goal in any contract negotiation, particularly when the parties’ performance under the contract exposes them to potential third party claims for bodily injury, property damage, and other alleged injuries. One tool in the bag of effective risk management is contractual risk transfer: the process by which one party transfers the potential liability from particular risks to another party by specific contract provisions. By effectively implementing contractual risk transfer and risk management measures, you can minimize your client’s liability to third parties, and you may be able to positively impact your client’s own insurance coverage profile.

  1. Subrogation

Even if a builder’s risk policy pays first, the builder’s risk insurer will then have a subrogated right to sue responsible parties. But, as a general matter, the “anti-subrogation rule” precludes an insurer from asserting a subrogated claim against a person who qualifies as an insured under the policy. 16 Couch on Ins. § 224:1.

A builder’s risk policy often will provide that various persons, such as contractors and subcontractors, are additional insureds “as their interests may appear.” Dyson & Co. v. Flood Eng’rs, Architects, Planners, Inc., 523 So. 2d 756, 758 (Fla. 1st DCA 1988). Some courts have held that this language triggers the anti-subrogation rule and bars subrogated claims against all such persons. Id. at 758–59 (collecting authority on both sides of issue); see 4 Bruner & O’Connor Construction Law § 11:200. The builder’s risk insurer can always try to seek recovery from responsible parties who do not qualify as its insureds – perhaps including architects, construction managers, engineers, suppliers, or manufacturers.

  1. Alternative Dispute Resolution

Disputes may arise regarding which insured holds the power to settle a builder’s risk loss. The answer most likely will come from the general contract, the terms of which typically are incorporated by reference into subcontracts. Standard language promulgated by the American Institute of Architects provides:

The Owner as fiduciary shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object in writing within five days after occurrence of loss to the Owner’s exercise of this power; if such objection is made, the dispute shall be resolved in the manner selected by the Owner and Contractor as the method of binding dispute resolution in the Agreement. If the Owner and Contractor have selected arbitration as the method of binding dispute resolution, the Owner as fiduciary shall make settlement with insurers or, in the case of a dispute over distribution of insurance proceeds, in accordance with the directions of the arbitrators.

Werner Sabo, Legal Guide AIA Documents § 4.65.

In some cases, it may make sense for the owner or the insurer to demand appraisal under the policy. A common policy provision states:

If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.

Builders Risk Coverage Form, Miller’s Standard Insurance Policies Annotated (7th ed.).

This language contemplates a two-party process between the insurer and “you” (i.e., the named insured). Thus, the insurer and the owner will select the two appraisers. Nevertheless, insureds other than the owner likely can submit materials to the appraisers and umpire for their consideration. Cf. 15 Couch on Ins. § 211:58 (appraisal binds other interested parties, such as mortgagees, if they receive adequate notice and an opportunity to be heard).

Although the appraisers cannot resolve questions of policy construction or conditions of coverage, they often can decide which items of claimed loss resulted from covered or excluded causes. State Farm Fire & Cas. Co. v. Licea, 685 So. 2d 1285, 1288 (Fla. 1996) (“[Appraisal] necessarily includes determinations as to the cost of repair or replacement and whether or not the requirement for a repair or replacement was caused by a covered peril or a cause not covered, such as normal wear and tear, dry rot, or various other designated, excluded causes.”).

Conclusion

Each case will present its own facts and contract provisions. In most cases, however, the builder’s risk insurer must pay to repair the portions of the property that have sustained direct physical loss, minus the cost of repairing the initially defective work that caused the loss. If the negligent parties are named insureds or additional insureds under the builder’s risk policy, the builder’s risk insurer is likely to face difficulty pursuing subrogated claims against their CGL insurers. But the CGL insurers face a broader set of risks and, if a case cannot settle quickly, the steep cost of defending their policyholders and additional insureds. A builder’s risk insurer, by contrast, often can avoid significant legal fees by demanding appraisal to resolve questions regarding the scope and valuation of the covered loss.

July 3rd, 2017

AN INTENDED ACT DOES NOT EQUATE TO INTENDED HARM: THE HIGH BAR EMPLOYEES MUST MEET TO UTILIZE THE INTENTIONAL ACT EXCLUSION TO BRING A CLAIM DIRECTLY AGAINST THEIR EMPLOYER

By, Ellen G. Smith, Esq.

Just because an employer intends that an act be done does not mean that an employer intended harm to come from that which would allow employees to avoid workers’ compensation laws.  Florida Statute §440.11(1)(b) delineates when an employee can seek coverage under the intentional tort exception in workers’ compensation claims.  Florida Statute §440.11(1)(b) states:

(1)       The liability of an employer prescribed in s. 440.10 shall be exclusive and in place of all other liability, including vicarious liability, of such employer to any third-party tortfeasor and to the employee, the legal representative thereof, husband or wife, parents, dependents, next of kin, and anyone otherwise entitled to recover damages from such employer at law or in admiralty on account of such injury or death, except as follows:

(b)       When an employer commits an intentional tort that causes the injury or death of an employee.  For purposes of this paragraph, an employer’s action shall be deemed to constitute an intentional tort and not an accident only when the employee proves, by clear and convincing evidence that:

  1. The employer deliberately intended to injury the employee; or
  2. The employer engaged in conduct that the employer knew, based on prior similar accidents or on explicit warnings specifically identifying a known danger, was virtually certain to result in injury or death to the employee, and the employee was not aware of the risk because the danger was not apparent and the employer deliberately concealed or misrepresented the danger so as to prevent the employee from exercising informed judgment about whether to perform the work.

In reaction to the Supreme Court’s ruling in Turner v. PCR, Inc., 754 So. 2d 683 (Fla. 2000), the Florida legislature raised the bar in the enactment of Florida Statute §440.11(1)(b), from the previous standard of substantially certainty, to create an even narrower window where employees can avoid the immunity employer’s possess under the worker’s compensation laws.[1]  Not only did the legislature require that employees prove their case by the heightened standard of  clear and convincing evidence, but also created a standard where an employer must have deliberately intended the harm or where a harm is so obvious to occur because the harm has occurred before and will occur every time a that act is performed.  Since its enactment several District Courts have evaluated claims under the new heightened test, all of which have failed to meet the significantly higher standard created in Florida Statute §440.11(1)(b). See Gorham v. Zachry Industrial Inc., 105 So. 3d 629, 634 (Fla. 4th DCA 2013)(“[T]he mere knowledge and appreciation of a risk-something short of substantial certainty – is not intent.  The defendant who acts in the belief or consciousness that the act is causing an appreciable risk of harm to another may be negligent, and if the risk is great the conduct may be characterized as reckless or wanton, but it is not an intentional wrong.”); See Boston v. Publix Super Market, Inc., 112 So. 3d 654, 657 (Fla 4th DCA 2013)(“the statute provides an exceptionally narrow exclusion from immunity, requiring intentional, deceitful conduct on the part of the employer.”); See List Industries, Inc. v. Dalien, 107 So. 3d 470, 471 (Fla. 4th DCA 2013)(“The change from ‘substantial certainty’ to ‘virtually certain’ is an extremely different and manifestly more difficult standard to meet.  It would mean that a plaintiff must show that a given danger will result in an accident every – or almost every – time.”); See Vallejos v. Lanm Cargo, S.A., 116 So. 3d 545 (Fla. 3d DCA 2013)(“the failure to train or warn of obvious dangers does not amount to concealing or misrepresenting the danger so as to prevent [the employee] from exercising informed judgment”).

The Florida Supreme Court in Travelers Indem. Co. v. PCR. Inc., 889 So. 2d 779 (2004) relied upon the standing rule that “tort law principles do not control judicial construction of insurance contracts….Thus, intentional act exclusions are limited to the express terms of the policies and do not exclude coverage for injuries more broadly deemed under tort law principles to be consequences flowing from the insured’s intentional acts.”  at. 793; quoting Prudential Prop. & Cas. Ins. Co. v. Swindal, 622 So. 2d 467, 470 (1993). Intentional act exclusions are not a bar to insurance coverage for liability arising from claims brought under the objectively, substantially certain to result in injury exception.  Travelers, 889 So. 2d at 781.  The key distinction is whether the employer intended to cause the harm, not whether the employer intended the actionSee id.; Swindal, 622 So. 2d at 472 (intentional acts exclusion did not bar coverage where insured approached another with a loaded handgun, got into an altercation with that individual during which the gun discharged and severely injury the individual; insured testified he did not intend to shoot and cause harm to the person) (emphasis added); See Cabezas v. Florida Farm Bureau Cas. Ins. Co., 830 So. 2d 156, 160 (Fla. 3d DCA 2002)(intentional acts exclusion did bar coverage where the insured admits he intentionally struck the person behind him who he believed was an assailant); Cloud v. Shelby Mut. Ins. Co. of Shelby OH, 248 So. 2d 217 (Fla. 3d DCA 1971)(ruling that tort law’s “reasonably foreseeable consequences” rule has no application to insurance policies, and intentional act exclusion did not bar coverage where the insured intentionally pushed another car out of its way causing injury to a passenger in the car being pushed); Phoenix Ins. Co. v. Helton; 298 So. 2d 177 (Fla. 1st DCA 1974)(exclusionary clause did not bar coverage because the insured did not intend to injure others even though insured intentionally drove his car into a crowd of people).

The Florida legislature’s enactment of Florida Statute 440.11(1)(b) combined with the Florida Supreme Court ruling in Travelers makes clear that the legislature intends for employees to use the channels created in the workers’ compensation law scheme which itself was put in place to provide quick recovery for employees who are injured on the job and emphasizes that tort principles have no place in workers’ compensation claims.

[1] The Supreme Court recognized that an exception to employer’s worker’s compensation immunity existed in Turner utilizing a “substantially certain” to cause injury or death standard.

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