July 1st, 2019
The Fifth District Court of Appeals Allows Recovery of Consequential Damages Against Citizens in a Breach of Contract Action.
By, Alicia M. Lopez, Esquire
Citizens Property Insurance Corporation (“Citizens”) is a state government entity created by statute to provide property insurance in a market where private insurers are unwilling or unable to provide affordable property insurance coverage. Fla. Stat. §627.351(6)(a)1. As a government entity, Citizens is immune from liability for actions taken in the performance of their duties, with some exceptions. Fla. Stat. §627.351(6)(s)1. One of the exceptions to this immunity is breach of contract actions. Id.
Florida’s Fifth District Court of Appeals recently concluded in Manor House, LLC, Ocean View, LLC, and Merritt, LLC, v. Citizens Property Insurance Corporation, that while Citizens is immune from bad faith lawsuits, consequential damages are recoverable against Citizens in a breach of contract lawsuit. 2019 WL 2306107 (5th DCA May 31, 2019).
The insured property in the Manor House case consisted of nine apartment buildings, which were insured by Citizens in 2004 when they were damaged by Hurricane Frances. Id. The policy covered damage to the buildings, but did not include coverage for lost rents. Id. The insureds made a claim for policy benefits. Id. Ultimately, the parties disagreed as to the amount of the loss and the insureds filed suit demanding payment of the undisputed amount and appraisal under the policy to resolve the amount of loss dispute. Id. The action was stayed so that the parties could conduct an appraisal, the appraisal was completed, and Citizens untimely paid the appraisal award. Id. The insureds then filed suit against Citizens for breach of contract and fraud, alleging that they had incurred lost rents in consequence of Citizens’ breach of the contract. Id. The trial court granted Citizens’ Motion for Partial Summary Judgment as to the lost rents claim because lost rents were not covered by the policy.
Manor House appealed the judgment to the Fifth District Court of Appeals, which reversed the summary judgment and remanded the case to litigate the lost rent claim, stating that, “the consequential damages Manor House seeks are based squarely on breach of contract claims requiring no allegation or proof that Citizens acted in bad faith. Thus, Citizens is not statutorily immune from this aspect of Manor House’s claim.” Id. In reaching this conclusion, the Court cited to several Florida cases which hold that consequential damages contemplated at the inception of the contract are recoverable in a breach of contract action. Id.
In the appeal, Citizens argued that the insureds were limited in their breach of contract action to recovery of damages that were covered under the policy. Citizens further argued that the lost rents constituted bad faith damages. Manor House argued that in a breach of contract action, Florida permits recovery of damages that were contemplated to flow from the breach at the time the policy was executed. In support, Manor House cited to the policy’s declaration pages. The declarations page contained a “business description” line, which identified the insureds’ business as “apartment buildings.” Thus, Manor House successfully argued that Citizens knew that the insured buildings were apartment buildings, and could foresee the insureds incurring lost rents as a result of it breaching the insurance policy.
The Manor House case was decided on May 31, 2019, almost fifteen years after the date of loss. The court’s ruling allows recovery of consequential damages against Citizens for breach of contract. Citizens has filed a Motion for Rehearing, which is pending as of the date of this article.
June 3rd, 2019
Court Holds That CGL Policy Covers Cost to Replace Windows in Order to Prevent Future Property Damage
By, Mark A. Boyle, Esq.
Florida has been home to several recent decisions recognizing broad commercial general liability (CGL) coverage for general contractors and developers. Three cases, all decided in 2015, recognized commercial general liability coverage for rip and tear, access cost, and the cost to repair damage to portions of the structure which had not yet sustained damage but would sustain such damage in the future. Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240 (Fla. 11th Cir. 2015); Mid-Continent Cas. Co. v. Treace, 186 So.3d 11 (Fla. 5th Cir. 2015); and Pavarini Construction Co. (Se) Inc. v. Ace American, 161 F.Supp.3d 1227 (S.D. Fla. 2015). These holdings have been expanded by the recent case Amerisure Ins. Co. v. Auchter Co., No. 3:16-CV-407-J-39JRK, 2018 WL 4293149, at *1 (M.D. Fla. Mar. 27, 2018), reconsideration denied, No. 3:16-CV-407-J-39JRK, 2019 WL 632297 (M.D. Fla. Feb. 14, 2019).
While the procedural facts of the Auchter case are byzantine, the construction fact related to the “rip and tear” coverage issue are quite simple. A significant judgment had been entered against Auchter in the underlying construction case. The judgment was primarily occasioned from water intrusion damages caused by water coming in the buildings through windows. Coverage for those damages what was being sought under Auchter’s CGL policy. Coverage was sought for both the windows themselves as well as the resulting water damage from the windows having leaked. The CGL insurers acknowledged that the resulting water damage was covered but denied that there was coverage for the windows themselves.
The court found that both the resulting damage and the cost to repair the windows themselves were covered, holding:
The issue raised by the cross Motions is much more narrow than was disputed in Amerisure’s earlier motion and addressed by the Court in its Previous Order. Rather than raising a question of allocation of “property damages,” the issue here is whether Amerisure is liable to indemnify Arch for “[t]he total damages due to RAP in connection with the defective building envelope and water intrusion” in the amount of $5,067,033.01. (See Doc. 24-1 at 46). Arch has narrowed the issue to focus on the $5 million repair and replacement of the Window System alone, arguing that the Eleventh Circuit in Carithers expanded the reach of “property damage” under a standard CGL insurance policy to include repairs and replacement necessary to prevent further ongoing damage to otherwise non-defective property.
Amerisure argues that TSG president Baker “found no evidence of damage because of the alleged water intrusion through the faulty Window System,” and that he concluded that “any and all defects were limited to the Window System.” (Doc. 168 at 5 (citing Doc. 24-1 at 15, 18 (Final Judgment ¶¶ 4, 13) ); (see also Doc. 169 at 5). Amerisure contends that Mr. Baker “did not identify any damage to non-defective work caused by the alleged water intrusion, and in fact confirmed that all water intrusion as a result of the defective Window System was limited to the Window System itself.” (Doc. 168 at 6 (citing Doc. 24-1 at 17-18, 46 (Final Judgment ¶¶ 9-12) ); see also Doc. 169 at 5). The record establishes otherwise. Judge Jay noted that RAP retained Mr. Baker “to determine the cause of the water intrusion and to evaluate the reasonable costs to repair these problems.” (Doc. 24-1 at 15-16 (Final Judgment ¶ 4) ); see also id. at 18 (Final Judgment ¶ 13 (RAP hired consultants “to determine the cause of the water intrusion” and “to perform investigation and repairs in connection with the water intrusion issue.”). Judge Jay reached his conclusion regarding RAP’s recovery in relation to the Window System, citing to the costs estimates of IBA and RAP general contractor Auld & White, and including the cost to repair the building envelope, the cost of interior repairs in connection with removing and replacing the windows, and sums paid to consultants to determine the cause of the water intrusion, for a total of $5,067,033.01 “in connection with the defective building envelope and water intrusion.” (Doc. 24-1 at 46). Judge Jay did not find affirmatively that there was no other damage caused by water intrusion through the windows. IBA was retained by RAP to determine the source of the water intrusion and the cost to fix the problem; it was not hired to search for specific property damage and to calculate the dollar amount of the damage. Mr. Baker testified that 28 percent of the windows he observed allowed water to leak into the Building beyond the window sills. (Doc. 162-6 at 33 (Trial Tr. Vol. 6 at 846). This leakage was confirmed by his own observation, photographs, and reports by building tenants.
Amerisure dismisses Arch’s citation to Mr. Warden’s testimony regarding evidence of water intrusion that he observed, arguing that “[n]owhere … does Mr. Warden quantify the nature and scope of the alleged damage to ceiling tiles, or, perhaps, more importantly, qualify, that any such ceiling tiles were the result of leakage from the Window System.” (Doc. 168 at 7-8). Amerisure contends that Mr. Main’s testimony about “saturated” walls pertained to the elevator equipment room and sprinkler system. (Doc. 168 at 8 (citing Doc. 168-9 at 14 (Trial Tr. Vol 11 at 1405) ). The record indicates that Mr. Main’s testimony was about his observations on different floors of the building and different locations. (Doc. 168-9 at 14 (Trial Tr. Vol. 11 at 1405-06). Amerisure also implies that water intrusion was due to an incomplete roof. (Doc. 168 at 9 (citing Doc. 168-10 at 16-17 (Trial Tr. Vol 12 at 1537-39) ). Notably, the state trial court in the Underlying RAP Lawsuit in its November 2014 Final Judgment found not credible and rejected testimony that the water intrusion in the building came from other sources such as the roof. The court noted testimony establishing the roof-related issues had all been corrected, and determined that the leaking Window System was the source of ongoing water intrusion on “multiple floors” including those not adjacent to the roof, and that “the water intrusion problem continues.” (Doc. 24-1 at 40, 42, 44-45). Amerisure cannot re-litigate the state court’s finding in the context of this lawsuit. Amerisure does not address the substance of the testimony of Ms. Flynn, or the letters by Mr. Lunetta recounting damage to property caused by water intrusion.
Finally, Amerisure argues that RAP sought no damages for loss to personal property, ceiling tiles and carpet. “RAP’s damages sought … were solely for the repair of the Window System.” (Doc. 168 at 8 (citing Lunetta testimony and Doc. 168-8 (RAP damages summary) ); (see also Doc. 169 at 6-77; Doc. 182 at 3). Amerisure’s argument would be relevant if Arch, by its Motion, were seeking specific damages to repair the carpet, ceiling tiles and drywall. Then Arch’s Motion would fail for lack of evidence in the record and failure to allocate the dollar amount of damages to these components. See J.B.D. Constr. 571 F. App’x at 928 (“Nothing on the record suggests that the settlement, including the estimated remediation costs, were to repair physical damage to property other than the fitness center itself.”). But Arch is seeking indemnity under the Amerisure Policies for the entire $5 million cost of repairing and replacing the Window System to stop ongoing damage to otherwise non-defective property, under the theory announced in Carithers, eliminating the need to quantify and allocate the damage to the other property. Unlike J.B.D., where the “engineering reports … vaguely speak of water intrusion points, not to water damage,” 571 F. App’x at 928-29, there is no genuine dispute as to any material fact that the evidence in this record establishes that water intruded through the defective Window System into the building, that water did not enter the building through any other identified source, and that water damaged ceiling tiles, drywall and carpeting.
In his Final Judgment, Judge Jay thoroughly chronicled the extensive evidence of water intrusion into the Building over a period of years, as set forth above. In crediting and accepting the testimony of IBA president Mark Baker, Judge Jay isolated the cause of the water intrusion to the defective Window System, specifically rejecting testimony that attributed the water intrusion to areas such as the roof and exterior wall panels. Judge Jay also concluded that the water intrusion through the Window System extended beyond the window sills. (Doc. 24-1 at 16, 43-44); (see also Trial Tr. at 735, 743-44, 757-58, 846, 1019). Additionally, Judge Jay determined that the Window System needed to be repaired and replaced in order to stop ongoing water intrusion. (Doc 24-1 at 17, 44 (accepting Mr. Baker’s conclusion that “[w]ithout correcting the underlying defects in the window drainage systems, … RAP will experience leaking in all of the windows as the gaskets shrink and age over time.”) ); id. at 44 (“Without correction of the underlying defects in the window drainage systems, the evidence establishes that all of the windows will eventually leak.”). Judge Jay was not required to link water intrusion through the defective Window System to damage to other non-defective tangible property. Indeed, in denying intervention to insurers Amerisure and Landmark American Insurance Company, TSG’s insurer, Judge Jay acknowledged that specific insurance issues were not before the state court, and that to allow intervention in the Underlying RAP Lawsuit and permit the insurers to litigate coverage issues “would inject new issues into the lawsuit that would not otherwise be included in the Court’s analysis and evaluation of the facts during trial of this pending action.” (Doc.1 39-3).
At trial in the pending action, the Court will not determine claims, facts or legal issues that would be dispositive or common to a separate coverage action to determine the duties owed under insurance policies issued by Landmark American Insurance Company or American [sic] Mutual Insurance Company to their respective insureds.
Id.; see generally Spencer v. Assurance Co. of Am., 39 F.3d 1146, 1149 (11th Cir. 1994) (“The coverage issues which Assurance raised in the district court were not litigated in the circuit court action, nor were they necessarily determined by the circuit court judgment…. We find no authority to extend the estoppel principle to preclude the litigation of issues not necessarily determined by a judgment issued by a previous court.”). This Court finds that the state court record is sufficiently developed and establishes that there is no genuine dispute of fact that water intrusion through the defective Window System caused damage to otherwise non-defective tangible property in the form of walls, ceiling tiles and carpet, unrelated to the Window System or the work that TSG was hired to do, and that repair and replacement of the defective Window System was required to prevent ongoing property damage. Under Carithers, the cost of repairing and replacing the defective Window System constitutes “property damage,” resulting in coverage. See also Pavarini Constr. Co., 161 F. Supp. 3d at 1233-34 & n.6 ( [C]overage may exist for costs to repair defective work in order to prevent further structural damage and covered loss.”).
In Carithers, the record was configured to address coverage questions, which were decided in a bench trial before the district court. 782 F.3d at 1244. The district court determined that “the incorrect construction of the balcony, which allowed water to seep into the ceilings and walls of the garage leading to wood rot, caused property damage to the garage.” Id. The district court found that though the homeowners’ balcony standing alone was not “property damage” because it was defective work of a subcontractor, “the balcony was part of the cost of repairing the garage, which was property damage.” Id. at 1244-45. The Eleventh Circuit affirmed the district court’s awarding damages for the cost of repairing the balcony as property damage with the cost of repairing the garage. Id. at 1251. Focusing on the district court’s finding that “the balcony was defectively constructed, which caused damage to the garage,” and that “in order to repair the garage (which the parties agree[d] constituted property damage), the balcony had to be rebuilt,” the court found that “repairing the balcony was part of the cost of repairing the garage.” Id. (emphasis added). The Eleventh Circuit concluded that “the Carithers had a right to ‘the costs of repairing damage caused by defective work.’ ” 782 F.3d at 1251 (quoting J.S.U.B., 979 So. 2d at 889). Focusing on a causation analysis, the court determined that repairing and/or replacing the balcony was necessary to stop ongoing damage to the garage, and accordingly included that cost in the “property damage” coverage. Notably, the amount of damage to the garage was not a part of the court’s analysis; just the causation of the damage.
Under Carithers, the Court need not ascertain the value of the damage to “other property” – here, the damage to the tenants’ carpet, walls and ceilings caused by water intrusion through the defective windows. Rather, it is the fact of damage to otherwise non-defective property and the cause of that damage which compels a finding that coverage exists. It is not speculative to conclude on this record that the water dripping into the building through the defective Window System, caused the Building tenants’ carpets, drywall and ceiling tiles to become saturated. Compare Amerisure v. Auchter, 673 F.3d at 1300 (“Amelia never alleged that the defective installation [of the roof] caused damage to any other component of the project but the roof (emphasis added) ); Palm Beach Grading, 434 F. App’x at 831 (finding that “the defective pipe did not cause damage independent of the repair and replacement of the pipe. For example, the pipes never burst, caused sinkholes, or cause back-ups.” (emphasis added) ); Pozzi Window Co., 984 So. 2d at 1248 (“[t]he mere inclusion of a defective component, such as a defective window or the defective installation of a window, does not constitute property damage unless that defective component results in physical injury to some other tangible component.” (emphasis added) ).
Moreover, unlike the facts in Amerisure v. Auchter, 673 F.3d at 1300, where “Amelia never alleged that the defective installation [of the roof] caused damage to any other component of the project but the roof,” damage to tenants’ improvements caused by water intrusion through the Window System was noted during the construction phase of the Project and in the pleadings filed in the Underlying RAP Lawsuit. Payment for the cost of the water damage was also discussed and made.15 Where the evidence and the Final Judgment establish that the defective work caused other “property damage” to otherwise non-defective property, and the record establishes that the property damage caused by the defective work would continue into the future if left unrepaired, Carithers teaches that the cost of that repair and/or replacement of the defective work to stop future covered property damage, is subject to indemnification by the insurer of a CGL policy. Such a result makes sense; to find that only the damaged “other” property such as the garage was covered by the CGL policy, would mean that the insured, such as the Carithers, would either be forced to repeatedly file claims with the insurer for the continued and renewed property damage caused by defective leaking balcony, or be foreclosed from recovering the full consequences of the defective work, and recovering the benefit or coverage bargained and paid for with the CGL insurer. Likewise, to exclude payment for the cost of repairing and replacing the leaking Window System would result in continued water intrusion damage to the Building, and resultant damage to non-defective property in the future.
The Court recognizes the apparent disparity and even the arguable inequities when the occurrence of wet carpet, stained ceiling tiles and soggy drywall results in a $5 million liability to indemnify the insured for the repair and replacement of the entire defective Window System, a liability that would otherwise not exist absent damage from the undisputed water intrusion. But the Court is bound by the precedent set forth in Carithers, which in this Court’s view, represents a logical interpretation of the law of “property damage” in the context of standard CGL insurance policies. Carithers teaches that property damage includes the cost of repairing a defect in order to stop the continuing ongoing property damage, whether or not that defective work falls within the previous definition of the insured’s “work” or not. As noted by the Tennessee Supreme Court, “water damage is a natural consequence of an improperly installed window.” Moore. 216 S.W.3d at 309 (cited in Amerisure, 673 F.3d at 1303-04, 1306; J.S.U.B., 979 So. 2d at 877, 882, 883-84, 885, 888, 890).
Under Carithers, the qualitative and quantitative disparity and the balance of possible inequities are not the determinative factors. Rather it is the fact that the damage to otherwise non-defective property is caused by the defective work, and is ongoing unless the defective work is corrected that dictates this result. While it is unclear whether the various business risk exclusions cited by Amerisure, are equally modified by the decision in Carithers, the Court determines that at this point in time, and pending further development of the law, the Court is required to interpret and apply the Carithers definition of “property damage” to include the cost of repairing any defect to stop ongoing property damage, to the facts of this case.
Auchter Co., 2018 WL 4293149, at *17-21.
The Auchter holding has significant real-world affects for developers, contractors and their CGL insurers. Many construction defect claims involve fact patterns syllogistic to the Auchter decision. Perhaps the most common insurance coverage issue in the eastern part of the United States involve stucco-based water intrusion claims. Under the Auchter decision developers and contractors would have coverage for both the resulting water damage from stucco claims and the repair and replacement of the stucco itself in order to avoid future damage. This result was likely preceded by the Pavarrini decision in 2015.
April 22nd, 2019
CB Contractors Instructs that Section 725.06, Florida Statutes, Serves to Void Certain Portions of an Indemnity Provision without Necessarily Rendering the Entire Provision Unenforceable
By, Esther A. Zuccaro, Esq.
In CB Contractors, LLC v. Allens Steel Products, Inc., et al., 261 So.3d 711 (Fla. 5th DCA 2018), the Florida Fifth District Court of Appeal clarified the interpretation of Section 725.06, Florida Statutes, governing indemnification limits in construction contracts. Specifically, the statute only served to void the portions of the indemnity provision of the construction contract that attempted to impose indemnity obligation for the acts or omissions of the general contractor Appellant, rather than rendering the entire indemnity provision void. The Court also concluded that a special relationship existed between general contractors and subcontractors, allowing general contractors to bring actions for common law indemnity.
The Fifth District consolidated appeals to answer common questions of law in actions between a general contractor Appellant and subcontractor Appellees for contractual and common law indemnification with respect to a condominium construction defect claim. The lower court below determined that the general contractor Appellant’s contractual indemnity claims were established on the basis of a void and unenforceable contractual provision and that the general contractor Appellant failed to allege the elements for common law indemnity, ultimately granting summary judgment in favor of the subcontractor Appellees.
The lower court held that the contractual indemnity provision at issue was void and unenforceable under Section 725.06, Florida Statutes (2004). The statutory language provides that any portion of a construction contract between a general contractor and subcontractor, where any party promises to indemnify the other for liability for damages caused by any act, omission, or default of the indemnitee arising from the contract or its performance, is void and unenforceable, unless the contract provides a monetary limit as to the extent of indemnification which bears a reasonable commercial relationship to the contract.
The Fifth District determined that the lower court erred in holding that the indemnity provision was entirely void and unenforceable, distinguishing that the subject indemnity provision is only void and unenforceable as to the particular “portion” of the subject provision which attempts to impose indemnity for the general contractor Appellant’s acts or omissions, citing Cuhaci & Peterson Architects, Inc. v. Huber Constr. Co., 516 So.2d 1096 (Fla. 5th DCA 2013). As such, the Fifth District explained that the lower court erred in denying the general contractor Appellant’s claim for contractual indemnity based on the statute. Accordingly, the remainder of the indemnity provision between the parties would remain enforceable.
The Court next determined whether the general contractor Appellant was entitled to bring a claim for common law indemnity. With respect to the issue of common law indemnity, the lower court found that such claims were unavailable due to the lack of a special relationship existing between the parties. The Fifth District disagreed, citing CC-Aventura, Inc. v. Weitz Co., No. 06-21598-CIV, 2009 WL 2136527 (S.D. Fla. July 13, 2009). Accordingly, a special relationship exists between general contractors and subcontractors, where common law indemnity is available to general contractors sued for construction defects attributable to subcontractor’s work. In Weitz, the Southern District of Florida explained that common law indemnity is an equitable remedy arising out of obligations imposed through special relationships. In Florida, a general contractor owes a duty of care to a property owner, subjecting the general contractor to liability for the subcontractor’s negligence. Florida law further entitles the general contractor to indemnification by the subcontractor, in the event that a general contractor is liable to a property owner due to a subcontractor’s negligence.
February 25th, 2019
Picking up the tab: who is responsible for the defense under policies with a deductible or self-insured retention?
By, Laura F. Locklair, Esq.
Insurers often rely on deductible and/or self-insured retention (“SIR”) endorsements to shift the burden to pay for a portion of the defense to the insured. However, absent specific policy language, such endorsements do not operate to excuse or delay an insurer’s duty to defend. Moreover, although the terms are often used interchangeably, important distinctions exist between deductibles and SIRs that impact when an insurer is obligated to defend.
“A deductible or self-insured retention states the monetary threshold of the insurer’s obligation to pay liabilities covered by the policy.” Insurance Coverage of Construction Disputes, Deductibles and Self-Insured Retentions (2d ed.). “Deductibles represent the portion of a covered loss that the policyholder may eventually be obligated to reimburse the insurer.” §1:43 Practical Tools for Handling Insurance Cases, Deductibles and Self-Insured Retentions (June 2018 Update). Whereas a deductible represents a portion of a covered loss lying within the terms of the policy for which the policyholder may be obligated to reimburse the insurer, a SIR is an initial portion of a loss that lies outside the policy. Legacy Vulcan Corp. v. Superior Court, 185 Cal.App.4th677, 694 (2010) (“A ‘self-insured retention,’ or ‘retained limit,’ generally refers to the amount of a loss or liability that the insured agrees to bear before coverage can arise under the policy.”). Unlike an SIR, wherein the amount of the retention is not included in and the limits of the policy stack on top of the SIR amount, “[w]ith a deductible, the amount of the deductible is included in the amount of the policy limits.” §4:6 Insurance Coverage of Construction Disputes, Deductibles and Self-Insured Retentions (2d ed.). Because “the insurer has no responsibility to pay claims until [the SIR] is exhausted,” some jurisdictions have indicated that a SIR typically “must be divulged” on a certificate of insurance or declarations page Id.
When a deductible is involved, an insurer owes an immediate obligation to defend claims that are subject to the deductible. §1:43 Practical Tools for Handling Insurance Cases, Deductibles and Self-Insured Retentions (June 2018 Update). Payment of a deductible is not a precondition to the duty to defend, even if the insured may ultimately be required to reimburse the insurer for some portion of the costs of the defense that the insurer was required to provide. See e.g American Safety Cas. Ins. Co. v. City of Waukegan, Ill. 678 F.3d 475, 482 (7th Cir. 2012) (rejecting insurer’s arguments that “an insurer’s duty to defend begins only after the insured’s [defense] expenses exceed the deductible.”); Continental Cas. Co. v. National Union Fire Ins. Co. of Pittsburg, PA, 940 F.Supp.2d 898 (D. Minn. 2013) (“Simply because [the insurer] will ultimately be reimbursed for certain costs it expends in defending [the insured] does not indicate that [the insurer] does not have a duty to defend [the insured].”); Century Indemn. Co. v. Marine Group, LLC, 2012 WL 6016953 at *2 (“[I]n the case of a deductible, the insured must pay a portion of the loss but is not obligated to exhaust the deductible before a defense is provided.”) aff’d on reh’g Century Indemn. Co. v. Marine Group, LLC, 848 F.Supp.2d 1238, 1250 (D. Or. 2012) (“The duty to defend does not depend on the ultimate amount expended in defense of a claim…[to do so] would nullify the policy language that establishes a duty to defend in the first place.”).
Conversely, a SIR may operate to excuse an insurer’s obligation to defend a policy holder until the retention has been satisfied but only if the language is sufficiently “conspicuous, plain and clear.” Legacy Vulcan Corp., 185 Cal.App.4th at 697 (holding that in order for a SIR provision in a policy providing primary liability coverage to relieve the insurer of the duty to provide an immediate “first dollar” defense, the policy must expressly so provide). Specifically, some courts have found that the “conspicuous, plain and clear” language required for a policy with a self-insured retention to exclude an insurer’s otherwise immediate duty to defend must expressly reference the abrogation of the defense obligation. Id. (insurer had duty to defend despite insured’s failure to exhaust retained limit where policy “did not state that the duty to defend was limited by the retained limit in any manner”); see also Axis Surplus Ins. Co. v. Glencoe Ins. Ltd., 204 Cal.App.4th 1214, 139 Cal.Rptr. 578, 583 (2012) (“[T]he policy stated [the insurer] had no duty to investigate or defend any claim until [the insured] satisfied the [self-insured retention]”; State Nat’l Ins. Co. v. Cnty. Of Camden, Civ. No. 08-1528, 2012 WL 6652819, at *1 (D.N.J. Dec. 19, 2012 (self-insured retention endorsement expressly stated that the insured “shall be obligated to provide an adequate defense and investigation of any action for or notice of any actual, potential or alleged damages”).
Despite the difference noted above, often the terms “deductible” and “SIR” are used interchangeably. In acknowledgment of the confusion, courts have recognized “these terms alone are not sufficient to convey to an unsophisticated insured an understanding of what an insurance expert or attorney might believe to be the essence of a self-insured retention” and, as a result, “[a]ny limitation on coverage otherwise available under the policy “must be stated precisely and understandably, in words that are part of the working vocabulary of the average layperson.” Legacy Vulcan Corp., 185 Cal.App.4th at 694.
The Beaufort County Court of Common Pleas in South Carolina recently had an opportunity to consider the differences between a deductible and an SIR and the impact on an insurer’s duty to defend in Centex Homes, a Nevada General Partnership v. Raymond and Denise Gibbo, et al., C.A. No. 2016-CP-07-02287 (Dec. 17, 2018). In that case, the insurer suggested that a “deductible endorsement” on the policy excused its obligation to defend an additional insured in several underlying construction defect actions because the defense fees and costs of the additional insured in those underlying actions did not (and would not, given that the underlying actions had resolved) exceed the deductible amount. While the deductible endorsement specified a deductible amount that was inclusive of damages and supplementary payments and the deductible endorsement also stated:
4. Other Rights and Duties (Ours and Yours)
All other terms of this policy, including those with govern (a) our right and duty to defend any claim, proceeding or suit against you, and (b) your duties if injury occurs, apply irrespective of application of this deductible endorsement.
The trial court determined that “the ‘unambiguous, clear and explicit’ terms of the Deductible Endorsement provide that [the insurer’s] duty to defend’ applies “irrespective of the deductible.” See Gibbo. The South Carolina trial court’s holding was consistent with other courts across the country interpreting the same language in similar endorsements. See e.g., Continental Cas., 940 F.Supp.2d at 922. (determining that “the Deductible Endorsements do not disclaim or alter [the insurer’s] duty to defend” and instead “expressly reaffirm that [the insurer] has a duty to defend.”). Because it determined that the insurer’s duty to defend the additional insured “was not altered or excused” by the deductible endorsement, the Gibbo court concluded that the insurer breached its duty to defend and awarded the additional insured all of the defense fees and costs it incurred in the underlying action as well as the fees and costs it expended in a declaratory judgment seeking to force the insurer to honor its duty to defend.
Even if the named insured is responsible for reimbursing the insurer for the amount of defense fees and costs that fall within the limits of a deductible, courts have concluded that the insurer retains the duty to defend because “the duty to defend is distinct from a mere obligation to pay for defense costs.” Continental Cas., 940 F.Supp.2d at 918 (“Simply because [an insurer] will ultimately be reimbursed for certain costs it expends in defending [an insured] does not indicate that [the insurer] does not have a duty to defend [the insured].”). The duty to defend is more than the mere payment of money, instead it “encompasses hiring attorneys and managing lawsuits,” developing litigation strategy, and evaluating and securing settlements and judicial dispositions. Id. As a result, an insurer’s attempt to transfer its duty to pay for defense fees and costs through a deductible or SIR may not ultimately be successful in transferring or extinguishing its duty to defend.
December 20th, 2018
Hold On to Your Sombreros: the Fourth District Court of Appeals in California Reiterates that Loss of Use Constitutes “Property Damage”
By, Kathrine L. Sloan, Esq.
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) determined that loss of use claims—even where no physical damage to tangible property occurs—are potentially covered claims under CGL policies in Florida. Following in lockstep with the state of Florida, the Fourth District Court of Appeals in California held last month in Thee Sombrero, Inc. v. Scottsdale Ins. Co., 28 Cal. App. 5th 729, 239 Cal. Rptr. 3d 416 (Ct. App. 2018), that loss of use of a property in a particular capacity—even where the property is still currently in use by the insured in a different form—constitutes “property damage” for purposes of a CGL policy.
Thee Sombrero, Inc. (“Sombrero”) owned commercial property and, pursuant to a conditional use permit, permitted Sombrero’s lessees to operate the property as a nightclub called El Sombrero. Id. at 418-19. A company called Crime Enforcement Services (“CES”) provided security at the nightclub. Id. CES held a CGL policy of insurance issued by Scottsdale Insurance Company (“Scottsdale”) that provided coverage for “property damage” caused by an “occurrence”. Id. at 419. The CGL policy issued by Scottsdale defined “property damage” as either (a) “[p]hysical injury to tangible property, including all resulting loss of use of that property,” or (b) “[l]oss of use of tangible property that is not physically injured.” Id.
After a fatal shooting occurred on the property in 2007, the conditional use permit was revoked and replaced with a modified conditional use permit that only allowed the space to operate as a banquet hall. Id. Sombrero then filed an action against CES resulting in a default judgment for negligence and breach of contract. Id.
Subsequently, Sombrero filed the instant action against Scottsdale alleging that the loss of Sombrero’s ability to use the property as a nightclub constituted property damage within the meaning defined in the CGL policy issued by Scottsdale. Specifically, Sombrero presented evidence that the value of the property decreased from $2,769,231.00 to $1,846,153.00 because the property could no longer operate as a nightclub, and that this loss of value qualified as “property damage” for purposes of coverage. Id. The trial court disagreed finding that the claim against CES was for a pure economic loss and did not constitute “property damage” for purposes of the policy issued by Scottsdale. Id. at 420.
The California Court of Appeals reversed the decision of the trial court holding that “it defies common sense” to argue that the loss of the ability to use the property as a nightclub failed to qualify as loss of use that in turn constituted “property damage” under the policy. Id. at 421. The Court acknowledged contrary authority in Washington (Scottsdale Ins. Co. v. International Protective Agency, Inc., (2001) 105 Wash.App.244 [19 P.3d 1058](IPA)) with similar facts to the instant case, but found that the loss of a liquor license was not the same as the loss of use of the property in its original capacity. Sombrero, 239 Cal. Rptr. 3d at 422. Specifically, the Court found that a loss of the ability to serve liquor on the property was not tangible property, but rather was the loss of an entitlement. Id. Therefore, any loss of use of the liquor license was not loss of use of tangible property that would qualify as “property damage” for purposes of coverage. Id.
The Court refuted Scottsdale’s claim that “a right to occupy property is not a tangible property interest” finding that a lease is a conveyance of an estate in real property pursuant to California law and that because “[a] building is tangible [and] [d] irt is tangible.. .a lessee in possession has a tangible property interest in the leased premises.” Id. at 423. Notably, the Court emphasized that the complaint alleged that the loss of the permit right resulted in the loss of use of the property as a nightclub, which in turn reduced the economic value of the property. In stating the “correct principal,” the Court determined that “losses that are exclusively economic, without any accompanying physical damage or loss of use of tangible property, do not constitute property damage.”
The Sombrero decision widens the definition of “property damage” and thereby expands coverage under a CGL policy. Although this case did not arise out of a construction defect dispute, the points of insurance coverage could conceivably be applicable in future construction defect claims. Of course, the language of each CGL policy is controlling, which is why it is important to engage coverage counsel in the evaluation of these matters.
November 16th, 2018
By, Alex Brockmeyer, Esq.,
Most insurance policies have some sort of provision that addresses what happens when an insured misrepresents or attempts to defraud an insurer. This provision, otherwise known as a “fraud provision” or “forfeiture provision” varies in effect depending on its breadth. In Flores v. Allstate Ins. Co., 819 So. 2d 740 (Fla. 2002), the Florida Supreme Court identified three types of fraud/forfeiture provisions:
- those that state any misrepresentation will void the entire policy or policy;
- those that state that any misrepresentation as to a particular coverage voids coverage under that part; and
- those that neither reference the “entire policy” nor “this coverage part.”
Id. at 748. Things become interesting when an insurance policy does not contain language that falls within either the first or second category. When a fraud/forfeiture provision does not clearly void the entire policy or a particular coverage, insurers may still attempt to prove fraud or misrepresentation to void the entire policy. In such circumstances, Flores directs courts to use Florida’s well-established rules of insurance policy interpretation. Id. at 750.
Insurers retain control over the scope of their coverage and can alter policy language when desired. To that end, insurers must incorporate unambiguous language into its policy. See Berkshire Life Ins. Co. v. Adelberg, 698 So. 2d 828, 830 (Fla. 1997). Ambiguity exists whenever terms of the policy are subject to different reasonable interpretations, one that provides coverage and one that does not, or where more than one interpretation of a policy provision fairly exists. Weldon v. All Am. Life Ins. Co., 605 So. 2d 911, 915 (Fla. 2d DCA 1992). Where ambiguity exists, Florida law requires courts adopt the interpretation affording coverage. Westmoreland v. Lumbermens Mut. Cas. Co., 704 So. 2d 176, 179 (Fla. 4th DCA 1997). Florida uses this standard because an insured is “entitled to a clear explanation of terms rather than a fine distinction which was never written into his contract for insurance coverage.” Adelberg, 698 So. 2d at 830.
Applying these principles, Flores held a fraud/forfeiture provision that does not fall into either the first or second categories, must be interpreted as only effecting the specific portion of the claim connected to the misrepresentation or fraud. Flores, 819 So. 2d at 750. For example then, a misrepresentation in connection with a PIP claim does not preclude the insured from recovering under the uninsured/underinsured portion of his policy. Id. In the homeowners’ insurance policy context, other courts have reached similar conclusions. For example, in Tempelis v. Aetna Cas. & Surety Co., 485 N.W. 2d 217 (Wis. 1992), the Wisconsin Supreme Court held that an insured was entitled to recover under the dwelling and contents portions of the insurance policy even though a misrepresentation occurred in connection with the insured’s additional living expenses. Id. at 222.
In conclusion, policy language matters and insureds, insurers, and courts alike should be mindful of policy language when a fraud/forfeiture provision is at issue.
November 12th, 2018
By, Austin Bersinger, Esq.
Moore v. Home Depot USA, Inc., No. CV 16-00810-BAJ-RLB, 2018 WL 4976811, at *1 (M.D. La. Oct. 15, 2018)
A Louisiana federal court recently rejected an insurer’s attempt to escape providing defense and indemnity to an additional insured. In Moore v. Home Depot USA, Inc., the Court expressly rejected an insurer’s argument that a blanket AI endorsement only provided coverage for vicarious liability.
This lawsuit arose when Steven Moore was electrocuted while involved in a project to install rooftop air-conditioning units at a Home Depot store. Mr. Moore was electrocuted by a power line as he unloaded air-conditioning supplies for Commercial Coolants, Inc. (“Commercial Coolants”). After the injury, Mr. Moore and his wife sued Home Depot, Entergy, Commercial Coolants and others involved in the project. Plaintiffs also brought a direct-action claim against Commercial Coolants’ insurer, Depositors Insurance Company (“Depositors”). Depositors answered the Amended Complaint and crossclaimed against Home Depot. In response, Home Depot counterclaimed against Depositors for penalties, damages, attorneys’ fees, and a declaration that Depositors owes it defense and indemnity.
On summary judgment, Depositors asked the Court, among other things, to declare that Depositors need not defend or indemnify Home Depot as an additional insured under the commercial general liability policy Depositors issued to Commercial Coolants. The blanket additional-insured endorsement at issue provided:
B. The insurance provided to the additional insured is further limited as follows:
1. That person or organization is an additional insured, but only with respect to liability for
“bodily injury” or “property damage” caused, in whole or in part, by “your work” for the additional insured which is the subject of the written contract or written agreement.
Depositors asked the Court to enter summary judgment in its favor because its additional-insured endorsement did not cover the claims against Home Depot because Depositor’s blanket additional-insured endorsement limited coverage to Home Depot’s vicarious liability for Commercial Coolants’ fault. Depositor’s argument boiled down to because Home Depot cannot have vicarious liability for Commercial Coolants’ fault, its blanket additional-insured endorsement did not cover the claims against Home Depot.
The Court rejected Depositors’ argument for two reasons. First, Depositors’ interpretation required the Court to read into the policy a limit on coverage that is not in the policy’s text. The Court held that “[n]othing in the text of the blanket additional-insured endorsement limits coverage to Home Depot’s vicarious liability for Commercial Coolants’ fault. If Depositors intended to limit coverage to vicarious liability, it could have used language reflecting that intent. See McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 255 (10th Cir. 1993).”
Second, the Court held that Depositors’ interpretation misconstrued the “caused, in whole or in part, by” language in the endorsement. The Court held that the endorsement language clashed with an interpretation that equates “liability” with “vicarious liability” because vicarious liability is an all or nothing proposition. Simply put, the Court stated that Home Depot cannot have partial vicarious liability for Commercial Coolants’ work. However, the Court did give guidance. The Court stated that the “better reading of the blanket additional-insured endorsement is that it extends additional-insured coverage to Home Depot for Home Depot’s alleged liability for “bodily injury” or “property damage” caused, in part, by Commercial Coolants’ work for Home Depot under the MSA.” In rejecting the insurer’s “cramped” interpretation of the additional-insured endorsement, the Court communicates an all important lesson in insurance coverage. If the insurance contract doesn’t say it, courts will not strain to add conditions under which insurers can arbitrarily avoid coverage.
1 As background, Home Depot and Commercial Coolants entered into a Maintenance Services Agreement (“MSA”). The MSA contained an indemnification provision as well as a provision that required Commercial Coolants to obtain insurance naming Home Depot as an additional insured.
October 5th, 2018
By, Laura Locklair, Esq.
Though the saying goes “better late than never,” the Court’s opinion in Episcopal Church in South Carolina v. Church Insurance Company of Vermont, 53 F.Supp.3d 816 (D.S.C. 2014) suggest that an insurer’s failure to timely acknowledge its defense obligations to its insured, even when the insurer later agrees to participate in the insured’s defense, can still result in stiff penalties, not all of which are monetary.
The insured church, which was also the plaintiff in Episcopal Church in S.C. (the “Insured”), was sued by another church on March 5, 2013 concerning disputes regarding the ownership of certain real, personal and intellectual property (the “Underlying Action”). Episcopal Church in S.C., 53 F.Supp.3d at 819. The Insured tendered its defense in the Underlying Action to its insurer in August of 2013, and the insurer denied the defense on August 29, 2013. Id. at 819-820. On February 28, 2014, and only after the Insured was forced to file a declaratory judgment action and successfully persuaded the Court to find on summary judgment that the insurer owed a duty to defend, the insurer issued a reservation of rights letter agreeing to participate in the Insured’s defense in the Underlying Action. Id. At 820. However, in its reservation of rights correspondence, the insurer alleged that it was entitled to replace the Insured’s attorney who had represented the insured for over a year in the Underlying Action with new counsel of the insurer’s choosing. Id. When called upon to predict whether the South Carolina Supreme Court would find that an insurer retains the right to control the defense after it refused to defend in breach of the insurance contract , the Court in Episcopal Church in S.C. concluded that the insurer’s wrongful refusal to defend the Insured in the Underlying Action forfeited the insurer’s right to control the defense of the Insured, even after the Insurer later reversed its position and acknowledged its defense obligations. Id.
In reaching its determination, the Court first acknowledged that South Carolina courts have found that where a policy provides an insurer with the right and duty to defend, the insurer has “the right and the duty to control the defense until such time as it [i]s determined that it ha[s] no liability insurance coverage.” Id. at 823, citing Allstate Ins. Co. v. Wilson, 259 S.C. 586, 193 S.E.2d 527, 530. That right to control the defense, the Court suggested “includes the right to control the defense and select defense counsel.” Episcopal Church in S.C., 53 F. Supp.3d at 823.
However, the insurer’s right to control the defense and appoint counsel is not without limit. In this instance, the Court concluded that the insurer “lost its right to control the defense and select defense counsel when it breached its duty to defend.” Episcopal Church, 53 F.Supp.3d at 826. The Court’s opinion is in line with and relied on both treatises on insurance law and decisions from other courts. Id. at 824-825. Namely, compendiums reviewed by the Court universally agreed that an unjustified refusal by an insurer to defend an insured results in the insurer’s loss of the ability to control the defense and select defense counsel. See, e.g., 49 A.L.R.2d 694 at § 18; 1 Insurance Claims & Disputes § 4:38; 3-17 New Appleman on Insurance law Library Ed. § 17.07. Likewise, courts around the country have opined that an insurer’s refusal to defend forfeits any right to control the defense, including selection of counsel. See, e.g., BellSouth Telecomms., Inc. v .Church & Tower of Fla., Inc., 930 So.2d 668 (Fla.Dist.Ct.App.2006); Eigner v. Worthington, 57 Cal.App.4th 188, 66 Cal.Rptr.2d 808 (1997), Royal Ins. Co. of Am. V. Kirksville Coll. Of Osteopathic Med., Inc., 304 F.3d 804 (8th Cir.2002); Wells’ Dairy, Inc. v. Travelers Indem. Co. of Ill., 266 F.Supp.2d 964 (N.D. Iowa 2003), Sentinel Ins. Co., Ltd. v. First Ins. Co. of Haw., Ltd., 76 Hawai’i 277, 875 P.2d 894, on reconsideration sub nom. Sentinel Ins. Co., Ltd. v. First Ins. Co. of Haw., Ltd., 76 Hawai’i 453, 879 P.2d558 (1994); Grube v. Daun, 173 Wis.2d 30, 496 N. W.2d 106 (Wis.Ct.App.1992).
Moreover, the Court was not persuaded that the insurer’s later about face and belated acceptance of the defense was sufficient to cure the breach or permitted the insurer to control the Insured’s defense. To that point and as additional support for its decision that the insurer’s breach forfeited its right to participate in the defense, the court focused on the fact that the Insured, which had been forced to retain and pay its own attorney in the Underlying Action for over a year, would “suffer material harm if forced to relinquish control of its defense.” Episcopal Church in S.C., 53 F.Supp.3d at 826.
As a result of the insurer’s unjustified refusal to defend the Insured, the Court determined that the insurer was not only precluded from appointing defense counsel of its choosing, it was also required to reimburse the Insured for the reasonable costs of defense of the Underlying Action, including costs incurred pretender. Episcopal Church in S.C., 53 F.Supp.3d at 830.
Insurers in South Carolina and beyond should be cautioned that their failure to get it right the first time by assuming the timely demanded defense of an insured can have significant consequences, including forfeiting the right to select counsel, loss of the ability to control defense strategy, and the responsibility for shouldering the entirety of the insured’s reasonable defense costs, including those fees and costs incurred pretender.
1 Because the Court’s jurisdiction was based on diversity, the Court looked to South Carolina law to evaluate the rights and responsibilities of the Insured and insurer. Episcopal Church in S.C., 53 F.Supp.3d at 821. However, because the South Carolina Supreme Court had not addressed the particular issue before the Court, the Court required to predict how that the South Carolina Supreme Court would rule if presented with the issue. Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C., 433 F.3d 365, 369 (4th Cir. 2005).
2 For example, Florida insurers are statutorily required to retain “independent counsel which is mutually agreeable to the parties.” FLA. STAT. § 627.426. To be mutually agreeable, the insured must actually approve the selected counsel. See Cont’l Ins. Co. v. City of Miami Beach, 521 So. 2d 232, 233 (Fla. App. 3d Dist. 1988); Am. Empire Surplus Lines Ins. Co. v. Gold Coast Elevator, Inc., 701 So. 2d 904, 906 (Fla. App. 4th Dist. 1997).
3 Though not an issue before the Court in Episcopal Church of S.C., courts have found that an insurer’s unjustified refusal to defend also waives its right to be involved in defense strategy, reject settlements, and receive notice of developments in the underlying action. See, e.g., Orleans Vill. V. Union Mut. Fire Ins. Co., 133 Vt. 217, 335 A.2d 315, 318 (1975) (“[A]n insurer who refuses to defend after timely demand is made upon it to do so cannot control the defense or expect advance notice of the refused party’s trial strategy.”); Royal Ins. Co. of Am. V. Kirksville Coll. of Osteopathic Med., Inc., 304 F.3d 804 (8th Cir. 2002) (“When an insurance company refuses to defend its insured, the insurer loses its right to control the litigation and to reject what it considers an unfavorable settlement.”); 14 Couch on Insurance 3d § 202:7 (explaining that “where insurer breaches its contract by refusing to defend…the insurer…cannot object to the insured’s handling of the case .. is not entitled to notice of the insurer’s trial strategy, and has no right to notice of pleadings filed in the underlying action.”).
July 12th, 2018
Insureds Re-Joyce, Multipliers Are Alive and Well: the Florida Supreme Court Rejects the Rare and Exceptional Circumstances Requirement
By, Katherine L. Sloan, Esq.
In certain circumstances, Florida courts impose contingency fee multipliers to increase an attorneys’ fee award. This multiplier can increase the fees awarded from 1.5% to 2.5% and the case law dictates specific factors that must be considered before imposition of the same. The recent decision in Joyce v. Federated National Ins. Co., 228 So. 3d 1122 (Fla. 2017), rejected the application of a rare and exceptional circumstances requirement to contingency fee multipliers.
Generally, in American law, each party is responsible for his or her own attorneys’ fees, regardless of the prevailing party in the lawsuit. See Johnson v. Omega Ins. Co., 200 So. 3d 1207, 1214 (Fla. 2016). However, an exception to this rule arises when an award of attorneys’ fees is statutorily imposed or the parties otherwise agree to the imposition of attorneys’ fees. Id.
As a matter of public policy—primarily to discourage carriers from denying valid claims—the State of Florida imposed a fee shifting statute, which authorizes an insured to collect reasonable attorneys’ fees from a carrier upon the rendering of a judgment or decree in its favor. § 627.428, Fla. Stat. The statute provides in relevant part:
Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.
Id. Notably, this fee-shifting benefit does not extend to the carrier in the event of a judgment or decree in its favor.
The Joyces, an elderly couple, sustained water damage to their home and subsequently submitted a claim to their insurer, Federated National Insurance Company (“Federated”). Joyce, 228 So. 3d at 1123. Federated denied the claim on the basis of material misrepresentations made by the Joyces in their application. The Joyces, due to financial limitations, were forced to hire an attorney on a contingency fee arrangement. Id. After several months embroiled in litigation, Federated agreed to settle the claim. Id. at 1134. In this settlement, Federated stipulated to the Joyces’ entitlement to reasonable attorneys’ fees. Id. at 1124.
Thereafter, the trial court thoroughly examined the timesheets prepared by the Joyces’ attorneys and heard testimony from both the insureds’ fee expert and the fee expert for Federated. Id. After the hearing, the trial court first calculated the “lodestar” amount. Id. In Florida, the “lodestar” is defined as the number of hours reasonably incurred by the attorneys of record, multiplied by a court-determined reasonable hourly rate. Id. In this determination, the court considers factors set forth in the Florida Rules of Professional Conduct 4-1.5 such as, the fee customarily charged in the locality, the amount at issue in the case, the experience of the attorney, and the time and labor required pursuant to the novelty and difficulty of the questions involved. Id. The trial court then applied a multiplier of 2.0 to the lodestar amount after consideration of the factors set forth in Standard Guaranty Ins. Co. v. Quanstrom, 555 So. 2d 828 (Fla. 1990) and Florida Patient’s Compensation Fund v. Rowe, 472 So. 2d 1145 (Fla. 1985). Joyce, 228 So. 3d at 1124.
Under Rowe, the Florida Supreme Court determined that a trial court could adjust the lodestar and apply a multiplier between 1.5 and 3.0 based on, among other factors, the likelihood of success at the case’s outset. 472 So. 2d 1145. Specifically, Rowe outlined the following criteria for the imposition of a multiplier:
(1) The time and labor required, the novelty and difficulty of the question involved, and the skill requisite to perform the legal service properly.
(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.
(3) The fee customarily charged in the locality for similar legal services.
(4) The amount involved and the results obtained.
(5) The time limitations imposed by the client or by the circumstances.
(6) The nature and length of the professional relationship with the client.
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services.
(8) Whether the fee is fixed or contingent.
Id. at 1150, n. 5.
The subsequent Quanstrom decision modified the analysis for contingency fee multipliers holding that a trial court must consider whether to apply a multiplier, but is not required to do so. 555 So.2d at 831. Pursuant to Quantrom, a trial court should consider three factors in determining whether to impose a contingency fee multiplier: 1) whether the relevant market requires a contingency fee multiplier to obtain competent counsel; (2) whether the attorney was able to mitigate the risk of nonpayment in any way; and (3) whether any of the factors set forth in Rowe are applicable, especially, the amount involved, the results obtained, and the type of fee arrangement between the attorney and his or her client. Id. at 834. Finally, the Court detailed that evidence must be presented to justify the utilization of the multiplier. Id.
In Joyce, the trial court found that first factor—the relevant market—supported a multiplier. 228 So.3d at 1136. The insureds’ attorney and fee expert testified that they were unaware of any other attorneys in St. Johns County who specialized in representing first-party plaintiffs against insurers. Id. at 1135. The trial court concluded, “there are few or no other attorneys who undertake this work who have offices in the St. Augustine area.” Id. Without the possibility of a contingency fee multiplier, the insureds would not have found another competent attorney who would have agreed to take the case. Id. The trial court also determined that the case was complex, and therefore the third Quanstrom factor supported the imposition of a multiplier. Id. at 1134.
The Fifth District Court of Appeal in Joyce reversed the trial court’s decision construing the language of Quanstrom to indicate that a multiplier is only to be utilized in rare and extraordinary circumstances. 228 So. 3d at 1128-29. Notably, this decision aligns with the United States Supreme Court’s view of multipliers. Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010). In fact, the Fifth District relied upon this precedent in support of its reversal of the trial court’s decision in Joyce. 228 So. 3d at 1131.
The Florida Supreme Court, however, rejected the rare and exceptional circumstances argument set forth by Federated, found that a multiplier of 2.0 was appropriate in the Joyce case, and determined that the trial court came to such a conclusion based on competent and substantial evidence. Id. at 1136. The Court specifically noted that no such rare and exceptional circumstances requirement exists under Rowe, Quanstrom, or in Bell v. U.S.B. Acquisition Co., Inc., 734 So. 2d 403 (Fla. 1999) (holding that a multiplier could be applied to court awarded fees based upon a contractual provision). Joyce, 228 So. 3d at 1133.
Additionally, the Court determined that the Fifth District’s reliance on Perdue missed the point that Perdue addressed lodestar enhancements in contexts other than contingency fee multipliers, and was therefore inapplicable to the instant case. Joyce, 228 So. 3d at 1131. Moreover, the Florida Supreme Court expressed its rejection of the United States Supreme Court’s rationale for rejecting contingency fee multipliers. Id. at 1132. Justice Scalia, writing for the majority in City of Burlington v. Dague, 112 S.Ct. 2638 (1992), couched his disapproval of contingency fee multipliers by reasoning that the multipliers incentivize nonmeritorious claims. The Florida Supreme Court determined that, to the contrary, a contingency fee multiplier provides a trial court with the necessary flexibility to ensure that lawyers that take on difficult cases under a contingency fee are adequately compensated, thereby providing plaintiffs with access to competent counsel. Joyce, 228 So. 3d at 1132.
The Joyce decision reaffirmed Florida’s continued commitment to allow the use of contingency fee multipliers where appropriate. Accordingly, in the wake of Hurricane Irma and the massive influx of coverage disputes resulting from the same, a carrier should appreciate its exposure to a potential contingency fee multiplier when analyzing its risk. 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.
June 29th, 2018
By, Alex Brockmeyer, Esq.
Rule 9.310, Florida Rules of Appellate Procedure, controls how a party can stay execution on a final or non-final order pending appellate review, including a money judgment. FLA. R. APP. P. 9.310(a). Traditionally, a party could only stay execution on a money judgment by posting a bond that encompassed the full amount of the judgment plus interest. E.g. Kulhanijan v. Moomjian, 105 So. 2d 783, 784 (Fla. 1958). Now, however, a conflict exists between the District Courts of Appeal on whether Rule 9.310(b)(1) is the only way to stay execution on a money judgment.
In Platt v. Russek, 921 So. 2d 5 (Fla. 2d DCA 2004), the Second District addressed under what conditions a party can stay of execution on a money judgment pending appellate review. Citing the Third District’s decision in Campbell v. Jones, 648 So. 2d 208 (Fla. 3d DCA 1994), the judgment-creditors argued the only way to obtain a stay of execution on a money judgment was by posting “a bond equal to the amount of the judgment plus two years of interest at the statutory rate….” Platt, 921 So. 2d at 7. The Second District disagreed with the Third District’s interpretation of Rule 9.310. Id. The court interpreted Rule 9.310 to permit two types of stays. First is an automatic stay obtained under Rule 9.310(b)(1) by posting the requisite bond. Id. Second is a stay obtained by motion under Rule 9.310(a), where a court imposes certain conditions, which may not guarantee full payment of the judgment but, at the same time, do not prejudice the judgment-creditor—a stay the Third District does not recognize. Id.
The express and direct conflict between the Second and Third District has increased since Platt. In 2006, the Fourth District agreed with the Third District and held that a trial can only stay execution under Rule 9.310(b)(1). Caruso v. Caruso, 932 So. 2d 457, 458 (Fla. 4th DCA 2006). A little over a year ago, the First District joined the Second District and held “that [R]ule 9.310(b)(1) is not the only avenue for obtaining a stay of a money judgment. A trial court has the authority, upon the motion of a party pursuant to rule 9.130(a), to enter a stay upon conditions other than a bond, so long as the conditions are adequate to ensure payment.” Silver Beach Towers Property Owners Ass’n, Inc. v. Silver Beach Investments of Destin, LC, 231 So. 3d 494, 495 (Fla. 1st DCA 2017) (citations omitted).
Recognizing the conflict, the First District certified conflict with the Third District. But the Florida Supreme Court did not accept jurisdiction. Silver Beach Investments of Destin, LC v. Silver Beach Towers Property Owners Ass’n, Inc., 223 So. 3d 997 (Fla. 2017). For now then, the conditions on which a judgment-debtor can stay execution on a money judgment pending appellate review depends on the jurisdiction. In the Third and Fourth District, a stay can only be obtained under Rule 9.310(b)(1) by posting a bond in the amount of the judgment plus interest. * In the First and Second District, a party can obtain a stay of execution under Rule 9.310(a) predicated on conditions other than a bond.
* The Waves of Hialeah, Inc. v. Machado, 3D18-300 (Fla. 3d DCA 2018), indicates the Third District will deviate from this rule based on Section 45.045, Florida Statutes. Id. at 4-7. Section 45.045 gives courts discretion to stay execution pending review by imposing conditions other than a typical Rule 9.310(b)(1) bond. FLA. STAT. §45.045(2). However, Section 45.045(2) does not apply where the appellant has “an insurance or indemnification policy applicable to the case.” Id.