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.”).