February 9th, 2018
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.
June 5th, 2017
Insurer Fails in Attempt to Escape Its Obligation to Pay An Insureds Attorneys’ Fees Under §627.428, Florida Statutes
By, Justin M. Thomas, Esq.
In W&J Group Enterprises, Inc. v. Houston Specialty Ins. Co., the insureds, W&J, appealed an order denying their motion for attorney’s fees under section 627.428, Florida Statutes, following a settlement that was comprised of $650,000.00 payment from the insurer and $3,000.00 paid by the insured. 2017 WL 1279045 (11th Cir. April 6, 2017) (Unpublished). Florida has extended the statutory entitlement to attorney’s fees under section 627.428, Florida Statutes, to apply beyond the obtaining of a judgment by an insured against an insurer. Such entitlement also applies under a theory referred to as the “confession of judgment rule” which arises based on the conduct of an insurer prior to a judgment. See Wollard v. Lloyd’s & Cos. of Lloyd’s, 439 So.2d 217, 218-19 (Fla. 1983).
Though Wollard involved a first-party coverage dispute, Florida’s intermediate appellate courts have expanded the “confession of judgment rule” to the third-party context. E.g., Mercury Ins. Co. of Fla. v. Cooper, 919 So. 2d 491 (Fla. 3rd DCA 2005); Unterlack v. Westport Ins. Co., 901 So.2d 387 (Fla. 4th DCA 2005); O’Malley v. Nationwide Mut. Fire Ins. Co., 890 So.2d 1163 (Fla. 4th DCA 2004). Cooper, Unterlack and O’Malley all stand for the principle that when an insurer settles a third-party liability claim, which is contrary to the coverage position taken by the insurer against its insured, the result amounts to a confession of judgment sufficient to trigger the operation of entitlement under §627.428, Fla. Stat., for the insureds to recover their attorneys’ fees.
Interestingly, in the face of the foregoing decisions, the insurer, Houston Specialty Ins. Co. (“HSIC”), advanced the position that the court’s use of the word unilateral in Cooper was to be viewed in such a manner as to limit the confession of judgment theory to only those circumstances when it is solely the insurer who contributes to the settlement. W&J Group at 2. The court recognized HSIC’s position as inconsistent with the progeny of cases recognizing confessions of judgment in the third-party context. Id. The crux of the court’s holding was twofold. First, an insured’s contribution to the settlement was so infinitesimal that it was insufficient to meaningfully constitute a basis to depart from the sound reasoning in Cooper, Untlerlack and O’Malley. Id. at 3. Second, to take HSIC’s position all the way through to its logical conclusion would require that the insured reject the facially reasonable settlement for purposes of preserving its rights under section 627.428, Florida Statutes. Id. Such a requirement, as the Court recognized, flies directly in the face of the intent of the statute and the policy concerns that have been previously discussed by the Florida Supreme Court. Id. After all, the instant statute exists to provide an avenue to level the playing field between insurers and insureds.
The takeaway seems to leave a sense of the pro-policy holder stance that has long been recognized in Florida jurisprudence. Notably, however, one cannot help but wonder what effect that this decision will have on settlement positioning in the frequent dynamic of liability actions with the commonly filed companion coverage litigation.
May 16th, 2017
By, Alex Brockmeyer, Esq.
“Mend the hold.” The phrase originates from wrestling parlance where it meant “to get a better grip (hold) on your opponent.” Harbor Ins. Co. v. Continental Bank Corp., 922 F. 2d 357, 362 (7th Cir. 1990). The first appearance of the phrase in a judicial opinion occurred in a case where the Supreme Court held a party in a contract suit could not justify its nonperformance with a defense it did not raise prior to the commencement of litigation:
[w]here a party gives a reason for his conduct and decision touching any thing involved in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and a different consideration. He is not permitted thus to mend his hold. He is estopped from doing it by a settled principle of law.
Railway Co. v. McCarthy, 96 U.S. 258, 267-68 (1877). Estoppel and waiver form the underlying basis for this doctrine, which at its most basic level precludes a party from changing its defense to performance of a contract in the middle of litigation. E.g. Baquero v. Lancet Indem. Risk Retention Group, Inc., 2013 WL 5237740, *6 (S.D. Fla. Sept. 17, 2013) (citing Harbor Ins. Co. v. Continental Bank Corp., 922 F. 2d 357, 362-65 (7th Cir. 1990)).
The “mend the hold” doctrine is particularly suited for insurance disputes where an insurer changes its reason for denying a claim. Id. In fact, some commentators have observed that courts have expressed a willingness to apply the “mend the hold” doctrine out of “an intolerance for insurers to adjust legal positions like chameleons adjust their color.” Michael Laurato, Mending the Hold in Florida: Getting a Better Grip on an Old Insurance Doctrine, 4 FLA. A&M U. L. REV. 73, 74 (2009) (citing Eugene R. Anderson & Nadia V. Holober, Preventing Inconsistencies in Litigation With a Spotlight on Insurance Coverage Litigation: The Doctrines of Judicial Estoppel, Equitable Estoppel, Quasi-Estoppel, Collateral Estoppel, “Mend the Hold,” “Fraud on the Court,” and Judicial and Evidentiary Admissions, 4 CONN. INS. L.J. 589, 692 (1997-98)).
Application of the doctrine has yielded two approaches. Robert Stikoff, “Mend the Hold” and Erie: Why an Obscure Contracts Doctrine Should Control in Federal Diversity Cases, 65 U. CHI. L. REV. 1059, 1059-60 (1998). The minority approach precludes a party from changing its position during litigation from its pre-suit position absent a good faith justification for the change in position. Id. at 1062-71. The majority approach limits the nonperforming party’s defenses in litigation to those provided pre-suit at the time it refused to perform. Id.
Florida follows a version of the majority approach. To apply the “mend the hold” doctrine in Florida, it appears that a party to contract must prove: (1) the insured detrimentally relied on the insurer’s conduct; and (2) the insurer had sufficient information at the time of its initial denial to have waived the additional defense it seeks to assert during litigation. Trovillion Const. & Development, Inc. v. Mid-Continent Cas. Co., 2014 WL 201678, *9 (M.D. Fla. Jan. 17, 2014); Square at Key Biscayne Condo. Ass’n, Inc. v. Scottsdale Ins. Co., 2014 WL 11946882, *4 (S.D. Fla. Dec. 15, 2014); Baquero, 2013 WL 5237740 at *6 Principal Life Ins. Co. v. Alvarez, 2011 WL 4102327, *6-7 (S.D. Fla. Sept. 14, 2011). Application of this doctrine also appears to be limited to instances where an insurer seeks a forfeiture of the policy as opposed to invoking a policy exclusion. Square at Key Biscayne, 2014 WL 11946882 at *4. The conclusion reached by these courts stems from Florida’s intermediate appellate courts utilizing estoppel and waiver principles in determining whether to permit insurers to engage in the very conduct prohibited by the “mend the hold doctrine.” See Salcedo v. Asociacion Cubana, Inc., 368 So. 2d 1337, 1339 (Fla. 3d DCA 1979) (citing McCarthy, 96 U.S. at 268); see also American States Ins. Co. v. McGuire, 510 So. 2d 1227 (Fla. 1st DCA 1987); Six L’s Packing Co., Inc. v. Fla. Farm Bureau Mut. Ins. Co., 268 So. 2d 560 (Fla. 4th DCA 1972).
As such, it appears the “mend the hold” doctrine has limited applicability. One such area where the doctrine seems particularly applicable is where an insurer attempts to invoke a condition precedent—such as a proof of loss or prompt notice of a loss—during litigation after not raising the issue pre-suit. Allstate Floridian Ins. Co. v. Farmer, 104 So. 3d 1242, 1246-50 (Fla. 5th DCA 2012). Failure to comply with a condition precedent results in a forfeiture of the policy. Id. at 1249-50. An insurer will certainly be able to raise these conditional defenses pre-suit and would know of an insured’s failure to comply with any condition precedent set forth in the policy. Finally, the insured’s detrimental reliance on its insurer’s failure to raise the condition precedent is easy: the insured relies on the insurer’s failure to raise the condition precedent pre-suit in determining its ability to file suit.
April 21st, 2017
By, Meagan R. Cyrus
It is well established in Florida that ambiguities in policy language are to be strictly construed against the insurer, and in favor of broader coverage for the insured. Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000). The Florida Supreme Court further expanded on this notion in Washington Nat’l Ins. Corp. v. Ruderman, 117 So. 3d 943 (Fla. 2013), again ruling in favor of policyholders, finding that insurers could not clarify an ambiguity through the use of extrinsic evidence. However, prior to the court’s determination as to the ambiguity of the language at issue, can extrinsic evidence be used to the advantage of the insured? The answer is possibly, and depending on the jurisdiction.
Interpretive and drafting history materials in the hands of the insurer can show that an insured’s interpretation is a reasonable one, creating ambiguity. It is difficult for an insurer to argue against an alternative interpretation that it itself considered in the writing of the policy. This battle is won at the discovery stage. The Middle District ruled in favor of the insurer on this issue, finding that an insured’s request for documents used to interpret the meaning of the policy were irrelevant to coverage issues, relying on Ruderman. Evanston Ins. Co. v. Frank’s Lab., Inc., No. 5:12–cv–603–Oc–UAMHPRL, 2013 WL 5556225, at *1 (M.D. Fla. Oct. 8, 2013). The Southern District, however, decided conversely, granting an insured’s discovery request for such materials: “[c]ontrary to [insurer’s] position, drafting history and extrinsic evidence of interpretive materials is discoverable at this early stage of the litigation when questions concerning ambiguity have not been resolved.” Viking Yacht Co. v. Affiliated FM Ins. Co., 07-80341-CIV-Marra/Johnson, 2008 WL 8715540, at *2 (S.D. Fla. Feb. 7, 2008).
The relevant inquiry at issue as to the discoverability and consideration of interpretative and drafting materials is whether or not the court has determined the policy to be ambiguous. If not, such materials are often crucial for an insured to prove an argument for reasonableness of interpretation. This is distinguishable from Ruderman, in which the court had made a determination of ambiguity, and the insurer sought to refute that finding.
May 24th, 2013
by RaQwin Young, Esquire
Boyle & Leonard P.A.
The March 7, 2013 Florida Supreme Court ruling in Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., et. al., 110 So. 3d 399 (Fla. 2013) limited the application of the Economic Loss Rule to the products liability context, creating the potential for an increase in tort claims arising out of contract.
In Tiara, Tiara Condominium Association (“Tiara”) hired Marsh & McLennan (“Marsh”) as its insurance broker to secure condominium insurance coverage. Id. at 400. Marsh obtained a windstorm policy with a loss limit of about $50 million through Citizens Property Insurance Corporation (“Citizens”). Id. After sustaining damage caused by hurricanes Frances and Jeanne in September 2004, Tiara began a loss remediation process. Id. Marsh assured Tiara that the loss limit coverage was per occurrence and not in the aggregate. Id. Tiara relied on this assurance when it decided to undergo more expensive loss remediation. Id. Unfortunately, when Tiara went to Citizens to recover payment, it was informed that the loss limit was in the aggregate, not per occurrence, causing Tiara to sustain economic loss due to its more expensive remediation efforts. Id.
In October 2007, Tiara filed suit against Marsh, including claims for negligence and breach of fiduciary duty. Id. The appeals court certified a question to the Supreme Court to determine whether the Economic Loss Rule prevents Tiara from recovering on these claims. Id. at 401. The Supreme Court decided in favor of Tiara and ruled that Tiara’s negligence claim was not barred because “the Economic Loss Rule applies only in the products liability context.” Id. at 407.
In its opinion, the Court provided a background as to the origins and rationale behind the Economic Loss Rule. The Rule was initially intended to apply in products liability cases to prevent tort actions to recover solely economic damages when the parties are in contractual privity. The rationale behind the rule was that “contract principles [are] more appropriate than tort principles for resolving economic loss without an accompanying physical injury or property damage.” Florida Power & Light Co. v. Westinghouse Elec. Corp., 510 So. 2d 899, 902 (Fla. 1987). The courts wanted to prevent plaintiffs from circumventing the bargained for terms of a contract by bringing an action in tort. Despite the Rule’s roots in products liability, over the years courts have expanded the Economic Loss Rule to apply to other situations involving claims in tort arising out of contract. In Tiara, the Court determined that applying the Economic Loss Rule outside of the products liability context is “unwise and unworkable in practice;” thus, it decided to limit the Rule’s scope to products liability cases. Tiara, 110 So. 3d at 407.
Justice Canady wrote a dissenting opinion emphasizing the important role that the Economic Loss Rule plays in maintaining the boundary between tort and contract. Id. at 411. Canady expressed his worry that, with the majority’s decision, “we face the prospect of every breach of contract claim being accompanied by a tort claim.” Id. at 414.
Justice Pariente’s concurring opinion attempted to address Canady’s concerns and asserted that common law principles of contract already restrict tort claims between parties in contractual privity. Id. at 408. Pariente emphasized that the majority’s decision “is neither a monumental upsetting of Florida law nor an expansion of tort law at the expense of contract principles. To the contrary, the majority merely clarifies that the economic loss rule was always intended to apply only to products liability cases.” Id.
It is unclear how the majority decision in Tiara will affect litigation in the future. However, it certainly raises the possibility that courts will entertain an increased amount of tort claims arising out of contractual relationships. This may have an impact on the insurance industry in that the potential for increased exposure to liability may lead to higher premiums and more complex indemnification provisions in policies.
September 20th, 2012
An Insurance Company’s Duty to Defend…and Why it Might be the Most Important Duty the Insurance Company Owes You
By Mark A. Boyle
When you are sued, that’s when you really need your insurance company … especially to defend you. Most modern liability policies issued to individuals and businesses have two requirements. The first, and the one we usually think about when we think about insurance, is the duty to indemnify – meaning pay for any judgment up to the limit of the policy that you purchased. The second duty, which most of us don’t always appreciate, is often even more important. It is the duty to defend. This duty to defend requires that the insurance company retain and pay for a competent attorney to defend you from a lawsuit. This duty also requires the insurer to pay for the associated cost involved in litigation — such as deposition fees, expert witnesses and the like. Most individuals and small businesses cannot afford to defend themselves due to the high cost of lawyers and associated court costs.
The rules regarding the duty to defend are very clear. The duty to defend is separate and apart from the duty to indemnify, and the insurer is required to defend the suit even if true facts later show there is no coverage. Importantly, the duty to defend is much broader than the duty to indemnify, as it is based solely upon the allegations in the complaint against the insured. If the complaint alleges facts which are partially within and partially outside of coverage of the policy, the insurance company is obligated to defend the entire lawsuit. All doubts as to whether the duty to defend exists in a particular case must be resolved in favor of the insured and against the insurer. It has also been stated that so long as the complaint alleges facts which create potential coverage under the policy, the insurer must defend the suit. An insurer must defend if the allegations in the complaint could bring the allegations of the complaint within coverage under the subject policy. If the language of the complaint “at least marginally and by reasonable implication” can be construed to invoke a duty to defend, the duty to defend exists. It has also been said that the court must not only look to the facts alleged in the complaint but their implications as well as determining whether the complaint may represent a covered occurrence.
One of our favorite cases which discuss the scope of the duty to defend isBiltmore Construction Co., Inc. v. Owners Insurance Co., 842 So. 2d 947 (Fla. 2d DCA 2003). In that case, and as the rules existed at the time, the insurance company’s policy only covered water damage to personal property and no coverage existed for the actual work of the insured or its subcontractors. The complaint against the insured in Biltmore generally alleged water damage, but did not specify whether it was damage to the general contractor’s work, the subcontractor’s work, or third party property, such as table or wallpaper, which were added after construction. The court held that under these facts, the insurer was required to defend. Relying on the duty to defend rules cited above, the court held that there was at least a potential that some of the damages were covered and thus, the insurer was required to defend the entire suit. This is a very common mistake by insurers. The Biltmore case shows a very common mistake by insurers. Often when insurers see uncovered or excluded damages in a case, they refused to defend even though there is a possibility some covered damages exist. If there are both covered and uncovered damages an insurer should offer to defend under reservation of rights.
Commonly, our firm is asked to represent individuals where the insurance company has denied the insured a defense when it has been requested. In most of the cases we evaluate, the insurance companies’ claim that they are not required to defend is unfounded. If you have sought a defense from an insurance company and they have not agreed to defend your interests, please feel free to contact us.