June 15th, 2018

California Supreme Court holds that commercial general liability policy covers employer for negligent hiring, retention, and supervision of employee who intentionally injures third party

By, Mark A. Boyle, Esq.

In Liberty Surplus Insurance Corporation vs. Ledesma & Meyer Construction Company, Inc. (L & M), the California Supreme Court found that the standard commercial general liability (“CGL”) policy provides coverage when a third-party sues an employer for negligent hiring, retention, and supervision of an employee who intentionally injured that third-party.

L & M was sued by a third-party who alleged that they have been abused by an employee of L & M.  Specifically, L & M was sued for negligence by hiring, retaining, and supervising the employee that conducted the abuse.

The legal issue involved in the case was whether under the CGL policy issued to L & M, the claims constituted and “occurrence“ and “accident“ within the meaning of the CGL policy.  The CGL policy provided coverage for “bodily injury” caused by an “occurrence.”  The policy defines an occurrence as an “accident.”

The court found coverage even though the acts of one of the employees was clearly intentional, specifically noting:

Because liability insurance is a contract between an insurer and insured, and the policy is read in light of the parties’ expectations, the relevant viewpoint is of the insured rather than the injured party.

Thus, California, consistent with most jurisdictions, held that coverage is available under a CGL policy to an insured as long as the damages are not subjectively intended or expected from the standpoint of the insured.

In this respect, California law is in conformity with the overwhelming majority of jurisdictions who have decided this issue.  See Carylye King vs. Dallas Fire Ins. Co., 85 S.W. 3d 185 (Tex. 2002); Lamar Homes, Inc. v Mid-Continent Cas. Co., 242 S.W. 3d 1 (Tex. 2007); State Farm Fire and Casualty Co. v CTC Development Corp., 720 So.2d 1072 (Fla. 1998);  George Koikos v Travelers Ins. Co., 849 So. 2d 263 (Fla. 2003); and Travelers Indemnity Co. v PCR Inc., 889 So. 2d 779 (Fla. 2004) All of these cases hold that bodily injury and property damage claims are covered under the CGL policy unless the damage was intended or expected from the standpoint of the insured.  This is true even if the insured intend the conduct giving rise to liability.

The California ruling affirms the broad coverage which was intended to be provided under the standard commercial general liability policy.

December 4th, 2015

Insurance Coverage for Punitive Damages in Florida

By: Matthew M. Jackson, Esquire

 

Boyle & Leonard, P.A.

 

It is a commonly held belief that Florida public policy forbids insurance coverage for punitive or exemplary damages, regardless of the policy language.  However, a review of cases addressing the issue reveals that the public policy prohibition on coverage for punitive damages applies only to insureds who engage in active wrongdoing.  It is clear that Florida’s public policy does not prohibit insurance coverage for punitive damages based on vicarious liability.  The Florida Supreme Court has succinctly set forth the policy, and the reasoning behind it.

 

 

“Florida public policy prohibits liability insurance coverage for punitive damages assessed against a person because of his own wrongful conduct.” U.S. Concrete Pipe Co. v. Bould, 437 So. 2d 1061 (Fla. 1983).  “The Florida policy of allowing punitive damages to punish and deter those guilty of aggravated misconduct would be frustrated if such damages were covered by liability insurance.” Id.

 

 

“However, it is generally held that there is a distinction between the actual tortfeasor and one only vicariously liable and that therefore public policy is not violated by construing a liability policy to include punitive damages recovered by an injured person where the insured did not participate in or authorize the act.” See Id., citing Sterling Insurance Co. v. Hughes, 187 So. 2d 898 (Fla. 3d DCA 1966).  Common scenarios wherein an insured could face punitive damages based on vicarious liability include companies answering for the conduct of employees, and contractor-subcontractor relationships where the subcontractor’s actions provide the basis for a cause of action which supports punitive damages.

 

 

In cases where punitive damages are awarded based on vicarious liability, an analysis of the relevant policy language is necessary. Simply because public policy would allow for punitive damages based on vicarious liability does not mean that the language of the insurance policy actually provides coverage.  For example, in First Specialty Ins. Co. v. Caliber One Indem. Co., 988 So. 2d 708 (Fla 2nd DCA 2008) the Second District Court of Appeal, held that while public policy did not forbid coverage of punitive damages based on vicarious liability, the language of the policy, which defined damages as “any compensatory amount”, did not provide coverage for punitive damages because punitive damages are not compensatory.  In addition, the 2nd District held that the policy did not provide coverage, because it specifically excluded coverage for “penalties or fines” rendered against the insured. See Id. at 713.  However, even a clause specifically excluding punitive damages was held to be insufficient justification for dismissing a complaint against an insurance company.  See Schwab v. First Appalachian Ins. Co., 58 F.R.D. 615, 622 (Fla. 1973).

 

 

Additionally, the Florida Supreme Court has held that there must be some independent wrongdoing by the vicariously liable party to allow for punitive damages.  See Mercury Motors Express, Inc. v. Smith, 393 So.2d 545, 549 (Fla. 1981).  This appears to require negligence on the part of the vicariously liable party, or some other wrongful conduct- however, if the wrongful conduct of the vicariously liable party is itself the basis of a portion of the punitive damages, this would prevent recovery from insurance, at least as to the punitive damages based directly on the wrongful conduct, based on the public policy previously discussed.

 

 

It is important to note that even if an insurance policy clearly excludes punitive damages, or in cases where no vicarious liability is alleged and insurance coverage for punitive damages is obviously prohibited by public policy, an insurance company that defends an insured must act in good faith towards the insured, as to potentially covered claims and as to punitive damages claims.  See Ging v. American Liberty Ins. Co., 423 F.2d 115, 116 (5th Cir. 1970).  In Ging, the insured was grossly negligent, resulting in a car accident and the death of the driver of another vehicle. See Id. at 117.  The insurance company defended the insured under a reservation of rights, and expressly stated that punitive damages were not covered.  See Id.  The insurer did not settle within policy limits despite an offer from the estate of the deceased driver to do so, did not inform the insured of the offer, did not forward correspondence from the estate to the insured despite requests by the estate to do so, and engaged in other bad faith conduct. See Id. at 117-118.  After judgment was entered against insured for compensatory and punitive damages, the insurer paid in full the compensatory damages, and the estate took assignment of the insured’s bad faith claims and sued the insurer for bad faith, attempting to collect the judgment for punitive damages.  In reversing summary judgment in favor of the insurer, the Ging court held:

 

 

“Because an insurance company actually did undertake the complete defense of its insured to a suit seeking both compensatory and punitive damages, the company had the duty of acting in good faith toward its insured as to the entire undertaking.”  See Id. at 116

 

 

While there are several legal impediments, in some cases, insurance policies may indeed cover punitive damage, despite popular belief to the contrary.  As always, the facts and the policy language will control the analysis, but when vicarious liability is alleged, insurance coverage for punitive damages becomes a possibility to be carefully evaluated.

November 30th, 2015

Three’s a Party, Four’s A Crowd: The Tripartite Relationship in the Insurance Context

By Molly A. Chafe, Esquire

In Florida, communications between a lawyer and a client are “confidential” and, barring exception, not subject to disclosure. See Fla. Stat. § 90.502. One exception is the “joint client” exception to attorney-client privilege. See Fla. Stat. § 90.502(4)(e). The exception applies only when an attorney represents two parties “in common” who later are opponents in a civil action.

An attorney may represent clients jointly, so long as the joint representation does not entail a conflict of interest and the clients request or agree to the joint representation. This often comes into play in the insurance context, when a liability insurer hires an attorney to defend a policyholder; this relationship is called a “tripartite relationship” (insurer, insured and insured’s counsel). Despite having three parties to this relationship, parties to this relationship can assert attorney-client privilege and work-product.

However, when an insurer denies coverage, asserts a defense to coverage, or issues a reservation of rights under an insurance policy, the interests of the insurer and insured are in direct conflict. Univ. of Miami v. Great Am. Assur. Co., 112 So. 3d 504, 507 (Fla. 3d DCA 2013). Under such circumstances, both parties need their own counsel and an attorney generally may not represent both the insurer and the insured.Id. Thus, the tripartite relationship is broken.

However, the United States District Court for the Southern District in Maplewood Partners, L.P. v. Indian Harbor Ins. Co., 2011 WL 3918597 *1 (S.D. Fla. Sept. 6, 2011), held that an insurer was entitled to discovery of otherwise protected attorney client communications and attorney work product from the underlying case because of the existence of a common interest between the insurer and the insured and because the insured put defense counsel work product “at issue” by challenging the insurer’s allocation assessment.

The insured initiated coverage litigation against the insurer for breach of a D&O policy, disputing the insurer’s allocation between covered and uncovered amounts with respect to the defense and settlement of four separate lawsuits. Id. at *1.  The insurer sought discovery of all communications between the insured and its defense counsel concerning the underlying matters and assessments made by the insured or defense counsel concerning the insured’s liability and the settlement value of the litigation. Id.  The insured objected to this discovery, arguing that the information sought was protected by Florida’s attorney client privilege and federal law’s attorney work product doctrine. Id.

The Southern District rejected the insured’s argument after a hearing on a motion to compel, finding that the applicability of the work product doctrine in this case turned on federal law notwithstanding that the documents at issue were prepared in connection with state court litigation. Id. at *2. Thus under federal law, the court determined that the insured waived the protection afforded by the doctrine with respect to defense counsel’s assessment of liability and damages in the underlying litigation by putting that assessment “at issue.” Id. at *5. The court held that because the insured brought suit against the insurer, the insured could not preclude the discovery of information that was vital to the insurer’s defense that its allocation method was appropriate as compared to the allocation method pressed by the insured. Id.

Next, the court held that the insurer was entitled to the discovery of information that otherwise would be protected from disclosure by the privilege afforded attorney-client communications under Florida law. Id. at *5. According to the court, the insured could not claim this privilege as to the insurer because of the existence of a common interest between the insured and insurer with respect to the underlying litigation.Id.  Specifically, the court found that the insured and insurer “shared a common interest in defeating liability in the underlying proceedings.”Id. Specifically, the court rejected the insured’s arguments that there was no common interest here because the insurer did not have a duty to defend under the policy and because the insurer had issued a reservation of rights letter. Id. at *6.

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.[1] 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.

 

 

 

 

 

 

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