60-DAY CLOCK FOR STATUTORY BAD FAITH “CURE PERIOD” STARTS WHEN CIVIL REMEDY NOTICE ELECTRONICALLY FILED

Posted on March 26, 2019April 24, 2020 by Edward Garber

The Second District Court of Appeal in Harper v. Geico General Insurance Company, 44 Fla.L.Weekly D618c (Fla. 2d DCA 2019) explained that the 60-day clock for a statutory bad faith cure period STARTS when the civil remedy notice is electronically filed with Florida’s Department of Financial Services:

Subsection 624.155(3)(d) plainly states that no action shall lie if the damages are paid or corrective action is taken within sixty days after the insured files the CRN [Civil Remedy Notice]. Under current procedures, an insured files a CRN with the Department electronically. See Fla. Admin. Code R. 69J-123.002(1). And while the Department also requires the insured to print a copy of the completed CRN from the Department’s website and send it to the insurer, the Department nevertheless considers the form to be “filed” when the insured clicks the “submit” button at the end of the electronic form. See Civil Remedy Notice of Insurer Violations FAQ, https://apps.fldfs.com/CivilRemedy/Help.aspx (follow “Continue” hyperlink; then follow “How do I file a Civil Remedy Notice?” hyperlink) (last visited Dec. 20, 2018). At that time, the CRN is assigned a “filing number” and any changes must be made by clicking on “edit filing.” Hence, the requirements of section 624.155(3)(d) are met when the insured electronically files the CRN with the Department, and that action starts the sixty-day cure period for the insurer. Therefore, we hold that the sixty-day cure period under section 624.155 begins when the CRN is electronically filed with the Department, and to avoid a bad faith action, the insurer must pay the claim or take corrective action within sixty days from the date the CRN is electronically filed.

This is important because the insurer must fail to cure within this 60-day period to trigger the requirements of a statutory bad faith claim. If the insurer fails to cure within this 60-day cure period, the insured has preserved an argument for a statutory bad faith claim. See Harper, supra (“Therefore, because GEICO did not pay Harper’s claim within sixty days of the date the CRN was electronically filed with the Department, it did not pay the claim within the sixty-day cure period, and Harper was entitled to pursue her action for GEICO’s alleged bad faith.”).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PROPERTY INSURER INVOKING APPRAISAL UNDER PROPERTY INSURANCE POLICY

Posted on February 24, 2019April 24, 2020 by Edward Garber

Property insurance policies routinely contain an appraisal provision. The provision may read something to the effect:

If you and we fail to agree on the amount of loss, either may request an appraisal of the loss. However, both parties must agree to the appraisal. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written request from the other. . . . If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of the loss.

Safepoint Insur. Co. v. Gomez, 44 Fla.L.Weekly D239b (Fla. 3d DCA 2019).

In Safepoint, the Third District Court of Appeal maintained if the property insurer invokes appraisal, it waives the right to subsequently demand compliance with post-loss conditions in the policy as a condition precedent to that appraisal. (“‘Appraisal exists for a limited purpose – the determination of the amount of loss.’” By invoking appraisal pursuant to the terms of the insurance policy, Safepoint [insurer] waived the requirement of compliance with post-loss obligations as a condition precedent to that appraisal.”) Safepoint, supra (internal citation omitted).

In Safepoint, the insured (policyholder) submitted a property insurance claim. The insurer sent payment for the covered loss, but the amount of payment was disputed. As a result, the insurer invoked the appraisal process in the property insurance policy, and the insured agreed. As the appraisal process was underway and an umpire selected, the insurer sent a letter to the insured demanding a sworn statement in proof of loss, examinations under oath, and additional documentation—post-loss requirements of the insured in the insurance policy. The insured did not comply and the insurer used this non-compliance as an excuse to deny the claim. This prompted the insured to file a breach of contract lawsuit against the insurer and move to compel the insurer to complete the appraisal process that it invoked. The trial court agreed, as affirmed by the Third District. The insurer could not refuse to complete the appraisal process that it invoked by thereafter requiring the insured to comply with post-loss conditions in the policy.

CGL INSURER’S DUTY TO DEFEND BROADER THAN DUTY TO INDEMNIFY AND BASED ON ALLEGATIONS IN UNDERLYING COMPLAINT

Posted on February 9, 2019April 24, 2020 by Edward Garber

The duty to defend an insured with respect to a third-party claim is broader than the duty to indemnify the insured for that claim. The duty to defend is triggered by allegations in the underlying complaint. However, an insurer is only required to indemnify its insured for damages covered under the policy. A recent case example demonstrating the duty to defend is broader than the duty to indemnify can be found in Southern Owners Ins. Co. v. Gallo Building Services, Inc., 2018 WL 6619987 (M.D.Fla. 2019).

In this case, a homebuilder built a 270-unit condominium project where the units were included in 51-buildings. Upon turnover of the condominium association to the unit owners, the condominium association served a Florida Statutes Chapter 558 Notice of Construction Defects letter. There was numerous nonconforming work spread out among various subcontractor trades including nonconforming stucco work. The homebuilder incurred significant costs to repair defective work and resulting property damage, and relocated unit owners during repairs. The homebuilder then filed a lawsuit against implicated subcontractors. One of the implicated subcontractors was the stucco subcontractor.

The stucco subcontractor’s insurer filed an action for declaratory relief claiming it had NO duty to defend or indemnify the subcontractor in the underlying action because the subcontractor had a stucco/EIFS exclusion through an endorsement in its policy, referred tp as the “Exterior Finishing System and Stucco Exclusion.” The subcontractor’s policy also did not contain a subcontractor exception to the “your work” exclusion.

Regarding the elimination of the subcontractor exception to the “your work” exclusion, the Court noted that the elimination of the subcontractor exception was largely irrelevant since the stucco subcontractor was a subcontractor so its work was not the entire project (unlike the homebuilder or general contractors’ work). Rather, the stucco subcontractor’s work was its scope of work and the underlying complaint referenced damages beyond the stucco subcontractor’s own work to other building components. Thus, based on the allegations in the underlying complaint, the “your work” exclusion was not a basis to deny the duty to defend.

Regarding the stucco exclusion, the homebuilder argued that the subcontractor performed work outside of stucco work and the underlying complaint contained allegations unrelated to the application of stucco including framing work, miscellaneous work, and wrapping the buildings. In other words, the Court did not have sufficient evidence that each allegation of nonconforming work related to the stucco subcontractor related to or arose out of the installation of stucco to trigger the full application of the stucco exclusion. Thus, this was not a basis to deny the subcontractor the duty to defend.

At this time, it is uncertain the magnitude of covered damages under the policy in light of the stucco exclusion and property damage resulting from the subcontractor’s defective work (certainly an issue to consider). However, the insurer owed the subcontractor a duty to defend based on the allegations in the underlying complaint demonstrating the importance of crafting allegations in the underlying complaint. The insurer’s indemnification obligation for covered damages, however, may be a different story and it is uncertain how a stucco subcontractor could have an endorsement that contains a stucco exclusion. Take a look at your policy and, particularly, endorsements that further restrict coverage to ensure you do not have an exclusion relating to your own scope of work that would negate the value of the policy to you for property damage claims.

CGL POLICY COVERING ATTORNEY’S FEES IN PROPERTY DAMAGE CLAIMS

Posted on November 17, 2018April 24, 2020 by Edward Garber

Does a CGL policy cover attorney’s fees and costs in property damages claims, to the extent there is a contractual or statutory basis to recover attorney’s fees? Naturally, you need to review the policies and this is not a clear-cut issue, but there is law to argue under.

A case I have argued in support of CGL policies providing for coverage for attorney’s fees as a component of property damage claims when there is a contractual or statutory basis is Assurance Co. of America v. Lucas Waterproofing Co., Inc., 581 F.Supp.2d 1201 (S.D.Fla. 2008). In this case, the following applied:

-The policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages of… ‘property damage’….

– Property damage was defined as “physical injury to tangible property, including all resulting loss of use of that property.”

-The term damage, in of itself, was not defined in the policy.

The trial court looked at whether attorneys’ fees and costs are damages arising because of ‘property damage’ to which the insurance policy at issue applies.

If an insurer may defend against a claim that is covered by the policy without taking into account potential attorneys’ fees and costs that will be awarded if the opposing party prevails, the insurer creates an externality whereby, in the course of seeking to minimize its own liability, it imposes potential costs on the insured at no additional cost to itself. This externality undermines the very reason why an insurer can at once possess a duty and a right to defend, which is that the interests of the insured and the insurer are presumed to be aligned with respect to a claim for damages covered by the policy. Every dollar of liability for a covered claim for which the insured cannot be held liable is a dollar saved by the insurance company. If, however, when defending against a claim that is covered by the policy, an insurer can increase the liability of the insured while simultaneously decreasing its own liability, the interests of the insurer and insured are no longer aligned, giving rise to a conflict between the insurer and insured and making the coexistence of the right and duty to defend untenable.

***

Therefore, this Court finds that attorneys’ fees and costs that an insured becomes obligated to pay because of a contractual or statutory provision, which are attributable to an insurer’s duty to defend the insured against claims that would be covered by the policy if the claimant prevails, constitute damages because of ‘property damage” within the meaning of a CGL policy.

Assurance Co. of America, 581 F.Supp.2d at 1214-15.

In July of 2018, the Ninth Circuit Court of Appeals reached a similar conclusion in Association of Apartment Owners of Moorings, Inc. v. Dongbu Insurance Co., Ltd., 731 Fed.Appx. 713 (9^thCir. 2018). The issue on appeal was whether the liability insurer was required to indemnify its insured for attorneys’ fees its insured was ordered to pay against a third-party that prevailed on a water damage claim. Similar to above, the policy did not define the term “damage” and the Ninth Circuit explained:

The policy provides coverage for damages Moorings [insured] must pay “because of” covered property damage. This phrase, which is undefined, connotes a non-exacting causation requirement whereby any award of damages that flows from covered property damage is covered, unless otherwise excluded. The Bradens [third-party claimant] were awarded fees…because their home incurred water damage, and they incurred additional loss in order to recover for this damage. The fee award is thus properly considered an award of damages that Moorings must pay “because of” that covered property damage and is not otherwise excluded.

Association of Apartment Owners of Moorings, Inc., 731 Fed.Appx. at 714.

INSURER’S “FAILURE TO COOPERATE” DEFENSE

Posted on October 26, 2018April 24, 2020 by Edward Garber

If an insurer takes this position, it will typically be denying both defense and indemnification obligations, meaning the insured could be forfeiting coverage that otherwise exists through his/her/its failure to cooperate with the insurer. This defense by the insurer is not absolute as recently explained by the Fourth District in Barthelemy v. Safeco Ins. Co. of Illinois, 43 Fla.L.Weekly D2379a (Fla. 4^th DCA 2018) discussing the elements of this failure to cooperate defense.

In this case, dealing with an automobile accident, the insurer denied both defense and indemnification obligations to its insured under the failure to cooperate defense. The insurer argued its insured failed to cooperate by failing to submit three times to an Examination Under Oath (known as an “EUO”). As a result, the insurer did not provide its insured a defense in the underlying lawsuit that exposed the insured to judgments. The insured then sued its insurer for a declaratory judgment where the overriding issue was the insurer’s failure to cooperate defense.

The Fourth District confirmed that in a failure to cooperate defense case, “the insurer must show a material failure to cooperate which substantially prejudiced the insurer.” Barthelemy, supra, quoting Bankers Ins. Co. v. Macias, 475 So.2d 1216, 1218 (Fla. 1985). This means the insurer must show: (1) the insured materially failed to cooperate and (2) this material failure substantially prejudiced the insurer.

Please make sure to consult with counsel if your insurer raises this failure to cooperate defense or takes the position that you, as the insured, forfeited otherwise valid coverage under your insurance policy.

FLORIDA SUPREME COURT’S APPLICATION OF INSURANCE BAD FAITH IN THIRD-PARTY CONTEXT

Posted on September 21, 2018April 24, 2020 by Edward Garber

What happens when an insured receives a judgment in excess of his/her insurance policy limits when the matter could have been resolved within the insured’s policy limits? Think of a personal injury scenario where the insured received a claim by an injured party and tenders the claim to his/her insurer. What if that matter could get resolved within policy limits but it does not and exposes the insured to a judgment in excess of the policy limits? This could be where insurance bad faith comes into play in the third-party liability insurance context based on the totality of circumstances—the insurer acted in bad faith in failing to settle this third-party claim and exposed the insured to a judgment in excess of the insured’s policy limits.

The Florida Supreme Court in Harvey v. Geico General Insurance Company, 43 Fla.L.Weekly S375a (Fla. 2018) just entered a fairly significant ruling in the insurance bad faith context with respect to third-party claims when it reversed the Fourth District Court of Appeal with direction to reinstate a substantial bad faith jury verdict against an insurer. This case dealt with a car accident that resulted in death. The driver that caused the accident had policy limits of $100,000 per occurrence. The decedent’s estate was not going to accept that amount unless it had verification in a recorded statement as to other insurance and assets the driver had, which was never timely facilitated by the driver’s insurer. As a result, the driver was sued and received an approximate $8 Million Dollar jury verdict against him. This prompted the bad faith lawsuit (i.e., the driver was exposed to a judgment well in excess of his policy limits) where the jury found the insurer acted in bad faith (because, among other facts, had the insurer timely facilitated a recorded statement of the driver regarding other insurance and assets, the estate likely would have accepted the policy limits since the decedent did not have other insurance or significant assets). The Fourth District, however, reversed the jury verdict and the issue on appeal became the application of bad faith law in the third-party liability context.

It is this insurance bad faith application that is important and will be quoted below:

We have explained that “[b]ad faith law was designed to protect insureds who have paid their premiums and who have fulfilled their contractual obligations by cooperating fully with the insurer in the resolution of claims.” Berges, 896 So. 2d at 682. Thus, “[b]ad faith jurisprudence merely holds insurers accountable for failing to fulfill their obligations, and our decision does not change this basic premise.” Id. at 683.

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Almost four decades ago, we explained the law of bad faith and the good faith duty insurers owe to their insureds in handling their claims, which still holds true today. See Boston Old Colony, 386 So. 2d at 785. We explained that “in handling the defense of claims against its insured,” the insurer “has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.” Id. This duty arises from the nature of the insurer’s role in handling the claim on the insured’s behalf — because the insured “has surrendered to the insurer all control over the handling of the claim, including all decisions with regard to litigation and settlement, then the insurer must assume a duty to exercise such control and make such decisions in good faith and with due regard for the interests of the insured.” Id. We explained in great detail what this duty requires of insurers:

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This good faith duty obligates the insurer to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might take to avoid same. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so. Because the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith.

Id. (citations omitted).

–

We reaffirmed this duty insurers owe to their insureds in Berges, stating that the insurer “owe[s] a fiduciary duty to act in [the insured’s] best interests.” 896 So. 2d at 677. Indeed, “this is what the insured expects when paying premiums.” Id. at 683.

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The obligations set forth in Boston Old Colony are not a mere checklist. An insurer is not absolved of liability simply because it advises its insured of settlement opportunities, the probable outcome of the litigation, and the possibility of an excess judgment. Rather, the critical inquiry in a bad faith is whether the insurer diligently, and with the same haste and precision as if it were in the insured’s shoes, worked on the insured’s behalf to avoid an excess judgment. “[T]he question of whether an insurer has acted in bad faith in handling claims against the insured is determined under the ‘totality of the circumstances’ standard.” Id. at 680. Further, it is for the jury to decide whether the insurer failed to “act in good faith with due regard for the interests of the insured.” Boston Old Colony, 386 So. 2d at 785. This Court will not reverse a jury’s finding of bad faith where it is supported by competent, substantial evidence, as “it is not the function of [the appellate court] to substitute its judgment for the trier of fact.” Berges, 896 So. 2d at 680.

–

In a case “[w]here liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has an affirmative duty to initiate settlement negotiations.” Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991). In such a case, where “[t]he financial exposure to [the insured] [i]s a ticking financial time bomb” and “[s]uit c[an] be filed at any time,” any “delay in making an offer under the circumstances of this case even where there was no assurance that the claim could be settled could be viewed by a fact finder as evidence of bad faith.” Goheagan v. Am. Vehicle Ins. Co., 107 So. 3d 433, 439 (Fla. 4th DCA 2012) (citing Boston Old Colony, 386 So. 2d at 785).

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The damages claimed by an insured in a bad faith case “must be caused by the insurer’s bad faith.” Perera v. U.S. Fidelity & Guar. Co., 35 So. 3d 893, 902 (Fla. 2010). However, “the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.” Berges, 896 So. 2d at 677.*

***

In the decision below, the Fourth District stated that “where the insured’s own actions or inactions result, at least in part, in an excess judgment, the insurer cannot be liable for bad faith.” Harvey, 208 So. 3d at 816. We conclude that this statement misapplies our precedent in Berges, where we stated that “the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer in fulfilling its obligations to the insured.” Berges, 896 So. 2d at 677.

***

While this Court has stated that “there must be a causal connection between the damages claimed and the insurer’s bad faith,” Perera, 35 So. 3d at 902, this Court has never held or even suggested that an insured’s actions can let the insurer off the hook when the evidence clearly establishes that the insurer acted in bad faith in handling the insured’s claim. In fact, the standard jury instructions on legal cause in a bad faith case belies the Fourth District’s conclusion that where the insured’s own actions, even “in part” cause the judgment, the insurer cannot be found liable for bad faith. Indeed, the standard legal cause instruction states:

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Bad faith conduct is a legal cause of [loss] [damage] [or] [harm] if it directly and in natural and continuous sequence produces or contributes substantially to producing such [loss] [damage] [or] [harm], so that it can reasonably be said that, but for the bad faith conduct, the [loss] [damage] [or] [harm]would not have occurred.

–

Fla. Std. Jury Instr. (Civ.) 404.6(a). Nowhere in this instruction does it state that an insurer can escape liability merely because the insured’s actions could have contributed to the excess judgment.

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To take the Fourth District’s reasoning to its logical conclusion, an insurer could argue that regardless of what evidence may be presented in support of the insured’s bad faith claim against the insurer, so long as the insurer can put forth any evidence that the insured acted imperfectly during the claims process, the insurer could be absolved of bad faith. As Harvey argues, this would essentially create a contributory negligence defense for insurers in bad faith cases where concurring and intervening causes are not at issue. We decline to create such a defense that is so inconsistent with our well-established bad faith jurisprudence which places the focus on the actions on the insurer — not the insured. Berges, 896 So. 2d at 677.

ASSIGNMENT OF BENEFITS PROVISION IN HOMEOWNER’S POLICY IS ENFORCEABLE

Posted on September 7, 2018April 24, 2020 by Edward Garber

When it comes to property insurance claims, particularly those under a homeowner’s insurance policy, an insured will oftentimes assign its benefits under the policy to a restoration contractor. The request for the assignment may likely be prompted by the contractor that does not want to perform the work without the assignment of benefits. The assignment of benefits (also known by the acronym “AOB”) allows the third-party contractor (as the assignee of the insured) to sue the insurer directly for benefits under the policy associated with the restoration work.

Recently, the Fourth District Court of Appeal found enforceable a provision in a homeowner’s insurance policy that stated, “[n]o assignment of claim benefits, regardless of whether made before a loss or after a loss, shall be valid without the written consent of all ‘insureds,’ all additional insureds, and all mortgagee(s) named in this policy.” Restoration 1 of Port St. Lucie v. Ark Royal Ins. Co., 43 Fla.L.Weekly D2056a (Fla. 4th DCA 2018). This meant that for the assignment of benefits to be valid, all insureds and the insured’s mortgagee had to sign off on the assignment.

In this case, the restoration contractor got the assignment of benefits signed by the wife-insured, but the assignment was not signed by the husband-insured or the mortgagee. Based on this, the insurer denied payment to the restoration contractor. The restoration contractor sued the insured based on the assignment and the Fourth District affirmed the trial court in dismissing the complaint holding that the language of the assignment of benefits provision in the policy is enforceable (meaning the contractor needed the written consent of all insureds and the mortgagee in order to effectuate a valid assignment).

Regardless of your feelings about assignment of benefits, the language in the homeowner’s policy must be reviewed to ensure compliance with any assignment of benefits language in the policy.

LIABILITY INSURER PRECLUDED FROM INTERVENING IN INSURED’S LAWSUIT

Posted on August 31, 2018April 24, 2020 by Edward Garber

There are cases where I honestly do no fully understand the insurer’s position because it cannot have its cake and eat it too. The recent opinion in Houston Specialty Insurance Company v. Vaughn, 43 Fla. L. Weekly D1828a (Fla. 2d DCA 2018) is one of those cases because on one hand it tried hard to disclaim coverage and on the other hand tried to intervene in the underlying suit where it was not a named party.

This case dealt with a personal injury dispute where a laborer for a pressure washing company fell off of a roof and became a paraplegic. The injured person sued the pressure washing company and its representatives. The company and representatives tendered the case to its general liability insurer and the insurer–although it provided a defense under a reservation of rights—filed a separate action for declaratory relief based on an exclusion in the general liability policy that excluded coverage for the pressure washing company’s employees (because the general liability policy is not a workers compensation policy). This is known as the employer’s liability exclusion that excludes coverage for bodily injury to an employee. The insurer’s declaratory relief action sought a declaration that there was no coverage because the injured laborer was an employee of the pressure washing company. The pressure washing company claimed he was an independent contractor, in which the policy did provide limited coverage pursuant to an endorsement.

The insurer also moved to intervene in the underlying action for the purpose of getting special interrogatories on the verdict form relative to the injured plaintiff’s employment status. The pressure washing company objected because they did NOT want to inflate the damages by having the jury learn that insurance was involved, thereby prejudicing it, particularly if it was determined that there was no insurance coverage. You cannot blame the insured in this instance, particularly because the injured plaintiff was probably all for having the insurer intervene so that the jury learned about the insured’s insurance.

While the trial court granted the motion to intervene, after a number of events occurred (not discussed here), the trial court ultimately dismissed the intervention. The insurer appealed.

The appellate court affirmed the denial / dismissal of the insurer’s intervention in the underlying action. The bottom line is that the insurer was not sued in the underlying action. It could not be sued by the injured plaintiff based on Florida’s non-joinder statute (Florida Statute 627.4136) that would prevent the injured plaintiff from suing the liability insurer directly until it gets a judgment against the insured. Thus, the insurer had no direct and immediate interest in the dispute. Any judgment entered in the case would not be against the insurer—it would be entered against its insured. Further, if the insured obtained a judgment and then sued the insurer, the insurer would not be deprived of appropriate legal defenses.

As the appellate court explained, the insurer’s argument, if accepted, would be to eviscerate Florida’s non-joinder statute:

If the possibility of owing up to the policy limits based upon entry of an adverse judgment [against an insured] was itself a sufficient basis to allow intervention, insurers would be permitted the unhindered and unfettered opportunity to intervene in innumerable tort cases. That is exactly what Houston [insurer] wants; it seeks to interject itself directly into Mr. Vaughn’s [injured plaintiff’s] tort lawsuit. We cannot countenance such a result in light of the legislature’s intent [in Florida’s non-joinder statute] to prevent the introduction of such prejudicial information from being introduced to the jury. After all, courts must continually be concerned that insurance coverage not be introduced to the jury because of its potential to adversely impact the issues of liability and damages.

MEASURE OF DAMAGES IN NEGLIGENT PROCUREMENT OF SURETY BONDS / INSURANCE

Posted on August 19, 2018April 24, 2020 by Edward Garber

My broker procured the wrong insurance and I am exposed to a loss. My broker failed to procure proper insurance and I am exposed to a loss. “Where the parties enter into an agreement to procure insurance and there is a negligent failure to do so, an insurance broker may be liable for damages.” The Lexington Club Community Association, Inc. v. Love Madison, Inc., 43 Fla.L.Weekly D1860a (Fla. 4^th DCA 2018). The proper measure of damages in a negligent procurement of insurance claim is “what would have been covered had the insurance been properly obtained.” Id. quoting Gelsomino v. ACE Am. Ins. Co., 207 So.3d 288, 292 (Fla. 4^th DCA 2016). This measure of damages in a negligent procurement of insurance claim is important because it is the measure of damages that dictates recoverable damages under this claim.

In Lexington Club Community Association, Inc., condominium associations hired a contractor to perform post-hurricane repairs. The contractor was required to obtain a performance and payment bond. The contractor obtained bonds from a non-Florida surety (insurance) company that was not authorized to do business in Florida. In doing so, the association paid the contractor’s surety agent $327,915 in premium, of which 10% of this amount went to the agent as commission. The associations thereafter learned the surety was located in Barbados and not licensed in Florida, which raised a red flag, as it should. The associations then sued, among others, the surety agent that procured the bonds and received the commission for negligent procurement of insurance, a declaration that the bond was unenforceable, and unjust enrichment. (Notably, although the surety was sued, it did not respond to the complaint and a default was entered against it.). Ultimately, the associations paid a huge premium for a valueless product, i.e., surety bonds backed by a foreign entity that had no incentive to honor the bonds, particularly since it was not licensed to do business in Florida.

Of importance, the association had no cause to rely on the bonds because it did not incur any damage or issue to actually trigger the application of the bonds, other than wanting a refund in its premium. This meant it was suing the surety agent for the $327,915 in premium that was paid to the surety not licensed to do business in Florida. But, the lack of an actual loss under the bonds is an important consideration when it comes to proving damages. A jury found that any negligence of the surety agent was not a cause of damage to the associations, presumably because the associations had no proven damage under the bonds. Instead, the jury awarded the associations the 10% commission the agent received in procuring the bonds, approximately $32,000, through an unjust enrichment claim. (An analogy would be procuring insurance from a non-Florida entity but not actually having a claim to trigger the insurance coverage. The same rationale would apply.).

Florida Statute s. 626.901 applies when dealing with an unauthorized insurer, which is an insurer not authorized to transact insurance in Florida, such as the surety in this case. Section 626.901(2) provides:

If an unauthorized insurer fails to pay in full or in part any claim or loss within the provisions of any insurance contract which is entered into in violation of this section, any person who knew or reasonably should have known that such contract was entered into in violation of this section and who solicited, negotiated, took application for, or effectuated such insurance contract is liable to the insured for the full amount of the claim or loss not paid.

However, even under s. 626.901, an insurer’s unauthorized policy would still be deemed enforceable in Florida; however, the insurance broker could still be liable for amounts or loss not paid by the insurer. Fla. Stat. s. 626.901. Applied here, the bonds would still be enforceable (irrespective of the surety that actually issued the bonds). But, again, the associations here did not actually incur a loss that would trigger the application of the bonds.

CGL POLICIES AND THE PROFESSIONAL LIABILITIES EXCLUSION

Posted on August 11, 2018April 24, 2020 by Edward Garber

Commercial general liability (CGL) policies for contractors traditionally contain a professional liabilities exclusion. This exclusion is generally added through a specific endorsement to eliminate coverage for professional services. Read the endorsement The point of the exclusion, in a nutshell, is simply to eliminate a CGL policy for a contractor serving as a professional liability policy.

Contractors need to appreciate a professional liabilities exclusion added through endorsement because oftentimes there are delegated design components they are responsible for. Perhaps the contractor value engineered a system and is responsible for engineering and signing and sealing the engineered documents (through its subcontractor) associated with that system. Perhaps there is a performance specification that requires the contractor to engineer a system. Perhaps there is a design-build component. Regardless of the circumstance, this professional liabilities exclusion can certainly come into play, particularly if a defect is raised with the design or professional services associated with the engineered system.

In a non-construction case dealing with a professional liabilities exclusion, the Second District Court of Appeal in Alicea Enterprises, Inc. v. Nationwise Ins. Co. of America, Inc., 43 Fla.L.Weekly D1713b (Fla. 2d DCA 2018) held:

Whether a professional service has, or has not, been rendered is a fact-intensive analysis. Thus, when deciding whether an act arises out of the rendering of or failure to render a professional service, the court must focus on the act itself and not the character of the individual performing the act. The act from which the claim arises must be related to a professional service that requires the use of professional judgment or skill.

Id. (internal citations omitted).

In this case, the insurer issued a CGL policy to a pharmacy. The pharmacy was sued in a negligence action. The pharmacy’s CGL insurer filed an action for declaratory relief claiming it had neither a duty to defend nor indemnify its insured (the pharmacy) since the underlying claims arose out of professional services and the CGL policy contained a professional liabilities exclusion.

The Second District maintained, as to the insurer’s duty to defend its insured, that the insurer had a duty to defend the pharmacy (insured) in the negligence action because the allegations in the underlying complaint could be deemed unrelated to professional services.

The Second District maintained, as to the insurer’s duty to indemnify its insured, that this duty is more fact-intensive and without sufficient discovery, there was a genuine issue of material fact as to whether the evidence brought the pharmacy’s conduct within the meaning of the professional liabilities exclusion in the CGL policy.

Here, while the pharmacy will get the benefit of the insurer’s duty to defend since that is triggered by the underlying complaint, the duty to indemnify is different and triggered by the facts. It is likely that the facts in this case trigger the application of the professional liabilities exclusion, meaning the CGL insurer does NOT have a duty to indemnify the insured for the damages proven against it. Not the situation an insured wants to be in!