consent judgment Archives - Florida Construction Legal Updates

If you are not familiar with the concept of what is commonly known as a Coblentz agreement relative to an insurance coverage dispute, review these prior postings (here and here and here). This is a good-to-know agreement if you are a claimant and need to consider an avenue of collection if the insured’s carrier denies coverage out of the gate (meaning the carrier has denied both the duty to defend and the duty to indemnify).

A recent Eleventh Circuit Court of Appeals opinion demonstrates the Coblentz agreement concept. In Barrs v. Auto-Owners Ins. Co., 2024 WL 3673089 (11^th Cir. 2024), an owner asserted a construction defect claim against its contractor. The owner hired the contractor to deconstruct a building and the contractor hired a demolition subcontractor. The owner noticed work was not being performed and materials (e.g., lumber) were missing; the demolition subcontractor had stolen materials. The subcontractor was terminated, and the owner claimed the contractor’s negligence allowed the theft and delayed his project. The contractor’s commercial general liability (CGL) insurer notified the insured-contractor that coverage did not exist and refused to defend the contractor. The owner sued the contractor under various theories of liability. The owner and contractor entered into a settlement agreement (i.e., the Coblentz agreement) where the contractor “admitted liability in the amount of $557,500.00….A consent judgment was entered against [the contractor] that closely tracked the settlement agreement but did not indicate which portion of the damages award was attributed to which claims. The agreement also assigned [owner] and all of [the contractor’s] rights to claim coverage and to recover available funds under [the contractor’s CGL policy].”

The owner then sued the contractor’s insurer under the CGL policy based on the owner being assigned contractor’s rights under the policy. While the federal district court found Georgia law applied, it further found that the contractor’s CGL policy provided coverage for some of owner’s claims against contractor – it provided coverage for owner’s “claims of negligent hiring, retention, and supervision to the extent that he sought damages for stolen lumber and materials.” Barrs, supra, at *2. The CGL policy did not cover any faulty workmanship or improper deconstruction. The district court subsequently entered judgment in favor of the owner against the insurer for $557,500. The CGL insurer appealed arguing, mainly: (1) the damages are not covered by its policy, and (2) it had no duty to indemnify the owner because the consent judgment did not allocate between covered and uncovered claims.

As for the CGL insurer’s first point of contention (damages are not covered), he Eleventh Circuit held no exclusion barred coverage for the negligent hiring, retention, and supervision claims for damages associated with stolen lumber and materials.

As for the CGL insurer’s second point of contention (no duty to indemnity because of lack of allocation in consent judgment), the Eleventh Circuit held that nothing under Georgia law precludes enforcement of an unallocated consent judgment:

“The district court held that “[w]hen an insurance company refuses to defend its insured, without any reservation of rights, and its insured secures ajudgment (without fraud or collusion), an insurance company must pay the entire judgment.” It determined that the consent judgment here wasenforceable because (1) it complied with the procedures established in Coblentz v. American Surety Company of New York, 416 F.2d 1059 (5th Cir.1969); (2) Georgia common law didn’t appear to allow an insurer a second bite at the apple when it chose not to participate in the underlying lawsuit; and (3) [owner’s] declaration attested that the $557,500 settlement was less than the value of the stolen lumber, so even if the consent judgment wasn’t properly allocated, the recovery was reasonable.

We agree that the consent judgment was crafted and executed in compliance with Coblentz. To be sure, although Georgia law estops an insurer from contesting its insured’s liability when it refuses to participate in the underlying lawsuit, it doesn’t necessarily prevent an insurer from later contesting coverage. Even so, we affirm because we’ve been pointed to nothing in Georgia law that clearly prevents the enforcement of unallocated consent judgments. To hold that unallocated consent judgments are unenforceable would be to shift the burden to the insured and would require meddling in Georgia law to a degree that we think would be imprudent.

Barrs, supra at *5 (internal citations omitted).

When dealing with the Coblentz agreement and corresponding consent judgment, it is better practice to allocate damages between covered and uncovered damages. Regardless, this case demonstrates the benefit of a Coblentz agreement when the liability carrier denies coverage out of the gate and the carrier becomes the best avenue of collection.

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.

I previously discussed Coblentz agreements. A Coblentz agreement is an agreement between a claimant (e.g., property owner) and a third-party (e.g., general contractor that caused construction defects and damage) when the third-party’s liability insurer denies a defense (and coverage) to the third-party. The claimant and third-party enter into an agreement where a) the claimant obtains a consent judgment against the third-party, b) the third-party assigns its rights under its liability policy to the claimant based on the insurer’s refusal to defend and indemnify the third-party, and c) the claimant releases the third-party from any individual liability irrespective of whether the claimant recovers from the third-party’s liability insurer. (Check here for a presentation on Coblentz agreements.)

One of the key components of the Coblentz agreement is the consent judgment given by the third-party to the claimant. It is always a good idea to allocate between damages covered by insurance and damages not covered by insurance. The reason is that liability insurance is not designed to cover defective workmanship. Rather, it is designed to cover damages resulting from defective workmanship. In a construction defect dispute, the consent judgment should reasonably allocate the covered damage (damage caused by defective workmanship) and uncovered damage (the cost solely to repair defective workmanship). These amounts should not be arbitrarily decided but should be supported with expert opinions since this point would be litigated against the liability insurer when the claimant tries to recover from the third-party’s liability insurer.

For example, in the recent opinion of Bradfield v. Mid-Continent Casualty Company, 2015 WL 6956543 (M.D.Fla. 2015), an aspect of the opinion dealt with the lack of an allocation of damages in a consent judgment given in consideration of a Coblentz agreement. The contractor gave the owner a consent judgment in the amount of $671,050. But, there was no allocation of this lump sum amount for covered and uncovered damage or what this lump sum was designated for. The consent judgment was based on an estimate prepared by an expert but the estimate included costs to repair defective work, or work that was not covered by the liability insurance policy. The Middle District of Florida found that this failure to appropriately allocate covered verses uncovered damage was fatal to the owner’s claim against the third-party contractor’s liability insurer to recover the amount of the consent judgment. The court explained: “Florida law clearly requires the party seeking recovery…to allocate any settlement amount between covered and noncovered claims.” Bradfield, supra, at *24.

Even if damages were allocated, the consent judgment still needs to be reasonable and entered in good faith. The court discussed this aspect of the Coblentz agreement despite finding that the failure to allocate was fatal to the owner’s claims against the contractor’s liability insurer. As to the reasonableness of a consent judgment, the court importantly maintained:

When an injured party wishes to recover under a Coblentz agreement, [t]he claimant must assume the burden of initially going forward with the production of evidence sufficient to make a prima facie showing of reasonableness and lack of bad faith, even though the ultimate burden of proof will rest with the carrier. The courts impose good faith and reasonableness requirements in these cases due to the risk that the settlement of liability and damages in a settlement agreement may have little relationship to the strength of a plaintiff’s claim where the insured may never be obligated to pay and has little to lose if he stipulates to a large sum with the plaintiff.

In Florida, the test as to whether a settlement is reasonable and prudent is what a reasonably prudent person in the position of the defendant [the insurer] would have settled for on the merits of plaintiff’s claim. Objective and subjective factors are considered, including the degree of certainty of the tortfeasor’s subjection to liability, the risks of going to trial and the chances that the jury verdict might exceed the settlement offer. [P]roof of reasonableness is ordinarily established through use of expert witnesses to testify about such matters as the extent of the defendant’s liability, the reasonableness of the damages amount in comparison with compensatory awards in other cases, and the expenses which have been required for the settling defendants to settle the suit. Bad faith also may be established by evidence of the absence of any effort to minimize liability.

Bradfield, supra, at 27 (internal quotations and citations omitted).

When considering a Coblentz agreement on behalf of a claimant, make sure the judgment allocates between covered and noncovered claims / damages and is reasonable. The same experts utilized to support the allocation can be utilized to support the reasonableness of the allocation for covered claims / damages.