FLORIDA CLAIMS ADMINISTRATION STATUTE AND DIFFERENCE BETWEEN POLICY DEFENSE AND COVERAGE DEFENSE

Posted on September 1, 2024September 1, 2024 by David Adelstein

A recent insurance coverage dispute involving an automobile liability insurance policy contains a worthy discussion, particularly on the difference between a policy defense and a coverage defense. In this case, the carrier did not provide a defense to the defendant and the plaintiff and defendant entered into a Coblentz agreement. The plaintiff, as assignee of the insured, filed a lawsuit against the automobile liability policy for coverage. Summary judgment was granted in favor of the insurer finding there was no coverage under the terms of the policy. This was affirmed.

1. Scope and Extent of Insurance Coverage

The scope and extent of insurance coverage is determined by the language of the insurance policy. Thus, the policy’s text is paramount and must be the starting point of our analysis. Parrish v. State Farm Florida Ins. Co., 356 So. 3d 771, 774 (Fla. 2023); see also State Farm Mut. Auto. Ins. Co. v. Menendez, 70 So. 3d 566, 569 (Fla. 2011) (“In interpreting an insurance contract, we are bound by the plain meaning of the contract’s text.”); § 627.419(1), Fla. Stat.

***

The policy must be enforced as written. Courts are without power to rewrite insurance contracts or create insurance coverage where none exists. Excelsior Ins. Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979); U.S. Fire Ins. Co. v. Morejon, 338 So. 2d 223, 225 (Fla. 3d DCA 1976) (“Florida courts adhere to the principle that a court should not rewrite a contract of insurance extending the coverage afforded beyond that plainly set forth in the insurance contract.”).

Fojon v. Ascendant Commercial Ins. Co., 49 Fla.L.Weekly D1799b (Fla. 3d DCA 2024)

2. Florida’s Claims Administration Statute and Difference between Coverage Defenses and Policy Defenses

An argument that was raised by the plaintiff (as assignee of the insured) was that the liability insurer waived its right to deny coverage because the insurer failed to comply with Florida’s Claims Administration Statute.

Florida’s Claims Administration Statute is embodied in Florida Statute s. 627.427, which provides in material part in subsection (2):

(2) A liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless:

(a) Within 30 days after the liability insurer knew or should have known of the coverage defense, written notice of reservation of rights to assert a coverage defense is given to the named insured by registered or certified mail sent to the last known address of the insured or by hand delivery; and

(b) Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer:

1. 1. 1. Gives written notice to the named insured by registered or certified mail of its refusal to defend the insured;
    2. Obtains from the insured a nonwaiver agreement following full disclosure of the specific facts and policy provisions upon which thecoverage defenseis asserted and the duties, obligations, and liabilities of the insurer during and following the pendency of the subject litigation; or
    3. Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

Importantly, as reflected in the statute, it pertains to coverage defenses. Not policy defenses.

A policy defense is an assertion that the terms of the insurance contract do not provide for coverage. AIU Ins. Co. v. Block Marina Inv., Inc., 544 So. 2d 998, 1000 (Fla. 1989). For example, a policy defense exists where the insuring agreement is not triggered, such as when a person does not qualify as an insured or when a vehicle does not qualify as a covered auto. Other examples include where an exclusion applies, or when a loss occurs outside of the policy period.

On the other hand, a coverage defense involves forfeiture of insurance coverage that otherwise exists. Coverage defenses arise where the insured fails to comply with a condition or duty required by the policy, such as failing to cooperate, committing fraud, or failing to provide prompt notice. It is based on some action or inaction of the insured after the loss. Grigsby, supra, at 8 (“It focuses on the insured’s behavior, post-loss in particular.”).

Fojon, supra.

When it comes to a coverage defense, an insurer must comply with Florida’s Claims Administration Statute. “If it does not, it is estopped from asserting the coverage defense – a breach of a policy condition that would forfeiture coverage. It can still, however, assert a policy defense – a defense of no coverage.” Fojon, supra (internal citation omitted).

However, in this coverage dispute, the insurer relied on a policy defense in denying coverage and its defense of the insured, not a coverage defense . “Therefore, the Claims Administration Statute does not apply, and it does not bar [insurer] from denying coverage.” Fojon, supra.

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.

QUICK NOTE: INSURER MUST COMPLY WITH FLORIDA’S CLAIMS ADMINISTRATION ACT

Posted on September 4, 2017September 4, 2017 by Edward Garber

As an insured, know YOUR rights under Florida’s Claims Administration Act (Florida Statute s. 627.426). I wrote an article on this exact topic. If a third-party claim is asserted, or in the process of being asserted, against you, do yourself a favor and consult a lawyer that can assist you with preserving your insurance coverage rights. You pay liability insurance premiums for a reason so make sure you are not doing anything that could jeopardize rights under applicable insurance policies.

A liability insurer must comply with the Claims Administration Act if it wants to deny coverage based on a coverage defense (e.g., the insured’s failure to cooperate with the insurer).

Once your liability insurer issues you a written reservation of rights letter (“[w]ithin 30 days after it knew or should have known of the coverage defense”), and it will typically issue this written letter, it has three options according to the Claims Administration Act:

1) It can refuse to defend you (i.e., deny coverage);

2) It can obtain a non-waiver agreement from you; OR

3) It can retain, independent mutually agreeable counsel to represent you.

Again, an insurer’s failure to comply with the Claims Administration will preclude it from raising a coverage defense to later deny coverage. See Geico General Ins. Co. v. Mukamal, 42 Fla.L.Weekly D1833a (Fla. 3d DCA 2017) (discussed here, and explaining that an insurer has only three options per the Claims Administration Act and it must select an option even if the insured’s conduct prevented the insurer from selecting one of the options).

KNOW YOUR RIGHTS AS AN INSURED UNDER FLORIDA’S CLAIM ADMINISTRATION STATUTE

Posted on August 17, 2016November 8, 2024 by Edward Garber

Florida Statute s. 627.426 is known as Florida’s Claims Administration Statute. The Claims Administration Statute contains important information relating to your rights as an insured when a claim is asserted against you and you tender that claim to your liability insurer. Of applicability, s. 627.426 provides:

(2) A liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless:

(a) Within 30 days after the liability insurer knew or should have known of the coverage defense, written notice of reservation of rights to assert a coverage defense is given to the named insured by registered or certified mail sent to the last known address of the insured or by hand delivery; and

(b) Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer:

1. Gives written notice to the named insured by registered or certified mail of its refusal to defend the insured;

2. Obtains from the insured a nonwaiver agreement following full disclosure of the specific facts and policy provisions upon which the coverage defense is asserted and the duties, obligations, and liabilities of the insurer during and following the pendency of the subject litigation; or

3. Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

In short, “[u]nder Fla. Stat. s. 627.426(2), an insurer cannot deny coverage based upon a particular ‘coverage defense’ unless ‘within 30 days after the liability insurer knew or should have known of the coverage defense’ the insurer sends the insured ‘written notice of reservation of rights to assert a coverage defense.’” See also Mid-Continent Cas. Co. v. King, 552 F.Supp.2d 1309, 1316 (N.D.Fla. 2008) quoting s. 627.426(2).

Importantly, an insurer does not need to comply with the Claims Administration Statute if there is no coverage under the liability policy—noncompliance with the Claims Administration Statute does not automatically create insurance coverage that never existed. See Doe on Behalf of Doe v. Allstate Ins. Co., 653 So.2d 371, 374 (Fla. 1995). Stated differently, the Claims Administration Statutes does not apply when the insurer is denying coverage because there is a complete lack of insurance coverage under the policy. See Florida Municipal Ins. Trust v. Village of Golf, 850 So.2d 544 (Fla. 3d DCA 2003).

But, the Claims Administration Statute does apply:

[W]here coverage exists under an insurance policy, but the insurer seeks to assert a coverage defense. “[T]he term ‘coverage defense,’ as used in section 627.426(2), means a defense to coverage that otherwise exists. We do not construe the term to include a disclaimer of liability based on a complete lack of coverage for the loss sustained.”

Danny’s Backhoe Service, LLC v. Auto Owners Ins. Co., 116 So.3d 508, 511 (Fla. 1^st DCA 2013) quoting AIU Ins. Co. v. Block Marina Inv., Inc., 544 So.2d 998, 1000 (Fla. 1989).

Now, assume the insurer timely issues the reservation of rights letter to its insured and will assume the defense for the insured. The insurer must select mutually agreeable independent counsel as the Claims Administration provides:

Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer:…3. Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

Failure to select mutually agreeable counsel could result in a noncompliance with the Claims Administration Statute, meaning the insurer cannot now rely on a coverage defense to deny coverage. See American Empire Surplus Lines Ins. Co. v. Gold Coast Elevator, Inc., 701 So.2d 904, 906 (Fla. 4^th DCA 1997) (“We find the language of the statute to be clear, and that unilateral retention of counsel by the insurer, which was the very antithesis of a mutual selection, did not comply. We therefore affirm the summary judgment determining that the insurer cannot deny coverage because it violated the statute….”); State Farm Mutual Automobile Ins. Co. v. Brown, 767 F.Supp. 1151, 1153 (S.D.Fla. 2012) (“Section 627.426…states that an insurer may not deny coverage based on a particular coverage defense unless, within 60 days of the receipt of a summons and complaint naming the insured as a defendant, the insurer retains independent counsel which is mutually agreeable to the parties.”)