ALLOCATING COVERED AND UNCOVERED DAMAGES IN JURY VERDICT

Posted on January 16, 2021January 16, 2021 by Edward Garber

When a liability insurer defends an insured from a third-party claim, they oftentimes do so under a reservation of rights. A reservation of rights letter is issued to the insured that identifies certain coverage exclusions or reservations relative to the insurance policy that may impact the insurer’s duty to indemnify the insured for damages. In other words, just because the insurer is defending its insured does not mean it will be indemnifying its insured for damages asserted in the third-party claim.

Under Florida law, the party claiming insurance coverage has the initial burden to show that a settlement or judgment represents damages that fall within the coverage provisions of the insurance policy. An insured’s inability to allocate the amount of a judgment between covered and uncovered damages is therefore generally fatal to its indemnification claim. However, the burden of apportioning or allocating between covered and uncovered damages in a general jury verdict may be shifted to the insurer if the insurer did not adequately make known to the insured the availability and advisability of a special verdict.

QBE Specialty Ins. Co. v. Scrap Inc., 806 Fed.Appx. 692, *695 (11^th Cir. 2020) (internal citations omitted).

This is an important concept because even when the insurer is defending its insured under a reservation of rights, it may put its insured on notice that because of coverage concerns, the insured needs to include special interrogatory questions in the verdict form for the trier of fact (jury) to answer to determine covered versus uncovered damages. If the insured fails to do so, it will give the insurer a very strong argument to avoid any indemnification obligation it has with respect to the judgement. This mean the insured is on the hook to deal with the judgment without insurance coverage.

For example, in QBE Specialty Ins. Co., an insured was sued for a nuisance stemming from its metal shredding operations. The insured’s liability insurer defended the insured under a reservation of rights. During the course of the case, the insurer notified the insured that it needed special interrogatory questions in the verdict form because of coverage concerns. The jury awarded $750,000 in nuisance damages against the insured. There was no allocation for covered versus uncovered damages. The insurer then filed a separate declaratory relief coverage action claiming it was not obligated to indemnify the insured for the $750,000 in damages. The Eleventh Circuit Court of Appeals, affirming the trial court, agreed because “in the absence of an allocated verdict form in the underlying trial, [the insured] never provided the district court with a plausible method for separating those damages awarded by the jury that are covered by [the insurer’s] policies from those that are not.” QBE Specialty Ins. Co., supra, at *696.

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.”)