shutterstock_111496388The 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.



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



shutterstock_195189626Does 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 (9thCir. 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.





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



shutterstock_392537986The “failure to cooperate” defense is a defense an insurer may raise when its insured fails to cooperate with it in the defense of the claim against the insured.  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. 4th 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.


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


shutterstock_539752999What 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.


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:


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.


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).


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:


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.


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.



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