BAD FAITH IN THE FIRST-PARTY INSURANCE CONTEXT

Posted on December 10, 2016December 10, 2016 by Edward Garber

In a previous article I discussed bad faith when it comes to an insurance claim. Recently, in Barton v. Capitol Preferred Insurance Co., Inc., 41 Fla. L. Weekly D2736b (Fla. 5^th DCA 2016), the court discussed bad faith in the first-party insurance context (i.e., a property / homeowners insurance policy).

In this case, homeowners, as the insured, sued their homeowners insurance carrier for sinkhole coverage. The homeowner filed a Civil Remedy Notice of Insurer Violation (also known as a Civil Remedy Notice) against their insurer with the Florida Department of Insurance in accordance with Florida Statute s. 624.155. This Civil Remedy Notice is a prerequisite to initiating such a bad faith claim; the notice specifies the statutory violations committed by the insurer and gives the insurer 60 days to cure the violation.

The insurer denied the assertions in the Civil Remedy Notice. Thereafter, the homeowners served a proposal for settlement / offer of judgment trying to settle the claim for $65,000. The insurer paid $65,000 and the lawsuit was dismissed. But, the proposal for settlement did not require the homeowners to release the insurer. In other words, there was no release of any bad faith insurance claim. So, naturally, the homeowners refiled a lawsuit against their homeowners insurance carrier for bad faith.

“[A] bad-faith action is premature until there is a determination of liability [coverage] and extent of damages owed on the first-party insurance contract.” Barton, supra. citing Vest v. Travelers Ins. Co., 753 So.2d 1270, 1276 (Fla. 2000). An insured can obtain a determination of liability through an agreed settlement, arbitration, or stipulation—the determination of liability / coverage does not have to be made through trial. Id. quoting Fridman v. Safeco Ins. Co. of Ill., 185 So.3d 1214, 1224 (Fla. 2016).

Here, the court held that there was a determination of liability because the insurer paying the insured-homeowners $65,000 was a favorable resolution to the homeowners. It did not matter that the $65,000 was less than the insured’s original demand or less than the policy limits for sinkhole coverage. Why? Because the settlement operated as a determination of liability and extent of the homeowners’ damages, thereby satisfying the condition precedent to filing a bad faith claim.

This was a clever move by the homeowners not to give the insurer a release in consideration of the $65,000 (and not to condition the proposal for settlement on giving the insurer a release). From an insurer’s standpoint, after it receives a Civil Remedy Notice and, then, a proposal for settlement, it should try to obtain such a release. Perhaps the insurer tried hard to get that release but the homeowners were unwilling to give such a release. This may have forced the insurer to pay the $65,000 pursuant to the proposal for settlement to minimize its exposure in the underlying insurance coverage dispute. The fact that accepting a proposal for settlement can satisfy the determination of liability and extent of damages requirement (even if the proposal for settlement amount is less than any original demand) before initiating a bad faith claim may motivate insurers to negotiate and pay for a release that protects them from such bad faith claims.

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.

BENEFIT TO INSURED UNDER PROPERTY INSURANCE POLICY – CONCURRENT CAUSE DOCTRINE

Posted on December 2, 2016December 2, 2016 by Edward Garber

The Florida Supreme Court in Sebo v. American Home Assurance Co., Inc., 41 Fla. L. Weekly S582a (Fla. 2016) gave really good news to claimants seeking recovery under a first-party all-risk property insurance policy. The Court held that the concurrent cause doctrine and not the efficient proximate cause doctrine was the proper theory of recovery to apply when multiple perils—an excluded peril and a covered peril-combined to create a property loss. (The facts of this case can be located here.)

In this case, there really was not a dispute that defective construction (an excluded peril) and rain and wind (covered perils) combined to create the asserted property loss. The issue was whether the loss should be covered when both an excluded peril combines with a covered peril to cause the loss.

There are two different trigger theories to determine whether coverage applies.

The first is the efficient proximate cause doctrine which states that when there are concurrent perils that caused a loss, the peril which set the other peril in motion (the primary peril) is the peril to which the loss is attributable. So, if the primary peril is an excluded peril, there is no coverage.

The second is the concurrent cause doctrine which states that when concurrent perils cause a loss there is coverage, even when one of the perils is an excluded peril. This is a much more favorable doctrine to an insured!

Here, there was no reasonable way to determine the efficient proximate cause of the loss since the facts reveals that rain and wind combined with defective construction to cause the loss. For this reason, the Supreme Court held that concurrent cause doctrine applied meaning there was coverage even though defective construction was an excluded peril.

If you have a first-party property insurance claim, make sure to utilize the services of counsel that maximizes your ability to argue coverage under the policy.

ADDITIONAL INSURED OBLIGATIONS AND THE UNDERLYING LAWSUIT

Posted on October 2, 2016October 2, 2016 by Edward Garber

As a general contractor, you understand the importance of being named an additional insured under your subcontractors’ commercial general liability (CGL) policies. Not only do you want your subcontract to express that a subcontractor’s CGL policy is primary and noncontributory to your policy, but you want it to express that the subcontractor must identify you as an additional insured for ongoing and completed operations. Even with this language, you want the subcontractor to provide you with their additional insured endorsement and, preferably, a primary and noncontributory endorsement. These additional insured obligations are important to any general contractor that has been sued in a construction defect / property damage lawsuit.

In the recent decision in Core Construction Services Southeast, Inc. v. Crum & Forster Ins. Co., 2016 WL 5403578 (11^th Cir. 2016), a general contractor built a residential development. The general contractor required its roofing subcontractor to identify it as an additional insured under the roofer’s CGL policy. The general contractor was sued with the lawsuit asserting that the roofs were installed incorrectly. The general contractor tendered the defense of the claim to the roofer’s CGL insurer and the insurer refused to provide the defense because there was no “property damage” within the definition of the CGL policy (“physical injury to tangible property…”). The general contractor then filed a lawsuit against the subcontractor’s insurer arguing that the insurer was obligated to defend and indemnify it since the general contractor was an additional insured under the subcontractor’s CGL policy. The trial court, and as affirmed by the Eleventh Circuit Court of Appeal, held that the insurer owed no duty to defend or indemnity the general contractor because there was NO asserted property damage within the meaning of the policy. If there was no property damage then there was no obligation for the roofing subcontractor’s insurer to defend the general contractor as an additional insured under the subcontractor’s CGL policy.

The underlying lawsuit only claimed that the roofs had been damaged but did NOT claim that the defective roofs had caused damage to other property (other components of the building). The omission of this assertion was important because the complaint was not pled to trigger insurance duties, such as additional insured obligations, since the cost to repair or replace the damaged roof would not be covered by the subcontractor’s CGL insurer. Rather, costs to replace or repair damage caused by the subcontractor’s defective roofing installation would be covered; however, such damage was not pled in the underlying complaint. Remember, the insurer’s duty to defend is only triggered based on allegations in the underlying complaint so without such allegations, there is no duty.

CONSTRUCTION DEFECT INDEMNITY OBLIGATIONS – COVERED VS. NON-COVERED CGL CLAIMS

Posted on August 28, 2016August 28, 2016 by Edward Garber

If you are a contractor or subcontractor and a construction defect claim is asserted against you, then you have tendered such claim to your commercial general liability (CGL) insurer. No doubt about it. In doing so, you have wondered whether your CGL insurer will indemnify you for the damages asserted against you by the third-party. You have wondered whether the damages asserted against you are covered by your CGL policy. If you have not wondered and asked these questions, then you should! Below is a portion of a presentation I recently put on regarding construction defect indemnity obligations under CGL policies and, particularly, covered claims versus non-covered claims.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/08/FINAL-Covered-vs-Not-Covered-Power-Point.pdf”]

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

Posted on August 17, 2016August 17, 2016 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.”)

EXAMPLE OF IMPORTANCE SUPPORTING THEME FOR INSURANCE COVERAGE

Posted on July 29, 2016July 29, 2016 by Edward Garber

The case of Divine Motel Group, LLC v. Rockhill Ins. Co., 2016 WL 3902041 (11^th Cir. 2016) illustrates the importance of presenting and supporting your theme for insurance coverage. This theme needs to be well thought out and considered in the context of maximizing insurance coverage. Otherwise, you are navigating in the world of insurance exclusions without a strategic agenda as to why an exclusion does not apply, such as there is an exception to the exclusion that your theme fits under.

In Divine Motel Group, an insured pursued its property insurer for rainwater damage stemming from a tropical storm. The property insurance policy contained the following exclusion for rain damage in addition to an exception to the exclusion:

[Rockhill] will not pay for loss of or damage to … [t]he interior of any building or structure, or to personal property in the building or structure, caused by or resulting from rain, … whether driven by wind or not.” The policy contained an exception to this exclusion, providing that Rockhill would pay for damage to the interiors caused by rain if “[t]he building or structure first sustains damage by a Covered Cause of Loss to its roof or walls through which the rain … enters.” The policy listed “windstorm” as a covered cause of loss.

Divine Motel Group, supra, at *1.

Huh?!? An exclusion and an exception to an exclusion?!? That’s right. In a nutshell, the rainwater exclusion says that the policy does cover damage caused by rain. But, as an exception, the policy will cover rainwater damage if the property FIRST sustained damage to its roof or walls by a loss covered under the policy through which the rainwater enters.

The insured argued that the exception to the exclusion applied because the rainwater entered through roofs and walls damaged by the tropical storm (e.g., a covered cause of loss to the roof or walls through which the rain entered).

The problem for the insured was that it was unable to point to any competent evidence, including opinions from its expert, that there was damage to the roof and walls through which the rainwater entered. There the problem lies, as you can imagine, since there was no competent evidence to support the insured’s theme which was that the exception to the rainwater damage exclusion applied.

The morale is that if relying on an exception to an exclusion, the theme of the case, including expert opinions, needs to be specifically centered around the exception. There needs to be competent evidence in the record to prove that an exception to an exclusion applied. For instance, in this case, there was nothing in the record to prove that the tropical storm damaged the roofs and walls through which rainwater entered triggering the exception to the exclusion.

BE WATCHFUL FOR THE EXISTING STRUCTURE / BUILDING EXCLUSION IN BUILDER’S RISK POLICY

Posted on July 13, 2016April 27, 2020 by Edward Garber

I previously discussed the importance of builder’s risk coverage for a construction project. Builder’s risk insurance is not a one-size-fits-all policy meaning an owner or contractor–party procuring builder’s risk–needs to work with their insurance broker to ensure that their during-construction risks are properly being insured. Otherwise, a loss may occur during construction only for the owner and contractor to learn that the loss is not covered under the builder’s risk policy.

By way of example, in Gerald H. Phipps, Inc. v. Travelers Property Casualty Co. of America, 2016 WL 97756 (D.Co. 2016), a contractor was hired to renovate and expand a public library. The existing library contained asbestos in elevator shafts and stairwells. The contractor’s intent was to not disturb the asbestos in these locations. However, during construction, snow melted and water seeped into the stairwells and elevator shafts that consequently mandated the mitigation and remediation of the asbestos in the stairwells and shafts (existing structures).

The contractor submitted a builder’s risk claim for the remediation costs. The contractor’s builder’s risk policy provided that builder’s risk coverage does NOT include: “Buildings or structures that existed at the job site prior to the inception of this policy.” This existing building / structures exclusion is common in builder’s risk policies. The builder’s risk insurer denied coverage for the mitigation costs because the policy did not cover damage to existing structures (i.e., the stairwells and shafts). The contractor filed a coverage lawsuit; however, the court entered summary judgment for the builder’s risk insurer stating:

“Because the stairwells and elevator shafts [existing structures] are excluded from the definition of “Builders’ Risk” and GHP [contractor] has not introduced evidence that the water intrusion damaged its own work, GHP has not shown any loss to covered property.”

Gerald H. Phipps, 2016 WL at *5.

Be watchful for the existing structures / buildings exclusion in builder’s risk policies, especially if you are performing renovation work to existing structures.

INFORMATION ON SUBCONTRACTOR DEFAULT INSURANCE (“SDI”)

Posted on May 1, 2016May 1, 2016 by Edward Garber

Subcontractor default insurance (also known as “SDI”) serves as an alternative to requiring subcontractors to furnish payment and performance bonds. For more information on subcontractor default insurance, check out this posting. You can also check out a portion of the below presentation given on subcontractor default insurance.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2016/05/SDI-Presentation.pdf”]

QUICK NOTE: COVERAGE MUST FIRST BE ESTABLISHED TO HAVE A BAD FAITH INSURANCE CLAIM

Posted on April 20, 2016April 20, 2016 by Edward Garber

In order to have a bad faith insurance claim you must first establish that there was coverage under the insurance policy. Otherwise, the bad faith claim is prematurely filed and will be dismissed or abated.

QUICK NOTE: LIABILITY INSURER’S BAD-FAITH BASED ON TOTALITY OF THE CIRCUMSTANCES

Posted on April 3, 2016April 3, 2016 by Edward Garber

Generally, whether a liability insurer engaged in bad-faith is a question of fact to be determined based on the totality of factual circumstances. In other words, there is more to it then the insured being exposed to a verdict / judgment in excess of the insured’s liability policy’s limits since it is based on a totality of circumstances and reasonablness standard. As explained by the Eleventh Circuit quoting the Florida Supreme Court: “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.” Moore v. Geico Ins. Co., 2016 WL 736824, *2 (11th Cir. 2016) quoting Berges v. Infinity Ins. Co., 896 So.2d 665, 668-69 (Fla. 2004). For more on a general understanding of bad-faith claims in Florida, check out this article.