PROFESSIONAL SERVICES EXCLUSION IN CGL POLICIES

Posted on November 12, 2022November 12, 2022 by Edward Garber

A professional services exclusion in a commercial general liability policy means something. It’s an exclusion an insurer will rely on to avoid insurance coverage based on “professional services” performed or rendered by the insured. Don’t take it from me. Take it from the recent opinion in Colony Insurance Company v. Coastal Construction Management, LLC, 2022 WL 16636697 (M.D.Fla. 2022) where the trial court granted a commercial general liability insurer’s motion for judgment on the pleadings based on the professional services exclusion.

Here, an owner sued, among other parties, an entity performing only construction management services based on construction defects at its project. The construction manager did not perform any design or physical construction. It was hired to make site inspections of the construction, review construction quality and finish standards, ensure workmanship quality, coordinate the punchlist process, and supervise management and administration of the project.

The construction manager’s commercial general liability insurer sued for declaratory relief claiming it owed no duty to defend or indemnify based on the professional services exclusion.

The professional services exclusion stated that the commercial general liability insurance did not apply to property damages:

[A]rising out of the rendering or failure to render any professional service. This includes but is not limited to:

(3) inspection, supervision, quality control, architectural or engineering activities done by or for you on a project on which you serve as a construction manager;

(4) engineering services, including related supervisory or inspection services.”

Colony Insurance, supra, at *3.

While the words “professional” or “professional services” were not a defined term in the policy, the court found they do have commonly understood meanings: “professional services are those that require a high degree of training or proficiency or involve specialized knowledge, skill, or labor that is primarily mental rather than physical.” Colony Insurance, supra, at *3. (Just because a word or term is not defined in the policy does not make the word or term ambiguous. Id.)

The court found that the professional services exclusion applies to bar coverage. This means the construction manager’s commercial general liability insurer owed no duty to defend the construction manager in the underlying case and no duty to indemnify the construction manager for damages.

As a matter of common sense, the management, supervision, and quality control activities alleged in the complaint in the context of a construction project of the size and scope alleged are not activities a layperson could take. Therefore, reading the exclusion in context and from the perspective of an ordinary person, the Court has no difficulty concluding without extensive analysis that these duties and tasks by their nature require specialized skill, training, and/or experience. As such, the only reasonable conclusion is that the [owner’s underlying] claims against [the construction manager] fall within the [professional services exclusion].

***

Finally, paragraph (3) [in the exclusion above], if anything, supports the application of the exclusion here because ‘inspection, supervision [and] quality control’ are precisely the types of activities [owner’s] complaint alleges [the construction manager] undertook to perform. The fact that those activities are listed in the exclusion are linked to [the construction manager] acting as ‘construction manager’ does not mean that the activities themselves would change their character if [construction manager] where somehow acting solely as a “construction consultant’ or an ‘owner’s representative.’ In any event, the nature of the activities themselves controls, and the activities alleged in the complaint plainly required specialized training and experience.

Colony Insurance, supra, at *4 (internal citations omitted).

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.

NOTIFICATION TO INSURER AND THE “UNTIMELY NOTICE” FIGHT

Posted on July 2, 2022July 2, 2022 by Edward Garber

Notice, notice, notice. This should be your mindset when it comes to notifying your insurance carrier of a potential claim or loss. I get it. Notice means opening up a claim number and the potential increase in insurance premiums. Yet, untimely notice could mean fighting with your insurance carrier as to whether you provided them prompt notice. Thus, I operate with the “notice, notice, notice” mindset in providing notice of a potential claim or loss that could trigger duties or obligations under the policy. It is the better safe than sorry approach and avoids the needless notice fight.

The property insurance opinion in SFR Services, LLC v. Hartford Insurance Company of the Midwest, 2022 WL 2340519 (S.D.Fla. 2022) illustrates this “untimely notice” fight and, importantly, how certain policy language can change the dynamics of this fight. Here, notification of a hurricane roof damage claim was provided by the insured to the property insurer almost three years after the hurricane. In the interim, the insured had their roof repaired on multiple occasions. Finally, the insured notified the property insurer and the claim was denied. The insured sued the property insurer for coverage and the insurer moved for summary judgment arguing the insured failed to provide it timely notice as required by the policy.

“[N]otice is a condition precedent to coverage, and an insured’s failure to provide ‘timely notice of loss in contravention of a policy provision is a legal basis for the denial of recovery under the policy.” SFR Services, supra, at *2 (citation omitted).

However, just because an insurer claims it did not receive timely notice does not end the discussion. There is a two-step process. “First, the Court must determine ‘whether the insured provided timely notice.’ Second, ‘if notice was untimely, prejudice to the insurer is presumed, but that presumption may be rebutted.’” SFR Services, supra, at *2 (citations omitted).

Step 1- Whether the Insured Provided Timely Notice

Whether the insured provided timely notice employs a reasonable person standard. “[N]otice is necessary when there has been an occurrence that should lead a reasonable and prudent man to believe that a claim for damages would arise.” SFR Services, supra (citation omitted).

Step 2- If Notice is Untimely and Prejudice is Presumed, that Presumption may be Rebutted

If notice is untimely, prejudice is presumed; but, this presumption may be rebutted by the insured.

To carry this burden, an insured must show that the insurer was able to inspect the property in the same condition it was in right after the loss by presenting evidence creating a genuine dispute of fact as to ‘(a) whether better conclusions could have been drawn without the delay in providing notice, (b) whether those conclusions could have been drawn more easily, (c) whether the repairs to the affected areas that took place in the interim would complicate and evaluation of the extent of the damage or the insured’s efforts to mitigate its damages, or (d) whether an investigation conducted immediately following the occurrence would not have disclosed anything materially different from that disclosed by the delayed investigation.’”

SFR Services, supra, at *3 (citations omitted).

The Twist

But in this case, there is a twist. And it is a crucial twist to this two-step process.

The Court looked at language in the property insurance policy that provided the insurer had “no duty to provide coverage under this policy if the [Insureds’] failure to comply” with their duties “is prejudicial to [Defendant].” SFR Services, supra.

The insured argued that this policy language removes the presumption of prejudice in favor of the insurer and shifts the burden on the insurer to PROVE prejudice, i.e., that the insured’s failure to comply is prejudicial to the insurer. There is a huge difference between prejudice being presumed because of untimely notice (which has to be rebutted by the insured) and the insurer required to prove the prejudice. The Court found that under this language in the policy, the insurer is actually required to show prejudice:

Upon careful consideration, the Court must reject the body of precedent within this district that a presumption of prejudice may arise when a policy provision requires that an insured’s failure to comply with an enumerated duty be prejudicial to the insurer. Because there is no presumption of prejudice, a genuine issue of material fact remains as to whether the Insureds’ failure to timely notify Defendant was prejudicial, and the Motion must be denied. To hold otherwise would create a regime under which an insurer may obtain a different result in federal court than that required by the new line of cases in Florida state court.

SFR Services, supra.

This “twist” changes the dynamic of the “untimely notice” fight all due to policy language that basically says that the insurer has no coverage obligations if the insured’s failure to comply with his/her/its duties is prejudicial to the insurer. The Court’s ruling is ultimately saying that the insurer cannot hide behind the presumption of prejudice requiring the insured to rebut the prejudice because the policy, itself, puts that burden on the insurer. Big difference.

QUICK NOTE: PHYSICAL LOSS OR DAMAGE UNDER PROPERTY INSURANCE POLICY = ACTUAL, TANGIBLE ALTERATION TO PROPERTY

Posted on May 30, 2022May 30, 2022 by Edward Garber

In one of Florida’s first appellate opinions dealing with business interruption losses and COVID-19, the appellate court found COVID-19 was not covered under the terms of the commercial property insurance policy to cover business interruption losses. In this case, a restaurant/bar suffered losses due to emergency measures imposed by Miami Dade due to COVID-19. Such emergency measures restricted the occupancy of restaurant/bars and undeniably resulted in business interruption. Occupancy and patrons are the lifeline of restaurant/bars. So why weren’t business interruption losses covered? Because there was no direct physical loss of or damage to the property at the restaurant/bar. The appellate court, affirming the trial court, explained direct physical loss of or damage to the property means there needs to be actual tangible alteration to property. COVID-19 did not cause actual tangible alteration to property which caused the restaurant/bar to suffer business interruption losses. Moreover, any COVID-19 particles that got on property could be cleaned. The analogy the appellate court provided, as cited here, is as follows: “The difference “between [the restaurant/bar’s] loss of use theory and something clearly covered—like a hurricane—is that property did not change. The world around it did. And for the property to be useable again, no repair or change can be made to the property—the world must change.”

As with any insurance coverage dispute, the terms of the policy matter, fairly or unfairly. When dealing with an insurance coverage dispute, make sure you work with counsel that best frame your coverage arguments. In this case, the insured’s counsel tried to maximize coverage with creative arguments. But in the end, the lack of actual tangible alteration to property to support direct physical loss or damage doomed its claim.

ENDORSEMENT TO INSURANCE POLICY CONTROLS

Posted on March 20, 2022March 20, 2022 by Edward Garber

I’ve said this before, and I’ll say it again: an insurance policy is a complicated reading and this reading gets compounded with endorsements that modify aspects of the policy.

What you think may be covered may in fact not be covered by virtue of an endorsement to the insurance policy. This is why when you request an insurance policy you want to see the policy PLUS all endorsements to the policy. And when you analyze a policy, you need to do so with a full reading of the endorsements.

An endorsement to an insurance policy will control over conflicting language in the policy. Geovera Speciality Ins. Co. v. Glasser, 47 Fla.L.Weekly D436a (Fla. 4^th DCA 2022) (citation omitted).

The homeowner’s insurance coverage dispute in Glasser illustrates this point. Here, the policy had a water loss exclusion. There was an exception to the exclusion for an accidental discharge or overflow of water from a plumbing system on the premises. But there was an endorsement. The endorsement modified the water loss exclusion to clarify that the policy excluded water damage “in any form, including but not limited to….” Examples were then given which did not include the accidental discharge or overflow of water from a plumbing system.

The homeowner filed an insurance coverage dispute against the property insurance carrier for a water damage claim. Specifically, a pipe in a bathroom burst causing water damage. The insured claimed this was covered because of the accidental discharge or overflow of water from a plumbing system exception. The trial court agreed. The appellate court did not. Why?

The answer is simple. The endorsement. “The insurer’s endorsement language…expressly excludes damages caused by water in any form, including plumbing system accidents. Although the policy’s ‘Exception [t]o c.(6)’ expressly covers accidental discharges of water from a plumbing system, it is superseded by the endorsement which excludes water loss in any form.” Glasser, supra.

The insured argued, as it should, that the endorsement did not explicitly identify that water damage included accidental discharges of water from a plumbing system indicating that such was covered under the policy. While true, the appellate court disagreed with this sentiment. “‘[T]he mere fact that a provision in an insurance policy could be more clearly drafted does not necessarily mean that the provision is otherwise inconsistent, uncertain or ambiguous.’ While this policy may require the reading of multiple policy provisions, it is unambiguous and simply does not cover the water loss suffered by the insured.” Glasser, supra (internal citation omitted).

QUICK NOTE: TYPES OF INSURANCE FOR CONSTRUCTION PROJECTS

Posted on January 2, 2022January 2, 2022 by Edward Garber

I did a presentation on types of insurance for construction projects outside of builder’s risk insurance. The presentation briefly discussed insurance beyond commercial general liability, commercial automobile liability, and workers compensation and employer’s liability insurance.

There are many other insurance products that are relied on and needed to cover the MANY risks that contractors face when dealing with a construction project. Insurance is a major part of construction to cover risk and making sure you have the RIGHT insurance to cover the risks you face on a construction project cannot be understated.

When drafting and negotiating a construction contract, it is important to spend time on the insurance requirements including consulting with your insurance broker and lawyer to make sure the right language is included and/or you have the requested insurance.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2022/01/Interplay-Among-BR-CGL-and-Wrap-Up.pptx”]

KNOW WHETHER YOUR COURSE OF BUSINESS OPERATIONS ARE COVERED OR EXCLUDED BY YOUR INSURANCE

Posted on December 11, 2021December 11, 2021 by Edward Garber

It is a good idea to know what your insurance covers and does not cover. This way, if your course of business has you performing a certain (risky) operation, you know whether that operation is covered or excluded under your policy. If you are not sure, discuss with your insurance broker — this is important. There is little value performing an operation that is NOT covered by your insurance policy, as you are now performing a risk that is not covered by insurance. If you know it is not covered by insurance you may elect to change your operations or see if there is insurance to cover the risk. Below is a case study of this occurrence dealing with a commercial automobile liability policy where an insured’s operations using a crane mounted to a super duty truck was not covered under their automobile liability policy.

In People’s Trust Ins. Co. v. Progressive Express Ins. Co., 46 Fla. L. Weekly D262a (Fla. 3d DCA 2021), homeowners hired a company to install a shed. The company hired another company to deliver and install the shed using a crane; the company used a crane mounted to a Ford F-750 super duty truck. This company improperly operated the crane resulting in the shed falling and damaging the homeowner’s roof. The homeowners submitted a claim to their property insurer and their property insurer subrogated to their rights and sued. The company operating the crane’s commercial automobile liability insurer denied coverage, and thus, denied the duty to defend. As a result, a Coblentz-type agreement was entered into where the company operating the crane consented to a judgment in favor of the property insurer (subrogee) and assigned its rights under its commercial automobile liability policy to the property insurer. The property insurer then sued the automobile liability carrier for coverage. The trial court granted summary judgment in favor of the automobile liability insurer finding there was no coverage and this was affirmed on appeal. Why?

The coverage issue focused on whether a crane mounted to a super duty truck (Ford F-750) was covered or excluded by the commercial automobile liability policy.

The policy included a mobile equipment exclusion; however, mobile equipment did not include, “land vehicles that are subject to a compulsory or financial responsibility law or other motor vehicle insurance law in the state or province where it is licensed or principally garaged. Land vehicles subject to a compulsory or financial responsibility law or other motor vehicles are considered autos.” The Ford F-750 super duty truck would not constitute mobile equipment excluded by the policy because it would be a land vehicle subject to a compulsory or financial responsibility law or other motor vehicles insurance law.

However, the crux of the issue was the crane mounted to the Ford F-750 super duty truck. The policy also excluded coverage for, “Bodily injury, property damage…arising out of the operation of:…b. machinery or equipment that is on, attached to, or part of, a land vehicle that would qualify under the definition of mobile equipment if it were not subject to a compulsory or financial responsibility law where it is principally licensed or principally garaged.”

Based on this exclusion, the Court held:

The truck, “used primarily to provide mobility to a mounted crane,” would be excluded “mobile equipment” under the relevant definition, but for the fact that it is subject to a compulsory or financial responsibility law. The contract contemplates this exact situation. Next, we look to the “13.b. exclusion” which directs us to exclude any claim for property damage “arising out of the operation of . . . machinery or equipment that is on, attached to, or part of, a land vehicle that would qualify under the definition of mobile equipment if it were not subject to a compulsory or financial responsibility law where it is licensed or principally garaged.” There is no dispute that the crane was in use at the time of the incident and that the property damage arose out of the operation of the crane. Where, as here, the record clearly established that the damage at issue was caused by the mounted crane, in operational use, on a vehicle that would otherwise qualify as mobile equipment, the trial court correctly granted summary judgment in favor of [the automobile insurer] on the policy exclusion and properly entered final judgment in accord with such findings.

People’s Trust Ins. Co., supra.

In other words, the company that used the crane mounted to its super duty truck performed an operation excluded by its commercial automobile liability insurance policy. The company would have been better to know whether this risk was covered or excluded under its policy, see if it could obtain coverage for this operation, or switch its operation appreciating the uninsured risk associated with performing the operation in this manner.

AN INSURANCE POLICY ISN’T AMBIGUOUS JUST BECAUSE YOU WANT IT TO BE

Posted on December 5, 2021December 5, 2021 by Edward Garber

When it comes to insurance contracts, there is a rule of law that states, “where interpretation is required by ambiguity in insurance contracts[,] the insured will be favored.” Pride Clean Restoration, Inc. v. Certain Underwriters at Lloyd’s of London, 46 Fla. L. Weekly D2584a (Fla. 3d DCA 2021) (citation and quotation omitted). Stated another way: ambiguities in insurance contracts will be interpreted in favor of the insured and against the insurer.

With this rule of law in mind, insureds oftentimes try to argue ambiguity even when there is not one. This was the situation in Pride Clean Construction. In this case, the property insurance policy contained a mold exclusion that stated the policy did NOT insure for “a. loss caused by mold, mildew, fungus, spores or other microorganism of any type, nature, or description including but not limited to any substance whose presence poses an actual or potential threat to human health; or b. the cost or expense of monitoring, testing, removal, encapsulation, abatement, treatment or handling of mold, mildew, fungus, spores or other microorganism as referred to in a) above.” Not only did the policy not insure for loss caused by mold, it went further to state it was NOT insuring for any mold testing or abatement.

In this case, the insured sustained hurricane-related damage. This damage included mold remediation services. The insured (that assigned her benefits under the policy to the mold remediator) argued the policy was ambiguous because it does not identify whether it covers a covered loss that causes mold. In making this argument, the insured relied on Florida’s Supreme Court case, Sebo v. American Home Assurance Co., Inc., 208 So.3d 694 (Fla. 2016), that adopted what is known as the “concurrent cause doctrine,” holding: “[T]hat when independent perils converge and no single cause can be considered the sole or proximate cause [of the loss], it is appropriate to apply the concurring cause doctrine.” – “[T]he concurrent cause doctrine provides that coverage may exist where an insured risk constitutes a concurrent cause of the loss even when it is not the prime or efficient cause [of the loss].” Pride Clean Construction, supra (internal quotations and citation omitted).

Here, however, there was no reason to apply the concurrent cause doctrine to determine the cause of the loss and whether the loss was caused by mold [excluded] or a hurricane [covered], because the policy contained a blanket exclusion that excluded “the cost or expense of monitoring, testing, removal, encapsulation, abatement, treatment or handling of mold.” Mold remediation was blanketly excluded; hence, the cause of the mold was irrelevant for purposes of the policy covering mold remediation-type costs.

This brings up an important consideration. Read your policy and understand what is covered and what is not covered. If there is a concern regarding mold or mold remediation, you need to understand your rights as to whether there is a policy that can meet your insurance needs even if the policy includes a certain sub-limit to provide some coverage. But you can extend this beyond mold because blanket exclusions will automatically exclude certain coverage and you want to make sure you have an understanding as to what is excluded – no matter what – to ensure your rights are sufficiently insured!

HOW YOU PLEAD ALLEGATIONS TO TRIGGER LIABILITY INSURER’S DUTIES IS CRITICAL

Posted on October 10, 2021October 10, 2021 by Edward Garber

How you plead allegations in your lawsuit to trigger duties of a liability insurance carrier is a critical consideration. If the complaint is not pled appropriately, it can result in the carrier NOT owing a duty to defend its insured, which is the party(ies) you are suing. If there is no duty to defend, there will be no duty to indemnify the insured to cover your damages. For this reason, in a number of circumstances, this is NOT what you want because you want to trigger insurance coverage and potential proceeds to be paid by a carrier to cover your damages. There are times when you are confronted with a case that just is not a good insurance coverage case. This may result in you coming up with creative arguments to maximize insurance coverage. Even in these times, you want to plead the complaint to best maximize coverage under the creative arguments you have developed.

An example of not pleading allegations in a complaint to trigger an insurer’s duties can be found in the Eleventh Circuit Court of Appeal’s decision in Tricon Development of Brevard, Inc. v. Nautilus Insurance Co., 2021 WL 4129373 (11^th Cir. 2021). This case involved a general contractor constructing condominiums. The general contractor hired a subcontractor to fabricate and install metal railings. The subcontractor had a commercial general liability (CGL) policy that named the general contractor as an additional insured with respect to liability for property damage “caused in whole or in part” by the subcontractor’s direct or vicarious acts or omissions. (This is a good additional insured endorsement.)

A dispute arose as to defective work by the subcontractor in fabricating and installing the railings. The general contractor, therefore, engaged another subcontractor to fabricate new railings and remove the current railing to install the new ones. The general contractor submitted a claim to its original railing subcontractor’s insurer. The insurer denied the claim and the general contractor filed a coverage action against the insurer as an additional insured under the CGL policy.

The problem, however, is that the general contractor’s complaint did not appear to truly consider insurance coverage, although it appeared to be a case where insurance coverage was not a great option. The Eleventh Circuit explained there was no coverage based on the allegations in the complaint:

Here, [the general contractor] alleges that the subcontractor’s railings were deficient due to having defects and damage, not being installed properly, and not satisfying the project’s specifications; it does not allege that the subcontractor’s faulty workmanship damaged otherwise non-defective components of the project…. Thus, the costs that [the general contractor] incurred in removing the subcontractor’s railings and the fabrication and installation of new railings do not constitute “property damage” under the policies….

Tricon Development of Brevard at *2.

This is obviously not what the general contractor wanted and had it pled allegations differently, the outcome may have turned out different. Although, the general contractor may have been faced with trying to come up with a creative argument recognizing it was not a great insurance coverage action.

Nonetheless, the Eleventh Circuit, finding there was no insurance coverage, includes a worthy paragraph when it comes to property damage in a construction defect/damage dispute so that parties recognize CGL policies do not cover defective workmanship. Take note of this discussion so that you can ensure allegations are pled to best maximize coverage:

The policies at issue in this appeal are post-1986 standard form commercial general liability policies with products-completed operations hazard coverage, which are governed by Florida law. We have held that such policies do not cover the costs of replacing defective products. In Amerisure Mutual Insurance Company v. Auchter Company, we examined a post-1986 standard form commercial general liability policy with products-completed operations hazard coverage. That policy “define[d] ‘property damage’ as ‘physical injury to tangible property, including all resulting loss of use of that property … or … loss of use of tangible property that is not physically injured.’ ” 673 F.3d 1294, 1298 (11th Cir. 2012) (cleaned up). Applying Florida law, we held that “there is no coverage if there is no damage beyond the faulty workmanship, i.e., unless the faulty workmanship has damaged some otherwise nondefective component of the project.” Id. at 1306 (citing U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 889 (Fla. 2007)). We also held that “if a subcontractor is hired to install a project component and, by virtue of his faulty workmanship, installs a defective component, then the cost to repair and replace the defective component is not ‘property damage.’ ” Id. (citing Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So.2d 1241, 1248 (Fla. 2008)). We further held that “nondefective and properly installed raw materials can constitute a defective project component when the contract specifications call for the use of different materials, yet the cost to reinstall the correct materials is not ‘property damage’—even though the remedy for such a nonconformity is to remove and replace that component of the project.” Id. (citing Pozzi, 984 So.2d at 1248).

Tricon Development of Brevard at *2.

ELEVENTH CIRCUIT’S NOTEWORTHY DISCUSSION ON BAD FAITH INSURANCE CLAIMS

Posted on October 2, 2021October 2, 2021 by Edward Garber

The Eleventh Circuit Court of Appeal’s opinion in Pelaez v. Government Employees Insurance Company, 2021 WL 4258821 (11^th Cir. 2021) is a non-construction case that discusses the standard for pursuing a bad faith claim against an insurer. This case dealt with an automobile accident. While the facts of the case are interesting and will be discussed, the takeaway is the Eleventh Circuit’s noteworthy discussion on the standard for bad faith claims and how they should be evaluated. This discussion is included below–with citations–because while the term “bad faith” is oftentimes thrown around when it comes to insurance carriers, there is indeed an evaluative standard that is applied to determine whether an insurance carrier acted in bad faith.

In Pelaez, a high school student driving a car crashed with a motorcycle. The motorcycle driver was seriously injured and airlifted to the hospital. The accident was reported to the automobile liability insurer of the driver of the car. The insurer through its investigation initially believed the motorcycle driver was contributory negligent. Eleven days after the crash, after learning additional information, the insurer tendered its bodily injury policy limits of $50,00 to the motorcycle driver even though it never received a settlement demand. The insurer sent a tender package to the motorcycle driver’s lawyer that included a $50,000 check for the bodily injury claim and a proposed release. The accompanying letter told the attorney to contact the insurer with any questions about the release and to edit the proposed release with suggested changes. The insurer also wanted to inspect the motorcycle in furtherance of adjusting the property damage claim which also had a policy limit of $50,000. A location of where the motorcycle could be inspected was never provided.

Shortly thereafter, counsel for the motorcycle driver rejected the policy limits tender offer claiming that the proposed release form included with the tender package was overbroad (and it was) since it did not specifically carve-out property damage claims. The insurer again told the lawyer to edit the release and asked for the location of the motorcycle because its intent was to treat the bodily injury and property damage claims separate. Instead of a response, the motorcycle driver sued the driver of the car. Clearly, the objective was not the $50,000 policy limits, but the potential bad faith exposure.

The property damage claim for the motorcycle ultimately settled but the bodily injury claim continued to trial. During trial, the parties consented to a judgment where a judgment was entered against the driver of the car for $14,900,000; the parties stipulated that the judgment shall not be recorded and cannot be collected against the car driver. Instead, the motorcycle driver agreed to collect solely against the car driver’s insurance policy. The car driver’s insurer was not a party to the judgment or stipulation.

Thereafter, both the car and motorcycle drivers sued the car driver’s automobile liability insurer for bad faith refusal to settle. The trial court entered summary judgment in favor of the car driver’s insurer finding no reasonable jury could find the insurer acted in bad faith under the totality of the circumstances. The Eleventh Circuit affirmed the trial court’s summary judgment in favor of the insurer based on the totality of circumstances including the insurer’s efforts to settle the bodily injury claim for policy limits. In doing so, the Eleventh Circuit includes the following noteworthy discussion on such bad faith insurance claims:

“It has long been the law of [Florida] that an insurer owes a duty of good faith to its insured.” Berges v. Infinity Ins. Co., 896 So. 2d 665, 672 (Fla. 2004). The duty has been well-defined for more than 40 years, since the Florida Supreme Court described it in Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980):

An insurer, in handling the defense of claims against its insured, 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. For when 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. 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.

Id. at 785; see also, e.g., Harvey v. GEICO Gen. Ins. Co., 259 So. 3d 1, 6–7 (Fla. 2018) (quoting Boston Old Colony to define the duty); Kropilak v. 21st Century Ins. Co., 806 F.3d 1062, 1067–68 (11th Cir. 2015) (same). “Breach of this duty may give rise to a cause of action for bad faith against the insurer.” Perera v. U.S. Fid. & Guar. Co., 35 So. 3d 893, 898 (Fla. 2010). Florida’s bad faith law is “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.

Where “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.” Harvey, 259 So. 3d at 7 (quotation marks omitted). “In such a case, where the financial exposure to the insured is a ticking financial time bomb and suit can be filed at any time, any delay in making an offer … even where there was no assurance that the claim could be settled could be viewed by a fact finder as evidence of bad faith.” Id. (cleaned up).

“In Florida, the 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.” Berges, 896 So. 2d at 680. Indeed “the critical inquiry” in a bad faith action is not whether an insurer met the obligations set out in Boston Old Colony but instead “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.” Harvey, 259 So. 3d at 7 (noting that the Boston Old Colony obligations “are not a mere checklist”).

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. For that reason, a claimant’s “actions can[not] let the insurer off the hook when the evidence clearly establishes that the insurer acted in bad faith in handling the insured’s claim.” See Harvey, 259 So. 3d at 11 (emphasis added) (rejecting the “conclusion that where the [claimant]’s own actions[ ] even in part cause the judgment, the insurer cannot be found liable for bad faith”) (quotation marks omitted); id. (noting that “an insurer can[not] escape liability merely because the [claimant]’s actions could have contributed to the excess judgment”) (emphasis added and footnote omitted); id. at 12 (rejecting the idea that, “regardless of what evidence may be presented in support of the [claimant]’s bad faith claim,” the “insurer could be absolved of bad faith” if it “can put forth any evidence that the [claimant] acted imperfectly during the claims process,” which “would essentially create a contributory negligence defense for insurers” that is “inconsistent with [Florida’s] well-established bad faith jurisprudence”).

“[N]egligence is not the standard” for evaluating bad faith actions, Harvey, 259 So. 3d at 9, but “[b]ecause 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,” Boston Old Colony, 386 So. 2d at 785. And “[a]lthough bad faith is ordinarily a question for the jury, both this Court and Florida courts have granted summary judgment where there is no sufficient evidence from which any reasonable jury could have concluded that there was bad faith on the part of the insurer.” Eres, 998 F.3d at 1278 (cleaned up); see also State Farm Fire & Cas. Co. v. Zebrowski, 706 So. 2d 275, 277 (Fla. 1997) (concluding, in a statutory third-party bad faith action, that summary judgment was appropriate). “While an overbroad release can create a jury question about bad faith, it doesn’t necessarily do so.” Eres, 998 F.3d at 1279.

Palaez, supra, at *4-6.

DETERMINING OCCURRENCE FOR INJURY UNDER COMMERCIAL GENERAL LIABILITY POLICY WITHOUT APPLYING “TRIGGER THEORY”

Posted on June 26, 2021June 26, 2021 by Edward Garber

Oftentimes an occurrence in a commercial general liability policy is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” It is this occurrence that causes the bodily injury or property damage that may be covered by the policy.

An interesting non-construction case determined an occurrence under a commercial general liability policy occurred when the negligent act occurred irrespective of the date of discovery or the date the claim was discovered or asserted. See Certain Underwriters at Lloyd’s, London Subscribing to Policy No. J046137 v. Pierson, 46 Fla.L.Weekly D1288c (Fla. 4^thDCA 2021). This is interesting because the appellate court did NOT apply a “trigger theory” to first determine the occurrence’s policy period. The appellate court found it did not need to determine which “trigger theory” applied to determine the occurrence for the injury and relied on a cited case: “trigger theories are generally used in the context of deciding when damage occurred ‘in cases involving progressive damages, such as latent defects, toxic spills, and asbestosis’ because the time between the ‘injury-causing event (such as defective construction, a fuel leak, or exposure to asbestos), the injury itself, and the injury’s discovery or manifestation can be so far apart.” Pierson, supra, citing and quoting Spartan Petroleum Co. v. Federated Mut. Ins. Co., 162 F.3d 805, 808 (4^th Cir. 1998).

In Pierson, police officers were found civilly liable for civil rights violations that occurred twenty-years earlier when the officers physically and verbally forced a 15-year old boy to confess to a crime. Many years later, DNA evidence proved the boy did not commit the crime he was forced to confess and was incarcerated for. The officers sued the police department’s commercial general liability policy for failing to indemnify them in the civil lawsuit. The policy, however, was NOT in effect twenty years earlier when the officers verbally and physically forced the confession. “Since it is undisputed that the Officers’ misconduct occurred twenty years prior to the execution of the policies, there can be no duty to indemnify in this case…. [T]he fact that [the boy] suffered the consequences of the Officers’ wrongful conduct throughout his incarceration, including while the subject policies were in effect, is irrelevant for purposes of determining whether the Insurer has a duty to indemnify. Likewise, the fact that [the boy] was exonerated while the 2009 policy was in effect is of no consequence.” Pierson, supra.

What does this holding mean? It could likely mean outside of a latent defect scenario or a pollution liability issue–or property damage scenario–a “trigger theory” to determine when an occurrence occurred or is triggered is not applicable. An occurrence will be deemed to occur when the accident causing the injury occurred, as defined by the policy.