CONSEQUENTIAL DAMAGES CAN BE RECOVERED AGAINST INSURER IN BREACH OF CONTRACT

Posted on June 1, 2019April 24, 2020 by Edward Garber

In a favorable case for insureds, the Fifth District Court of Appeal maintained that “when an insurer breaches an insurance contract, the insured is entitled to recover more than the pecuniary loss involved in the balance of the payments due under the policy in consequential damages, provided the damages were in contemplation of the parties at the inception of the [insurance] contract.” Manor House, LLC v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1403b (Fla. 5^thDCA 2019) (internal citations and quotation omitted). Thus, consequential damages can be recovered against an insurer in a breach of contract action (e.g., breach of the insurance policy) if the damages can be proven and were in contemplation of the parties at the inception of the insurance contract.

In Manor House, the trial court entered summary judgment against the insured holding the insured could not seek lost rental income in its breach of contract action against Citizens Property Insurance because the property insurance policy did not provide coverage for lost rent. However, the Fifth District reversed this ruling because the trial court denied the insured the opportunity to prove whether the parties contemplated that the insured, an apartment complex owner, would suffer lost rental income (consequential damages) if the insurer breached its contractual duties.

This ruling is valuable to insureds because Citizens Property Insurance, a creature of statute, cannot be sued for first-party bad faith. However, the Fifth District found that the consequential damages in the form of lost rental income did not require the insured to prove the insurer acted in bad faith, but merely, breached the terms of the policy. This holding can be extended to other breach of contract actions against an insurer when the insured suffered and can prove consequential-type damages caused by the breach.

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: THIRD-PARTY CAN BRING COMMON LAW BAD FAITH CLAIM

Posted on May 18, 2019April 24, 2020 by Edward Garber

A third-party claimant may bring a common law bad faith claim against a defendant’s liability insurer. Mccullough v. Royal Caribbean Cruises, 2019 WL 2076192, *2 (S.D.Fla. 2019). “A bad faith claim may be brought by a third party absent an assignment from the [defendant] insured.” Id. This can only be done in the third-party bad faith context with the argument that the insurer’s “bad faith” conduct resulted in a judgment against the defendant-insured in excess of the policy limits. However, in any third-party bad faith claim (and, really, bad faith claim in general), coverage must first be determined under the policy. Mccullough, supra. (“An injured third party must therefore first obtain a resolution of some kind in favor of the insured’ on the coverage issue” before pursuing his bad faith against the insurer.”) (internal quotations omitted).

INSURER’S CONFESSION OF JUDGMENT THROUGH POST-LAWSUIT PAYMENT

Posted on May 11, 2019April 24, 2020 by Edward Garber

The recent opinion in the property insurance coverage dispute, Bryant v. Geovera Specialty Ins. Co., 44 Fla.L.Weekly D1232a (Fla. 4^thDCA 2019), discusses the doctrine known as an insurer’s “confession of judgment.” In this case, an insured suffered water damage from a pipe leak. The insurer paid the insured $6,000 because of sublimits in the property insurance policy. There was a $5,000 sublimit for mold and a $1,000 sublimit for water leakage that occurs over a period of 14 days or more. The insured sued the insurer for covered water damage arguing that the sublimits did not apply.

After the lawsuit was filed, an agreed order was entered that stayed the case pending an appraisal. The appraisal award did not apply the $1,000 sublimit to the water damage from the pipe leak and segregated out damage for mold. (The insurer already paid the mold sublimit). The insurer ended up paying the appraisal award for the water damage caused by the pipe leak after deducting its pre-lawsuit sublimit payment. The insurer paid the award and did NOT challenge the application of the $1,000 sublimit in court, although it could have since coverage issues are decided by courts.

An issue became whether the insurer’s post-lawsuit payment of the appraisal award above the $1,000 sublimit constituted an insurer’s confession of judgment.

“[I]t is well settled that the payment of a previously denied claim following the initiation of an action for recovery, but prior to the issuance of a final judgment, constitutes the functional equivalent of a confession of judgment.” Johnson v. Omega Ins. Co., 200 So. 3d 1207, 1215 (Fla. 2016). The confession-of-judgment doctrine “applies where the insurer has denied benefits the insured was entitled to, forcing the insured to file suit, resulting in the insurer’s change of heart and payment before judgment.” State Farm Fla. Ins. Co. v. Lorenzo, 969 So. 2d 393, 397 (Fla. 5th DCA 2007).

The confession-of-judgment doctrine is limited to situations where the filing of the lawsuit “acted as a necessary catalyst to resolve the dispute and force the insurer to satisfy its obligations under the insurance contract.” See, e.g., State Farm Fla. Ins. Co. v. Lime Bay Condo., Inc., 187 So. 3d 932, 935 (Fla. 4th DCA 2016). However, “[i]t is the incorrect denial of benefits, not the presence of some sinister concept of ‘wrongfulness,’ that generates the basic entitlement to the fees if such denial is incorrect.” Ivey v. Allstate Ins. Co., 774 So. 2d 679, 684 (Fla. 2000). Thus, “an incorrect denial of benefits, followed by a judgment or its equivalent of payment in favor of the insured, is sufficient” to constitute a confession of judgment and to allow the insured to recover attorney’s fees.

An attorney’s fees award is also appropriate “where, following some dispute as to the amount owed by the insurer, the insured files suit and, thereafter, the insurer invokes its right to an appraisal and, as a consequence of the appraisal, the insured recovers substantial additional sums.” Lewis v. Universal Prop. & Cas. Ins. Co., 13 So. 3d 1079, 1081 (Fla. 4th DCA 2009).

Even after Johnson, not all post-suit payments by an insurer will constitute a confession of judgment. We recently held that where an insurer valued a loss, issued payment, and was unaware of the insured’s disagreement with the damage valuation until the filing of the complaint, the insurer’s timely payment of an appraisal award during the litigation did not constitute a confession that the insurer breached the insurance policy. See Goldman v. United Servs. Auto. Ass’n, 244 So. 3d 310, 311-12 (Fla. 4th DCA 2018).

Bryant, supra.

Here, the appellate court held the insurer’s payment of the post-lawsuit appraisal award constituted a confession of judgment that it incorrectly denied benefits by invoking the $1,000 leakage sublimit. Once the insurer invoked the sublimits, it raised a coverage issue that only a court could decide and [t]his coverage issue went beyond a mere dispute about the valuation of the loss, so the insureds could not have simply invoked the policy’s appraisal provision before filing suit.” Bryant, supra. (“Under Johnson, “[o]nce an insurer has incorrectly denied benefits and the policyholder files an action in dispute of that denial, the insurer cannot then abandon its position without repercussion.” Here, the insurer’s payment of the appraisal award…demonstrated that GeoVera [insurer] had abandoned its pre-suit coverage position that the claim was subject to the $1,000 sublimit for long-term water leakage.”) (internal citation omitted)

LIABILITY INSURER’S DUTY TO DEFEND INSURED IS BROADER THAN ITS DUTY TO INDEMNIFY

Posted on May 3, 2019April 24, 2020 by Edward Garber

When it comes to liability insurance, an insurer’s duty to defend its insured from a third-party claim is much broader than its duty to indemnify. This broad duty to defend an insured is very important and, as an insured, you need to know this. “A liability insurer’s obligation, with respect to its duty to defend, is not determined by the insured’s actual liability but rather by whether the alleged basis of the action against the insurer falls within the policy’s coverage.” Advanced Systems, Inc. v. Gotham Ins. Co., 44 Fla. L. Weekly D996b (Fla. 3d DCA 2019) (internal quotation omitted). This means:

Even where the complaint alleges facts partially within and partially outside the coverage of a policy, the insurer is nonetheless obligated to defend the entire suit, even if the facts later demonstrate that no coverage actually exists. And, the insurer must defend even if the allegations in the complaint are factually incorrect or meritless. As such, an insurer is obligated to defend a claim even if it is uncertain whether coverage exists under the policy. Furthermore, once a court finds that there is a duty to defend, the duty will continue even though it is ultimately determined that the alleged cause of action is groundless and no liability is found within the policy provisions defining coverage.

Advanced Systems, supra(internal citations and quotations omitted).

In Advanced Systems, an insurer refused to defend its insured, a fire protection subcontractor. The subcontractor had been third-partied into a construction defect lawsuit because the foam fire suppression system it installed had a failure resulting in the premature discharge of foam. The owner sued the general contractor and the general contractor third-partied in the subcontractor. However, the subcontractor’s CGL carrier refused its duty to defend the subcontractor from the third-party complaint because of the pollution exclusion in the CGL policy. In other words, the insurer claimed that the foam the subcontractor installed constituted a pollutant within the meaning of the exclusion and, therefore, resulted in no coverage and, thus, no duty to defend the insured in the action.

To determine the foam was a “pollutant”–which the policy defined as any “solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste”—the insurer relied on extrinsic evidence, specifically the Material Safety Data Sheet (MSDS Sheet) for the foam. The insured objected to the insurer’s reliance on extrinsic evidence since it was beyond the scope of the insurer’s duty to defend which should be based on the allegations in the underlying complaint. (The insurer tried to support its reliance on extrinsic evidence under a very limited exception that supports the reliance on extrinsic facts to form the refusal to defend when the extrinsic facts are uncontroverted and manifestly obvious, not normally alleged in the complaint, and that place the claim outside of coverage. However, this is a very narrow exception that the court was not going to apply here.)

It is important to consult with counsel if you have an issue with your insurer refusing to defend you in an underlying action and/or your insurer denies coverage.

INSURED UNDER PROPERTY INSURANCE POLICY SHOULD COMPLY WITH POST-LOSS POLICY CONDITIONS

Posted on April 29, 2019April 24, 2020 by Edward Garber

Your property insurance policy will contain post-loss policy conditions. Examples include submitting a sworn statement in proof of loss, providing documentation to your insurer, and sitting for an examination under oath. Insurers will require you, as the insured, to comply with post-loss policy conditions unless they elect to promptly deny coverage. If you do not comply with such post-loss policy conditions you can forfeit coverage under the policy and/or give the insurer the argument that any lawsuit you filed against the property insurer is premature. Thus, there really is no upside in refusing to comply with the post-loss policy conditions, which should be done in consult with an attorney or, as the case may be, a public adjuster.

For instance, in Safepoint Ins. Co. v. Sousa, 44 Fla. L. Weekly D994a (Fla. 3d DCA 2019), an insured submitted a property insurance claim for hurricane damage. The insurer requested the insured submit a sworn statement in proof of loss and provide documentation. The insured never did although she did submit for an examination under oath. The insurer ended up tendering insurance proceeds based on its adjustment of the claim. Thereafter, the insured sued its insurer and moved to compel an appraisal per the terms of the property insurance policy. In doing so, the insured provided an adjustment / estimate from her public adjuster that was approximately $100,000 more than the proceeds the insured received (which had never been provided to the insurer). The insurer opposed the motion based on the insured’s failure to comply with post-loss policy conditions (i.e., submitting the sworn statement in proof of loss and documentation). The appellate court agreed that the insured’s failure to comply with these post-loss policy conditions clearly spelled out in the property insurance policy rendered it PREMATURE for the insured to compel an appraisal.

60-DAY CLOCK FOR STATUTORY BAD FAITH “CURE PERIOD” STARTS WHEN CIVIL REMEDY NOTICE ELECTRONICALLY FILED

Posted on March 26, 2019April 24, 2020 by Edward Garber

The Second District Court of Appeal in Harper v. Geico General Insurance Company, 44 Fla.L.Weekly D618c (Fla. 2d DCA 2019) explained that the 60-day clock for a statutory bad faith cure period STARTS when the civil remedy notice is electronically filed with Florida’s Department of Financial Services:

Subsection 624.155(3)(d) plainly states that no action shall lie if the damages are paid or corrective action is taken within sixty days after the insured files the CRN [Civil Remedy Notice]. Under current procedures, an insured files a CRN with the Department electronically. See Fla. Admin. Code R. 69J-123.002(1). And while the Department also requires the insured to print a copy of the completed CRN from the Department’s website and send it to the insurer, the Department nevertheless considers the form to be “filed” when the insured clicks the “submit” button at the end of the electronic form. See Civil Remedy Notice of Insurer Violations FAQ, https://apps.fldfs.com/CivilRemedy/Help.aspx (follow “Continue” hyperlink; then follow “How do I file a Civil Remedy Notice?” hyperlink) (last visited Dec. 20, 2018). At that time, the CRN is assigned a “filing number” and any changes must be made by clicking on “edit filing.” Hence, the requirements of section 624.155(3)(d) are met when the insured electronically files the CRN with the Department, and that action starts the sixty-day cure period for the insurer. Therefore, we hold that the sixty-day cure period under section 624.155 begins when the CRN is electronically filed with the Department, and to avoid a bad faith action, the insurer must pay the claim or take corrective action within sixty days from the date the CRN is electronically filed.

This is important because the insurer must fail to cure within this 60-day period to trigger the requirements of a statutory bad faith claim. If the insurer fails to cure within this 60-day cure period, the insured has preserved an argument for a statutory bad faith claim. See Harper, supra (“Therefore, because GEICO did not pay Harper’s claim within sixty days of the date the CRN was electronically filed with the Department, it did not pay the claim within the sixty-day cure period, and Harper was entitled to pursue her action for GEICO’s alleged bad faith.”).

PROPERTY INSURER INVOKING APPRAISAL UNDER PROPERTY INSURANCE POLICY

Posted on February 24, 2019April 24, 2020 by Edward Garber

Property insurance policies routinely contain an appraisal provision. The provision may read something to the effect:

If you and we fail to agree on the amount of loss, either may request an appraisal of the loss. However, both parties must agree to the appraisal. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written request from the other. . . . If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of the loss.

Safepoint Insur. Co. v. Gomez, 44 Fla.L.Weekly D239b (Fla. 3d DCA 2019).

In Safepoint, the Third District Court of Appeal maintained if the property insurer invokes appraisal, it waives the right to subsequently demand compliance with post-loss conditions in the policy as a condition precedent to that appraisal. (“‘Appraisal exists for a limited purpose – the determination of the amount of loss.’” By invoking appraisal pursuant to the terms of the insurance policy, Safepoint [insurer] waived the requirement of compliance with post-loss obligations as a condition precedent to that appraisal.”) Safepoint, supra (internal citation omitted).

In Safepoint, the insured (policyholder) submitted a property insurance claim. The insurer sent payment for the covered loss, but the amount of payment was disputed. As a result, the insurer invoked the appraisal process in the property insurance policy, and the insured agreed. As the appraisal process was underway and an umpire selected, the insurer sent a letter to the insured demanding a sworn statement in proof of loss, examinations under oath, and additional documentation—post-loss requirements of the insured in the insurance policy. The insured did not comply and the insurer used this non-compliance as an excuse to deny the claim. This prompted the insured to file a breach of contract lawsuit against the insurer and move to compel the insurer to complete the appraisal process that it invoked. The trial court agreed, as affirmed by the Third District. The insurer could not refuse to complete the appraisal process that it invoked by thereafter requiring the insured to comply with post-loss conditions in the policy.

CGL INSURER’S DUTY TO DEFEND BROADER THAN DUTY TO INDEMNIFY AND BASED ON ALLEGATIONS IN UNDERLYING COMPLAINT

Posted on February 9, 2019April 24, 2020 by Edward Garber

The 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.

CGL POLICY COVERING ATTORNEY’S FEES IN PROPERTY DAMAGE CLAIMS

Posted on November 17, 2018April 24, 2020 by Edward Garber

Does 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 (9^thCir. 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.

INSURER’S “FAILURE TO COOPERATE” DEFENSE

Posted on October 26, 2018April 24, 2020 by Edward Garber

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. 4^th 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.