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

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.

 

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.

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

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.

 

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: YES, YOU CAN WAIVE THE RIGHT TO ARBITRATE

A party can waive the contractual right to arbitrate.  Waiver is the “voluntary and intentional relinquishment of a known right or conduct which implies the voluntary and intentional relinquishment of a known right.”  Ship IV Harbour Island, LLC v. Boylan, 44 Fla. L. Weekly D831a (Fla. 5th DCA 2019) (citation and internal quotation omitted).  Thus, a party can waive its right to arbitrate a dispute by engaging in conduct inconsistent with the right to arbitrate.  One way a party can act inconsistently with the right to compel a dispute to arbitration is by engaging in discovery in litigation, particularly discovery as to the merits of the case.  See Ship IV Harbour Island, supra (after court ordered limited discovery regarding arbitration, party thereafter waived right to arbitration by engaging in discovery as to the merits of the dispute).    For this reason, if your desire is to preserve the integrity of a contractual arbitration provision, do not do anything inconsistent with this right such that you give the other party the argument that you waived the contractual right to arbitration.  

 

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.

EBOOK: DELAY! THE PROJECT IS LATE – WHAT DO YOU DO, WHO IS AT FAULT, AND HOW DO YOU ALLOCATE THE DELAY?

Over the years, I have put on presentations for project teams discussing the concept of delay — a late project — and related topics.  I discuss key terms relative to delay by using various hypotheticals. It is an interactive presentation that solicits the audience’s input so they are thinking about these issues that project teams deal with in real time on all of their projects (among all of the other issues they are navigating through on a daily basis). Although the actual presentation goes into much more detail that is oftentimes dictated by the audience’s input, I decided to turn a version of the presentation into a short ebook that can be found on Amazon of Apple, since it was easy to do so and, because, it is important for project teams to understand terms and application relative to delay so that they can best preserve rights in real time while they are dealing with a million other things on the project.

 

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.