Tag Archives: Claims Administration Statute

TENDER THE DEFENSE OF A LAWSUIT TO YOUR LIABILITY CARRIER

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imagesSometimes you come across a head scratcher.  This would be a decision that does not seem to make a whole lot of sense.  For instance, if you are sued and you maintain liability insurance that would potentially provide you a defense and indemnification, not notifying your insurance carrier is a head scratcher.  You pay substantial dollars towards the premium of that policy.  So, not then notifying your carrier about a lawsuit is a head scratcher, and I mean a head scratcher!!   If you are sued, not only should the carrier be notified, but the defense of that lawsuit should be tendered to your liability carrier. 

 

This madness is exactly what occurred in Embroidme.com, Inc. v. Travelers Property Casualty Co. of America, 2017 WL 74694 (11th Cir. 2017) where an insured was sued and incurred over $400,000 in legal fees (yes, I said that amount right!) before notifying its liability carrier and tendering the defense of the lawsuit to its carrier.  The liability carrier, upon notification, picked up the defense of its insured but refused to reimburse the insured for the pre-tender legal fees the insured incurred.  Although the court gives a lengthy discussion on Florida’s Claim Administration Statute (Florida Statute s. 627.426) based on a very crafty argument by the insured, the bottom line is that the insurer was not liable to the insured for pre-tender litigation fees the insured incurred prior to tendering the claim to its insurer.   See Embroidme.com, Inc., supra, at *13 (finding that the Claims Administration Statute “does not apply to prevent Travelers [insurer] from enforcing a provision of the liability insurance policy that excludes EmbroidMe [insured] from obtaining reimbursement for attorney’s fees it chose to incur prior to requesting Travelers to defend and indemnify it in its pending litigation.”).

 

Again, if you have liability insurance and a claim / lawsuit is asserted against you, there is generally no reason not to notify the insurer of the lawsuit and tender the defense of that lawsuit to the insurer.   If you don’t you can wind up like the insured in this case which is to expend over $400,000 in legal fees  (when the carrier owes you a defense) that is not reimbursable.  This doesn’t make sense—a head scratcher—considering the premium you pay to your insurer. 

 

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.

 

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

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UnknownFlorida 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.  1st 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. 4th 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.”)

 

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.