ILLUSORY INSURANCE COVERAGE: REAL OR UNREAL?

shutterstock_585394823In insurance coverage declaratory relief actions, there are times an insured will argue that the insurance policy coverage is illusory.  Typically, an insured will raise this illusory argument if its insurer is denying coverage based on an exclusion or limitation in the policy.  If a court agrees and deems the coverage illusory, the court will construe the policy to afford coverage to the insured.  This is the obvious value of the argument: coverage!

 

A policy is illusory only if there is an internal contradiction that completely negates the coverage it expresses to provide.”  The Warwick Corp. v. Turetsky, 42 Fla.L.Weekly D1797a (Fla. 4th DCA 2017).    Thus, if a policy grants coverage in one section but then excludes the same coverage in another section, the coverage would be deemed illusory.  Id. quoting Tire Kingdom, Inc. v. First S. Ins. Co., 573 So.2d 885, 887 (Fla. 3d DCA 1990).  An illusory policy was found in the following examples: (a) a policy covered certain intentional torts but then excluded intended acts; (b) a policy covered advertising injury but elsewhere excluded advertising injury; and (c) a policy covered parasailing but excluded watercrafts.  Id. (citations omitted). In all examples, coverage in the policy was completely swallowed up by an exclusion rendering the coverage illusory.  Stated differently, coverage was completely contradicted by an exclusion in the policy rendering the policy absurd.

 

However, if an exclusion or limitation in the policy does not entirely swallow up the coverage, the policy is not illusory.  The Warwick Corp., supra.  For example, if a policy covers advertising injury but excludes advertising injury caused by a violation of law, the coverage is not illusory.   The exclusion does not completely swallow up the coverage as it only excludes advertising injury cased by a violation of law.  Id. (citation omitted). 

 

In The Warwick Corp., the insured argued that the excess commercial property insurance policy that covered four hotels was illusory because its coverage was limited to the value of the hotel, which equaled the amount payable under the primary property insurance policy.  Although the court acknowledged that it would be very rare that the excess policy would ever be triggered for one of the hotels, it held that the policy was not illusory because the limitation did not completely swallow up the coverage (as there was an unlikely circumstance that could trigger coverage for the hotel).  Additionally, the court noted that the insured was a sophisticated entity that paid a minimum premium for minimum coverage under the excess policy for the hotel, meaning it elected to buy the policy and coverage it bought which is a choice it cannot change after-the-fact.

 

As you know from reading my prior posts, insurance coverage is important so make sure you know what risks are covered and what risks are not for your business interests.

 

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.

 

 

 

AMBIGUITY IN INSURANCE POLICY WILL BE INTERPRETED IN FAVOR OF INSURANCE COVERAGE

shutterstock_389538880An ambiguity in an insurance policy–after reading and interpreting the policy as a whole–will be construed against an insurerThis means an ambiguity will be construed in favor of insurance coverage (for the benefit of the insured) as opposed to against insurance coverage.  This does not mean that every insurance policy contains an ambiguity.  This also does not mean a court will interpret plain and ordinary words contrary to their conventional meaning or definition.  But, as we all know, insurance policies are not the easiest of documents to decipher and ambiguities do exist relating to a particular issue or circumstance to the benefit of an insured.  An insured that is dealing with specific insurance coverage issues should make sure they are working with counsel that looks to maximize insurance coverage, even if that means exploring ambiguities that will benefit an insured based on a particular issue or circumstance.

 

An example of an ambiguity in an insurance policy relating to a particular issue that benefitted an insured can be found in the Florida Supreme Court decision of Government Employees Insurance Co. v. Macedo, 42 Fla. L. Weekly S731a (Fla. 2017).  This case involved an automobile accident and the interpretation of an automobile liability policy. 

 

In this case, after an accident, a plaintiff sued the defendant that caused the accident. The defendant’s insurer GEICO provided a defense in accordance with the defendant’s automobile liability policy.  During the litigation, the plaintiff served a proposal for settlement for $50,000, which is a procedural vehicle to create the argument for attorney’s fees if the defendant does not accept the proposal.  The defendant—again, being defended by its insurer GEICO—did not accept the proposal.  The case proceeded to trial and the plaintiff obtained a jury verdict of approximately $243,000.  This meant the plaintiff had a basis to recover attorney’s fees since the defendant did not accept the proposal for settlement.   The plaintiff moved to bind GEICO to a judgment, and the underlying issue was whether the defendant’s insurer GEICO was liable under the policy for attorney’s fees.  If GEICO was not liable, then that meant the defendant was individually liable for the plaintiff’s incurred attorney’s fees. 

 

This is a significant issue because by the defendant’s counsel not accepting the proposal for settlement, the defendant, individually, was exposed to substantial attorney’s fees incurred by the plaintiff.   The defendant’s counsel was hired by GEICO and GEICO controlled any settlement of the case and the defendant was required to cooperate with GEICO.

 

The applicable language of the insurance policy as relied upon by the Florida Supreme Court was as follows:

 

ADDITIONAL PAYMENTS WE WILL MAKE UNDER THE LIABILITY COVERAGES

1. All investigative and legal costs incurred by us.

. . . .

4. We will upon request by an insured, provide reimbursement for the following items:

. . . .

(c) All reasonable costs incurred by an insured at our request.

. . . .

Additionally, the index of the policy lists “Legal Expenses And Court Costs” as items that are covered under the Additional Payments section.

 

The Florida Supreme Court, interpreting the policy as a whole, found this language to be ambiguous relating to the insurer’s obligation to cover attorney’s fees incurred by the plaintiff due to GEICO’s defense counsel not accepting the proposal for settlement.  This ambiguity was a big “W” for both the defendant-insured and the plaintiff because it meant that GEICO was liable for the plaintiff’s attorney’s fees.

 

First, the Court explained that the terms “Legal Expenses” and “Court Courts” signify that legal expenses in addition to court costs would be covered under the policy; otherwise, there would have been no reason to separately include the language “Legal Expenses” in the index of the policy.

 

Second, the Court explained that there are numerous reasonable interpretations that attorney’s fees are encompassed by the terms “costs” and expenses” as used in the policy. 

 

And, third, the Court explained that the legal expenses (attorney’s fees) incurred by the insured were the product of GEICO electing not to accept the proposal for settlement, and thus, were incurred by the defendant-insured at GEICO’s direct request.  GEICO had complete discretion under the policy to settle the case with the insured being required to cooperate with its insurer.   “It follows that any cost or fee incurred as a result of GEICO exercising its authority and control is something that it intended to pay.”  See Macedo, supra

 

 

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.

 

TIMELY WRITTEN NOTICE TO INSURER AND COOPERATING WITH INSURER

shutterstock_651871066I harp on notifying a liability insurer in writing once a claim is asserted against you.  As soon as possible.  I harp on this because as an insured you want to remove any doubt or argument that the insurer was prejudiced due to a lack of timely notice. 

 

In a recent opinion, Zurich American Insurance Co. v. European Tile and Floors, Inc., 2017 WL 2427172 (M.D.Fla. 2017), the insurer moved for summary judgment in a coverage action arguing that its insured failed to provide it timely written notice.  Specifically, the insurer argued that the insured violated the clause in the liability policy that states:

 

2. Duties in the Event of Occurrence, Offense, Claim or Suit

b. If a claim is made or “suit” is brought against any insured, you must:

1. Immediately record the specifics of the claim or “suit” and the date received; and

2. Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or “suit” as soon as practicable. 

c.  You and any other insured must:

1. Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or “suit”;

2. Authorize us to obtain records and other information;

3. Cooperate with us in the investigation, settlement or defense of the claim or “suit”; and

4. Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply.

 

Here, the insured claimed it orally called the insurer about the nature of the suit and a representative told it that there would be no coverage for the lawsuit.   The insurer, however, claimed it has no record of such a call and only learned of the lawsuit after a judgment had already been entered against the insured.  Particularly, a seven-figure judgment was entered against the insured and the judgment creditor then sued the insurer which prompted the insurer to file a coverage lawsuit. 

 

The insurer argued that there should be no coverage because the insured violated the clause regarding being provided timely written notice of the lawsuit.  An insured can forfeit otherwise valid coverage by failing to provide timely notice to the prejudice of the insurer.

 

Under Florida law, if an insured’s notice is untimely, a presumption of prejudice arisesEuropean Tile and Floors, supra, at *5.  The insured can only prevail if it rebuts the presumption of prejudice by demonstrating with competent evidence that the insurer was not prejudiced by the untimely notice.   Id.   However, although the policy required written notice, this requirement can be waived when the insurer has actual notice of the claimId

 

In this case, the Middle District denied the insurer’s motion for summary judgment because there was a material fact dispute as to whether the insured provided notice of the lawsuit to the insurer—the insured claims it did so through an oral call which the insurer disputes.

 

The insurer also moved for summary judgment arguing the insured failed to cooperate with it.  An insurer may deny coverage for an insured’s failure to cooperate when “(1) the lack of cooperation was material, (2) the insurer exercised diligence and good faith in bringing about the cooperation of its insured and itself complied in good faith with the terms of the policy and (3) the lack of cooperation substantially prejudiced the insurer.”  European Tile and Floors, supra, at *6 quoting Mid-Continent Cas. Co. v. Basdeo, 477 Fed.Appx. 702, 706-07 (11th Cir. 2012).

 

 

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.

SUBCONTRACTOR’S LIABILITY INSURER’S DUTY TO DEFEND THE “ADDITIONAL INSURED” GENERAL CONTRACTOR

shutterstock_306317915Construction projects can lead to insurance coverage disputes.  One such dispute arises when a general contractor is sued for construction defects and resulting property damage and it tenders the defense of the claim / lawsuit to an implicated subcontractor’s liability insurer.  A general contractor does this because it (hopefully) will be an additional insured under the subcontractor’s liability policy.  Being identified as an additional insured under a subcontractor’s liability policy is imperative for a general contractor as part of its normal risk assessment. The issue will typically come up in any construction defect lawsuit because if the general contractor is an additional insured it will, and should, tender the defense of the lawsuit to implicated subcontractors’ insurers. 

 

Sometimes, a subcontractor’s liability insurer will deny the duty to defend the general contractor.  Yes, this happens.  When it does, the general contractor’s insurer will provide a defense to the general contractor but may pursue the subcontractor’s insurer for reimbursement of fees and costs based on the general contractor being an additional insured under the subcontractor’s liability policy.

 

For example, in Travelers Property Casualty Co. of America v. Amerisure Ins. Co., 161 F.Supp.3d 113 (N.D.Fla. 2015), the general contractor’s liability insurer (Travelers) sued a stucco subcontractor’s liability insurer (Amerisure) where the underlying issue was whether the general contractor was an additional insured under the subcontractor’s liability policy.  The subcontractor’s insurer refused to defend the general contractor in an underlying construction defect lawsuit.  The general contractor’s insurer provided a defense in the underlying lawsuit and sued the subcontractor’s insurer for reimbursement.  

 

Under Florida law, a liability insurer’s duty to defend extends to an entire lawsuit if any claim in the lawsuit may come within the policy’s coverage.”  Travelers Property Casualty Co., 161 F.Supp.3d at 1137.    The underlying complaint against the general contractor alleged property damage caused by defective stucco installation.  This meant that the complaint triggered the duty to defend and the Court held the general contractor was an additional insured under the subcontractor’s liability policy.  For this reason, the Court maintained that the subcontractor’s insurer (Amerisure) owed the general contractor’s insurer (Travelers) the reasonable attorney’s fees incurred in the defense of the general contractor in the underlying lawsuit:

 

When Amerisure [subcontractors’ insurer] failed to step up, Travelers [general contractor’s insurer] did what Amerisure should have done: Travelers provided Yates [general contractor] a defense. The attorneys Travelers hired chose to defend the case not only by answering the claims but also by asserting third-party claims against subcontractors, including Jemco [stucco subcontractor]. Travelers paid the fees and costs incurred in connection with the third-party claims, apparently concluding that this was the best strategy for defending the claims and that its duty to defend Yates thus obligated it to pay for the third-party claims as well. There is support for that view. 

***

Had Amerisure provided a defense as it should have done, the attorneys it hired might or might not have made the  same strategic decision as the attorneys hired by Travelers. But now Amerisure can complain, at most, about unreasonable decisions, not about decisions that reasonably could have gone either way. As a leading commentator has put it, when an insurer breaches its duty to defend,

the insured is justified in assuming the defense of the action and is released from the contractual obligation to leave the management of the case to the insurer. Not only does the insurer lose the power to control the defense or dictate to the insured how the case should be handled, but the insurer cannot complain about the conduct of the defense by the insured or the negligent handling of the case by the insured’s attorney.

 

Travelers Property Casualty Co. of America, 161 F.Supp.3d at 1138-39 (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.