QUICK NOTE:…OWNERS AND CONTRACTORS PROTECTIVE LIABILITY INSURANCE (OCP COVERAGE)

Posted on March 8, 2020March 8, 2020 by Edward Garber

Recently, I negotiated a contract that included Owners and Contractors Protective Liability insurance, otherwise known as “OCP” coverage, which is a project-specific policy. Thus, the policy limits are project-specific. Obtaining this OCP coverage includes discussion with a sophisticated insurance broker because the objective is always to ensure that there is insurance to cover a foreseeable or contractually assumed risk.

Many times, OCP coverage is procured by the contractor (listed as the designated contractor in the policy) for the owner, meaning the owner is the only insured on the policy. The contractor purchases this insurance for the owner, as an insured, to cover the contractor’s indemnification obligation to the owner. In a number of instances that I have dealt with OCP coverage it was largely because there was a concern with the additional insured endorsement of the contractor and/or its per occurrence limits.

OCP coverage applies to insure the owner from bodily injury and property damage claims (1) that arise out of the contractor’s operations performed for the owner at the project (e.g., vicarious liability) and (2) the owner’s actions or omissions in connection with its general supervision of the contractor’s operations. (See ISO CG 00 09 10 01) It applies to ongoing operations of the contractor as there is an exclusion in the policy for completed work. (See id.). It is not for completed operations.

The “Other Insurance” provision, different than in a CGL policy, provides that the OCP coverage is primary and “it will not seek contribution from any other insurance available to [the insured] unless the other insurance is provided by a contractor other than the designated contractor [contractor procuring policy or listed in the declaration]….” (See ISO CG 00 09 10 01).

It is always good practice, whether you are a contractor or an owner, to consult with your construction lawyer and insurance broker if you are considering OCP coverage as an extra layer of coverage. For more information on OCP coverage, this article is insightful. When it comes to insurance, the objective is to cover risks, whether foreseeable and/or assumed, so that there is the appropriate protection with respect to 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.

“OTHER INSURANCE” PROVISIONS TO LIMIT INSURER’S RISK

Posted on February 22, 2020February 22, 2020 by Edward Garber

Insurance policies often contain an “Other Insurance” provision to limit or control an insurer’s risk if another insurer covers the same risk / loss. See Pavarini Construction Co. (Se) Inc. v. Ace American Ins. Co., 161 F.Supp.3d 1227, 1234 (S.D.Fla. 2015) (“Other Insurance” provisions apply “when two or more insurance policies are on the same subject matter, risk, and interest.”). This is an important provision to insurers and may be modified by an endorsement to your insurance policy. It is designed to determine whether the policy, as discussed below, should serve as a primary policy or excess policy. It is important to understand this “Other Insurance” provision and its application because it will come up, particularly in a multi-party construction defect dispute.

An example of an “Other Insurance” provision in a commercial general liability (CGL), subject to any modification through an endorsement to the policy, may provide something to the effect:

4. Other Insurance

If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:

a. Primary Insurance

This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then we will share with all that other insurance by the method described in c. below.

b. Excess Insurance

This insurance is excess over:

1. Any of the other insurance, whether primary excess, contingent, or on any other basis:

(a) That is Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for “your work”;

2. Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

c. Method of Sharing

If all of the other insurance permits contribution by equal shares we will follow this method also. Under this approach, each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first.

If any of the insurance does not permit contribution by equal shares, we will contribute by limits. Under this method, each insurer’s share is based on the ratio of its applicable limit of insurance to the total applicable limits of insurance of all insurers.

If a policy is deemed as excess coverage, than “liability attaches only after a predetermined amount of primary coverage has been exhausted.” Tudor Ins. Co. v. American Casualty Co. of Reading Pennsylvania, 274 F.Supp.3d 1278, 1283 (N.D.Fla. 2017) (quotation and citation omitted). Hence, the “Other Insurance” provision allows an insurer to limit or control its risk by turning the policy into an excess policy. Id. (when excess provision applies than limits of the primary policy need to first be exhausted).

When deciding the priority of coverage among multiple insurers, Florida courts generally rely on the language of the several policies, with careful attention to the other insurance clauses. Where two insurance policies contain conflicting excess other insurance clauses, those clauses cancel one another out…. [W]here a court must allocate between two policies at the same level that contain incompatible excess clauses, the majority rule is that the two excess clauses cancel each other out, and the loss is pro-rated between the two policies. The proper method of allocation is to disregard the other insurance clauses, treat the two excess insurers as co-excess insurers, and pro-rate the loss between the two policies.

***

Florida law recognizes an exception to the rule governing competing “Other Insurance” provisions where a right of indemnification exists between the parties insured under the respective policies of insurance, especially where … one of the policies happens to cover the indemnity obligation. In this circumstance, a clear majority of jurisdictions give controlling effect to the indemnity obligation of one insured to the other insured over the ‘other insurance’ or similar clauses in the policies of insurance. Florida cases have consistently recognized that where a loss is covered by two or more primary policies of insurance, the operation of an indemnification agreement between the common insureds has the result of shifting responsibility for the entire loss to the carrier for the indemnitor. [U]nder Florida law an indemnity agreement control[s] all the rights and obligations of the parties and their privies (the insurers), and the fact that the parties carried insurance did not ‘detract from or modify’ their indemnity agreement.

Amerisure Ins. Co. v. Auchter Company, 2017 WL 3601387, *24 (M.D. 2017) (internal quotations and citations omitted). See also Pavarini Construction Co. (Se) Inc., 161 F.Supp.3d at 1235 (“Courts disregard “Other Insurance” provisions where…there is a contractual right or indemnification.”).

YOUR BAD FAITH JURY INSTRUCTION AGAINST AN INSURER IS IMPORTANT

Posted on December 13, 2019December 13, 2019 by Edward Garber

A statutory bad faith claim against an insurer is derived from Florida Statute s. 624.155. A bad faith claim against a first party insurer, such as a property insurer, must be statutory. Check out the hyperlink of the statute, but a party must first file a Civil Remedy Notice identifying the statutory violations to preserve the statutory bad faith claim giving the insurer an opportunity to cure.

In a noteworthy case, Cooper v. Federated National Insurance Company, 44 Fla. L. Weekly D2961a (Fla. 5^th DCA 2019), the Fifth District Court of Appeal dealt with the jury instruction for an insured’s statutory bad faith claim against their property insurer. The insured filed a bad faith claim predicated on the property insurer violating the provisions of Florida Statute s. 626.9541(1)(i)3, which involves unfair claim settlement practices. The insured had a jury trial and submitted a proposed jury instruction regarding bad faith that tracked the very essence of their bad faith claim and was modeled after s. 626.9541(1)(i)(3). The trial court, however, denied this jury instruction, instead adopting a standard jury instruction for bad faith. The jury returned a verdict in favor of the property insurer and the insured appealed arguing it was reversible error for the trial court NOT to present to the jury their bad faith jury instruction. The Fifth District agreed and ordered a new trial finding that the trial court’s failure to present the jury instruction amounted to a miscarriage of justice.

Florida’s standard bad faith jury instruction is not the be-all-end-all of jury instructions for bad faith. Specifically for a statutory bad faith claim, the standard jury instruction would not fully model a party’s theory of bad faith which would be modeled after a statutory violation. The lack of a proper jury instruction is not compensated for by an attorney’s closing argument as to the insured’s theory of the case:

Leaving it to the parties’ attorneys to explain to the jury in closing argument what legal principles apply is an inadequate substitute for an accurate, relevant, and complementary instruction that contains legal principles not covered in a standard instruction. Contrary to [the property insurer’s] argument, we do not believe that the standard bad faith jury instruction sufficiently informed the jury of all the relevant law regarding bad faith. Nor do we believe that, under the facts of this case, the acts constituting a violation of section 626.9541(1)(i)3. were subsumed within the standard jury instruction.

Cooper, supra (internal quotations omitted).

A jury instruction is important and is nothing to sneeze at. Here, the Fifth District thought so as it reversed a jury’s verdict finding that the failure to include a bad faith jury instruction that modeled the theory of the case and specific statutory violations the insured was aiming to prove was reversible error.

INSURER’S DUTY TO INDEMNIFY NOT RIPE UNTIL UNDERLYING LAWSUIT AGAINST INSURED RESOLVED

Posted on November 3, 2019November 3, 2019 by Edward Garber

A liability insurer has two duties: 1) the duty to defend its insured; and 2) the duty to indemnify its insured.

With respect to the second duty – the duty to indemnify – this duty is typically “not ripe for adjudication unless and until the insured or putative insured has been held liable in the underlying action.” Hartford Fire Ins Co. v. Beazer Homes, LLC, 2019 WL 5596237, *2 (M.D.Fla. 2019) (internal quotation omitted).

For instance, Beazer Homes involved an insurance coverage dispute stemming from construction defects. An owner sued its general contractor for construction defects relating to stucco problems. The general contractor paid for the repairs. The general contractor then sued its stucco subcontractor to recover the costs it incurred. The subcontractor tendered the defense of the lawsuit to its commercial general liability insurer which is defending its insured-subcontractor under the commonly issued reservation of rights.

During the pendency of the general contractor’s lawsuit against its subcontractor, the subcontractor’s commercial general liability insured filed an action for declaratory relief in federal court seeking a declaration as to whether it owes its subcontractor a duty to indemnify. The issue was whether this action for declaratory relief was ripe since there was no adjudication against the insured-subcontractor in the general contractor’s lawsuit against the subcontractor. The Middle District Court of Florida held that it was not ripe: “The Eleventh Circuit agreed that an insurer’s duty to indemnify is not ripe until the underlying lawsuit is resolved.” Beazer Homes, 2019 WL at *2 (internal quotation omitted)

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

Posted on October 24, 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 stars 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.² 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.
Harper, supra.

This is important because the insurer must fail to cure within this 60-day cure period to trigger the statutory 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.”).

CLAIMS MADE INSURANCE POLICIES

Posted on August 11, 2019August 11, 2019 by Edward Garber

“Claims-made policies are common in the professional liability insurance market. They “differ from traditional ‘occurrence’-based policies primarily based upon the scope of the risk against which they insure.” With claims-made policies, coverage is provided only where the act giving rise to coverage “is discovered and brought to the attention of the insurance company during the period of the policy.” In contrast, coverage is provided under an occurrence-based policy if the act giving rise to coverage “occurred during the period of the policy, regardless of the date a claim is actually made against the insured.” “The essence, then, of a claims-made policy is notice to the carrier within the policy period.”

Crowely Maritime Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 2019 WL 3294003 (11^thCir. 2019)

The recent Eleventh Circuit Court of Appeal opinion in Crowely Maritime Corp. discussed the distinction between a claims-made insurance policy and an occurrence-based insurance policy. Professional liability policies are generally claims-made policies whereas commercial general liability policies are generally occurrence-based policies. While this opinion does not involve a construction matter, the case did concern the definition of a “claim” in a claims-made policy and whether such claim was timely reported to the insurer within the discovery period / extended reporting period.

The discovery period in a claims-made policy should coincide with an extended reporting period to report a claim, based on how the specific policy defines a claim. How a policy defines a claim is very important since policies contain different definitions. The discovery period will include language that allows the insured to report a claim that occurred DURING the policy period outside of the policy period within the extended period. The key is that even with a discovery period, the wrongful act giving rise to the claim must still have occurred during the initial policy period, although it can be reported to the insurer after the initial policy period and within the extended discovery period. If the wrongful act giving rise to the claim occurred AFTER the initial policy period, it will not matter if it was reported within the extended discovery period because the claim, itself, arose outside of the initial policy period.

Insurance is complicated and confusing and everything in between. Make sure you understand how your policy defines the term claim, whether you are operating under a claims-made or occurrence-based policy, and what constitutes timely notification of a claim, particularly if you are operating under a claims-made policy.

Consequential Damages can be Recovered Against Insurer in Breach of Contract

Posted on July 5, 2019August 8, 2019 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. 5thDCA 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.

INTERPRETING THE LANGUAGE IN AN INSURANCE POLICY

Posted on July 4, 2019April 23, 2020 by Edward Garber

Lawsuits by an insured against an insurer that include a claim for declaratory relief are common when an insurer denies coverage. The insured will argue that there are ambiguities in the policy. One argument may pertain to the use or definition of a term (or language) in the policy that is not defined in the policy. Another argument may pertain to an exclusion or limitation in the policy that ultimately renders insurance coverage illusory.

[I]n construing insurance policies, courts should read each policy as a whole, endeavoring to give every provision its full meaning and operative effect. When the language of an insurance policy is clear and unambiguous, a court must interpret it according to its plain meaning, giving effect to the policy as it was written. A policy term is not ambiguous simply because it is complex or requires analysis.

Arguelles v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1726a (Fla. 3d DCA 2019) (internal quotations and citations omitted).

When a term in an insurance policy is not defined in the policy (and there is an argument that there is an ambiguity), a court may look to dictionary definitions. Id. (looking to dictionary definition of the term “reside” which was not a defined term in the policy). This is because a dictionary definition contains a common acceptance of the meaning of the word. Id.

If a limitation or exclusion completely swallows up an insuring provision, then there is an argument that coverage is illusory. Id. citing Warwick Corp. v. Turetsky, 227 So.3d 621, 625 (Fla. 4^thDCA 2017). “When limitations or exclusions [in the policy] completely contradict the insuring provisions, insurance coverage becomes illusory.” Purrelli v. State Farm Fire and Cas. Co., 698 So.2d 618 (Fla. 2d DCA 1997).

It is important to work with counsel when dealing with an insurance coverage dispute. Counsel will help you maximize insurance coverage based on the facts and the law.

DID THE INSURED FORFEIT PROPERTY INSURANCE COVERAGE BY FAILING TO COMPLY WITH POST-LOSS POLICY OBLIGATIONS?

Posted on June 30, 2019April 23, 2020 by Edward Garber

Have you complied with your property insurance policy’s post-loss policy obligations? Has your property insurer argued that your failure to comply with post-loss policy obligations has resulted in you forfeiting insurance coverage? Have you filed a lawsuit against your property insurer for coverage and the property insurer has asserted affirmative defenses based on your material breach of the policy by failing to comply with post-loss policy obligations?

These are common questions when an insured submits a claim under a property insurance policy. Knowing how to address these questions (and a property insurer’s coverage defenses relating to these questions) is important when pursuing a property insurance claim.

The Third District Court of Appeal in American Integrity Insurance Company v. Estrada, 44 Fla. L. Weekly D1639a (Fla. 3d DCA 2019), does a good job addressing these questions in a property insurance coverage dispute involving vandalism. The property insurer in this case raised various forfeiture of coverage affirmative defenses relating to its insured’s failure to comply with post-loss policy conditions, e.g., (i) failure to appear for an examination under oath, (ii) failure to promptly notify the insurer of the vandalism (the loss), (iii) failure to submit a sworn proof of loos, (iv) failure to provide all requested records, and (v) failure to protect the property from further damage by making repairs. These are fairly routine affirmative defenses raised by a property insurer. The procedural argument in this case is not relevant; what is relevant is the Court’s discussion of an insurer’s affirmative defenses based on its insured’s failure to comply with post-loss policy obligations.

As shown below, an insured’s breach of a post-loss policy obligation MUST be material and MUST prejudice the insurer. An insured’s material breach of a post-loss obligation will result in a presumption of prejudice to the insurer, however, an insured can REBUT the presumption by showing the insurer was not prejudiced, which is a question of fact for the trier of fact.

1. Breach of Post-Loss Obligations Must be “Material”

The Third District explained:

Florida law “abhors” forfeiture of insurance coverage. See Axis Surplus Ins. Co. v. Caribbean Beach Club Ass’n, Inc., 164 So. 3d 684, 687 (Fla. 2d DCA 2014). “Moreover, ‘[p]olicy provisions that tend to limit or avoid liability are interpreted liberally in favor of the insured and strictly against the drafter who prepared the policy . . . .’ ” Bethel v. Sec. Nat’l Ins. Co., 949 So. 2d 219, 223 (Fla. 3d DCA 2006) (quoting Flores v. Allstate Ins. Co., 819 So. 2d 740, 744 (Fla. 2002)).

With these basic principles in mind, it is, unsurprisingly, well settled that, for there to be a total forfeiture of coverage under a homeowner’s insurance policy for failure to comply with post-loss obligations (i.e., conditions precedent to suit), the insured’s breach must be material. See Drummond, 970 So. 2d at 460 (concluding that the insured’s failure to comply with a post-loss obligation “was a material breach of a condition precedent to [the insurer’s] duty to provide coverage under the policy”) (emphasis added); Starling, 956 So. 2d at 513 (“[A] material breach of an insured’s duty to comply with a policy’s condition precedent relieves the insurer of its obligations under the contract.”) (emphasis added); Goldman v. State Farm Fire Gen. Ins. Co., 660 So. 2d 300, 303 (Fla. 4th DCA 1995) (“An insured’s refusal to comply with a demand for an examination under oath is a willful and material breach of an insurance contract which precludes the insured from recovery under the policy.”) (emphasis added); Stringer v. Fireman’s Fund Ins. Co., 622 So. 2d 145, 146 (Fla. 3d DCA 1993) (“[T]he failure to submit to an examination under oath is a material breach of the policy which will relieve the insurer of its liability to pay.” (quoting 13A Couch on Insurance 2d (Rev. 3d) § 49A:361 at 760 (1982) (footnote omitted) (emphasis added))).

Further, while the interpretation of the terms of an insurance contract normally presents an issue of law, the question of whether certain actions constitute compliance with the contract often presents an issue of fact. See State Farm Fla. Ins. Co. v. Figueroa, 218 So. 3d 886, 888 (Fla. 4th DCA 2017) (“Whether an insured substantially complied with policy obligations is a question of fact.”) (emphasis added); Solano v. State Farm Fla. Ins. Co., 155 So. 3d 367, 371 (Fla. 4th DCA 2014) (“A question of fact remains as to whether there was sufficient compliance with the cooperation provisions of the policy to provide State Farm with adequate information to settle the loss claims or go to an appraisal, thus precluding a forfeiture of benefits owed to the insureds.”) (emphasis added).

Estrada, supra.

2. If the Breach was Material, was the Property Insurer “Prejudiced”

Although there is a split between Florida’s Fourth and Fifth District Courts of Appeal on this prejudicial element (the Fourth District has taken a more pro-insurer friendly approach), the Third District agreed with the Fifth District’s more insured-friendly approach that “the insurer must be prejudiced by the insured’s non-compliance with a post-loss obligation in order for the insured to forfeit coverage.”

3. Party Bearing Burden to Establish Property Insurer was “Prejudiced”

The Third District held that while prejudice to an insurer will be presumed when an insured materially fails to comply with a post-loss policy obligation, the insured can rebut this presumption by showing the insurer was not prejudiced:

[W]hen an insurer has alleged, as an affirmative defense to coverage, and thereafter has subsequently established, that an insured has failed to substantially comply with a contractually mandated post-loss obligation, prejudice to the insurer from the insured’s material breach is presumed, and the burden then shifts to the insured to show that any breach of post-loss obligations did not prejudice the insurer.

Estrada, supra.

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.