GOOD OLE DUTY TO DEFEND

Posted on July 30, 2017July 30, 2017 by Edward Garber

The good ole duty to defend. Certainly, a duty that should not be overlooked.

A commercial general liability insurer has two duties to its insured when it comes to third-party claims: 1) the duty to defend its insured and 2) the duty to indemnify its insured.

The insurer’s duty to defend its insured will always be broader than its duty to indemnify because this duty is triggered by the allegations in the lawsuit. (For this precise reason, insurers will oftentimes defend their insured under a reservation of rights.) The duty to defend is a very important duty as it is the first duty that typically comes into play when a third-party claim / action is initiated against the insured. Getting the insurer on board to provide a defense is an initial focus. One that cannot be neglected or overlooked.

If an insurer denies or refuses to defend its insured, this means the insurer is denying coverage outright. In other words, the insurer is coming out of the gate denying the duty to indemnify the insured and, as such, denying the duty to defend. There is no reservation of rights because the insurer is not going to provide a defense based on its denial of coverage. When this happens, it is imperative that the insured consult with counsel. Not later or tomorrow or down the road. But, now! Immediately. At a minimum, an insured wants to ensure that its insurer is picking-up the broader duty to defend and needs to make sure its rights are protected and preserved.

In Mid-Continent Casualty Company v. Flora-Tech PlantScapes, Inc., 42 Fla. L. Weekly D1649a (Fla. 3d DCA 2017), a general contractor initiated a third-party claim against a landscaper in a personal injury action. (It is uncertain whether the landscaper was hired by the general contractor or the developer.) The landscaper’s commercial general liability insurer denied coverage and, therefore, refused to defend the insured in the lawsuit. As a result, the landscaper initiated a fourth-party claim against its own insurer for coverage seeking a declaration that its insurer had a duty to defend it in the lawsuit and indemnify it for the third-party claims being asserted against it. Both the landscaper and its insurer filed motions for summary judgment and the trial court declared that the insurer had a duty to defend its insured, but that it was not making a determination as to the insurer’s duty to indemnify. From the insured-landscaper’s standpoint, this likely was fine because the landscaper was initially looking for a declaration that its insurer had a duty to provide it a defense in the personal injury action.

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

Posted on July 15, 2017July 15, 2017 by Edward Garber

An ambiguity in an insurance policy–after reading and interpreting the policy as a whole–will be construed against an insurer. This 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:

. . . .

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

TIMELY WRITTEN NOTICE TO INSURER AND COOPERATING WITH INSURER

Posted on June 16, 2017June 16, 2017 by Edward Garber

I 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 arises. European 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 claim. Id.

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 (11^th Cir. 2012).

QUICK NOTE: PRIOR ACTS EXCLUSION IN INSURANCE POLICY

Posted on May 21, 2017May 21, 2017 by Edward Garber

As an insured, it is important to understand the prior acts exclusion in your liability insurance policy. The prior acts exclusion bars coverage for claims that arise out of an act prior to the policy period or specified date in the policy. Knowing this, an insured typically can get some prior acts coverage to cover claims that arise out of an act that precedes the policy period (e.g., after a retroactive date). Perhaps it is not full prior acts coverage (covering claims that arise out of acts that occur at any time) but coverage for claims arising out of an act after a retroactive date (date earlier than the policy period). This becomes important, particularly with claims made policies (such as professional liability policies or directors and officers liability policies) since these policies are triggered by a claim made during the policy period. With the prior acts exclusion or even with the retroactive date, if the claim arose out an act that pre-dates the policy period or retroactive date, the insurer has an argument that the policy does not cover the claim.

A recent decision (discussed here) pertaining to a directors and officers liability policy shows the application of the prior acts exclusion and how courts broadly construe “arising out of” language in the exclusion. In other words, in the recent decision, even though the claim pertained to a wrongful act that occurred during the policy, the underlying act that made it a wrongful act arose out of acts that occurred prior to the policy period. Thus, the court broadly construing “arising out of” language, maintained that the prior acts exclusion barred coverage for the directors and officers claim.

NEGLIGENT PROCUREMENT OF INSURANCE

Posted on May 13, 2017May 13, 2017 by Edward Garber

As you know, insurance is an important part of risk assessment for many, many business needs. Oftentimes, an insured relies on an insurance broker or agent to procure specific insurance to meet its express business objectives and risks. Notably, there is a potential negligence claim associated with an insurance agent or broker’s negligent procurement of insurance for an insured. While this is not the easiest claim to prove, a recent Third District case explained this standard:

It is well settled that “where an insurance agent or broker undertakes to obtain insurance coverage for another person and fails to do so, he may be held liable for resulting damages for . . . negligence. More specifically, and as applicable here, “[a]n agent is required to use reasonable skill and diligence, and liability may result from a negligent failure to obtain coverage which is specifically requested or clearly warranted by the insured’s expressed needs.” As explained by our sister court, “[t]his general duty requires the agent to exercise due care in correctly advising the insured of the existence and availability of particular insurance, including the availability and desirability of obtaining higher limits, depending on the scope of the agents undertaking.”

Kendall South Medical Center, Inc. v. Consolidated Ins. Nation, Inc., 42 Fla. L. Weekly D1071a (Fla. 3d DCA 2017) (internal quotations omitted).

In this case, a leak occurred on commercial leased premises. The commercial tenant had a property insurance policy that provided $100,000 of coverage for the physical improvements and contents of the property. However, there was a 90% coinsurance provision. A coinsurance provision shifts risk to the insured when the insured purchases less coverage than the value of the property.

As a result of the coinsurance provision, the insured only received a fraction of its damages, and less than the $100,000 in coverage. The insured, however, claimed it was under the belief it would recover $100,000 in insurance proceeds as that was what it told its agent it needed. The insured sued its insurance agent claiming the agent’s failure to advise it that the procured policy did not address its expressed insurance needs. “[W]hen an insured alleges that it specifically communicated its insurance needs to an agent who then undertook to procure a policy addressing such needs, the insured states a cause of action for negligent procurement where it also alleges that, without providing an explanation that different coverage was required, the agent procured a policy not meeting those expressed needs.” Kendall South Medical Center, supra.

Perhaps this could have been avoided had the insured reviewed the specific terms of the insurance policy. Perhaps there are e-mails or other records where the insurance agent explained that the coverage the insured was seeking could not be procured without a coinsurance provision that shifted the risk to the insured. Know your insurance and know the risks and coverage afforded to you!

QUICK NOTE: SUBMITTING CIVIL REMEDY NOTICE

Posted on May 5, 2017May 5, 2017 by Edward Garber

There are steps an insured or claimant need to take in order to assert a statutory bad faith claim. The first step is the obligatory Civil Remedy Notice. This obligation is set forth in Florida Statute s. 624.155. The Civil Remedy Notice is, in essence, written notice of the specific violation(s) that are being claimed against the insurer that give rise to potential bad faith and an opportunity for the insurer to cure the violation(s). Florida Statute s. 624.155 would not be confused as a model of clarity, so it is important that a insured or claimant work with an attorney regarding any bad faith claim including filling out the Civil Remedy Notice.

In Fox v. Starr Indemnity & Liability Co., 2017 WL 1541294 (M.D.Fla. 2017), an insured sued his property insurer for bad faith. Prior to suing, the insured submitted the required Civil Remedy Notice. However, the insurer moved to dismiss the lawsuit under the argument that the insured did not strictly comply with the statutory requirements based on how the insured filled out the Notice. The insurer argued this because if the Civil Remedy Notice was deficient than the statutory bad faith claim would not be triggered. The Middle District, reviewing this issue, maintained, that substantial compliance with the statutory requirements would suffice. The Middle District was not going to toss out a bad faith claim based on technicalities with how the Civil Remedy Notice was filled out when the insured substantially complied with the intent of the requirements.

Pursuing a bad faith claim against an insurer is not as easy as it may appear. There are steps and requirements that must occur before the bad faith claim can even be pursued. The first step is submitting the Civil Remedy Notice pursuant to Florida Statute s. 624.155. But, this is not the only step. Check out this article for more information on bad faith.

CYBER SECURITY INSURANCE AND DESIGN PROFESSIONALS

Posted on March 26, 2017March 26, 2017 by Edward Garber

Cyber security insurance is a relatively new insurance product that has probably become more popular and important in today’s digital age. Think about it. Almost everything is created, transmitted, shared, and stored digitally. Companies utilize cloud-based platforms to store documents, share documents, and transmit documents. Documents are transmitted via e-mail. Documents are created electronically with various software programs. And, finally, technology has made it convenient to create, access, store, share, and transmit documentation digitally through smartphones, tablets, or laptops (and various applications) – so technology enables things to be done remotely in the moment to maximize efficiency and production.

I recently did a presentation relating to design professional’s liability exposure in today’s digital age that includes more collaborative and sophisticated project delivery methods. One of the topics mentioned was, of course, cyber security insurance as a means to insure an important risk for design professionals (particularly, engineering and architectural firms). Depending on the insurer, cyber security insurance can be added as an endorsement to a professional liability / errors and omissions policy.

From a design professional’s standpoint, there are numerous reasons to consider this insurance based on how documentation is created, stored, and transmitted and it is an insurance product that should NOT be overlooked:

Losses due to the mismanagement or failure to protect confidential business information and proprietary information the design professional receives;

Losses due to inadvertently transmitting malware (a virus) through digital transmission;

Data breaches (or theft) and the losses and costs associated with such breaches including the response, restoration, and remediation of the breach (which can be costly); and

Losses due to violating any laws/regulations relating to a data breach.

Notably, cyber security insurance is becoming an important insurance product for many, many industries. Design Professionals, for purposes of this article, would be remiss not to explore and seriously consider cyber security insurance in today’s digital age. As a design professional, consult your insurance broker as there are insurers that are insuring this important risk based on your business’ needs.

“IS THE DEFECTIVE WORK COVERED BY INSURANCE?”

Posted on March 12, 2017March 12, 2017 by Edward Garber

I have been asked this question quite a bit from owners, in particular: “The contractor committed defective work, but it has insurance. Doesn’t the insurance cover this defective work?” Ugh, NO! There is this misconception that liability insurance, specifically, is the be-all-and-end-all when it comes to defective work. This could not be further from the truth. Don’t get me wrong – liability insurance is important; it is very, very important. However, liability insurance does not cover the risk of an insured’s defective work. Rather, liability insurance is designed to cover the risk of resulting damage: damage resulting from defective work. This is a significant distinction and one that is often overlooked. This is also why anyone encountering defective work should be working with an attorney to maximize insurance coverage or realize that the issue is not covered by insurance.

Let’s give easy examples to summarize this application:

Example 1 – My windows are defectively installed. They all need to be removed and replaced. Insurance should cover this defective installation, right? Ugh, NO! Remember, insurance does not cover the risk of an insured’s defective work. Removing and replacing the windows would not be covered by insurance.

Example 2– My windows are defectively installed and this defective installation has resulted in water intrusion and extensive water damage. Insurance should cover the defective installation and water damage, right? Yes and No. As mentioned, insurance is still not going to cover the defective work. But, the insurance should cover the water damage resulting from the defective work.

Example 3 – A spalling piece of concrete that was defectively installed fell and substantially damaged a vehicle. Insurance should cover the damage to the vehicle, right? Insurance should cover this damage because the third-party damage was the result of the defective work.

Example 4 – The balcony waterproofing was defectively installed resulting in water getting into the balcony system. In order to fix this defective waterproofing, the balcony concrete topping needs to be ripped out. Insurance covers remediating the waterproofing, right? Yes and no, perhaps. Again, insurance is not going to cover the defective waterproofing. But, there may be an argument that insurance should cover the removing and replacing of the concrete topping since this work had to be ripped out in order to repair the underlying defective waterproofing.

These are just easy examples to illustrate the application of insurance in different contexts. Of course, these are not all of the contexts and most contexts are more challenging. But, the point is that insurance, contrary to what many may believe, is not designed to insure defective work. Insurance is more complex than it may seem and, again, it is important to consult with a practitioner that understands insurance, how to maximize insurance, and to to advise you when the issue in reality is not an insurance-coverage issue.

QUICK NOTE: IMPORTANCE OF EQUIPMENT FLOATER INSURANCE

Posted on February 23, 2017February 23, 2017 by Edward Garber

A recent case out of New York held that damage to a tower crane from a storm during construction is excluded from a builder’s risk policy because a tower crane is a machine that fits within the contractor’s tools exclusion, a common exclusion in builder’s risk policies. (Check out this article for a discussion on this case.) This case exemplifies the importance of a contractor that owns or leases equipment, such as a crane, to obtain equipment floater insurance (or inland marine insurance coverage). But, it is important that the contractor discuss the type of equipment it needs insured for purposes of its operations to ensure there is coverage under the floater insurance. Such floater insurance is not universally the same so the contractor needs to ensure the insurance covers the risks and types of owned, leased, and loaned equipment utilized. (For more information on insurance applicable to construction projects, check out this chart.)

GENERAL CONTRACTORS: CONSIDER IMPORTANCE OF “PRIMARY AND NONCONTRIBUTORY” LANGUAGE

Posted on February 5, 2017February 5, 2017 by Edward Garber

In prior articles, I reinforced the importance of general contractors including “primary and noncontributory” language in subcontracts and requiring the subcontractor to provide an analogous “primary and noncontributory” endorsement. As a general contractor this is important, particularly since you are going to require the subcontractor to (i) indemnify you for claims relating to personal injury, property damage, or death, and (ii) identify you as an additional insured under its commercial general liability (CGL) policy for claims arising out of the subcontractor’s scope of work. The “primary and noncontributory” language in your subcontracts allows you to maximize the value of your additional insured status.

A recent opinion explains why I reinforced the importance of this language.

The case of Zurich American Insurance Co. v. Amerisure Ins. Co., 2017 WL 366232 (S.D. Fla. 2017) involved an underlying construction defect lawsuit where a condominium association sued a general contractor. The general contractor hired subcontractors and required them to identify the general contractor as an additional insured. This is all routine, right? A few of the subcontractors had CGL policies issued from the same insurer (Amerisure). They contained the same additional insured endorsement that included the following “other insurance” clause:

Any coverage provided in this endorsement is excess over any other valid and collectible insurance available to the additional insured whether primary, excess, contingent, or on any other basis unless the written contract, agreement, or certificate of insurance requires that this insurance be primary, in which case this insurance will be primary without contribution from such other insurance available to the additional insured.

When the general contractor was sued it, as it should, tendered the defense of the lawsuit to the responsible subcontractors as an additional insured under their policies demanding both a defense and indemnification from the association’s claims. The insurer, however, refused to defend the general contractor. The general contractor’s insurer (Zurich) defended the general contractor in the action.

Thereafter, the general contractor’s CGL insurer sued the subcontractors’ CGL insurer. (The general contractor had also assigned its additional insured rights under the policies to its CGL insurer.) The general contractor’s CGL insurer was seeking reimbursement for the attorney’s fees and costs expended in the defense of the general contractor in the underlying construction defect lawsuit. The subcontractors’ CGL insurer moved to dismiss the claims based on the clause above—that the subcontractors’ CGL insurance operated as excess insurance over the general contractor’s CGL insurance. In other words, the subcontractors’ CGL insurance was not primary and noncontributory. There was no allegation that the subcontract included language requiring the subcontractor’s CGL insurer to be primary and noncontributory.

The first reason this is an important point is because “when an insurance policy defines its coverage as secondary or “excess” to a primary policy, the excess insurer has no duty to defend the insured—so long as the primary policy provides for a defense and its coverage has not been exhausted.” Zurich American Ins. Co., supra, at *4. If the subcontractors’ CGL policy is excess, then than their CGL insurer does not have a duty to defend if the primary policy is not exhausted. This means they have no duty to defend the additional insured – not very helpful to a general contractor tendering the defense of the claim to responsible subcontractors.

The second reason this is an important point is because of what is known between liability insurers as the anti-contribution rule:

Florida courts have consistently held that, once the duty to defend is activated, every subject insurer assumes it on a personal and indivisible basis. That means that when an insured tenders a claim to multiple insurance providers, the entity that actually engages in the defense and incurs the fees and costs associated with it cannot subsequently seek contribution or equitable subrogation from the fellow insurer who “lagg[ed] behind.”

Zurich American Ins., Co., supra, at *5 (internal citations omitted).

Since the general contractor’s CGL insurer bore the costs of the general contractor’s defense in the construction defect lawsuit, it cannot now divvy up the defense fees and costs to other insurers that may have had a similar obligation unless an exception to this rule applies (see below).

The third reason this is an important point is because there is an exception to this anti-contribution rule:

A “responsive” insurer who complied with its insured’s tender for defense can extract reimbursement from the “nonresponsive” insurer when the insured had separately contracted with another entity, itself an insured of the nonresponsive carrier, to indemnify the first insured. The logic of the exception is that the insured parties’ express decision to “shift[ ] exposure” from one to the other is imputed to the insurer relationship and overcomes the general anti-contribution principle.

Zurich American Ins., Co., supra, at *8 (internal citations omitted).