When a liability insurer defends an insured from a third-party claim, they oftentimes do so under a reservation of rights. A reservation of rights letter is issued to the insured that identifies certain coverage exclusions or reservations relative to the insurance policy that may impact the insurer’s duty to indemnify the insured for damages. In other words, just because the insurer is defending its insured does not mean it will be indemnifying its insured for damages asserted in the third-party claim.
Under Florida law, the party claiming insurance coverage has the initial burden to show that a settlement or judgment represents damages that fall within the coverage provisions of the insurance policy. An insured’s inability to allocate the amount of a judgment between covered and uncovered damages is therefore generally fatal to its indemnification claim. However, the burden of apportioning or allocating between covered and uncovered damages in a general jury verdict may be shifted to the insurer if the insurer did not adequately make known to the insured the availability and advisability of a special verdict.
QBE Specialty Ins. Co. v. Scrap Inc., 806 Fed.Appx. 692, *695 (11th Cir. 2020) (internal citations omitted).
This is an important concept because even when the insurer is defending its insured under a reservation of rights, it may put its insured on notice that because of coverage concerns, the insured needs to include special interrogatory questions in the verdict form for the trier of fact (jury) to answer to determine covered versus uncovered damages. If the insured fails to do so, it will give the insurer a very strong argument to avoid any indemnification obligation it has with respect to the judgement. This mean the insured is on the hook to deal with the judgment without insurance coverage.
For example, in QBE Specialty Ins. Co., an insured was sued for a nuisance stemming from its metal shredding operations. The insured’s liability insurer defended the insured under a reservation of rights. During the course of the case, the insurer notified the insured that it needed special interrogatory questions in the verdict form because of coverage concerns. The jury awarded $750,000 in nuisance damages against the insured. There was no allocation for covered versus uncovered damages. The insurer then filed a separate declaratory relief coverage action claiming it was not obligated to indemnify the insured for the $750,000 in damages. The Eleventh Circuit Court of Appeals, affirming the trial court, agreed because “in the absence of an allocated verdict form in the underlying trial, [the insured] never provided the district court with a plausible method for separating those damages awarded by the jury that are covered by [the insurer’s] policies from those that are not.” QBE Specialty Ins. Co., supra, at *696.
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