Tomorrow I am speaking from 10:30 to noon on a panel with Christine Gudaitis at Ver Ploeg & Marino and Rebecca Appelbaum at Adams & Reese.  Our topic is Commercial General Liability Insurance.  The program is part of The Seminar Group’s 3rd Annual Insurance in the Construction Industry CLE program, being held at the Hampton Inn & Suites in Miami (Brickell downtown).  It is not too late to sign up, and the program can be viewed via live webcast if you cannot be there in person.  Sign up information can be found at the link below:

https://www.theseminargroup.net/seminardetl.aspx?id=19.insfl

We are going to cover topics including:

• Rip and Tear, and Access Costs
• Common Exclusions and Exceptions to Exclusions
• Construction-Related Endorsements
• Trigger of Coverage and Anti-Montrose Provisions

They’ve assembled an all-star team of insurance law professionals for the two-day seminar, on both the insurer and policyholder sides.  It should be a lively and informative program.

I am also scheduled to speak on the recently-announced Strafford program entitled “Assignment of Benefits in Insurance Claims: Recent Trends, Court Decisions, and Practical Guidance” on Wednesday, October 16, 2019 from 1:00pm-2:30pm EDT.  For more information or to sign up, visit the link below:

https://www.straffordpub.com/products/assignment-of-benefits-in-insurance-claims-recent-trends-court-decisions-and-practical-guidance-2019-10-16

The list of questions/topics to be covered includes:

• What are the essential elements of an AOB contract and who benefits from it?
• What are “red flags” for potential fraud involved with the assignment of claim presentations?
• What are the best strategies to help navigate a policyholder’s claim through an AOB situation?
• What is the current state of the law and state-specific reform efforts?
• What are the critical AOB-related appraisal and litigation issues?

Assignment of benefits have been a hot topic in Florida, and the subject of recent legislation in Florida and elsewhere.  I will talk about the Florida legislation as well as legislation and trends across the U.S.  My panelists for the program are all insurer-side lawyers from Pennsylvania: Bob Horst and Daniel Petrilli at Timoney Knox in Philadelpia, and C. Scott Rybny at Rebar Bernstiel.

As we approach the one-year anniversary of Hurricane Irma making landfall on Cudjoe Key on September 10, 2017, it is important to review the law that impacts when an insurance claim (or supplemental claim) must be made for damage caused by Hurricane Irma, and what is the statute of limitations for a lawsuit to be filed for a claim that is either denied or not yet fully paid (even if not formally denied).

There is a lot of misinformation being provided to Florida policyholders regarding the statute of limitations for Hurricane Irma claims. I have been shocked at how many times I have heard lawyers, insurance agents, and public adjusters tell policyholders they have three years to file a lawsuit over a denied hurricane insurance claim. That is incorrect. I have also heard policyholders told they have five years to file a lawsuit from the date the insurer denied the claim. That is also incorrect.

In 2011, the Florida Legislature made two important changes impacting the timing of hurricane insurance claims and insurance coverage lawsuits concerning hurricane-related damage. First, the Florida Legislature passed Fla. Stat. § 627.70132, which provides that a claim must be made with the insurance company within three years after the loss occurs. Second, the Legislature amended the statute of limitations statute, Fla. Stat. § 95.11(2)(e), to provide that a lawsuit on a hurricane insurance claim must be filed within five years of the date of loss.

Note that these statutes deal with two distinct deadlines. First is the deadline for the policyholder to notify the insurance company regarding the damage. Fla. Stat. § 627.70132 provides an absolute deadline of three years from the date of loss. However, most insurance policies provide that notice of loss must be provided “as soon as practicable” after the policyholder becomes aware of a loss. A policyholder that is aware of damage soon after a hurricane hits should not wait three years to provide notice to its insurance company because such a notice will be considered late as a matter of law. This is grounds for an insurer to deny coverage, if the insurer was prejudiced by the delay. Under Florida law, if the notice is late, prejudice to the insurer is presumed, and the burden is on the policyholder to prove that the insurer was not prejudiced. See Bankers Ins. Co. v. Macias, 475 So.2d 1216 (Fla. 1985). So do not think you can wait three years to notify your insurer of the loss. The right time to notify the insurer is as soon as you can get access to the property and assess the damage. A supplemental claim can be filed later if additional damage is discovered, and should be done immediately upon discovering additional damage.

If the insurer denies the claim, or does not deny the claim but merely drags the claim adjustment process out, the policyholder has five years from the date of loss to file a lawsuit or the claim is lost. Before 2011, policyholders had five years from the date the insurer denied the claim to file a lawsuit. I have seen many situations with complicated commercial property claims, especially claims involving contentious business interruption claims, that are dragged out for years. Even if the insurer never denies the claim, a lawsuit must be filed within five years of the date of loss. If the claim is dragging on and the deadline is approaching, ask the insurer for a tolling agreement to extend the five-year period. If the insurer refuses then you need to get a lawsuit on file to preserve the claim.

Now, here is the part that can trip up even the most experienced lawyer or insurance professional: some property policies require a policyholder to file a lawsuit within one year of the date of loss. That potentially means some Florida policyholders have to file their Hurricane Irma insurance lawsuits next week. What about the long five-year statute of limitations? It can be shortened to as little as one year if two things occur. First, if the policy’s “Suit Limitation” clause or “Suit Against Us” clause provides for a one-year statute of limitations. Non-admitted policies, also known as surplus lines policies, are lightly regulated by the Florida Office of Insurance Regulation. Surplus lines forms are not approved by state regulators and can contain provisions inconsistent with Florida law.

An insurance policy that is subject to Florida law cannot reduce the statute of limitations to file an insurance coverage lawsuit to less than five years, per Fla. Stat. § 95.03. So just because a policy, even a surplus lines policy, has a one-year statute of limitations, does not mean this shortened limitations period is enforceable. However, there is a second factor at play that could make this type of provision enforceable. If the insurance policy is subject to another jurisdiction’s law, then Fla. Stat. § 95.03 does not apply, and the statute of limitations can be shortened to as little as one year.

How can a property policy be subject to some law other than Florida law? One way is for the policy to have a choice-of-law provision that provides for the application of another state’s law. Another way is if the policy is “made” in another state, even if the insured is in Florida. This latter issue is the one I see missed most often. Lawyers and insurance professionals assume a policy is subject to Florida law because the damaged property is in Florida. This can be a fatal mistake, particularly if you think you have five years to file a lawsuit but instead only have one.

This issue is complicated by the fact that Florida applies an antiquated choice-of-law rule called lex loci contractus. The modern choice-of-law rule, typically referred to as the Restatement rule, applies the law of the state with the most significant relationship to the dispute. For an insurance claim involving damage to a property, that almost always means applying the law of the state where the damaged property is located. That is the law in most states. That is not the law in Florida.

The Florida lex loci contractus rule applies the law of the state where the contract is deemed “made”. Where is the contract “made”? There is some disputed caselaw on that question, but the answer typically is where the policy was delivered. If the insurance broker is in another state, that state’s law could apply. Some courts have looked to the place from which the policy is issued. So the law of the state where the insurer resides could apply. This is a factual question that could take extensive discovery in coverage litigation to resolve. The important point is that, if the policy provides for the application of another state’s law, or if the policy was issued or delivered outside of Florida, Florida law may not apply to the claim, and the five-year statute of limitations may be shortened to as little as one year.

Judges in the Southern District of Florida have questioned whether the lex loci contractus rule should really apply for Florida property insurance cases involving a damaged property in Florida. See Club Caribe Condo. Ass’n Inc., v. Travelers Excess and Surplus Lines Co., No. 11-62673, 2012 WL 529972 at * 3 (S.D. Fla. Feb. 17, 2012) and Liberty Mut. Ins. Co. v. Festival Fun Parks LLC, No, 12-62212, 2013 WL 4496511 at * 3-4 (S.D. Fla. Aug. 22, 2013). This is a controversial issue, and the Florida Supreme Court has never weighed in. However, since the Florida Supreme Court has applied the lex loci contractus rule in other contexts, most Florida judges have continued to apply this antiquated rule. Application of this rule often results in the application of law other than Florida law, which puts a policyholder at risk for a shortened statute of limitations.

So do not assume you have until September 10, 2022 to file your Hurricane Irma insurance lawsuit. Check your policy language. If necessary, find out where your policy was issued from and where it was issued to. For the vast majority of Hurricane Irma insurance claims in Florida, the statute of limitations to file suit will be September 10, 2022. For a select few policies — particularly surplus lines policies and commercial property policies (especially policies covering properties in multiple states) — the statute of limitations may be far shorter. Some policies may require suit to be filed as early as next week. Are you prepared for that deadline?

There are few things I hate more than seeing a policyholder forfeit coverage.  Most of my claims involve close calls, or unsettled or novel areas of the law.  Sometimes the claim is the type that is clearly covered, but the insurer refuses to provide coverage because it asserts the policyholder forfeited the coverage due to some misstep.

Insurance policies are full of ‘gotchas’.  Even a claim that should be covered may not be covered if the policyholder does not follow the correct procedures.  The most common policyholder misstep is failing to provide timely notice.  With occurrence-based coverage, such as general liability coverage, a late notice mistake usually is not fatal, since in most jurisdictions, including Florida, the insurance company must be prejudiced by the late notice before coverage is forfeited.  Insurers always claim prejudice but rarely can demonstrate actual, tangible prejudice.  When pushed, the insurance company prejudice defense typically falls like a house of cards.  However, even if an insurer cannot demonstrate prejudice, a policyholder still may not be able to recover pre-tender defense costs incurred prior to providing notice (see my discussion of pre-tender defense costs here).

Claims made and reported policies, like Directors & Officers insurance, are different.  These types of policies have stricter notice requirements that most courts have upheld even in the absence of prejudice.  I have written before about the particular problems that arise with providing notice of claims and notice of circumstances under claims-made and reported policies (see here).  Policyholders need to be especially careful when dealing with claims-made and reported policies.

Insurance policies contain many other types of requirements that policyholders must fulfill or risk forfeiting coverage.  Most of these provisions are found in the conditions precedent section of the policy.  Examples include completing and submitting a timely Proof of Loss for property claims, sitting for an Examination Under Oath (“EUO”), cooperating with the insurer’s investigation of the claim, refraining from making admissions that would prejudice the defense of a claim, and settling claims or making payments on claims without the insurer’s permission.  These are some examples of the many things a policyholder may do in response to a loss that could lead to forfeiture of coverage.

As alarming as these ‘gotchas’ are, it is important to remember that insurance companies make mistakes, too, and these mistakes can be a lifeline to a policyholder that unwittingly violates a condition precedent.  Two recent Florida appellate court decisions should serve as reminders of how an insurer’s missteps can help correct a policyholder’s transgression.

The first is the Second District Court of Appeal’s decision in Castro v. Homeowners Choice Property & Cas. Ins. Co., Case No. 2D15-5456 (2d DCA Aug. 23, 2017).  The Castro case involved a homeowners’ insurance sinkhole claim in Pinellas County.  After the policyholder notified the insurer of the loss, the insurer investigated and determined that a sinkhole did not cause the damage.  The insurer therefore denied the claim.  The policyholder subsequently hired an engineering firm to conduct an analysis.  The engineering firm concluded that the loss was due to sinkhole activity.  The policyholder provided a copy of the engineer’s report to the insurer and the insurer agreed to investigate further.  As part of the investigation the insurer demanded an EUO from the policyholder, as is its right under the policy.  The policyholder refused to schedule the EUO and instead filed suit.

Before continuing the discussion of the case, I should point out that it is generally a bad idea for a policyholder to refuse to sit for an EUO.  Most policies require a policyholder to submit to an EUO, and the policyholder’s refusal to do so can constitute a breach of the conditions section of the insurance policy.  It is far better for a policyholder to be prepared, and be represented by counsel if necessary, to ensure that the EUO process proceeds fairly.  Sometimes an EUO can help the policyholder convince the insurer to pay the claim, although typically the process is used by insurers to intimidate policyholders and obtain admissions to use later in litigation.

In the Castro case, the insurer argued that the policyholder’s declaratory judgment action should be dismissed for failure to comply with the EUO requirement in the policy.  The trial court agreed and granted summary judgment for the insurer.  The Second DCA reversed.  While the appellate court recognized that the EUO requirement was a condition precedent to recovery under the policy, since the insurer denied the claim, the denial freed the policyholder from compliance with the policy’s conditions, and excused the policyholder’s violation of the EUO condition.

On the same day, Florida’s Third District Court of Appeal decided the case of GEICO General Insurance Company v. Mukamal, Case No. 3D15-2750 (3d DCA Aug. 23, 2017).  In the Mukamal case, the policyholder was at fault in an automobile accident that killed another driver.  The policyholder skipped town and the insurer was unable to find him.  The insurer nonetheless defended the case, which resulted in a $15 million judgment.  The insurer then refused to pay the judgment on the basis that the policyholder forfeited coverage by violating the cooperation clause in the policy.

The trial court rejected the insurer’s cooperation defense and the appellate court affirmed.  Although the policyholder clearly violated the cooperation clause, the insurer itself was at fault for failing to follow Fla. Stat § 627.426.  I previously discussed 627.426 here.  The statute, generally referred to as the Florida Claims Administration Statute, sets forth certain procedures that an insurer needs to follow in order to preserve policy defenses such as a cooperation defense.  The Florida Claims Administration Statute essentially requires an insurer to state its policy defenses within 30 days, and also requires an insurer to respond to notice of a claim in one of three ways: (1) refuse to defend; (2) obtain a non-waiver agreement; or (3) retain mutually agreeable defense counsel.  An insurer that violates any part of this statute forfeits the right to later complain about the policyholder’s violations of policy conditions such as notice and cooperation.

In the Mukamal case, although the insurance company defended its AWOL policyholder, it did not obtain a non-waiver agreement or retain mutually agreeable counsel.  Neither of these options were available, since the policyholder was nowhere to be found.  Rather than disclaim coverage obligations, the insurer decided to defend the case and lost.  Having done so, it could not later complain that its policyholder forfeited coverage rights.

Many policyholders make mistakes early in the claim process, either by failing to provide prompt notice or by violating conditions precedent to coverage.  Getting coverage counsel involved early in the claim process can help avoid missteps.  But it is important to know that some missteps can be corrected, and some can be forgiven by the insurer’s own missteps.  Two wrongs may not make a right, but somewhere I read on a bumper sticker that three lefts make a right, and we all know bumper stickers don’t lie.

A while back I wrote a series entitled, “Top 10 Commercial Insurance Myths & Misconceptions.” I did not cover the “Intentional Injury Exclusion” in that series, but perhaps I should have. Insurers continue to try to use this exclusion to argue that there is no coverage for injury or damage caused by a policyholder’s “intentional acts”. Insurers frequently refer to this exclusion as the “intentional acts exclusion,” despite the fact that the typical commercial insurance policy covers intentional acts so long as the policyholder does not subjectively intend to cause harm.

By invoking this exclusion, the insurer typically attempts to paint the policyholder as a “bad guy” unworthy of the insurance coverage for which it paid. Insurers often attempt to use the underlying plaintiff’s allegations against their own policyholder, and are eager to exploit allegations in the underlying complaint that accuse their policyholder of fraud or malicious intent. Many plaintiffs believe that the injury or damage they suffered was not merely the result of the defendant’s negligence, but rather due to malicious intent, or conduct so reckless that harm was certain to occur, and allege as such in their complaint. Rather than help their policyholder fend off such allegations, many insurers would rather side with the underlying plaintiff if it helps protect the insurer’s bottom line.

The standard “Intentional Injury Exclusion” states that the policy does not cover damage or injury that is “expected or intended from the standpoint of the insured.” Based on its plain terms, the exclusion has nothing to do with whether the policyholder intended to commit an act that caused harm, so long as the harm itself is unintended.  An intentional act causing unintended harm remains an accident constituting a fortuitous “occurrence” under the policy.

Florida courts have rejected insurer’s attempts to apply tort principles of foreseeability to the application of the Intentional Injury Exclusion. See Prudential Property & Cas. Ins. Co. v. Swindal, 622 So.2d 467 (Fla. 1993). In Swindal, the policyholder was intentionally brandished a gun in the hope of frightening away the plaintiff when the gun accidentally discharged. The Florida Supreme Court held that the Intentional Injury Exclusion did not apply because the policyholder did not intend to harm the plaintiff. The intentional injury exclusion does not apply even in situations where an intentional act involves a foreseeable consequence of great harm or amounts to gross or culpable negligence. See State Farm Fire & Cas. Co. v. CTC Development Corp., 720 So. 2d 1072 (Fla. 1998).

Recently, the Fourth District Court of Appeals reaffirmed Florida’s view of the Intentional Injury Exclusion in Old Dominion Ins. Co. v. Concepts, 189 So.3d 293 (Fla. 4th DCA 2016). In that case, the policyholder was sued for making robocalls. Although the policyholder admitted in the underlying suit that it had violated state law, the evidence showed that the policyholder was unaware at the time it made the calls that it was breaking the law. Therefore, the court held that the Intentional Injury Exclusion did not apply.

So when does the Intentional Injury Exclusion apply? It only applies in those situations where either the policyholder is found to have intended to cause harm or where the policyholder’s intent to cause harm can be inferred by its actions. In the former situation, even when the policyholder is found to have acted with intent to injure, or is convicted of a crime, the insurer still has a duty to defend until this determination is made. The latter situation — which applies to the duty to defend as well as the duty to indemnify — has been narrowly applied in cases of sexual abuse of minors, in which Florida courts have refused on public policy grounds to consider whether an adult subjectively intended to harm a minor when engaging in sexual contact.

It is understandable that Florida courts have narrowly interpreted the Intentional Injury Exclusion. It is well-established that exclusions are interpreted narrowly, and the duty to defend is applied broadly. An aggrieved plaintiff should not be empowered to unilaterally vitiate a policyholder’s contractual insurance protections merely by alleging that the policyholder intended to cause harm. Policyholders are entitled to the benefit of the doubt, and the benefit of the coverage they paid for.

I have a couple of other cases I want to write about, but it is not often that the Florida Supreme Court hands down an important insurance law decision, so those other cases will have to wait.  Yesterday, in Sebo v. American Home Assurance Co., Case No. SC 14-897 (Fla. Dec. 1, 2016), the Florida Supreme Court ruled that a property insurance claim is covered so long as any cause that contributed to the loss is covered.  This is known as the concurrent cause doctrine, which creates a favorable legal presumption for policyholders.

The Florida Supreme Court reversed the lower court’s use of the efficient proximate cause doctrine, which requires the covered cause to be the immediate cause that sets the others in motion.  In doing so, the Florida Supreme Court reaffirmed decades of precedent in Florida following the leading appellate decision on the subject, Wallach v. Rosenberg, 527 So. 2d 1386 (Fla. 3d DCA 1988).

This causation rule is critically important in first-party property insurance disputes because it is often impossible to determine the extent to which one cause of loss predominates over another.  A classic example occurs when a home is destroyed in a hurricane.  If the homeowner has windstorm insurance but not flood insurance, the question is whether the home was damaged by wind or water.  Under the concurrent cause doctrine, if both causes contributed to the loss of the home then the windstorm insurer must cover the damage.  Under the efficient proximate cause doctrine, the policyholder would not be covered unless it could prove that wind was the predominate cause of the damage.

In the Sebo case, both sides agreed that the home was damaged by a combination of defective construction (not covered) and rainstorms, including Hurricane Wilma (covered).  Both the covered and uncovered causes of loss contributed to the home being declared a total loss, and there was insufficient evidence of which cause was the predominate cause.  After a jury ruled in favor of the policyholder, the appellate court ruled that a new trial was necessary to determine what was the efficient proximate cause of the loss.

The Florida Supreme Court held that a new trial was not necessary, since it was already proven that a covered cause of loss contributed to the damage.  That was enough to make the claim a covered loss, regardless of the extent to which the defective construction contributed to the loss.

The Florida Supreme Court’s decision was the correct decision, as it reaffirmed that the concurrent cause doctrine continues to apply in Florida, as it does in most jurisdictions.  Policyholders who pay for “all risk” coverage should receive the benefit of that coverage when they suffer a loss due to a covered cause, regardless of whether there is some other cause that is excluded by the policy.

Policyholders need to be aware that some policies contain Anti-Concurrent Cause clauses that displace the concurrent cause doctrine with the efficient proximate cause rule that the Florida Supreme Court rejected.  Unfortunately, many state regulators, including the Florida Office of Insurance Regulation, have allowed insurers to restrict coverage by adding this clause to homeowners and other property policies in Florida.  Many other states have rejected such efforts by the insurance industry, and the fight continues in legislatures and regulators’ offices throughout the country.

We can expect to see the insurance industry increase their lobbying efforts in Florida to get more favorable language approved for use in insurance policies, to attempt to nullify by contract what they have been unable to accomplish in court.  Hopefully state legislators and regulators will resist such efforts, and recognize the need to ensure that policyholders continue to receive the “all risk” coverage they pay for.

Policyholders should not rely on the folks in Tallahassee to look out for their interests.  Anti-Concurrent Cause endorsements are already lurking in some property policies in Florida.  Policyholders need to be vigilant in telling their brokers to reject property insurance policies that contain Anti-Concurrent Cause provisions, even if it means paying higher premiums.  The extra protection is well worth it.

I previously wrote here about Judge Marra’s decision in the Southern District of Florida in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. 13-80831-CIV, 2015 WL 3539755, 2015 U.S. Dist. LEXIS 72466 (S.D. Fla. June 4, 2015). The question in that case was whether a Florida 558 proceeding constitutes a “suit” that triggers a defense obligation under a general liability policy. A 558 proceeding is an administrative proceeding under Florida law in which a claimant provides notice that it intends to file a construction defect lawsuit, and the contractor has an opportunity to inspect and cure the problem before a lawsuit is filed.

The question of whether a 558 notice triggers an insurer’s duty to defend is important because the 558 process can be expensive. A contractor can spend tens of thousands of dollars before a lawsuit is even filed.  If an insurer’s defense obligation is not triggered by the 558 notice then the contractor has to pay those attorneys’ fees out of pocket. In the Southern District of Florida case, Judge Marra agreed with the insurance company that a 558 proceeding did not meet the definition of a “suit” in the policy. In Judge Marra’s view, a 558 proceeding is neither a “civil proceeding” nor an “alternative dispute resolution proceeding,” either of which would constitute a suit triggering a defense obligation under the policy.

The district court’s decision was appealed to the 11th Circuit Court of Appeals. The 11th Circuit ultimately decided to let the Florida Supreme Court answer the question, rather than try to predict how the Florida Supreme Court would rule. The 11th Circuit correctly observed that this was an important issue of Florida insurance law best addressed by Florida’s highest court. In the process, the 11th Circuit summarized the arguments on both sides, as well as Judge Marra’s conclusions, and made it known that, if the appellate court had not certified the case, it would have reversed the decision.

In the 11th Circuit’s opinion, Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company, No. 15-12816 (11th Cir. Aug. 2, 2016), the court noted that the district court had concluded the terms “suit” and “civil proceeding” were not ambiguous, but the appellate court was “not as sure.” The court concluded that there were reasonable arguments presented by both sides as to whether a 558 proceeding constitutes a “suit” or “civil proceeding” within the meaning of a general liability policy. Although the court stopped short of making an ultimate conclusion on the merits of the arguments, it is clear under Florida insurance law that if both sides provide reasonable interpretations of an insurance policy provision, then the provision is ambiguous as a matter of law. And an ambiguous policy provision is read against the insurer and in favor of coverage. So while the appellate court was trying to be polite in stating that it was not so sure Judge Marra got it right, the appellate court clearly indicated that he was wrong.

Hopefully the Florida Supreme Court will see the issue similar to the way the 11th Circuit saw it, and will answer the certified question before the end of the year. I will provide an update when the decision comes down.

It has been a fairly quiet first half of 2016 for insurance law decisions in Florida.  Several important cases are pending with Florida appellate courts, and as the weather heats up hopefully some of those decisions will be released.  In the meantime, I want to discuss a common general liability insurance clause addressed in a recent appellate decision that does not receive as much attention as it should.  It is usually referenced in a general liability policy as a “Separation of Insureds” clause, although it is commonly referred to as the “severability clause”.  This clause states that coverage applies separately as to each party insured by the policy.

Most insurance policies cover multiple parties.  For example, Directors & Officers insurance typically insures a company (the named insured), its subsidiaries, and its directors, officers, and employees (individual insureds).  General liability policies also typically insure multiple corporate entities as well as employees, and also often insure additional insured parties that are unaffiliated with the named insured (such as lessors, property owners, contractors, and vendors).

When a loss occurs, insurers often have to sort out which parties are potentially insured, and which policy provisions and exclusions are applicable to each.  This task can be particularly complicated when multiple insureds are named in a lawsuit.  The purpose of the severability clause is to separate insureds for purposes of applying coverage terms.  This can become an issue when a claim is asserted against multiple insureds, some of whom allegedly committed an intentional or fraudulent act, and some of whom that are “innocent” insureds.  The severability issue also frequently arises with respect to claims that involve an employment relationship, where an employer is sued alongside third parties.

There are two types of severability clauses found in insurance policies.  The first, “application severability”, is typically found in a Directors & Officers policy.  This type of severability clause states that an insured will not lose its coverage under the policy, even if there are misrepresentations made in the application, if the insured was not aware of the misrepresentations.  The purpose of “application severability” is to preserve coverage for “innocent” insureds that had nothing to do with the application, even if coverage may be lost for insureds with knowledge of the misrepresentation.

The second type of severability clause is an “exclusion severability” clause.  This type of clause is typically found in general liability policies and also some Directors & Officers policies.  The exclusion severability clause states that coverages and exclusions apply separately as to each insured.  In Directors & Officers policies, certain exclusions may apply to exclude coverage for the company but not individual insureds.  General liability policies typically have broad severability clauses that state coverage under the policy applies separately to each insured, and so the applicability of an exclusion to one insured has no impact on whether the exclusion also applies to a different insured.

In addition to claims involving “innocent” insureds, severability frequently becomes an issue with claims that involve employment relationships.  Most general liability policies exclude coverage for employment-related claims, such as discrimination, sexual harassment, and wage and hour claims.  General liability policies also typically contain employer’s liability exclusions that exclude coverage for claims asserted against an insured by one of its employees, under the rationale that such claims are covered by worker’s compensation and employer’s liability insurance.

Insurance coverage disputes arise in several contexts.  For example, some employment-related claims also assert bodily injury or personal injury claims separate and apart from the employment claims.  Examples are claims for defamation, retaliation, false imprisonment, and negligent infliction of emotional distress.  Such claims may be made against the claimant’s employer or against third-parties such as contractors, supervisors, and co-employees.

Another context, which is common in the construction industry in particular, involves injured worker claims against third parties.  When a subcontractor employee is injured on the job, he is prevented by the worker’s compensation bar from suing his employer directly.  However, the claimant can sue the general contractor and owner of the project.  The claimant also may sue individually a fellow employee whose negligence was contributed to the injury.  These lawsuits, often referred to as “third-party-over actions”, often trigger indemnity agreements that determine which party or parties are ultimately responsible for a loss.

When a claim is asserted by an employee, general liability insurers frequently invoke employment-related exclusions to deny coverage.  Compounding the problem is that many companies do not purchase employment practices liability insurance, and, even for those companies that do purchase such insurance, many employee claims are not covered by employment practice insurance, such as claims for bodily injury and personal injury referenced above.

Recent Florida caselaw has clarified the impact of severability clauses in the context of employee claims.  In Taylor v. Admiral Ins. Co., Case No. 3D14-720 (Fla. 3d DCA Feb. 10, 2016), the Third District Court of Appeals addressed a claim asserted by a party who was injured at Vizcaya Museum & Gardens in Miami.  The claimant was attending a function sponsored by her company when she was injured.  She sued her employer as well as Vizcaya and Miami-Dade County, which owns and operates Vizcaya.  Vizcaya and Miami-Dade County were additional insureds on the employer’s policy and sought coverage under that policy.  The insurer denied coverage for all insureds under the employer’s liability exclusion, which excluded coverage for any claims arising out of bodily injury to “any insured”.  The trial court entered summary judgment in favor of the insurer on the employer’s liability exclusion.

The 3^rd DCA reversed the trial court’s decision.  The appellate court held that, while coverage was excluded for the claimant’s employer, such was not the case for Vizcaya and Miami-Dade County, as neither of these defendants employed the claimant.  The court held that the “Separation of Insureds” provision meant that coverage applied to each insured as if it was the only insured under the policy.  Therefore, the employer’s liability exclusion was not applicable to non-employer insureds.

The 3^rd DCA cited extensively to the recent decision of the Eleventh Circuit Court of Appeals in Evanston Ins. Co. v. Design Build Interamerican, Inc., 569 Fed. Appx. 739 (11th Cir. 2014).  In Design Build Interamerican, a subcontractor employee was injured while working on a construction site.  The injured worker sued co-employees who he alleged were negligent.  The insurer denied coverage to these co-employees on the basis of the employer’s liability exclusion.  The 11^th Circuit ultimately held that the co-employees were covered due to the severability clause, since none of the co-employees were the injured worker’s employer.  Although coverage was excluded for the injured worker’s employer, coverage existed for defendants who did not have an employment relationship with the claimant.

Counsel should be mindful of severability clauses when assessing the availability of coverage for claims involving multiple defendants, particularly those claims asserted by an employee of the named insured.  It is not necessarily the case that an exclusion applies across the board to all insureds under the same policy, and coverage should be analyzed for each insured separately as if it were the only insured.

Triggering an insurer’s duty to defend is an important first step in any insurance coverage claim.  Typically, an insurer’s duty to defend is triggered when the insurer receives notice of a lawsuit filed against its policyholder.  But disputes can arise when a policyholder is required to respond to a claim that falls short of litigation, such as a subpoena, government investigation notice, or request to engage in pre-suit negotiations.

Such a scenario is common with construction defect claims in Florida, as Florida Statute § 558.004 requires claimants to provide a notice to a contractor of the basis for the construction defect lawsuit.  This notice, commonly referred to as a 558 Notice, also provides the contractor with the opportunity to inspect and cure the problem without incurring litigation costs.

Contractors typically provide a copy of the 558 Notice to their insurers, and demand that their insurers defend them against the construction defect claim.  Recognizing that a 558 Notice is a statutory prerequisite to a lawsuit, most insurers will assign counsel and get involved in the defense of the claim.  This approach makes sense, given that the insurer has potential exposure on a construction defect claim, both for defense costs as well as to provide indemnity for a judgment or settlement of the case.

A recent case in the Southern District of Florida, now on appeal to the Eleventh Circuit Court of Appeals, called into question the need for insurers to participate in 558 proceedings.  In Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. 13-80831-CIV, 2015 WL 3539755, 2015 U.S. Dist. LEXIS 72466 (S.D. Fla. June 4, 2015), Judge Kenneth Marra ruled that an insurer was not required to provide a defense to a 558 Notice because such a notice did not constitute a “suit” as defined in the policy.  “Suit” was defined to include a “civil proceeding” as well as arbitration or any other “alternative dispute resolution proceeding”.  Judge Marra determined that a 558 proceeding was neither a civil proceeding, arbitration, nor an alternative dispute resolution proceeding.

The practical implication of the ruling is that the contractor was unable to obtain reimbursement from its insurer for the cost of the defending the 558 proceeding.  If the ruling is upheld by the Eleventh Circuit, it will change the way construction defect litigation is approached in Florida, a change that will benefit neither contractors nor insurers.

The point of a 558 proceeding is to provide a mechanism to resolve construction defect claims before they trigger an expensive litigation.  There is little question in my mind that a 558 proceeding is an alternative dispute resolution proceeding.  It is a proceeding that is designed to avoid the alternative, which is litigation.  Construction defect litigation is particularly expensive and time-consuming, as it requires extensive expert testimony and often involves various contractors and subcontractors pointing fingers at each other.  A 558 proceeding is an attempt to bring a quick and relatively inexpensive end to the dispute.

Contractors do not have to meaningfully participate in 558 proceedings.  Contractors can write 558 procedures out of their construction contracts or can minimally comply with the statute by spending little time or money trying to resolve claims in a 558 proceeding.  But contractors want to participate in 558 proceedings because they want to avoid construction defect litigation.  Insurers also want to avoid construction defect litigation because they ultimately pay for the cost to defend the litigation, and pay for most if not all of the judgment or settlement to resolve these lawsuits.

You can read more of my commentary on the Altman Contractors decision in this Insurance Law 360 article here.  I hope that the Eleventh Circuit reverses the trial court’s decision.  The decision should be reversed both as a matter of insurance policy interpretation, as well as public policy supporting the 558 process.  Of course, the Florida legislature could amend the 558 statute to specifically provide that the proceeding triggers general liability policies, but the legislature seems uninterested in doing so.  In fact, the legislature recently amended the statute (with an effective date of October 1, 2015) to essentially reaffirm the Altman Contractors’ ruling, but also allow insurers to amend their policies if they wish to provide coverage for 558 proceedings.  This amendment is yet another example of short-sighted legislative activity fueled by the insurance lobby.

For the time being, Florida insurers will have the option to save a few bucks and refuse to assist their policyholders with 558 proceedings.  Such an approach in my view is penny wise and pound foolish, as non-defending insurers will ultimately pay more once these claims inevitably go to litigation.  Contractors need to be aware of this potential coverage gap for 558 proceedings, and continue to provide notice but discuss with their insurer whether the insurer will provide a defense to the 558 proceeding.  If not, then the contractor needs to decide how much time and money should be invested in this process.  Part of the decision making process is consideration of whether the damages sought in the construction defect claim ultimately will be covered.  In that way, contractors can make informed decisions as to whether to invest money in the short term to try to resolve a claim or should dig in to defend – and potentially engage in a coverage battle with their insurer.

As always, good coverage counsel can help guide contractors through this process, wrought with plenty of insurer-buried landmines, and now with yet another insurance landmine for the uninformed contractor.

It has been a slow summer down in the swamp for Florida insurance law decisions.  It has been too hot to crank out opinions.  But now that fall is here and the mercury has dropped below 80, the decisions are starting to flow again.  A recent decision out of the Southern District of Florida, Direct General Insurance Company v. Houston Casualty Company, Case No. 14-20050 (S.D. Fla. Sept. 30, 2015), discussed the thorny notice rules under claims-made policies.

In Direct General, a PIP insurance company sought coverage under its claims-made professional liability insurance for a series of claims brought by medical providers claiming that Direct General improperly calculated PIP benefits.  Direct General was sued in two class action lawsuits, one of 2008 and one in 2012.  It promptly notified its professional liability insurer of both class actions.  Its insurer initially defended under reservation of rights, but then sought a declaratory judgment that there was no coverage.  The insurer’s defense was late notice.  The insurer argued that before Direct General was sued in the first class action in 2008, it received several “claim” letters from medical providers asserting that they had been underpaid.  While none of these medical providers filed suit prior to 2008, the insurer asserted that these prior “claims” were not timely reported because they were made several months before the first class action lawsuit was filed.  Further, a few of the claims were asserted days before the insurer’s policy incepted.

The professional liability policy had broad definitions of “claim” and “related claim”.  “Claim” was defined to include “any written demand or notice to an Insured indicating that a person or entity intends to hold an Insured responsible for a Wrongful Act.”  “Related Claim” was defined as “all Claims for Wrongful Acts based on or directly or indirectly arising out of or resulting from the same or related … series of facts, circumstances, situations, transactions, or events.”  Direct General argued that these early PIP demand letters were just garden-variety letters that a PIP insurer receives every day.  Direct General argued that it could not possibly be required to provide notice of each and every PIP demand letter in order to preserve coverage for class action lawsuits filed months or years later.

Unfortunately for Direct General, the court disagreed.  The court noted that the claim definition included any letter to the insured that asserted a wrongful act.  Indeed, this claim definition is broader than the typical claims-made “claim” definition, which usually requires a specific demand for monetary or non-monetary relief.  As a result, the court held that the insurer had no coverage for either class action lawsuit, meaning that Direct General lost coverage for over $72 million in defense and indemnity costs paid on these claims.

I explained in a previous blog entry here how the triple-trigger notice requirement works under most claims-made policies (such as professional liability, directors & officers liability, and errors & omissions liability policies).  Policyholders need to be aware that the notice requirements under these policies are very strict, and not subject to the notice-prejudice rule that applies to occurrence-based policies.  It is also important to understand that the claims-made notice requirement can be triggered by a letter or other communication stating a demand, even if no lawsuit is filed.  This is why it is important for policyholders with claims-made policies to review any potential claims before the policy period ends (or the extended reporting period, or “tail” period, ends) to determine whether notice must be provided.  When in doubt, provide the notice, even if the claim or potential claim seems insignificant.  If a later, significant claim comes in, you can be sure your insurer will seek to tie that claim back to any prior “claims”, no matter how insignificant, to try to avoid its coverage obligations.  Even if a formal “claim” has not been made, most policies allow a policyholder to make a “notice of circumstance” to preserve rights under the policy in the event of a future claim.

If the notice is not made properly, the policyholder can lose coverage not only for the claims it does not notice, but also for all related claims into the future, as was the case with Direct General.  It is just another “gotcha” brought to you by your friendly neighborhood insurer who claims to be “on your side” and promises you are in “good hands”.  If a sophisticated insurance company like Direct General can forfeit $74 million of its own coverage by not complying with its insurer’s onerous notice requirement, you can imagine how many Florida policyholders have similarly forfeited their coverage, and how many millions the insurance industry has made off of this gotcha.

I have written several times on what it means to “trigger” an insurance policy for a long-tail claim (see here, here, and here).  Long-tail claims stretch over several years of coverage. Examples are environmental claims, latent bodily injury claims, and many types of construction defect claims.  Unlike a single-point-trigger claim, like a car accident or a slip-and-fall, where the accident and injury occurs at a single point in time, long-tail claims raise the issue of which insurance policies should respond to a loss that starts in year one, causes damage or injury over several years, and manifests the injury or damage years later.

There are four main types of trigger in insurance law: (1) exposure trigger: in which the policy on the risk at the time of first exposure to a harmful condition must respond (e.g., a worker’s first exposure to asbestos); (2) manifestation trigger: the flip side of the exposure trigger which holds that the policy on the risk when the damage or injury is discovered or should have been discovered must respond; (3) injury-in-fact trigger: all policies in effect during the period of time the injury or damage actually takes place must respond; and (4) continuous trigger: the most liberal of the trigger rules holds that all policies in effect from exposure to manifestation must respond, even without specific proof that specific injury occurred during this entire period of time.

The first major trigger decision in Florida was Trizec Properties, Inc. v. Biltmore Construction Co., 767 F.2d 810 (11th Cir. 1985).  Trizec applied an injury-in-fact trigger.  But the next two decades saw little trigger caselaw in Florida.  Then, from 2002 to 2011, there were a series of trigger cases, mainly from the Middle District of Florida, which for some reason started applying a manifestation trigger.  As these cases developed, judges started ruling that manifestation was not when the injury or damage became evident, but when it would have been evident through an investigation.  This brought the manifestation trigger much closer to an injury-in-fact trigger.

Eventually, the caselaw began to shift back to the Trizec injury-in-fact trigger.  Again, it was the Middle District of Florida leading the way in Axis Surplus Ins. Co. v. Contravest Const. Co., 6:11-CV-320-ORL-28, 2012 WL 2048303 (M.D. Fla. June 5, 2012) and then Trovillion Constr. & Dev., Inc. v. Mid-Continent Cas. Co., 2014 U.S. Dist. LEXIS 6265 (M.D. Fla. Jan. 17, 2014).  Finally, last month, the Eleventh Circuit brought trigger law back full circle to the Trizec injury-in-fact trigger where it started and should have stayed.

In Carithers v. Mid-Continent Case. Co., Case No. 14-11639 (11th Cir. Apr. 7, 2015), the Eleventh Circuit ruled that Mid-Continent Casualty Co. owed a duty to defend a general contractor and cover a consent judgment entered into between the contractor and a homeowner after the insurer disclaimed coverage obligations.  Mid-Continent had denied coverage on the basis that the property damage was not discovered until after the Mid-Continent policy expired.  Under a manifestation trigger, Mid-Continent argued that it had no duty to defend or indemnify the contractor.

The Eleventh Circuit disagreed.  It held that the proper trigger was the injury-in-fact trigger that it had held applied 30 years earlier in the Trizec decision.  The Eleventh Circuit had not had a chance to revisit trigger since that time, but seemed perplexed by the flip-flopping decisions, given the clear direction the Eleventh Circuit had given in Trizec.  Further, the Eleventh Circuit held that, even if Mid-Continent was unsure of the correct trigger rule given the inconsistent trial court decisions, the insurer should have provided a defense due to the uncertainty.

The Eleventh Circuit’s ruling on duty to defend is important because it reinforces the broad nature of an insurer’s defense obligation.  An insurer has a duty to defend its policyholder in Florida if there is any possibility that a claim will be covered.  This is much broader than the duty to indemnify a judgment or settlement, which only applies if the actual facts as determined in the underlying case demonstrates the existence of coverage.

Typically, policyholders point to allegations in a complaint that raise the possibility of coverage to secure a defense, even if the allegations as a whole seek uncovered damages.  The rule for duty to defend is that, if any allegation within the four corners of the underlying complaint could result in covered damages, then the insurer is required to defend the entire suit.  The Carithers opinion makes it clear that this “possibility” rule applies not just to the possibility that the facts as developed in the underlying case could create coverage, but also that uncertainties in the law are a basis to create a duty to defend.

The Eleventh Circuit also addressed the scope of the “your work” exclusion, which I have addressed previously here and here.  Like the trigger caselaw, the “your work” caselaw in Florida has been littered with inconsistent opinions.  Most of this caselaw centers around the application of the subcontractor exception to the “your work” exclusion.  The rules were developed by the Florida Supreme Court in a pair of decisions in 2007 and 2008.  See U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007) and Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So. 2d 1241 (Fla. 2008).

The JSUB and Pozzi decisions established that a contractor’s defective work is a covered occurrence under a general liability policy.  However, damage caused by a contractor’s defective work is excluded by the “your work” exclusion unless the defective work is performed by a subcontractor, and the policy contains a subcontractor exception to the “your work” exclusion.  Although this standard seems fairly straightforward, it has proven difficult in application.  For example, in Amerisure Mutual Insurance Company v. Auchter Company, 673 F.3d 1294 (11th Cir. 2012), the Eleventh Circuit appeared to apply the “your work” exclusion too broadly to exclude coverage for damage caused to a roof, where the general contractor stipulated that there was no property damage to anything other than the roof on which it was working.  The Auchter decision appeared to require damage to third-party property even though the defective work was performed by a subcontractor.

Last year the Middle District of Florida attempted to reconcile the Auchter decision with the decisions in JSUB and Pozzi by stating:

In determining the scope of coverage under standard-form CGL policies, “the Florida Supreme Court has drawn a distinction between ‘a claim for the cost of repairing the subcontractor’s defective work,’ which is not covered under a CGL policy, and ‘a claim for repairing the structural damage to the completed [project] caused by the subcontractor’s defective work,’ which is covered. Amerisure Mut. Ins. Co. v. Auchter Co., 673 F.3d 1294, 1306 (11th Cir. 2012) (quoting U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 877 (Fla. 2007)). However, an insurer is only liable for structural damage caused by a subcontractor’s defective work if the damage occurs during the policy period of a CGL policy that includes the “subcontractor exception” to the “your work” exclusion. See J.S.U.B., 979 So. 2d at 891 (observing that an insurer can exclude coverage for damage arising out of a subcontractor’s defective work by eliminating the subcontractor exception to the work exclusion).

Trovillion Construction & Development Inc. v. Mid-Continent Cas. Co. and Casa Jardin Condominium Association Inc., No. 12-914 (M.D. Fla. Jan. 17, 2014).  (See here for a discussion of the Trovillion decision.)   Trovillion’s attempted reconciliation of Auchter and JSUB still puzzles me.

The Eleventh Circuit’s attempted reconciliation of this caselaw in Carithers is just as puzzling.  In effect, the Eleventh Circuit ruled that there is no coverage for defective work performed by a subcontractor, despite the subcontractor exception to the “your work” exclusion, if the only damage is to the subcontractor’s own work.  This is true even if the subcontractor’s work damaged materials purchased by the owner.  But if the subcontractor’s defective work damages the work of other subcontractors then there is coverage for not only the cost to repair the other subcontractor’s work, but also for the cost to remedy the defective subcontractor’s work, if the defective work must be remedied to repair the third-party work.

If this all makes your head hurt you are not alone.  While I believe the Eleventh Circuit’s decision in Carithers is of great service to practitioners by solidifying the application of the injury-in-fact trigger, and by clarifying the broad nature of the duty to defend, the ruling on the “your work” exclusion leaves something to be desired.  Perhaps it is too much to expect any court, even a court as capable as the Eleventh Circuit, to get three esoteric insurance coverage issues right.

I could sum up the decision by paraphrasing President James Dale (Jack Nicholson) when he explained in Mars Attacks! (1996) that, after aliens assassinated members of Congress, “we still got two outta three branches of the government workin’ for us, and that ain’t bad.”

Or I could quote the always-insightful lyrics of Meat Loaf:

I want you,

I need you,

But there ain’t no way I’m ever gonna love you.

Now don’t be sad,

‘Cause two out of three ain’t bad.

(Two Out Of Three Ain’t Bad, Meat Loaf, 1977)