Discovery of Insurer’s Claims File Was Improper and Would Result in Irreparable Harm

State Farm Fla. Ins. Co. v. Meir Aloni (Fla. 4th DCA 2012)

Four years after Hurricane Wilma ran its course, an insured filed a claim to its property insurer, alleging damages sustained four years prior. Although the insurer sent a reservation of rights letter rather than disclaiming coverage outright, a coverage dispute nevertheless ensued and the insured sent a request for production. Among the items requested was the insurer’s “complete claims file.” The insured maintained that the claims file materials would be relevant since it had to overcome the presumption that its belated notice of claim prejudiced the insurer.

The insurer argued that its file, and especially its activity log notes, were protected work product that contained personal thoughts, evaluations, mental impressions, and recommendations regarding the claim and the possibility of litigation. The trial court ordered discovery of the activity log notes, emails, and photographs contained in the claims file, and denied to rehear the matter. The court nevertheless granted a stay pending resolution of a petition to the fourth district.

Indeed, the fourth district accepted the petition and quashed the discovery order, explaining that the trial court departed from the essential requirements of the law in compelling the disclosure of the claims file materials since the insurer had demonstrated that such disclosure would result in irreparable harm and the insured had not proven its need and inability to obtain the substantial equivalent of the material without undue hardship.

Insurer Was Entitled To Discovery of Insured’s Entire Computer System Based on Suspicious Document Shredding

Wynmoor Community Council, Inc., et al. v. QBE Ins. Corp., (S.D. Fla. 2012)

Court granted insurer’s discovery of electronically stored information (“ESI”) by a full mirror image of insured’s computer system. The court reasoned that this extreme request was warranted by plaintiffs’ suspicious document shredding and unwillingness or inability to comply with defendant’s requests for production.

Merly Nuñez v. Geico Gen. Ins. Co., (11th Cir. 2012)

Due to a split among Florida courts, the Eleventh Circuit certified the following question to the Florida supreme court: May an insurer require an insured to attend an examination under oath as a condition precedent to recovery of personal injury protection benefits?

Carrier’s Decision to Pay the Amount of its Estimate and then Consider Supplemental Claims for Additional Damages Did Not Violate Florida Statute Section 627.7011

Slayton v. Universal Prop. & Cas. Ins. Co. (Fla. 5th DCA 2012)

A couple months after obtaining a homeowner’s insurance policy, an insured’s home suffered damage from a windstorm. The insured submitted an estimate prepared by a public adjustor for $61,638.00, although the insurer estimated the cost of repair to be $28,915.87. The insurer thus tendered a check to the insured in the amount of $27,915.87 (the total of the insurer’s estimate minus the $1,000.00 deductible), along with a letter advising that the payment did not necessarily constitute a full and final settlement of the claim and inviting the insured to submit supplemental claims for additional damages discovered in the property’s covered reconstruction and repair. Rather than filing supplemental claims, the insured sued the insurer for breach of contract, a suit which resulted in a directed verdict in the insurer’s favor.

The court reasoned that the insurer’s decision to pay the amount of its estimate (less the deductible) and then consider supplemental claims for additional damages discovered during or arising from the repairs was consistent with the terms of its insurance policy. On appeal, the insured argued that such a construction of the policy violated section 627.7011, Florida Statutes, which states that “[i]n the event of a loss for which a dwelling or personal property is insured on the basis of replacement costs, the insurer shall pay the replacement cost without reservation or holdback of any depreciation in value, whether or not the insured repairs the dwelling or property.” The fifth district summarily affirmed the trial court, noting that the insured’s statutory argument had not bee preserved.

An Insurer Acting as an Asignee Was Entitled to Collect Attorneys Fees From Second Insurer

Indiana Lumbermens Mut. Ins. Co. v. Penn. Lumbermens Mut. Ins. Co. (4th DCA 2013)

This case concerned a fee dispute between two insurance carriers: Indiana Lumbermens Mutual Insurance Company (“ILM”) and Pennsylvania Lumbermens Mutual Insurance Company (“PLM”). Both provided CGL policies to a subcontractor that was named in a third-party complaint, but only ILM provided a defense. ILM settled the claim and received an assignment of the insured’s rights against PLM for its failure to defend and indemnify. ILM then sued PLM for breach of contract, declaratory relief, and equitable/contractual subrogation. The trial court entered summary judgment for ILM, awarding it compensatory damages and prejudgment interest. The court, however, denied ILM’s request for fees under section 627.428. On appeal, the fourth district reversed: “The fact that an insurer is the party seeking attorney’s fees under section 627.428 does not, by itself, preclude recovery. … As an assignee of the subcontractor’s claim, ILM fell within the class entitled to recover fees under the statute. To enforce its assigned rights, ILM had to file suit against PLM, and obtain a favorable judgment. This is all that section 627.428 requires.”

Whether an Insurance Broker Was the Insurer’s Agent Was an Issue of Fact

Frank Gay Plumbing, Inc. v. Ass’n Cas. Ins. Co., et al. (Fla. 5th DCA 2012)

An individual (“Gay”) operating a vehicle owned by his company was in an automobile accident with an at-fault underinsured motorist. After the accident, the tortfeasor’s carrier, GEICO, provided Gay with a settlement check and a release of all claims. Before cashing the check or signing the release, Gay contacted his insurance broker who advised Gay that he could cash the check but should not sign the release. For whatever reason, Gay ignored the advice and cashed the check and signed the release.

Gay then made an underinsured motorist claim to his company’s insurer, who denied coverage on the bases that Gay had violated the policy conditions by settling and failing to give timely notice of the claim. Gay instigated a declaratory action and the parties filed cross-motions for summary judgment.

The trial court ruled in the insurer’s favor, finding that Gay failed to comply with the express terms of the policy since notice to the insurance broker was not notice to the insurer. Because Florida law holds that notice to one’s agent is notice to the principal, the focus of the appeal was whether the broker was simply an insurance broker or was instead an agent or apparent agent for the insurer.

The fifth district explained that the evidence was conflicting on the issue since, on the one hand, there was evidence that the broker was not permitted to use the insurer’s name or logo in advertising, but, on the other hand, was permitted to collect premiums and receive, accept, and bind parties to certain proposals for contracts of insurance with the insurer. In addition to the agency issue, there was also a material issue of fact as to whether or not the insurer was in some way prejudiced by the settlement with GEICO. For these reasons, the court reversed and remanded.

Bill Frisbie, Yankee Trailer Court, LLC v. Carolina Cas. Ins. Co. (Fla. 5th DCA 2012)

A client who sued his law firm for malpractice and then intervened in a declaratory judgment action between the firm and its insurer appeals from a final judgment allowing the insurer to rescind the insurance policy for material misrepresentations on the policy renewal application.

In a very short opinion, the fifth district reversed and remanded for further proceedings, explaining “genuine issues of fact existed as to whether waiver or estoppel barred rescission [since] record evidence exists from which a jury could conclude that shortly after the client sued the firm in February, 2006, the insurer was made aware of the facts it now claims justify rescission, but it did not assert rescission until November 2007.”

Lack of a Sworn Proof of Loss Was No Excuse for a Carrier’s Failure to Issue a Coverage Decision Since There Was No Prejudice

Allstate Floridian Ins. Co. v. Farmer (Fla. 5th DCA 2012)

In October 2006 a home, owned by Thomas and Margaret Farmer (“Farmer”) and insured by a subsidiary of Allstate Insurance Group, was struck by lighting, causing damage to amateur radio equipment. The next month the Farmers’ pickup truck, which was also insured by an Allstate subsidiary, was stolen, resulting in its destruction and the loss of additional personal property, including other radio equipment.

A few days later the Farmers gave their Allstate agent two handwritten inventory lists of their damaged personal property—one for the items damaged by the lightning strike and the other for the items lost due to the truck theft.

The late filing of the lightning damage claim and a duplicative item on both inventory lists apparently raised red flags, resulting in the involvement of Allstate’s special investigation unit (“SIU”) in the claims process. The SIU representative sent the Farmers an authorization and proof of loss form to be filled out, signed, and notarized. After a number of follow-ups by Allstate, the Farmers eventually complied with the request, although the proof of loss was never notarized.

Although Allstate would later concede that it had all the necessary information to process the Farmers’ property claims, it still had not rendered a decision as to coverage eleven months after the claims’ submission. Therefore, the Farmers filed suit in October of 2007 for breach of contract.

At trial, the court denied Allstate’s motion for a direct verdict on the basis that the Farmers were barred from recovery because a completed proof of loss was a precondition to suit and, over Allstate’s objection, permitted the jury to consider (1) whether the Farmers’ actions in the claim-filing process substantially complied with the proof of loss condition under the policy and (2) whether Allstate was prejudiced by any failure to comply with the condition.

A verdict was returned for the Farmers on the theory that Allstate had not been prejudiced by the Farmers’ failure to provide Allstate with signed, sworn proofs of loss. When the court denied Allstate’s motion to enter judgment in accordance with the motion for directed verdict, Allstate filed an appeal arguing that the jury should not have been permitted to determine the issues of noncompliance and prejudice. The fifth district disagreed and affirmed, explaining that in both notice of loss and proof of loss cases, prejudice is a necessary issue in determining whether forfeiture results from an insured’s breach: “[T]he trial court did not err in allowing the Farmers to prove to the jury that Allstate was not prejudiced by their failure to substantially comply with the proof of loss condition. The overarching question before the jury was whether there was a material breach. The jury found Allstate was not prejudiced by the Farmers’ failure to submit a signed, sworn proof of loss form and, therefore, there was no material breach of the contract.”

The Duty to Defend Under Georgia Law

I’ve mentioned this before, but I’m also licensed in Georgia, and often times I’ll get to dive into some Georgia law issues for a change.  One of the fundamental insurance coverage issues in is the duty to defend under Georgia law.  It’s pretty basic, and similar to the duty to defend under Florida law, but there is one little-known wrinkle. 

Duty to Defend Under Georgia Law

An insurer’s duty to indemnify and its duty to defend are separate and independent obligations. Penn-America Ins. Co. v. Disabled Am. Veterans, Inc., 481 S.E.2d 850, 852 (Ga. Ct. App. 1997).  Under Georgia law, “[a]n insurer’s duty to defend is determined by comparing the allegations of the complaint with the provisions of the policy.” Fireman’s Fund Ins. Co. v. Univ. of Ga. Athletic Ass’n, Inc., 654 S.E.2d 207, 209 (Ga. Ct. App. 2007). “Where the complaint filed against the insured does not assert any claims upon which there would be insurance coverage, the insurer is justified in refusing to defend the insured’s lawsuit.” Nationwide Mut. Fire Ins. Co. v. Somers, 591 S.E.2d 430, 434 (Ga. Ct. App. 2003); Old Republic Union Ins. Co. v. Floyd Beasley & Sons, Inc., 551 S.E.2d 388, 392 (Ga. Ct. App. 2001). 

Wrinkle: Duty to Investigate

When the complaint on its face shows no coverage, but the insured notifies the insurer of factual contentions that would be covered, there may be a duty to investigate on the part of the insurer. See Colonial Oil Indus. Inc. v. Underwriters Subscribing to Policy Nos. TO31504670 & TO31504671, 491 S.E.2d 337, 338-39 (Ga. 1997).  In Colonial, the court held:

A different rule, however, applies when the complaint on its face shows no coverage, but the insured notifies the insurer of factual contentions that would place the claim within the policy coverage.  The Georgia Court of Appeals held in Loftin v. U.S. Fire Ins. Co., that in this situation the insurer has an obligation to give due consideration to its insured’s factual contentions and to base its decision on “true facts.” The requirement that an insurer base its decision on true facts will necessitate that the insurer conduct a reasonable investigation into its insured’s contentions. To relieve an insurer of any duty to investigate its insured’s contentions would allow the allegations of a third-party to determine the insured’s rights under its contract. Placing a duty of investigation on insurers in these limited circumstances is not an unreasonable burden, especially in light of the availability of the “procedurally safe course” of providing a defense under a reservation of rights and filing a declaratory judgment action to determine its obligations.

 

Insureds Are Not Entitled to Mutually Agreeable Defense Counsel in Florida

Often times attorneys become confused when reading Florida Statute Section 627.426(2), and think that insureds are entitled to mutually agreeable defense counsel when an insurer agrees to defend under a reservation of rights.  That is generally not the case.  Section 627.426(2) applies to “coverage defenses” which include such things as late notice or other “defenses” to otherwise legitimate coverage.  The exclusions and exceptions to coverage that insurers usually reserve their rights on are not considered “coverage defenses” and are not governed by this statute.  An insurer in Florida is permitted to unilaterally select defense counsel for its insured.  For more explanation, see Travelers Indem. Co. of Ill. v. Royal Oak Enterprises, Inc., 429 F. Supp. 2d 1265 (M.D. Fla. 2004). 

Contrary to Royal Oak’s assertion, this statute does not create a duty to provide mutually agreeable counsel. First, the statute is implicated only when the insurer raises a “coverage defense,” defined by the Florida Supreme Court as “a defense to coverage that otherwise exists.” So defined, a “coverage defense” does not include a disclaimer of liability based on an express coverage exclusion in the policy.²³ Second, the only penalty for noncompliance provided for in the statute is that the insurer is precluded from denying coverage “based on a particular coverage defense.” It does not provide that the insurer’s failure to obtain mutually agreeable counsel in the event of a coverage dispute entitles the insured to recover the fees and costs of its separately retained counsel. Accordingly, § 627.426(2) cannot serve as a basis for imposing a duty on Travelers to obtain mutually agreeable counsel for Royal Oak.

Travelers Indem. Co. of Ill. v. Royal Oak Enterprises, Inc., 429 F. Supp. 2d 1265, 1272 (M.D. Fla. 2004)

Florida Law Prohibits Discovery on Insurer’s Claims File Until Coverage Litigation Has Been Concluded

State Farm Fla. Ins. Co. v. Desai (3d DCA 2013)

Roshani Desai filed a declaratory action to determine whether an alleged ‘plumbing loss’ was covered by her homeowners’ insurance policy. Prior to a determination as to coverage, the trial court entered a discovery order requiring the insurer to (1) produce claim manuals and/or guidelines relating to certain policy language and (2) provide a representative to testify as to the claims manual, guidelines, and insurance policy.

The insurer sought certiorari review of the discovery order, contending that Florida law prohibits insureds from obtaining discovery into an insurer’s claims file and claims handling materials until contract/coverage litigation has been concluded. The court agreed and thus granted the petition and quashed the discovery order.

Exception to the Pollution Exclusion Regarding Ongoing Operations Did Not Apply After Condominium Was Occupied

CDC Builders, Inc. v. Amerisure Mut. Ins. Co. (U.D. District Court S.D. Fla. 2011)

In this omnibus order the Southern District of Florida granted an insurer’s motion for summary judgment, ruling that it had no duty to defend its insured in litigation over damages caused by Chinese drywall. The parties agreed that the Chinese Drywall caused damages to various condominiums after the condominium owners took over the units. The parties further agreed that the damages sustained were caused by the emission of “pollutants,” as that term was defined by the operative policies.

The point of contention was whether or not the policies’ contractor job site exception to the total pollution exclusion applied. The total pollution exclusion and contractor job site exception, which were added by endorsement, provided as follows:

This insurance does not apply to:

f. Pollution

(1) “Bodily injury” or “property damage” which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time.

This exclusion does not apply to: …

(c) “Bodily injury” or “property damage” sustained within a building and caused by the release of gases, fumes or vapors from materials brought into that building in connection with operations being performed by your or on your behalf by a contractor or subcontractor.

The court focused on the words “at any time” to conclude that the exclusion broadly narrowed coverage. It noted, however, that the exception to the exclusion was not nearly as broad and only applied to “issues associated with construction of a building while a contractor or subcontractor performs operations.” According to the court, the use of present tense in the exception and the “plain meaning of the phrase ‘Contractor Job Site Exception’ indicates that the focus is on events occurring during the actual construction on the job site by a general contractor …. Its plain meaning indicates that it was meant for an exception to apply during a period of time in which the building is being constructed. …” Because the damages claimed in the underlying complaint did not occur until after the plaintiffs had already taken occupancy of the condominiums, the court concluded that the buildings were no longer “contractor job sites” and the exception to the exclusion was inapplicable.