Insured Woman Had No Right to $10,000 in Uninsured Motorist Benefits; Money Went to Hospital’s Claim of Lien

GEICO Gen. Ins. Co. v. Hoy (Fla. 2d DCA 2013)

A woman with automobile insurance providing $10,000 in per person uninsured/underinsured motorist coverage (“UM”) was treated at a hospital for injuries she sustained in an automobile accident with an uninsured motorist. The woman was discharged from the hospital owing it $39,000, and the hospital filed a claim of lien in that amount in the public records.

The woman signed a release for the $10,000 UM benefits in favor of her insurer and, in exchange, the insurer issued a check in the amount of $10,000. The hospital advised the insurer that it would agree to accept $5,000 of the $10,000 in UM benefits to permit the woman and her husband to have the remaining $5,000 and to satisfy its claim of lien in full. Although the woman thus collected $5,000, she sued her insurer for fraud in the inducement (among other things), claiming that the insurer had misinformed her about the amount she would receive in exchange for signing the release.

The matter went to trial and on appeal the second district ruled that the trial court should have granted the insurer’s motion for directed verdict since the woman failed to establish the damages element of her claim. The court explained that the woman sustained no loss in reliance on the alleged misrepresentation because the hospital had a lien entitling it to receive the entire $10,000 UM benefit and, therefore, the woman technically received $5,000 to which she had no right.

The “your product” Exclusion Applies if the Product is not Fundamentally Changed

Recently, in Liberty Mut. Fire Ins. Co. v. MI Windows & Doors, Inc. (Fla. 2d DCA 2013), the Court relied on a “your product” exclusion of a CGL policy to partially reverse summary judgment that was entered in favor of insured window and door manufacturer and against insurer.  The court ruled that the exclusion applied since the fact that a third party added transoms to the insured’s sliding glass doors did not fundamentally change the nature and function of the doors, thus the doors remained the insured’s product.

Florida Supreme Court: Ambiguities in Insurance Policies Interpreted in Favor of Coverage for Policyholder

Recently, I told you about a case handed down by the Florida Supreme Court regarding ambiguities in insurance policies.  I co-authored an article on InsuranceDay.com expanding on the case, titled “Insurers Lose the Safety Net of Extrinsic Evidence for Ambiguities.”  Here’s the link to the article (which requires a subscription) and the body is reproduced below:

Insurers Lose the Safety Net of Extrinsic Evidence for Ambiguities

Recently, the Florida Supreme Court handed down a notable victory for policyholders regarding the rules for resolving disputes over policy interpretation.  In a nutshell, in Washington Nat. Ins. Corp. v. Ruderman, No. SC12-323, 2013 WL 3333059 (Fla. July 3, 2013), the Court held that when a “policy is ambiguous it must be construed against the insurer and in favor of coverage without resort to consideration of extrinsic evidence.”  To simply summarize the ruling, if the policy is deemed ambiguous, the insurer loses—period. The ruling has implications for the industry and means that underwriters and insurers have to exercise extreme diligence when drafting insurance policies in Florida.

In Ruderman, the Court considered whether the “Automatic Benefit Increase Percentage” provision in a home health care coverage policy was ambiguous as it applies to the daily benefit amount or the per occurrence maximum benefit and the lifetime maximum benefit amount.  The Court found that the way the policy was drafted, language that the “Benefits increase by 8% each year” could apply to the daily benefit, but could also be read to apply to the per occurrence maximum benefit and the lifetime maximum benefit amounts.  Needless to say, the Court found that the policy could be reasonably interpreted in two separate ways, each of which affected the outcome of the coverage inquiry.

In the 4-3 decision, the Court made—or “reiterated,” depending on how previous caselaw is interpreted—two fundamental rules regarding the interpretation of insurance policies in Florida.  First, the Court held that, when there is a potential ambiguity in an insurance policy, no extrinsic evidence will be allowed to clarify the potential ambiguity.  Second, in the instance that there is an ambiguity in an insurance policy, the policy must be “strictly construed against the insurer.”  Stated differently, ambiguities will be liberally construed in favor of finding coverage for the insured.  Although the rules arose in the narrow context of home health care coverage for the elderly, it now applies to the construction of all insurance policies under Florida law.

In a well-reasoned dissent, Justice Polston pointed out that precedent disallowing extrinsic evidence applied in situations where an ambiguity had not been declared.  If extrinsic evidence is available to clarify the ambiguity, it serves the parties’ interests that the ambiguity is resolved with all of the available tools of construction, including extrinsic evidence.  Further, he reasoned, the rule regarding construing the language of the policy against the insurer should be used as a last-resort principle, not as a general rule of policy construction as the majority held.   In sum, the dissent proposed that, if a policy is clear, extrinsic evidence should not be allowed, but, in the instance that an ambiguity is present that could be clarified, the rule of construing the policy against the insurer should be the last resort, not a default.  The majority’s holding, he argued, segregates insurance policies from other types of contracts by placing the notion of interpreting an insurance policy against the drafter before basic rules of policy construction.

The majority’s opinion is harsh.  Even when reference to outside evidence is available, the majority suggests courts should turn a blind eye to factors that may easily glean the intent of the parties, including factors as simple as referring to course and custom between the policyholder and the insurer, previous negotiations with an insured, or even some consideration for the level of an insured’s sophistication.

In addition to being a primer on policy interpretation in Florida, Ruderman holds implications for all insurers and underwriters that issue policies in Florida.  Because Florida courts may only view the actual terms of the insurance policy to determine whether there is an ambiguity, insurers must draft policies with a deft eye. It is impossible to anticipate every factual situation that may render a policy subject to more than one reasonable interpretation, but the burden is nonetheless on underwriters to get it right.

The Court did not address policies that include express warranty provisions or policies that include expansive “application” language that essentially incorporates all of the policy negotiating into the four corners of the insurance contract.  If the policy consists of underwriting material, so the argument would go, it cannot be argued that the material is extrinsic but rather it is a part of the policy no different than the insuring agreement, the definitions, or exclusions.

The Court certainly had pointed drafting tips for insurers, including:

[W]here an insurance policy is drawn in such a manner that it requires the proverbial Philadelphia lawyer to comprehend the terms embodied in it, the courts should and will construe them liberally in favor of the insured and strictly against the insurer to protect the buying public who rely upon the companies and agencies in such transactions. We recognize that unless restricted by statute or public policy, insurance companies have the same right as individuals to limit their liability and impose conditions upon their obligations.

Id. at *6. (internal quotations and citations omitted).

Although the Court’s quip that interpreting an insurance policy should not require the intellect of the “proverbial Philadelphia lawyer” was a playful reference to the complicated language of some policies, there is some truth in its jest.  Interpreting an insurance policy can often be a daunting task, which explains the recent trend in policy drafting towards plain language.  In essence, when it comes to insurance policies, the Florida Supreme Court wants insurers to keep it simple.

What insurers and policyholders can take from Ruderman is essentially one firm rule and one rule that is not quite settled.  The firm rule is that the use of extrinsic evidence is prohibited when it comes to interpreting an insurance policy.  To that, there is no debate. The unsettled rule is whether policies are to be interpreted against the drafter in general or only in instances of ambiguity.  The dissent suggests that the rule is now the former.  Yet, the majority implies both throughout its opinion.  What we do know is that underwriters are now more vulnerable and, when it comes to interpreting policy language, they will not get the benefit of the doubt.

Turning Over Uninsured Motorist Rejection Form After Suit Was Not Confession of Judgment

Contreras v. Century Ins. Co. (Fla. 5th DCA 2011)

Petitioner, Contreras, seeks certiorari review of a decision and opinion of the Seminole County Circuit Court, sitting in its appellate capacity, affirming the county court’s final judgment in favor of an insurer in the declaratory judgment action filed by Petitioner and a decision to award appellate attorney’s fees to Respondent.  The 5th DCA held that the circuit court did not err in affirming the county court’s final judgment in favor of the insurer’s right to obtain a signed uninsured motorist rejection form because turning over the form after suit was filed did not constitute a confession of judgment as a matter of law.  As to the award of fees, the court stated that the appellate issue did not meet the threshold for section 57.105 and vacated the order.

Florida Supreme Court: When an Insurance Policy is Ambiguous, It Is Interpreted in Favor of Coverage; No Extrinsic Evidence Allowed

Just last week, in Washington Nat. Ins. Corp. v. Ruderman, SC12-323, 2013 WL 3333059 (Fla. July 3, 2013), the Florida Supreme Court held that an insurance policy was ambiguous where it provided for annual increasing benefits, but did not specify which benefits increased.   The specifics of the ambiguity in this case are not  important, what is important is the rule.  The Court held that where there are ambiguities in policies, the policy should be interpreted liberally against the drafter and in favor of coverage, and extrinsic evidence should not be used to clarify the ambiguity.  The Eleventh Circuit was uncertain in regard to Florida law based on Excelsior Insurance Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938 (Fla. 1979), which indicated that extrinsic evidence may be allowed.  The Court held:

The Eleventh Circuit in the instant case did not rely on its reasoning in the Gradinger decision and, further, now expresses doubt that Florida law is settled on whether an ambiguous insurance policy should be strictly construed against the insurer or whether extrinsic evidence must first be allowed in an attempt to clarify any potential ambiguity…. We now make clear that nothing in Excelsior expressly holds that extrinsic evidence must be considered in determining if an ambiguity exists. Further, nothing in Excelsior constitutes an implicit declaration that resort must be made to consideration of extrinsic evidence before an insurance policy is found to be ambiguous and construed against the insurer.

The take away here is that when an insurance policy can be interpreted multiple ways, it should be interpreted liberally and in favor of the party that did not draft it. See also Gradinger v. Washington National Insurance Co., 250 F. App’x 271 (11th Cir. 2007).  Here is a good sound bite from the case that I found entertaining:

As we noted in Hartnett v. Southern Insurance Co., 181 So. 2d 524, 528 (Fla. 1965), where an insurance policy is “drawn in such a manner that it requires the proverbial Philadelphia lawyer to comprehend the terms embodied in it, the courts should and will construe them liberally in favor of the insured and strictly against the insurer to protect the buying public who rely upon the companies and agencies in such transactions.” We recognize that “[u]nless restricted by statute or public policy, insurance companies have the same right as individuals to limit their liability and impose conditions upon their obligations.” Canal Ins. Co. v. Giesenschlag, 454 So. 2d 88, 89 (Fla. 2d DCA 1984). However, the insurance company has a duty to do so clearly and unambiguously.

Read the entire decision here.

Additional Insured May Be Entitled to Separate, Independent Counsel When There is a Conflict With a Co-Insured

Recently, I wrote a synopsis of Univ. of Miami v. Great Am. Ins. Co., Case No. 3D09-2010 (Fla. 3d DCA Feb. 20, 2013), which was published on Hinshaw & Culbertson’s website.  In essence, the holding of the case is beneficial for policyholders and may create a duty for an insurer to provide separate counsel (i.e., another attorney), to an additional insured in situations where the named insured and additional insured have a conflict.  For more details, check out the article in its entirety, which can be found here, and is reproduced below as well.

On July 18, 2000, a young child drowned and nearly died while at a summer swim camp held on a university’s campus. The child’s parents sued both the camp and the university for negligent supervision. The lawsuit also included allegations that the university was vicariously liable for the camp’s negligence.

The university was an additional insured under a commercial general liability policy issued to the camp. The policy contained a separation of insureds provision.

In response to the lawsuit, the insurer retained the same defense counsel to represent both the university and the camp. Shortly after suit was filed, the university advised the insurer that there was a conflict of interest in the single representation of itself and the camp, and demanded independent counsel of its own choice. The insurer refused, and the university retained counsel at its own expense.

After the negligence case settled, the university filed a declaratory judgment action against the insurer, arguing that the insurer breached the policy by failing to provide it with separate counsel from the camp. The university sought reimbursement of its defense costs and attorneys’ fees.

The insurer moved for summary judgment, arguing that there could be no conflict of interest in its representation by a single counsel because the camp was contractually bound to indemnify and hold harmless the university for any liability arising out of the camp’s use of its facilities. The trial court agreed and held that the insurer had no obligation to reimburse the university for its fees and costs.

In a case of first impression, Univ. of Miami v. Great Am. Ins. Co., Case No. 3D09-2010 (Fla. 3d DCA Feb. 20, 2013), Florida’s Third District Court of Appeal reversed the trial court’s holding. On appeal, the university argued that there was an obvious conflict of interest with the camp, as evidenced by the pleadings which contained direct allegations of negligence on the part of both defendants as well as vicarious liability. The defendants also each alleged that they were relieved of liability based on the negligence of the other in their answers to the complaint.

The court agreed with the university, concluding that it was entitled to its own independent counsel based on the allegations and record evidence which established “inherently adverse” legal defenses between the university and camp. To defend both co-defendants, the court observed that “counsel would have had to argue conflicting legal positions, that each of its clients was not at fault, and the other was, even to the extent of claiming indemnification and contribution for the other’s fault. In so doing, legal counsel would have had to necessarily imply blame to one co-defendant to the detriment of the other.” According to the court, “[o]n these facts, we believe this legal dilemma clearly created a conflict of interest between the legal defenses of the common insureds sufficient to qualify for indemnification for attorney’s fees and costs for independent counsel.”

While the holding of this case is noteworthy, the dissent is also significant. In a lengthy and well-reasoned dissent, Judge Frank A. Shepherd noted that there was no actual conflict of interest or even a “‘substantial risk’ of conflict” between the insureds. Judge Shepherd observed that the majority’s decision to afford the university and camp separate counsel on the basis of mere finger pointing created by their own pleadings was nothing more than a “paper conflict.” According to the dissent, the majority would afford insureds “separate counsel any time an insured articulates a conflict in a pleading, whether or not real.”

Judge Shepherd further noted that the “flaw in the majority opinion is that it confuses and conflates insurer obligations in three unrelated circumstances: (1) the duty to defend; (2) conflicts between an insured and insurer; and (3) conflicts between insureds.” In a statement based on the majority’s citation of cases from all three circumstances, Judge Shepherd observed that this case involved only the third circumstance and that “the majority makes no effort to distinguish among them in its resolution of this case.”

Practice Note

This case expands an insured’s right to independent defense counsel where there is a perceived conflict of interest with a co-insured. Although the dissent argued that this case expands the requirement to provide separate defense counsel to insureds anytime an insured “articulates a conflict in a pleading,” the majority also relied upon “record evidence” submitted on summary judgment. From a practical standpoint for insurers, where an insured seeks separate, independent counsel from a co-insured and there are allegations of a conflict of interest between them, separate counsel may need to be provided.

The actual case opinion is also available on the link above.

Insureds and Insurers Behaving Badly – Insured Who Left During EUO Given a Second Chance

First Home Ins. Co. v. Fleurimond, (Fla. 1st DCA 2010)

Upon written request for an EUO relating to a claim for damage to a home under a homeowners policy, an insured appeared without counsel, but left in the middle of the EUO after, he claimed, the examiner badgered and yelled at him. Upon retaining counsel, the insured offered to resume the EUO, but the insurer refused, stating that it was too late. Upon the insured’s filing suit demanding an appraisal, the insurer opposed the demand citing breach of policy obligations for failure to comply with the cooperation provisions. The 1st DCA affirmed the lower court’s ruling in favor of the insured, partly because the insured partially attended the first EUO and offered to resume the EUO before the suit was filed.

Bad Faith Discovery of Claims and Underwriting Files is Generally Irrelevant in a Coverage Action

Florida courts have consistently ruled that bad-faith discovery of an insurer’s business policies and claims handling procedures is premature until the insurer’s obligation to provide coverage has been established.  Florida’s Third DCA reiterated this rule in XL Specialty Ins. Co. v. Skystream, Inc., 988 So.2d 96, 98 (Fla. 3d DCA 2008).

In Skystream, the insurer initiated a declaratory judgment action to determine that it owed no duty to defend and indemnify against claims brought by the estates of passengers killed in an airplane crash. After the insurer’s duty to defend was determined on cross-motions for summary judgment, the insureds moved to amend to assert bad faith and also propounded bad faith discovery. In response, the insurer moved to dismiss and opposed the discovery with a motion for protective order, which the lower court denied. On certiorari review, the court held that the bad faith discovery was premature, even though there was a determination of coverage, because there still was not a ruling regarding damages. Id. at 98 (citing Imhof v. Nationwide Mut. Ins. Co., 643 So.2d 617, 619 (Fla. 1994)).

Appraisal is Only Covered Under Ordinance and Law Coverage if Loss Actually Occurs During Policy Period

Jossfolk v. United Prop. & Cas. Ins. Co. (Fla. 4th DCA 2013)

The roof of an insured structure was damaged and submitted for appraisal. A neutral appraisal entered an award on damages, but stated that Ordinance and Law coverage (which represents the cost of bringing any structure into compliance with applicable ordinances or laws) had not been appraised. The insurer made payment to the insured based upon the award and the insured then applied for a roofing repair permit from the City of Weston, claiming that 34% of the roof area needed repair. The City of Weston rejected the permit since the repair exceeded the area allowed by the building code to be repaired without requiring replacement of the entire roof system. The insured then asked the insurer to pay for the entire roof repair under Ordinance and Law Coverage, but the insurer declined to increase payment.

As a result, the insured filed a declaratory judgment action, seeking a ruling that the insurer must participate in an appraisal for Ordinance and Law coverage. A trial court entered final summary judgment in favor of the insured, noting the insurer’s argument that the appraiser had denied Ordinance and Law coverage. On appeal, the fourth district disagreed, concluding that Ordinance and Law coverage is not recoverable until it is incurred. Stated differently, the fourth district ruled that because no Ordinance and Law Coverage was incurred at the time of the original appraisal, the appraisal never appraised Ordinance and Law Coverage.

Florida 4th DCA Opines on the Definition of “Marring” under an Insurance Policy

Ergas v. Universal Property & Casualty Co., Case No. 4D11-3803 (Fla. 4th DCA April 24, 2013)

This case came out this week detailing the definition of “marring” in the 4th DCA and upholding the marring exclusion to exclude coverage in dropped object cases.  It held, “Damage caused by the hammer dropping constituted marring and thus was excluded from policy coverage.”

In more detail, the insured brought suit based on the denial of a claim for damage as a result of a dropped hammer on a tile floor. Universal determined that the damage to the tile, about the size of a quarter, was not covered by the insured’s homeowner’s policy as such was excluded under exclusion number 2., which excludes damage  “Caused by: . . . (e) Any of the following:(1) Wear and tear, marring, deterioration . . . .”

Specifically, the marring exclusion was the basis for the denial and on which summary judgment was granted at the trial court level. The Fourth District upheld the order granting the carrier’s Motion for Summary Judgment holding that the loss was a “…disfiguring mark; blemish… ” and not the same as “wear and tear.” The Fourth District concluded that the term marring was unambiguous and not covered based on the relevant exclusion.