Chiropractic Clinic is Withheld Insurance Benefits for Failure to Comply with Florida Health Care Clinic Act (FHCCA)

State Farm Fire & Cas. Co. v. Silver Star Health & Rehab (11th Cir. 2013)

An insurer paid a chiropractic clinic $151,000 for treatments provided to its insureds, but withheld an additional $86,000 on the basis that the clinic’s failure to comply with the licensing requirements of the Florida Health Care Clinic Act (“FHCCA”) rendered the treatments unlawfully provided.  The insurer then prevailed in a suit for declaratory relief and unjust enrichment.  The clinic appealed, but the Eleventh Circuit affirmed, ruling, inter alia, that a court in a civil action may determine whether there has been a violation of a FHCCA licensing requirement.

Insurance Company and Insurance Agent Were Deemed Same Entity Regarding Notice Requirements

In Siguenza v. Citizens Prop. Ins. Corp. (Fla. 3d DCA 2013), the insurer, Citizens, denied a claim based on late notice and insured sued for breach of contract, testifying that she gave prompt notice directly to insurance company.

Citizens contradicted testimony through affidavit, prompting insured to file affidavit clarifying that she gave prompt notice to insurance agent. The court granted summary judgment in insurer’s favor, finding the insured’s subsequent affidavit in contradiction with her testimony. Appellate court reversed, ruling a material question of fact existed regarding timeliness of loss since insured considered the insurance company and the insurance agent to be the same entity and since the policy provided that prompt notice could be given to either one.

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.

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.

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 Not Required to Participate in Appraisal Where the Insured Failed to Comply With Appraisal Requirements

Citizens Prop. Ins. Co. v. Casar (Fla. 3d DCA 2013)

The Casars, insured with Citizens under a homeowners’ policy, filed a claim for water damage alleged to have been caused by a refrigerator line leak. After two inspections, Citizens concluded that the damage to only some of the items claimed were caused by the leak. Because Citizens also valuated the damages at a disagreeable amount, the Casars sent a written demand for appraisal of the entire claim.

In response, Citizens forwarded an appraisal agreement that listed for appraisal only those items all parties agreed were damaged by the water. Because Citizens excluded from appraisal any of the items determined not to have been damaged by the leak, the Casars refused to sign the agreement and Citizens, in turn, declined to proceed with appraisal.

The trial court granted the Casars’ ensuing motion to compel appraisal, but the third district reversed on appeal. The court’s rationale was grounded in contract law: “The appraisal provision of the Citizens’ policy unambiguously requires a written request for appraisal and a written agreement between the parties in order for appraisal to take place. …. Citizens complied with the appraisal provisions of the Policy [by] forward[ing] an Agreement for Appraisal. The Casars would not agree to the terms. Therefore, appraisal could not take place. Citizens complied with the policy provisions and, as such, the trial court had no basis to compel Citizens to appraisal.”

Third Party Bad Faith Claim May Not Be Brought in Underlying Tort Action

GEICO Gen. Ins. Co. v. Harvey (Fla. 4th DCA 2013)

In August of 2006, Harvey’s vehicle collided with a motorcycle at an intersection, killing the motorcyclist. The decedent’s estate sued Harvey for negligence and obtained a jury verdict in the amount of $8 million damages. Pursuant to Florida’s nonjoinder of insurers statute (§ 627.4136), the estate added as a defendant GEICO—who insured Harvey pursuant to an automobile liability policy with limits of $100,000—in order to facilitate the entry of final judgment.

Harvey filed a crossclaim against GEICO, raising a new cause of action for insurance bad faith, alleging (1) that GEICO failed to settle the claim when it should have and (2) that GEICO’s failure to notify Harvey that the plaintiff wanted to take a presuit statement led to the filing of suit.

GEICO attempted to remove the action to federal court, but the notice was found to be untimely and the case was remanded to state court where GEICO moved to dismiss or sever the bad faith crossclaim. The motion was denied and GEICO petitioned for a writ of certiorari.

The fourth DCA granted the petition, observing that the denial of GEICO’s motion to dismiss defeated its right to have the action removed to federal court. It then quashed the order denying the motion to dismiss, explaining that per Florida Rule of Civil Procedure 1.170(g), a third party bad faith claim against an insurer for failure to settle may not be brought in the underlying tort action but must be raised in a separate cause of action:

Florida Rule of Civil Procedure 1.170(g) provides [that] “[a] pleading may state as a crossclaim any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter of either the original action or a counterclaim therein, or relating to any property that is the subject matter of the original action.” The wrongful death action in this case sounds in tort and arose from the August 2006 automobile accident. By contrast, defendant’s third party bad faith crossclaim against his insurer arises from the insurer’s alleged breach of its duty to act in good faith in handling the estate’s claim against the defendant. We conclude that these causes of action accrued at different times and do not arise out of the same transaction or occurrence for purposes of rule 1.170(g).

Interlocutory Appeal in Declaratory Action Denied Because Facts of All Counts Were Intertwined

Universal Underwriters Ins. Co. v. Stathopoulos & W. Gen. Insurance Co. (Fla. 2d DCA 2013)

Shortly after a woman drove a newly-purchased car off a dealership lot, her application for financing was rejected and she was instructed to return the car to the dealership. Before she could do so, the car was involved in an accident that resulted in the death of another person.

Western General Insurance Company (“WG”) defended and indemnified the driver in that action, which resulted in a $3 million consent judgment and an assignment of any proceeds of any causes of action against Universal Underwriters Insurance Company (“Universal”), the insurer that had written the dealership’s “garage” policy. Although Universal had declined coverage for the wrongful death suit, it was potentially responsible for coverage because, absent financing, the car arguably belonged to the dealership while in the driver’s possession.

A three-count suit was filed against Universal for (i) declaratory relief; (ii) breach of contract; and (iii) bad faith. As to the count for a declaratory relief, the trial court entered an order declaring that the driver was an insured under Universal’s policy. Although the counts for breach of contract and bad faith remained pending, Universal filed an appeal. The second district dismissed the appeal without reviewing the merits explaining that “[b]ecause the amended complaint reflects that the three counts are based on the same facts and are intertwined, … allowing an appeal of the declaratory count at this stage would foster impermissible piecemeal review.”

Insured Entitled to Attorney’s Fees For Cost of Improper Deduction of Depreciation by Insurer in Wind Damage Claim

Sunshine State Ins. Co. v. Davide  (Fla. 3d DCA 2013)

Underlying this case is a claim for wind damages pursuant to an insurance policy. The damages were submitted to appraisal, but based on the award’s wording, the insurer was unsure whether the award had already taken into account deductions for depreciation.

When the insurer was unable to receive clarification on this issue, it presumed that depreciation had not been factored in and thus deducted from the award the amount that it unilaterally concluded would be the amount of depreciation.  The insured then filed a complaint against the insurer for breach of contract, bad faith, and to confirm the appraisal award.

Then, after the insurer received a letter from the appraiser noting that depreciation had already been deducted, the insurer paid its insured the depreciation amount it had previously withheld. Multiple motions and pleadings ensued, including the insured’s motion for attorney’s fees and costs for having recovered the depreciation payment.

The trial court granted the motion and held an evidentiary hearing to determine the appropriate amount. The trial court, in a very detailed order, awarded 150 hours at $450.00 per hour plus a multiplier of 2.0 with costs and expert fees. The third district affirmed the order, declining to find an abuse of discretion particularly since the trial court had concluded that the 150 hours “were necessary and crucial to reaching the results that were obtained.”