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.

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)).

Insurance Agents Are Not Liable for Attorney’s Fees Under Florida Statute Sec. 627.428

Underwood Anderson & Assoc., Inc. v. Lillo’s Italian Rest., Inc., (Fla. 1st DCA 2010)

An insurance agent appealed the trial court’s award of $100,000 in attorney’s fees to the insured under Fla. Stat. § 627.428(1) after a judgment for negligence procurement of a flood insurance policy in the insured’s favor, because, the agent claimed, he did not qualify as an insurer under the terms of the statute. The court agreed and held that the agent did not constitute an insurer under § 627.428(1) because he merely facilitated the insurance contract to which he was not a party.

Insurer Was Entitled to Electronic Discovery of Insured’s Entire Computer System

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?

 

The Number of Exclusions in a Policy Do Not Render Coverage Illusory

Colony Ins. Co. v. Total Contracting & Roofing, Inc. (U.S. District Court S.D. Fla. 2011)

In this insurance coverage dispute, the Southern District of Florida was faced with cross-motions for summary judgment as to an insurer’s duty to indemnify its insured for damages arising out of the insured’s installation of defective drywall.

Before turning to the insurer’s motion, the court first summarily denied the plaintiff-claimants’ cross-motion for summary judgment, explaining that they were mere third-parties to the insurance contract at issue and thus had “no basis … to assume the role of the insured here and litigate this case as if they were [the insured].”

The court then turned to the insurer’s motion for summary judgment and noted that the parties were all in agreement that the defective drywall claims fell completely within a “hazardous materials exclusion” to the operative policy. The court considered the claimants’ argument that, based on all of the exclusions and limitations cited by the insurer in its declaratory judgment complaint, coverage under the policy was rendered illusory. The court rejected this argument explaining (i) that the “hazardous materials exclusion” did not render the policy illusory as a matter of law because it did not completely contradict the policy’s insuring provisions, and (ii) that the sheer number of exclusions cited in a declaratory complaint could not, standing alone, establish illusory coverage. The court accordingly entered the insurer’s motion for summary judgment.

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.”