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.

An Insurance Carrier’s Duty to Defend Under Florida Law

The duty to defend based on an insurance policy under Florida law is very straightforward.  Florida applies a test that the duty to defend is determined strictly by the allegations in the complaint as compared to the insurance policy. See Higgins v. State Farm Fire & Cas. Co., 894 So.2d 5, 9-10 (Fla. 2004). An insurer must defend only when the complaint includes allegations that “fairly and potentially” bring the transaction within the coverage provisions of the policy. Trizec Properties, Inc. v. Biltmore Constr. Co., 767 F.2d 810, 811 (11th Cir. 1985). When an exclusion in the policy applies, there is no duty to defend.  Acceptance Ins. Co. v. Bates, Dunning & Assocs., Inc., 858 So.2d 1068, 1069 (Fla. 3d DCA 2003). 

What does the “duty to defend” mean?  Essentially, it means that if an insured party is sued, the insurance carrier will “defend” it against the lawsuit.  In other words, they will hire and pay for an attorney to defend the insured.  When an insurance company hires an attorney to defend the insured party, the hired attorney finds himself in sort of a dual role.  On the one hand, the attorney represents the insured party as that is his client.  On the other hand, the insurance company is paying the attorney’s fees.  So, although the attorney must zealously represent the interest of his client (the insured party), he must also report to the insurance carrier and let them know how the case is going.

This dual role is usually not a cause for concern because both the insured party and the insurance company want the same thing: for the insured party to get out of the lawsuit with as little damage as possible.  If there are coverage issues, this may become a little more complicated.   But still, even with coverage issues the insurance carrier and the insured both still have aligned interest when it comes to getting the insured out of the lawsuit unscathed.  For more on the role of the attorney when an insurance company is defending under a reservation of rights, check out The Dance of the Porcupines, by Andy Grigsby.  (It’s linked at the bottom under “Download PDF.”)

Independent Contractor Exclusion Barred Coverage Under a CGL Policy

Catlin Specialty Ins. Co. v. Cohen et al. (U.S. District Court M.D. Fla. 2012)

This case involved a dispute over the application of an independent contractor exclusion in a commercial general liability (“CGL”) policy. In the underlying state court action, the insured commercial property owner was sued for wrongful death when a man fell to his death from a roof on the premises. The decedent, a security camera installer, had been on the premises in order to take various measurements in order to properly install security cameras in accordance with a contract he had entered into with the insured property owner.

The insured first attempted to argue that the decedent was an unauthorized trespasser since he had ascended the roof without permission. The court rejected this claim, finding that the record established that there had been no prohibition against the decedent’s ascending the roof without permission. The insured then attempted to argue that the decedent was not yet an independent contractor, but was actually a mere business invitee. The explanation offered was that, at the time of his death, the decedent had not yet provided proof of insurance, as contemplated by the camera installation contract.

The court emphasized, however, that under the contract proof of insurance was not required on or before any stated time. Ultimately, the court entered judgment in the insurer’s favor, finding that because the decedent qualified as an independent contractor, the policy exclusion applied.