Image via Shepard's/McGraw-Hill.
"Coblentz agreements" are named after Coblentz v. American Surety Co., 416 F.2d 1059 (5th Cir. 1969). In many other jurisdictions they have other names, including generic titles such as consent judgments, but particularly in South Florida they are called Coblentz agreements, and they are special. They are valid only after a liability carrier has denied all coverage.
Moreover, in order to prevail under one of these agreements for a recovery in excess of liability policy limits, the crucial issue in the resulting "bad faith" case is whether the carrier's denial of coverage was wrongful.
An explanation and application of Coblentz agreements were offered by an appellate panel of the Federal Eleventh Circuit Court of Appeals in a case involving Florida substantive law:
Coblentz agreements permit an insured to “enter into a reasonable settlement agreement with the [plaintiff] and consent to an adverse judgment for the policy limits that is collectable only against the insurer.” Perera v. United States Fid. & Guar. Co., 35 So. 3d 893, 900 (Fla. 2010). If a plaintiff wishes to recover in excess of the policy limits, the plaintiff must establish that the insurer acted in bad faith in wrongfully denying coverage.
Garcia v. GEICO General Ins. Co., 807 F.3d 1228, 1230 n. 1 (11th Cir. 2015).
Since the crucial issue in the case was whether the carrier's denial of liability insurance coverage was wrongful, the panel held that the carrier was entitled to put on evidence that its coverage decisions were reasonable, and to put on evidence, specifically, of coverage decisions by the Florida Courts that supported the carrier's coverage decisions at the time the carrier made those decisions.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements). The Garcia case is a good illustration of the rule predicted in § 5.26 that a defense of "Fairly or reasonably debatable claim" for an allegedly wrongful denial of coverage should be permitted by the Courts on the overall issue of "wrongful" denial of coverage, i.e., on the issue of "bad faith" in a Coblentz context. As the appellate panel decided in Garcia, evidence should be admitted on the central issue of whether the liability insurer's resolution of an uncertain legal conflict over policy interpretation was reasonable at the time the coverage decision was made, even though the liability carrier's resolution of that issue is judicially determined later to be the wrong answer to the question. All rights reserved.