Claims and Bad Faith Law Blog

INDEMNITY FOR THE UNIVERSITY OF MIAMI'S ADDITIONAL INSURED DEFENSE EXPENSES: NEW FLORIDA LAW? Continued.

This is the conclusion of an article that began with the post here on Sunday, February 24, 2013.

           The dissenting Judge on this 3-Judge Panel emphasized for a good reason that there was no conflict over Insurance Coverage in this case.  In Florida, by Statute only, independent Counsel is required to be provided to an Insured under a Liability Insurance Policy only when the Liability Carrier asserts a statutory "coverage defense," meaning that the Carrier is required to provide mutually agreeable, independent counsel under the Florida Statute only when the Carrier asserts a defense to Coverage that otherwise exists.  See Fla. Stat. § 627.426.  Parenthetically, even when the Florida Statute is not complied with, the statutory sanction is that the Liability Carrier will not be permitted to raise the statutory "coverage defense" in question.

          Or, as the dissenting Judge put it in the University of Miami v. Great American case:  "Similarly in the case before us, the University of Miami has not alleged (or shown) how the disparity in potential liability between it and Magicamp affected in any way the joint defense provided it under the Great American policy."  University of Miami v. Great American Insurance Co., 2013 WL 616156 *7 (Fla. 3d DCA February 20, 2013)(Shepherd, J., dissenting).

          The Majority's holding in this case therefore appears to be based on one of two reasons.  Either the holding represents the making of new law in Florida, or it represents a determination that the Liability Carrier in the case acted in "Bad Faith".  The latter determination could not, in this case, include a failure to settle or a poorly provided defense, certainly, or either event would have been mentioned in the Majority Opinion and in the Dissent, but there is no mention of them by either the Majority or by the Dissent.  If there is a determination of "Bad Faith" inherent in the holding in this case, it therefore has to be the equivalent of a holding that the Liability Carrier in this case wrongfully refused to defend the Additional Insured-University of Miami.

          If the holding in this case represents new law in Florida,  nothing more needs to be said here.

          If the holding in this case is based on a wrongful refusal to defend, Attorney's Fees and Costs are ordinarily recoverable in such a case in Florida and in many other jurisdictions.  2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 13:13, "Attorney's Fees--Settlement or Defense of Third Party's Claim" (THIRD EDITION WEST PUBLISHING CO., 2013 SUPPLEMENT IN PROCESS).

          In neither case does it mean that either the two Judges in the Majority were correct in their holding, or that the one dissenting Judge was correct in his dissent.  It means only that the holding was based either on making new Florida law, or on a determination that in this case the Additional Insured, the University of Miami, was wrongfully denied a defense by the Named Insured's Liability Carrier when the Carrier refused to provide the University with separate, independent defense counsel given potentially conflicting legal positions of the two Insureds, if  presented in defense to individual active negligence claims against the Named Insured and against the Additional Insured.

Please Read The Disclaimer.

UNIVERSITY OF MIAMI'S ADDITIONAL INSURED DEFENSE EXPENSES: NEW FLORIDA LAW?

          A new Florida Appellate Court decision addresses an issue of first impression:  Can an Additional Insured obtain indemnity for its own defense expenses when it hired its own defense counsel because of a perceived ethical conflict on the part of the one defense counsel retained by the Insurance Company to defend two Insureds?  In this case, the two Defendants-Insureds are the University of Miami, the Additional Insured, and the Named Insured, MagiCamp, under a Liability Policy issued to MagiCamp:  University of Miami v. Great American Insurance Co., 2013 WL 616156 (Fla. 3d DCA February 20, 2013)  [STATED SUBJECT TO REVISION OR WITHDRAWAL BEFORE RELEASED FOR PERMANENT PUBLICATION].

          This vote in this case was 2-to-1 among the three Judges on the Appellate Panel.  They all knew that this is a case of first impression.  To quote the majority:

   The precise question presented by this appeal and these facts has not been answered directly in Florida. Simply stated, the question presented is whether in this factual scenario, where both the insured and the additional insured have been sued, and the allegations claim that each is directly negligent for the injuries sustained, a conflict between the [Named] insured and the additional named insured exists that would require the insurer to provide separate and independent counsel for each. We answer the question affirmatively.

University of Miami v. Great American Insurance Co., 2013 WL 616156 *2 (Fla. 3d DCA February 20, 2013). 

          The perceived conflict was not perceived because one Defendant was an Additional Insured or Additional Named Insured, and the other was the Named Insured.  Instead, an ethical conflict was perceived by the University of Miami and the 2-Judge Majority because of the possibility  of adverse legal positions based on the facts of the underlying case in which the University (Additional Insured) and the Named Insured had both been sued for negligence:

The conflict in this case is created by the adverse legal positions one attorney must take in representing two different defendants.

 University of Miami v. Great American Insurance Co., 2013 WL 616156 *3 n.5 (Fla. 3d DCA February 20, 2013).

          The Majority did not find a conflict originating in an Insurance Coverage dispute but instead found a conflict originating from potentially adverse possible legal positions in the underlying case:

Although no question of coverage or excess policy limits, upon which to base a conflict of interest, exists in this case, since coverage has been agreed to by the parties, the pleadings and record evidence on summary judgment create a conflict, not on coverage, but on legal defenses based upon the record facts....

* * *

These allegations create diverse legal positions that are inherently adverse. These conflicting legal positions presented in defense to individual active negligence claims against MagiCamp and UM exist separate and apart from issues of coverage or excess policy limits.

 University of Miami v. Great American Insurance Co., 2013 WL 616156 *3 (Fla. 3d DCA February 20, 2013).  [Emphasis added.]

          This perceived conflict resulted in a holding new to Florida but based on the Majority Opinion's review of a Federal District Court case from Pennsylvania and two State Court decisions from Illinois and New Jersey.  University of Miami v. Great American Insurance Co., 2013 WL 616156 *2 (Fla. 3d DCA February 20, 2013).  Following what it said were the holdings in these non-Florida cases, the Majority held that the University of Miami is entitled to indemnity from MagiCamp's Liability Carrier for the University's separate defense expenses in this case:

On 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.

 University of Miami v. Great American Insurance Co., 2013 WL 616156 *3 (Fla. 3d DCA February 20, 2013).

To be continued .....

Remand in Florida: You Can't Argue Fraudulent Joinder Without Fraud.

    In Taylor v. Admiral Insurance Co., 2012 WL 3113909 (S.D. Fla. July 31, 2012), Coverage and Bad Faith denial were alleged by an assignee of Miami-Dade County against an Excess and Surplus Lines Insurer.  The basis of the claim is Miami-Dade's reliance on a Certificate of Insurance.  The Carrier contended that Brown & Brown, a Florida corporation which issued the Certificate, was not authorized to issue a Certificate for Coverage with the Carrier.  Taylor v. Admiral Ins. Co., 2012 WL 3113909 *1 (S.D. Fla. July 31, 2012).

     The lawsuit was originally filed in Florida State Court in Miami.  The Carrier, Admiral, was the sole Defendant. Admiral had previously issued a General Liability Insurance Policy to the host of an "event" in Miami-Dade County.  Admiral was sued for alleged breach of contract, common law bad faith, and statutory bad faith for its denial of Miami-Dade County's request to Admiral "to defend and indemnify it".  Miami-Dade County asserted that it was Admiral's Additional Insured.  After the assignee was severely injured from a fall at the "event," she sued both Miami-Dade County and the host (Admiral's Policyholder) for damages.  Taylor v. Admiral Ins. Co., 2012 WL 3113909 *1 (S.D. Fla. July 31, 2012).

Admiral removed the case to Federal Court.  There, the Plaintiff successfully requested leave to amend the complaint and in it added a Defendant and two claims.  The added Defendant is Brown & Brown.  Adding Brown & Brown, a Florida corporation and a Florida resident for purposes of Diversity Jurisdiction, had the effect of destroying Federal Diversity Jurisdiction since both the Plaintiff and Brown are Florida residents.

     Brown & Brown filed a Motion to Remand accordingly.  Admiral opposed the motion essentially on the ground of fraudulent joinder, without arguing fraud.  Instead, Admiral argued that Brown should be dropped as a party.  Taylor v. Admiral Ins. Co., 2012 WL 3113909 *2 (S.D. Fla. July 31, 2012).

     The District Court granted the Motion to Remand.  In so ruling, the Court expressly declined to grant a rehearing on its prior ruling giving the Plaintiff leave to amend the Complaint to add Brown (and also to add one claim of "ratification" against Admiral while also alleging one claim of fraud against Brown & Brown).  The District Judge politely wrote:  "I decline Admiral's offer to reconsider my initial decision permitting the joinder of Brown & Brown, and drop Brown & Brown as a party."  Taylor v. Admiral Ins. Co., 2012 WL 3113909 *2 (S.D. Fla. July 31, 2012).

     There being no diversity upon which to any longer base Diversity Jurisdiction in this case, the case was accordingly remanded to the Florida State Court.

Please Read The Disclaimer.

Fiduciary Disclosure, Standards Underpin S.E.C. Anti-Fraud Claims Against Goldman.

   The Securities and Exchange Commission has filed a Civil Suit alleging Fraud against Goldman Sachs and one of its Officers, one Fabrice Tourre.  Download S.E.C. v. Goldman Sachs and Fabrice Tourre (S.D.N.Y. Case No. 10 Civ. 3229 Complaint Filed 04.16.10).  Here is the SEC's Press Release describing its Complaint:  Download Press Release.041610.SEC Charges Goldman, Sachs With Fraud in Connection With the Structuring and Marketing of a Synthetic CDO.

   The filing of this lawsuit has set off a tremendous number of newspaper reports from Coast to Coast, and across the world, every day since Friday when the SEC filed its lawsuit, down through the morning of this post.  E.g., Joshua Gallu & Christine Harper, "Goldman Sachs Sued by SEC for Fraud Tied to CDOs (Update 4)" (Bloomberg.com, Friday, April 16, 2010); Walter Hamilton & Nathaniel Popper, "SEC Targets Goldman Sachs With Fraud Suit" (latimes.com, Saturday, April 17, 2010); Gretchen Morgenson and Landon Thomas, Jr., "A Glare on Goldman, From U.S. and Beyond" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Monday, April 19, 2010); Aline van Duyn, "Regulator's Move Risks Opening Lawsuit Floodgates" (FT.com, Sunday, April 18, 2010).

    The SEC's lawsuit is not based on the inherent characteristics or the very nature of Collateralized Debt Obligations (CDOs).  It is based instead on a Claim of Fraud in the use of a CDO.  The CDO involved in the SEC's Lawsuit was called Abacus.  Goldman Sachs allegedly invented it and invited people, for a premium, to invest in it.  It was allegedly devised for the purpose of failure.  A billionaire client of Goldman Sachs selected the investment securities (tied to subprime mortgages) that would go into Abacus.  He then bet against the securities that he selected.  And made more billions.  The Abacus investors allegedly did not know that Goldman's client selected the securities which Goldman invited them to invest in; in fact, allegedly Goldman told the Abacus investors that an impartial/disinterested third party selected the securities.

  After Goldman's client selected the subprime mortgage securities to be placed inside the Abacus CDO, Goldman arranged for its billionaire client to insure them with Credit Default Swaps (CDSs), or credit insurance policies, which is how the client bet against the securities that the client selected.  Goldman Sachs allegedly also received a Premium for this form of Credit Insurance.  The insurers?  AIG and parties still unknown, but perhaps not unknown for much longer.  Simply put, when Abacus failed, Goldman's billionaire client received more billions from the payout of the Credit Default Swaps.

   Thus, the SEC lawsuit is underpinned by Fiduciary Standards of liability and behavior, i.e., Full Disclosure and No Self-Dealing.  Timely concepts for the SEC and other Regulators to enforce.  When those and similar Fiduciary Duties are not enforced, a Great Collapse is the present result -- and will be again if behaviors are not changed.

   A post on the SEC Lawsuit and Fiduciary Duties is on the Insurance Claims and Issues Blog of Sunday, April 18, 2010.

Please Read The Disclaimer.

New Cases, Old Lesson.

 Happy New Year! 

    New cases illustrate the differences in applying the "Reasonable Expectations Doctrine".  This important doctrine is not applied in all jurisdictions, and there is a split among the courts which apply it.   In a decision so new that it is not yet accessible (to me, anyway) and is not listed on the District Court's public web site, the Federal Court in the District of Arizona explained one view of this important doctrine:  "Under Arizona law, even unambiguous policy language will not be enforced against the insured if the insured had a reasonable expectation of coverage."   Madsen v. Fortis Benefits Ins. Co., 2006 WL 3771803 *8 (D. Ariz. Case No. CV 04-1959-PHX-JAT, Opinion Filed December 21, 2006)(subscription required to access Westlaw version).  [Emphasis added.]

    Before passing on to other recent cases involving a Reasonable Expectations Doctrine, several other rulings under Arizona law were made in this important new decision.  The Madsen case involved claims involving alleged First Party Bad Faith and Coverage.  The Plaintiff in that case, Ms. Jacqueline Madsen, "claims she was an additional insured under a nonrenewable Short Term Medical Policy" issued by Fortis.  (Id. at *1.)   The Federal Judge reiterated Arizona law (id. at *9), and entered Summary Judgment for the First Party Insurance Company in that case because of the Court's ruling that the Arizona Reasonable Expectations Doctrine required a jury determination of fact which, in the Federal Judge's view, clearly supported a determination that the Defendant acted reasonably and not in Bad Faith.  Further, something more was required to support Ms. Madsen's claim for Punitive Damages than even a showing of First Party Bad Faith.  "The something more that must be shown is evidence that Fortis was aware of and consciously disregarded a substantial and unjustified risk that significant harm would occur."  (Id. at *10.)  "Accordingly," said the Federal Judge, the ruling that the Plaintiff's First Party Bad Faith Claim in that case "fails as a matter of law" means that Summary Judgment is also granted in favor of Fortis in that case "on the punitive damages claim."

    In other jurisdictions that recognize a Reasonable Expectations of the Policyholder Doctrine, the doctrine is a rule of Insurance Contract Interpretation that applies only when there is an ambiguity.  The Supreme Court of Kentucky reviewed this doctrine in a famous Third Party or Liability Insurance Case involving a claim to Coverage under "a commercial automobile liability insurance policy, for example, in Brown v. Indiana Insurance Co., 184 S.W.3d 528, 531 (Supreme Court of Kentucky Case No. 2004-SC-0065-DG, et al., Opinion Filed December 22, 2005)(subscription required to access via Westlaw, Supreme Court of Kentucky public web site too difficult to access in time for this post).  The Doctrine of Reasonable Expectations, held the Supreme Court of Kentucky in that case, is a "principle [that] pertains to alleged ambiguities within the policy."   The Supreme Court held that there is no ambiguity in the Worker's Compensation Exclusions in the Commercial Auto Liability Insurance Policy before it  in that case.  "Accordingly, the opinion of the Court of Appeals [reversing the Trial Court with directions to enter Judgment in favor of the Insurance Company] is affirmed."  Id. at 540.  Recently, an alternative way of expressing the Reasonable Expectations Doctrine was addressed by a Federal Judge in another Liability Insurance Case in Download Travelers_Indem. Co. v. Bowling Green Professional Assoc's, PLC (W.D. Ky. Case No. 1.05CV171, Opinion Filed July 21, 2006).pdf.  This case is also reported at 440 F. Supp. 2d 652.  As applied in that case to "a Professional Liability Insurance for Specified Medical Professions Policy" (Slipsheet Opinion at 10), the Reasonable Expectations Doctrine will be defeated only where the Insurance Policy at issue unequivocally, conspicuously, plainly, and clearly manifests an Exclusion.  (Slipsheet at 12.)  In that Federal Case, "[t]he Court finds that there is no ambiguity in the ... Policy."  As a result, "the Court finds that [the Liability Insurance Company] owes no duty to defend or indemnify" its Policyholder in an underlying liability case and enters Summary Judgment in favor of the Liability Insurance Company which issued the Policy.  (Slipsheet Opinion at 13.)

    The clear lesson of these new decisions is an old lesson of caution:  Care must be taken to understand the Insurance Law of the place where the Insurance Policy is at issue and will be interpreted.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

 

The More, the Merrier ... But What Does the Policy Say?

    The Eleventh Circuit Court of Appeals just certified two  "additional insured" questions to the Supreme Court of Florida:

(1)  Will Courts applying Florida Insurance Law hold that a Liability Insurance Policy is "ambiguous" if that policy includes as a covered person "'any other person with respect to liability because of acts or omissions' of the insured"?
and
(2)  Will Courts applying Florida Insurance Law hold that a Liability Insurance Policy is limited to otherwise extending Coverage ONLY to where the additional insured is "vicariously liable" where the Liability Policy extends Coverage to additional insureds "'with respect to liability because of acts or omissions' of the named insured"?

Here is a link to  the Eleventh Circuit's  questions  in Maria Garcia v. Federal Insurance Co. (11th Cir. Opinion No. 05-14720, Questions Certified December 26, 2006).

    In Florida, the answers to questions about whether a person or entity is an "additional insured" often depend on the Insurance Policy language and on whether, under substantive law, the putative "additional insured" is actually or potentially vicariously liable for the conduct of the Named Insured, in basic terms.

    In Garcia, the Federal Trial Judge dismissed Ms. Garcia's lawsuit against Federal Insurance Company on these facts reported by the Eleventh Circuit on December 26, 2006, above.  The issues are not unfamiliar to many in Florida and in the United States outside of Florida.

    As reported by the Eleventh Circuit, Federal issued a Homeowners Policy that insured one Laura Anderson.  "Maria Garcia worked as a caregiver for Laura Anderson," and Ms. Garcia "served as a housekeeper and also ran errands" for Ms. Anderson in a used Volvo owned by a member of Ms. Anderson's family.  Slipsheet Opinion at 2.  Ms. Garcia had an accident with the Volvo in which the car struck one Gail Archer, "causing serious injuries."  Ms. Archer sued Ms. Anderson and Ms. Garcia, among others.  The Archer complaint alleged that Anderson was vicariously liable for Garcia's actions and omissions, but the claim of Anderson's vicarious liability does not appear to have been at issue for Insurance Coverage.

    What was at issue for Insurance Coverage was Ms. Archer's claim that Ms. Anderson and Ms. Garcia "negligently failed to maintain the car".  Slipsheet at 3.  Federal Insurance Company settled all claims against its Named Insured, Ms. Anderson, but denied any Coverage under the Anderson Homeowner's Policy for the claims alleged against Ms. Garcia.  "Garcia settled Archer's claim for $7,000,000" and filed suit against Federal for Coverage under Ms. Anderson's Homeowner's Policy issued by Federal.  Id.

    Perhaps particularly appropriate in this certification, but actually a standard part of the Eleventh Circuit's practice when certifying Florida State Law questions to the Supreme Court of Florida, the Eleventh Circuit openly stated that it did not mean to restrict, "in any way," the Florida Supreme Court's answer to the Eleventh Circuit's questions.  The Eleventh Circuit further broadly stated that "the questions posed are just a guide."  Slipsheet at 12.

    It will be interesting to see what, if any, response the Supreme Court of Florida has to the additional insured issues presented to it by the case of Maria Garcia v. Federal Insurance Co., linked above.

    Until then, best wishes to all for a Happy New Year!

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.