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CASE LAW UPDATE – APRIL 15, 2015

 April 15, 2015

CASE LAW UPDATE

Dear Ladies and Gentlemen:

The Florida Supreme Court and the Florida District Courts of Appeal have recently issued several opinions concerning coverage and bad faith that may be of interest to you.

EXECUTIVE SUMMARY

In Whritenour v. Thompson, 145 So.3d 870 (Fla. 2d DCA 2014), the Second District Court of Appeal reversed a summary judgment order compelling an appointed guardian to accept a Defendant’s liability insurance policy limits in full and complete satisfaction of her damages barring the legal guardian from obtaining a jury verdict on the issue of damages because of her alleged inability to prove a subsequent bad faith claim against the Defendant.  The Second District concluded that the viability of a bad faith action was not a legal basis that would support entry of a summary judgment order in a negligence case and a Plaintiff must be allowed to proceed to trial before bad faith becomes an issue.

In Travelers Commercial Insurance Company v. Harrington, 154 So.3d 1106 (Fla. 2014), the Florida Supreme Court answered certified questions in the negative and found that a family vehicle exclusion in an insured’s insurance policy, which excluded a family vehicle from the definition of an uninsured motor vehicle, was not in conflict with section 627.727(3), Florida Statutes (2009). Harrington, 154 So.3d at 1110.  The Florida Supreme Court also concluded that uninsured motorist benefits were not stackable under 627.727(9) if a named insured or purchaser of a policy made a non-stacking election since the waiver applied to all insureds under the policy.

In Omega Ins. Co. v. Johnson, 2014 WL 4375189 (Fla. 5th DCA Sept. 5, 2014), the Fifth District Court of Appeal reversed a trial court’s decision that granted an insured’s motion for attorney’s fees and costs pursuant to the confession of judgment doctrine.  The Fifth District held that the insured was not entitled to an award of attorney’s fees based on the insurance carrier’s tender of the policy limits because under the facts of the case, the carrier did not wrongfully or unreasonably deny benefits which forced the insured to file suit to obtain benefits.

In Arce v. Wackenhut Corp, 146 So.3d 1236 (Fla. 3d DCA 2014), the Third District Court of Appeal affirmed a trial court’s order awarding appellate fees and costs in favor of a Defendant and reversed a trial court’s order vacating an award for trial attorney’s fees entitlement order in favor of a Defendant since the Plaintiff and the trial court were bound by the plain meaning of the order and the mandate that followed which became law of the case.  The law of the case prevented the trial court’s consideration of lack of good faith in determining a fee award under offer of judgment statute.

 I.    Whritenour v. Thompson, 145 So.3d 870 (Fla. 2d DCA 2014)

FACTS AND PROCEDURAL HISTORY

This matter involved an appeal from an order granting summary judgment in favor of an appointed guardian which compelled the legal guardian to accept the Defendant’s liability insurance policy limits in full and complete satisfaction of her damages barring the legal guardian from obtaining a jury verdict on the issue of damages.  The trial court compelled her to accept the policy limits because of her alleged inability to prove a subsequent bad faith claim against the Defendant.

The legal guardian had brought a negligence action against Defendant Thompson which arose from a motor vehicle accident.  Defendant was insured with bodily injury liability limits of $300,000.  The Defendant’s insurance carrier retained counsel for Thompson and Thompson was advised to file bankruptcy.  Thompson filed bankruptcy and retained bankruptcy counsel.  The legal guardian’s personal injury claim was listed on the bankruptcy petition.  With respect to the negligence action, Thompson filed a motion for summary judgment wherein the bankruptcy attorney argued that Thompson had no personal liability and that the legal guardian’s maximum recovery was the liability insurance policy limits.  The trial court granted Thompson’s motion for summary judgment in favor of the legal guardian for the amount of Thompson’s policy limits.  Relying on Camp v. St. Paul Fire & Marine Insurance Co., 616 So.2d 12 (Fla. 1993), the court determined that the legal guardian was not entitled to proceed to a jury because she failed to file an action for bad faith prior to Thompson being discharged in bankruptcy.  The legal guardian appealed the court’s summary judgment order.

 APPELLATE COURT DECISION

The Second District Court of Appeal reversed the court’s decision granting summary judgment finding that the trial court erred as a matter of law because the legal guardian was entitled to a jury trial on the issues of negligence and damages.  On appeal, the legal guardian contended that the viability of her bad faith action was not a legal basis upon which to grant summary judgment.  The Appellate Court agreed that the legal guardian’s negligence action and any subsequent bad faith action were two separate and distinct causes of action.  The Defendant’s bankruptcy filing and discharge did not change the procedure required to bringing a bad faith action.  The court explained that a bad faith action did not arise until an insured was legally obligated to pay an excess judgment.  Further, the Plaintiff was required to obtain a judgment that determined liability and resulting damages.  In this matter, the only difference would be that the bankruptcy trustee would bring the bad faith action.  Thus, the court concluded that the viability of a bad faith action was not a legal basis that would support the entry of a summary judgment order in a negligence case and a Plaintiff must be allowed to proceed to trial before bad faith becomes an issue.

II.     Travelers Commercial Insurance Company v. Harrington, 154 So.3d 1106 (Fla. 2014)

FACTS AND PROCEDURAL HISTORY

This case arises from a motor vehicle accident involving an insured, Ms. Crystal Harrington who was injured while a passenger of a vehicle owned by her father and driven by a permissive user, Mr. Joey Williams.  The vehicle was insured by Travelers Commercial Insurance Company (“Travelers”).  Ms. Harrington’s mother was the named insured under the policy, there were three vehicles insured under the policy (including the one in the accident), and the policy provided non-stacked uninsured motorist (“UM”) coverage for Ms. Harrington, her mother, and her father.  The policy defined “your covered auto” as any of the three vehicles.  Travelers Commercial Insurance Company v. Harrington, 154 So.3d 1106, 1109 (Fla. 2014).  The driver of the vehicle was insured under a policy provided by Nationwide and he was also considered an insured under Ms. Harrington’s policy.

Nationwide paid its liability limits to Ms. Harrington.  Travelers also tendered its liability limits.  Nevertheless, Ms. Harrington’s damages still exceeded the combined limits.  Therefore, Ms. Harrington filed a claim for UM benefits to Travelers and Travelers denied the claim asserting that the vehicle was not an “uninsured motor vehicle” as defined on the policy.[1]  Ms. Harrington then brought an action against Travelers for UM benefits.  During the proceedings, Ms. Harrington filed a motion for summary judgment which was granted by the trial court.  The trial court concluded that the policy provision excluding family vehicles from UM coverage contained in the insured’s automobile insurance policy was invalid because it conflicted with section 627.727(3)(b) and (c), Florida Statutes (2009).[2]  Harrington, 154 So.3d 1109-1110.  The trial court also determined that the waiver executed by Ms. Harrington’s mother electing non-stacking UM coverage did not apply to the insured.  On appeal, the First District Court of Appeal affirmed the trial court’s ruling on the coverage and non-stacking issues and certified two questions to the Florida Supreme Court to be of great public importance.  The questions were as follows:

  1. Whether the family vehicle exclusion for uninsured motorist benefits conflicts with section 627.727(3), Florida Statutes, when the exclusion is applied to a class I insured who seeks such benefits in connection with a single-vehicle accident where the driver is underinsured and liability payments from the driver’s insurer, when combined with liability payments under the class I insured’s policy, do not fully cover the class I insured’s medical costs.
  1. Whether uninsured motorist benefits are stackable under Section 627.727(9), Florida Statutes, where such benefits are claimed by an insured policyholder, and where a non-stacking election was made by the purchaser of the policy, but where the insured claimant did not elect non-stacking benefits.

FLORIDA SUPREME COURT DECISION

The Florida Supreme Court answered both questions in the negative and quashed the First District’s decision.   The Court concluded that the family vehicle exclusion in Ms. Harrington’s insurance policy, which excluded a family vehicle from the definition of an uninsured motor vehicle, was not in conflict with section 627.727(3), Florida Statutes (2009). Harrington, 154 So.3d at 1110.  With respect to the stacking issue, the Florida Supreme Court concluded that UM benefits are not stackable under 627.727(9) if the named insured or purchaser of the policy made a non-stacking election since the waiver applied to all insureds under the policy.

There was no conflict between the “family vehicle exclusion” and 627.727(3)(b), Florida Statutes (2009) because the terms of the insurance policy expressly and unambiguously excluded the subject vehicle from the definition of an “uninsured motor vehicle” and the statute clearly stated that the term “uninsured motor vehicle” was subject to the terms and conditions of the policy.  Further, relying on Travelers Insurance Co. v. Warren, 627 So.2d 324, 326-27 (Fla. 1996), the court determined that Ms. Harrington could not receive UM benefits under the policy because Travelers had already paid out the liability limits and this would permit stacking of liability and UM coverage and allow the subject vehicle to be treated as an insured and uninsured vehicle.  The Florida Supreme Court also found no conflict between the “family vehicle exclusion” and 627.727(3)(c), Florida Statutes (2009) because the Travelers liability policy did not exclude coverage for non-family members and section (c) was created to provide UM coverage when a non-family member’s operation of an insured family vehicle results in an injury to an insured and an insurer excludes liability coverage for the non-family member.

Lastly, the Florida Supreme Court concluded that Ms. Harrington’s election of non-stacking coverage as the named insured was binding on behalf of all insureds under the Travelers policy.

III.     Omega Ins. Co. v. Johnson, 2014 WL 4375189 (Fla. 5th DCA Sept. 5, 2014)

FACTS AND PROCEDURAL HISTORY

This matter involved an action brought by an insured against her homeowner’s insurer for benefits for sinkhole damage to her residence.  Ms. Kathy Johnson was insured by a homeowner’s policy issued by Omega Insurance Company (“Omega”) that contained a provision for sinkhole damage coverage.  Ms. Johnson filed a claim for policy benefits with Omega after noticing damage to her home which she alleged was caused by sinkhole activity on the property.  Omega investigated the claim pursuant to section 627.707, Florida Statutes (2009) which required insurers to meet certain standards in investigating sinkhole damage claims.

Pursuant to section 627.707, Florida Statutes (2009), Omega had a professional engineering and geology firm conduct testing and issue a report regarding the cause of damage.  The report indicated that sinkhole activity did not cause the damage to Ms. Johnson’s home. Based on the report, Omega sent correspondence to Ms. Johnson advising her of the report findings, enclosing a copy of the report, and stating that they were denying her claim.  The correspondence also referenced Ms. Johnson’s right to participate in the neutral evaluation program under section 627.7074(3). Ms. Johnson never responded to the correspondence and obtained an independent opinion regarding the damage to her home.  A civil engineering firm provided her with a report after inspection which stated that sinkhole damage was a cause of the structural damage at her residence.  Ms. Johnson then filed suit alleging that Omega breached the insurance policy.

Omega moved for a stay and requested a neutral evaluation of a sinkhole insurance claim with Florida’s Department of Financial Services.  The neutral evaluator concluded that there was sinkhole loss that required remediation.  Omega tendered the policy limits to Ms. Johnson and Ms. Johnson filed a motion for confession of judgment and motion for attorney’s fees, costs and interests.  The trial court granted the motion based on the confession of judgment doctrine and Omega appealed.

APPELLATE COURT DECISION

The Fifth District Court of Appeal reversed the trial court’s holding and held that Ms. Johnson was not entitled to an award of attorney’s fees based on Omega’s tender of the policy limits because under the facts of the case, Omega did not wrongfully or unreasonably deny benefits which forced Ms. Johnson to file suit to obtain benefits.  The court explained that courts have consistently held that the purpose of section 627.428, the statute awarding attorney’s fees and costs to an insured after rendition of a judgment in favor of the insured, was to “penalize a carrier for wrongfully causing its insured to resort to litigation to resolve a conflict when it was reasonably within the carrier’s power to do so.”  Omega Insurance Comp. v. Johnson, 2014 WL 4375189, *3 (Fla. 5th DCA Sept. 5, 2014). The confession of judgment doctrine turns on the policy underlying section 627.428 as like the statute the doctrine is intended to penalize insurance carriers for wrongfully causing an insured to resort to litigation.  Id. at *4.

In this matter, Omega complied with statutory requirements by having a professional engineer inspect the damage to Ms. Johnson’s residence and issue a report with respect to same pursuant to section 627.707(2), Florida Statutes (2009).  The court stated that Omega had the right to presume that the report was correct and to deny the claim based on the report.  Further, Ms. Johnson never presented her report to Omega to rebut the presumption and never contacted Omega to advise that she disagreed with its position regarding the damage.  After the neutral evaluator reported his findings, Omega paid the claim.  Omega’s actions in investigating the claim and relying on the presumptively correct report it commissioned to deny the claim did not establish a wrongful or unreasonable denial of benefits which compelled Ms. Johnson to file suit to obtain her benefits.

 IV.     Arce v. Wackenhut Corp, 146 So.3d 1236 (Fla. 3d DCA 2014)

FACTS AND PROCEDURAL HISTORY

This matter arises from a lawsuit by a former employer, Mr. Tony Arce against an employer, Wackenhut Corporation (“Wackenhut”) for defamation and tortious interference with an employment contract after Wackenhut allegedly made false statements to a potential employer.  Wackenhut denied any wrongdoing and served a proposal for settlement in the amount of $1,500.00.  Mr. Arce never responded to the proposal for settlement and summary judgment was entered in favor of Wackenhut and against Arce on all claims, with prejudice.  Mr. Arce appealed and while on appeal, Wackenhut moved for an award of trial court attorney’s fees and costs pursuant to the proposal for settlement.  The appellate court affirmed the summary judgment in Wackenhut’s favor and also granted Wackenhut’s motion for appellate attorney’s fees and costs, remanding the cause to the trial court to determine the amount.

Wackenhut filed a motion to determine the amount of both the trial attorney’s fees and appellate fees.  Mr. Arce did not respond or file any objections with the trial court or the appellate court.  An evidentiary hearing was held at which time the trial court directed Mr. Arce to submit a motion to vacate the entitlement order and a written memorandum of law regarding the court’s authority to vacate the trial attorney’s fees entitlement order and to deny costs and fees due to the lack of good faith of Wackenhut’s proposal for settlement.  Arce v. Wackenhut Corp., 146 So.3d 1236 (Fla. 3d DCA 2014).  Mr. Arce filed the motion and same was granted based on the proposal for settlement not being made in good faith because of the nominal amount.

Both parties appealed.  On appeal, Mr. Arce sought reversal of an order awarding appellate attorney’s fees and costs in favor of Wackenhut.  Wackenhut cross-appealed, seeking reversal of the trial court’s order vacating a prior order determining it was entitled to trial court fees and costs contending that the trial court was bound by the law of the case following the court’s order granting appellate fees and remanding to the lower court to determine the amount.

APPELLATE COURT DECISION

The Third District Court of Appeal affirmed the trial court’s order awarding appellate fees and costs in favor of Wackenhut and reversed the lower court’s order vacating the trial fees entitlement order.  The court explained that the issue of good faith of a proposal for settlement was not a factor for the court to consider when making a determination as to the amount and reasonableness of the fees and costs to be awarded.  Therefore, it was not procedurally appropriate for Mr. Arce to raise lack of good faith for the first time at a hearing being held to determine the amount of the fees.  Arce, 146 So.3d at 1241.  Mr. Arce never responded to objected to Wackenhut’s motion for appellate attorney’s fees and costs.  Further, after the court granted the motion and remanded to the trial court to determine the amount of attorney’s fees, Mr. Arce failed to seek a rehearing, reconsideration or clarification.  Therefore, Mr. Arce and the trial court were bound by the plain meaning of the order, and the mandate that followed, which excluded any consideration of lack of good faith and became law of the case.  The law of the case prevented the trial court’s consideration of lack of good faith in determining fee award under offer of judgment statute.

We hope you find the above cases helpful and insightful.  Should you have any questions with respect to the foregoing, please do not hesitate to contact the undersigned at your earliest convenience.

Very truly yours,

JOHN BOND ATKINSON

VERONICA RUBIO

[1] The “family vehicle exclusion” in the policy provided that an uninsured vehicle did not include any vehicle:

Owned by or furnished or available for the regular use of you or a “family member” unless it is a “your covered auto” to which Coverage A of the policy applies and bodily injury liability coverage is excluded for any person other than you or any “family member” for damages sustained in the accident by you or any “family member[.]”

[2]Florida Statute 627.727(3)(b) and (c) states as follows:

(3) [T]he term “uninsured motor vehicle” shall, subject to the terms and conditions of such coverage, be deemed to include an insured motor vehicle when the liability insurer thereof:

….

(b) Has provided limits of bodily injury liability for its insured which are less than the total damages sustained by the person legally entitled to recover damages[.]

(c) Excludes liability coverage to a nonfamily member whose operation of an insured vehicle results in injuries to the named insured or to a relative of the named insured who is a member of the named insured’s household.