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Prejudice Is Measured By Whether Insurer Was Denied Opportunity To Evaluate Breach Of Insured * Partial Final Judgment In Dec Action Determining Duty To Defend But Not Indemnify Not Appealable Non-Final Order * Modification Of Policy Coverage By Wife Of Named Insured May Be Binding If Deemed To Be Agent Of Insured

August 19, 2015

CASE LAW UPDATE

Dear Ladies and Gentlemen:

The Florida District Courts of Appeal have recently issued several opinions concerning coverage that may be of interest to you.

EXECUTIVE SUMMARY

In Depositors Insurance Company v. CC &C of Lake Mary, LLC, the Fifth District Court of Appeal reversed a summary judgment order in favor of an insured finding that the insurer had not been prejudiced by the insured’s failure to comply with insurance policy provisions regarding necessary protective safeguards that required the insured to notify the insurer of suspension or impairment of the protective safeguards.  The Fifth District reversed and remanded the order and found that the insurer had to show prejudice in order to deny coverage.  However, the Court explained that the issue of prejudice was not based on whether the loss would have occurred even if there had been no breach by the insured rather, whether the insurer was denied the opportunity to evaluate the breach of the insured.  Since there were genuine issues of material fact as to prejudice, summary judgment should not have been granted.

In Florida Farm Bureau General Insurance Company v. Peacock’s Excavating Service, Inc., the Second District Court of Appeal dismissed an appeal for lack of jurisdiction after holding that a Partial Final Judgment, which limited an insurers duty to defend and was silent on the issue of the duty to indemnify its insured, was not an appealable final order.

In Progressive American Insurance Company v. Grossi, the Fifth District Court of Appeal reversed and remanded a final summary judgment order finding that there were disputed issues of material fact which precluded summary judgment as to whether a named insured’s wife had apparent or actual authority to reject uninsured/underinsured motorist coverage under their automobile insurance policy.  The Fifth District noted that there was sufficient evidence that the wife acted as her husband’s agent in modifying the coverage of the policy.

Depositors Insurance Company v. CC &C of Lake Mary, LLC,  2015 WL 4486563 (Fla. 5th DCA July 24, 2015)

FACTS AND PROCEDURAL HISTORY

This matter involved an appeal from an order granting summary judgment in favor of an insured and finding that the insurer had not been prejudiced by the insured’s failure to comply with relevant insurance policy provisions.  The insured, CC & C of Lake Mary, LLC, d/b/a the Beach Store (“CC &C”) was insured under a Premier Business Owner’s Policy issued by insurer, Depositors Insurance Company (“Depositors”) which was effective from June 30, 2010 to June 30, 2011 (the “Subject Policy”)[1].  The policy contained policy provisions regarding specific protective safeguards that had to be in place including the following:

PROTECTIVE SAFEGUARDS

This premise has one or more PROTECTIVE SAFEGUARDS identified by symbols herein. Insurance at this premise will be suspended if you do not notify us immediately if any of these safeguards are impaired. See PB 04 30 for a description of each symbol. APPLICABLE SYMBOLS: P-7

The Protective Safeguards Endorsement identified as “PB 04 30” states:

NOTICE

YOU RISK THE LOSS OF PROPERTY INSURANCE COVERAGE AT PREMISES DESIGNATED IN THE DECLARATIONS IF YOU FAIL TO MAINTAIN ANY OF THE APPLICABLE PROTECTIVE SAFEGUARDS, LISTED BY SYMBOL IN THE DECLARATIONS.

***

This endorsement also states:

Protective Safeguards

A.    As a condition of this Insurance, you are required to maintain the protective devices or services designated by symbol in the Declarations.

B.    This Insurance will be automatically suspended at the premises shown in the Declarations if you fail to notify us when you:

1.    Know of any suspension or impairment in the protective safeguards;

2.    Fail to maintain the protective safeguards over which you have control in complete working order . . . .

The Protective Safeguards Endorsement defined the symbol “P-7” as a:

Central Station Burglar Alarm which, in the event of an unauthorized or attempted entry at the described premises, will automatically transmit an alarm signal to a Central Station. A current monitoring contract with an approved Central Station must be maintained.

See Depositors Insurance Company v. CC &C of Lake Mary, LLC , 2015 WL 4486563, *1 (Fla. 5th DCA July 24, 2015).

There was no dispute that CC&C was required to maintain a burglary alarm system monitored by a security company and that it had an obligation to notify Depositors if it became aware of suspension or impairment of the system.  CC&C had contracted with a security company, First Watch Security Solutions, LLC (“First Watch”) to provide a security alarm and monitor same.  On October 24, 2010, First Watch wrote a letter to CC&C advising of an outstanding balance due and stating that if the balance was not brought current the alarm service would be cancelled.  In a second correspondence, dated November 27, 2010, First Watch advised that the service had been cancelled because CC&C did not pay the outstanding balance and advised that the emergency services would not be dispatched in the event of an emergency.  Three weeks after this letter was sent, the CC&C surf store was burglarized.  Both parties agreed that because of the manner in which the burglars entered the store, the burglary would not have been detected even if the alarm monitoring was active.

On July 1, 2011, Depositors issued a check to CC&C for return of the premium for the period of November 29, 2010 to December 20, 2010 stating that the policy was suspended for that time frame.  After Depositors denied coverage for the burglary based on CC&C’s failure to maintain the alarm system, CC&C filed suit.  Both parties filed motions for summary judgment.  The trial court found that Depositors was not prejudiced by CC&C’s failure to maintain its contract with the security company since the burglary would not have been detected even if the alarm monitoring was in effect.  After entry of a final judgment on the summary judgment, Depositors appealed.

APPELLATE COURT DECISION

The Fifth District Court of Appeal reversed the court’s decision granting summary judgment and remanded finding that Depositors had to show prejudice in order to deny coverage; a potential showing of prejudice was whether Depositors was denied the opportunity to evaluate the breach of CC&C rather than whether the loss would have occurred; and there were genuine issues of material fact as to prejudice which precluded summary judgment.  On appeal, Depositors argued that CC&C was not entitled to coverage for its losses because it failed to comply with the protective safeguard provisions of the Subject Policy and that based on the language of the Subject Policy, it was not required to show prejudice.  CC&C contended that its breach of compliance with the provisions did not prejudice Depositors.

The Fifth District disagreed with Depositors regarding the issue of prejudice, concluding that the policy language regarding notification by CC&C to Depositors of suspension or impairment of its monitored alarm system required a showing of prejudice in order to support a denial of coverage.  However, the Fifth District noted that the issue to be determined was whether Depositors was prejudiced by the lack of opportunity to evaluate CC&C’s breach, not whether the loss would have occurred even if there had been no breach by the insured.  Since there were genuine issues of material fact as to whether Depositors was prejudiced by CC&C’s failure to notify it of the suspension or impairment of its alarm monitoring contract, summary judgment should not have been granted.

Florida Farm Bureau General Insurance Company v. Peacock’s Excavating Service, Inc., 2015 WL 4497721 (Fla. 2d DCA July 24, 2015)

FACTS AND PROCEDURAL HISTORY

This matter arises from a declaratory judgment action filed by an insurer seeking a declaration that it had no duty to defend or indemnify its insured in an underlying litigation and the insured’s counterclaim seeking a declaration that insurer had a duty to defend and indemnify.

In the underlying lawsuit, the general contractors of a residential construction project filed an equitable subrogation lawsuit against Peacock’s Excavating Service, Inc. (“Peacock’s Excavating”) for allegations of defective work it had performed on certain lots of a project.  Peacock’s Excavating was insured under six commercial general insurance liability policies issued by Florida Farm Bureau General Insurance Company (“Florida Farm”).  The policies provided coverage over several years.  Peacock’s Excavating sought coverage under the policies and Florida Farm disputed coverage under the policies.  Florida Farm provided a defense in the underlying litigation under a reservation of rights.  Peacock’s Excavating and Florida Farm brought declaratory actions with respect to the coverage issue.  Peacock’s Excavating argued that the injury in fact trigger of coverage should be applied for coverage and Florida Farm had a duty to defend and indemnify it under the policies.  Florida Farm argued that to the contrary, the manifestation theory of coverage should apply and it had neither a duty to defend or indemnify Peacock’s Excavating in the underlying litigation.

The trial court granted Peacock’s Excavating’s motion for summary judgment finding that there was a duty to defend and duty to indemnify under all six policies.  Florida Farm filed a motion for reconsideration which the trial court granted in part and entered a Partial Final Judgment limiting Florida Farm’s duty to defend to certain policy periods.  The Partial Final Judgment did not rule on the issue of the duty to indemnify.  Florida Farm appealed the Partial Final Judgment.

APPELLATE COURT DECISION

The Second District Court of Appeal held that the Partial Final Judgment was not an appealable final order.  The Second District explained that before it could exercise jurisdiction over any partial final judgment it must be determined whether: (a) the claim disposed of by the partial final judgment could be maintained independently of the remaining claims; (b) one or more parties were removed from the action when the partial final judgment was entered; and (c) the claims could be separately disposed of based on the same or different facts.  Florida Farm Bureau General Insurance Company v. Peacock’s Excavating Service, Inc., 2015 WL 4497721, *2 (Fla. 2d DCA July 24, 2015).

With respect to the first factor, the Court explained that neither side had argued that the duty to defend issue under the GCL policies was a separate and independent cause of action from the declaratory relief concerning the duty to indemnify.  Additionally, both parties had requested a single declaration for both issues that would have resolved the entire scope of insurance coverage.  Id. at *2.  As to the second factor, no party had been removed from the underlying litigation as a result of the Partial Final Judgment.  Lastly, as to the third factor, the Court found that there was an overlap of facts necessary for the disposition of the claims and there was a single indivisible cause of action.  Id. at *3.  The Court stated “the issues of defense and indemnity, though separate legal duties, [did] not appear amenable to separate disposition in this controversy.”  Id.  After reviewing the three (3) factors, the Second District found that the Partial Final Judgment was not an appealable final order and dismissed the appeal.[2]

Progressive American Insurance Company v. Grossi, 164 So.3d 790 (Fla. 5th DCA 2015)

FACTS AND PROCEDURAL HISTORY

This matter involved an appeal of a final summary judgment order in favor of insureds, John and Judy Grossi with respect to uninsured/underinsured motorist (“UM”) coverage under their automobile insurance policy issued by Progressive American Insurance Company (“Progressive”).  Progressive had denied the Grossis’ claim for UM coverage after an automobile accident.  Mr. John Grossi was the named insured and his wife, Mrs. Judy Grossi was an additional driver under the Progressive policy.  Over the three year period that the policy was in effect, Mrs. Grossi made several coverage modifications with some modifications reducing premiums.  After each modification, Mr. Grossi was sent a policy declaration reflecting the changes.  Mr. Grossi never challenged Mrs. Grossi’s authority to make any modifications.  In one of the last modifications, Mrs. Grossi had rejected UM coverage.  After an automobile accident involving the Grossi’s, Progressive denied UM coverage.  Mr. and Mrs. Grossi filed suit and summary judgment was granted in their favor on the UM coverage issue.  Progressive appealed the final summary judgment order.

APPELLATE COURT DECISION

The Fifth District Court of Appeal reversed and remanded the final summary judgment order finding that there were disputed issues of material fact which precluded summary judgment.  On appeal, Progressive argued that Mrs. Grossi acted as Mr. Grossi’s agent and as his agent had the authority to reject the UM coverage.  Mr. and Mrs. Grossi argued that only Mr. Grossi as the named insured could reject UM coverage and Mrs. Grossi lacked the authority to reject the coverage.  The Court disagreed with this argument and noted that there was sufficient evidence that Mrs. Grossi acted as her husband’s agent in modifying the coverage of the policy.

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] CC&C owns a surf shop insured under the Subject Policy.

[2] The Second District also determined that the Partial Final Judgment was not an appealable non final order under Florida Rules of Appellate Procedure 9.130 and it could not invoke certiorari jurisdiction either.