Florida Courts Clarify When Insurers Will Be Liable For Insured’s Attorneys’ Fees in Coverage Litigation

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Johnson v. Omega Ins. Co.

200 So.3d 1207 (Fla. 2016)

W&J Group Enterprises, Inc. v. Houston Specialty Ins. Co.

— Fed.Appx. — (2017), 2017 WL 1279045, 11th Cir., April 6, 2017

 

On September 29, 2016, the Florida Supreme Court issued a decision clarifying Fla. Stat. Ann. § 627.428, which provides that an insured may recover attorney’s fees incurred as a result of recovering on a valid claim for insurance benefits.  The decision clarified what an insured must demonstrate in order to recover its attorney’s fees in a coverage dispute with an insurer.

The case of Johnson v. Omega Insurance Company, 200 So.3d 1207 (Fla. 2016), involved damage to an insured residence that the insured claimed was caused by a sinkhole.  The insurer retained an expert who opined that the damage was caused by excluded factors, including volumetric changes of clay-based soil, concrete shrinkage, and defective construction processes.  Based on this expert report, the insurer denied coverage.

The insured retained her own expert who opined that the property damage was caused by a sinkhole, a covered peril under the policy.  The insurer rejected this expert report, maintained its denial, and the insured filed suit.  After suit was filed, the insurer eventually retained a different engineering firm.  This firm concurred with the insured’s expert that the loss was caused by a sinkhole.  After receipt of this report, the insurer accepted coverage and agreed to issue payments for repair of the covered property damage.  The insurer also acknowledged its coverage obligation when it filed its answer to the insured’s complaint.

The insured then filed a motion for confession of judgment and sought recovery of her attorney’s fees and expert costs.  The trial court granted the motion and awarded the insured her attorney’s fees and costs, pursuant to Fla. Stat. Ann. § 627.428.

The insurer appealed and the Fifth District Court of Appeals reversed the trial court reasoning that an award of attorney’s fees pursuant to Fla. Stat. Ann. § 627.428 requires a showing of bad faith by the insurer.  The Court of Appeals based its decision on the statute’s language that an insured may recover its attorney’s fees if an insurer “wrongfully” denies the claim.

The Florida Supreme Court disagreed with the Court of Appeals and reinstated the trial court’s award of attorney’s fees.  In reaching this decision, the Johnson Court rejected the determination that an award of fees pursuant to Fla. Stat. Ann. § 627.428 is only permissible upon a showing of bad faith conduct.  Instead, the Johnson Court reiterated that if an insurer loses a dispute with its insured, then the insured is always entitled to recover its attorney’s fees, relying upon the prior decision in Ivey v. Allstate Ins. Co., 774 So.2d 679 (Fla. 2000).

On April 6, 2017, the 11th Circuit Court of Appeals further clarified when an insurer will be held responsible for the attorney’s fees of its insured in W&J Group Enterprises, Inc. v. Houston Specialty Ins. Co., — Fed.Appx. —, 2017 WL 1279045.  In W&J, an insurer had brought a declaratory judgment action to determine its coverage obligations in a liability claim against its insured.  While the declaratory judgment action was pending, the insurer settled the underlying tort action with the claimant for $653,000.  The insurer paid $650,000 of this settlement, with the insured funding the remaining $3,000.

The insurer then voluntarily dismissed its declaratory judgment action and the insured moved for recovery of its attorney’s fees pursuant to Fla. Stat. Ann. § 627.428.  The district court denied the motion based on the insured’s contribution to the settlement.

The 11th Circuit reversed the district court’s decision and awarded the insured its attorney’s fees pursuant to Fla. Stat. Ann. § 627.428.  In reaching this decision, the 11th Circuit relied on Wollard v. Lloyd’s & Cos. Of Lloyd’s, 439 So.2d 217 (Fla. 1983), which determined that this statute applies to provide an insured attorney’s fees when the insured and the insurer settle an action before judgment is entered.  The Florida Supreme Court reasoned in Wollard that when an insurer settles a disputed claim, it has declined to defend its position in the pending suit, thus warranting an imposition of attorney’s fees under the statute.

The 11th Circuit rejected the insurer’s arguments that attorney’s fees were not recoverable because the insured contributed to the settlement.  The insurer argued that Florida courts had previously determined that attorney’s fees under Fla. Stat. Ann. § 627.428 are triggered by the insurer’s unilateral decision to enter a settlement and dismiss a declaratory judgment action.  Mercury Ins. Co. of Fla. v. Cooper, 919 So.2d 491 (Fla. Dist. Ct. App. 2005).  The 11th Circuit interpreted the term “unilateral” in Cooper to refer to a circumstance where the insurer settles a third-party claim without also reaching an agreement with its insured about the payment of attorney’s fees.

The W&J Court determined that the award of attorney’s fees to the insured was consistent with Florida’s jurisprudence interpreting Fla. Stat. Ann. § 627.428.  It further held that the Insured’s contribution of less than 2% of the total settlement amount did not distinguish this case from other Florida decisions holding that the insured was entitled to recover its attorney’s fees.

The Johnson and W&J cases demonstrate that an insurer involved in a coverage dispute with its insured in Florida will likely have to pay its insured’s attorney’s fees if it does not prevail in the action or resolve its insured’s attorney’s fees in any settlement agreement.  An insurer wishing to settle with a liability claimant while it has an ongoing coverage action with its insured should consider engaging in global settlement negotiations to resolve any issue with its insured’s attorney’s fees.  Failure to do so may result in unanticipated exposure.

Click here for PDF.

Kerman’s Korner: How Much Data is Too Much Data?

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01315661For the first ever Kerman’s Korner Quick Hit, Jeremy focuses in on the world of data breaches and cyber liability. Highlighting a story about a data transfer gone awry, Jeremy suggests a helpful tip for companies big and small that collect customer and employee data.

Click here to listen to the audio on the PLUS Blog.

If you enjoy this episode of Kerman’s Korner, please visit https://plusblog.org/author/jkerman/ for prior episodes.

Walker Wilcox Matousek LLP is pleased to announce Kerman’s Korner, an audio-blog that will feature a series of story-driven, tips, thoughts, and lessons that Jeremy Kerman and the team at WWM have learned over the years.  The firm hopes that this will be a unique, informative, and entertaining way for us to facilitate discussion and debate on some of the recurring and emerging issues that we all face as we work on our various claims and cases together.

TEXAS LEGISLATURE PASSES HB 1774

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By: Kristine M. Sorenson & David E. Walker

The Texas legislature passed House Bill 1774, which applies to first party property claims in Texas, and is explained in the attached memo.  Governor Abbott has not yet signed it into a law, but he endorsed the bill in his State of the State speech in January 2017, and is expected to sign it.

The legislation creates a new section of the Texas Insurance Code – § 542A.  One highlight is Part 6, which permits an insurer to accept liability for the acts of its agents (i.e. adjuster, third-party claims administrator, managing general agent).  If liability is accepted, all claims against the agents must be dismissed with prejudice.  Another highlight is Part 7, which allows for a reduction in attorneys’ fees awarded to the claimant if the amount of actual damages (property damage) alleged in the pre-suit notice letter is greater than the amount of damages awarded by the jury at trial.

All seven parts of § 542A are explained in the attached client alert.

Click here for client alert.

Kerman’s Korner: A Little Critical Thinking Goes a Long Way.

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01315661Kerman’s Korner is back, with Jeremy sharing a story about how some critical thinking made him realize what the real issue was in an insurance coverage claim.

Click here to listen to the audio on the PLUS Blog.

If you enjoy this episode of Kerman’s Korner, please visit https://plusblog.org/author/jkerman/ for prior episodes.

Walker Wilcox Matousek LLP is pleased to announce Kerman’s Korner, an audio-blog that will feature a series of story-driven, tips, thoughts, and lessons that Jeremy Kerman and the team at WWM have learned over the years.  The firm hopes that this will be a unique, informative, and entertaining way for us to facilitate discussion and debate on some of the recurring and emerging issues that we all face as we work on our various claims and cases together.

“Recent Developments Affecting Professionals’, Officers’, and Directors’ Liability Insurance” published in Volume 52-2 (Winter 2017)

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WWM attorneys William Bila, Eric Blanchard, Nick Hamblen, Jeremy Kerman, and Kevin Mikulanenic recently co-authored the “Directors and Officers Liability” section in the article “Recent Developments Affecting Professionals’, Officers’, and Directors’ Liability Insurance” published in Volume 52-2 (Winter 2017) of the American Bar Association’s Tort Trial & Insurance Practice Law Journal.  Copyright © 2017 American Bar Association. All Rights Reserved. Printed in the USA.  The article can be found here:  “Recent Developments Affecting Professionals’, Officers’, and Directors’ Liability Insurance” published in Volume 52-2 (Winter 2017)

The article focuses on several hot-button issues in D&O liability, including interpretation and enforcement of professional services exclusions; cyber disclosure and liability obligations; M&A challenges, and coverage for government investigations.

Kerman’s Korner: The Blueprint for an Unsolved Mystery

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01315661When faced with a case involving an unsolved murder, Jeremy discusses how he and the team at Walker Wilcox Matousek came up with an innovative solution when there was no guidance from prior case law. 

Click here to listen to the audio on the PLUS Blog.

 

For previous episodes of Kerman’s Korner, please visit: https://plusblog.org/author/jkerman/

Walker Wilcox Matousek LLP is pleased to announce Kerman’s Korner, an audio-blog that will feature a series of story-driven, tips, thoughts, and lessons that Jeremy Kerman and the team at WWM have learned over the years.  The firm hopes that this will be a unique, informative, and entertaining way for us to facilitate discussion and debate on some of the recurring and emerging issues that we all face as we work on our various claims and cases together.

Kerman’s Korner: Sometimes Being Different is Being Right

01315661Kerman’s Korner returns for the new year with Jeremy discussing an arbitration that required some outside-the-box thinking, and how he learned that sometimes it’s the things you DON’T do that make all the difference.

Click here to listen to the audio on the PLUS Blog.

 

Walker Wilcox Matousek LLP is pleased to announce Kerman’s Korner, an audio-blog that will feature a series of story-driven, tips, thoughts, and lessons that Jeremy Kerman and the team at WWM have learned over the years.  The firm hopes that this will be a unique, informative, and entertaining way for us to facilitate discussion and debate on some of the recurring and emerging issues that we all face as we work on our various claims and cases together.

Kerman’s Korner: When You’re Lost, Phone a Friend

01315661

Walker Wilcox Matousek LLP is pleased to announce Kerman’s Korner, an audio-blog that will feature a series of story-driven, tips, thoughts, and lessons that Jeremy Kerman and the team at WWM have learned over the years.  The firm hopes that this will be a unique, informative, and entertaining way for us to facilitate discussion and debate on some of the recurring and emerging issues that we all face as we work on our various claims and cases together.

In the debut of Kerman’s Korner, Jeremy shares a practice tip for insurance claims that he learned after getting lost in Ireland.  Click here for audio.

Illinois Appellate Court Issues Favorable Ruling on Anti-Concurrent Cause Language

Bozek v. Erie Insurance Group

2015 IL App (2d) 150155

By: David E. Walker, Robert P. Arnold and Kristine M. Sorenson

On December 17, 2015 the Illinois Second District Appellate Court handed down a ruling applying Anti-Concurrent Causation (ACC) language in a first-party property policy to preclude coverage as a matter of law.  The decision is the first published Illinois appellate court ruling that squarely addresses application of ACC language, and the Court’s decision heavily favors the insurance industry.

The case of Bozek v. Erie Insurance Group, 2015 IL App (2d) 150155, involved damage to the insureds’ empty swimming pool following several days of heavy rains.  The rains created substantial hydrostatic pressure in the soils.  Pressure relief valves in the pool system, designed to counteract the uplift forces caused by the pressure, failed to work properly.  As a result, the pool itself uplifted causing a total loss.  The hydrostatic pressure in the soils also caused damage to the concrete pad surrounding the pool.

The insureds tendered the loss to Erie Insurance, their homeowners insurer. Erie retained Engineering Systems, Inc. (ESI) who concluded “the pool lifted upward because the ground water pressure pushed the pool upward because the pressure relief did not function properly.”  Erie then denied coverage, citing exclusions barring coverage for:

  • loss by “pressure or weight of water or ice, whether driven by wind or not, to a … swimming pool”;
  • loss by mechanical breakdown; and,
  • loss “by water damage, meaning: water below the surface on the ground.  This includes water which exerts pressure on, or flows seeps or leaks through any part of a building or other structure, including sidewalks, driveways, foundations, pavements, patios, swimming pools or decks.”

Critically, all of the foregoing exclusions were prefaced by the following ACC language:  “We do not pay for loss resulting directly or indirectly from any of the following, even if other events or happenings contributed concurrently, or in sequence, to the loss”.

The insureds filed a declaratory judgment lawsuit in the Circuit Court of McHenry County, Illinois against Erie, and the parties ultimately filed cross motions for summary judgment.  The insureds conceded that loss caused by “pressure…of water” was excluded, but argued that Erie had not established that loss by failure of the pressure relief valves was an excluded “mechanical breakdown.”  As such, they argued that the failure of the valve (a covered event) preceded the increase in pressure (an excluded event).  In their view, the phrase “in sequence to” in the ACC provision meant “subsequent to,” such that the ACC language would preclude coverage only where the excluded cause precedes the covered cause.  The insureds argued that, because the excluded hydrostatic pressure came after the failure of the valve, the ACC language did not apply and the claim was covered.

Erie argued that “in sequence to” meant “one after the other” and that the ACC language did not specify in which order the excluded cause must occur.  Erie also argued that the ACC language precludes coverage where an excluded cause happened in any sequence within the causation chain.

The Circuit Court adopted Erie’s interpretation of the ACC language and rendered judgment in Erie’s favor.  The insureds appealed to the Second District Appellate Court.

The Appellate Court affirmed, finding that the ACC clause barred coverage as a matter of law where the uplift of the pool resulted from the “convergence of two causes”, at least one of which was excluded, that “contributed concurrently” to the loss.

In reaching its decision, the Appellate Court first discussed the history of causation decisions in the first party property context and the varying causation rules that U.S. jurisdictions have implemented.  It then noted that ACC clauses were employed in response to concurrent-causation controversies and were intended to avoid application of rules that coverage applies whenever a covered cause is an “efficient” or “dominant” cause of the loss.

The Appellate Court found that a concurrent cause or event exists when two perils converge at the same point in time and operating in conjunction.  The Court focused on the point in time when the cause contributes to the loss, not the point in time when the cause of loss comes into existence.  For purposes of the insureds’ claim, the Court concluded that, because uplifting of the pool took place due to “concurrent” interaction of the hydrostatic pressure and the failure of the relief valves, the loss was indeed excluded.

Lastly, after examining two Mississippi Supreme Court ACC cases arising out of Hurricane Katrina, the Appellate Court noted that the two causes at issue, hydrostatic pressure and relief valve failure, did not lead to two separate losses as in the Mississippi cases.  Rather, the sole loss in the insureds’ claim was the uplifting of the pool and damage to the pool’s concrete pad, both of which were caused by a convergence of the hydrostatic pressure and failure of the relief valve.  The Appellate Court concluded that adoption of the insureds’ argument would be an ongoing implementation of Illinois’ “efficient proximate cause” doctrine, which the ACC clause was designed to avoid.

In a last ditch effort, the insureds argued that ACC clauses violated Illinois public policy and were unenforceable.  The Appellate Court first noted that only a minority of U.S. courts had adopted that argument but ultimately declined to rule on the issue because the insureds had waived the argument by failing adequately to brief it.  The tenor of the Court’s discussion, however, suggested it was not inclined to endorse the public policy argument.

In summary, the Appellate Court’s decision is a well-reasoned, thorough discussion of the ACC clause and should serve as persuasive precedent to other courts applying Illinois law.  This decision now provides insurers with appellate court precedent in Illinois to support a broad application of ACC language where the evidence adduced during the adjustment of the loss establishes that the actual loss the Insured suffered was caused by the convergence of multiple causative events in any sequence, at least one of which is an excluded cause.

Click here for PDF of Client Alert.

U.S. Senate Passes Cyber Information Sharing Act of 2015

By: Celeste M. King

On October 27, 2015 the U.S Senate passed by a vote of 74-21 the Cyber Information Sharing Act of 2015 (CISA).   The bill allows government agencies and businesses to share information about cybersecurity threats with one another.  The shared information is supposed to consist of “threat indicators” such as technical information about the type of malware used or how hackers cover their tracks once they penetrate a system.   Bill sponsors say that shared information will help organizations better understand the source and type of attacks and therefore be better able to anticipate and defend against cyber attacks.

Companies are encouraged but not required to share information on cyber threats with the Department of Homeland Security, which then shares information with other companies and government agencies.  The House approach could permit businesses to directly share information with other government agencies.  The Senate bill requires companies and the DHS to scrub individual’s personal information from the shared data.  Participating companies are granted immunity for civil lawsuits brought by customers who sue for sharing private data.

The Senate bill was co-sponsored by Senate Intelligence Chair Richard Burr (R-North Carolina) and Vice Chair Sen. Diane Feinstein (D-California).  Although supported by the White House and a wide range of business groups, the Senate bill was opposed by some legislators and technology companies such as Facebook, Google, Apple and Yahoo on grounds it provides too much data to government agencies without offering privacy protections for US citizens.   

Senate bill 754 must be reconciled with similar legislation passed by the House of Representatives last April.  A House-Senate agreement is not expected until after January 1, 2016.  Once signed into law by President Obama, the U.S. Attorney General has 180 days to finalize a plan for collecting and disseminating cyber threat data.

A PDF version of the 118-page bill can be found here.