VOLUME XV, NUMBER 5
May, 2003

A ROSE BY ANY OTHER NAME…DETERMINING THE NAMED INSURED AFTER A CORPORATION IS SOLD AND RENAMED

A corporation which was involved in the negligent construction of a store is covered under a completed operations coverage policy even after the officer/director of the corporation sold his interest and the corporation was renamed. In Fidelity and Guaranty Insurance Underwriters, Inc. v. Federated Department Stores, Inc., d/b/a Bloomingdale’s and Bernard Kroll, 28 FLW D607 (Fla. 3d DCA March 14, 2003), the issue centered on who was the insured for purposes of coverage at the time of loss.

In 1991 Bloomingdale’s (a Federated Department Store) suffered severe structural damage as a result of Hurricane Andrew. Bloomingdale’s investigation disclosed that the building design and construction was not in compliance with requirements of the South Florida Building Code. As a result of this finding, Bloomingdale’s sued Bernard Kroll individually and as general contractor, as well as several of Kroll’s companies. Kroll was the permit holder/qualifying agent during the construction of Bloomingdale’s in Miami. Further, Kroll remained the permit holder/qualifying agent throughout construction. A dispute arose between Kroll and his insurance carrier Fidelity Guaranty Insurance Underwriters, Inc. and United States Fidelity and Guaranty Company (collectively “USF&G”) regarding USF&G’s duty to indemnify Kroll in litigation against Bloomingdale’s.

When construction began on the Bloomingdale’s store, Kroll was an officer and director of Kroll Enterprises, Inc. (“Kroll I”) with its wholly owned subsidiary, Kroll Construction Company. As president of Kroll I, Mr. Kroll granted Kroll Construction Company performance for the Bloomingdale’s project. In 1984, Kroll sold his ownership interest in these companies and formed B.K. General Contractors, Inc. Kroll transferred his general contracting license from Kroll I to B.K. General Contractors, Inc. In 1986, Mr. Kroll formed a second corporation named Kroll Enterprises, Inc. (“Kroll II”).

Kroll had purchased a “completed operations coverage” policy from USF&G in 1991 and was in effect at the time of the loss. The insurance policy provided coverage for the officers, directors, and sole shareholders of B.K. General Contractors Inc., and Kroll Enterprises, Inc. However, at the time of the loss, the original Kroll Enterprises, Inc. (“Kroll I”) was named Coutinho Construction International Inc., the successor corporation to Kroll I. USF&G denied that it had a duty to indemnify Kroll and his companies against Bloomingdale’s suit maintaining that the named insurer under the policy was Kroll II and not Kroll I and therefore did not have to indemnify Kroll I, who was responsible for the construction defects.

In a declaratory judgment action the parties filed cross motions for summary judgment. The trial court ruled that USF&G had to indemnify Kroll I because the policy did not limit its coverage to business entities in which Kroll had an active interest. On appeal, the Third District concluded that USF&G could have limited its coverage by using clear, unambiguous language stating that it would only cover business entities in which Kroll had an active interest. Since Kroll I was involved in the Bloomingdale’s construction and Kroll paid premiums for Kroll I’s coverage, then USF&G had a duty to indemnify Kroll I. Since Kroll I was covered, then Kroll in his individual capacity was covered as well.

Jacqueline A. Grady

“KEEP IT SIMPLE”

The Eleventh Circuit’s “plain meaning interpretation” of Admiral Insurance Company’s pollution exclusion clause reverses the lower court’s finding of coverage. In Admiral Ins. Co. v. Feit Management Co., et al, 16 FLW Fed. C350 (Fla. S. D. 2003), Admiral appealed the trial court’s finding of coverage after the district court held that plaintiffs were entitled to coverage under a narrowly carved exception to Admiral’s General Liability Coverage Form’s pollution exclusion clause. In this case, carbon monoxide fumes from an improperly vented water heater flowed into the attic and then traveled through the heating, ventilating and air conditioning system (HVAC) causing death and serious bodily injury to several residents. Admiral’s policy included a commonly used “pollution exclusion clause” which precluded coverage for, “...bodily injury or property damage arising out of discharge, dispersal, seepage, migration, release or escape of pollutants.” However, under this general exclusion, Admiral included a narrowly carved exception which provided coverage for, “...injuries or damages sustained within a building caused by smoke, fumes, vapor or soot from equipment used to heat that building.”

At the trial court level, Admiral argued against coverage citing that the exception to the pollution exclusion clause did not apply because the toxic fumes came from the hot water heater which both parties had agreed is not part of the equipment used to heat the building. As a result, Admiral argued that the general pollution exclusion clause of the contract applied and the court should deny coverage under the contract. In contrast, Feit and the third party beneficiaries under the insurance contract, argued that since the fumes emanated from the air handlers in the apartment (a component of the HVAC), the fumes came from a part of the heating system. Under Feit’s theory, the fact that the fumes came from the HVAC would resurrect coverage under the narrow exception granted under the pollution exclusion clause. Following the hearing, the trial court found coverage under Admiral’s exception to the pollution exclusion clause, and Admiral appealed.

The question presented for the Eleventh Circuit was to determine where the fumes came from for purposes of interpreting Admiral’s policy. Since federal jurisdiction hinged on the diversity of the parties, the Eleventh Circuit applied the substantive law of Florida and interpreted this issue relying on the approached used by the Florida Supreme Court in State Farm Mut. Auto. Ins. Co. v. Pridgen, 498 So.2d 1245, 1248 (Fla 1986). The Eleventh Circuit began its analysis by reiterating the general rule in Florida that ambiguities in insurance contracts are resolved in favor of finding coverage. This rule stems from the traditional contract principle that all ambiguities in a contract are resolved against the drafting party. However, the Eleventh Circuit also recognized that in order to apply the rules of contract interpretation, a genuine inconsistency, uncertainty, or ambiguity must exist, and in the absence of a real ambiguity, the plain meaning of the language will be given full force and effect.

The Eleventh Circuit initially found that the fumes came from the hot water heater; not from the HVAC which merely served as a conduit for the transmission of the fumes into the apartments. Since both parties conceded that the pollutants were discharged by a device that was not used to heat the building, the Eleventh Circuit found that Admiral Insurance’s exception to the pollution exclusion was not triggered by the facts in this case because the fumes came from (or originated) from the hot water heater. The Eleventh Circuit opined that pollution exclusion clauses are not unusual and Admiral’s inclusion of an exception to the exclusion did not render the clause ambiguous. Consequently, the Eleventh Circuit reversed the trial court, and denied coverage to Feit.

The Eleventh Circuit’s interpretation of the Florida Supreme Court’s treatment of pollution exclusion clauses highlights three important points. Often, the courts accomplish the application of the plain meaning interpretation by extending facts of a case to the realm of the hypothetical. In this case the Eleventh Circuit suggested that if fumes had come through the door, it would be difficult to say they came from (or originated) from an inanimate object; rather, they came from a naturally occurring source or man-made device. Moreover, this case should remind insurers and adjusters that all words in a policy have meaning and the courts will give full force and effect to each word in an effort to resolve a contractual controversy. In this case, the Eleventh Circuit actually consulted Webster’s Dictionary to define the word “from.” Finally, this case reiterates the courts’ general treatment of the plain meaning rule; commonly used words will be afforded common usage and treatment. It is not unreasonable to speculate that the inverse of this rule is also true; courts will find ambiguities in insurance policies using uncommon words or phrases.

Mark A. Kirsch

FLORIDA SUPREME COURT RULES THAT LIABILITY INSURANCE POLICY APPLYING TO “BODILY INJURY BY ACCIDENT” DOES NOT PROVIDE COVERAGE NEGLIGENT SPOLIATION OF EVIDENCE

Recently in Humana Worker’s Comp. Servs. v. Home Emergency Servs., Inc., 28 FLW S227, (Fla. 3d DCA March 13, 2003), the Florida Supreme Court held that the plain language of an employer’s liability insurance policy applying to “bodily injury by accident” did not provide coverage for claims against the insured for negligent spoliation of evidence because the alleged “accident” was the negligent loss of evidence, which “accident” did not result in bodily injury, as covered by the policy, but rather in the evidence not being available in the underlying bodily injury claim. Home Emergency Services (HES) was insured by Humana Worker’s Compensation Services, under a two-part policy. Part One,“Worker’s Compensation Insurance,” provided that Humana would pay benefits required by HES by worker’s compensation law. Part Two,“Employers Liability Insurance,” stated in pertinent part:

A. How This Insurance Applies
This employers liability insurance applies to bodily injury by accident or bodily injury by disease. Bodily injury includes resulting death.

While this policy was in effect, an employee of the insured was injured when he fell from a ladder during the course of his employment. The employee received worker’s compensation benefits under Part One of the policy. The insured then agreed to maintain the ladder in its possession for the employee, who intended to pursue a products liability claim against the ladder’s manufacturer and distributor. The ladder was subsequently misplaced or destroyed, and when the employee later filed suit against the manufacturer and distributor, he also sued the insured for negligent spoliation of evidence. The employee’s complaint set forth two counts against the insured for breach of contractual duty and breach of statutory duty, respectively. The complaint alleged that the contractual duty arose from the employer’s agreement to maintain the ladder, while the statutory duty arose from Florida Statute 440.39(7), which imposes a duty on employers to cooperate with employees in the prosection of claims and potential damages against third-party tortfeasors.

The insured requested coverage and defense from Humana pursuant to Part Two of its policy. Humana claimed that the policy did not cover claims for spoliation of evidence, and filed a petition for declaratory relief to establish its coverage obligations. Thereafter, the parties each filed motions for summary judgment. The trial court granted summary judgment in favor of Humana. The insured appealed to the Third District, which reversed the judgment. Humana then filed for discretionary review on the basis of the certified conflict between the Third District’s decision in Home Emergency Services, Inc. v. Humana Worker’s Compensation, 815 So.2d 665 (Fla. 3d DCA 2002), and the Fourth District’s decision in Norris v. Colony Insurance Co., 760 So.2d 1010 (Fla. 4th DCA 2000). In Norris, the Fourth District held that negligent spoliation of evidence was not covered by an insurance policy containing the language which required that bodily injury be caused by an “occurrence” which was defined as an “accident.” Id. at 1011-12.

The Supreme Court quashed the Third District’s decision in Home Emergency Services, Inc. v. Humana Worker’s Compensation, 815 So.2d 665 (Fla. 3d DCA 2002), and approved of the result in Norris. The court held that the subject policy applying to “bodily injury by accident” did not provide coverage for claims against an insured for negligent spoliation of evidence, stating that such decision was consistent with the Fourth District decision in Norris as well as decisions of other jurisdictions. In reaching its decision, the court explained:

Negligent spoliation of evidence is a tort claim based on a defendant’s breach of a duty to preserve evidence. The damage that flows from such a breach is the resulting inability to prove a cause of action. [The employee’] spoliation claim seeks compensation not for the bodily injury he sustained in falling from the ladder but, rather, for his loss of a probable expectancy of recovery in the underlying suit.

Allison S. Moore