VOLUME XXI, NUMBER 5
May, 2009

FROM THE CORNER OFFICE

Anna D. Torres has been recognized by the 2008-2009 American Bar Association, Section of Litigation as Outstanding Subcommittee Chair for her work as Editor in Chief of the Minority Trial Lawyers Newsletter.

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FLORIDA LEGISLATURE PASSES SURPLUS LINES BILL IN RESPONSE TO ESSEX v. ZOTA

Two recent cases have altered the manner in which surplus lines insurers have historically been regulated in Florida, by requiring that surplus lines policy forms must now be filed, reviewed, and approved by the Office of Insurance Regulation (“OIR”). At issue in Essex Insurance Company v. Zota, 985 So. 2d 1036 (Fla. 2008), was whether surplus lines insurers were obligated to comply with the delivery requirements for insurance policies, as set forth in the Fla. Stat. § 627.421; and the application of attorneys fees, as set forth in Fla. Stat. § 627.428. The Court held that the exemption for surplus lines carriers found in Fla. Stat. § 627.021(2) applied only to the Rating Laws (Part I) of Chapter 627 of the Florida Statutes. Thus, the court reasoned, since Fla. Stat. § 627.421 and Fla. Stat. § 627.428 were not contained within the Rating Laws (Part I) section of Chapter 627, then surplus lines carriers were not exempt from complying with them. Thereafter, in CNL Hotels & Resorts, Inc. v. Twin City Fire Ins., Case No. 07-12706, 2008 WL 3823898, *1 (11 th Cir. Aug. 18, 2008), the 11 th Circuit Court of Appeals held that based on Zota, surplus lines carriers are required to comply with Fla. Stat. § 627.410, and submit its forms and endorsements to the OIR since these statutes are not contained within the Rating Laws (Part I) section of Chapter 627.

Since these two cases were perceived as a departure from the manner in which surplus lines carriers conducted business in Florida, legislation was proposed to remedy this inconsistency. By way of background, according to the April 20, 2009, The Florida Senate Bill Analysis and Fiscal Impact Statement, surplus lines insurers in Florida have historically never been required by the OIR to comply with rate, form, or other provisions under Chapter 627 of the Florida Statutes, because these insurers are governed by the surplus lines law contained in Chapter 626 of the Florida Statutes. Specifically, The Florida Senate Bill Analysis and Fiscal Impact Statement opined that surplus lines insurers had not been subject to the insurance regulatory requirements in Chapter 627 due to the exemption that was enacted on October 1, 1998, which states, in pertinent part: “This chapter does not apply to: . . . (e) surplus lines insurance placed under the provisions of ss. 626.913-626.937.” Fla. Stat. § 627.021(2). In order to clear up the confusion between the manner in which surplus lines insurers were historically carrying out their business in Florida and the courts rulings in Zota and CNL Hotels, the Florida Legislature unanimously passed CS/HB 853 on May 1, 2009. It is expected that Florida governor, Charlie Crist, will sign the bill into law.

The heart of this new legislation is the amendment to Fla. Stat. § 626.913 (Surplus Lines Law; short title; purpose) stating that “the provisions of chapter 627 do not apply to surplus lines insurance authorized under ss. 626.913-626.937, the Surplus Lines Law.” This amendment will operate retroactively from October 1, 1988, once the bill becomes law. An exception to this retroactive application, however, is with respect to lawsuits that are filed on or before May 15, 2009.

This legislation also obligates surplus lines carriers to include certain notices on the policies issued on or after October 1, 2009, in 14-point font, boldface type. These notices include a statement that the policy has been issued pursuant to the Florida Surplus Lines Law, and thus the policyholders do not have the protection of the Florida Insurance Guaranty Act; as well as a notice that the rates and forms of surplus lines insurers are not approved by any Florida regulatory agency. In addition, personal lines residential property insurance policies that contain a separate hurricane or wind deductible must include the following statement: “This policy contains a separate deductible for hurricane or wind losses, which may result in high out-of-pocket expenses to you,” and surplus lines, personal lines residential property insurance policies that contain a coinsurance provision applicable to hurricane or wind losses must include the following statement: “This policy contains a co-pay provision that may result in high out-of-pocket expenses to you.”

Finally, the legislation amends the Surplus Lines Law to include an attorney’s fees provision similar to that which is contained in Chapter 627, as well as various premium payment provisions.

 Robert C. James

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UNDER A DIVISIBLE POLICY, A PARTY IS NOT COLLATERALLY ESTOPPED FROM DENYING COVERAGE UNDER ONEPROVISION JUST BECAUSE IT HAS MADE PAYMENT UNDER ANOTHER SEPARATE PROVISION

The Third District Court of Appeal in United Automobile Insurance Company v. Carlos Reece, 10Fla. L. Weekly D488 reversed the trial court’s decision in which summary judgment was granted in favor of the Plaintiff, Jack Marin.

United Automobile Insurance Company (“United Auto”) appealed a final summary judgment providing automobile bodily injury coverage in favor of the appellee, Jack Marin. The policy issued to Carlos Reece provided separate coverage for bodily injury and property damage liability. Mr. Reece listed his wife, Angela Reece, as a driver under the Named Driver Exclusion. The exclusion stated “that none of the coverage, except personal injury protection damage afforded by the policy, will apply to any damage, losses, or claims of any persons or organization caused while any motor vehicle insured by this policy is being used or operated by the excluded driver(s) listed below.” Under this exclusion, the coverages provided by the policy were not available to Mrs. Reece while she operated the automobile with the exception for personal injury protection and property damage liability.

On March 24, 2007, Mrs. Reece was driving her husband’s vehicle and was involved in an automobile accident with Jack Marin. Mr. Marin sued the Reeces for negligence, claiming damages for bodily injury and property damage to the vehicle. United Auto, on behalf of the Reeces, settled the property damage liability claim and obtained a Release in exchange for the payment of $400.00. United Auto then filed a declaratory relief action to determine if the policy provided coverage for Marin’s bodily injury claim. United Auto filed a Motion for Summary Judgment based on the Named Driver Exclusion, alleging that the policy did not afford coverage for bodily injury liability. Marin filed a response and cross-motion for summary judgment on the grounds that United Auto was collaterally estopped from denying the bodily injury liability coverage because it had already settled and paid the property damage claim. The trial court granted summary judgment in favor of Marin finding the loss covered under the policy.

The Appellate Court held that under Florida law it is well settled that an automobile insurance policy with separate coverages and separate premiums for property damage, personal injury protection, and bodily injury is a divisible policy. The Appellate Court relied on Nationwide Mutual Insurance Company v. Race, 508 So.2d 1276 (Fla. 3d DCA 1987), which stated that under a divisible automobile insurance policy, the insurer may properly be obligated to pay one type of benefit without being obligated to pay another type of benefit. Therefore, the Appellate Court found that United Auto’s settlement of the property damage claim did not render it collaterally estopped from denying the bodily injury coverage based upon the Named Driver Exclusion.

In addition, the Appellate Court found that denial of coverage for property damage does not apply because coverage for property damage is mandatory pursuant to Florida’s Financial Responsibility Law, Section 324.022, Florida Statutes (2008). In this statute, every owner and operator of a motor vehicle is required to establish and maintain the ability to respond in damages for liability on account of accidents arising out of the use of motor vehicle in the minimum amount of $10,000.00. Because United Auto’s property damage liability coverage was statutorily mandated, it could not exclude property damage liability coverage and thus, paid the claim. However, the Named Driver Exclusion, the court found, applied to bodily injury coverage exclusively. The fact that United Auto paid the property damage claim did not bind it or make it obligated to pay the bodily injury liability claim because the bodily injury coverage is not statutorily mandated. The bodily injury coverage was a separate exclusionary clause in the policy, was paid for with a separate premium, and was rightfully excluded from coverage. The Appellate Court determined that the trial court erred and reversed the summary judgment entered by the trial against United Auto.

Andrea R. Zigelsky

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ISSUES PRESENTED IN CHALFONTE CERTIFIED IN FLORIDA SUPREME COURT FOR DETERMINATION

In Chalfonte Condominium Apartment Association, Inc. v. QBE Insurance Corporation, 21 Fla. L. Weekly Fed. C1627, (11th Cir. 2009), the United States Court of Appeals for the Eleventh Circuit certified important insurer bad faith and coverage issues for determination by the Florida Supreme Court noting that these matters have not yet been adequately addressed by Florida law: 1) whether an insured may bring a good faith and fair dealing claim for an insurer’s failure to investigate and assess its insured’s claim within a reasonable period of time, and whether such a claim is tantamount to a bad faith claim under Fla. Stat. §624.155; 2) whether there is a penalty under Florida law for an insurer’s failure to comply with the requirements for hurricane deductible provisions set forth in Fla. Stat. 627.701(4)(a); and 3) what is the meaning of “final judgment” in the insurance context.

This case arises from a claim for damage made by Chalfonte Condominium Apartment Assoc., Inc. (“Chalfonte”) as a result of Hurricane Wilma on its QBE Insurance Corp. (“QBE”) Policy. Chalfonte was not satisfied with QBE’s investigation and processing of its claim, and ultimately filed suit in the United States District Court for the Southern District of Florida. Chalfonte filed a Four Count Complaint against QBE which included claims for: declaratory judgment (Count I); breach of contract for failure to provide coverage (Count II); breach of the implied warranty of good faith and fair dealing (Count III); and violation of Fla. Stat. §621.701(4)(a) (Count IV).

The District Court dismissed Chalfonte’s Fla. Stat. 621.701(4)(a) claim, and Chalfonte obtained a jury verdict in the total amount of $8,140,099.68 on its breach of contract and breach of the implied warranty of good faith and fair dealing claims. The jury also found that the QBE Policy did not comply with the hurricane deductible requirements enumerated in Fla. Stat. §627.701(4)(a). QBE subsequently filed an appeal, and Chalfonte filed a notice of cross-appeal.

It was QBE’s position on appeal that Florida law does not recognize a claim for breach of the implied warranty of good faith and fair dealing based on an insurer’s failure to investigate and assess a claim within a

reasonable period of time. QBE also argued that a good faith and fair dealing claim is the equivalent of a statutory bad faith claim under Fla. Stat. §624.155, and under Florida law a bad faith claim does not accrue until an insured prevails on a claim for benefits under an insurance contract. As such, the good faith and fair dealing claim should not have been litigated simultaneously with Chalfonte’s claim for benefits under the Policy. The Court of Appeals was not convinced that the Florida courts have adequately addressed the issue of whether an insured may bring a good faith and fair dealing claim for an insurer’s failure to investigate and assess its insured’s claim within a reasonable period of time, and whether such a claim is tantamount to a bad faith claim under Fla. Stat. §624.155. The Court of Appeals thus certified this issue to the Supreme Court of Florida.

In Chalfonte’s cross-appeal, Chalfonte argued that the District Court erred in dismissing its 627.701(4)(a) claim, and that the District Court should not have applied the Policy’s hurricane deductible in light of the fact that the policy failed to comply with the requirements of 627.701(4)(a). Fla. Stat. §627.701(4)(a) provides that an insurance policy that contains a separate hurricane deductible “must on its face include in bold-faced type no smaller than 18 points the following statement: ‘THIS POLICY CONTAINS A SEPARATE DEDUCTIBLE FOR HURRICANE LOSSES, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU.’” The Court of Appeals found that the Supreme Court of Florida has not addressed the issue of whether there is a penalty under Florida law for an insurer’s failure to comply with Fla. Stat. 627.701(4)(a). Accordingly the Court certified this issue to the Supreme Court of Florida for resolution.

Chalfonte also argued that the District Court erroneously denied its Motion to Enforce Execution of the Amended Final Judgment. Pursuant to the policy, an insurer is required to pay for a covered loss or damages within 30 days after entry of a final judgment. It was Chalfonte’s position that QBE was required to tender payment within 30 days of the conclusion of the proceedings in the District Court. QBE, however, maintained that the filing of an appeal and a supersedeas bond tolled that time period. The Court of Appeals determined that the Supreme Court of Florida has not clearly defined the meaning of “final judgment” in the insurance context. As such, this issue was also certified for resolution by the Supreme Court of Florida.

As these issues are currently pending for review by the Florida Supreme Court, we will keep you apprised of the Florida Supreme Court’s rulings on the aforementioned.

Deidrie A. Buchanan