VOLUME XXII, NUMBER 5
May, 2010

THE SOUTHERN DISTRICT SLAMS A CLAIM FOR BAD FAITH FAILURE TO SETTLE WRONGFUL DEATH CLAIM

In Valle v. State Farm Mutual Automobile Insurance Company, 22 Fla. L. Weekly Fed. D179 (S.D. Fla. 2010), the Southern District of Florida held that State Farm did not act in bad faith in attempting to settle multiple claims, including a wrongful death claim, arising out of a automobile accident when it promptly investigated the claim, timely informed its insured of a possibility of an excess judgment, initiated settlement negotiations, and expressed willingness to settle with all claimants for the maximum policy limit within 30 days after the loss was reported.

The material facts were not in dispute. On September 28, 2001, Marvin Hood was involved in an automobile crash which resulted in injuries to eight people. Mr. Hood’s policy with State Farm provided coverage for bodily injury liability in the amount of $10,000 per person and $20,000 per accident. On October 1, 2001, Mr. Hood reported the accident to State Farm, and, on October 3, State Farm learned that one person sustained fatal injuries. State Farm identified the deceased person to be Maria E. Valle, and on October 12 sent a letter to Ms. Valle’s family requesting they contact State Farm. By October 18, State Farm received letters from attorneys representing all claimants except Ms. Valle indicating that they were willing to split $10,000 among them and leave the remaining $10,000 for Ms. Valle’s estate. On October 25, State Farm sent a letter to Mr. Hood notifying him of a possibility of an excess judgment. On November 1, State Farm wrote to all claimants, including Ms. Valle, that it was willing to settle for the full policy limits, and requesting that all claimants hold a settlement conference to work out a collective agreement.

The settlement conference took place on January 12, 2002. All the parties agreed that Ms. Valle’s estate should receive $10,000, and the remaining $10,000 would be distributed among the remaining claimants. While the remaining claimants settled with State Farm, Ms. Valle’s counsel rejected the $10,000 offer in order to pursue the bad faith claim against State Farm. On March 15, Plaintiff filed a wrongful death lawsuit against Mr. Hood in state court, and obtained a final judgment for approximately $3.9 million on September 15, 2006. Mr. Hood subsequently assigned his rights under the policy to Plaintiff. Thereafter, the Plaintiff filed suit arguing that State Farm acted in bad faith when it failed to immediately settle Ms. Valle’s claim.

Florida law provides that an insurance company owes a duty of good faith to its insured, which means that it must advise the insured of settlement opportunities, the probable outcome of litigation, warn of the possibility of excess judgment, and any steps the insured may take to avoid same. The courts apply the “totality of circumstances” test in determining whether the insurer complied with its obligations.

Upon review of the undisputed facts, the Court found that State Farm complied with all of its duties under Florida law. The Court noted that State Farm promptly investigated the claim and sent a letter to Ms. Valle’s family as soon as it learned of her identity. Just 25 days after it learned of the crash, State Farm notified the insured of a possibility of an excess judgment. Within 30 days after the reporting of the claim, State Farm initiated settlement negotiations and offered policy limits to settle with all claimants. The Court noted that Ms. Valle never made a settlement offer or demand so State Farm could never have rejected it; and State Farm’s mere suggestion of a collective settlement negotiation did not amount to bad faith. Moreover, relying on Florida law that in automobile crashes involving multiple claims, the carrier has the right to enter into reasonable settlements with some claimants, regardless of whether the settlements deplete or exhaust the policy limits to the extent that other may be left without recourse, the Court stated that in this case State Farm went above and beyond its duty to ensure that all claimants receive a fair share of policy limits before settling with either party.

Plaintiff argued that bad faith is generally a question for the jury, and that Ms. Valle’s failure to make a formal settlement demand does not preclude the finding of bad faith. While acknowledging that this is a correct statement of the law, the Court distinguished cases in which the insurer fails to respond to multiple letters from the claimant demanding immediate settlement and in which settlement negotiations are unreasonably delayed. As such, the Court granted State Farm’s Motion for Summary Judgment.

Anna Garber

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COBLENTZ AGREEMENT CAN’T CREATE COVERAGE WHERE COVERAGE DOESN’T EXIST

In Sinni v. Scottsdale Insurance Company, 22 Fla. L. Weekly Fed. D137 (M.D. Fla.), the Middle District of Florida Court granted final summary judgment in favor of Scottsdale on a bad faith claim pursuant to a Coblentz agreement between the insured and an employee injured while in the course and scope of her employment.

After clocking out of work, Melissa Sinni, an employee of Absolutely Massage, Inc. slipped and fell on a pile of wet mulch on her way to the adjacent parking lot. As a result of her slip-and-fall injuries, Sinni filed a Workers’ Compensation claim and began receiving payments from Absolutely Massage’s Workers’ Compensation carrier. In all, between December 2005 and April 2007, Sinni received approximately $48,500 in total payments made directly to her and to her medical providers.

In June 2006, approximately seven months after Sinni started to receive benefits from the Workers’ Compensation carrier, Sinni directly notified Scottsdale Insurance Company, Absolutely Massage’s CGL carrier, of her claim. In March of 2007, Scottsdale declined coverage and refused to defend or indemnify pursuant to the Workers’ Compensation and employer’s liability exclusion in the policy, on the basis that Sinni was acting in the scope and course of her employment at the time of her slip-and fall and had received Workers’ Compensation benefits.

Sinni filed suit against both Absolutely Massage and Aaron Cullen, Absolutely Massage’s general manager, in May 2007, omitting any reference to the Workers’ Compensation claim and employment status. Scottsdale was not notified of the suit until February 2008, when counsel for Absolutely Massage demanded that Scottsdale defend his client and advised that his client was contemplating entering into a Coblentz agreement (which may bind the insurer to the terms of a negotiated final consent judgment entered against its insured, in circumstances where the insurer wrongfully refused to defend the insured and there is coverage under the policy.) Counsel further advised that he represented Cullen who also demanded a defense by Scottsdale. Scottsdale advised opposing counsel that it was reviewing the complaint to determine their position with respect to coverage. On May 15, 2008, before a decision by Scottsdale was made, Absolutely Massage and Cullen executed a Coblentz agreement with Sinni. The state court reduced the Coblentz agreement to a consent judgment on May 21, 2008. On or about May 29, 2008, Scottsdale advised counsel for Absolutely Massage and Cullen that it would undertake the defense of his clients pursuant to a reservation of rights. Between the time of filing of Sinni’s suit and the entry of the consent judgment, Scottsdale never explicitly refused to provide a defense or denied coverage. Scottsdale, however, also did not provide a defense.

Both Sinni and Scottsdale filed Motions for Summary Judgment. The Court granted Scottsdale’s Motion for Summary Judgment holding that the exceptional circumstances of this case relieved Scottsdale of its duty to defend. Specifically, the insureds failed to promptly provide a copy of the complaint to Scottsdale, and less than three months after notifying Scottsdale, entered into the Coblentz agreement. Moreover, the actual facts put Sinni’s claim outside the scope of coverage.

Further, Scottsdale did not waive its contractual defenses by refusing to defend Absolutely Massage and Cullen. The commercial general liability policy contained provisions that excluded coverage for “Workers’ Compensation and Similar Laws,” which included “any obligation of the insured under a workers’ compensation disability benefits or unemployment compensation law or any similar law. The policy also contained an exclusion for “Employer’s Liability,” covering “Bodily injury to (1) an employee of the insured arising out of and in the course of (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured’s business… This exclusion applies: (1) Whether the insured may be liable as an employer or in any other capacity; and (2) To any obligation to share damages with or repay someone else who must pay damages because of the injury…” As the underlying claim was excluded from coverage based on the policy, the Court did not agree with Sinni’s claim that by refusing to defend Absolutely Massage and Cullen, Scottsdale waived any affirmative defenses, including Workers’ Compensation.

The Court noted the difference in this case and that of Wright v. Hartford Underwriters, 823 So. 2d 241 ( Fla. 4th DCA 2002). In Wright, the Fourth District Court of Appeals held that an insurer who wrongfully refused to defend its insured cannot avoid its duty to indemnify by raising an affirmative defense that its insured failed to raise or could have raised in the underlying action. In contrast, here, Scottsdale’s defense is the policy exclusion itself. Because the relationship between the insurer, Scottsdale, and the insured, Absolutely Massage, is strictly contractual at the indemnification stage, neither the insured, nor a Coblentz plaintiff, Sinni, can re-write the policy to provide benefits for non-covered injuries that have simply been cloaked in causes of action for which there superficially appears to be coverage. Put another way, a Coblentz agreement can’t create coverage where none exists under the policy.

Lastly, the Court held that even if the Workers’ Compensation exclusion did not apply, the liability exclusion in the policy precluded coverage for Sinni’s claim.

Matthew I. Bernstein

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SECOND DISTRICT COURT OF APPEALS FINDS THAT FEDERAL AVIATION ACT PREEMPTS FLORIDA’S DANGEROUS INSTRUMENTALITY LAW

In Vreeland v. Ferrer, et al., 35 Fla. L. Weekly Fed. D115, (2nd DCA 2010), the Second District Court of Appeals held that the Federal Aviation Act preempts Florida’s dangerous instrumentality law, to the extent that Florida’s dangerous instrumentality law holds the owner or lessor of a civil aircraft liable for another’s negligence committed when the owner or lessor was not in actual possession or control of the aircraft.

Jose Martinez was a passenger on a private airplane that crashed after takeoff. Neither Mr. Martinez nor the pilot of the aircraft survived the crash. John K. Vreeland as personal representative of the Estate of Jose Martinez filed a wrongful death action against the owner of the plane, the company to which the owner had leased the plane, and the pilot’s estate.

The owner of the airplane, Aerolease of America, Inc., moved for summary judgment on the three counts alleged against it. In the first count of the lawsuit, the Estate alleged that Aerolease was vicariously liable for the pilot’s negligent operation of the airplane, a dangerous instrumentality under Florida law. The second count of the lawsuit alleged that Aerolease negligently maintained and inspected the aircraft before leasing it, and this negligence was the cause of the accident. The third count asserted that Aerolease intentionally published false information about the condition of the aircraft in order to induce a lease. The Circuit Court for Polk County granted judgment in Aerolease’s favor on all three counts, thereby dismissing Aerolease as a defendant in the lawsuit. The Estate appealed as to the first two counts.

The Second District Court of Appeals held that Aerolease was not vicariously liable for the pilot’s negligent operation of the airplane based on an application of the Federal Aviation Act. The Appellate Court noted that while Florida law provides that an owner of a “dangerous instrumentality” who has expressly or impliedly consented to its operation by another is vicariously liable for injuries or damages caused by its negligent operation, the Federal Aviation Act provides otherwise. The Federal Aviation Act, 49 U.S.C. §44112 generally provides that the aircraft lessor, owner, or secured party is liable for personal injury, death, or property loss or damage only when s/he is in actual possession or control of the aircraft.

The Second District Court of Appeals held that the Federal Aviation Act preempted Florida law insofar as Florida law holds that the owner or lessor of a civil aircraft is liable for another’s negligence committed while the owner or lessor was not in actual possession or control of the aircraft. The Court found that it was Congress’ intent to shield an owner or lessor of a civil aircraft from vicarious liability under state law when the aircraft was not in its possession or control. As such, the Court found Aerolease was not was vicariously liable for the pilot’s negligent operation of the airplane.

The Court, however, noted that the Federal Aviation Act did not preempt Florida negligence law, insofar as the Estate sought to recover for Aerolease’s active negligence in maintaining and inspecting the airplane while it was in Aerolease’s possession or control. The Court thus reversed the Circuit Court’s decision relative to count two.

Deidrie A. Buchanan