Third-Party May Satisfy Self-Insured Retention Provision Per Florida Court

On February 6, 2014, the Florida Supreme Court issued an opinion on the requirements for satisfying a self-insured retention provision in a liability insurance policy and application of the “insured made whole” doctrine.  The case of Intervest Construction of Jax, Inc., et al. v. General Fidelity Ins. Co., 2014 WL 463309, — So.3d — (Fla. 2014) was before the Florida Supreme Court based on two certified questions from the U.S. Eleventh Circuit Court of Appeals, which referred the case to the state court because Florida, like many jurisdiction, had yet to address the issue.  The first certified question concerned the ability of an insured to apply payments made by a third party to satisfy a self-insured retention provision in a liability insurance policy.  The second question addressed application of the insured made whole doctrine where an insured applies payments from third party toward satisfying the self-insured retention provision.  The Florida court ultimately found in favor of the insured on both issues.

The case involved the terms of a commercial general liability insurance policy entered into by General Fidelity Ins. Co. with Intervest Construction Co. of Jax, Inc. and ICI Homes, Inc. (collectively, “ISI”).  The insurance policy contained a $1 million self-insured retention clause, which meant General Fidelity’s obligations were not triggered until $1 million was expended “by you” or “by the insured.”  ICI contracted with Custom Cutting, Inc. to perform work on a home.  The contract between ICI and Custom Cutting included a clause requiring Custom Cutting to indemnify ICI for damages arising from negligence.  Some years later, a resident of the home was injured when she fell in an area where Custom Cutting performed work.  The resident sued ICI for her injuries.  Following the accident, ICI sought indemnification from Custom Cutting pursuant to their contract.  At the time of the resident’s accident, Custom Cutting had a liability insurance contract with North Pointe Ins. Co.  The North Point insurance policy did not name ICI as an additional insured.

The injured party agreed to settle her claim for $1.6 million.  As part of the agreement, North Pointe agreed to pay ICI $1 million to settle the indemnification claim against Custom Cutting.  In turn, ICI agreed to pay the $1 million to the injured party.  The dispute then arose over whether ICI or General Fidelity owed the remaining $600,000 to the injured party.  ICI contended that the $1 million payment from North Pointe on behalf of Custom Cutting satisfied the self-insured retention provision, which triggered General Fidelity’s obligation to pay the remaining amount of the settlement.  General Fidelity, on the other hand, contended that the self-insured retention provision required “the insured” to incur $1 million before its obligations were triggered, and that the payment by North Pointe could not satisfy that requirement.  ICI and General Fidelity each agreed to pay $300,000 to satisfy the terms of the settlement agreement with the injured party and make her whole.

Following payment of the settlement, ICI filed suit against General Fidelity seeking a declaration regarding which party is responsible for payment of the $600,000 above the amount paid by North Pointe.  The parties filed competing motions for summary judgment before the federal district court. Citing several cases from California, the district court ruled in favor of General Fidelity, finding that the language of the policy expressly required ICI to satisfy the self-insured retention amount itself and could not rely on the payment made by North Point.  ISI appealed the ruling to the Eleventh Circuit, who certified the question to the Florida Supreme Court.

The Florida Supreme Court first distinguished the California authorities cited by the federal district court on the basis that those cases did not address the same policy language.  According to the Florida court, the California cases each addressed policy language that was more restrictive in its requirement that payment be made by the insured than the language at issue in the present case.  In this case, the policy required that payment be made “by you” or “by the insured” did not preclude application of payment by a third party to satisfy the self-insured retention provision.  In addition, the Florida Supreme Court found that ISI exhausted the self-insured retention provision because it paid for the protection provided by the indemnification provision included in its contract with Custom Cutting.  Based upon the policy language and indemnification clause, the Florida Supreme Court overturned the federal district court decision and found that a North Pointe’s $1 million payment on behalf of Custom Cutting could be applied by ISI to satisfy the self-insured retention requirement.

The second certified question before the Florida Supreme Court was application of the “insured made whole” doctrine, which provides that the insured has priority over the insurer to recover its damages when there is a limited amount of indemnification available, unless there is an express contractual provision providing otherwise.  General Fidelity argued that the insured made whole doctrine was abrogated by the subrogation clause and, therefore, it was entitled to the amount paid by North Pointe.  ISI countered by citing a case from the Washington state Court of Appeals that analyzed the same subrogation policy language and determined it did not abrogate the equitable principle of the insured made whole doctrine.  The Florida Supreme Court found the Washington authority persuasive and adopted its reasoning.

The attorneys of MLR are experienced in analyzing complex insurance coverage issues, including application of self-insured retention provisions and the insured made whole doctrine.  Please contact us with any questions about this case or any other matter addressed in the Insurance Coverage Blog.

UPDATE (2/12/14):  We wanted to follow-up on the above post by linking to additional analysis on the opinion from Insurance Law 360 (subscription required) and the Coverage Opinions publication.

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