The U.S. Eleventh Circuit Court of Appeals held that an insurer’s position that it does not owe pre-tender defense costs does not constitute a coverage defense requiring the insurer to comply with notification requirements under Florida’s Claims Administration Statute. EmbroidMe.com, Inc. v. Travelers Prop. Cas. Co. of Am., 845 F.3d 1099 (11th Cir. Jan. 9, 2017).

The underlying plaintiff sued the insured for copyright infringement. Prior to notifying the insurer, the insured defended the lawsuit for eight months. Upon notification of the underlying lawsuit, the insurer agreed to defend but advised the insured 39 days after notification that it refused to reimburse the insured for its pre-tender defense costs. The insured sued the insurer for breach of contract in refusing to reimburse its defense costs. The insured argued that it was entitled to reimbursement because Florida’s Claims Administration Statute requires insurers who seek to deny coverage based on a coverage defense to notify the insured of its reliance on the coverage defense within 30 days of becoming aware of its existence, and the insured was advised of the insurer’s position 39 days after notification. The court rejected the insured’s argument and found the insurer’s refusal to reimburse the defense costs did not constitute a coverage defense, and that the statutory time limit did not apply. The insured appealed.

The Eleventh Circuit affirmed, holding that the insurer’s position to not pay pre-tender defense costs does not constitute a coverage defense requiring an insurer to comply with statutory notification requirements. The Eleventh Circuit noted the policy language clearly alerted even the most unsophisticated insured that the insurer would not reimburse it for attorneys’ fees without obtaining the insurer’s permission. Further, the Eleventh Circuit found that the policy language was an exclusion to coverage, not a forfeiture of coverage. The Eleventh Circuit also noted that the insurer was prejudiced by the insured incurring defense costs without notifying the insurer, in part because the insured agreed to a higher fee rate for defense counsel.