On June 12, 2012, in Mid-Continent Casualty Company v. Guitree Basdeo, et al., 2012 WL 2094376 C.A.11 (Fla.), the Eleventh Circuit, U.S. Court of Appeals addressed an insurer’s duty to defend in the state of Florida. This opinion was drafted in connection with a declaratory action sought by Mid-Continent Casualty Company (Mid-Continent) in an attempt to deny coverage to First State Development Corporation for faulty repairs. First State had consistently failed to respond to Mid-Continent’s letters or otherwise cooperate in accordance with the terms of the insurance policy. Regardless, the court held that Mid-Continent’s failure to adequately comply with the procedures set forth in Fla. Stat. § 627.426 estopped it from denying coverage.
The Eleventh Circuit addressed the following issues:
- May Mid-Continent deny coverage based on the fact that First State never requested a defense?
- May Mid-Continent deny coverage based on First State’s failure to cooperate in accordance with the terms of the insurance policy?
- How many occurrences are counted for the purposes of the insurance claim? (Tarping did not stay in place, resulting in further rain damage before repairs could be made.)
- What is the coverage limit? (Tarping plus two separate repairs.)
DENIAL OF COVERAGE: The Court determined that Mid-Continent should have known of the coverage defense when it first found out about Basdeo’s motion for default in October 2007. Accordingly, Mid-Continent had to submit its reservation of rights within 30 days of that date. Fla. Stat § 627.426(a). There was no evidence that this was done, however. As an insurance company must meet both requirements, it was thereby estopped from denying coverage. The Court also provided that even if a letter of inquiry sent by Mid-Continent to First State in August, which received no response, adequately served as a reservation of rights, Mid-Continent failed to comply with the second requirement by giving written notice of its refusal within 60 days of receiving the complaint. Fla. Stat § 627.426(b).
On the issue of First State’s failure to cooperate, coverage may be denied if (a) the lack of cooperation was material; (b) the insurer “exercised diligence and good faith in bringing about the cooperation of its insured” and “complied in good faith with the terms of the policy”; and (c) the lack of cooperation substantially prejudiced the insurer. Ramos v. Nw. Mut. Ins. Co., 336 So. 2d 71, 75 (Fla. 1976). There was no question here that First State failed to cooperate. Nevertheless, because Mid-Continent failed to comply with the foregoing statute, it was also estopped from denying coverage on these grounds.
NUMBER OF OCCURRENCES AND COVERAGE LIMITS: The issue of the number of occurrences was also settled by the Court, relying on the definition provided in the insurance policy, which defined occurrence as “an accident, including continuous or related exposure to substantially the same general harmful conditions.” The Court thereby concluded that this was not a single occurrence arising out of a contract breach, but three separate occurrences – the tarping and two separate repairs.
On the fourth issue regarding the coverage limit, the Court was again reliant on the terms of the insurance policy, which clearly stated that each occurrence was limited to $1 million.
If an insurance company decides to deny coverage to an insured, it must strictly comply with the conditions and deadlines set forth in Fla. Stat § 627.426(a). Second, if an insurance company has any other defenses – such as failure to cooperate – it must timely raise them in order to demonstrate its exercise of good faith to bring about cooperation. Third, Courts will largely defer to the language in the insurance policy with regard to determining the means of cooperation and what the definition of an occurrence entails, as well as coverage limits.
In drafting policies, one should be mindful of any potential ambiguities and take care to reflect the context and relationship of the insurer and insured.