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Monthly Archives: January 2017

31JAN 2017

For a variety of reasons, additional insureds (and even named insureds) under commercial general liability policies will sometimes wait months, and even years, to tender the defense of a claim or lawsuit, incurring significant legal fees in the interim.  When the claim finally is tendered, a dispute often arises over who should pay the pre-tender defense costs.  Surprisingly, there is very little Florida legal authority specifically dealing with this issue.  However, the recent federal 11th Circuit Court of Appeals case of EmbroidMe.com, Inc. v. Travelers Property Casualty Co. of America, No. 14-10616, 2017 U.S. App. LEXIS 368 (11th Cir. Jan. 9, 2017), applying Florida law, addresses the issue head-on and provides CGL carriers with a large hammer in refusing to pay pre-tender fees.

In EmbroidMe.com, the named insured under a CGL policy issued by Travelers was sued in a federal district copyright infringement action.  Despite the existence of the Travelers policy, the insured, EmbroidMe, failed to notify Travelers of the lawsuit for over eighteen months, incurring over $400,000 in legal fees before finally tendering the claim to Travelers.  While Travelers agreed to defend the lawsuit under a reservation of rights, they refused to reimburse EmbroidMe for their pre-tender fees.

In the ensuing breach of contract action filed by EmbroidMe for reimbursement of the pre-tender fees, the United States District Court for the Southern District of Florida entered summary judgment in favor of Travelers.  In affirming the Southern District’s grant of summary judgment, the 11th Circuit relied on a standard conditions clause in the CGL policy providing that “no insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” Id. at *14 (emphasis in original).  The 11th Circuit also referenced a standard Supplementary Payments provision in the policy providing that Travelers would pay ”[a]ll reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or ‘suit’. . .” Id.  (emphasis in original).  Based on these provisions, the 11th Circuit reasoned that even the most unsophisticated of insureds “could not expect its insurer to reimburse it for attorney’s fees it unilaterally incurred unless the insured had first obtained [the insurer’s] permission to incur those expenses.” Id.

While the EmbroidMe.com case dealt with a named insured’s request for reimbursement of pre-tender fees, the rationale behind the decision could be applied with equal vigor to an additional insured’s demand for fee reimbursement insofar as “the rights of an additional insured can be no greater than those of the named insured.” Hartford, Ins. Co. v. BellSouth Telecomms., Inc., 824 So.2d 234,241 (Fla. 4th DCA 2002), citing Maxwell v. U.S. Fidelity & Guar. Co., 399 So.2d 1051,1056 (Fla. 1st DCA 1981).  Thus, under EmbroidMe.com, CGL carriers now have an even stronger argument in denying a named insured’s or additional insured’s request for reimbursement of pre-tender fees.

06JAN 2017

The Southern District of New York recently made the importance of notice requirements in a claims-made policy abundantly clear.[1]  Generally, there are two kinds of insurance policies: (1) claims-made; and (2) occurrence.  The Florida Supreme Court defines an occurrence policy as “a policy in which coverage is effective if the negligent act or omission occurs within the policy period, regardless of the date of discovery or the date the claim is made or asserted.”[2]  Conversely, its definition of a claims-made policy is a “policy wherein the coverage is effective if the negligent or omitted act is discovered and brought to the attention of the insurer within the policy term.”[3]  The fundamental difference between the two forms of insurance is that under a claims-made policy, it does not matter when a negligent or omitted act actually took place.  The important date is the date on which “a claim”[4] concerning the negligent or omitted act is made.  The essence of a claims-made policy “is notice to the carrier within the policy period.”[5]

Two recent decisions out of the Southern District of New York[6] in a dispute between the University of Pittsburgh and two insurance carriers exemplify the importance of not only prompt reporting of “a claim” but the need to report the claim properly according to the terms of the insurance contract.  The University of Pittsburgh had hired an architectural firm, Ballinger, as the designer and architect for the construction of a hall at the university.  Shortly after construction began, issues arose with the design of the Project which caused substantial delays.  Ballinger had a claims-made policy with Lexington Insurance Company (“Lexington”) which ran from February 1, 2011 through February 1, 2012.  Upon the expiration of its policy with Lexington, Ballinger then switched its policy to Axis Insurance Company (“Axis”) and the policy was in effect from February 1, 2012 until February 1, 2013.  At no time was it claimed that Ballinger’s insurance had lapsed.  The question was whether Ballinger had properly complied with the notice requirements in each of its policies.

On January 31, 2012 (during the Lexington policy period), Ballinger submitted a Notice of Occurrence/Claim to Lexington.  The Notice of Claim listed the location of the claim as “University of Pittsburgh Salk Hall, Pittsburgh PA and stated “Senior management has been advised by the University of Pittsburgh that this project is experiencing problems and delays in its early stages” and provided the date of notice as January 31, 2012.[7]  In July 2016, a district court for the Southern District of New York was presented with the issue of whether the above-noted notice was sufficient notice pursuant to the policy between Lexington and Ballinger.  The Court began its analysis by noting that the contract required, as a condition precedent to coverage, that any written notice of a claim contain: (1) the actual or alleged breach of duty of circumstance which was subject to the potential claim; (2) a description of the professional services rendered by the insured which could result in the claim; (3) the date of the conduct which could result in the claim; (4) a description of the injury or damage that could result in a claim; (5) the identity and address of any potential claimant; (6) the anticipated location of any potential claim; and (7) circumstances by which the insured first became aware of the potential claim.

If the Court determined that the notice was insufficient, then there would be no coverage under the Lexington policy because it expired on the day after the notice was made without a subsequent timely notice being made. The Court determined, on Lexington’s motion for summary judgment, that the notice had been insufficient.  Specifically, the Court held that the notice was deficient because “[i]t does not, as required, provide any indication of the actual or alleged breach of any professional duty; it does not as required, provide a description of the Professional Services rendered which may result in a claim; and it does not, as required, provide a  description of the injury or damage that has or may result in a claim.”[8]

After the Court granted Lexington’s motion for summary judgment, Axis moved for summary judgment claiming that, because Ballinger had knowledge of “a claim” before the inception of its policy, there was no coverage under its policy.[9]  The Court noted that under Axis’ policy, coverage would not be afforded if a “principal of the insured had knowledge of any act, error, omission, situation or event that could reasonably be expected to result in a claim.”  Axis thereupon provided evidence, including the notice of claim mentioned above, to prove that Ballinger’s principals had notice of a potential claim involving its work at the University of Pittsburgh prior to the policy’s inception on February 1, 2012.  Ballinger argued that at the time it filed its notice with Lexington it did not have knowledge that a claim would be specifically directed towards Axis.  The Court disagreed and reasoned that, under the plain language of the insurance contract, Ballinger did not have to be certain that a claim would be made against it.  It only had to have a reasonable expectation, which the Court found when it sent out the notice to Lexington.

As a result of the Court’s rulings, although Ballinger did not have a lapse in insurance coverage, its notice of claim to its first carrier was deemed insufficient and its notice to its second carrier was deemed untimely.  Ballinger, therefore, did not have any insurance coverage for the claims being made by the University of Pennsylvania.  In order to avoid this potentially dangerous pitfall, the holder of a claims-made policy should review the policy to determine exactly what information must be contained in any notice to its carrier about any potential claim.  Further, the holder of a claims-made policy must clearly understand how “a claim” is defined in a policy and properly report any “claim” immediately upon becoming aware of it.  The failure to follow the requirements of a claims-made policy in regards to notice and timeliness could result in the potentially catastrophic consequence of a claim’s denial, leaving an individual or company without insurance coverage.

[1] Univ. of Pittsburgh v. Lexington Ins. Co., 2016 U.S. Dist. LEXIS 95355 (S.D.N.Y. 2016); 2016 U.S. Dist. LEXIS 170285 (S.D.N.Y. 2016).

[2] Gulf Ins. Co. v. Dolan, 433 So. 2d 512, 514 (Fla. 1983).

[3] Id.

[4] What does or does not qualify as “a claim” is generally described in the policy and the policy holder should be aware of how the term is defined in their policy.

[5] Id.

[6] See note 1, supra.

[7] Univ. of Pittsburgh,  2016 U.S. Dist. LEXIS 170285 *5.

[8] Id. * 8.

[9] Univ. of Pittsburgh v. Lexington Ins. Co., 2016 LEXIS 170285 (S.D.N.Y. 2016).