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.