In Intervest Constr. of Jax, Inc. v. General Fid. Ins. Co., 2014 WL 463309 (Fla. 2014), the Florida Supreme Court decided a matter of first impression certified to it by the Eleventh Circuit Court of Appeals holding that an insured was permitted to apply third-party indemnification payments towards its self-insured retention (“SIR”) obligation under a CGL policy. The Court further held that the subrogation “transfer of rights provision” within the CGL policy did not abrogate the common law “made whole doctrine.” While important decisions in their own right, the decisions are case and fact specific, requiring insurers and insureds to look to the terms of their own policies to determine their rights and obligations.
In Intervest, a dispute arose between the insurer and insured as to the application of third-party indemnification payments received as a result of a contractual indemnification provision. The insured argued that the third-party indemnification payments applied to its SIR obligation while the insurer argued that such payment did not reduce the SIR as it did not originate from the insured.
The Florida Supreme Court ultimately held for the insured. Its analysis focused on the specific terms of the insurer’s CGL policy regarding SIRs, effectively reversing the lower court’s ruling that relied heavily on California cases. The lower court was pursued by language of the SIR provision that the retained limit must be paid “by the insured.” The lower court concluded that a payment received from a third-party as a result of a contractual indemnification did not equate to a payment made “by the insured” as set forth in its SIR provision. For example, the lower court relied on one California case that’s policy required its insured to “pay from its own account” the retained amount of the SIR. In another California case, a CGL policy required its insured to “make actual payment” of the SIR and that “payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the self-insured retention.”
The Eleventh Circuit and Florida Supreme Court were unpersuaded by the lower court’s reasoning and reliance on California law due to significant distinctions in policy language. The Eleventh Circuit explained that requiring that a payment be made from one’s “own account” is not necessarily the same as requiring that the retained limited by paid “by you,” as what was required in the Intervest CGL policy. Further, the Eleventh Circuit reasoned that the insured exhausted its SIR because it “paid” for the protection afforded in the contractual indemnification clause. The policy in Intervest also did not contain a provision addressing other insurance within the context of the SIR. Therefore, Eleventh Circuit and Florida Supreme Court found the California policies materially different concluding that third-party payments could apply to an insured’s SIR.
The Florida Supreme Court also analyzed whether the common law “made whole doctrine” was abrogated by the “transfer of right” provision in the CGL policy. Under Florida law, the “made whole doctrine”, absent a controlling contractual provision, provides that the insured has priority over the insurer to recover its damages when there is a limited amount of indemnification available. This application is required where both the insurer and the insured simultaneously attempt to recover all their damages for a tortfeastor who cannot, because of insolvency, limited insurance coverage, or otherwise, pay the full value of the damages. The transfer of right provision in the Intervest policy did not address the priority of reimbursement or state that it abrogates the “made whole doctrine”. Therefore, the Florida Supreme Court held that, in the absence of such language, equitable principalities favoring the insured prevail entitling the insured to recover.
The Intervest decision provides insurers and insureds the first guidance how Florida Courts will interpret both SIR provisions when third-parties make indemnification payments and when transfer or right provisions fail to address the priority of reimbursement. The Intervest decision, though, is case specific and entirely based on the specific terms of the CGL policy. If you have any questions how Florida Courts may view your policy language following the Intervest decision, please contact the Construction Law Division of the Florida law firm of Cole, Scott & Kissane, P.A.
The Intervest Court was analyzed a General Fidelity CGL policy with the following relevant provisions:
Self-Insured Retention Provision
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Transfer or Rights Provision