SHIRKING THE DUTY TO DEFEND IN FLORIDA: IS ASSIGNMENT THE EXCEPTION TO ARGONAUT?

Matthew J. Jowanna, Matthew J. Jowanna, P.A.

Abstract

A lawsuit is filed by a plaintiff and the defendant is served. The defendant has a drawer full of liability insurance policies and, therefore, the insured defendant sends a copy of the served complaint to any and all insurance carriers that may provide coverage for the claim. The insured defendant then receives a few coverage denials for reasons such as the event at issue did not occur within a certain policy period or that the insured’s private automobile policy does not provide coverage for a commercial general liability claim. In any event, the denials appear to be valid - so the insured looks to the remaining carriers.

Finally, the insured gets a letter from one carrier setting forth that an attorney has been retained to defend the insured and that insurance defense counsel will soon be in touch. The letter also requests that the insured provide the defending carrier with all other coverage information. So, the insured informs the defending carrier of all of the other insurance carriers and their respective responses to submission of the complaint.

The adjuster for the defending carrier then discovers that one carrier has not yet responded. A closer examination of the complaint and the policies indicates that the unresponsive carrier may provide primary coverage for the claim at issue. Hopeful that the defending carrier may provide only excess coverage, that is over and above the coverage of the unresponsive carrier, the “other insurance” clauses contained within both policies are quickly, but thoroughly, examined. This examination reveals only that both insurance carriers are primary and, therefore, both carriers must provide primary, pro-rata indemnity to the insured defendant.

The adjuster for the defending carrier then calls the adjuster for the currently unresponsive carrier to inquire as to that carrier’s position on the issues of defense and indemnity of the mutual insured. In response, the adjuster for the unresponsive carrier informs the adjuster for the defending carrier that the unresponsive carrier has already had the matter reviewed by its coverage counsel and, based on that review, the two carriers should indemnify the insured defendant on a primary, pro-rata basis - should the facts warrant an indemnity offer or if the plaintiff is ultimately successful in obtaining a judgment against the insured defendant.

Hearing that the two carriers seem to be in agreement on the coverage issues, the adjuster for the defending carrier informs the adjuster for the unresponsive carrier that insurance defense counsel has already been retained and asks if such counsel is acceptable. The adjuster for the unresponsive carrier relays that the chosen insurance defense counsel is also a lawyer utilized by that carrier and, therefore, the defense counsel is more than acceptable. However, the adjuster for the unresponsive carrier does not offer to share the cost of the defense. Being a reasonable person, the adjuster for the defending carrier then requests that the unresponsive carrier pay half of the defense costs - to which the adjuster for the unresponsive carrier politely declines. What? A primary carrier cannot do that! It has a duty to defend! However, the current state of the law in Florida on this issue can be summed-up with one question and answer: What can the defending carrier do? Not much.

This article specifically addresses the state of the law barring a defending primary carrier from seeking contribution or subrogation from a non-defending co-primary carrier for the expenses of defending a mutual insured. One of the key inequities addressed in this article is the fact that Florida law actually allows a primary carrier, with a clear duty to defend, to sit back and let another co-primary carrier pickup the entire tab for defending a common insured. While contribution and subrogation may not be currently condoned legal vehicles for a primary insurer to recoup defense costs in Florida, this article next discusses the possibility, under just the right set of circumstances, of using the legal theory of assignment in order for a defending primary carrier to recover defense costs from a non-defending co-primary carrier. Finally, a recommendation is made that the timing appears to be right for the courts or the legislature to revisit and reweigh the public policy issues that have supported the current state of the law on this issue for over thirty years.

The Argonaut and Continental Cas. Co. courts found it to be unnecessary to allow defense cost contribution and subrogation claims because the risk of an insured filing suit for breach of contract and bad faith was enough of a deterrent to insurance carriers so that they will not shirk their duty to defend. But, is it? Is it really enough of a deterrent that the non-defending co-primary carrier would have retained a better defense team? Is it really enough of a deterrent that the non-defending carrier does not have as much say or control with the defending carrier’s defense counsel? Is it really enough of a deterrent that the non-defending carrier may have the insured agree to a consent judgment to be enforced only against the non-defending carrier? The answer is: Probably not!

If an insured is being fully defended and indemnified by at least one carrier, then that insured has no real damages that it can calculate or that it must withdraw from its bank account. Therefore, it is highly unlikely that an insured will actually take the time, or make the initial expenditure, to sue the non-defending carrier. The odds are slim that an insured would want to make a deal with the devil by entering into a consent judgment with a claimant, to be enforced against the non-defending carrier, when another carrier is fully defending the insured and the insured will be fully indemnified for any ultimate final judgment. Judge Covington, in American Cas. Co. of Reading Pennsylvania, hit the nail squarely on the head by setting forth, “[w]hile . . . [the insured] is the proper person to bring a suit against . . . [the non-defending primary carrier] for failure to defend, . . . this Court acknowledges that there is little incentive . . . to do so.”

In the Continental Cas. Co. case, in 1994, the Fifth District Court of Appeal noted “it significant that in the fifteen years since Argonaut was decided in the Third District, there has been virtually no activity on this issue out of the other districts. Nor has any fact pattern arisen that would cause the courts that have decided this issue to reconsider.” Well, that has now changed. Since the Argonaut decision in 1979, there has been “activity on this issue” at least nine times, and as recently as September 15, 2010. Since Argonaut, there has been “activity on this issue” in at least four out of Florida’s five appellate districts and at least two out of Florida’s three federal districts.

With a track record now demonstrated, which the Continental Cas. Co. court requested, perhaps now is the time for the courts to reweigh the public policy arguments. As the Argonaut court noted: “The Legislature has not seen fit to allow contribution for costs or attorney’s fees between insurance companies.” While the issue of more government and laws versus less government and laws is an unwinnable debate, for such a well-established principle of 1979 law to still be challenged and questioned in so many Florida courts, as recently as September 15, 2010, is, perhaps, a signal that now is the time for the Florida Legislature to decide what is in the best interest of Florida insureds, and their insurance carriers, on the issue of equitable recovery of defense costs between co-primary carriers. This article is an open invitation to the courts and the legislature to act equitably on the issue.