Due to new legislation, Florida’s days of being a “first in loses” jurisdiction for multiple insurers with a duty to defend a mutual insured in a latent construction defect claim may be over. The legislation may also end some leveraging tactics against insurers on additional insured claims.
For any construction related claim initiated on or after January 1, 2020, insurance carriers will have the ability to pursue contribution claims against other insurers for defense costs incurred on behalf of a mutual insured. This law applies to admitted and surplus insurers for any action within a Florida Court regardless of whether the subject policies were issued in Florida. (READ MORE)
This significant change in Florida law came as part of an omnibus insurance regulation known as House Bill 301 that was signed into law in July 2019 and the right to contribution is codified as Florida Statutes Section 624.1055. Section 624.1055 legislatively overturns the well-known precedent contained within Argonaut Insurance Company v. Maryland Casualty Company, 372 So.2d 960 (Fla. 3d DCA 1979), and its progeny, Continental Casualty Company v. United Pacific Insurance Company, 637 So. 2d 270 (Fla. 5th DCA), which held a primary insurer that defends an insured cannot not seek contribution from co-primary insurers that did not defend the mutual insured. The rationale for this anti-contribution law was that every insurer has an obligation to defend its insured irrespective of the actions of other insurers. However, this stance resulted in some unforeseen consequences that have played themselves out in construction-related lawsuits and settlements in recent years.
Two of the most common scenarios have been: 1) where an insurer with a duty to defend refuses/delays defense after another insurer accepts defense and then uses its defense position to leverage a minimal (if any) contribution toward settlement; and 2) where a party entitled to defense as an additional insured under multiple insurers’ policies leverages the duty to defend against insurers for purposes of increasing insurers’ settlement offers and exposure.
The first scenario often includes a subcontractor insured with multiple insurers on risk over an extended time period. Under the prior law, if one insurer defended the insured, the remaining insurers could delay/refuse defense and then use the money that would have been spent on defense to secure a release at the time of settlement—without the risk of liability for defense costs to the first insurer that defended the insured.
The second scenario often involves a general contractor owed additional insured coverage under multiple subcontractors’ insurance policies over an extended time period. Under the prior law, the first insurer that accepted defense usually incurred an extensive cost for reimbursing post-tender defense costs that could not be recovered from any other subcontractors’ insurers. Based on this reality, some insureds have used the potential of liability for defense costs or the threat of stipulated judgments against non-defending insurers as leverage in settlement negotiations or have carved-out insurers from settlements for purposes of continued litigation.
Ideally, Florida’s adoption of contribution between insurers should provide insurers more certainty about their defense cost exposure. This could prevent some of the scenarios that are born from the fact that the first defending insurer usually incurs significant cost that does not reduce its indemnity exposure. For example, an insurer faced with a situation where there is a questionable duty to defend under its policy, but a clear duty to defend under another insurer’s policy, could defend and seek contribution from the other insurer to eliminate the typical risks associated with denying a duty to defend. Another example could be a group of insurers agreeing to defend and then jointly seeking contribution from non-defending insurers. These possibilities and others could end some of the leveraging tactics between insurers and insureds in construction claims. However, the ability to sue over defense costs may also result in more litigation between insurers and have its own set of unforeseen consequences.
One issue that may not need to be litigated is whether pre-tender defense costs are recoverable between insurers. The new statute expressly states that “contribution may not be sought from any liability insurer for defense costs that are incurred before the liability insurer’s receipt of notice of the claim, suit, or other action.” However, the statute is silent as to whether insureds can seek pre-tender defense costs and it is likely that issue will continue to be the source of disputes in certain claims.
Florida’s adoption of contribution between insurers raises a host of potential issues that have not been dealt with during the process of litigation or in the state’s courts before. Insurers writing policies providing a duty to defend in Florida would be prudent to follow the trends as the application of this new law begins to take shape in the coming year.