An Assignment of Claim Against Insurer After Insured Signed a Release is Worthless

Insured’s Release of Insurer Defeats Claim of Third Party

When a CT Scanner was destroyed as a result of two fires at the storage facility claims were presented and suits filed against the warehouse, Blocker Storage. Blocker was insured by Associated Indemnity, a Fireman’s Fund Company and part of the Allianz group of insurers. Associated paid its limit of liability and received a release from the insured for Associated and all of the related companies.

In Diagnostic Leasing, Inc., et al v. Associated Indemnity Corporation, a California Corporation, No. 19-13535, United States Court of Appeals, Eleventh Circuit (June 24, 2022) the Eleventh Circuit affirmed the district court’s grant of summary judgment for Associated Indemnity Corp. on Diagnostic Leasing, Inc.’s bad faith claims.


Blocker Transfer &Storage Co. “operated various warehouse storage facilities” that it owned or leased “as part of its business as a moving and storage company.” Diagnostic Leasing was an equipment rental and leasing company. In 1995, Blocker Storage stored Diagnostic Leasing’s computerized tomography (CT) scanner. Associated Indemnity insured Blocker Storage under the trade name “Fireman’s Fund Insurance Company.”

That same year, two fires at Blocker Storage’s warehouses damaged Diagnostic Leasing’s CT scanner. Fireman’s Fund informed Blocker Storage that the coverage limit for Diagnostic Leasing’s insurance claim was $100,000 and that “Fireman’s Fund [] decided to make available to Blocker [Storage]” the full $100,000 to use at Blocker Storage’s discretion. Fireman’s Fund advised Blocker Storage that any settlement in excess of $100,000 would have to be paid by Blocker Storage. Blocker Storage maintained that its liability was limited to $25,000 based on a contractual provision in the bill of lading from when the CT scanner was first moved into storage.

After the second fire, Diagnostic Leasing sent a second demand letter, this time to Fireman’s Fund directly, asserting a higher replacement cost for the CT scanner-$427,515. Fireman’s Fund advised Blocker Storage that it could not respond to Diagnostic Leasing on Blocker Storage’s behalf because of Blocker Storage’s uninsured exposure in excess of $100,000. Blocker Storage “specifically instructed” Fireman’s Fund that “it d[id] not want any of its insurance coverage tendered” to Diagnostic Leasing because “its maximum liability . . . [wa]s $25,000” and “[a] tendering of any amount by the Fireman’s Fund directly to [Diagnostic Leasing] m[ight] prejudice Blocker [Storage] in enforcing its limitation of liability.”

The Two Lawsuits

Eventually Diagnostic Leasing sued Blocker Storage in Florida state court for breach of contract, negligent bailment, and spoliation of evidence. Fireman’s Fund provided counsel to represent Blocker Storage alongside Blocker Storage’s independent counsel.

While litigation against Blocker Storage was pending, Blocker Storage sued Fireman’s Fund seeking a declaratory judgment regarding Blocker Storage’s claims under the insurance policy.

In 2001, Blocker Storage and Fireman’s Fund executed a “Release of All Claims” to resolve the declaratory judgment lawsuit. Blocker Storage and Fireman’s Fund “agree[d] that the limit of liability coverage available, pursuant to the terms and conditions of the [p]olicy, for the [first] fire [wa]s $100,000.” In exchange, Blocker Storage released “Fireman’s Fund, its employees, adjusters, agents[,] and attorneys” from: all liabilities identified in Blocker [Storage]’s complaint including, but not limited to, the matter of number of occurrences, the matter of the limits of insurance available and the alleged breach of contract. This [r]elease includes, but is not limited to, all claims for contractual damages, extra-contractual damages, “bad[]faith” damages, whether statutory or common law, consequential damages, tort damages, attorney fees, expert costs, expenses and interest, arising out of or related to the allegations in Blocker [Storage]’s complaint.

After ten years of litigation the state court granted judgment for Diagnostic Leasing against Blocker Storage after a bench trial, finding that Blocker Storage’s alleged $25,000 liability limitation was unenforceable and that Blocker Storage owed Diagnostic Leasing $451,431.82 plus prejudgment interest ($229,431.82 in lost revenue and $222,000 to replace the CT scanner).

Diagnostic Leasing moved to include Fireman’s Fund and Associated Indemnity as parties to the final judgment, and Fireman’s Fund, Associated Indemnity, and Diagnostic Leasing negotiated an agreed order to include Associated Indemnity as a party to the final judgment and deny Diagnostic Leasing’s motion to include Fireman’s Fund. The state court entered the agreed order, granting the motion with respect to Associated Indemnity, finding Associated Indemnity liable to the extent of its $100,000 coverage limit under the insurance policy, and denying the motion with regard to Fireman’s Fund. The state court entered final judgment against Blocker Storage for $994,638.37; $100,000 of that amount was recoverable from Associated Indemnity per the agreed order.


Diagnostic Leasing argued that the district court erred in granting summary judgment for Associated Indemnity on its bad faith claims but the Eleventh Circuit disagreed.


Because (1) the policy was issued by Associated Indemnity on behalf of Fireman’s Fund; (2) Fireman’s Fund directed Associated Indemnity to defend Blocker Storage and offer Blocker Storage the policy limits to settle Diagnostic Leasing’s insurance claim; and (3) Fireman’s Fund negotiated the 2001 release to release Blocker Storage’s claims arising from the policy; and because Diagnostic Leasing did not rebut the evidence of an agency relationship, the district court did not err in granting summary judgment for Associated Indemnity on the agency issue.

Effect of the 2001 Release

Under Florida law, once the insured releases the insurer from liability, the insured no longer has a cause of action against the insurer and neither does an injured third party.

The 2001 release was not limited to only those claims that existed at the time of the release; it released “all claims for . . . ‘bad[]faith’ damages, . . . arising out of or related to” Blocker Storage’s insurance claims under the policy. Any bad faith claims against Associated Indemnity related to Blocker Storage’s insurance claims under the policy.

Once Blocker Storage released Associated Indemnity from liability “arising out of or related to” Blocker Storage’s insurance claims under the policy, including liability for any bad faith, “no such [bad faith] action [could] be maintained” by Diagnostic Leasing against Associated Indemnity. Associated Indemnity owed no independent duty of good faith to Diagnostic Leasing who was not an insured under its policy.

Because the 2001 release preceded the assignment of Blocker Storage’s claims under the insurance policy and released Associated Indemnity of “all claims . . . for ‘bad[]faith’ damages” arising out of or related to” Blocker Storage’s insurance claims under the policy, the release extinguished Diagnostic Leasing’s claims for bad faith, which existed only by virtue of Blocker Storage’s insurance relationship with Associated Indemnity.

Mutual Mistake

The 2001 release settled the amount of Associated Indemnity’s liability under its insurance policy issued to Blocker Storage and referenced the underlying litigation between Blocker Storage and Diagnostic Leasing where Associated Indemnity was the insurer and funded Blocker Storage’s defense.


Diagnostic Leasing won a judgment against Blocker Storage for almost one million dollars only to give up trying to collect from the responsible defendant by taking an assignment against Blocker Storage’s insurer who had, before the assignment, released the insurer. Greed and hope of getting the full judgment plus punitive damages from an insurer Diagnostic and its lawyers failed to do their due diligence to deal with the release and tried to avoid the release by going after a sister insurer of the named insurer. A waste of time and effort.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at and

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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