Governmental Insurers and Insured’s Litigate Because of Failure to Deal With State Statutes
A Florida county bought an excess insurance policy from Star Insurance Company with a self insured retention of $350,000 at the same time a state statute waived sovereign immunity for only the first $200,000 and the county could not make a settlement for amounts in excess of the $200,000 limit without first obtaining a state statute approving a settlement more than $200,000.
In Hillsborough County v. Star Insurance Company, United States Court of Appeals, Eleventh Circuit — F.3d —-, 2017 WL 460999 (2/3/17) the insured county and personal representative of deceased accident victim’s estate sued an excess liability insurer, seeking a declaratory judgment that county was allowed to settle personal representative’s underlying wrongful death claim without the insurer’s consent and without a special claims bill by state legislature.
Darcia Dominguez died from injuries sustained in an automobile accident with a Hillsborough County employee in February of 2010. Jorge Dominguez, the personal representative of Ms. Dominguez’s estate, filed a wrongful death suit against Hillsborough County in state court, and that action, as far as the Eleventh Circuit knew, is still pending. This federal diversity case involves an insurance dispute between the County, Mr. Dominguez, and Star Insurance, the County’s excess carrier.
The Eleventh Circuit confronted an issue of first impression under Florida law—the interplay between the limited waiver of sovereign immunity and the language of the self-insured retention limit (SIRL) contained in an endorsement to the excess liability policy issued to the County by Star.
The question is whether the County and Mr. Dominguez can settle the estate’s claim for the sum of $2.35 million—with the County paying its SIRL of $350,000 and Star purportedly paying the remaining $2 million (the policy limits)—without Star’s consent but subject to the Florida Legislature approving a special claims bill for the $150,000 “gap” between the $200,000 sovereign immunity cap established by statute and the $350,000 SIRL.
The district court, exercising diversity jurisdiction and ruling on cross-motions for summary judgment that the parties submitted without the benefit of discovery, held that any requirement that the Florida Legislature pass a claims bill for the “gap” amount before coverage is triggered under the policy frustrates the purpose of the County’s contract with Star. But it also ruled that the County cannot unilaterally settle the estate’s claim for an amount within the policy limits without Star’s consent. In granting Mr. Dominguez’s motion for entry of judgment, the district court clarified that, in concluding that the County could not settle without Star’s consent, it necessarily ruled that, should Star consent, the County could satisfy its SIRL without a claims bill by the Legislature.
If this sounds like a mess, that is because it is.
In February of 2010, § 768.28(5) read in relevant part as follows: “The state and its agencies and subdivisions shall be liable for tort claims in the same manner and to the same extent as a private individual under like circumstances, but liability shall not include punitive damages or interest for the period before judgment. Neither the state nor its agencies or subdivisions shall be liable to pay a claim or judgment by any one person which exceeds the sum of $100,000 or any claim or judgment, or portions thereof, which, when totaled with all other claims or judgments paid by the state or its agencies and subdivisions arising out of the same incident or occurrence, exceeds the sum of $200,000. However, a judgment or judgments may be claimed and rendered in excess of these amounts and may be settled and paid pursuant to this act up to $100,000 or $200,000, as the case may be; and that portion of the judgment that exceeds these amounts may be reported to the Legislature, but may be paid in part or in whole only by further act of the Legislature. Notwithstanding the limited waiver of sovereign immunity provided herein, the state or an agency or subdivision thereof may agree, within the limits of insurance coverage provided, to settle a claim made or a judgment rendered against it without further action by the Legislature, but the state or agency or subdivision thereof shall not be deemed to have waived any defense of sovereign immunity or to have increased the limits of its liability as a result of obtaining insurance coverage for tortious acts in excess of the $100,000 or $200,000 waiver provided above[.]” (emphasis added).
The the purchase of insurance does not waive the defense of sovereign immunity.
The County purchased an excess liability insurance policy (including excess automobile coverage) from Star for the period spanning from October 1, 2009, to October 1, 2010. The policy, which cost the County $527,360, has a $2 million limit for each accident or occurrence, as well as a $350,000 SIRL.
The policy provides that the County cannot assume any obligation, make any payment, or incur any expense “without [Star’s] consent, except at [the County’s] own cost,” and requires the County to cooperate with Star “in the investigation, settlement or defense of the claim or ‘suit.’ ”
If the County fails to comply with any of the provisions of paragraph 4, Star “shall not be liable for any damages or costs or expenses[.]”
In its reservation of rights letter, which was attached to the amended complaint, Star took the position that it was only obligated to pay those sums that the County “legally must pay,” and that under § 768.28(5) the County had sovereign immunity for any sums over $200,000 absent an act of the Florida Legislature. Because the Florida Legislature had not taken any action (like passing a special claims bill) that would make the County liable for (or allow the County to pay) any claim over $200,000, and because the County had not exhausted (and could not yet exhaust) its $350,000 SIRL, Star asserted that its excess coverage under the policy had not been triggered.
Star’s summary judgment motion, like the County’s, was devoid of evidence. Under Florida law, the frustration of purpose doctrine has limits. Both the County and Star knew (or should have known) that, in 2009 and 2010, § 768.28(5) established a sovereign immunity cap of $200,000 for municipalities and other government entities. And both the County and Star knew that the $350,000 SIRL exceeded the $200,000 sovereign immunity cap. Because the County purchased excess insurance of $2 million, the parties were aware of (or certainly should have foreseen) a scenario where the County could be liable for an amount over $350,000, in which case the $150,000 “gap” amount would have to be accounted for in some way or another (e.g., through the passage of a special claims bill).
The settlement proposal approved by the Board of Commissioners states that it is subject to Star’s consent, and also provides that the $150,000 “gap” amount will be “paid by the County, if approved by the Legislature in a claims bill.” So, whether a special claims bill is or is not statutorily required before the County can pay the “gap” amount to satisfy its SIRL of $350,000, the proposed settlement between the County and Mr. Hernandez anticipates the need for, and passage of, such a bill by the Legislature.
The county understood the policy it bought and put the limits into its agreement to settle. The Eleventh Circuit, applying ancient authorities refused to rewrite the terms of the proposed settlement so that it could address whether, under a certain set of facts, the County can pay the $150,000 “gap” amount (and trigger Star’s excess coverage) without a special claims bill.
Under Florida law, Star, as an excess insurer, has a duty of good faith to evaluate settlement proposals, and it cannot “arbitrarily reject a reasonable settlement offer.” Unfortunately, the Eleventh Circuit could not apply the good faith duty here because a number of material factual issues are not ripe for resolution. The parties, for reasons known only to them, chose not to conduct discovery. As a result, they failed to present critical evidence to the district court with respect to the accident and the proposed settlement. No one knows who (if anyone) was at fault in the accident that resulted in Ms. Dominguez’s death.
The Eleventh Circuit affirmed the portions of the summary judgment order and final judgment which declares that the County cannot unilaterally settle Mr. Dominguez’s claim within policy limits without Star’s consent, and explains that other issues related to the proposed settlement are unripe for resolution on the current record. The Eleventh Circuit vacated the portion of the summary judgment order and the final judgment which declares that the $350,000 SIRL can be satisfied without the passage of a special claims bill.
Insurers and insureds must read the insurance policy they buy and the statutes that might cause disputes before there is a suit filed. In this case the county should have negotiated an SIRL of $200,000 (even it it cost more) so that it would not need a state law to cover the “gap.” Because they did not consider the sovereign immunity law and how it would be affected by the SIRL it must struggle through interminable litigation over coverage.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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