Florida Federal Court Allows Insurer To Invoke Appraisal Provision Despite Pending Lawsuit Against Insurer

Jeremy S. Macklin | Traub Lieberman Straus & Shrewsberry | September 11, 2018

In Reynolds Ventures, Inc. v. Scottsdale Ins. Co., 2018 U.S. Dist. LEXIS 150508 (M.D. Fla., Sept. 5, 2018), the U.S. District Court for the Middle District of Florida held that a surplus lines insurer who acts consistently with its rights may invoke its appraisal rights after suit has been filed.

Marram Corp. (“Marram”) secured a first party property insurance policy from Scottsdale Insurance Company (“Scottsdale”). Marram’s property suffered water damage, and Marram filed a claim with Scottsdale. Marram allowed Reynolds Ventures, Inc. (“Reynolds”), a contractor, to directly bill Scottsdale for its repair services. Reynolds and Scottsdale disputed the amount of damage sustained by Marram. Reynolds (through rights acquired by Marram) sued Scottsdale for breach of contract for underpaid services. Scottsdale brought a motion to compel appraisal and to stay legal proceedings.

Reynolds objected to the appraisal for three reasons: (1) disputes over coverage exist, (2) Scottsdale failed to invoke an appraisal, and (3) Scottsdale failed to notify Reynolds of its rights under the policy. Scottsdale argued that it sent Reynolds a demand for appraisal before Reynolds filed suit, and that Scottsdale had not acted against its appraisal rights. The demand for appraisal on which Scottsdale relied was a letter with generally accurate policy information that references “Nationwide” not “Scottsdale” as the insurer.

The court found the controversy of the letter referencing “Nationwide” instead of “Scottsdale” irrelevant. The court held that the policy’s appraisal clause was not limited by notice prior to suit. Rather, the right to an appraisal can be invoked after suit has been filed. Scottsdale could invoke its appraisal right after the suit was filed so long as it acted consistently with those rights. Because Scottsdale acted consistently with its appraisal rights, Scottsdale sufficiently invoked its appraisal right within the policy.

Reynolds next argued that Scottsdale failed to notify it of its right to participate in mediation pursuant to Florida statute Section 627.7015 (2) & (7). However, the court pointed out that Section 626.913 clearly excludes surplus lines insurers from 627.4015 (2) & (7) unless the policy specifically states otherwise. Scottsdale is a surplus line insurer and the policy did not state that Florida Statute Chapter 627 applies. Therefore, the court granted Scottsdale’s motion, mandating appraisal and staying the legal proceedings.

The Contingency Fee Multiplier (For Insurance Coverage Disputes)

David Adelstein | Florida Construction Legal Updates | August 25, 2018

The contingency fee multiplier: a potential incentive for taking a case on contingency, such as an insurance coverage dispute, where the insured sues his/her/its insurer on a contingency fee basis.

 

In a recent property insurance coverage dispute, Citizens Property Ins. Corp. v. Agosta, 43 Fla.L.Weekly, D1934b (Fla. 3d DCA 2018), the trial court awarded the insured’s counsel a contingency fee multiplier of two times the amount of reasonable attorney’s fees.  The insurer appealed. The Third District affirmed the contingency fee multiplier.

 

Of interest, on appeal—which is reviewed under an abuse of discretion standard of appellate review–the Third District analyzed the state of Florida law on contingency fee multipliers.

 

To begin with, Florida has adopted the lodestar approach for determining reasonable attorney’s fees based on the following factors to consider (known the Rowe factors based on the Florida Supreme Court case):

 

(1) The time and labor required, the novelty and difficulty of the question involved, and the skill requisite to perform the legal service properly.

(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer.

(3) The fee customarily charged in the locality for similar legal services.

(4) The amount involved and the results obtained.

(5) The time limitations imposed by the client or by the circumstances.

(6) The nature and length of the professional relationship with the client.

(7) The experience, reputation, and ability of the lawyer or lawyers performing the services.

(8) Whether the fee is fixed or contingent.

Agosta citing Florida Patient’s Compensation Fund v. Rowe, 473 So.2d 1145 (Fla. 1985).

 

Based on the consideration of these factors, the trial court determines through an evidentiary hearing a reasonable hourly rate to multiply by a number of reasonable hours expended in the litigation.  This is referred to as the lodestar amount or lodestar figure.  However, the court may add to this lodestar amount by tacking on a contingency fee multiplier.  For example, assume the trial court found 100 reasonable hours were incurred at the reasonable hourly rate of $300.  This would result in an attorney’s fees award of $30,000.  But, with the contingency fee multiplier, the trial court can add to this.  A multiplier of 2 would result in an attorney’s fees award of $60,000, hence the incentive for moving for the multiplier.

 

In determining whether to add a contingency fee multiplier, the trial court must consider competent, substantial evidence in the record (offered at the evidentiary hearing) of these three factors:

 

(1) whether the relevant market requires a contingency fee multiplier to obtain competent counsel;

(2) whether the attorney was able to mitigate the risk of nonpayment in any way; and

(3) whether any of the factors set forth in Rowe are applicable [the factors mentioned above], especially, the amount involved, the results obtained, and the type of fee arrangement between the attorney and his client.

 

Agosta citing Standard Guarantee Ins. Co. v. Quanstrom, 555 So.2d 828 (Fla. 1990)

 

 

There has been a debate as to whether the contingency fee multiplier only applies in rare and exceptional circumstances.  The Florida Supreme Court (hopefully) put this issue to bed rejecting the argument that the contingency fee multiplier only applies in rare and exceptional circumstances.  Agosta citing Joyce v. Federated National Ins. Co., 228 So.3d 1122 (Fla. 2017).

 

Just as important, and perhaps the most important to me, the Florida Supreme Court held that a “fee multiplier ‘is properly analyzed through the same lens as the attorney when making the decision to take the case,’ as it ‘is intended to incentivize the attorney to take a potentially difficult or complex case.’”  Id. quoting Joyce, 228 So.3d at 1133. This is important because the complexity of a case is not determined at looking at a case in hindsight based on the actual outcome of the case, but looking at a case through the same lens as the attorney at the time the decision is made to handle the case.  Idciting Joyce.

 

The Florida Supreme Court also stated that the first contingency fee multiplier factor—the relevant market factor—is based on whether there are attorneys in the relevant market who have the skills to effectively handle the case and would have taken the case absent the availability of a contingency fee multiplier.  Id. citing Joyce.

 

Finally, the Florida Supreme Court stated that the third contingency fee multiplier factor that considers the results obtained is not based on the amount of recovery, even a recovery not exceptionally large—“the Florida Supreme Court held that the trial court correctly analyze the ‘outcome’ of that case when it found that ‘[a]lthough the amount involved [$23,500] was ‘not exceptionally large,’ it was material to the Joyces [plaintiffs].”  Id. quoting Joyce, 228 So.3d at 1125.

 

The contingency fee multiplier adds incentive to handle certain insurance coverage disputes on contingency.  If a multiplier is obtained, it definitely rewards the risk of taking a case on contingency (and certainly one of the reasons I explore such contingency fee options!).

Avoiding ‘E-trouble’ in Construction Litigation

Judah Lifschitz | Construction Executive | August 14, 2018

During the 2016 presidential election, the FBI subpoenaed Hillary Clinton’s emails after she used a private email server during her time as Secretary of State. Separately, the more recent investigation into Donald Trump’s campaign policy adviser, George Papadopoulos, resulted in scrutiny over both his email and social media.

As shown the above examples, there are damaging effects of electronically stored information in politics, but how does it impact the construction industry?

If not used carefully and properly, emails will serve as “truth serum” in court. Attorneys can simply read an email to know employees’ thoughts or actions, meaning an impulsive email or social media post will most likely come back to haunt the company. Requests for ESI are inevitable in litigation today and the production of inappropriate emails and other ESI open the door for an opposing attorney to argue that a company fosters a culture of uncouth, unprofessional and unfocused project management.

REQUESTS FOR ESI ARE INEVITABLE IN LITIGATION TODAY

It is estimated that 90 percent of all information is now created digitally – the majority of which is never printed. A comparison of the ESI and hard-copy documents produced in a recent construction case revealed that only 25 percent of email communication had been printed to paper. A Duke University survey revealed that the ESI Discovery costs in typical cases range from approximately $600,000 to just less than $3 million. And in large cases, the costs average from $2.3 million to $9.7 million.

ESI is created and stored in a variety of places, including computers, fax machines or copiers’ internal hard drives, voicemail, web pages, smartphones, jump drives, memory cards and external hard drives. It is important to remember that all of the data and information created and stored in these various places is subject to being produced to a litigation adversary in discovery, granting them access to a significant volume of information – some of which is produced in a very informal setting.

Opposing attorneys acquire this information through the discovery process, which includes:

  • The obligation to preserve potentially relevant information. Even before litigation is filed, any time that a company has reason to anticipate that it will be involved in litigation it has an obligation to ensure that it takes reasonable steps to preserve potentially relevant documents and ESI.
  • Requests for the production of information. If litigation is filed, the adverse party will be entitled to request the production of relevant information, including documents and ESI, from the company.
  • The obligation to identify, collect and produce relevant information. After receiving requests for production of information, the company will be obligated to identify, collect and produce documents and ESI responsive to the requests received.

In order to produce responsive information, a company will first need to review the ESI and documents collected in order to identify any that may be protected by the attorney-client privilege, work product or another relevant evidentiary privilege. Those documents and ESI should be withheld from the company’s production, but all other responsive documents and ESI must be produced, and through this process the company’s adversary will receive access to a large volume of company documents and ESI. Opposing lawyers will then comb through these materials searching for “ammunition” to use in court or arbitration.

WHAT IS E-TROUBLE AND HOW TO AVOID IT

A company may find itself in E-trouble either because it fails to preserve and produce electronic documents during the discovery process or when ESI is discovered and used against it by an adverse party in litigation. But, E-trouble can be avoided. There are steps to help a company avoid E-Trouble and protect itself from damaging information being discovered and used against it in litigation. Always consult counsel with any questions about the discovery process.

Implement and enforce a document retention policy

Documents should be retained for the duration of their useful life – and no longer. A well-drafted document retention policy is not enough. Implementation and enforcement are critical to avoiding E-Trouble and reducing electronic discovery and document production costs. A recent study found that while two-thirds of the companies surveyed have a document retention policy in effect, almost half of them don’t actively enforce it.

When litigation is on the horizon, a company must suspend its routine document retention and destruction policy and put in place a “litigation hold” to ensure the preservation of relevant documents. In furtherance of the litigation hold, legal counsel must become familiar with the company’s document and information retention policies and data retention architecture.

Counsel must communicate with “the key players” in the litigation to understand how they stored information. Both the company and its counsel should monitor compliance with the litigation hold. This will guard against damaging and potentially expensive monetary sanctions.

Use email appropriately

Do not send “ammunition” that the other side can use against the company. If there are company inside jokes, lingo or nicknames for other staff members, clients or project personnel, do not use them in emails. Additionally, ensure employees are not using company email accounts for inappropriate personal business.

Do not email while angry. Avoid hitting send on an email if upset about something that occurred on a job. At trial, opposition may use an angry email to portray the sender as a bullheaded and unreasonable general contractor who put a project on the fast-track to attorneys and costly litigation.
When searching through ESI, opposing attorneys search for certain phrases in emails. Avoid using the following when emailing.

  • “I could get into trouble for telling you this, but …”
  • “Delete this email immediately.”
  • “I really shouldn’t put this in writing.”
  • “Don’t tell [So-and-So]” or “Don’t send this to [So-and-So].”
  • “She/He/They will never find out.”
  • “We’re going to do this differently than normal.”
  • “I don’t think I am supposed to know this, but …”
  • “I don’t want to discuss this in e-mail. Please give me a call.”
  • “Don’t ask. You don’t want to know.”
  • “Is this actually legal?”

Be mindful of social media

The digital age of communication and information technology has drastically increased the scope and volume of what is now discoverable to include more than just email communication. Today, even personal social media accounts can be used against a company in litigation.

An appellate court in New York ruled that social media posts, pictures and messages may become evidence regardless of the privacy settings status. The court compared Facebook to a diary, stating “the postings on the plaintiff’s online Facebook account, if relevant, are not shielded from discovery merely because plaintiff used the service’s privacy settings to restrict access, just as relevant matter from a personal diary is discoverable.”

There are several ways that attorneys for both plaintiffs and defendants gain access to social media posts for the parties they represent. Attorneys today search social media updates and posts for anything that may be useful in court. For example, the typical fact pattern in a personal injury case is as follows:

  • a plaintiff claims her permanent injuries kept her confined to her home and bed;
  • her public profile page on a social networking internet site shows her smiling and “out and about” outside of her home; and
  • the defendant gets a court order requiring the plaintiff to grant access to her accounts on social networking sites, including her current, archived and deleted information and pages.

Underlying Assertion of Negligent Misrepresentation Is Not Necessarily an Occurrence

Nora Valenza-Frost | PropertyCasualtyFocus | September 14, 2018

Lumber

Courts sometimes struggle with the issue of whether property damage arising in the context of a contractual relationship, particularly in construction contracts, constitutes an “occurrence” under a standard commercial general liability (CGL) policy. Generally, but not always – and it varies from jurisdiction to jurisdiction – courts regard contractual breaches as non-accidental conduct, and/or apply the so-called “business risk” exclusions (such as the standard CGL “Your Work” exclusion), in finding no coverage. Lexington Ins. Co. v. Chicago Flameproof Wood Specialties Corp., No. 17-cv-3513 (N.D. Ill. Aug 10, 2018), a recent decision from a federal court in Illinois, is illustrative.

Lexington Insurance Company (“Lexington”) issued a CGL policy to Chicago Flameproof and Wood Specialties Corporation (“Chicago Flameproof”). The policy provided that Lexington would pay sums that Chicago Flameproof “becomes legally obligated to pay as damages because of bodily injury or property damage” that is “caused by an occurrence that takes place in the coverage territory” and that “occurs during the policy period.”

A framing contractor, required by contract to use fire-retardant-treated lumber meeting International Building Code (IBC) requirements, procured lumber from Chicago Flameproof to be used for the exterior walls of four buildings. The framing contractor contracted with Chicago Flameproof to buy D-Blaze lumber, but instead, was provided non-IBC-compliant lumber. As a result, the framing contractor was ultimately instructed to remove and replace the non-compliant lumber and sued Chicago Flameproof for negligently or fraudulently misrepresenting the type of lumber it was providing, resulting in damage to the exterior walls, wiring, and Tyvek insulation on the buildings, among other things (the “Underlying Actions”).

Chicago Flameproof sought coverage from Lexington, but Lexington challenged coverage and filed a declaratory judgment action, arguing that its duties to defend and indemnify were not triggered “because the claims against Chicago Flameproof do not involve property damage, were not the result of an occurrence, and were otherwise excluded by the policy’s business risk exclusions.” The parties moved for summary judgment, agreeing that no factual dispute existed and the only issue was the interpretation of the CGL policy, a question of law.

The court disagreed with Lexington’s argument that there was no “property damage” as the framing contractor sought to hold Chicago Flameproof “liable for physical injury to tangible property.” The court also disagreed with Lexington’s argument that the damage alleged was “nothing more than economic injuries stemming from the repair and replacement of the non-compliant lumber,” as there were “allegations of physical alterations to property other than the insured’s product” caused by the removal process which could fall within the definition of “property damage.”

However, the court acknowledged that, “for property damage to be covered by the CGL policy, it must be caused by an ‘occurrence.’” Illinois courts find an “occurrence” in the insurance context to mean:

An unforeseen occurrence, usually of an untoward or disastrous character or [a] … sudden, or unexpected event of an inflicting or unfortunate character…. However, even if the person performing the act did not intend or expect the result, if the result is the rational and probable consequence of the act, or, stated differently, the natural and ordinary consequence of the act, it is not an accident for liability insurance purposes.

Chicago Flameproof argued that the Underlying Actions satisfy the “occurrence” requirement “because they assert negligent misrepresentation and because Chicago Flameproof did not expect or intend the injuries to other building materials.” The court disagreed, and focused on the conduct alleged: Chicago Flameproof “failed to exercise reasonable care when it represented that it had D-Blaze lumber in stock and when it did not inform [the framing contractor] that its orders could be fulfilled.” Although couched in negligence terminology, the thrust of the complaints “is that Chicago Flameproof engaged in deliberate conduct – the shipping of the wrong lumber and the concealment of that fact – that caused the alleged property damage.”

The court reasoned that, even though Chicago Flameproof’s delivery of the lumber was allegedly intentional “does not necessarily mean that it expected or intended the collateral injuries to the exterior walls, wiring, and insulation…. Chicago Flameproof could have and should have reasonably anticipated that such injuries could result from supplying” the wrong lumber, which had to be torn out of the buildings. “These damages are the natural and ordinary consequence of knowingly supplying a non-compliant product and thus do not potentially fall within the CGL policy’s coverage.”

In concluding, the court stated that, although the Underlying Actions contain “one count for negligent misrepresentation, mere inclusion of a negligence theory does not – and cannot – by itself satisfy the occurrence requirement. Nowhere in the complaint are there allegations of an unforeseen or accidental event that produced property damage.”

This case is a helpful reminder that liability insurance cannot be used as a warranty for an insured’s failure to fulfill contractual undertakings, and that even if couched in a complaint as “negligent” conduct, when assessing an insurer’s duty to defend and indemnify under a CGL policy, careful consideration should be paid to the cause of the alleged damages when determining if there is an “occurrence.”

Beware of Actual Cash Value Endorsements

Chip Merlin | Property Insurance Coverage Law Blog | September 8, 2018

Actual cash value polices should rarely be sold on a typical home. Insurance agents who sell these policies knowing that a mortgage exists are negligent because various federal laws and regulations generally require that negotiable mortgages are to be protected by replacement cost insurance:

Property insurance for properties securing loans delivered to Fannie Mae must protect against loss or damage from fire and other hazards covered by the standard extended coverage endorsement. The coverage must provide for claims to be settled on a replacement cost basis. Extended coverage must include, at a minimum, wind, civil commotion (including riots), smoke, hail, and damages caused by aircraft, vehicle, or explosion.

Fannie Mae does not accept property insurance policies that limit or exclude from coverage (in whole or in part) windstorm, hurricane, hail damages, or any other perils that normally are included under an extended coverage endorsement.

I can visualize and hear some insurance agent educators moaning and rolling off their chairs as they read this. The truth is that there are many federal regulations involving property insurance requirements which exist for various types of properties and licensed insurance agents should learn and sell insurance in compliance with these requirements or not be in the business of selling insurance.

Merlin Law Group attorneys have been noticing a trend of actual cash value endorsements being added to insurance policies. One obvious reason for this trend is that the insurance premium is cheaper. So, while the selling of these policies may violate various mortgage requirements, federal laws and regulations, more policies are having these actual cash value endorsements added to them.

A recent case held that actual cash endorsements attached to the policy effectively made the insurance contact an actual cash value policy rather than a replacement cost policy.1 The policyholder repaired and replaced his fire damaged property but was limited to the actual cash value.

As a side note to the case, the insurance company’s brief2 indicated that the policyholder‘s ex-wife originally purchased the policyholder’s policy years before the fire and before they were divorced. The policyholder may have been surprised to learn that his now ex-wife had obtained a short-term deal on “cheap insurance.” I am certain that he probably needs a little more post-marital therapy to cope with this post-divorce surprise.

______________________
1 Hatcher v. MDOW ins. Co., — F.3d —, 2018 WL 4255603 (8th Cir Sept. 7, 2018).
2 Hatcher v. MDOW ins. Co., No. 17-2410 (8th Cir. Appellee brief, filed Nov. 17, 2017).