Disciplined in Sophisticated Defense and Insurance Litigation

October 18, 2016 | Publication| Follow Up on Assignment of Benefits Litigation in Florida

Timothy R. Engelbrecht

This newsletter is a publication of Southern Loss Association, Inc., P.O. Box 421564, Atlanta, GA 30342. All rights reserved. 

In the summer of 2016, SLA published an article titled "Assignment of Benefit Litigation in Florida." The article was an introduction to the topic of assignments of benefits ("AOB") in Florida and how they are being used in insurance claims and litigation. Many readers asked for a follow up article that would provide some additional information and analysis on certain AOB topics. This article will spotlight four of those topics and give the reader some additional information and analysis on each of them.

Has Florida law always allowed AOBs?

Florida law has allowed an insured to assign her right to receive post-loss insurance benefits at least as far back as 1917. In the case of W. Fla. Grocery Co. v. Teutonia Fire Ins. Co., 77 So. 209, 210-11 (Fla. 1917), the Florida Supreme Court held that an insured can assign post-loss insurance benefits even without first obtaining the consent of the insurer. The Florida Supreme Court reaffirmed the holding of Teutonia again in 1998 in the case of Lexington Ins. Co. v. Simkins Indus., Inc., 704 So. 2d 1384, 1386 n. 3. (Fla. 1998) by stating that "an insured may assign insurance proceeds to a third party after a loss, even without the consent of the insurer." In 2015, Florida's First District Court of Appeals cited Teutonia and Simkins in the case of Sec. First Ins. Co. v. State, Office of Ins. Regulation, 177 So. 3d 627, 628 (Fla. 1st DCA 2015). There, the First District Court of Appeals stated "we find an unbroken string of Florida cases over the past century holding that policyholders have the right to assign such [post-loss] claims without insurer consent."

Does an insurance policy's "assignment" clause prevent an AOB?

Many residential and commercial insurance policies contain an "assignment" clause. The clause often states something to the effect of "Assignment of this policy will not be valid unless we [the insurer] give our written consent." This clause has been interpreted to mean that an insured cannot assign the entire insurance policy to another without the consent of the insurer. See Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 185 So. 3d 638, 641 (Fla. 2d DCA 2016). The purpose of the "assignment" clause is to protect the insurer against the insurance policy being assigned to cover property or individuals that the insurer did not agree to insure when it underwrote and issued the insurance policy.

However, a number of recent decisions make it clear that that same "assignment" clause does not prevent, bar, or invalidate a post-loss AOB. In One Call Prop. Servs. Inc. v. Sec. First Ins. Co., 165 So. 3d 749, 752 (Fla. 4th DCA 2015), Florida's Fourth District Court of Appeals held that "[e]ven when an insurance policy contains a provision barring assignment of the policy, an insured may assign a post-loss claim." Presumably, the rationale for this holding is that an assignment of post-loss insurance proceeds does not change the nature of the risk that the insurer agreed to insure when it underwrote and issued the insurance policy. The AOB only changes who the insurer has to pay now that the loss has occurred.

If an insured executes an AOB, can the insured still make a claim or sue to obtain insurance proceeds?

The Florida Supreme Court holds that once an assignment is made, the assignor no longer has a right to enforce the interest because the assignee has obtained all rights to the thing assigned. See Continental Cas. Co. v. Ryan Inc. E., 974 So. 2d 368, 376 (Fla. 2008). That means that, if an insured assigns her insurance proceeds to her contractor in return for the contractor's work, the insured no longer has a right to seek those insurance proceeds from her insurer or sue the insurer for the proceeds that were assigned to the contractor. Florida's Fifth District Court of Appeals has stated that only the insured or the contractor (not both) can own the ability to sue the insurer at any one time, and the one that owns the rights must bring the lawsuit if one is to be brought. Oglesby v. State Farm Mut. Auto. Ins. Co., 781 So. 2d 469, 470 (Fla. 5th DCA 2001).

However, oftentimes a contractor will only request that the insured assign a portion of insurance rights to the contractor sufficient to allow the contractor to get paid for his work from the insurer. In those situations, the contractor is not requiring the insured to assign all the insurance rights under the insurance policy for the loss to the contractor. A common example of this occurs in pipe break losses. The insured often hires a water extraction contractor to dry the house. The water extraction contractor requests the insured execute an AOB so the contractor can seek payment for his services from the insurer for the water extraction work. However, the AOB is limited to only the water extraction work, so the insured retains the rights under the insurance policy to seek payment from the insurer for the damages caused by the water.

So, to recap, if an insured assigns rights to a contractor, the insured cannot seek payment from the insurer for those assigned rights. However, if the insured only executes a limited AOB, the insured retains whatever rights were not assigned. Problems arise, though, when an AOB is unclear or is ambiguous as to what rights were assigned and what rights were retained.

Has an AOB ever been declared invalid?

Yes. The case of One Call Prop. Servs., Inc. v. St. Johns Ins. Co., Inc., 183 So. 3d 364 (Table) (Fla. 4th DCA 2016) involves a rare situation where the trial court invalidated an AOB and the appellate court affirmed. The insureds' house was damaged by water. The insureds hired a contractor to extract the water. The insureds were husband and wife. The husband executed an AOB purporting to assign insurance rights to the contractor for the work the contractor did. The wife did not execute the AOB. Also, notably, the insureds' house was their homestead. Homestead property enjoys certain legal protections in Florida.

The contractor presented the AOB to the insurer and demanded payment. The insurer refused to pay, and the contractor sued the insurer. The insurer moved for entry of final summary judgment in its favor arguing that the AOB was invalid.           

The insurer made three arguments in support of its position. First, the insurer argued that insurance proceeds covering the insureds' homestead property are constitutionally protected in Florida to the same extent as the property itself, and a homeowner cannot be divested of those proceeds through an unsecured agreement, like an AOB. Second, the insurer argued that the AOB was invalid because the wife did not sign it. Third, the insurer argued that this particular AOB amounted to an impermissible public adjusting contract, and was thus invalid.

The trial court entered final summary judgment in favor of the insurer, and the appellate court affirmed. However, the appellate court only issued a one word opinion that stated "affirmed." The appellate court did not explain why it affirmed the trial court. As such, this decision is not binding precedent on other courts, and this decision does not give any guidance as to which of the arguments presented by the insurer was the one that caused the appellate court to affirm.

While it is only speculation, it is possible that the appellate court rested its affirmance on the fact that the wife did not sign the AOB. In Florida, married people own property, including contract rights like an insurance policy, by a tenancy by the entirety. "The essential characteristic of a tenancy by the entirety ... is that each spouse owns the whole of the estate, not an undivided share, moiety, or divisible part." Newman v. Shore, 206 So. 2d 279, 280 (Fla. 3d DCA 1968). "Neither spouse may convey individually or forfeit any part of the estate so as to defeat the right of survivorship." Id. It is well established in Florida "that an estate by entirety cannot be alienated by the act of either spouse alone." Id. at 281.

Because of this, the appellate court may have concluded that, since the wife did not sign the AOB, and since married people cannot alienate their property (including insurance rights) without the consent of both married people, the AOB could not assign any rights without the signatures of both the husband and the wife. Because the wife did not sign, the appellate court may have concluded the AOB was invalid.

 Timothy R. Engelbrecht

 As a Partner at Butler in our Tampa office, Timothy defends insurance companies against first-  party property breach of contract lawsuits and declaratory judgment actions for insurance coverage. Many of these are AOB lawsuits. These lawsuits often involve claims of water, fire,  storm, or sinkhole damage at residential or commercial properties.

February 01, 2018 PublicationA Theoretical Safety on the Trigger of the Duty to Defend

The Eleventh Circuit of the United States Court of Appeals recently decided Selective Insurance Company of the Southeast v. William P. White Racing Stables, Inc., et al., 2017 WL 6368843 (December 13, 2017), a case addressing limits upon what facts and legal theories may give rise to a duty to defend. In an unpublished opinion,[1] the court held the district court erred in finding a duty to defend based upon a theory of liability which was not pled, even though it agreed the facts alleged in the complaint could support a claim apparently within the scope of coverage provided by the liability policy.

Read More »
September 20, 2017 PublicationFlorida Insurance Litigation (2017 Edition)

LexisNexis Practice Guide: Florida Insurance Litigation provides the practitioner with immediate access to knowledge and strategy on every aspect of insurance practice in Florida. The publication concisely presents the terms, conditions and exclusions that govern coverage offered against the risks under each line of insurance. This approach provides a comprehensive exploration of key concepts, policy language and insight for litigation of common and esoteric disputes under those policies. Each chapter also provides task-oriented checklists, examples, strategic points, and cross-references to governing statutory and case law.

Read More »
July 27, 2017 PublicationTRIAL ESSENTIALS: KEYS TO NOT LOSING YOUR JURY TRIAL BEFORE THE FIRST WITNESS IS CALLED

Sun-Tzu is a well-recognized and oft-quoted Chinese general, military strategist and philosopher. He is also credited as the author of The Art of War.1 While the title clearly identifies that book as having much to do with actual war, Sun-Tzu’s philosophy translates to many different fields of application. One such field of application is the preparation for and litigation involved with a jury trial. Most specifically applicable is the Sun-Tzu quote that “every battle is won or lost before it’s ever fought.” Before your jury trial even begins, the actions that most impact the results obtained are the preparation of the jury instructions, the preparation of the pretrial stipulation, the preparation of motions in limine, and the intricacies involved in the jury selection process.

Read More »
July 14, 2017 PublicationFlorida Water Loss Claims: What's Owed, And When?

Water loss lawsuits have spiked dramatically in Florida during the past few years. Insurers simply cannot resolve the unusually large differences in water damage estimates. Scope of estimated matching work usually explains the disparity. And litigation ensues over this hypothetical question: Can the water-damaged or tear out items be replaced and then matched to undamaged adjoining items; and if not, what is the proper scope of the matching work?
 

Read More »
June 27, 2017 PublicationButler Quarterly - Spring
Read More »
June 16, 2017 PublicationLiterature for Life

What does reading literature have to do with the mission of DRI for Life? Some might suggest reading that we read mostly as pleasurable respite or for entertainment. That certainly is true in the cases of, say, mystery stories or romance novels. But I say reading real literature is more, and more essential to life, than that.

Read More »
April 21, 2017 PublicationTort Trial & Insurance Practice Law Journal, Winter 2017

View Bill Lewis, John Garaffa, and Sarah Burke's newest contributions to the ABA's Tort Trial & Insurance Practice Law Journal. This comprehensive PDF explains recent developments in property insurance law.

Read More »
February 23, 2017 PublicationIs It Hot in Here? Significant Recovery Opportunities with Boiler Failures

Water boiler failures provide significant recovery opportunities. By understanding how these relatively simple systems work, one can realize that recovery potential and identify the probable failures modes, skillfully directing the recovery investigation, and asserting the proper legal theories that afford recovery.

Read More »
February 22, 2017 PublicationPennsylvania – VOIDED Terms and Conditions: Unlawful and Unconscionable Exculpatory Clauses

How many of your subrogation claims have been closed because of the subrogation killing terms and conditions of a contract? A recent decision in the Eastern District of Pennsylvania, United States District Court found in favor of a subrogating insurance carrier and held that the terms and conditions barring recovery were both unlawfully drafted and unconscionable, thus allowing the subrogating carrier to move forward with its subrogation claim. State Farm Fire & Cas. Co., a/s/o Sara Rivera v. Petroleum Heat & Power Co., Inc., 2016 WL 5816182 (E.D. Penn. October 5, 2016).

Read More »
February 06, 2017 PublicationThe Confession-of-Judgment Doctrine: No Good Deed Goes Unpunished

Virtually every jurisdiction in the United States has a statute on the books that provides for prevailing-party attorney fees in favor of insureds when they are successful in coverage suits against insurers.

Read More »
January 27, 2017 PublicationWhen Pipes Go Pop

Although we may not see the historic low temperatures associated with the polar vortex of 2014, the winter season always brings with it an influx of freeze-related claims. Notably, the involvement of Mother Nature does not automatically preclude a subrogation recovery, and these types of claims should be triaged promptly and efficiently in order to avoid overlooking subrogation potential.

Read More »
January 26, 2017 PublicationDamages Proof in Subrogation Cases

In the past few years, savvy defense lawyers have taken a more inquisitive approach on the valuation of subrogation damages across all lines of insurance. Gone are the days of assuming the damages must be right because no carrier wants to pay more than they should.

Read More »
January 03, 2017 PublicationIf you invade someone's privacy with a drone, your insurance might not cover it

Drones, also known as unmanned aerial vehicles or unmanned aerial systems, can be equipped with cameras, thermal scanners, license plate readers and facial-recognition software.

Read More »
November 21, 2016 PublicationBoom! Maximizing Recoveries in Catastrophic Explosions

An explosion is an extraordinary event that forever changes the psyche of those affected. The bigger the scale of the explosion, the bigger the challenges are to move forward and to develop viable recovery claims. It is a dilemma that requires sophisticated leadership and seasoned subrogation counsel, forensic consultants, and loss adjusters.

Read More »
October 10, 2016 PublicationWho, What, When, and How Much? Key Questions to Ask When Faced With a Potential Sovereign Immunity Defense

With each new claim we navigate a myriad of potential obstacles to recovery.  As subrogation professionals, we work to quickly identity these issues and evaluate the best recovery strategy.  In doing so, some obstacles may first appear insurmountable, but later give way to the ever diligent subrogation professional.  One such obstacle is the concept of sovereign immunity.

Read More »
September 08, 2016 PublicationAdjuster Tools for Water Losses

Hmm, a water loss claim. Lots of those lately. She looked further and saw it was actually two claims. Two water loss claims within one week of each other. One, a loss in the bathroom when a pipe underneath the sink burst and the other was a kitchen loss from a broken p-trap.

Read More »
August 11, 2016 PublicationIn Hot Pursuit: Strategies for Pursuing Subrogation Against Wildfire Damages

Each year, wildland fires scorch millions of acres of brush and timber, damage tens of thousands of homes and commercial properties, cost federal and local governments billions of dollars in suppression efforts, and cost insurance companies hundreds of millions in property insurance proceeds.

Read More »
June 27, 2016 PublicationHistoric Hotel, Restaurant & Nightclub Fires Provide Common Threads for Developing Significant Subrogation Recoveries

Countless fires occur every year. They cause billions of dollars in property losses, and sometimes result in bodily injuries and deaths. Public assembly fires arising out of hotels, restaurants and nightclubs are prone to significant calamities, given the fire risks, types of use, occupancy, and human factors. While fires are frequently avoidable, the fires themselves would oft be smaller in scope “but for” the failures of fire suppression, detection and alarm systems; lack of effective containment; material flammability; and other failures. This article discusses the common thread of historic hotel, restaurant and nightclub fires—many of which are iconic.

Read More »
June 24, 2016 PublicationAssignment of Benefits Litigation in Florida

Over the past five years, first-party property insurers in Florida have been experiencing a wave of claims and lawsuits by contractors who obtain insurance rights from insureds through document called an assignment of benefits ("AOB"). This article is intended to introduce the reader to this topic and explain some of the challenges facing insurers in dealing with AOBs in Florida. The reader is welcome to contact the author to learn more.

Read More »
June 21, 2016 PublicationThe Inadequacies of the Diminution of Value Approach to Damages to Real Property in Tort Claims

Generally speaking, the purpose of tort damages is to make an injured party whole and restore the injured party, as nearly as reasonably possible, to the position in which he or she would have held absent the injury. When dealing with damages sustained to real property, most jurisdictions provide that the cost to repair the property is the proper measure of damage so long as the cost to repair does not exceed the diminution in value, which is the difference between the fair market value immediately before and immediately after the damages are sustained.

Read More »
June 08, 2016 PublicationBUTLER ON DRONES: A PRACTICAL GUIDE FOR INSURERS

As one of the nation’s most preeminent jurists put it, domestication of horses did not give rise to a “law of the horse,” and the rise of the Internet era did not give rise to a “law of cyberspace.”1 Likewise, the proliferation of drones will not give rise to a new area of law called “drone law.” What will happen instead is much more complex.

Read More »
March 07, 2016 PublicationGood Faith, Bad Faith: A Legal View

The purpose of Good Faith/Bad Faith is to serve as a compendium of general information insurers may wish to use as part of the development of their own individual claims-handling procedures; however, Good Faith/Bad Faith neither sets forth any particular practice or policy as a recommendation or best practice nor does it represent a compilation of widely followed procedures.

Read More »
September 28, 2015 PublicationKeep The Faith: Whether The Attorney-Client Privilege Applies In Third-Party Bad Faith Actions

One of the most rapidly developing issues in Florida and in courts around the country is whether the attorney-client privilege can be relied on by an insurer in a third-party bad faith action. The attorney-client privilege is one of the oldest confidential communication privileges in Florida.

Read More »
July 07, 2013 PublicationLow Liability vs. High Demand: Overcoming the Aggressive Plaintiff Attorney's Delusions of Grandeur for Policy Limits" Primerus Corporate Client e-Newsletter,

For a copy of the publication please contact Josh Golembe.

Read More »
July 01, 2013 PublicationCorporate Tort Liability under the Alien Tort Statute Post-Kiobel, 21 U. Miami Bus. L. Rev. 281

ATS cases.' The court entered into uncharted and controversial territory' though, as it attempted to deal with a claim made by a group of Nigerian plaintiffs who alleged that "Dutch, British, and Nigerian corporations engaged in oil exploration and production aided and abetted the Nigerian government in committing violations of the law of nations"' so as to promote their exploratory efforts.' In ultimately determining that corporate liability does not exist under the ATS,' the Second Circuit majority misconstrued its own precedent and that of other circuits, the Supreme Court's interpretation of the ATS in Sosa v. Alvarez-Machain,o the principles and goals of international law, scholarly commentary, and the earliest available interpretations of the ATS. The plaintiffs sought review in the Supreme Court of the United States.

Read More »
January 01, 2010 Publication"Alien Smuggling: Do Not Be an Alien to the Law!" Florida Defender, Volume 23, No. 3, Fall 2010

For a copy of the publication please contact Josh Golembe.

Read More »
September 01, 2006 PublicationMost Favored Nation Clauses – "The Ultimate Double Edged Sword"

Until a few years ago, the term “Most Favored Nation” was a phrase restricted primarily to the world of international trade. However, with the upsurge in both class action and mass tort lawsuits, Most Favored Nation clauses (MFN), are increasingly used as a tool to encourage settlement.

Read More »
March 29, 2004 PublicationDanger Zone: Planning Ahead To Avoid Legal Malpractice

Claims for legal malpractice are exploding. Malpractice insurance is getting more difficult to obtain, and when you can find a carrier, rates are, in some cases, prohibitive. Claims of legal malpractice have no bounds: they cut across many different practice areas. Real estate, transactional lawyers, trial lawyers, general practitioners – all have been (and will continue to be) targets for legal malpractice actions.

Read More »
November 01, 2002 PublicationThe Contagion of Example: Attacking the Root of the Problem in Lawyer Professionalism

Now is the time to stop talking and start acting! In the legal professionalism debate, many scholars hope, through their own unique contributions, to spark some universal epiphany that will initiate pervasive change. But a workable solution remains amorphous; the context of the problem is in constant flux and scholars feel the need to continually approach it in a “modernized” framework. Admittedly, unique perspective is an important tool for learning the intricacies of any problem, but incessantly approaching an old problem with fresh insight becomes tiresome and counterproductive . . . especially when there is no evidence of change. If we continue to merely discuss professionalism, then we will remain mired in tautology disguised as intellectual insight.

Read More »
PublicationThe Future of Defending Lawsuits: E-Business Enters the Civil Litigation Arena

What do FedEx, Northern Trust Bank, Ford Motor Co. and ACE USA have in common? Each is turning to a new browser technology, the Extranet, to advance their business through the use of electronic communication. The primary tool that will be used for the efficient and cost­effective transmission of all information associated with the handling of claims in the future (the future is now) is an Extranet. Extranets have been driven to the forefront of attention in and surely qualify as one of the Internet buzzwords du jour.

If the use of an Extranet, however, does not save time and expense in the defense of civil litigation while at the same time improving the quality of the legal representation provided, it should not be considered as a "tool" whose time has come.

Read More »
Key Points