Flood vs. Wind Claims Following Hurricane Ian Webinar
January 25, 2023
To understand the implications of Macedo II, it is important to understand what brought us here. It’s a long and bumpy road, but understanding what brought us here will be critical in order to understand how to go forward.
Prior to the recent Florida Supreme Court’s decision in Government Employees Insurance Company v. Macedo, 2017 WL 2981812 (Fla. July 13, 2017) (Macedo II), a conflict existed between Florida’s District Courts of Appeal over whether an automobile liability insurance policy provided coverage for attorney’s fees and costs imposed against an insured defended by the insurance carrier. Due to the conflicting interpretations of what the court deemed substantially similar policy language, the Supreme Court accepted conflict jurisdiction in Government Employees Insurance Company v. Macedo, 2017 WL 2981812 (Fla. July 13, 2017), and held that coverage for such sanctions existed. To fully understand the impact of Macedo II, we must examine typical policy language governing this issue, the language of the GEICO policy in Macedo II, and the conflicting appellate decisions that gave rise to the Supreme Court’s decision.
The Supplementary Payments section in a typical personal or commercial automobile insurance policy usually includes language similar to, “We [the insurance carrier] will pay for the insured all costs taxed against the insured in any suit against the insured we defend.” Further, this section usually includes a provision that the insurance carrier will pay “all reasonable expenses incurred by the insured at our request….” However, the policy language in the GEICO policy at issue in Macedo II was a little different because it did not specifically provide coverage for the taxable costs of the plaintiff following an adverse result and only agreed to pay “all reasonable costs incurred by an insured at our request.”
In one of the cases addressed by the Florida Supreme Court, Steele v. Kinsey, 801 So. 2d 297 (Fla. 2d DCA 2001), Ms. Kinsey held an automobile liability insurance policy with United Automobile Insurance Company (United). Ms. Kinsey was involved in an automobile accident with Mr. Steele that caused him injuries, and Mr. Steele subsequently sued Ms. Kinsey. As with most other insurance policies, Ms. Kinsey’s policy gave United exclusive control over settling or litigating any claim against her covered under the policy. During the course of the litigation, Mr. Steele served a proposal for settlement for the policy limits of $10,000, but United rejected the proposal for settlement. Mr. Steele, United, and Ms. Kinsey then entered into a Cunningham agreement (an agreement to try bad faith allegations first) and also agreed to allow the court to decide whether United’s policy provided coverage to Ms. Kinsey for any attorney’s fees and costs she may owe due to the failure to accept the proposal for settlement. The trial court ruled there was no coverage, and Mr. Steele appealed the decision.
The Second District Court of Appeal agreed with the trial court’s decision and held that the supplementary payments provision in the policy stating that United would pay “expenses incurred at our request” did not include attorney’s fees and costs under the proposal for settlement statute. Based on the definition of “request” found in the dictionary, the court held that the “insurer intended to pay for expenses that it had authorized and over which it had control, such as the selection of a service or product of known value or cost.” Therefore, these subsequent fees and costs were not “incurred at [the insurer’s] request.”
Relying on another case directly in conflict, Florida Insurance Guaranty Association v. Johnson, 654 So. 2d 239 (Fla. 4th DCA 1995), Mr. Steele argued that United’s decision not to settle the case pursuant to the proposal for settlement caused the litigation to continue and increased expenses and attorney’s fees. However, while the Kinsey court recognized that public policy might dictate that the insurer who had the sole right to accept or reject the proposal for settlement should be ultimately responsible for paying extra expenses as a result of the rejection, the court held the supplemental payment provisions in United’s policy were unambiguous and no coverage was owed for the attorney’s fees awarded to Mr. Steele against United’s insured.
On the other hand, the First District Court of Appeal in Government Employees Insurance Company v. Macedo, 190 So. 3d 1155 (Fla. 1st DCA 2016) (Macedo I), held that the policy provision providing coverage for “other reasonable expenses incurred at our request” in an automobile policy provided coverage to the insured for attorney’s fees and costs awarded against the insured if triggered by the rejection of a proposal for settlement. In that case, the jury returned a verdict several times greater than the plaintiff’s proposal for settlement and the trial court awarded her fees and costs. The First District Court of Appeal explained that GEICO’s policy provided it with the sole responsibility and right to litigate or settle a claim or lawsuit.
The terms of the policy specifically required GEICO to pay “all investigative and legal costs incurred by us” and “all reasonable costs incurred by an insured at our request.” The court reiterated its ruling in New Hampshire Indemnity Company v. Gray, 177 So. 3d 56 (Fla. 1st DCA 2015), which held that an insurer has the sole ability to determine whether to litigate or settle a claim. Thus, the insurance policy provided coverage to the insured for attorney’s fees and costs awarded against the insured triggered by a rejected proposal for settlement.
Based on these differing opinions, GEICO sought review in Macedo II. The Supreme Court analyzed the same two provisions contained in GEICO’s policy, “[a]ll investigative and legal costs incurred by us” and “[a]ll reasonable costs incurred by an insured at our request.” GEICO initially argued that the policy did not provide coverage for attorney’s fees awarded against the insured because the policy only referenced costs, which do not include attorney’s fees. Critically, however, the index to the policy listed “Legal Expenses and Court Costs” as costs and expenses covered under the policy. Therefore, the Florida Supreme Court found the provisions to be ambiguous.
Specifically, the Court held that the other policy provisions providing coverage for costs, along with the index citing legal expenses, created ambiguity regarding whether coverage for attorney’s fees was included. Because ambiguities in an insurance policy are almost always interpreted against the drafter of the insurance policy, i.e. the insurance carrier, and interpreted in favor of insurance coverage, the court held that coverage for such damages existed.
GEICO also argued that the Additional Payments section of the policy stating, “[a]ll reasonable costs incurred by an insured at our request” did not cover attorney’s fees or costs awarded against an insured following the rejection of a proposal for settlement because such fees and costs were not incurred “at [GEICO’s] request.” Nevertheless, the Florida Supreme Court agreed with the reasoning in Gray and Johnson and held that because GEICO had control over settling and litigating the case, including rejecting the plaintiff’s proposal for settlement within policy limits, it was ultimately responsible to pay and provide coverage for any attorney’s fees and costs awarded against the insured triggered by the rejection of a plaintiff’s proposal for settlement.
So what do the above decisions mean to an automobile insurance carrier? Is it a foregone conclusion under all policies that coverage exists for attorney’s fees and expenses awarded against an insured following an adverse verdict triggering the penalties under a proposal for settlement? As previously stated, most, if not all, automobile insurance policies include provisions stating that the policy will provide coverage for costs taxed against an insured and for all reasonable expenses incurred by an insured at the insurer’s request.
These policies also provide that insurance carriers have the ultimate decision-making authority regarding the defense of an insured in a lawsuit. Therefore, if the policy language remains unchanged, most automobile insurance policies likely provide coverage to the insured for any attorney’s fees and costs awarded against the insured when the insurance carrier declines a proposal for settlement within policy limits and the jury awards a verdict greater than 125% of the amount offered. And more importantly, as in Macedo II, such amounts are owed as supplementary payments on top of, or in excess to, the policy limit.
An insurance carrier may be able to argue that its automobile policy does not include “Legal Expenses and Court Costs” in the index to its policy, so there should be no coverage for attorney’s fees imposed against the insured. However, the Florida Supreme Court also based its decision on the fact that GEICO had control of the litigation against its insured and had the ultimate decision-making authority regarding whether to accept or reject the proposal for settlement within policy limits served by the plaintiff. As the courts’ reasoning went, why should the insured be financially penalized if he or she did not have the ultimate authority to decide whether to accept or reject the proposal for settlement?
Due to the decision in Macedo II, an insurance company should analyze a proposal for settlement in light of this holding. No longer will it require a finding of bad faith in order to create exposure to the insurer to satisfy the fee and cost awards, even if the total damages’ award exceeds the liability policy limits. This means that an insurance company may be exposed to paying hundreds of thousands of dollars in attorney’s fees and costs depending upon the nature and complexity of the case.
In other sanction scenarios under other policy types, courts have also found coverage for attorneys’ fees, unless specifically excluded. Although statutory attorney fees were not considered covered “damages” under a general liability policy, Scottsdale Insurance Company v. Haynes, 793 So. 2d 1006 (Fla. 5th DCA 2001), another court found coverage for a court-imposed discovery sanction award against the insured. Tri-State Insurance Company of Minnesota v. Fitzgerald, 593 So. 2d 1118 (Fla. 3d DCA 1992). The Fitzgerald court held that coverage for the attorney’s fees and costs awarded against the insured existed because the policy provided coverage for “all costs taxed against the insured, in any suit defended by the insurer(s)….”
Further, in Mid-Continent Casualty Company v. Treace, 186 So. 3d 11 (Fla. 5th DCA 2015), the court found coverage for attorney’s fees and costs awarded in a faulty construction action. The court agreed that a policy which provided coverage for “all costs taxed against the insured [it] defend[s]” owed coverage for the attorney’s fees and costs awarded to the prevailing party. See also, Geico General Insurance Co. v. Hollingsworth, 157 So. 3d 365 (Fla. 5th DCA 2015); Geico General Insurance Co. v. Rodriquez, 155 So. 3d 1163 (Fla. 3d DCA 2014) (court costs could include attorney’s fees). Because there was no definition of court costs in the policies that did not specifically exclude attorney’s fees, the court concluded that MCC’s policy provided coverage for the attorney’s fees and costs awarded to the Treaces.
Of note, the court in Hollingsworth, which analyzed an automobile insurance policy, found coverage for attorney’s fees imposed on an insured triggered by plaintiff’s proposal for settlement which was rejected. See also, Assurance Company of America v. Lucas Waterproofing Company, Inc., 581 F.Supp. 2d 1201 (S.D. Fla. 2008) (attorney’s fees and costs imposed on an insured by a contract or statute because the plaintiff prevailed, which are related to claims that are covered under the general liability policy, constitute property damage and are covered under the policy).
Critically, the most recent commercial general liability coverage forms (CA 00 01 12 07 and CA 00 01 04 13) contain Supplementary Payments language as follows:
We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend:
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e. All court costs taxed against the insured in the “suit.” However, these payments do not include attorneys’ fees or attorneys’ expenses taxed against the insured.
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No mention was made in the above-cited cases that the policies involved included the same or similar language specifically excluding coverage for attorney’s fees and expenses as costs taxed against an insured now included in most, if not all, general liability policies.
Similarly, the proposal for settlement cases discussed above in which coverage was challenged was not decided under general liability policies. Similar to an automobile liability policy, a general liability insurer has the ultimate decision-making authority regarding whether to reject a proposal for settlement within policy limits. As such, the same rationale in Macedo II finding coverage for an insured for attorney’s fees and costs imposed against the insured can easily be applied in a general liability policy context.
Nevertheless, based upon the policy language quoted above, a commercial general liability policy should not be forced to provide coverage for attorney’s fees taxed against an insured, even if triggered due to a declined proposal for settlement. However, if the insurance industry wants to be certain to exclude such awards, regardless of the policy type, consideration should be given to amending the policy language to specifically attorney fees. More litigation regarding this issue is sure to arise in the not so distant future.
For any further questions, please contact J. Blake Hunter or Kathy Maus.
As background, pursuant to section 768.79, Florida Statutes, if a plaintiff serves a proposal for settlement that is rejected by the defendant and the plaintiff recovers a judgment in excess of 25% of the offer, the plaintiff is entitled to recover her reasonable costs and attorney’s fees incurred from the date of the filing of the proposal (assuming the plaintiff complies with strict requirements in the statute and Rule 1.442, Florida Rules of Civil Procedure).