Archive: September 2021

Insurance companies have a duty to act in good faith when handling an insured party’s claims. This often includes defending the insured against lawsuits that are within the scope of a policy. If an insurer wrongfully refuses to provide such a defense, the insured can settle the case themselves in exchange for the plaintiff promising to only seek collection from the insurance company. This is known as a Coblentz agreement based on a 1969 federal appeals court decision.

The problem with Coblentz agreements is they are susceptible to collusion between the insured party and the person suing them. For this reason, courts will only enforce such agreements if the plaintiff–the party seeking to collect against the insurer–can show that coverage existed, the insurer wrongfully refused to defend the insured defendant, and that the terms of the ultimate settlement were reasonable and made in good faith.

The COVID-19 pandemic has caused a significant disruption to many Florida business owners. It has also led to litigation over the scope of “business interruption” insurance. In other words, if a business loses revenue due to pandemic-related restrictions, does that qualify as an insurable loss?

The United States Court of Appeals for the 11th Circuit recently addressed this question in a Georgia breach of contract lawsuit, Gilreath Family & Cosmetic Dentistry, Inc. v. Cincinnati Insurance Company. The plaintiff in this case is a dental practice based in Marietta, Georgia. Following the Georgia governor’s declaration of a public health emergency in early 2020 due to COVID-19, the plaintiff followed official guidance and canceled its routine and elective procedures. As this was the bulk of the practice, the plaintiff said it lost a “substantial portion” of its income.

The plaintiff therefore filed a claim on its business interruption coverage with the defendant insurance company. The policy provided coverage for income lost “due to the necessary suspension of its operations” as well as compensation for additional expenses “sustained during that suspension.” The defendant denied the claim, however, noting that business interruption coverage only applied if the suspension was due to a “direct loss to property,” i.e., damage to the insured premises itself. In effect, the insurer’s position was that there had to be some physical damage to the dental office itself–the mere interruption of business due to the state’s health restrictions was not sufficient.

In early August, the U.S. Centers for Disease Control and Prevention (CDC) issued a new 60-day moratorium on residential evictions in certain parts of the country that continue to experience a “high community transmission” rate of the COVID-19 virus. This includes most of Florida. So if you are a Florida resident currently behind on their rent, you may continue to be eligible for certain protections under the new CDC order.

Prior CDC eviction moratorium orders applied nationwide. As noted above, the new order only covers those counties within the United States that are “experiencing substantial or high levels of community transmission.” As of August 24, every county in Florida meets that requirement, according to the Tampa Bay Times. However, if in the future any particular county goes 14 consecutive days below the “substantial” or “high” levels of community transmission, the CDC’s moratorium will not apply to that county until the rates again meet the required threshold.

It is common practice for homeowners to assign their insurance benefits to businesses that perform repair work. But such assignments must strictly comply with the terms of the underlying policy. Insurance companies are under no obligation to pay over benefits to an unauthorized third party.

A recent decision from the Florida Fourth District Court of Appeals provides a useful example. In this case, QBE Specialty Insurance Company v. United Reconstruction Group, Inc., a homeowner sustained water damage to their property. The day the damage was found, the homeowner hired a contractor–the plaintiff in this case–to perform emergency mitigation services.

As a condition of receiving mitigation services, the homeowner and the plaintiff signed a written contract, which purported to include an assignment of the homeowner’s insurance benefits to the plaintiff. Of note, the agreement had spaces for the homeowner to provide his printed name and signature. There was a signature but the printed name space was left blank.

Insurance policies are contracts. As such, when an insurer fails to pay a valid claim, it is subject to suit for breach of that contract. But this works both ways. If the policyholder fails to live up to their contractual obligations, that can supply the insurer a valid defense to any alleged breach.

A recent decision from the Florida Third District Court of Appeal, Nunez v. Universal Property Casualty Insurance Company, provides a helpful illustration. In this case, the plaintiff insured her home with the defendant. The plaintiff reported a claim in 2015 over purported water damage from two leaks in her kitchen and bathroom, respectively. She later submitted written proof of loss, asserting $50,000 in total damages.

The defendant investigated the claims. As part of the investigation, the defendant requested the plaintiff attend an Examination Under Oath (EUO), which is a common procedure in resolving insurance claims. The plaintiff refused to appear. Indeed, she declined to respond to multiple EUO requests. Accordingly, the defendant denied the plaintiff’s water damage claims. She, in turn, filed a breach of contract lawsuit.