Allocating Responsibility for Defense and Indemnity Costs Among Multiple Insurers

Analysis of Zurich Am. Ins. Co. v. S.-Owners Ins. Co., 248 F. Supp. 3d 1268, 1276 (M.D. Fla. 2017)

In a dispute between two insurers arising from an underlying premises liability action, a federal district court applied Florida law in its analysis of claims for declaratory relief, equitable subrogation, and contribution.

In the underlying action, McMillan asserted negligence claims against Catamount Constructors, Inc. (Catamount) and Duval Concrete Contracting, Inc. (Duval). McMillan alleged he “slipped and fell due to an accumulation of debris as he walked … towards a port-o-let where Defendant Catamount had begun construction work and established a construction site,” and where “Duval had previously begun concrete cutting.”[1]

Catamount was the general contractor for a construction project to furnish and install a complete gravel/sand sub-base package.[2] Catamount and Duval executed a subcontract, whereby Duval agreed to “furnish[ ] all labor, materials, tools, equipment, and insurance necessary to” complete the project.[3] The terms of the subcontract required Duval to maintain liability insurance naming Catamount as an additional insured, and providing primary coverage, for any liability arising from Duval’s work.[4]

Per the subcontract, Duval purchased a commercial general liability policy from Southern-Owners Insurance Company (SOIC).[5] Zurich American Insurance Company (ZAIC) issued a commercial insurance policy to Catamount.[6]

ZAIC initially assumed Catamount’s defense because it “was not aware at that time that Catamount was a primary insured under the SOIC Policy.”[7] Pursuant to the subcontract, ZAIC tendered the defense and indemnity of Catamount to Duval and requested that Duval notify its insurer. After ZAIC learned that SOIC had issued a commercial general liability policy to Duval, ZAIC made a second tender to Duval and a first tender to SOIC. SOIC denied the request.

Shortly after receiving the SOIC denial, ZAIC filed a complaint for Declaratory Judgment.[8] After ZAIC “resolved the underlying action on behalf of Catamount” for a confidential amount, it sought leave to drop McMillan as a defendant and file a second amended complaint.[9] The motion was granted, and ZAIC filed a three-count Second Amended Complaint.

With Count I, ZAIC sought the court’s declaration^[10] that SOIC, as Catamount’s primary insurer, had a duty to defend and indemnify Catamount in the underlying action. In Count II, ZAIC sought reimbursement from SOIC for all defense costs and indemnity payments made in resolving the underlying action on a theory of equitable subrogation. With Count III, ZAIC sought full reimbursement on the alternative theory of common law contribution. The court’s analysis of these theories of recovery was prompted by SOIC’s motion to dismiss all three counts under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

Count I: Declaratory Relief

The party seeking a declaratory judgment bears the burden “of establishing the existence of an actual case or controversy.”[11] This means that:

[a]t an irreducible minimum, the party who invokes the court’s authority under Article III must show: (1) that they personally have suffered some actual or threatened injury as a result of the alleged conduct of the defendant; (2) that the injury fairly can be traced to the challenged action; and (3) that it is likely to be redressed by a favorable decision.[12]

“In addition, the controversy must be ‘live’ throughout the case; federal jurisdiction is not created by a previously existing dispute.”[13] Therefore, because the “actual controversy” requirement is jurisdictional, “a threshold question in an action for declaratory relief must be whether a justiciable controversy exists.”[14]

In the instant matter, the court determined that ZAIC failed to satisfy its burden of establishing its claim for declaratory relief against SOIC constituted an actual case or controversy, appropriate for judicial resolution. Specifically, the court concluded that ZAIC failed to plead the existence of a legal relationship between the parties as well as an ongoing live controversy with respect to its request for declaratory relief.[15]

Referencing the Eleventh Circuit’s decision in Provident Life & Accident Ins. Co., the court concluded an insurer does not have a legal relationship with another insurer by virtue of sharing a common insured.[16] Therefore, although courts have Article III case or controversy jurisdiction to consider claims between insurers and their insureds, absent some legal basis for an assertion of rights between two insurers, courts lack jurisdiction to adjudicate claims solely between the insurers.[17]

The court also determined ZAIC’s declaratory judgment claim was deficient because ZAIC failed to assert a live controversy.[18] “In the insurance context, once an insurer tenders coverage, any future claims that insurer brings regarding another insurer’s obligations pertain to a past injury.”[19] As an example, the court referenced Interstate Fire & Cas. Co. v. Kluger, Peretz, Kaplan & Berlin, P.L.,[20]where, after paying its policy limits, an excess insurer sought a declaration that two other insurers should have tendered coverage. That court held that it lacked jurisdiction over the declaratory judgment claim because the plaintiff sought to redress a past injury, which “does not support a finding of an Article III case or controversy when the only relief sought is a declaratory judgment.”[21] As such, the court found Count I was subject to dismissal for lack of subject matter jurisdiction.[22]

Count II: Equitable Subrogation

As an initial matter, the court noted an insurer can only recover the amount it paid on behalf of a judgment rendered against its insured, and cannot recover its payments for attorney’s fees and costs.[23] The court, therefore, concluded ZAIC’s claim of equitable subrogation was subject to dismissal, to the extent it sought recovery of attorney’s fees and costs incurred in the defense of Catamount.[24]

The court then considered ZAIC’s claim of subrogation for recovery of indemnity payments made on behalf of Catamount and its principals. Under Florida law, equitable subrogation entails “the substitution of one person in the place of another with reference to a lawful claim or right.”[25] In the insurance context, the insurer is “put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss paid by the insurer.”[26] More specifically, “[t]hrough equitable subrogation, ‘the excess insurer ‘stands in the shoes’ of the insured and succeeds to the rights and responsibilities that the insured would normally have against the primary insurer.’ ”[27]

“Equitable subrogation is generally appropriate where: (1) the subrogee made the payment to protect his or her own interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt, (4) the subrogee paid off the entire debt, and (5) subrogation would not work any injustice to the rights of a third party.”[28] The Court rejected ZAIC’s attempt to distinguish a decision requiring application of all five elements, noting that several courts have required the plaintiff to plead facts sufficient to give rise to these elements.[29] Additionally, the court found decisions applying these elements in cases arising specifically in the insurance context.[30] Therefore, the Court found ZAIC was required to have pled facts supporting these five elements in order to bring an equitable subrogation claim.[31]

In weighing the sufficiency of ZAIC’s pleadings, however, the court noted its duty to draw all reasonable inferences in favor of the plaintiff on a motion to dismiss.[32] The court found this duty to be particularly important in light of the Supreme Court of Florida’s substantive “commitment to a liberal application of the rule of equitable subrogation.”[33] Indeed, because the purpose of equitable subrogation “is ‘to do complete and perfect justice between the parties without regard to form or technicality, the remedy will be applied in all cases where demanded by the dictates of equity, a good conscience, and public policy.’ ”[34] Thus, inferring elements not expressly pled, the court found the interests of justice required it to allow ZAIC to proceed with the indemnity payment portion of its equitable subrogation claim.[35]Accordingly, the court denied the motion with respect to that portion of Count II.[36]

Count III: Equitable Contribution

In support of its motion to dismiss Count III, SOIC asserted that ZAIC’s claim for “common law contribution” is not recognized under Florida law, and that contribution is exclusively a statutory remedy that is only available “when two or more persons become jointly or severally liable in tort for the same injury to person or property, or for the same wrongful death ….”[37] Rejecting SOIC’s arguments as inapposite,[38] the court then considered whether ZAIC sufficiently asserted a claim for equitable contribution.

In order for an insurer to bring this claim, courts in some states require a plaintiff to allege that the insurers “share (1) the same level of obligation (2) on the same risk (3) to the same insured.”[39] Under Florida law, however, the court observed a plaintiff is not required “to explicitly demonstrate the existence of these three elements to pursue its contribution claim.”[40] Rather, “Florida courts have used much more general language, holding that equitable contribution is available where the parties share a ‘common burden,’ or ‘common liability.’ ”[41] In order to find that two insurers share a common obligation:

It is not necessary that the policies provide identical coverage in all respects in order for … each insurer [to be] entitled to contribution from the other; as long as the particular risk actually involved in the case is covered by both policies, the coverage is duplicate, and contribution will be allowed.[42]

As an example, the court referenced U.S. Fid. & Guar. Co. v. Liberty Surplus Ins. Corp. In that case, the court allowed Liberty Surplus Insurance Corporation (Liberty) to proceed with its equitable contribution claim against St. Paul Fire & Marine Insurance Company (St. Paul) in a situation much like the instant action.[43] There, Liberty “issued two commercial general liability policies … to John T. Callahan & Sons, Inc. (Callahan), which served as the general contractor for a construction project.[44]St. Paul issued commercial liability policies to one of Callahan’s subcontractors and covered Callahan as an additional insured for damages arising out of that subcontractor’s work.[45] The court found that because “both the St. Paul Policies and the Liberty Policies provide[d] coverage to Callahan for liability arising out of the work of [the subcontractor],” the insurers “share[d] a common obligation, and Liberty’s contingent equitable contribution claim [wa]s legally proper.”[46] The court distinguished this scenario from cases in which a primary insurer brought a contribution claim against an excess insurer,[47] and in which a subcontractor’s insurer brought a contribution claim against a different subcontractor’s insurer, both of whom covered the general contractor as an additional insured, but only for damages arising out of their respective insured’s work.[48]

Here, as in U.S. Fid. & Guar. Co., ZAIC issued a commercial general liability policy to Catamount.[49]SOIC issued a commercial general liability policy to Duval, Catamount’s subcontractor, and covered Catamount as an additional insured for damages arising out of Duval’s work.[50] Thus, ZAIC alleged that SOIC had a duty to provide primary coverage to Catamount for all damages arising out of Duval’s work, and ZAIC had a duty to provide excess coverage to Catamount for these damages.[51]Accordingly, the court determined “it appears that both the [SOIC] and [ZAIC] policies [may] provide coverage to [Catamount] for liability arising out of the work of Duval.”[52] The court, therefore, concluded that ZAIC’s allegations suggested a common obligation sufficient to permit ZAIC’s contingent equitable contribution claim to proceed, and denied the Motion to Dismiss with respect to Count III.

IV Conclusion

Where an insurer seeks the allocation of indemnity and defense costs among multiple insurers, the lack of an ongoing live controversy and legal relationship between the insurers can preclude declaratory relief. However, equitable subrogation may provide a limited remedy. Under this theory, an insurer can recover the amount it paid on behalf of a judgment rendered against its insured, but cannot recover its payment for attorney’s fees and costs. Notwithstanding the limitation on recovery, the Florida Supreme Court mandates that equitable subrogation will be available in all cases where demanded by the dictates of equity, a good conscience, and public policy.

Under the theory of equitable contribution, an insurer can recover indemnity and defense costs. Florida courts have held that equitable contribution is available where the parties share a ‘common burden,’ or ‘common liability.’ ” To meet this requirement, it has not been necessary that the policies provide identical coverage in all respects; as long as the particular risk actually involved in the case is covered by both policies, and the coverage is duplicate, then contribution will be allowed. However, because the policies do not cover the same risk, a primary insurer is not permitted to bring a claim for contribution against an excess insurer.

[1] Zurich Am. Ins. Co. v. S.-Owners Ins. Co., 248 F. Supp. 3d 1268, 1276 (M.D. Fla. 2017).

[2] Id. at 1274.

[3] Id. at 1275.

[4] Id.

[5] Id.

[6] Id.

[7] Id. at 1276.

[8] Id.

[9] Id. at 1277.

[10] Pursuant to 28 U.S.C. § 2201.

[11] Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 95, 113 S.Ct. 1967, 1974, 124 L.Ed.2d 1 (1993).

[12] U.S. Fire Ins. Co. v. Caulkins Indiantown Citrus Co., 931 F.2d 744, 747 (11th Cir. 1991) (citingValley Forge Christian Coll. v. Ams. United for Separation of Church & State, 454 U.S. 464, 472, 102 S.Ct. 752, 758, 70 L.Ed.2d 700 (1982)); see also GTE Directories Publ’g Corp. v. Trimen Am., Inc., 67 F.3d 1563, 1567 (11th Cir. 1995).

[13] Caulkins Indiantown Citrus Co., 931 F.2d at 747.

[14] Id.

[15] S.-Owners Ins. Co., 248 F. Supp. 3d at 1281.

[16] Provident Life & Acc. Ins. Co. v. Transamerica-Occidental Life Ins. Co., 850 F.2d 1489, 1491 (11th Cir. 1988)

[17] See also Progressive Express Ins. Co. v. Overdrive Specialized, Inc., No. 3:14-cv-138-MCR/EMT, 2014 WL 11512202, at *3 (N.D. Fla. Dec. 24, 2014) (finding a definite and substantial controversy in a declaratory judgment action filed by one insurer against another insurer because their common insured had been joined).

[18] “Injury in the past… does not support a finding of an Article III case or controversy when the only relief sought is declaratory judgment.” Malowney v. Fed. Collection Deposit Grp., 193 F.3d 1342, 1346 (11th Cir. 1999) (citing City of L.A. v. Lyons, 461 U.S. 95, 102, 103 S.Ct. 1660, 1665, 75 L.Ed.2d 675 (1983)).

[19] S.-Owners Ins. Co., 248 F. Supp. 3d at 1283–84.

[20] 855 F.Supp.2d 1376, 1379 (S.D. Fla. 2012).

[21] Id. (citing Nat’l Union Fire Ins. Co. of Pittsburgh, Pa v. Int’l Wire Grp., No. 02 Civ. 10338(SAS), 2003 WL 21277114, at *5 (S.D.N.Y. Jun. 2, 2003) (dismissing an excess insurer’s claim for declaratory judgment against a primary insurer because it did “not seek a prospective determination of its rights and responsibilities under the insurance contract (so that it can avoid future damages), but rather a finding that it is not liable for damages alleged to have already accrued.’ ”)).

[22] S.-Owners Ins. Co., 248 F. Supp. 3d at 1283.

[23] See Amerisure Mut. Ins. Co. v. Crum & Forster Specialty Ins. Co., No. 2:12–cv–443–FtM–29CM, 2014 WL 3809113, **3–4 (M.D. Fla. Aug. 1, 2014) (dismissing an insurer’s equitable contribution claim through which it sought to recover defense costs); Am. Cas. Co. of Reading Pa. v. Health Care Indem., 613 F.Supp.2d 1310, 1322–23 (M.D. Fla. 2009) (denying an insurer’s request for contribution and subrogation for fees and costs); Pa. Lumbermens Mut. Ins. Co. v. Ind. Lumbermens Mut. Ins. Co., 43 So.3d 182, 186–87 (Fla. 4th DCA 2010) (collecting Florida cases showing that “ ‘traditional principles of subrogation will not support a reimbursement of defense costs in favor of someone who has the independent contractual duty to pay all such expenses,’ ” such as an insurer) (citation omitted).

[24] S.-Owners Ins. Co., 248 F. Supp. 3d at 1286.

[25] W. Am. Ins. Co. v. Yellow Cab Co. of Orlando, 495 So.2d 204, 207 (Fla. 5th DCA 1986) (quotingBoley v. Daniel, 72 Fla. 121, 72 So. 644, 645 (1916)).

[26] Monte de Oca v. State Farm Fire & Cas. Co., 897 So.2d 471, 472 n.2 (Fla. 3d DCA 2004) (quotation and citation omitted).

[27] Mount Vernon Fire Ins. Co. v. Transcontinental Ins. Co., No. 8:07-cv-1593-T-24-EAJ, 2008 WL 2074427, at *2 (M.D. Fla. May 15, 2008) (citations omitted); see also Galen Health Care, Inc. v. Am. Cas. Co. of Reading, 913 F.Supp. 1525, 1531 (M.D. Fla. 1996) (“Florida law recognizes a cause of action for equitable subrogation between primary and excess insurers arising from the payment of a claim by the excess insurers.”); U.S. Fire Ins. Co. v. Morrison Assurance Co., 600 So.2d 1147, 1151 (Fla. 1st DCA 1992) (noting “that the primary insurer should be held responsible to the excess insurer for improper failure to settle, since the position of the latter is analogous to that of the insured when only one insurer is involved.”).

[28] Dade Cnty. Sch. Bd. v. Radio Station WQBA, 731 So.2d 638, 646 (Fla. 1999).

[29] See Amerisure Ins. Co. v. S. Waterproofing, No. 3:14-cv-154-J-34JRK, 2014 WL 4682898, at *4 (M.D. Fla. Sept. 19, 2014) (“A plaintiff must allege [the enumerated] five elements in order to maintain a claim for equitable subrogation.”); Columbia Bank v. Turbeville, 143 So.3d 964, 968 (Fla. 1st DCA 2014) (resolving a motion to dismiss by applying these elements).

[30] See Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. KPMG Peat Marwick, 742 So. 2d 328, 332 (Fla. 3d DCA 1999), approved, 765 So. 2d 36 (Fla. 2000); DaimlerChrysler Ins. Co. v. Arrigo Enters., Inc., 63 So.3d 68, 72 (Fla. 4th DCA 2011).

[31] S.-Owners Ins. Co., 248 F. Supp. 3d at 1287-88.

[32] See Omar ex rel. Cannon v. Lindsey, 334 F.3d 1246, 1247 (11th Cir. 2003)

[33] Dantzler Lumber & Export Co. v. Columbia Cas. Co.,115 Fla. 541, 551, 156 So. 116 (Fla. 1934). In determining whether or not to allow an equitable subrogation claim to proceed, the Supreme Court of Florida has emphasized that equitable concerns outweigh “technical rules of law.” Id. at 550–51, 156 So. 116. According to the court:

[t]he doctrine of subrogation will be applied or not according to the dictates of equity and good conscience, and consideration of public policy, and will be allowed in all cases where the equities of the case demand. It rests upon the maxim that no one shall be enriched by another’s loss, and may be invoked wherever justice demands its application, in opposition to the technical rules of law … The right to it depends upon the facts and circumstances of each particular case, and to which must be applied the principles of justice. Id.

[34] Compania Anonima Venezolana De Navegacion v. A. J. Perez Export Co., 303 F.2d 692, 697 (5th Cir. 1962).

[35] S.-Owners Ins. Co., 248 F. Supp. 3d at 1288.

[36] Id. at 1289.

[37] Id., quoting Fla. Stat. § 768.31(2)(a).

[38] S.-Owners Ins. Co., 248 F. Supp. 3d at 1290-1291.

[39] U.S. Fid. & Guar. Co. v. Liberty Surplus Ins. Corp., No. 6:06–cv–1180–Orl–31UAM, 2007 WL 3275307, *3 (M.D. Fla. Oct. 31, 2007) (citing Lexington Ins. Co. v. Allianz Ins. Co., 177 Fed.Appx. 572, 573 (9th Cir. 2006)); see also Hartford Cas. Ins. Co. v. Trinity Universal Ins. Co. of KS., 158 F.Supp.3d 1183, 1201–02 (D. N.M. 2015) (applying the three elements); Flintkote Co. v. Gen. Accident Assurance Co. of Can., 480 F.Supp.2d 1167, 1181 (N.D. Cal. 2007) (recognizing the three elements).

[40] U.S. Fid. & Guar. Co., 2007 WL 3275307 at *3.

[41] Id. (citation omitted).

[42] 15 Couch on Ins. § 218:6 (Dec. 2016).

[43] 2007 WL 3275307 at **3–4.

[44] Id. at *1.

[45] Id. at **1, 3–4.

[46] Id. at *4.

[47] See Transcontinental Ins. Co. v. Ins. Co. of the State of Pa., 148 Cal.App.4th 1296, 56 Cal.Rptr.3d 491 (Cal. App. 2007).

[48] See Home Ins. Co. v. Cincinnati Ins. Co., 213 Ill.2d 307, 290 Ill.Dec. 218, 821 N.E.2d 269 (Ill. 2004) and Schal Bovis, Inc. v. Cas. Ins. Co., 315 Ill.App.3d 353, 247 Ill.Dec. 847, 732 N.E.2d 1179 (Ill. App. 2000).

[49] S.-Owners Ins. Co., 248 F. Supp. 3d at 1292.

[50] Id.

[51] Id.

[52] Id. quoting U.S. Fid. & Guar. Co., 2007 WL 3275307 at * 4.