Florida Insurance Law Blog : Florida Insurance Lawyer & Attorney : Mark Nation Law Firm : Orlando, Longwood, Gainesville

On September 29, 2008 the Florida Supreme Court issued its opinion in Wachovia Insurance Services, Inc. v. Toomey. The supreme court answered certified questions from the United States Court of Appeals for the 11th Circuit regarding insurance claims, releases, settlements, assignments, and whether a claim for negligence could be brought concurrently with a claim for breach of fiduciary duty.

In Wachovia, former officers sued their company for termination without cause. The applicable insurance policy was due to expire during the litigation, and the company extended coverage for several months to cover potential claims—including the former directors’ breach of employment contract claims. However, in the renewal/extension, the insurance agent/broker allegedly removed coverage for breach of written employment contract claim. As a result, the insured was left without coverage for the very same claims that were the subject of ongoing litigation.

As a result of the employment litigation, a jury awarded the former officers $1.8 million in damages. The company found itself unable to satisfy the judgment, and without insurance for these damages. The former officers and the company entered into a settlement agreement which dismissed certain causes of action against the company, yet expressly reserved claims against the insurance broker. The former officers then filed suit against the broker. The lawsuit included claims for breach of fiduciary duty and negligence, among others.

The opinion addresses three important aspects of claims against insurance companies:

Part 1: Assignment and Immediate Release.

In Wachovia, the former officers and the company entered into a settlement agreement which dismissed claims, yet expressly reserved claims against the insurance broker and assigned causes of action against the broker within the same settlement agreement. The 11th Circuit’s opinion certified a question to the Florida Supreme Court looking for the effect of a settlement agreement between two parties that explicitly contained both an assignment of causes of action and an immediate release.

The supreme court noted that the assignment of a claim against the insurance broker cannot occur after a release or satisfaction of the claim, because once the breach of duty is released or satisfied, the elements of the cause of action can no longer exist. The court noted, however, that nothing prohibits a simultaneous (or, presumably, prior) assignment of a claim with a release or satisfaction of the judgment:

Accordingly, we hold that a settlement agreement reached between two parties that explicitly contains both an assignment of causes of action against a third party [from assignor to assignees] and an immediate release [by assignees of assignor] allows [the assignees] to bring the assigned causes of action against [the insurance broker].

Part 2: Assignment of Breach of Fiduciary Duty Claim.

In Wachovia, the former officers and the company entered into an assignment of claims which included assignment of a breach of fiduciary duty against an insurance broker. The 11th Circuit certified the question whether a claim for breach of fiduciary duty by an insurance broker could be assigned.

The Florida Supreme Court recognized that under Florida law a breach of fiduciary duty is intensely personal due to the nature of the fiduciary relationship of the parties. The court found that to determine whether a cause of action is assignable, the court must not only examine the relationship between the parties, but also must examine the type of duty alleged to have been breached.

In Wachovia, the court found that the fiduciary relationship between a prospective insured and insurance agent/broker was dissimilar from that between an attorney/client because: there were no constraints on insured/broker communications; and insurance brokers could be substituted without prior notice (as opposed to confidential nature of attorney/client communications and the fact an attorney cannot substitute another attorney without the client’s permission). The court held the relationship between the insured and insurance agent/broker was “not so personal and confidential that the cause of action cannot be assigned….”

The court also assessed the alleged duty that was breached. The court referenced its prior decision which held that causes of action based on contract or statute could be assigned, and a cause of action for bad faith (for an insurance agent’s failure to settle a claim in good faith) were assignable. The court distinguished that “purely personal tort claims” could not be assigned under Florida law.

In analyzing Wachovia, the court found the particular ways in which the broker was alleged to breach its duty to its insured was actually a bad faith claim, which Florida courts have held to be assignable. The court ultimately answered the certified question by stating:

Because the insurance broker-insured relationship between [the assignor] and [the insurance broker] was not a confidential relationship, and because the breach of duty claim against [the insurance broker] was essentially a bad faith claim, the cause of action in the instant case is assignable….

Part 3: Separate Causes of Action Permitted for Breach of Fiduciary Duty and Negligence.

In Wachovia, the assignees had brought a claim for the insurance broker’s negligence (an assignable claim under Florida law). The federal district court dismissed the claim prior to trial. The district court ruled that the negligence claim was moot in light of the claim for breach of fiduciary duty—in essence, the damages for the causes of action would be the same, and a finding the defendant did not breach its fiduciary duty would be inconsistent with a finding of negligence.

The issue was not a question which was certified to the supreme court. However, the court referenced its broad latitude to address the determinative, substantive issues of Florida law, and addressed the issue which was raised on cross-appeal.

The Florida Supreme Court properly noted that claims for negligence and breach of fiduciary duty are separate causes of action. The court recognized that insurance agents/brokers will often have both a fiduciary duty to their insureds and a common-law duty to properly procure insurance coverage. The court ultimately held that negligence and breach of fiduciary duty can be pled in the alternative, and that negligence claims against an insurance broker are assignable.

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I recently filed suit against Mega Life (again) to help my client recover health insurance benefits.

This company has been sued many, many times for failing to pay health benefits. In fact, Mega Life's parent company, HealthMarkets, Inc., recently received a $20,000,000 fine from 29 states as a result of a 3 year multi-state investigation which found numerous problem involving consumer disclosure, agent training and, claim and complaint handling practices.   The state of Florida will receive more than $1.8 Million from this settlement.

Mega Life is an Oklahoma insurer that claims it is entitled to certain protections set up by our Florida Statutes for "out-of-state group plans." In order to avail itself of the protections set up in the Florida Statutes for these out-of-state groups, Mega Life issues a "master policy" to a company that Mega Life actually set up. Consumers are then encouraged to by Mega Life agents to become "members" of the company that Mega Life sets up. Mega Life then promises that by being members of this company, consumers will be entitled to lower rates and quality health insurance benefits.

Unfortunately, our Florida statutes do provide certain protections to these out of state insurers that are not available to other health insurers. However, to be eligible for these protections, Mega Life must strictly comply with the criteria set forth in the statute.  I don't believe Mega Life complies.  One of things that Mega Life must prove is that their insurance benefits are "reasonable in relation to the premiums charged thereunder and the issuance of the group policy has resulted, or will result, in economies of administration." Florida Statute 627.6515(2). In this case, I have retained an insurance actuary to investigate whether Mega Life's health benefits comply with this requirement.

In our current case, Mega Life is denying the claim for health insurance benefits because, according to Mega Life, our client's condition is a "pre-existing condition." The problem for Mega Life is that even if the condition is "pre-existing," the law in Florida, the District of Columbia (which is the law that Mega Life says applies), and the federal law, all mandate coverage for pre-existing conditions. Thus, even if Mega Life proves our client's condition is pre-existing, Mega Life will still be on the hook for the medical expenses.
 

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Many times, when a lawyer for a personal injury victim settles his or her client's personal injury case, the health insurer will ask for a significant portion of the settlement for reimbursement of expenses which it incurred in paying for health care. This is known as "subrogration" or a "right of reimbursement." 

Repeatedly, I have seen cases where good attorneys pay back liens that do not even exist, or they pay back way too much. Paying back liens that don't exist, or paying back too much is a disservice to our clients, and can be considered malpractice. The law on health insurance liens is complicated and one should not dabble in it unless experienced.

Frequently, personal injury attorneys will recommend their clients to hire The Nation Law Firm to negotiate those liens.  This referral removes any potential liability from the personal injury attorney, and provides a much needed service to their clients.

Recently a nationally recognized personal injury law firm asked me to deal with a $650,000 health insurance lien on a case they were trying to settle. After intense negotiations I convinced the health insurance carrier to accept $65,000 as payment in full for the lien. Had the insurer not agreed, I was prepared to file a declaratory judgment action to seek a judicial determination of the amount of the lien. If I was successful in the declaratory judgment action, the insurer would have not only had to reduce or eliminate the lien, but would have also been responsible for my attorney's fees and costs.

I am currently in litigation in numerous such declaratory judgment actions at this time.

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For the ninth year in a row, J.D. Power & Associates ranked Amica Mutual highest in customer satisfaction among auto insurance companies. The annual study ranks customer satisfaction based on five factors: interaction with policyholder, policy offerings, billing and payment, price and claims.

Amica was followed by State Farm, Erie Insurance, Auto-Owners, American National Property Casualty, and the Automobile Club of Southern California. At the bottom of the list were AIG, GMAC, Mercury, MetLife, Safeco and Travelers.

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Mr. and Mrs. Yeates were severely injured when the vehicle Mrs. Yeates was driving was struck head-on by a livestock truck owned by Bingham Livestock.  The Yeateses sued Bingham Livestock and the truck driver.  Bingham Livestock carried two insurance policies, one issued by State Farm and one issued by Carolina Casualty. 

State Farm tendered its policy limits of $750,000 to the Yeateses.  The Carolina Casualty policy did not specifically cover automobile accidents, but included a federally mandated MCS-90 endorsement, which provided Carolina Casualty would pay up to $1,000,000 for "any final judgment recovered against [Bingham Livestock] for public liability resulting from negligence in the operation, maintenance or use of motor vehicles." 

Federal law requires interstate common carriers to carry this MCS-90 endorsement which will provide insurance coverage up to $750,000.  The endorsement prevents insurance companies from denying claims even though the vehicle in the accident is not listed in the policy.

Carolina Casualty sued seeking a judicial ruling that the MCS-90 endorsement does not apply here.  Carolina Casualty argued that the MCS-90 endorsement is only implicated when the motor carrier has less than $750,000 in liability protection.  In this case, since State Farm already provided the minimum $750,000 in liability protection, according to Carolina Casualty, the MCS-90 was not needed to provide the minimum mandatory coverage.

The US Court of Appeals for the 10th Circuit ruled that the MCS-90 did indeed provide insurance coverage for this crash.  The court ruled that the fact that State Farm paid its $750,000 policy limits did not relieve Carolina Casualty of its duty to pay.  According to the 10th Circuit, the federal regulations requiring a minimum of $750,000 in coverage provides a floor, and not a ceiling.  Carolina Casualty Company v. Yeates, 533 So.2d 1202 (10th Cir. 2008).

This case is a reminder to always pursue the MCS-90 coverage every time an interstate common carrier is involved.  Whenever one suspects the MCS-90 may be implicated, you should review the policy, the MCS-90 endorsement, as well as the MCS-90 implementing statute and applicable regulations, i.e. 49 U.S.C. §13906(f), and 49 C.F.R. § 387.15. 

Keep in mind that if the insurance company alleges that the MCS-90 has been cancelled for any reason, including failure to pay, the insurance company must make sure the cancellation procedures set forth in 49 C.F.R. § 387.15 have been strictly followed.     

Another issue comes up when the insurance company fails to provide an MCS-90 endorsement with the policy.  Depending on the circumstances, courts might incorporate the MCS-90 endorsement into the policy.  If the policy does not contain the MCS-90 endorsement, and the court refuses to incorporate one, then the insured may have a negligence action against its insurance agent if the agent failed to advise the insured of the need for the MCS-90, or failed to advise the insurance company of the need for the MCS-90. 

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On September 26, 2008, the 5th DCA clarified an important point regarding the appraisal process.  In Wroe v. Amica Mutual Insurance Company, the insured owner of a vehicle sued his own insurance company under his collision coverage.  The insured was looking to force the insurance company to pay for repairs to his vehicle after an accident.  The case was referred to appraisal, and the appraisal panel determined the amount of loss.  In a very short opinion, the 5th DCA made clear that the insured is allowed to seek additional money from the insurance company if hidden damage that was not accounted for in the original appraisal is discovered during the course of repairs. 

This is an extremely important decision.  Many times, an insurance company will claim that the insured gets one shot at an appraisal, and that appraisal is a final determination of the entire claim.  The insurance company will then refuse to pay for hidden damage that was not accounted for during the initial appraisal.  This damage is hidden because, in many cases, the full extent of the damage can not be determined until the repairs begin.  The insurance industry is well aware of hidden damage such as this, and routinely provides what are known as "supplements" to the insured if additional damage is discovered during the repair process. 

However, once there is a dispute, and the claim goes to appraisal, the insurance industry often takes the position that the appraisal is final, and there can be no supplements.  In Wroe, the 5th DCA makes clear that if there is further unaccounted for damage discovered after the repairs begin, the insurance company will be responsible. 

There are two takeaways from this opinion.  First, never sign a release after the appraisal.  Such a release may preclude an insured from seeking further money if further damage is discovered.  Second, make sure to alert insureds to contact you immediately if further damage is discovered during the repair process.  This further damage will need to be documented and the insurance company alerted immediately.  

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