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.