When a CT scanner was destroyed as a result of two fires in the warehouse facility, claims and a lawsuit were filed against the warehouse, Blocker Storage. Blocker was insured by Associated Indemnity, a firefighter fund company and part of the Allianz group of insurance companies. Associated paid its liability limit and received a release from the insured for Associated and all related companies.
IN Diagnostic Leasing, Inc., et al v. Associated Indemnity Corporation, a California-based companyn, no. 19-13535, United States Court of Appeals, Eleventh Circuit (June 24, 2022) The Eleventh Circuit upheld the District Court’s grant of the Associated Indemnity Corp. summary judgment. on Diagnostic Leasing, Inc.’s evil faith claim.
Blocker Transfer & Storage Co. “operated various warehouses” which it owned or leased “as part of its business as a moving and storage company.” Diagnostic Leasing was an equipment rental and leasing company. In 1995, Blocker stored Diagnostic Leases’ computed tomography (CT) scans. Associated Indemnity insured Blocker Storage under the trade name “Fireman’s Fund Insurance Company.”
That same year, two fires in Blocker Storage’s warehouse damaged the Diagnostic Leasing’s CT scanner. Fireman’s Fund informed Blocker Storage that the coverage limit for Diagnostic Leasing’s insurance claims was $ 100,000 and that “Fireman’s Fund  decided to make available to Blocker [Storage]’$ 100,000 to spend at Blocker Storage’s discretion. The Fireman’s Fund notified Blocker Storage that any settlement in excess of $ 100,000 must be paid by Blocker Storage. Blocker Storage claimed that its liability was limited to $ 25,000 based on a contractual provision in the bill of lading from the time the CT scanner was first moved to storage.
After the second fire, Diagnostic Leasing sent a second letter of demand, this time directly to Fireman’s Fund, claiming a higher replacement cost for the CT scanner – $ 427,515. Fireman’s Fund informed Blocker Storage that they could not respond to diagnostic leasing on behalf of Blocker Storages due to Blocker Storage’s uninsured exposure of over $ 100,000. Blocker Storage “specifically instructed” the Firemen’s Fund that “it d[id] does not want any of its insurance coverage to be left “to Diagnostic Leasing because” its maximum liability. . . [wa]s $ 25,000 “and”[a] offer of any amount from the Brandmansfonden directly to [Diagnostic Leasing] m[ight] prejudice blockers [Storage] by enforcing its limitation of liability. “
The two trials
Eventually, Diagnostic Leasing Blocker Storage sued the Florida state court for breach of contract, negligent bail and forgery of evidence. Fireman’s Fund provided advice to represent Blocker Storage together with Blocker Storage’s independent advisors.
While litigation against Blocker Storage was ongoing, Blocker Storage sued Fireman’s Fund to seek a declaratory judgment regarding Blocker Storage’s claims under the insurance.
In 2001, the Blocker Storage and Fireman’s Fund enforced a “release of all claims” to resolve the declaratory judgment. Blocker Storage and Fireman’s Fund ”agree[d] that the limit of liability coverage that is available, in accordance with the terms of [p]olicy, for [first] Fire [wa]$ 100,000. “In exchange, Blocker Storage released” Fireman’s Fund, its employees, adjusters, agents[,] and attorneys ”from: all liabilities identified in Blocker [Storage]s complaints including, but not limited to, the issue of the number of events, the issue of the limits of available insurance and the alleged breach of contract. This [r]elease includes, but is not limited to, all claims for contractual damages, non-contractual damages, “badbelieve ‘damages, whether statutory or customary, consequential damages, damages, attorneys’ fees, expert costs, expenses and interest, arising out of or related to the allegations in Blocker [Storage]s complaint.
After ten years of litigation, the state court ruled in favor of Diagnostic Leasing against Blocker Storage following a lawsuit, finding that Blocker Storage’s alleged $ 25,000 limitation of liability could not be enforced and that Blocker Storage owed Diagnostic Leasing $ 451,431.82 plus interest. 43 21,209 USD in revenue (43 2009 USD) replace the CT scanner).
Diagnostic Leasing moved to include Fireman’s Fund and Associated Indemnity as parties to the final judgment, and Fireman’s Fund, Associated Indemnity and Diagnostic Leasing negotiated an agreed order to include Associated Indemnity as a party to the final judgment and to refuse Diagnostic Leasing’s claim to include Fireman’s Fund. The state court accepted the agreed order, granted the motion in respect of the Associated Indemnity, found the Associated Indemnity liable to the extent of its coverage limit of $ 100,000 under the insurance policy, and dismissed the motion in respect of the Fireman’s Fund. The state court sentenced Blocker Storage to $ 994,638.37; $ 100,000 of that amount could be recovered from Associated Indemnity according to the agreed order.
Diagnostic Leasing claimed that the district court erred in granting summary judgment for associated damages on its claims in bad faith, but the eleventh district did not agree.
Because (1) the insurance was issued by the Associated Indemnity on behalf of the Fireman’s Fund; (2) Fireman’s Fund directed Associated Indemnity to defend Blocker Storage and offer Blocker Storage policy limits to regulate Diagnostic Leasing’s insurance claims; and (3) the Fireman’s Fund negotiated the 2001 release to release Blocker Storage’s claims arising from the policy; and since Diagnostic Leasing did not disprove the evidence of an agency relationship, the district court did not err in granting the Associated Indemnities summary judgment in the agency matter.
The effect of the 2001 release
Under Florida law, when the insured releases the insurer from liability, the insured no longer has an action against the insurer, nor does an injured third party.
The release from 2001 was not limited to the claims that existed at the time of the release; it dropped “all claims for… ‘badbelieve ‘damages ,. . . originating from or related to “Blocker Storages insurance claims under the insurance. Any claims in bad faith against Associated Indemnity related to Blocker Storage’s insurance claims under the insurance.
When Blocker Storage released Associated Indemnity from liability “arising out of or related to” Blocker Storage’s policy claims under the policy, including liability for any bad faith, “no such [bad faith] action [could] maintained ”by Diagnostic Leasing against associated damages. Associated Indemnity has no independent obligation in good faith against Diagnostic Leasing which was not insured under its insurance.
Since the 2001 edition preceded the transfer of Blocker Storage’s claims under the insurance policy and released Associated Indemnity for “all claims… For ‘baddamages “arising from or related to” Blocker Storage’s insurance claims under the insurance, the release revoked Diagnostic Leasing’s claims of bad faith, which existed only by virtue of Blocker Storage’s insurance relationship with Associated Indemnity.
In the 2001 edition, the amount of Associated Indemnity liability was regulated according to its insurance policy issued to Blocker Storage and referred to the underlying dispute between Blocker Storage and Diagnostic Leasing where Associated Indemnity was the insurer and financed Blocker Storage’s defense.
IT DOESN’T PAY TO TAKE A MISSION OF A BAD FAITH IF YOU ARE LIPED
Diagnostic Leasing won a lawsuit against Blocker Storage for almost one million dollars just for giving up the attempt to collect from the responsible defendant by taking an assignment against Blocker Storage’s insurer who had previously released the insurer before the assignment. Greed and hope of getting the full verdict plus damages from an insurer Diagnostic and its lawyers failed to do their due diligence to handle the release and tried to avoid the release by going after a sister insurer to the named insurer. A waste of time and effort.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance misconduct and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and firstname.lastname@example.org.
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