Comegys, an independent insurance agency, had an independent contractor relationship with Safeco, a liability insurance, in short Comegys marketed Safeco insurance to the public. Comegys is said to have been negligent in obtaining car insurance for one of its customers, Robert Smith. Comegys had provided Smith with car insurance from Safeco, which Smith eventually had to rely on when he caused a car accident that ended in the death of a motorcyclist. Comegys offered to resolve (and settled through the policy of errors and omissions they had with Endurance) the potential claim of negligence that Smith had against them.
IN Endurance American Specialty Insurance Company et al v. Liberty Mutual et alno. 19-14664, United States Court of Appeals, Eleventh Circuit (May 16, 2022) resolved the Eleventh Circuit dispute.
Endurance relied on the compensation provision between Safeco and Comegys and sued Safeco. Endurance wants to be indemnified by Safeco because the lawyer Safeco left for Smith after the car accident pointed out the potential negligence claim that Smith had against Comegys.
At the trial, the jury found that, since Safeco had refused to indemnify Comegys, Safeco had both violated its contract with Comegys and violated the implied alliance of good faith and fair settlement. The jury awarded Endurance, Comegys’ error and omission insurance company, approximately $ 1.6 million in damages plus a $ 25,000 deductible and $ 30,000 in legal fees paid by Comegys in litigation. Safeco appealed.
Comegys and Safeco operated under a contract, the limited agreement, which enabled Comegys to act as an independent contractor for Safeco “for the limited purpose of placing Safeco’s insurance products.”
The limited agreement contained a set of indemnity clauses between Comegys and Safeco. The compensation agreements contained:
- Safeco agreed to take responsibility when it got tangled up and its mess affected Comegys (and Comegys agreed to do the same), and
- Whether Safeco (or Comegys) became entangled was defined by the terms of the limited agreement.
Smith’s Safeco car insurance became important when his car caused an accident with a motorcyclist in June 2015. About two weeks after the incident, the motorcyclist died at the hospital from his injuries.
Twelve days after the motorcyclist’s death, Safeco Smith provided $ 1.25 million in insurance coverage to the motorcyclist’s estate by mail. The estate rejected the offer because the estate considered that its claim was more than the insurance limit. In accordance with the insurance policy, Safeco then provided Smith with a defense attorney, whose job it was to represent Smith in any case against the estate against him.
Smith’s lawyer and the estate’s lawyer then began discussing how to settle. When reviewing the history of the case, Smith’s attorney realized that Comegys may have been negligent in obtaining car insurance for Smith. After the estate officially filed an unlawful death lawsuit against Smith in the state court in December 2015, Smith’s attorney contacted Comegys and asked Comegys to indemnify and defend Smith on the grounds that Comegys had negligently provided insurance to Smith prior to the accident.
Following a non-binding arbitration award, Smith was found liable for $ 7 million in damages, Smith and the estate entered into a joint agreement and agreement. The terms of the common condition were that the parties would agree on a mutual release of all claims, in exchange for Safeco’s $ 1.25 million insurance limit on Smith and Smith’s transfer to the estate of his negligent procurement claim against Comegys.
The estate then sent Comegys a $ 2 million claim based on Smith’s negligent procurement claim. Comegy’s error and omissions insurance with Endurance had a policy limit of $ 2 million. Comegys and the estate settled for about $ 1.5 million in exchange for Comegys being released from all liability. The settlement stated that Comegys did not admit any wrongdoing or error in obtaining insurance for Smith. As Comegy’s insurer for errors and omissions, Endurance paid this amount to the estate.
Endurance, on behalf of Comegys, brought an action against Safeco for, among a number of other things, breach of the indemnity agreement between Comegys and Safeco in the limited agreement and breach of the implied alliance of good faith and fair settlement.
The case went to trial. In what the eleventh circle concluded must have been that the jury attributed Smith’s lawyer’s actions to Safeco, the jury then agreed with Endurance that Safeco had violated the compensation provision and the implied alliance of good faith and fair handling and handed down a judgment of several million dollars . in favor of Comegys.
Under Florida law, indemnity contracts are subject to the general rules of contract design and must be interpreted on the basis of the express intentions of the parties. When you look at this contractual breach case, there is a problem according to the eleventh circle, it was not a crime. So there was no legally sufficient evidentiary basis for Endurance to win this case.
Endurance apparently distracted the jury with facts that are totally irrelevant to this appeal. The distraction method may have worked with the jury in this case, but it did not work with the eleventh circuit.
What Endurance leaves is that in order for Safeco’s actions to fall under the tort provision, the documents must fall into one of three buckets:
- Safeco has violated the limited agreement;
- Safeco has, through negligence or intent, committed an act, error or omission in locating the business in accordance with the limited agreement; or
- Safeco has, through negligence, committed an act, error or omission in the implementation of the terms of the limited agreement.
FIRST: Comegys was within its jurisdiction when it acquired Safeco insurance for Smith. Safeco then covered Smith. In his day, when Smith had an accident and needed his insurance coverage to get in, Safeco issued the insurance limit within twelve days of the motorcyclist’s death. Safeco provided Smith with a lawyer to negotiate the claim. And Safeco finally paid the insurance limit in accordance with the settlement between Smith and the estate. In other words, Safeco covered Smith, just as it told Comegys it would do in the limited deal.
SECOND & THIRD: Endurance’s case is based on two facts: Smith’s lawyer (provided by Safeco) 1) raised the possible negligent procurement claim to the estate during negotiations and 2) recommended an insurance lawyer to the estate, if the estate wanted to accept the negligent procurement claim against Smith place.
In a very generous reading of Endurance’s arguments during the trial, it basically says that Safeco acted through the lawyer it gave to Smith, which ultimately caused Comegys to voluntarily settle the estate without Comegys acknowledging any wrongdoing. Endurance argued, since Comegys had settled with the estate as a volunteer, Safeco must now reimburse Comegys even though Comegys never admitted any responsibility.
Endurance’s position was that Endurance equates Smith’s lawyer’s actions with Safeco’s actions. However, the two are not the same. Safeco was bound by the terms of the limited agreement. Smith’s lawyer, on the other hand, was not obligated to protect Comegys in any way. Smith’s attorney had a duty to zealously represent, which is exactly what he gave Smith when he settled with the estate. Smith’s lawyer acted on behalf of Smith, not on behalf of Safeco.
The next problem with Endurance’s argument is that by looking at the clear (and clear) language of the limited agreement between Comegys and Safeco, it can not be read that it in any way, form or form covers how Safeco finally insures its policyholders.
Finally, Endurance’s breach of contract claim is due to the fact that the indemnity provision protects Comegys from any liability or loss arising as a result of Safeco’s breach. The problem for Comegys is that in its settlement agreement with the estate specifically dismissed all responsibility, and it has not proved that it has lost anything because of Safeco’s actions.
As the compensation provision between Safeco and Comegys is dependent on Comegys having some form of liability or showing that Safeco’s actions caused a loss, Safeco is not liable when Comegys is a volunteer in the settlement. A court cannot create coverage of whole fabric where it would not otherwise exist.
The Eleventh Circuit concluded that it refused to punish Safeco for Comegy’s voluntary payment to the estate. Even if Comegys had been negligent and that fact had been proven in court by the estate, the eleventh district would still refuse to hold Safeco responsible for Comegys’ own alleged negligence because Florida requires that type of arrangement be clearly stated in the contract. Safeco was therefore entitled to a judgment under law. The case is remanded for the introduction of a judgment in favor of Safeco.
Comegys convinced a jury that an attorney appointed by an insurer to defend an insured is the insurer when in fact the attorney is hired only to defend the insured, Smith, to the best of his ability. The lawyer’s actions, which work to best defend Smith, can not be claimed as a crime against another. Comegys convinced the jury but could not convince the eleventh circle because, unlike the lawyer for Comegys and the jury, it read the contract.
(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 bad faith 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 email@example.com.
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