Opinion
Case No. 05-80230-CIV-HURLEY.
April 4, 2006
THIS CAUSE involves an insurance coverage dispute between plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul") and Lexington Insurance Company ("Lexington"). Currently pending before the court is the defendant's motion for summary judgment addressing whether St. Paul or Lexington is responsible for cove ring a personal injury claim lodged against Arbern Investors, III, L.P. ("Arbern") and Stoltz Management Co., Inc. ("Stoltz"), mutual insureds of these carriers.
I. Background
Arbern Investors, III, L.P. ("Arbern") is the owner of certain commercial real property located at 7000 West Palmetto Park Road in Boca Raton, Florida. Stoltz Management Co. Inc. ("Stoltz") is the property manager of this realty.
Arbern leased a suite in the building located at this address to Boca Boston Enterprises, Inc. ("Boca Boston"), which in turn subleased the space to Cousins Club Corporation d/b/a Club Boca. ("Club Boca"). Club Boca operated a night club in this space.
In the master lease and sub-lease, the lessee (Boca Boston) and sub-lessee (Club Boca) agreed to indemnify the lessor (Arbern) and its agents and employees (Stoltz) against all claims for damages arising out of any personal injury occurring on the premises, and for all attorneys' fees and costs which might be incurred in the event of a damage suit. The lease agreement and sub-lease agreement also required the lessee/sub-lessee to obtain general liability insurance with minimum bodily injury liability limits of $1,000,000.00/$2,000,000.00 for itself, and to name Arbern and Stoltz in the policy as additional insureds.
The master lease provides in pertinent part:
LESSEE agrees to indemnify and hold LESSOR harmless from and against any and all loss, damage, claim, demand, liability or expense by reason of any damage or injury to persons (including loss of life) or property which may arise or be claimed to have arisen as a result of or in connection with the occupancy or use of the Demised Premises or Building by LESSEE. LESSEE shall, at its sole expense, provide and maintain in force during the entire term of this Lease, and any extension or renewal thereof, public liability insurance with limits of coverage not less than one million and no/100 dollars ($1,000,000.00) for injury to any one (1) person from any one (1) accident. If "claims made form insurance" is adopted in Florida, then the limits above shall be the aggrerate (sic) limits. Each policy of insurance shall name the LESSOR as an additional insured. Each such liability insurance policy shall be of the type commonly know as Owner's, Landlord's and Tenant's Insurance and shall be obtained from a company with at least a Best B+ rating or equivalent if no Best rating is available.
The sub-lease provides in pertinent part at ¶¶ 6, 7:
6. Insurance:
During the term of this sublease, sublessee shall keep in force, at its own cost and expense, comprehensive public liability insurance in companies acceptable to landlord and Sublessor (rated as Best B+ or better), encumbering Landlord's property with minimum limits of $1,000,000.00 on account of bodily injury or death of any person and $2,000,000.00 in the aggregate. In addition, Sublessee shall maintain not less than $1,000,000.00 or the equal of replacement value of the improvements, furniture, fixtures and supplies of the business known as Club Boca. Each such liability insurance policy shall be of the type commonly known as Landlord's and Tenant's Insurance and shall name Landlord, Sublessor, its officers and assigns, and any mortgagee as an additional named insured party. . . . .
7. Indemnification. Sublessee hereby indemnifies and holds Sublessor, Landlord and their respective agents and employees harmless from and against any and all claims, actions damages liabilities and expenses (including attorneys' fees through appellate proceedings) in connection with the loss of life, personal injury or damage to property occurring in, on or about the Premises and adjacent sidewalks, decks, platforms or areas used and maintained by Sublessee in conjunction with the business, and Sublessee hereby acknowledges that it shall be primarily responsible to pay all costs, expenses and attorneys' fees incurred by Sublessor and Landlord in connection with any such claim, demands or damage; provided however that in no event shall landlord or Sublessor be indemnified or held harmless by Sublessee, or be exonerated, from any liability or expense or attorney fees for any injury, loss, damage or liability to the extent that such injury, loss, damage or liability is the result of negligence or willful misconduct on the part of Landlord or Sublessor or their agents or employees.
A. The Insurance Policies
Accordingly, Club Boca obtained a comprehensive general liability (CGL) policy from Lexington which named both Arbern and Stoltz as additional insureds. The Lexington policy carries a per occurrence liability limit of $1,000.000.00 and aggregate limit of $2,000,000.00.The general insuring clause of the Lexington policy at Section I., Coverage A. ("Bodily Injury and Property Damage Liability"), ¶ 1.a., extends coverage for "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." Although this section contains an exclusion for "bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement," [Section I., Coverage A. ¶ 2.b.] an exception to this exclusion exists if the liability charged is assumed in a contract which constitutes an "insured contract," and the bodily injury or property damage giving rise to that liability occurs after the execution of that contract or agreement.
Section 1, Coverage A., ¶ 2 b., captioned "Exclusions," provides in relevant part:
2. Exclusions
This insurance does not apply to:
. . . .
b. "Bodily injury" or property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:
(1) Assumed in a contract or agreement that is an "insured contract," provided the "bodily injury" or property damage" occurs subsequent to the execution of the contract or agreement; or
(2) That the insured would have in the absence of the contract or agreement.
It is undisputed that the lease and indemnification agreement between Arbern and Boca Boston, and the sub-lease and indemnification agreement assumed by Club Boca, are "insured contracts" within the meaning of that clause, and that the liability loss charged here — occurring after the execution of the indemnification agreements — is captured under the insuring clause of the Lexington policy. [See Lexington policy, Section VI, ¶ 6 ("Definitions").]
Section VI., ¶ 6. provides:
6. "Insured contract" means:
a. A lease of premises;
. . . .
f. That part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
Arbem and Stoltz also carried independent liability coverage under a CGL policy issued by St. Paul which provided $1,000,000.00/$2,000,000.00 limits of liability. Both the St. Paul and Lexington policy contain virtually identical "other insurance" clauses which provide that an apportionment shall be made if the insured has other insurance against a loss covered by the policy. Each policy also recites it is primary, except that it is excess over valid and collectible insurance covering certain specified risks which do not apply here.
The St. Paul policy provides:
Other Insurance
This agreement is primary insurance. If there is any other valid and collectible insurance for injury or damage covered by this agreement, the following applies:
Other primary insurance. When there is other primary insurance, we'll share any damages with that insurance using one of the methods of sharing described in the methods of sharing section.
However, we'll apply this agreement as excess insurance over any part of any other insurance which provides:
• property or similar coverage for property damage to your work
• coverage for property damage to premises you rent, lease or borrow from others or
• coverage for bodily injury or property damage that results from the maintenance use operation or loading or unloading of any auto, aircraft or water craft that's not specifically excluded by the Auto, Aircraft or Water craft exclusions.
We explain how we'll apply this agreement as excess insurance in the Excess insurance section.
[ Excess Insurance Section omitted]
Methods of sharing. We'll use one of the method of sharing described below:
Contribution by equal shares.
If all of the other insurance permits contribution by equal shares, we'll share the damages equally. But we won't pay more than the limits of coverage that apply under this agreement. If any policy reaches its limit before the entire amount of damages is paid, the remaining policies will share the balance equally until their limits have been used up or the amount of the damage is paid in full.
(examples omitted)
Contribution by equal limits.
If any of the other insurance doesn't permit contribution by equal shares, we'll pay that portion of the damage equal to our percentage of the total of all limits that apply. But we won't pay more than the limits of coverage that apply under this agreement. (examples omitted)
4. Other Insurance.
Excess Insurance Section Omitted
The Lexington "excess insurance" clause [Section IV., ¶ 4.b] applies where other insurance covers fire, extended coverage, builder's risk, installation risk, or similar coverage for "your work"; if other insurance is fire insurance for premises rented by the insured; or if the loss arises out of maintenance or use of an aircraft, auto or watercraft not otherwise excluded by the policy.
The St. Paul "excess insurance" clause [St. Paul Policy, p. 15] applies where any part of any other insurance provides property or similar coverage for property damage to the insured's work; coverage for property damage to premises rented, leased or borrowed from others, or if the other insurance provides coverage for bodily injury or property damage that results from the maintenance, use, operation or loading or unloading of any auto, aircraft, or watercraft that is not otherwise specifically excluded from coverage.
B. The Silva Tort Claim
On November 3, 1997, Carlos Silva suffered a severe brain injury as a result of his participation in an amateur boxing match hosted by Club Boca. On January 29, 1998, Mr. Silva, through his legal guardian and attorneys, demanded two million dollars from Lexington to settle his negligence claim against all of the Lexington insureds (Club Boca, Arbern and Stoltz). Lexington rejected the demand, without notifying Arbern and Stoltz of its existence.On January 21, 1999, Silva filed suit against all three Lexington insureds in Palm Beach County Circuit Court. Arbem and Stoltz initially looked to Lexington to defend them against the claim. When Lexington declined to defend or indemnify, Arbern and Stoltz turned to St. Paul. St. Paul defended and, on February 22, 2001, ultimately contributed $1,000,000.00 toward a $1.8 million dollar settlement which fully released Arbern and Stoltz from all liability on the claim. At this point in time, the Lexington policy limits remained fully intact.
Mr. Silva's remaining claim against Club Boca then proceeded to trial, culminating in a $12.5 million dollar jury verdict in his favor on April 3, 2001. After certain set offs, an $8.9 million final judgment entered against Club Boca on October 18, 2001. Approximately three years later, Lexington paid $8,965,518.28 in full satisfaction of that judgment on behalf of Club Boca, together with $83,000 paid in satisfaction of a separate cost judgment, all as recited in satisfactions of judgment executed January 31, 2005 by the legal guardians of Mr. Silva which are recorded in the public records of the State of Florida, Palm Beach County Clerk of Court.
C. St. Paul's Subrogation Claim
On February 22, 2005, St. Paul filed this action against Lexington seeking reimbursement for the entire amount it paid defending and indemnifying Arbern and Stoltz against the Silva claim. In its now operative second amended complaint, it asserts an equitable subrogation claim against Lexington whereby, as subrogee standing in the shoes of its insureds, Arbern and Stoltz, it seeks to enforce the indemnification agreement contained in the lease agreement and sub-lease agreement executed by Boca Boston and Club Boca respectively.
It acknowledges that the "other insurance" clauses contained in both the St. Paul and Lexington policies of insurance ordinarily would result in St. Paul and Lexington sharing equally the indemnity payments made on behalf of Arbern and Stoltz (Second Amended Complaint, ¶ 45), but contends that in this case the entire loss is properly transferred to Lexington by operation of the indemnification agreement between Arbern, as landowner/lessor and Club Boca, as tenant/sublessee (Complaint, ¶ 46, 47). Because this indemnity agreement is an "insured contract" within the meaning and coverage of the Lexington policy, it further alleges that Lexington had a contractual duty to accept primary responsibility to defend and indemnify Arbern and Stoltz against the Silva claim (Complaint, ¶ 50) and that Lexington breached that duty when it wrongfully failed and refused to defend and indemnify them at a time when its policy limits were still intact. (Second Amended Complaint, ¶¶ 51-53).
D. Lexington's Motion for Summary Judgment
In its now pending motion for summary judgment, Lexington argues that St. Paul fails to state a viable conventional or equitable subrogation claim against it because the St. Paul policy of insurance expressly allows for rights of subrogation only where excess insurance is extended under the policy.
Both parties recognize that this motion effectively reiterates the substance of Lexington's still pending motion to dismiss directed to the second amended complaint. [DE# 38] Both motions are accordingly resolved by this omnibus order.
The St. Paul policy recites in relevant part, at page 15 of 16, under "Other Insurance," subsection "Excess Insurance":
When this agreement is excess insurance, we'll have no duty to defend any claim or suit. However, we'll defend a claim or suit for covered injury or damage if the other insurers won't. In return we'll require that the protected persons give us all of their rights against those insurers.
In addition, it maintains that both policies extend primary insurance over the Silva claim, and, while acknowledging that an equal allocation of loss liability might otherwise be available by way of a contribution action against a co-primary insurer who pays nothing or less than its equal share on a particular loss, in this particular case it contends St. Paul has no right of contribution against it because Lexington has already exhausted its policy limits in the defense and indemnification of its named insured, Club Boca.
II. Discussion A. Summary Judgment Standard of Review
Summary judgment is appropriate if the pleadings, depositions and affidavits, viewed in the light most favorable to the non-moving party, demonstrate that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Swain v. Hillsborough County School Board, 146 F.3d 855 (11th Cir. 1998). To defeat a motion for summary judgment, the nonmoving party may not rely on 'mere allegations,' but must raise 'significant probative evidence' that would be sufficient for a jury to find for that party. La Chance v. Duffy's Draft House, Inc., 146 F.3d 832, 835 (11th Cir. 1998). Summary judgment is appropriate "where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." Williams v. Vitro Servs. Corp, 144 F.3d 1438, 1441 (11th Cir. 1998).
B. Issues for Determination
It is uncontested that both policies cover the Silva liability loss; that both policies provide primary coverage and that both contain substantially identical "other insurance" clauses; that St. Paul defended and indemnified the mutual insureds (Arbern and Stoltz), while Lexington did not; that all three Lexington insureds (Arbern, Stoltz and Club Boca) were named as defendants in the Silva suit at the time Arbern and Stoltz demanded a defense from Lexington, and that the Lexington policy limits were fully intact at that time.The question presented is whether, under the circumstances of this case, and specifically, under operation of the express indemnity agreement between the insureds, the policies do not provide coverage at the same level, but rather, the coverage of St. Paul functionally becomes "excess" to that provided under the Lexington policy. Assuming St. Paul is entitled to indemnity, it would then have a right of equitable subrogation against Lexington for the full amount of the earlier settlement and defense costs paid on behalf of Stoltz and Arbern, and the only remaining issue is whether Lexington's exhaustion of policy limits is a valid affirmative defense to such claim.
C. Insurance Law 1. Florida law
In this diversity action, Florida's substantive law governs the interpretation of the commercial general liability policies at issue. Provau v. State Farm Mut. Auto Ins. Co., 772 F.2d 817 (11th Cir. 1985) (holding that, under Erie Railroad v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), federal court hearing diversity action must apply the controlling substantive law of the state, and construction of insurance contracts is governed by substantive state law).
2. Primary Excess Coverage
There are two levels of insurance coverage, primary and excess. "Primary coverage" exists where, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability. Excess or secondary coverage coverage exists where, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage has been exhausted. See King v. Guaranty Nat. Ins. Co., 440 So.2d 607 (Fla. 3d DCA 1983), citing Olympic Ins. Co. v. Employers Surplus Lines Ins. Co., 126 Cal. App. 3d 593, 178 Cal. Rptr. 908 (1981).3. Other Insurance Clauses
Most insurance policies contain "other insurance" clauses that attempt to limit the insurer's liability to the extent that other insurance covers the same risk. Such clauses attempt to control the manner in which each insurer contributes to or shares a covered loss. See generally Twin City Fire Ins. Co. v. Fireman's Fund Ins. Co., 386 F. Supp. 2d 1272 (S.D. Fla. 2005).
As a general proposition, where each of two liability insurance policies issued by different carriers provides primary coverage to the same insured and the policies contain mutually consistent "other insurance" provisions similar to those found in the policies at issue here, the insurer paying more than its share of the claim is ordinarily entitled to recover from the other insurer for the excess so paid. See e.g. Employers Cas. Co v. Employers Commercial Union Ins. Co., 632 F.2d 1215 (5th Cir. 1980) (Ala. law).
However, this general rule is subject to an exception where a right of indemnification exists between the parties insured under the respective policies of insurance, especially where — as here — one of the policies happens to cover the indemnity obligation. In this circumstance, a clear majority of jurisdictions give controlling effect to the indemnity obligation of one insured to the other insured over the "other insurance" or similar clauses in the policies of insurance. See American Indemnity Lloyds v. Travelers Property Casualty Ins. 335 F.3d 429 (5th Cir. 2003) (Tex. law), citing 15 Couch on Insurance (3d Ed. 1999). See also Wal-Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d 583 (8th Cir. 2002) (Ark. law); St. Paul Fire Marine v. American Int'l Specialty Lines Ins. Co. 365 F.3d 263 (4th Cir. 2004) (Va. law); Liberty Mutual Ins. Co v. Zurich Ins. Co. 2005 WL 3448037 (D. Md. 2005); J. Walters Construction Co. v. Gilman Paper Co., 620 So.2d 219 (Fla. 1st DCA 1993) (Ga. law); Rossmoor Sanitation, Inc., 13 Cal. 3d 622, 532 P.2d 97, 119 Cal. Rptr. 449 (Cal. 1975).
On the other hand, a controlling indemnification agreement presumes that the party asserting the right of indemnity is only passively liable for the loss in question. An insurer of a vicariously liable party is not entitled to indemnity if that party is also a joint tortfeasor, because there is no indemnity between joint tortfeasors. See Allstate Ins. Co. v. Executive Car Truck Leasing, 494 So.2d 487 (Fla. 1986); Allstate Ins. Co. v. Fowler, 480 So.2d 1287 (Fla. 1985). Further, the insurer of a vicariously liable party has no right of identification if it also insures actively negligent party as additional insured, because an insurance company cannot sue its own insured for indemnity. Lumbermen's Mut. Cas. Co. v. Morgan, 513 So.2d 1283 (Fla. 4th DCA 1987) ("other insurance" clause in an insurance policy can be disregarded only if the insurer of the vicariously liable party is also entitled to indemnity).
Finding several Florida cases in general accord with the principles underlying this tenet, the court believes Florida would follow this prevailing view. For example, without specifically discussing the impact of conflicting "other insurance" clauses, Florida cases have consistently recognized that where a loss is covered by two or more primary policies of insurance, the operation of an indemnification agreement between the common insureds has the result of shifting responsibility for the entire loss to the carrier for the indemnitor. See e.g. Continental Casualty Co. v. City of South Daytona, Florida, 807 So.2d 91 (Fla. 5th DCA 2002) (little league association's specific and contractual obligation of indemnification in favor of city shifted entire exposure of loss from city's own liability insurer to association's liability insurer, such that association's insurer had primary obligation to defend city in tort action arising out of use of association's use of city facilities); American Home Assurance Co. v. City of Opa Locka, 368 So.2d 416 (Fla. 3d DCA 1979) (where city was vicariously liable for negligence or intentional tort of city police officer, city had right to indemnification for judgment and expenses from officer, and therefore, from his insurance carrier; thus, as city's subrogee, city's general liability insurer entitled to recover for indemnification against officer's insurance carrier). See also Crabtree v. Hertz Corp., 461 So.2d 981 (Fla. 1st DCA 1984) (insuring agreements made by owner/lessor with respect to its primary liability vis-a-vis other insurance available to lessee will be enforced in accordance with intention of lessor and lessee as clearly expressed in their contract).
South Daytona distinguishes Argonaut Ins. Co v. Maryland Cas Co. 372 So.2d 960 (Fla. 3d DCA 1979), holding that an insurer is not entitled to recover from another insurer the costs of defending a mutual insured, on the basis that Argonaut addresses issue of equitable subrogation among insurers where there is no contract of indemnification between the insured parties. This same distinction renders Argonaut inapposite to the instant case.
Moreover, the Florida Supreme Court has signaled that an "other insurance" clause in a policy of liability insurance may be disregarded where indemnity agreements lie between different insureds, provided that the insurer of the vicariously liable party is in fact entitled to indemnity. Allstate Ins. v. Fowler, 480 So.2d 1287 (Fla. 1985). There is also at least one Fifth Circuit opinion applying Florida law which is consistent with this approach. See e.g. Aetna Ins. Co. v. Fidelity Cas. Co. of New York, 483 F.2d 471 (5th Cir. 1973) (5th Cir. 1973). In Aetna, an insulation installer was contractually required to indemnify a retail grocer, Winn Dixie, for any claim arising out of the activity of the installer occurring on the merchant's premises. Winn Dixie was sued and later paid a tort judgment entered against it. In a separate suit, it recovered judgment against the insulator based on the indemnity agreement. The insulator's liability carrier paid the full amount of that judgment, then brought suit against Winn Dixe's liability carrier in attempt to recover half the payment. Applying Florida law, the Fifth Circuit held that the paying carrier of the indemnitor was not entitled to recover in contribution against the non-paying carrier of the indemnitee because the indemnity agreement between the insureds takes precedence and controls all the rights and obligations of the parties and their privies (the insurers). " Id. at 473.
That is, as discussed in f.n. 10 supra, where the vicariously liable party is not a joint tortfeasor, and where the insurer of the vicariously liable party does not also insure the actively negligent party as an additional insured. See Allstate v. Fowler, 480 So.2d at 1290.
4. Equitable Subrogation
Subrogation is defined as the substitution of another person in place of the creditor or claimant to whose rights he or she succeeds in relation to the debtor's claim. By undertaking to indemnify or pay the principal debtor's obligation to the creditor or claimant, the "subrogee" is equitably subrogated to the claimant (or subrogor) and succeeds the subrogor's rights against the obligor. See Travelers Cas. Surety Co. v. American Equity Ins. Co., 93 Cal. App. 4th 1142, 113 Cal. Rptr. 2d 613 (2001).
The doctrine of equitable subrogation, or "legal" subrogation, refers to subrogation by operation of law, and is distinct from "conventional" subrogation, which arises under an express or implied agreement. It is a well established concept under Florida law; in the insurance context, it takes the form of an insurer's right to be put in the position of the insured in order to pursue recovery from third persons legally responsible to the insured for a loss which the insurer has both insured and paid. Ranger Ins. v. Travelers Ins., 389 So.2d 272 (Fla. 1st DCA 1980). In this sense, the subrogated insurer is said to "stand in the shoes" of its insured, from whom it derives all of its rights. Phoenix Ins. Co. v. Fla. Farm Bureau Mut. Ins. Co., 558 So.2d 1048 (Fla. 2d DCA 1990).
Where there are multiple layers of coverage, equitable subrogation allows an insurer that has paid coverage or defense costs to be placed in the insured's position to pursue a full recovery from another insurer who was primarily responsible for the loss. Unlike the right of contribution which typically applies to permit an allocation of loss between co-primary insurers or obligors, the right of equitable subrogation allows the entire loss to shift, typically from an excess carrier to a primary one. For example, through a right of equitable subrogation, an excess carrier may bring claim against a primary carrier for bad faith failure to settle within policy limits, even though the primary carrier may have kept the mutual insured apprised of the case and obtained his consent to go to trial. See e.g. United States Fire Ins. Co v. Morrison Assurance Co., 600 So.2d 1147 (Fla. 1st DCA), rev. dism., 604 So.2d 489 (Fla. 1992).
D. Application of Equitable Subrogation
Applying these tenets here, the court agrees that the indemnity clause contained in the lease and sublease running in favor Arbern and Stoltz renders the St. Paul's coverage "excess" to that provided under the Lexington policy, allowing St. Paul to effectively "follow" the Lexington coverage. See Allstate Ins. Co. v. Fowler, 480 So.2d 1287 (Fla. 1985) (insurer of party who is only vicariously liable and entitled to indemnity is entitled to follow insurer of actively negligent party, despite fact that insurance policy issued to active tortfeasor contained "other insurance" clause).
Accordingly, St. Paul, as subrogee of Arbern Stoltz, has a right of indemnification from Club Boca, and therefore, from Lexington as Club Boca's primary liability carrier. See Continental Casualty Co. v. City of South Daytona, Florida, 807 So.2d 91 (Fla. 5th DCA 2002); American Home Assurance Co. v. City of Opa Locka, 368 So.2d 416 (Fla. 3d DCA 1979). See also Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal 3d 622, 119 Cal. Rptr. 449, 532 P.2d 97 (1975) (landowner's insurer was subrogated to indemnification rights of owner for full amount of judgment paid on owner's behalf, notwithstanding terms of "other insurance" clauses in policies of owner and contractor). As the Rossmoor court reasoned:
[T]o apportion the loss in this case pursuant to the other insurances clauses would effectively negate the indemnity agreement and impose liability on [the land owner's insurer] when [the owner] bargained with [the contractor] to avoid that very result as part of the consideration for the construction agreement. We therefore conclude that the rights of indemnity and subrogation must control.Rossmoor, 13 Cal. 3d at 632; 532 P.2d at 103; 119 Cal. Rptr. at 455.
E. Policy Limits Defense
Lexington alternatively claims that any obligation it has to indemnify St. Paul in whole or in part for liabilities arising out of the subject indemnification agreement is limited, and in this case, extinguished by the fact that Lexington more than exhausted its policy limits by satisfying the $8.9 million dollar judgment entered against Club Boca, its named insured.
Because the Lexington policy limits remained fully intact at the time Arbern and Stoltz demanded a defense and indemnity from Lexington and at the time St. Paul ultimately settled the Silva claim against them, Lexington's subsequent exhaustion of its policy limits on behalf of Club Boca, the named insured does not necessarily excuse the asserted earlier breach of its duty to defend and indemnify the additional insureds. Cf. Western Alliance Ins. Co. v. Northern Ins. Co. of New York, 176 F.3d 825 (5th Cir. 1999) (Tex. law) (primary liability carrier could not exhaust policy limits on behalf of building owner and thereby avoid duty to indemnify building manager, when manager was named as party to action when it demanded indemnity and primary policy limits were not exhausted at that time) with Underwriters Guar. Ins. Co v. Nationwide Mut. Fire Ins. 578 So.2d 34 (Fla. 4th DCA 1991) (absent allegation of bad faith in settlement handling, insurer relieved of duty to defend after it paid its policy limits). See also Nationwide Mutual Ins. Co. v. Nationwide Mutual Ins. Co., 643 So.2d 551, 561 (Ala. 1994).
Through its right of subrogation, St. Paul stands in the shoes of its insureds and assumes the rights of those insureds. Ranger Ins. Co v. Traveler's Indemnity Co., supra. The insured's rights include the right to be advised of settlement opportunities; the probable outcome of the litigation; the risk of excess judgment; and the steps which might be taken to avoid an excess judgment. Boston Old Colony Ins. Co. v. Gutierrez, 386 So.2d 783 (Fla. 1980).
Accordingly, Lexington as the primary carrier here was obligated to conduct the defense of all of its insureds in good faith, and, at a minimum, to give notice to St. Paul as the following carrier of the critical aspects of the case as it progressed. United States Fire Ins. Co v. Morrison Assurance Co., 600 So.2d 1147, 1151 (Fla. 1st DCA), rev. dism. 604 So.2d 489 (Fla. 1992). St. Paul, through its right of equitable subrogation, may accordingly maintain this action to contest the reasonableness of Lexington's refusal to defend and indemnify Arbern and Stoltz at a time when both were named as party defendants in the Silva lawsuit, and the policy limits of the Lexington policy were fully intact. Id.; See also Contreras v. U.S. Security Ins. Co., ___ So.2d ___, 2006 WL 708567 (Fla. 4th DCA March 22, 2006) (as matter of first impression, insurer could be held liable for bad faith based on refusal to pay reasonable settlement demand to obtain release of one of its two insureds, where claimant refused to settle with other insured); Farinas v. Fla. Farm Bureau Gen. Ins. Co., 850 So.2d 555 (Fla. 4th DCA 2003) (finding material issue of fact as to whether auto insurer was reasonable in settling some claims against insured and not others before exhausting policy limits of $100,000 per person and $300,00 per accident in bad faith claim brought by non-settling claimants).
III. Decretal Provisions
In light of the foregoing, it is ORDERED AND ADJUDGED:
1. The defendant's motion to dismiss the second amended complaint [DE# 38] is DENIED.
2. The defendant's motion for summary judgment [DE# 30] is DENIED.
3. Pursuant to United States v. Morrison Assurance Co., 600 So.2d 1147 (Fla. 1st DCA 1992), St. Paul is given leave to amend its complaint to restore its previously lodged bad faith claims under theory of equitable subrogation based on Lexington's failure to defend and settle the Silva claim against the carriers' mutual insureds within policy limits at a time when those limits remained intact, notwithstanding Lexington's subsequent exhaustion of policy limits in satisfaction of the judgment ultimately obtained against its named insured.
The court previously held, based on the allegations of St. Paul's original complaint, that St. Paul did not allege facts triggering its obligations under excess insurance clause, and therefore had no standing to assert, as subrogee of Arbern and Stoltz, any derivative bad faith claim against Lexington. [See Order Granting Lexington's Motion to Dismiss Complaint entered July 20, 2005].
Finding that the second amended complaint does allege facts which would potentially allow St. Paul to follow Lexington as the insurer of the actively negligent party, despite the existence of "other insurance" clauses contained in both policies, see Allstate v. Fowler, 480 So.2d 1287 (Fla. 1985), the court now revisits this earlier ruling and, to the extent of any inconsistency, vacates it.
4. Plaintiff shall have TEN (10) DAYS from the date of entry of this order within which to amend its complaint in accordance with the foregoing, and defendant shall have TWENTY (20) DAYS From the date of entry of this order within which to file its answer to the plaintiff's complaint.
5. Further, the parties are given notice that the court now sua sponte initiates proceedings for entry of PARTIAL SUMMARY JUDGMENT against the defendant Lexington Insurance Co. on St. Paul's equitable subrogation claim for indemnification on grounds that (1) By operation of the indemnification agreement between the named and additional insureds covered under the Lexington policy, and its right of indemnity, St. Paul is entitled to follow the primary coverage extended under the Lexington policy; (2) Through its rights of equitable subrogation, St. Paul is is entitled to indemnity against Lexington for the full amount of settlement monies and defense costs which it paid on behalf of Arbern and Stoltz.
Whether Lexington's exhaustion of policy limits operates as a bar or affirmative defense to such a claim turns on the reasonableness of its decision to obtain a release and satisfaction of the claim against its named insured, Club Boca, but not is additional insureds, Arbern and Stoltz, under the facts of this particular case. Because this is a fact sensitive determination, it is reserved for determination at trial and not included as an issue for determination by summary judgment.
The parties are invited to submit supplemental evidence and briefs addressing these issues within TWENTY (20) DAYS from date of entry of this order.
DONE AND ORDERED