Third District Court of Appeal

State of Florida

Opinion filed August 23, 2017.

Not final until disposition of timely filed motion for rehearing.

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No. 3D15-2750

Lower Tribunal No. 14-29169

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GEICO General Insurance Company,

Appellant,

vs.

Barry Mukamal, as court-appointed receiver for Carlos Lacayo;

and Kathleen Kastenholz and Michael Kastenholz, as co-personal

representatives of the Estate of Emerson Michael Kastenholz,

Appellees.

An Appeal from the Circuit Court for Miami-Dade County, Rosa I.

Rodriguez, Judge.

Shutts & Bowen, LLP, Stephen T. Maher, Frank A. Zacherl, and Alfredo L.

Gonzalez, Jr., for appellant.

Deutsch & Blumberg, P.A. and Edward R. Blumberg; James C. Blecke;

Tabas, Freedman, Soloff, P.A. and Joel L. Tabas and Joshua D. Silver; Michael

Seth Cohen; Easley Appellate Practice, PLLC, and Dorothy F. Easley, for

appellees.

Before ROTHENBERG, C.J., and FERNANDEZ, and LOGUE, JJ.

FERNANDEZ, J.
GEICO General Insurance Company appeals from two final summary

judgments entered in favor of appellees Kathleen and Michael Kastenholz, and

appellee Barry Mukamal who is the court-appointed receiver for Carlos Lacayo, on

the claim for declaratory judgment. We affirm the judgments, concluding that

insurance coverage existed as a matter of law because there was no genuine issue

of material fact that GEICO failed to comply with the Claims Administration

Statute, section 627.426, Florida Statutes (2015). 

The Kastenholzes sued Lacayo for the wrongful death of their son that

resulted from an automobile accident. GEICO first notified Lacayo of its

reservation of rights to deny coverage because Lacayo was not listed as a driver

under the insurance policy. Lacayo absconded and his whereabouts are unknown. 

GEICO thereafter notified Lacayo of its reservation of rights because Lacayo failed

to cooperate with GEICO’s investigation. GEICO issued numerous other

reservation of rights letters. GEICO represented Lacayo for a period of years and

throughout post judgment proceedings. The jury ultimately returned a verdict for

$15,350,000 in favor of the Kastenholzes. The trial court entered final judgments

consistent with the jury’s verdict. GEICO subsequently sought to decline coverage

based on the coverage defense of breach of cooperation. 

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GEICO’s coverage defense failed to comply with the requirements of the

Claims Administration Statute. The plain and unambiguous language of section

627.426 states:

(2) A liability insurer shall not be permitted to deny

coverage based on a particular coverage defense unless:

(a) Within 30 days after the liability insurer knew or

should have known of the coverage defense, written

notice of reservation of rights to assert a coverage defense

is given to the named insured by registered or certified

mail sent to the last known address of the insured or by

hand delivery; and

(b) Within 60 days of compliance with paragraph (a) or

receipt of a summons and complaint naming the insured

as a defendant, whichever is later, but in no case later than

30 days before trial, the insurer:

1. Gives written notice to the named insured by registered

or certified mail of its refusal to defend the insured;

2. Obtains from the insured a nonwaiver agreement

following full disclosure of the specific facts and policy

provisions upon which the coverage defense is asserted

and the duties, obligations, and liabilities of the insurer

during and following the pendency of the subject

litigation; or

3. Retains independent counsel which is mutually

agreeable to the parties. Reasonable fees for the counsel

may be agreed upon between the parties or, if no

agreement is reached, shall be set by the court.

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(Emphasis added).

 GEICO did not comply with the written “refusal to defend” through

registered or certified mail, pursuant to section (2)(b)1. GEICO instead defended

Lacayo. Neither did GEICO comply with sections (2)(b)(2), (3). GEICO could

not obtain from Lacayo a “nonwaiver agreement” or “retain[] independent counsel

which [was] mutually agreeable to the parties” because Lacayo had absconded and

GEICO did not know of Lacayo’s whereabouts. The trial court’s entry of

summary judgments against GEICO was therefore proper.

Affirmed.

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Geico General Insurance Co. v. Barry Mukamal, etc. et al.

Case No. 3D15-2750

ROTHENBERG, C.J. (specially concurring).

Although I agree that the result articulated in the majority opinion is

mandated by the clear and unambiguous language of section 627.426, Florida

Statutes (2015), I write to expose what appears to be an unintended consequence of

the literal interpretation of the statute that, in this case, defeats the very purpose of

the statute. I also write to invite the Legislature to review and amend the statute to

reflect the Legislative intent.

Carlos Lacayo was involved in a traffic accident while driving intoxicated,

resulting in the death of five individuals. The vehicle Lacayo was driving was

owned by Lacayo’s mother and insured by Geico General Insurance Company

(“Geico”). On March 9, 2011, four days after the accident, Geico sent a

reservation of rights letter to Lacayo advising him that, while it was providing him

with a defense, Geico was reserving its right to deny coverage because he was not

listed as a driver on the policy. On March 10, 2011, an attorney from Cole Scott

and Kissane, P.A. (“Cole Scott”) wrote to Lacayo’s mother, advising her that

Geico had appointed the firm to represent her and her son. This letter included a

statement of the insured client’s rights.

Thereafter, Lacayo and his mother met with a lawyer from Cole Scott,

discussed the case with the lawyer, and signed financial and insurance affidavits

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and an authorization for disclosure of protected health information, identifying the

Cole Scott lawyer as counsel for Lacayo. Several weeks later, Lacayo signed

another authorization for disclosure of protected health information, which again

identified the Cole Scott lawyer as counsel for Lacayo.

The personal representatives, on behalf of the estates, filed a wrongful death

action (“the plaintiffs”). Discovery ensued, and both Lacayo and his mother

attended a litigation settlement conference.

On June 7, 2011, facing arrest for DUI manslaughter, Lacayo fled the

jurisdiction, and his whereabouts remain unknown. Based on Lacayo’s flight and

failure to cooperate, Geico sent numerous additional reservation of rights letters

but continued to represent Lacayo and provided him with a defense. Lacayo did

not return any of Geico’s phone calls, appear for deposition, or answer

interrogatories, which resulted in Lacayo’s pleadings being stricken for his failure

to comply with discovery.

In September 2012, the plaintiffs made a settlement offer of $100,000, the

policy limit. Because Cole Scott had not had any communications with Lacayo,

had no knowledge of his whereabouts, and had no authority to accept the

settlement offer, the case proceeded to trial, and the jury returned a verdict of

$15,350,000 in favor of the plaintiffs. No appeal of the judgment was filed on

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Lacayo’s behalf, however, Cole Scott did represent Lacayo at various postjudgment proceedings.

Thereafter, the plaintiffs and the court-appointed receiver for Lacayo (“the

appellees”) filed a lawsuit against Geico alleging Geico exercised bad faith in its

handling of the claims and its obligations under the insurance contract. Because no

final determination of coverage had been made, Geico filed a declaratory judgment

against the appellees in the United States District Court, and the appellees amended

their complaint in their bad-faith action to address the issue of coverage.

Ultimately, the coverage issue was decided by the trial court after the federal

district court dismissed Geico’s federal coverage action on abstention grounds. 

The trial court granted summary judgment in favor of the appellees on the

coverage issue based on its finding that Geico did not comply with the expressly

listed methods of compliance with section 627.426(2)(b), the Claims

Administration Statute. Specifically, Geico did not deny coverage, obtain a nonwaiver agreement from Lacayo within sixty days of its reservation of rights letter,

or retain independent mutually agreeable counsel to represent Lacayo. Thus,

Geico was precluded as a matter of law from denying coverage.

Pursuant to section 627.426, once Geico sent its reservation of rights notice

to assert a coverage defense, Geico had three options: (1) refuse to defend Lacayo;

(2) obtain a non-waiver agreement from Lacayo; or (3) retain independent,

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mutually agreeable counsel to represent Lacayo. Failure to perform any of these

three options precludes a later attempt to deny coverage.

Geico did not refuse to defend Lacayo within sixty days of its reservation of

rights. And because Lacayo absconded, Geico could not obtain either a nonwaiver agreement from Lacayo or Lacayo’s agreement for the appointment of

independent counsel to represent Lacayo. Thus, Geico was placed in the

proverbial catch 22 position. It could either (1) abandon Lacayo entirely, leaving

Lacayo with no representation or defense, and potentially subject itself to bad-faith

litigation if it was later determined that Lacayo was covered by the policy, or (2)

continue to defend Lacayo in his absence and waive its coverage defense. Geico

chose the second option.

ANALYSIS

Although Geico’s initial reservation of rights was based on Geico’s position

that Lacayo was not covered by the subject policy, after Lacayo fled on June 7,

2011, Geico sent several additional reservation of rights letters to Lacayo’s last

known address based on Lacayo’s failure to cooperate, which under the policy was

a defense to coverage. However, under the Claims Administration Statute, because

Geico was unable to either obtain a non-waiver agreement or retain independent

counsel mutually agreeable to Lacayo and Geico because Lacayo’s whereabouts

were unknown, Geico had only one option available to it—to deny Lacayo

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coverage. Geico, however, not wanting to leave Lacayo without representation,

continued to represent and defend Lacayo, and as a result, is now subject to a badfaith lawsuit filed against it by both the plaintiffs and the receiver appointed for

Lacayo, and Geico is precluded from asserting a coverage defense.

While section 627.426 is clear and unambiguous, and therefore mandates the

result identified by the trial court and the affirmance being issued by this Court,

such a result appears, to me, to be contrary to the intent of the statute, which is to

protect both the insured and the insurer when the issue of coverage remains an

open question. Requiring the insurer to abandon a putative insured in order to

protect the insurer’s coverage defense only benefits the plaintiff, who will be able

to litigate his/hers/its claims without opposition. And if it is subsequently

determined that the putative insured’s absence or failure to cooperate was not

willful, and the putative insured was in fact covered by the policy, then the insurer

would be subject to a bad faith litigation claim for failing to defend the insured. It

is unlikely that the Legislature intended such a result when it enacted section

627.426.

I, therefore, concur with the majority opinion, and write solely to identify

what appears to be an unintended consequence of the subject legislation and to

invite review by the Florida Legislature.

FERNANDEZ, J., concurs.

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