# Third District Court of Appeal

State of Florida

Opinion filed January 25, 2017.

Not final until disposition of timely filed motion for rehearing.

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No. 3D13-2284

Lower Tribunal No. 11-16038

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### Peninsula II Developers, Inc., etc.

, Appellant/Cross-Appellee,

vs.



### Gryphon Construction, LLC, etc., et al.

, Appellees/Cross-Appellants.

An Appeal from the Circuit Court for Miami-Dade County, Victoria S.

Sigler and Beatrice A. Butchko

, Judges.

Angelo & Banta, P.A., and Eric C. Edison (Fort Lauderdale); Pillsbury

Winthrop Shaw Pittman LLP, and David T. Dekker, Michael S. McNamara and

Melissa C. Lesmes (Washington, D.C.)

, for appellant/cross-appellee.

Kubicki Draper, P.A., and Caryn L. Bellus; O'Melveny & Myers LLP,

Jonathan D. Hacker, and Bradley N. Garcia (Washington, D.C.)

, for

appellee/cross-appellant Skyline Systems, Inc.; Brown Sims, and Marlin K. Green,

and Daniel Cruz, for appellee/cross-appellant Gryphon Construction, LLC.

Before SALTER and FERNANDEZ, JJ., and SHEPHERD, Senior Judge.

PER CURIAM.

Affirmed.

SALTER and FERNANDEZ, JJ., concur.Peninsula II Developers, Inc. v. Gryphon Construction, LLC, et al.

Case No. 3D13-2284

SHEPHERD, Senior Judge, dissenting.

I respectfully dissent because appellant, Peninsula II Developers, Inc., was

denied its right to recover pursuant to an assignment of convenience by Steadfast

Insurance Company of its subrogation rights against Gryphon Construction, LLC,

the general contractor on a condominium construction project being developed by

Peninsula II Developers and Gryphon subcontractor, Skyline Systems, Inc.

Factual and Procedural Background

Peninsula II contracted with appellee, Gryphon Construction LLC, for

construction of a 223-unit luxury condominium project in Aventura, Florida. The

contract required Gryphon buy a Subcontractor and Supplier Default Insurance

(SubGuard) policy to insure against a subcontractor’s default. Gryphon obtained

the required SubGuard policy from Steadfast Insurance with coverage limits of $20

million. The policy included a Financial Interest Endorsement which protected

Peninsula II in the event Gryphon became insolvent. Gryphon subcontracted

installation of drywall on the project to appellee, Skyline Systems, Inc., who

installed defective drywall, necessitating extensive repairs. Gryphon began the

repairs but soon became insolvent, and Peninsula II was forced to complete the

repairs at a cost of over $34 million.

2Subsequently, Gryphon, Peninsula II and Steadfast entered into certain

agreements to facilitate the process of recovering the damages incurred as a result

of Skyline’s default. Gryphon and Peninsula II executed a “Release and

Cooperation Agreement” in which the parties recognized Gryphon’s insolvency

and Peninsula II’s entitlement to Gryphon’s rights to benefits due under the

SubGuard policy. Peninsula II and Steadfast also entered into A Fee and Recovery

Sharing Agreement by which Steadfast assigned to Peninsula II its subrogation

rights of recovery against a responsible third party, to the extent of payments it

made to Peninsula II. Under this agreement, distribution of any recovered losses

where to be made first to make Peninsula II whole, next to reimburse Steadfast,

and finally for Peninsula II’s deductible and co-payment obligations under the

Subguard policy.

Accordingly, Peninsula II filed suit against Skyline, seeking approximately

$34 million in damages. This amount included $16,850,258 which had been paid

by Steadfast under the Subguard policy, the right of recovery to which Steadfast

had assigned to Peninsula II. Prior to trial, Skyline filed a motion in limine which

asked the trial court to prohibit Peninsula II from presenting evidence of damages

for which Steadfast had reimbursed it, claiming that no claims or theories of

recovery for those damages were present in Peninsula II’s pleadings. In response,

Peninsula II sought leave to amend its pleadings to correct any defects, arguing

3that no prejudice would result to Skyline as it was aware from the beginning that

Peninsula II was making a claim to recover monies reimbursed by Steadfast. The

trial court granted Skyline’s motion and denied Peninsula II’s motion. In so doing,

the trial court erred.

Analysis

This case turns on the difference between the two types of subrogation

recognized in Florida‒conventional or contractual subrogation and equitable or

judicial subrogation. Conventional or contractual subrogation arises from an

agreement between parties that “ the party paying the debt will have the rights and

remedies of the original creditor.” Dade County School Board v. Radio Station

WQBA

, 731 So. 2d 638, 646 (Fla. 1999). Equitable or judicial subrogation, on the

other hand, arises not from a contract, but from “the legal consequences of the acts

and relationships of the parties.” Id. “Equitable subrogation arises by operation of

law after an entity involuntarily pays the debt of another, contractual subrogation

arises from an agreement.” “[A]n insurer’s subrogation right may be expressly

provided for by a clause

... included in the insurance policy or in a settlement

agreement with the insured

. . . .” Nat’l Union Fire Ins. Co. of Pittsburg v. KPMG

Peat Marwick

, 742 So. 2d 328, 332 (Fla. 3d DCA 1999).

Furthermore, contractual subrogation is not a distinct cause of action, it

merely entitles the subrogor to bring the same cause of action as the subrogee.

4“[A] subrogation claim is not a new cause of action. Subrogation merely

substitutes one person for another with reference to an existing lawful claim or

right.” Attorney’s Title Ins. Fund v. Punta Gorda Isles

, Inc. 547 So 2d. 1250, 1252

(Fla. 2d DCA 1989) (citing Boley v. Daniel

, 72 Fla. 121, 123 (Fla. 1916)). “Since

the right of subrogation is purely derivative, and insurer succeeds only to the rights

of the insured, no new cause of action is created.” 16 Couch on Insurance §

222:14 (3d ed. 2013).

In the instant action, Steadfast reimbursed Peninsula II for drywall damages

incurred in connection with the remediation of the defective drywall. Because the

subrogation rights at issue were contractual, Peninsula II was not required to plead

a cause of action for equitable subrogation. Peninsula II’s claims against Skyline

were for breach of statutory warranty and contractual indemnity. Steadfast would

be permitted to step into the shoes of Peninsula II and pursue Skyline on those

exact same causes of action, to the extent of its payments to Peninsula II.

However, because Steadfast assigned those rights to Peninsula II, Peninsula II was

permitted to recover all damages on its claims for breach of statutory warranty and

contractual indemnification, including the reimbursed monies from Steadfast.

Failure to allow the jury to consider the Fee Recovery Sharing Agreement

and allow the reimbursed money to be used to mitigate the damage award was

hardly harmless error and prejudiced Peninsula II. By its ruling, the trial court

5improperly eliminated Peninsula II’s ability to exercise its contractual rights and

obligations to recover the reimbursed money on behalf of Steadfast. Accordingly,

I would reverse and remand to allow for recovery of these damages.

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