[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

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No. 13-15799

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D.C. Docket No.: 0:12-cv-60824-KMW

NOVA CASUALTY CO.

Plaintiff-Appellant,

versus

ONEBEACON AMERICA INSURANCE CO.

Defendant-Appellee.

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Appeal from the United States District Court

for the Southern District of Florida

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(March 17, 2015)

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Before WILLIAM PRYOR and JORDAN, Circuit Judges, and WALTER, District

*

Judge.

WALTER, District Judge:

Plaintiff-Appellant Nova Casualty Co. (“Nova”) appeals the district court’s

grant of summary judgment in favor of Defendant-Appellee OneBeacon America

Insurance Co. (“OneBeacon”). In the underlying insurance dispute, OneBeacon

served as the primary insurer, while Nova was the excess insurer. This declaratory

judgment action arises from OneBeacon’s refusal to defend and indemnify its

insured, forcing the excess carrier Nova to step in to defend and settle a state court

lawsuit against the insured. Nova instituted this suit, seeking a declaration that

OneBeacon was obligated to defend and indemnify the insured and that its failure

to do so resulted in a breach of contract. The district court agreed with Nova but

nonetheless held that Nova was not entitled to damages. Nova now appeals that

ruling. Following a review of the record and with the benefit of oral argument, we

REVERSE AND REMAND.

I. FACTUAL AND PROCEDURAL HISTORY

A. Facts.

The facts of this case are undisputed. Silverhunt Associates, Ltd.

 Honorable Donald E. Walter, United States District Judge for the Western District of *

Louisiana, sitting by designation.

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(“Silverhunt”) leased Florida property to New York Community Bancorp, Inc.

(“NYCB”). NYCB operated a bank on the leased property. The lease required

NYCB to maintain liability insurance of at least $1 million per occurrence on the

premises and to list Silverhunt as an additional insured (“AI”) under NYCB’s

insurance policy. The lease also contained an indemnification provision in which

NYCB agreed to defend and hold Silverhunt harmless against personal injury

claims arising from occurrences on the leased premises. OneBeacon issued an

insurance policy to NYCB, providing $1 million per occurrence primary limits and

$20 million excess limits. Silverhunt was listed as an AI in the OneBeacon policy,

which was executed, issued, and delivered in New York. Separately, Nova insured

Silverhunt under a general liability policy, providing $1 million per occurrence

primary limits and $4 million excess limits.

Tragically, an armed robbery at the bank left a bank patron, Michael

McQuade (“McQuade”), paralyzed after being shot. McQuade sued Silverhunt and

NYCB in Florida state court. Nova stepped in to defend Silverhunt against

McQuade’s suit and requested that OneBeacon defend and indemnify Silverhunt

pursuant to the AI clause of the NYCB liability policy. OneBeacon declined,

based upon its belief that under the circumstances of the case and the terms of the

contract, it was not required to defend Silverhunt. Nova subsequently requested

that OneBeacon participate in the settlement of McQuade’s claim against

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Silverhunt, but again, OneBeacon refused. 

While OneBeacon’s $1 million primary limits were still available, Nova

settled McQuade’s action against Silverhunt for $1.5 million. OneBeacon did not

participate in or contribute to the settlement. After Nova settled McQuade’s claim

against Silverhunt, OneBeacon settled McQuade’s action against NYCB for an

undisclosed amount, which was in excess of its primary limits. Accordingly, the

primary limits of the OneBeacon policy are now exhausted.

B. Relevant Procedural History.

Nova filed suit in district court, seeking a declaratory judgment that

OneBeacon had a duty to defend and indemnify Silverhunt. Nova also claimed a

right to equitable subrogation, based on its settlement with McQuade. OneBeacon

filed a counterclaim seeking a declaratory judgment that it had no duty to defend or

indemnify Silverhunt in the McQuade litigation.

Following cross-motions for summary judgment, the district court, applying

New York law, held that OneBeacon, as the primary insurer, breached its duty to

defend and indemnify Silverhunt in the McQuade litigation. However, the court

also concluded that, with OneBeacon’s $1 million policy exhausted on behalf of

NYCB, Nova was not entitled to damages in the absence of proof of bad faith. 

Nova filed the instant appeal. OneBeacon did not cross-appeal any of the issues

decided adversely to its position.

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II. STANDARD OF REVIEW

We review de novo the district court’s determination of summary judgment. 

See James River Ins. Co. v. Ground Down Eng’g, Inc. 540 F.3d 1270, 1274 (11th

Cir. 2008). The interpretation of provisions in an insurance policy is a question of

law, which is reviewed de novo. See id.

III. DISCUSSION

A. Choice of Law.

The first question is whether Florida or New York law should apply in

determining the remedies available for a breach of contract action. In a diversity

action, we apply the substantive law of the forum state, Florida, including its

conflict of laws rules. See Fioretti v. Mass. Gen. Life Ins. Co., 53 F.3d 1228, 1235

(11th Cir. 1995). The Florida Supreme Court has adopted the doctrine of lex loci

contractus for conflict of laws questions in contracts. See id.; State Farm Mut.

Auto. Ins. Co. v. Roach, 945 So. 2d 1160, 1163 (Fla. 2006). “The doctrine of lex

loci contractus directs that, in the absence of a contractual provision specifying the

governing law, a contract (other than one for the performance of services) is

governed by the law of the state in which the contract is made . . . .” Fioretti, 53

F.3d at 1235. However, issues regarding the manner and means of performance of

the contract are determined by the law of the place of performance. See Gov’t

Emp. Ins. Co. v. Grounds, 332 So. 2d 13, 14-15 (Fla. 1976). Here, the district

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court properly applied New York law to all contract interpretation issues, finding,

as previously discussed, that OneBeacon owed Silverhunt a duty to defend and

indemnify it and also that, by failing to act, OneBeacon breached the duty it owed

to Silverhunt. 

 We must next ascertain the nature of Nova’s action against OneBeacon in

order to determine which state’s law governs the remedies available to Nova in

light of the breach. Nova’s action against OneBeacon is based on OneBeacon’s

performance, or lack thereof, under the contract. Under the conflict of laws

analysis, this is an issue involving the manner and means of performance. Here,

factors relating to the performance of the contract, including the location of the

property, the tort, and the jurisdiction in which the McQuade suit was brought and

not defended, are all grounded in Florida. See Grounds, 332 So. 2d at 14-15;

Adams v. Fid. & Cas. Co. of N.Y., 920 F.2d 897, 899 n.5 (11th Cir. 1991) (noting

that in a bad faith failure to settle cause of action, Florida law applied to questions

regarding the insurer's performance under the contract and the remedies available

for non-performance). Accordingly, Florida law governs Nova’s entitlement to

and the extent of relief available under its equitable subrogation theory. The

district court erred in applying New York law. 

B. Equitable Subrogation.

Equitable subrogation “is an equitable remedy rooted in the legal

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consequence of the actions and relationship between the parties.” Columbia Bank

v. Turbeville, 143 So. 3d 964, 968 (Fla. 1st Dist. Ct. App. 2014). The rationale

underlying the doctrine of equitable subrogation is “to prevent unjust enrichment

by assuring that the person who in equity and good conscience is responsible for

the debt is ultimately answerable for its discharge.” Id. “The doctrine places one

party into the shoes of another so that the substituting party retains the rights,

remedies, or securities that would otherwise belong to the original party.” Id.

(internal marks omitted). In the insurance context, equitable subrogation ensures

that the “primary insurer is held responsible to the excess insurer for improper

failure to settle, since the position of the latter is analogous to that of the insured

when only one insurer is involved.” Perera v. U.S. Fid. and Guar. Co., 35 So. 3d

893, 900 (Fla. 2010) (internal marks omitted). 

The issue before us is, under a theory of equitable subrogation, what, if

anything, can Nova recover from OneBeacon when OneBeacon exhausted its

policy limits for another insured after refusing to defend and settle on Silverhunt’s

behalf. Asked another way, if OneBeacon breached its duty to defend and

indemnify before settling McQuade’s suit against NYCB, can its settlement for the

limits of its policy absolve it of any responsibility to Silverhunt? Our answer is no.

All insurers are expected to perform in good faith when handling claims

against their insureds. As the Florida Supreme Court has articulated, “when an

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insurer is handling claims against its insured, it has a duty to use the same degree

of care and diligence as a person of ordinary care and prudence should exercise in

the management of his own business.” Id. at 898 (internal marks omitted). An

insurer’s

good faith duty obligates the insurer to advise the insured of

settlement opportunities, to advise as to the probable outcome of the

litigation, to warn of the possibility of an excess judgment, and to

advise the insured of any steps he might take to avoid same. The

insurer must investigate the facts, give fair consideration to a

settlement offer that is not unreasonable under the facts, and settle, if

possible, where a reasonably prudent person, faced with the prospect

of paying the total recovery, would do so. Because the duty of good

faith involves diligence and care in the investigation and evaluation of

the claim against the insured, negligence is relevant to the question of

good faith.

Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980) (citations

omitted). If an insurance company has more than one insured, it owes a duty to act

in good faith towards both or all of its insureds. See Contreras v. U.S. Sec. Ins.

Co., 927 So. 2d 16, 21 (Fla. 4th Dist. Ct. App. 2006). 

In Florida, an insurer may exhaust policy limits by settling with one insured

even if doing so leaves the other insured exposed, so long as these negotiations are

conducted in good faith. The cases in which these scenarios have played out

invariably have involved vocal claimants who offer to settle with one insured, yet

refuse to settle with another (whose conduct is oftentimes more egregious than the

settling insured). Although the “insurer must begin by seeking to protect both

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insureds,”. . . “[i]t is the claimant’s refusal to enter a global release that triggers the

insurer’s duty to reevaluate its approach to the defense . . . .” Adega v. State Farm

Fire and Cas. Ins. Co., 2009 WL 3387689, *6 (S.D. Fla. Oct. 16, 2009). Relying

on the latter precept, OneBeacon contends that it was within its rights in settling on

behalf of NYCB, even if doing so left Silverhunt exposed to a judgment. 

OneBeacon ignores a critical fact: it never sought to protect both of its insureds. 

Instead, it utterly ignored Silverhunt, by disregarding its duty to defend Silverhunt

in the McQuade litigation. 

Nonetheless, because Florida law imposes on an insurer the duty to act in

good faith, OneBeacon submits that Nova must establish that it acted in bad faith

in order to recover damages in excess of the policy limits. While we are not

persuaded by OneBeacon’s arguments on that issue, we acknowledge that Florida

jurisprudence is, at times, discordant. Compare Ernie Haire Ford, Inc. v. Universal

Underwriters Ins. Co., 331 F. App’x 640, 647 (11th Cir. 2009) (recognizing that

breach of contract claims may lie “even in circumstances in which the plaintiff has

not or could not assert a bad faith claim.”), Hartford Ins. Co. v. Mainstream Constr.

Group, Inc., 864 So. 2d 1270, 1271 (Fla. 5th Dist. Ct. App. 2004) (concluding that

bad faith claims against an insurer “may only be brought after coverage and

contractual issues between the insured and the insurer are resolved . . . .”),

Carrousel Concessions, Inc. v. Florida Ins. Guar. Ass’n, 483 So. 2d 513, 516 (Fla.

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3d Dist. Ct. App. 1986) (finding that breach “can be determined objectively from

the insurance contract itself without inquiry into whether the insurer acted in good

faith or bad faith”), Caldwell v. Allstate Ins. Co., 453 So. 2d 1187, 1190-91 (Fla.

1st Dist. Ct. App. 1984) (damages in excess of policy limits may be available for

breach of contract, even without proof of bad faith), and St. Paul Fire & Marine

Ins. Co. v. Thomas, 273 So. 2d 117, 121 (Fla. 4th Dist. Ct. App. 1973) (insurer

held liable for excess over policy limits because it was liable for all damages

flowing from breach of contract), with Underwriters Guarantee Ins. Co. v.

Nationwide Mut. Fire Ins. Co., 578 So. 2d 34, 36 (Fla. 4th Dist. Ct. App. 1991)

(court stated in dicta that bad faith allegations, if they exist, must be stated in the

complaint), and St. Paul Fire and Marine Ins. Co. v. Lexington Ins. Co., 2006 WL

1295408, *8 n.13 (S.D. Fla. Apr. 4, 2006) (allowing plaintiff leave to amend to

restore its previously lodged bad faith claims under equitable subrogation theory

but not stating that bad faith allegations were necessary to recovery of damages). 

Florida’s Second District Court of Appeal spoke at length about this issue in

Thomas v. W. World Ins. Co., wherein it firmly concluded that bad faith is not a

prerequisite to recovery of excess damages:

In the case before us, there is no threshold question of “good faith” vs.

“bad faith.” For here, the company exercised no faith at all. It simply

wrongfully refused to comply with its contract to provide a defense on

behalf of its insureds. If that breach by insurer caused foreseeable

damages to be assessed against its insureds, to that extent the insurer

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should be held liable. 

. . .

An insurer which denies coverage does so at its own risk. This has

been held to be true even where such denial is on a mistaken but

honest belief that coverage did not exist. It seems only fair that an

insurer whose contracts are by their very nature “adhesive” should be

held to at least the same standard of damages applicable to other

contracting parties. One purchasing coverage should be able to rely

upon this. An insurer at least impliedly represents it will be

responsible for damages if it fails to provide the contracted for

coverage and defense. The concept of “bad faith” is a viable and

useful test for determining damages against an insurance company

within the context of settlement negotiations and defense of claims

against its insureds. But, employment of the test presupposes the

company is attempting to excise skill, judgment and fidelity on their

behalf. 

Thomas, 343 So. 2d 1298, 1304 (Fla. 2d Dist. Ct. App. 1977) (internal citations

omitted). 

In the instant case, we need not decide whether, as a matter of Florida law,

bad faith is a prerequisite to Nova’s claim, because a bad faith requirement, if one

even exists, was not triggered under the facts of this case. OneBeacon was

Silverhunt’s primary insurer, while Nova was the excess insurer. OneBeacon’s

primary coverage attached immediately upon the happening of an event triggering

liability, whereas Nova’s excess coverage attached only after a predetermined

amount of primary coverage was exhausted. See Lexington, 2006 WL at *4 (citing

King v. Guaranty Nat’l Ins. Co., 440 So. 2d 607 (Fla. 3d Dist. Ct. App. 1983)). As

the primary insurer, OneBeacon was responsible for Silverhunt’s settlement with

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McQuade, up to the limits of its $1 million policy. See Towne Realty, Inc. v.

Safeco Ins. Co. of Am., 854 F.2d 1264, 1268 (11th Cir. 1988); see also Aetna Cas.

& Sur. Co. v. Chicago Ins. Co., 994 F.2d 1254, 1258 (7th Cir. 1993) (“[C]ourts

will allow the exhaustion of the primary layer of insurance before turning to the

excess.”). As the excess insurer, Nova’s coverage was not activated until after the

first $1 million was paid by OneBeacon’s policy. 

Despite OneBeacon’s arguments to the contrary, we are not convinced that

OneBeacon cannot be held liable for the $1 million settlement simply because it

had already expended its policy limits when it settled McQuade’s suit against

NYCB. Because damages for a breach of contract are measured as of the date of

the breach, see Grossman Holdings Ltd. v. Hourihan, 414 So. 2d 1037, 1040 (Fla.

1982), Nova’s damages against OneBeacon are measured from the date that

OneBeacon refused to defend Silverhunt, and Nova, forced to undertake the

obligations of the primary insurer, settled the case for $1.5 million. Critically,

when Nova settled the McQuade action on behalf of Silverhunt, OneBeacon’s $1

million policy was intact and available. Hence, even though OneBeacon

subsequently exhausted its primary limits, the breach and the damages are

measured at a point in time before that money was spent. OneBeacon’s subsequent

exhaustion of its policy limits does not excuse its earlier breach, nor do its own

erroneous acts inure to its benefit by absolving it of liability. OneBeacon cannot

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unilaterally create an “excess policy” case and then evade liability by complaining

that it exhausted its primary limits. “When an insurer has a duty to defend the

insured, there should be no reward to the insurer for breaching that duty.” Cont’l

Cas. Co. v. United Pac. Ins. Co., 637 So. 2d 270, 278 (Fla. 5th Dist. Ct. App. 1994)

(citations omitted) (discussing contribution for a share of the cost of defense).

Although OneBeacon was permitted to conduct a thorough investigation to

determine whether there was coverage under its policy, the law plainly provides

that “the company acts at its peril in refusing to defend its insured and will be held

responsible for the consequences.” Florida Farm Bureau Mut. Ins. Co. v. Rice, 393

So. 2d 552, 556 (Fla. 1st Dist. Ct. App. 1980); Ernie Haire Ford, Inc., 331 F.

App’x at 647 (same); Carrousel Concessions, Inc., 483 So. 2d at 516 (“If the

insurer breaches its duty to defend, it-- like any other party who fails to perform its

contractual obligations-- becomes liable for all damages naturally flowing from the

breach.”). Indeed, when it is “subsequently determined that the company

erroneously denied coverage, the company will be liable for damages for breach of

its agreement,” Caldwell, 453 So. 2d at 1191, even if its mistake was an honest

one. See Thomas, 343 So. 2d at 1304; St. Paul Fire & Marine Ins. Co., 273 So. 2d

at 121-22. OneBeacon chose its course of action with full knowledge of the fact

that Silverhunt was looking to OneBeacon for coverage. See Am. Fid. Fire Ins.

Co. v. Johnson, 177 So. 2d 679, 683 (Fla. 1st Dist. Ct. App. 1965) (“Having

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chosen to step aside, American Fidelity cannot now receive the benefit of any

different course it might have pursued had it taken command of the litigation.”). 

OneBeacon’s steadfast refusal to defend Silverhunt based on its erroneous belief,

even if honestly held, that Silverhunt was not covered under its policy was at its

“peril.” Rice, 393 So. 2d 556. As the Seventh Circuit has explained, “it is a bad

idea to inform insurance carriers that whichever is least faithful to its obligation to

the insured will escape all liability as long as a responsible carrier covers the loss.”

W. Cas. & Surety Co. v. W. World Ins. Co., Inc., 769 F.2d 381, 383 (7th Cir.

1985). The burden of funding $1 million of the Silverhunt-McQuade settlement

falls squarely on OneBeacon’s shoulders.

IV. CONCLUSION

For the foregoing reasons, we REVERSE the district court’s judgment as to

the determination of damages and REMAND for further proceedings, consistent

with this opinion.

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