Opinion ID: 3045818
Heading Depth: 2
Heading Rank: 1

Heading: Employer Lawns’s Insurance Policy with Zenith

Text: On December 4, 1997, Santana Morales, Jr., was working as a landscaper for Lawns Nursery and Irrigation Designs, Inc. (“Lawns”). That day Morales was crushed to death by a palm tree as it was being unloaded from a flatbed trailer. At the time of Morales’s death, his employer Lawns maintained an insurance policy with Zenith, entitled “Workers Compensation and Employers Liability Insurance Policy.” The policy contained two types of coverage. Part I provided “Workers Compensation Insurance.” Under Part I, Zenith was obligated to: (1) pay “the benefits required of [Lawns] by the workers compensation law” in Florida; and (2) defend Lawns in “any claim, proceeding or suit against [Lawns] for benefits payable by this insurance.” Part I contained no explicit policy limits, but stated that Lawns—and not Zenith—would be 2 Case: 12-11755 Date Filed: 04/15/2013 Page: 3 of 30 responsible for “any payments in excess of the benefits regularly provided by the workers compensation law,” including, for example, “those required because . . . of [Lawns’s] serious and willful misconduct.” Part II provided “Employers Liability Insurance.” 1 Under Part II, Zenith was obligated to: (1) “pay all sums [Lawns] legally must pay as damages because of bodily injury to [its] employees, provided the bodily injury is covered by this Employers Liability Insurance”; and (2) defend lawsuits for such damages. Thus, Part II expressly limited its coverage to bodily injury sustained by employees only. Part II contained policy limits of $100,000 for bodily injury sustained by one or more employees in any one accident, $100,000 for bodily injury caused by disease to any one employee, and $500,000 for all damages covered by the policy, regardless of the number of employees involved. Part II, however, contained several exclusions, including one barring employer liability insurance coverage for “any obligation imposed by a workers 1 Apparently this is a common type of dual-coverage policy. The Florida Supreme Court has noted that a workers’ compensation insurance policy often is issued together with an employer’s liability insurance policy, with the latter intended to serve as a “gapfiller,” providing protection to the employer in those situations where the employee has a right to bring a tort action despite the provisions of the workers’ compensation statute. Travelers Indem. Co. v. PCR Inc., 889 So. 2d 779, 784 n.7 (Fla. 2004) (internal quotation marks omitted). Thus, this type of policy is intended to afford an employer protection “against the risk of both workers’ compensation liability and tort liability” from its employees. Id. at 787 n.9. 3 Case: 12-11755 Date Filed: 04/15/2013 Page: 4 of 30 compensation . . . law.” That exclusion (the “workers’ compensation exclusion”) in full states: “This insurance does not cover: . . . . any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law . . . .” Because Morales’s death occurred during the course and scope of his employment, his employer Lawns was required to pay workers’ compensation benefits to Morales’s family. See Fla. Stat. § 440.09(1). Accordingly, under Part I of the policy, Zenith was obligated to pay workers’ compensation benefits on Lawns’s behalf. After Morales’s death, Zenith began paying workers’ compensation benefits equal to 66⅔% of Morales’s gross salary to Morales’s family in biweekly installments of $513.36. Zenith also contributed $5,000 to Morales’s funeral expenses.2 B. The Estate’s Tort Lawsuit against Lawns in State Court On December 3, 1999, the Estate filed a wrongful death action against Lawns in Florida circuit court, alleging that Lawns’s negligence caused Morales’s 2 Pursuant to Florida’s Workers’ Compensation Act at that time, if an employee died and the death was covered by the Act, the employer was required to pay to the employee’s family: (1) actual funeral expenses not to exceed $5,000, Fla. Stat. § 440.16(1)(a) (1998); and (2) 66⅔% of the employee’s average weekly wage, up to a total limit of $100,000, see id. § 440.16(1)(b). 4 Case: 12-11755 Date Filed: 04/15/2013 Page: 5 of 30 death.3 Specifically, the Estate alleged that Lawns’s “use of the flatbed trailer without retaining stakes, sides or any manner to prevent the trees from falling off the trailer and killing those persons who were unloading it was negligent.” The Estate did not allege that Lawns had engaged in any intentional tortious conduct or gross negligence. Zenith agreed to defend Lawns in the action under Part II of the policy pursuant to a reservation of rights, and Zenith retained J. Gregory Giannuzzi to represent Lawns in the lawsuit. As counsel for Lawns, Giannuzzi filed Lawns’s answer to the Estate’s complaint and asserted affirmative defenses. One of Lawns’s affirmative defenses was that the Estate’s claim was barred because of the Estate’s receipt of workers’ compensation benefits. Giannuzzi filed Lawns’s motion to dismiss on the same ground. 4 Representing Lawns in the suit proved difficult. Lawns never responded to Giannuzzi’s letters and phone calls, and Giannuzzi’s firm was never able to locate Lawns’s lone corporate officer. Giannuzzi eventually filed a motion to withdraw as counsel because of Lawns’s lack of cooperation, which the state court granted. 3 The Estate also sued LNI Designs, Inc., a related company that allegedly loaned Lawns the trailer for transporting the trees. For simplicity, we will use “Lawns” to refer to both defendants in the underlying state court lawsuit. 4 The state court later denied Lawns’s motion to dismiss “having heard arguments of counsel and being fully advised in the premises,” but providing no other explanation for the denial. 5 Case: 12-11755 Date Filed: 04/15/2013 Page: 6 of 30 The state lawsuit proceeded with Lawns unrepresented. The Estate subsequently filed a motion for sanctions due to Lawns’s failure to respond to discovery requests and comply with court orders. The state court granted the motion, striking Lawns’s pleadings as a sanction and entering a default judgment in the Estate’s favor on the issue of Lawns’s liability to the Estate. The case proceeded to a one-day jury trial as to damages. Lawns did not appear at trial. On March 14, 2005, the jury awarded the Estate $9.525 million in damages against Lawns. C. The Workers’ Compensation Settlement While the Estate’s wrongful death lawsuit was still ongoing, Zenith continued to pay workers’ compensation benefits to the Estate on Lawns’s behalf until August 2003, when Zenith made a final lump sum payment of $20,000 in full settlement of the Estate’s workers’ compensation claim against Lawns. The parties entered a settlement agreement at the same time. 5 The settlement agreement included a section entitled “Election and Waiver,” under which the Estate agreed that in exchange for the consideration described below, the [Estate] hereby waives all rights to any and all benefits under The Florida Workers’ Compensation Act. Further, this settlement and agreement shall 5 The Estate does not dispute that the settlement of the workers’ compensation claim was not brought to the state court’s attention in the separate tort lawsuit. 6 Case: 12-11755 Date Filed: 04/15/2013 Page: 7 of 30 constitute an election of remedies by the [Estate] with respect to the employer and the carrier as to the coverage provided to the employer. A judge of compensation claims approved the settlement agreement. 6 In all, the Estate received over $100,000 in workers’ compensation benefits from Zenith, pursuant to the Florida Workers’ Compensation Act and Part I of the policy. D. The Estate’s Lawsuit in Federal Court The Estate filed an action in Florida circuit court against Zenith asserting that Zenith had breached its insurance policy with Lawns when it did not pay the Estate the $9.525 million tort judgment entered against Lawns. Zenith removed the case to a federal court in the Middle District of Florida.7 Zenith and the Estate filed cross motions for summary judgment. Zenith argued it was entitled to summary judgment because: (1) the Estate had elected workers’ compensation benefits as its exclusive remedy in the settlement of the workers’ compensation claim and had received all workers’ compensation benefits owed under Part I of the policy; (2) the Estate’s claim was excluded by the 6 Under Florida Statute § 440.20(11)(c), a workers’ compensation claimant, if counseled, may waive any and all rights under Florida’s Workers’ Compensation Act by entering into a settlement agreement releasing the employer and the insurance carrier from liability for workers’ compensation benefits in exchange for a lump-sum payment. A judge of compensation claims must approve the settlement to the extent attorney’s fees are paid to the claimant’s attorney and to ensure the settlement allocates for recovery of child support arrearages. See Fla. Stat. § 440.20(11)(c), (d). 7 The Estate’s suit also included a declaratory judgment claim and a bad faith claim. Once the case was removed, the declaratory judgment claim was dismissed, and the bad faith claim was abated pending the district court’s resolution of the breach of contract claim. 7 Case: 12-11755 Date Filed: 04/15/2013 Page: 8 of 30 workers’ compensation exclusion in Part II of the policy; and (3) the Estate lacked standing to bring a claim for breach of Part II of Lawns’s policy. Alternatively, Zenith contended that even if it was liable, the Estate’s damages were limited to the $100,000 policy cap for bodily injury sustained in an accident under Part II of the policy. In response, the Estate argued that: (1) Zenith failed to preserve any defenses it might have had to the tort action—like workers’ compensation immunity and election of remedies—by withdrawing its representation from Lawns in the underlying state suit; (2) the workers’ compensation exclusion in Part II did not operate to bar its claim because the $9.525 million judgment was not “an obligation imposed” by Florida’s Workers’ Compensation Act; and (3) the Estate had standing to bring its breach of contract claim under Part II of the policy as a third party beneficiary. The Estate also contended that Zenith failed to preserve a defense to insurance coverage premised on Lawns’s failure to cooperate in the defense of the tort lawsuit because Zenith did not comply with the mandatory notice requirements of Florida’s claims administration statute in order to preserve that defense. The district court granted summary judgment to Zenith and denied it to the Estate, ruling that the workers’ compensation exclusion in Part II barred Zenith’s coverage of the employee Estate’s $9.525 million tort judgment against the 8 Case: 12-11755 Date Filed: 04/15/2013 Page: 9 of 30 employer Lawns. Observing that Florida law provides workers’ compensation benefits as the exclusive remedy for an employee injury caused by an employer’s negligence, the district court determined that the Estate’s state court lawsuit alleging Lawns’s negligence triggered an “obligation imposed by” Florida’s Workers’ Compensation Act, and thus the judgment issued in that lawsuit fell within the policy exclusion in Part II.8 In support the district court cited, inter alia, Indian Harbor Ins. Co. v. Williams, 998 So. 2d 677 (Fla. 4th DCA 2009), and Florida Ins. Guaranty Ass’n, Inc. v. Revoredo, 698 So. 2d 890 (Fla. 3d DCA 1997), as Florida decisions establishing that a workers’ compensation exclusion in a liability insurance policy barred coverage of an employee’s negligence-based tort claim. The district court stated that the Florida courts in both Indian Harbor and Revoredo held that workers’ compensation exclusions “virtually identical” or “almost identical” to the one in this suit precluded liability insurance coverage of the employees’ negligence-based injuries. Moreover, the district court remarked that holding otherwise “would allow [the Estate] to ‘double dip,’ and recover both workers’ compensation benefits and damages in tort; such a construction would belie the policy behind Florida workers’ compensation law.” 8 Determining that this argument was dispositive, the district court did not consider Zenith’s alternative arguments concerning standing and election of remedies. 9 Case: 12-11755 Date Filed: 04/15/2013 Page: 10 of 30 The district court acknowledged that another Florida case, Wright v. Hartford Underwriters Ins. Co., 823 So. 2d 241 (Fla. 4th DCA 2002), stated that such an exclusion did not bar coverage. But the district court found Wright unconvincing for a number of reasons, including that: (1) the statement was “dicta”; 9 (2) the underlying suit in Wright was one for gross negligence, and not simple negligence, as alleged here; (3) a footnote in Wright actually supported the result, noting that “[m]anifestly, the purpose of the workers compensation exclusion in part II was to omit coverage thereunder for claims already payable under part I,” id. at 243 n.4; and (4) another district court in the Middle District of Florida had rejected the Estate’s interpretation of Wright in Sinni v. Scottsdale Ins. Co., 676 F. Supp. 2d 1319 (M.D. Fla. 2009). Further, the district court concluded that Zenith did not waive its affirmative defense based on the policy exclusion by withdrawing from the defense of Lawns in the state court lawsuit. The district court distinguished between the affirmative 9 We disagree with the district court’s characterization of the relevant language from Wright about the inapplicability of the workers’ compensation exclusion to an underlying tort judgment against the insured as dicta. After the Wright court held that the trial court had erred in dismissing the coverage dispute based on the tort defense of workers’ compensation immunity, it remanded the case for the trial court to consider “the remaining coverage issues” and, in so doing, instructed the trial court that the workers’ compensation exclusion did not bar coverage of the tort judgment. Wright, 823 So. 2d at 242–43. In other words, the applicability of the workers’ compensation exclusion was not one of the “remaining coverage issues” to be determined by the trial court on remand because the exclusion did not apply, the appellate court concluded. Specific instructions to a trial court, which limit what it may consider or hold on remand, are not dicta. 10 Case: 12-11755 Date Filed: 04/15/2013 Page: 11 of 30 defense of workers’ compensation immunity on the one hand, which can be waived if not raised in a tort action, and a contractual policy exclusion on the other hand, which can always be raised to contest coverage. The district court also rejected the Estate’s argument about Zenith’s purported failure to comply with the notice provisions of the claims administration statute. The district court stated that compliance with the statute only served to preserve a defense against coverage that previously existed under an insurance policy, not a defense that coverage had never existed in the first instance. Here, Zenith’s argument was that coverage had never existed under the workers’ compensation exclusion in Part II of the policy, and thus the statute was inapplicable. 10 Accordingly, the district court granted summary judgment to Zenith. 11 The Estate timely appealed.