Opinion ID: 1817563
Heading Depth: 1
Heading Rank: 5

Heading: FIGA's Duty to Pay Amounts in Excess of Policy Limits

Text: The FIGA Act obligates FIGA to the extent of covered claims for that amount which is in excess of $100 but less than $300,000. See § 631.57(1)(a)(2). The $300,000 liability cap becomes applicable only if FIGA's obligation would otherwise exceed that amount. In all other cases, liability is generally limited to the amount for which the insurer would have otherwise been responsible under the policy. See § 631.57(1)(a)(3). Attorney's fees may also be awarded pursuant to section 631.70 of the Florida Statutes when FIGA denies a covered claim by affirmative action other than delay. See § 631.70. The Act specifically provides that [i]n no event shall the association be liable for any penalties or interest. See § 631.57(1)(b). The award in the instant matter totaled $433,178.84, and was comprised of two parts: a base award of $299,900 plus a $133,278.84 statutory interest award running from May 16, 1997, the date of the judgment against Pratt. The final summary judgment order also provided that the total amount would bear interest at the legal rate, presumably until payment. As explained in the following paragraphs, the proper award of damages in the instant matter could have only been a base award of $25,000, commensurate with Dealers' limit of liability in the underlying policy, plus interest on that amount as provided under the policy's supplementary payment provision, and statutory interest from the date of the judgment against FIGA until payment along with attorney fees due to FIGA's denial of coverage. The precise text of section 631.57 of the FIGA Act provides: (1) The association shall: (a)1. Be obligated to the extent of the covered claims. . . . 2. The obligation under subparagraph 1. shall include only that amount of each covered claim which is in excess of $100 and less than $300,000. . . . 3. In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises. § 631.57, Fla. Stat. (1995) (emphasis supplied). In a similar manner, the concept of a covered claim is defined and limited by the statutory definitional phrase is within the coverage, and not in excess of, the applicable limits of an insurance policy. § 631.54(3), Fla. Stat. (1995). Further, FIGA is obligated to the extent of the covered claims. § 631.57(1)(a)(1), Fla. Stat. (1995) Thus, the Act limits FIGA's liability to the policy limit not to exceed $300,000, no matter how high the insured's policy limits may be. While $300,000 is the upper bound, FIGA is only obligated to the same extent as the insurer under the policy. If the insurer's obligation amounted to only $101 under the policy, then FIGA's liability would be only $1. FIGA's responsibility and liability is directly linked to the insolvent insurer's contractual obligations. Although the defalcations of FIGA may cause and generate damages far greater than the contractual limit of coverage or the statutory maximum, the Legislature has not made any provision for recovery in excess of these amounts. This is precisely where the parties find themselves in this case. As the Act makes clear, FIGA's liability must be adjudged from the perspective of the insurer's obligation under the policy giving rise to the claim. The Act does not allow for an award of an amount in excess of the policy provisions. Indeed, this was the conclusion reached by the Third District in Rivera v. Southern American Fire Insurance Co., 361 So.2d 193 (Fla. 3d DCA 1978), where the court affirmed dismissal of a bad faith claim against FIGA which alleged that the insolvent insurer, Southern American, had dealt in bad faith with the claimant. The claimants sought an amount $25,000 in excess of the policy limits, and the district court held, FIGA is not liable for any amounts in excess of policy limits and is not vicariously liable for tortious acts of members' insurers. Id. at 194 (emphasis supplied). Although it was FIGA itself that actually caused the damages in this case, not an insolvent insurer, the same statutory provision appears applicable. Pratt's garage policy obligated Dealers' Insurance to pay $25,000 for any one accident or loss, plus any supplementary payments due. As noted by Jones, one of the supplementary payment provisions of the insurance policy obligated Dealers to pay interest owed on judgments entered. The relevant subpoint from the policy provides: PART IV  LIABILITY INSURANCE . . . . B. WE WILL ALSO PAY. In addition to our limit of liability we will pay for the insured: . . . . 5. All interest accruing after the entry of the judgment in a suit we defend. Our duty to pay interest ends when we pay or tender our limit of liability. As provided under the Act, FIGA is deemed the insurer to the extent of covered claims and has the same obligations as the insolvent insurer as if the insurer had not been declared insolvent. See § 631.57(1)(b); Fla. Ins. Guar. Ass'n v. Johnson, 654 So.2d 239, 241 (Fla. 4th DCA 1995) (determining that there was a statutory basis upon which to assess court costs in excess of policy limits because FIGA stands in the shoes of the insolvent insurer). The obligations imposed on FIGA under section 631.57(1)(b) must be construed liberally to effect the purposes of the FIGA Act, see § 631.53, one of which is to avoid financial loss to claimants or policyholders because of the insolvency of the insurer. See § 631.51(1). Thus, it is consistent with, and indeed advances, the purposes of the FIGA Act to bind FIGA to the terms of the supplementary payment provision and hold the Association liable for interest on judgments entered to the same extent as Dealers would have been liable. The contract must be interpreted as though FIGA satisfied and performed the contractual provisions. Indeed, courts in Florida have assessed costs in excess of limits of liability against FIGA through supplementary payment provisions. In Johnson, the district court held FIGA responsible for court costs in excess of the underlying policy's liability limits. See 654 So.2d at 240. The court applied the court costs through a supplementary payment provision that obligated the insolvent insurer to pay on behalf of a covered person reasonable expenses incurred in the litigation. Id. at 240. The district court reasoned that the insurer had decided against settling the claim and that the resulting litigation expenses were therefore a responsibility to be covered. See id. In Steele v. Kinsey, 801 So.2d 297 (Fla. 2d DCA 2001), the Second District reached the opposite conclusion, not on the basis that fees and costs in excess of policy limits could not be assessed against FIGA through supplementary payment provisions, but based on its conclusion that the language promising payment of expenses incurred at the insurer's request could not be reasonably interpreted to include litigation expenses. See id. at 300. [7] The language in section 631.57 providing that [i]n no event shall the association be liable for any penalties or interest, § 631.57(1)(b), does not undermine the conclusion that FIGA is liable under the policy's supplementary payment coverage provision for interest accruing on an underlying judgment. Some Florida courts in a different context have interpreted the language of section 631.57 as precluding awards of interest directly against FIGA that predate entry of a judgment against the Association where no supplementary payment coverage benefit issue was involved. See Fla. Ins. Guar. Ass'n v. Gustinger, 390 So.2d 420, 421 (Fla. 3d DCA 1980) (reversing award of interest against FIGA running from date of compensation award against insurer, which occurred prior to insurer's insolvency); see also FIGA v. R.V.M.P. Corp., 874 F.2d 1528, 1532 (11th Cir.1989) (reversing award of prejudgment interest assessed against FIGA in a declaratory judgment action to assess FIGA's coverage liability); Fla. Ins. Guar. Ass'n v. Jacques, 643 So.2d 101, 103 (Fla. 4th DCA 1994) (Any interest sought before the trial court enter[s] judgment against FIGA constitutes prejudgment interest as to FIGA and is not permitted under the Act); Fla. Cmty. Health Ctr. v. Ross, 590 So.2d 1037 (Fla. 1st DCA 1991) (reversing the award of penalties and interest on compensation claims against FIGA where the Association presumably had been handling the claims for some period of time); NCNB Nat'l Bank of Fla. v. Fla. Ins. Guar. Ass'n, 541 So.2d 728, 731 (Fla. 1st DCA 1989) (holding that the FIGA Act precluded assessment of interest accrued from the time the claims for unearned premiums arose); Carballo v. Warren Mfg. Co., 407 So.2d 603, 607 (Fla. 1st DCA 1981) (striking award of prejudgment interest in worker's compensation case). This line of cases does not, however, address or preclude the assessment of interest where, as here, the damages resulted from FIGA's abdication of its statutory and contractual duties, one of which was a supplementary payment coverage obligation to pay interest on judgments entered against the insured. To hold that FIGA is not responsible for interest accruing under the instant scenario would impermissibly negate that portion of the contract, see City of Homestead v. Johnson, 760 So.2d 80, 84 (Fla.2000) (stating that contracts must be interpreted to give effect to all portions), and undermine the section of the FIGA Act which provides that the Association assumes the obligations of the insurer as if that insurer had not become insolvent. See Acosta, 671 So.2d at 153-54 (reiterating that statutes should be interpreted to give effect to every clause and accord meaning and harmony to all of its parts). It would also undermine and eviscerate the directive that the statutory provisions be liberally construed to avoid financial loss to insureds. The argument and position asserted by FIGA would place FIGA in a far better position and the insured in one less advantageous upon FIGA's total failure to perform according to the statutory requirements than if it conducted itself as required by the applicable statutes. This would generate an absurd result contrary to the statutory mandate and one which we cannot condone. A contrary result would only serve to encourage FIGA to operate contrary to the statutory duties and undermine the legislative plan. On this basis, FIGA would be responsible in the instant matter for the $25,000 limit of liability plus, pursuant to the supplementary payment coverage provision, any interest owed on the underlying judgment entered against insured. The interest owed would accrue until paid. However, given the statutory limit of FIGA's liability, the total amount owed including this supplementary payment coverage would be capped at $300,000 less $100, or $299,900. One may argue that the supplementary payment provision at issue in the instant matter precludes an assessment of interest against Dealers, or FIGA by imputation, because it specifies that Dealers has a duty to pay interest only in the legal actions it defends. However, any such interpretation would contravene well-established principles of contractual construction. As previously stated, courts are required to read provisions of a contract harmoniously to give effect to all portions thereof. See City of Homestead, 760 So.2d at 84. The supplementary payment provision goes hand in hand with the provision through which Dealers assumed the exclusive right and duty to defend Pratt. Permitting FIGA or Dealers to avoid the contractual obligation for reimbursement of the judgment flowing from an abdication of its duty to defend by adopting FIGA's interpretation of at best conflicting statutory provisions with regard to the supplementary payment coverage provision would effectively negate the duty to defend clause, leaving the insured virtually unprotected. Finally, FIGA would be liable for any post-judgment interest accruing on any judgments entered directly against FIGA. Although the subject has not been addressed by this Court, the district courts have determined that FIGA is liable for interest assessed following a judgment against the Association. See, e.g., Carballo, 407 So.2d at 607; Gustinger, 390 So.2d at 421 & n. 2.