Opinion ID: 66507
Heading Depth: 4
Heading Rank: 2

Heading: Duty to Defend v. Duty to Indemnify

Text: The district court agreed that First Specialty had this duty to defend, but also determined that the duty to defend should stop once the actual facts of the case showed that there was no possibility for coverage, i.e., when it had no duty to indemnify. We find that this rationale is not a valid basis for finding no duty to defend and thus conclude that the district court should not have addressed the issue. The district court cited a number of cases in support of its approach, though only two involved the application of Florida law — Underwriters at Lloyds 13 The plausibility of the pro-duty reading can be seen in the district court’s decision, which accepts that argument after engaging in a detailed analysis. 17 London v. STD Enters., Inc. (Underwriters), 395 F. Supp. 2d 1142 (M.D. Fla. 2005) and Nationwide Mutual Fire Ins. Co. v. Keen (Keen), 658 So. 2d 1101 (Fla. Dist. Ct. App. 1995). Both of these cases depart from the general principle of determining the duty to defend only from the allegations in the complaint and are also readily distinguishable from the present case. Underwriters and Keen both involve underlying complaints that omitted a reference to an uncontroverted fact that, if pled, would have placed the claim clearly outside the scope of coverage. In Underwriters, for example, the underlying suit involved an employee seeking damages from his employer for an injury in an car accident. See Underwriters, 395 F. Supp. 2d at 1144. The employer’s insurance policy contained a cross-liability exclusion, which disclaimed coverage for suits brought by one insured party against another under that policy. See id. The employee failed to mention in his complaint that he was using the vehicle for business purposes, a fact that would have barred coverage under the exclusion. See id. at 1146. Neither party disputed this fact and the employee’s deposition testimony clearly supported its veracity. See id. at 1150. As a result, the court determined that, though there would have been a duty to defend looking exclusively at the complaint, the absence of any possibility for coverage under the policy eliminated this duty. See id. In Keen, the underlying 18 plaintiff was piloting a water craft which used an engine that was too powerful to be covered under the insurance policy. See Keen, 658 So. 2d at 1102–03. He presented no evidence to dispute this characterization and conceded that the craft had a non-covered engine. See id. Based on these facts, the court found it appropriate to relieve the insurer of its duty to defend. See id. at 1103. Apart from the situations in Keen and Underwriters, Florida courts have focused exclusively on the facts of the complaint in determining the duty to defend, regardless of post-complaint developments.14 They have deemed these facts to control even “[w]hen the actual facts are inconsistent with the allegations in the complaint.” See Jones, 908 So. 2d at 443 (quotation marks and citation omitted). Additionally, once a court finds that there is a duty to defend, it will “continue[] even though it is ultimately determined that the alleged cause of action is groundless and no liability is found within the policy provisions defining coverage.” Baron Oil, 470 So. 2d at 814. Against this backdrop, Keen and Underwriters are best seen as exceptional cases in which courts have crafted an equitable remedy when it is manifestly obvious to all involved that the actual facts 14 There are instances in which Florida courts have reached similar equitable results as Underwriters and Keen based on facts outside of the complaint, but those courts found no initial duty to defend rather than that the duty to defend was eliminated by the new facts. See, e.g., Wilson ex rel. Estate of Wilson v. General Tavern Corp., 469 F. Supp. 2d 1214, 1220–21 (S.D. Fla. 2006) (finding no duty to defend when the underlying plaintiff deliberately failed to mention a fact in order to “plead into coverage”). 19 placed the claims outside the scope of coverage.15 See Sphinx Int’l, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 226 F. Supp. 2d 1326, 1338 (M.D. Fla. 2002) (deeming Keen to be “an apparent aberration”). To the extent that Florida law permits a equitable departure from the general treatment of a duty to defend, it would not apply in this case. The court in Keen indicated that this relief would only be proper “if uncontroverted evidence places the claim outside of coverage, and the claimant makes no attempt to plead the fact creating coverage or suggest the existence of evidence establishing coverage.”16 Keen, 658 So. 2d at 1103. Here Appellants explicitly contest the district court’s finding that the false imprisonment and the assault and battery are so inherently 15 The other case cited by First Specialty as interpreting Florida law to defeat an existing duty to defend would fall under the same descriptor. See Prime Ins. Syndicate, Inc. v. Soil Tech Distribs., 2006 WL 1823562 (M.D. Fla. June 30, 2006). Like Underwriters, that case involved a cross-liability exclusion that would have applied to the actual facts but not to what was alleged in the complaint. See id. Given that neither party disputed these facts, this also represented a situation in which it was obvious to all that there was no potential for coverage. See id. at –7. Additionally, we note that even this exception is not universally applied throughout Florida. In Baron Oil, for example, both parties conceded that the plaintiff suing Baron in the underlying suit was an employee of the company — a fact which triggered an exclusion in Baron’s insurance policy. See Baron Oil, 470 So. 2d at 811–12. However, the complaint itself did not mention this fact and the court thus found that the insurer had a duty to defend even when the actual facts clearly showed that the claims were not covered. See id. at 814. 16 This characterization is also consistent with the non-Florida decisions cited by the district court, all of which find the duty to defend to have been eliminated when the actual facts indisputably show that there is no possibility of coverage. See, e.g., Liberty Mut. Ins. Co. v. FAG Bearings Corp., 153 F.3d 919, 924 (8th Cir. 1998); Conway Chevrolet Buick, Inc. v. Travelers Indem. Co., 136 F.3d 210, 214 (1st Cir. 1998); North Bank v. Cincinnati Ins. Cos., 125 F.3d 983, 986 (6th Cir. 1997); Snug Harbor, Ltd. v. Zurich Ins., 968 F.2d 538, 545 (5th Cir. 1992). 20 intertwined as make the former arise out of the latter. In addition, Smith pled sufficient evidence to support a finding of coverage based on a separate and distinct incident of false imprisonment, and, unlike the parties in Underwriters and Keen, she did not omit any crucial facts that would have taken her claims outside the scope of coverage. We therefore find that there was no basis for the district court to conclude that First Specialty had no duty to defend based on facts outside those alleged in the complaint.