Pepper's Steel & Alloys v. US Fidelity & Guar.

• Decision Date: 12 August 1987
• Docket Number: No. 86-1531-CIV.,86-1531-CIV.
• Citation: 668 F. Supp. 1541
• Parties: PEPPER'S STEEL & ALLOYS, INC., and Norton Bloom, Plaintiffs, v. UNITED STATES FIDELITY AND GUARANTY COMPANY; Transportation Insurance Company; Continental Casualty Company; and the Home Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of Florida

668 F. Supp. 1541

PEPPER'S STEEL & ALLOYS, INC., and Norton Bloom, Plaintiffs, v. UNITED STATES FIDELITY AND GUARANTY COMPANY; Transportation Insurance Company; Continental Casualty Company; and the Home Insurance Company, Defendants.

No. 86-1531-CIV.

United States District Court, S.D. Florida, Miami Division.

August 12, 1987.

R. Hugh Lumpkin, Michael P. Gable, of Keith, Mack, Lewis & Allison, Miami, Fla., for plaintiffs.

Steven Berger, Miami, Fla., for Transportation Ins. Co. & Continental Cas. Co.

Richard Critchlow & Landon Clayman, Miami, Fla., for Home Ins. Co.

Richard L. Wassenberg, Miami, Fla., for U.S. Fidelity and Guar. Co.

SPELLMAN, District Judge.

THIS CAUSE comes before the Court on Plaintiffs', PEPPER'S STEEL & ALLOYS, INC, and NORTON BLOOM, Motion for Summary Judgment and on Defendants', UNITED STATES FIDELITY AND GUARANTY COMPANY and THE HOME INSURANCE COMPANY, Motions to Dismiss. The questions presented are: (1) whether Florida Statute Annotated § 627.426(2) (West 1984) precludes any Defendants from raising defenses regarding their duty to defend and/or provide coverage/indemnification to the Plaintiffs, their insureds, in actions brought against the Plaintiffs by the State of Florida, Department of Environmental Regulation ("DER") and the United States of America, Environmental Protection Agency ("EPA"); and (2) whether, notwithstanding the statute, the Defendants owe the Plaintiffs a duty to defend them in those underlying actions. Because this court is of the opinion that the statute has either been complied with by some Defendants or is not applicable to those Defendants which are excess carriers without any duty to defend, this Court DENIES Plaintiffs' Motion for Summary Judgment on that issue. This Court is also of the opinion that no exclusion within any of the policies at issue in this case abrogates a primary carrier's duty to defend the Plaintiffs, and therefore GRANTS Plaintiffs' Motion for Partial Summary Judgment on the question of the Defendants' duty to defend. Accordingly it DENIES Defendant's, United States Fidelity and Guaranty Company, Motion to Dismiss, insofar as that motion argues that this Defendant has no duty to defend and GRANTS Defendant's, The Home Insurance Company, Motion to Dismiss, insofar as that motion argues that the statute in question is not applicable to an excess carrier without any duty to defend.

I. Facts

This Court is familiar with the facts in this case and has written one memorandum opinion in the companion case of Payne v. United States Fidelity and Guaranty Company, 625 F.Supp. 1189 (S.D.Fla.1985). Nonetheless, a brief review is warranted.

During the period 1970-82, Defendants United States Fidelity and Guaranty Company ("USF & G") and Defendant CNA¹ issued to Plaintiff Pepper's Steel and Alloys, Inc. ("Pepper's") comprehensive general liability insurance. During the same period, CNA and The Home Insurance Company ("Home"), issued various excess and/or umbrella policies. Pepper's operated a metal recovery business of which Norton Bloom ("Bloom") was the president. Bloom also owned the property on which Pepper's did some of their business. Part of Pepper's business involved the recovery of metals from transformers purchased from Florida Power and Light Company. These transformers frequently contained oil which, unbeknownst to Plaintiffs, contained potentially hazardous concentrations of polychlorinated biphenyls ("PCBs"). There is evidence in the record tending to establish that Plaintiffs knew nothing about the concentrations of PCBs until 1977. At that point they took remedial actions to prevent their spread, received a "clean bill of health" from DER and were unaware of any further problems regarding PCB concentrations until 1983. In that year DER and EPA made further investigations and, upon finding PCB contamination outside accepted threshold levels, filed suit against the Plaintiffs, identifying them as potentially responsible parties.

Plaintiffs notified these defendants of the two lawsuits and demanded a defense under the terms of the policies. In 1985, the EPA filed an additional action against Plaintiffs seeking recovery of the initial response costs incurred by the Government. Upon Defendants' refusal to provide any defense, Plaintiffs filed this action seeking a determination of the Defendants' duties and obligations under the insurance policies issued by them.

Plaintiffs' motion initially sought a determination that all Defendants owed them a duty of defense in the underlying actions brought by DER and EPA. Both in open court and in subsequent pleadings, however, Plaintiffs conceded that Defendants Home and CNA, to the extent they provided excess coverage, had no duty to defend. Plaintiffs still seek a declaration of the primary carriers' duty to defend, reimbursement for all costs and fees incurred to date in defending the underlying actions from the date of demand on Defendants in 1983 up to the present, together with the costs and fees incurred in bringing this action. Finally, Plaintiffs seek a determination that all Defendants are obligated to provide coverage/indemnification to them for any potential liability in the main cases based on the Defendants' statutory waiver of coverage defenses. Plaintiffs concede, however, that should the court determine that either the statute is not applicable or has been complied with, there remain questions of fact which preclude the entry of summary judgment on the question of coverage/indemnification.

Defendant USF & G argues in its motion that at least two exclusions in the policies issued by it to Plaintiffs relieve them from providing either a defense or coverage. Defendant Home in its motion argues that as an excess carrier and under the plain terms of the policy it issued, it has no duty to defend. As indicated, this argument is conceded by Plaintiff. Home also argues that it has no obligation to provide coverage.

This court held a hearing on all motions on June 8, 1987. At the hearing it became clear that despite the various issues raised in the motions and responses thereto, there were in fact only two narrow issues before the court: the applicability of Fla.Stat.Ann. § 627.426(2) (West 1984) and its effect on the Defendants' subsequent ability to raise coverage defenses, and the Defendants' duty to otherwise provide a defense.

II. The Statute

This court is of the opinion that the statute is not applicable to some Defendants and has been complied with by the others. Fla.Stat. § 627.426(2) states in pertinent part:

(2) A liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless:

(a) Within 30 days after the liability insurer knew or should have known of the coverage defense, written notice of reservation of rights to assert a coverage defense is given to the named insured by registered or certified mail sent to the last known address of the insured or by hand delivery; and

(b) Within 60 days of compliance with paragraph (a) or receipt of a summons and complaint naming the insured as a defendant, whichever is later, but in no case later than 30 days before trial, the insurer:

1. Gives written notice to the named insured by registered or certified mail of its refusal to defend the insured;

2. Obtains from the insured a non-waiver agreement following full disclosure of the specific facts and policy provisions upon which the coverage defense is asserted and the duties, obligations, and liabilities of the insurer during and following the pendency of the subject litigation; or

3. Retains independent counsel which is mutually agreeable to the parties. Reasonable fees for the counsel may be agreed upon between the parties or, if no agreement is reached, shall be set by the court.

Fla.Stat.Ann. § 627.426(2) (West 1984).

Defendant Home, as an excess carrier with no duty to defend, and also Defendant CNA, to the extent it is an excess carrier with no duty to defend, argue that this section of the statute is not applicable to them and that they cannot be said to have waived any right to assert coverage defenses predicated on an alleged failure to comply with it. In particular, Home argues that § 627.426(2)(b) deals exclusively with arrangements concerning defense of the insured, retention of independent counsel, and delineations of the duties and obligations in relation to pending litigation. Home also argues that the statute is designed to address problems arising from disputes regarding whether, how and under what circumstances and conditions a defense will be provided for an insured pursuant to a defense provision of an insurance contract, and is therefore not applicable to them. This court agrees and notes that Plaintiffs' counsel, when asked at the hearing in this case whether it could seriously contest the position taken by the Home, responded in the negative.

At the hearing, Defendants USF & G and CNA, to the extent each is a primary carrier, argued to the Court that they substantially complied with the statute, insofar as Plaintiffs were on actual notice of these Defendants' positions, albeit not in accordance with the technical "niceties" subsection (2)(b) of the statute requires. And, Plaintiffs' counsel conceded that they were on actual notice of the Defendants' positions regarding any defense by virtue of their conduct in the pending state court litigation involving similar issues, and had no reason to believe that the Defendants would do otherwise in this federal action. Without defining the outer parameters of the statute, and while recognizing that at least one court addressing the statute has strictly construed it, Auto Owners Insurance Co. v. Salvia, 472 So.2d 486 (Fla.Dist. Ct.App.1985), this Court holds that, on the facts of this case, where Plaintiffs concede actual notice within the meaning of the statute although not in strict compliance with it, it has been complied with. Insofar as the Plaintiffs were on...