Carrousel Concessions, Inc. v. Florida Ins. Guar. Ass'n, 84-2354

• Decision Date: 19 February 1986
• Docket Number: No. 84-2354,84-2354
• Citation: 11 Fla. L. Weekly 489,483 So.2d 513
• Parties: 11 Fla. L. Weekly 489 CARROUSEL CONCESSIONS, INC., Dania Jai-Alai Palace, Inc., and Saturday Corporation, Appellants, v. FLORIDA INSURANCE GUARANTY ASSOCIATION and Public Service Mutual Insurance Company, Appellees.
• Court: Florida District Court of Appeals

Page 513

483 So.2d 513

11 Fla. L. Weekly 489

CARROUSEL CONCESSIONS, INC., Dania Jai-Alai Palace, Inc., and Saturday Corporation, Appellants, v. FLORIDA INSURANCE GUARANTY ASSOCIATION and Public Service Mutual Insurance Company, Appellees.

No. 84-2354.

District Court of Appeal of Florida Third District.

Feb. 19, 1986.

Bailey & Dawes and Sara Soto and Michael G. Nearing, Miami, for appellants.

Anderson, Moss, Russo, Gievers & Cohen, Daniels & Hicks and Sam Daniels and Barbara Singer, Miami, for appellee Florida Ins. Guar. Assn.

Squire, Sanders & Dempsey and Joanne M. Rose, Roger G. Welcher, Miami, for appellee Public Service Mut. Ins. Co.

Before NESBITT, FERGUSON and JORGENSON, JJ.

JORGENSON, Judge.

Carrousel Concessions, Inc., Dania Jai-Alai Palace, Inc., and Saturday Corporation [collectively Carrousel] appeal the final summary judgment granted in favor of Florida Insurance Guaranty Association [FIGA]. We reverse.

Carrousel was a defendant in a personal injury action brought in 1978. Carrousel had $500,000 primary liability insurance coverage with Consolidated Mutual Insurance Company [Consolidated] and excess insurance coverage under an umbrella policy with Public Service Mutual Insurance Company. During the course of the personal injury action, Consolidated became insolvent, and FIGA, in accordance with section 631.57, Florida Statutes (1977), assumed Consolidated's duties and obligations. By statute, however, FIGA's liability obligation was capped at $300,000, ¹ thereby causing a $200,000 gap in coverage.

One of the duties assumed by FIGA was the duty to defend the lawsuit. FIGA hired a firm to defend the lawsuit after counsel employed by Consolidated withdrew. Due to a conflict in interest, the second firm also withdrew. Carrousel's third defense counsel began discovery two weeks before trial. At the demand of Carrousel, defense counsel moved for a continuance, but the motion was denied. (The trial subsequently was continued because of the court's own scheduling conflicts.)

Carrousel became dissatisfied with the way the attorneys hired by FIGA were preparing for trial. Carrousel alleged that "FIGA's counsel continued to neglect the defense of the case, making little or no effort to prepare for trial." Carrousel requested that its attorneys be permitted to assume the defense of the lawsuit. FIGA agreed to the substitution of counsel but refused to pay the costs and attorneys' fees for the defense.

The trial resulted in an adverse judgment of $775,000. Carrousel decided to appeal. FIGA refused to post an appeal bond, pay a pro rata share of such bond, or prosecute the appeal. Carrousel obtained a stay of the judgment by posting a supersedeas bond. While the appeal was pending, FIGA paid the plaintiff in the personal injury action the $300,000 liability limit.

Carrousel sued FIGA for, inter alia, breach of contract. Carrousel alleged that FIGA had breached its duty to defend Carrousel by failing (a) to provide Carrousel with an adequate defense up to and including the time of trial; (b) to pay the costs and expenses of that defense; (c) to post an appeal bond; (d) to appeal the trial court judgment obtained against Carrousel; and (e) to cooperate with Carrousel to settle the suit or to prosecute a completely meritorious appeal from the judgment in that suit. Carrousel sought to recover the costs of conducting its own defense.

FIGA moved for summary judgment. FIGA claimed that it had discharged its statutory and contractual duties to Carrousel by paying the $300,000 to the personal injury plaintiff. FIGA did not offer affidavits, depositions, or other evidence to counter the factual allegations of the complaint.

The trial court entered final summary judgment in favor of FIGA, and Carrousel moved for rehearing. During the pendency of the motion for rehearing, the Florida supreme court decided Carrousel's appeal from the underlying personal injury action. The supreme court reversed the $775,000 judgment against Carrousel. Dania Jai-Alai Palace, Inc. v. Sykes, 450 So.2d 1114 (Fla.1984). ² Thereafter, the trial court denied Carrousel's motion for rehearing, and this appeal followed.

The obligations and duties assumed by FIGA are set forth in the contract between Consolidated and Carrousel. The insurance contract provides in relevant part:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

* * *

* * *

The company will pay, in addition to the applicable limit of liability:

(a) all expenses incurred by the company, all costs taxed against the insured in any suit defended by the company and all interest on the entire amount of any judgment therein which accrues after entry of the judgment and before the company has paid or tendered or deposited in court that part of the judgment which does not exceed the limit of the company's liability thereon....

(Emphasis supplied.)

Accordingly, it was FIGA's duty to defend Carrousel until the applicable limit of its liability "ha[d] been exhausted by payment of judgments or settlements" and to pay all costs incurred in the defense.

An insurer's duty to defend arises solely from the language of the insurance contract. Schiebout v. Citizens Insurance Co. of America, 140 Mich.App. 804, 813, 366 N.W.2d 45, 49 (1985). To satisfy its obligation to defend, an insurer (in this case, FIGA ³) must provide an adequate defense. Champion v. Farm Bureau Insurance Co., 352 So.2d 737, 742 (La.Ct.App.1977), cert. or rev. denied, 354 So.2d 1050 (La.1978); Cousins v. State Farm Mutual Automobile Insurance Co., 294 So.2d 272, 275 (La.Ct.App.), cert. or rev. refused, 296 So.2d 837 (La.1974); see also Sobus v. Lumbermens Mutual Casualty Co., 393 F.Supp. 661, 671 (D.Md.1975), aff'd without opinion, 532 F.2d 751 (3d Cir.1976); Guarantee Abstract & Title Co. v. Interstate Fire & Casualty Co., 232 Kan. 76, 79-81, 652 P.2d 665, 668-69 (1982). Where the insurer acts negligently in performing its duty to defend on behalf of the insured, its conduct constitutes a breach of contract. Guarantee Abstract & Title Co., 232 Kan. at 79-81, 652 P.2d at 668-69; see Shepard v. Milbank Mutual Insurance Co., 437 F.Supp. 744, 749 (D.S.D.1977) (insurer's duty to defend is an "obligation arising out of contract" within meaning of applicable South Dakota law; thus, where insurer refuses to defend, award of costs of defense to insured is not award of attorney's fees in usual sense, but rather constitutes compensation for foreseeable consequences of insurer's breach of contract), aff'd in part, vacated in part on other grounds, 579 F.2d 477 (8th Cir.1978); cf. Jolly v. General Accident Group, 382 F.Supp. 265, 266 (D.S.C.1974) (insurer which negligently fails to settle claim against insured within policy limits liable in contract or in tort). Such a breach can be determined objectively from the insurance contract itself without inquiry into whether the insurer acted in good faith or bad faith. Schiebout, 140 Mich.App. at 813, 366 N.W.2d at 49; cf. Thomas v. Western World Insurance Co., 343 So.2d 1298, 1304 (Fla. 2d DCA) (where insurer wrongfully refuses to provide defense on behalf of insureds there is no question of " 'good faith' vs. 'bad faith' "), cert. dismissed, 348 So.2d 955 (Fla.1977). 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. Thomas, 343 So.2d at 1304; Eskridge v. Educator & Executive Insurers, Inc., 677 S.W.2d 887, 889 (Ky.1984); Schiebout, 140 Mich.App. at 813-14, 366 N.W.2d at 49.

Carrousel alleged in its complaint that FIGA failed to provide an adequate defense and that, as a consequence, Carrousel was required to utilize the services of its own attorneys. If Carrousel is able to establish that the defense supplied by FIGA was inadequate and that it was reasonable for Carrousel to engage the services of its own attorneys, Carrousel will be entitled to recover all reasonable costs and attorneys' fees incurred at the trial level. See Keller Industries, Inc. v. Employers Mutual Liability Ins. Co., 429 So.2d 779, 781 (Fla. 3d DCA 1983); Thomas, 343 So.2d at 1302. The mere fact that Carrousel retained its own attorneys, however, does not of itself prove that FIGA failed to fulfill its duty to defend. Champion, 352 So.2d at 742; Landreneau v. United States Fidelity & Guaranty Co., 287 So.2d 554, 556 (La.Ct.App.1973), cert. or rev. denied, 293 So.2d 175 (La.1974). A liability insurer is not required to pay the insured's expenses unless the actions of the insurer have "forced" the insured to engage its own attorneys. Reis v. Aetna Casualty & Surety Co., 69 Ill.App.3d 777, 788-789, 25 Ill.Dec. 824, 833, 387 N.E.2d 700, 709 (1978). Accordingly, if it is established that the attorneys hired by FIGA were adequately defending the lawsuit, Carrousel will not be entitled to recover the costs and attorneys' fees incurred at the trial level. Champion, 352 So.2d at 742; cf. Fidelity & Casualty Co. v. Riley, 380 F.2d 153, 157 (5th Cir.1967) (insured not entitled to award of attorneys' fees and expenses incurred in defense of suits where policy afforded no coverage for alleged malpractice which formed basis of suits, insurer tendered defenses under reservation of rights,...