Petro v. Travelers Cas. & Sur. Co. of Am.
| Decision Date | 24 September 2014 |
| Docket Number | Case No. 3:12CV491/MCR/CJK. |
| Citation | 54 F.Supp.3d 1295 |
| Parties | Emile T. PETRO, Jr., et al., Plaintiffs, v. TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Defendant. |
| Court | U.S. District Court — Northern District of Florida |
Michael H. Crew, Crew & Crew PA, Fort Walton Beach, FL, for Plaintiffs.
Andrew V. Tramont, Rodriguez Tramont Guerra ETC PA, Coral Gables, FL, for Defendant.
AMENDED ORDER
Plaintiffs in this action owned units in the Shelter Cove Condominium, managed by Shelter Cove Condominium Association, Inc. (“Shelter Cove”), which maintained an insurance policy with Defendant Travelers Casualty and Surety Company of America (“Travelers”). As a result of damage to the condominium caused by Hurricane Ivan, Plaintiffs sued Shelter Cove on various claims related to the repair or reconstruction of the condominium. The parties settled the state court suit and obtained a consent judgment. Shelter Cove assigned its rights under the policy to Plaintiffs, who in turn filed this suit against Travelers, seeking declaratory relief for the amount of the consent judgment and asserting claims of breach of contract and bad faith. Both parties have moved for summary judgment on Count One (declaratory relief) and Count Two (breach of contract) of the Amended Complaint.1
Travelers insured Shelter Cove under a Non–Profit Management and Organization Liability Insurance Policy that was in effect from 2004 through 2010. The policy provided a $1,000,000 annual aggregate limit per claim, to be reduced by any costs Travelers incurred in defending the claim. In September 2004, Hurricane Ivan significantly damaged part of the condominium where Plaintiffs owned units, and Shelter Cove took action to repair and reconstruct the building. Nearly three years later, on July 20, 2007, Plaintiffs filed an “Action for Termination of Condominium” in the Circuit Court of Escambia County, Florida, seeking to terminate the condominium ownership and partition its assets because Shelter Cove allegedly failed to obtain the necessary and timely written consent of two-thirds of the owners to rebuild the structure as Shelter Cove had planned, as required by the Shelter Cove Declaration of Condominium. Travelers received notice of the lawsuit on August 13, 2007, and sent Shelter Cove a letter dated August 21, 2007, agreeing to defend Shelter Cove under a reservation of rights and advising that the law firm of Litchfield Cavo, LLP had been retained to handle the defense. In the letter, Travelers reserved its right under the policy to deny liability for loss and expenses should it be determined there is no coverage, and Travelers listed policy provisions that could impact coverage, including exclusions if the insured deliberately committed an act of fraud or agreed to settle a claim or assume liability without Travelers' written consent.
Plaintiffs later amended their state-court complaint on February 3, 2010, adding two insured Shelter Cove board members, Holly Gallopo and Joel Earheart, as defendants and seeking damages for negligence and fraud, in addition to the equitable relief in the initial pleading. Specifically, Plaintiffs claimed that the named defendants fraudulently misrepresented that they had received the proper consents before proceeding with reconstruction, negligently managed insurance proceeds, and ultimately failed to timely reconstruct the condominium. Travelers received notice of the amended pleading by at least June 2010. Travelers continued to defend Shelter Cove, and also defended Gallopo and Earheart, using the same law firm. In February 2011, Plaintiffs offered to settle the state law claims for $432,306, but neither the defendants in the state court proceedings nor Travelers accepted the offer.2 On April 6, 2011, Travelers sent to the Shelter Cove Board of Directors what Travelers described as a “follow up to [its] earlier coverage analysis,” explaining that it had retained Litchfield Cavo, LLP to represent the interest of Shelter Cove, Gallopo, and Earheart under a reservation of rights with similar disclaimers as the August 2007 letter and explaining that its duty to defend would cease upon exhaustion of the limit of liability. Travelers ultimately defended the suit for four years and eleven months before being terminated in May 2012. Up to that point, Shelter Cove, Gallopo, and Earheart did not specifically object to the defense or the representation of Litchfield Cavo, LLP or its attorneys, though at times Earheart expressed to Travelers his displeasure with the way the defense was being handled because he believed the case should have settled in mediation.3
The state court scheduled the trial to begin on May 21, 2012. Two days before trial was to begin, Plaintiffs submitted a final settlement offer in the total amount of $1,517,040 with an expiration date of May 25. The trial was then rescheduled for May 28, and Shelter Cove's Board of Directors held an emergency meeting on May 20 to consider the new settlement offer. The Board instructed its independently retained lawyer, William Walter, that if Travelers did not consent to the offer or otherwise settle the case within twenty-four hours, Shelter Cove was to “immediately accept plaintiffs' settlement offer, pursuant to Coblentz v. American Surety Co. of New York. ”4 On May 22, Walter, acting as independent counsel for Shelter Cove, Gallopo, and Earheart, sent a letter to Travelers informing it of the recent settlement offer and demanding that Travelers immediately confirm complete coverage or settle the case by close of business on May 23. Walter stated that, if not, Shelter Cove intended to terminate Travelers' defense and settle the case on its own in order to mitigate further damages.5 On May 23, Travelers sent a letter to Walter stating that it would not agree to assume full financial responsibility for the settlement but would contribute $180,000. The following day, Shelter Cove, Gallopo, and Earheart terminated Travelers' defense and executed a settlement agreement with Plaintiffs.
In the settlement agreement, the underlying parties agreed to sign and file with the state court a joint motion for consent judgment. Shelter Cove assigned to Plaintiffs its rights and claims under the insurance policy, and it was agreed Plaintiffs would delay execution of a stipulated final judgment against Shelter Cove until final resolution of the assigned claims or a maximum of two years. The agreement specified that it was the result of a compromise and should not be considered an admission as to any facts or liability by any of the parties. In their joint motion for consent judgment, the parties stipulated to an entry of judgment on Count One “for negligence” against Shelter Cove on grounds that it failed to obtain the proper owners' consents to reconstruct the condominium in 2004; on Count Two “for negligence” in failing to use reasonable care in the management of the insurance proceeds obtained regarding the deconstruction of the building between 2005 and 2007; and on Count Three “for negligence” in failing to timely reconstruct the structure in 2008. The parties also stipulated to a dismissal with prejudice as to the remaining claims and moved for a damage award in favor of Plaintiffs and against Shelter Cove in the total amount of $1,517,040. On May 25, 2012, the state court entered a final judgment that recited the stipulations and awarded Plaintiffs $1,267,040 for damages and $250,000 for legal fees and costs, to be recovered from Shelter Cove.
Plaintiffs, as assignees, then filed suit in this Court against Travelers. In Count One of the Amended Complaint, they seek a declaration of rights under the insurance policy, requesting the Court to find Travelers obligated to provide coverage in the full amount of the final state court judgment ($1,517,040), plus interest, attorney's fees and costs, for what Plaintiffs allege to be three separate claims. In Count Two, Plaintiffs allege that Travelers breached the insurance contract by rejecting offers to settle within the policy limits and failing to properly defend and indemnify, also seek damages in the amount of the final state court judgment plus attorney's fees, interest, and costs.
A federal court sitting in diversity generally applies federal procedural law and the substantive law of the state in which it sits. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ; Trailer Bridge, Inc. v. Illinois Nat. Ins. Co., 657 F.3d 1135, 1141 (11th Cir.2011). Accordingly, the Court applies federal procedural law and Florida substantive law to the issues in this case, and thus Florida law governs the construction of the insurance policy. See Provau v. State Farm Mut. Auto. Ins. Co., 772 F.2d 817, 819–20 (11th Cir.1985) ().
Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing to particular parts of materials in the record ... or showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c)(1). The movant bears the initial burden of demonstrating the absence of a genuine dispute of material fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If shown, the burden shifts to “the non-moving party to demonstrate that there is indeed a material issue of fact that precludes summary judgment.” Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir.1991). Rule 56(a) “mandates the entry summary judgment ... against a...
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