Travelers Indem. Co. of Ill. v. Royal Oak Enters.

• Decision Date: 13 October 2004
• Docket Number: No. 5:02-cv-58-Oc-10GRJ.,5:02-cv-58-Oc-10GRJ.
• Parties: TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Plaintiff, v. ROYAL OAK ENTERPRISES, INC., a foreign corporation; Dan Swearingen, an individual; and John V. Tilton, Sr., as Personal Representative of the Estate of John V. Tilton Jr., deceased, Defendants.
• Court: U.S. District Court — Middle District of Florida

344 F.Supp.2d 1358

TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Plaintiff, v. ROYAL OAK ENTERPRISES, INC., a foreign corporation; Dan Swearingen, an individual; and John V. Tilton, Sr., as Personal Representative of the Estate of John V. Tilton Jr., deceased, Defendants.

No. 5:02-cv-58-Oc-10GRJ.

United States District Court, M.D. Florida, Ocala Division.

October 13, 2004.

COPYRIGHT MATERIAL OMITTED

Andrew Edward Grigsby, and Sina Bahadoran, Hinshaw & Culbertson, Miami, FL, for Plaintiff.

Daniel James King, Barry Goheen, King & Spalding, Atlanta, GA, Jona J. Miller, King & Spalding, Sarasota, FL, William Harper Phelan, Jr., Bond, Arnett, Phelan, Smith & Craggs, P.A., Ocala, FL, for Defendants.

ORDER

HODGES, District Judge.

This insurance coverage dispute is before the Court for consideration of the Parties' cross-motions for summary judgment (Docs. 161 & 170).¹ The Plaintiff, Travelers Indemnity Company of Illinois ("Travelers"), seeks a declaration that a wrongful death action against its insured, Royal Oak Enterprises, Inc. ("Royal Oak"), presented no covered claims, and further seeks recoupment from Royal Oak of the $750,000.00 it paid to settle the litigation. Royal Oak counterclaims, seeking a declaration that coverage was provided under the policy of insurance and demanding reimbursement of the reasonable fees and costs of counsel it independently retained to assist in the defense of the wrongful death action. For the reasons that follow, summary judgment is due to be granted in favor of both Parties, in part, disposing of some issues and narrowing the remaining issues to be tried.

Background and Facts

This action arises out of a tragic incident that occurred in Ocala, Florida in 1998 at a processing plant owned and operated by Defendant Royal Oak, a manufacturer of charcoal briquettes. At that time, decedent John V. Tilton, Jr. was employed by Royal Oak as a furnace helper in its Ocala facility. As a furnace helper, Mr. Tilton's duties included working in and near the electrical panel of the facility's hammer mill, a machine that grinds charred wood into dust for the manufacture of charcoal briquettes. On August 30, 1998, Mr. Tilton inadvertently came into contact with the electrical panel of the hammer mill, which resulted in his electrocution and his death.

At the time of the incident causing Mr. Tilton's death, Royal Oak was insured by Travelers under a "Workers Compensation and Employers Liability" policy.² The Employers Liability Insurance portion of that policy, which is the only part at issue here, covers damages that Royal Oak must pay because of bodily injury (including death) to an employee by accident arising out of and in the course of the employee's employment. The insurance does not cover "bodily injury intentionally caused or aggravated" by the insured. The pertinent provisions of the policy read as follows:

A. How This Insurance Applies

This employers liability insurance applies to bodily injury by accident or bodily Injury by disease. Bodily injury includes resulting death.

1. The bodily injury must arise out of and in the course of the injured employee's employment by you.

. . .

B. We Will Pay

We will pay all sums you legally must pay as damages because of bodily injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance.

. . .

C. Exclusions

This insurance does not cover:

5. bodily injury intentionally caused or aggravated by you;

. . .

D. We Will Defend

We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. We have the right to investigate and settle these claims, proceedings and suits.

We have no duty to defend a claim, proceeding or suit that is not covered by this insurance. We have no duty to defend or continue defending after we have paid our applicable limit of liability under this insurance.³

In July 2000, the personal representative of Mr. Tilton's estate brought a wrongful death action in Circuit Court In Marion County, Florida against Royal Oak.⁴ The wrongful death complaint was initially framed in one count, which alleged that Mr. Tilton's death was the result of Royal Oak's negligent conduct. Upon notification by Royal Oak, Travelers undertook the defense of the action and appointed Mr. Wayne Argo, Esq. of the law firm of Weiner & Argo, P.A. as counsel for Royal Oak. Royal Oak believed Weiner & Argo, a two-attorney firm, was too small to handle the case and voiced some objection, but acquiesced in the representation.

In November of 2000, Mr. Argo received a proposal from the Tilton estate, offering to settle the case for $750,000.00, an amount within the limits of coverage under the Travelers policies. Mr. Argo communicated the settlement proposal to Paul McAllister, the newly appointed Vice President of Royal Oak's Ocala facility where the death occurred. In February of 2001, only days before the settlement offer was due to expire, the Tilton estate notified Mr. Argo of its Intent to move for leave to amend its complaint to add a prayer for punitive damages. Mr. Argo did not communicate this information to Royal Oak, but instead informed the Travelers' claims administrator that the motion, if filed, would likely be granted. Shortly thereafter, Travelers permitted the first settlement offer to lapse.

The Tilton estate eventually filed its motion to amend the complaint in June of 2001.⁵ Attached to the motion was a proposed amended complaint containing, in addition to the original negligence count, a prayer for punitive damages and a second count framed as an intentional tort.⁶ The intentional tort claim was based on allegations that the defendants' conduct was "objectively substantially certain to cause injury or death."⁷

Under Florida law, which supplies the substantive law of this diversity case,⁸ negligence actions brought by an employee (or his estate) against an employer for injuries sustained during the course of employment are barred by workers' compensation immunity.⁹ However, intentional torts, including allegations that the employer engaged in conduct "substantially certain to result in injury or death," do not fall within workers' compensation immunity.¹⁰

Upon examining the proposed amended complaint, Travelers concluded that the allegations in the intentional tort count fell outside of the coverage provided by its policies. On August 6, 2001, Travelers sent Royal Oak a "Reservation of Rights Letter" stating that it would continue to defend the action under a reservation of its right to contest coverage.¹¹ The letter also set forth the grounds on which Travelers based its conclusion, specifically that the Employers Liability Insurance policy covers only accidents and excludes "bodily injury intentionally caused or aggravated" by the insured and that, further, punitive damages are not insurable as a matter of public policy. With respect to its continued representation in the matter, Travelers wrote:

"Subject to this full and complete reservation or rights under its policies of insurance, Travelers has previously appointed the law firm of Weiner & Argo, P.A., to defend your interests in this matter. The assigned counsel will defend you in regard to all Counts in this action so long as some covered Counts remain. We elicit your participation in the selection of counsel, and will assume that the previously assigned counsel is mutually agreeable to you if you do not notify us to the contrary in writing within ten (10) days.

"You have the right to engage, at your own expense, personal counsel to advise and represent you regarding the matters that we believe are not covered under the policy. If your counsel has any questions concerning any of the matters raised in this letter, we will be glad to address them further."

¹²

Royal Oak responded to the reservation of rights letter on August 17, 2001, stating:

"Royal Oak continues to have significant concerns over Travelers' selection of Weiner & Argo to defend this matter. First, Travelers did not provide Royal Oak with a meaningful opportunity to provide input into the selection of independent counsel to defend it In this matter. Second, Royal Oak is concerned that the two-person firm of Weiner & Argo, acting alone, lacks the necessary resources to render an adequate defense of Royal Oak in this litigation. Third, Royal Oak is concerned that plaintiff's [first] offer of settlement was rejected or allowed to expire by Travelers without Royal Oak being provided any meaningful opportunity to comment on or participate in the discussions concerning that offer of settlement. These and other examples have led Royal Oak to conclude that Weiner & Argo may not be sufficiently `independent' to provide an effective defense of Royal Oak in this litigation, nor is that firm `mutually agreeable' to Royal Oak.

"Accordingly, to supplement Weiner & Argo, Royal Oak has retained King & Spalding as independent counsel to represent it in its defense of this matter. This letter will serve as notice that Royal Oak reserves all available rights to which it is entitled under Florida (or other applicable) law in its retention of King & Spalding, including, but not limited to, its right to seek from Travelers reimbursement of reasonable fees incurred by King & Spalding in its defense of Royal Oak in this matter due to Travelers' failure to comply with applicable provisions of Florida law concerning its retention of `mutually agreeable counsel' to defend Royal Oak in this matter."¹³

Deposition testimony reveals that in response to Royal Oak's letter, Travelers suggested several other Florida law firms located in the surrounding Ocala area that could undertake the defense of the Tilton action instead of Atlanta-based, King & Spalding.¹⁴ Royal Oak rejected the alternative firms offered by Travelers.¹⁵ Though Royal Oak asserts that there never was a "meeting of the minds" on the issue of...