U.S. Fidelity and Guar. Co. v. American Fire and Indem. Co., 86-184

• Decision Date: 16 July 1987
• Docket Number: No. 86-184,86-184
• Citation: 511 So.2d 624,12 Fla. L. Weekly 1736
• Parties: 12 Fla. L. Weekly 1736 UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellant, v. AMERICAN FIRE AND INDEMNITY COMPANY, a Texas corporation, et al., Appellees.
• Court: Florida District Court of Appeals

Page 624

511 So.2d 624

12 Fla. L. Weekly 1736

UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellant, v. AMERICAN FIRE AND INDEMNITY COMPANY, a Texas corporation, et al., Appellees.

No. 86-184.

District Court of Appeal of Florida,

Fifth District.

July 16, 1987.

Rehearing Denied Aug. 28, 1987.

John N. Bogdanoff of Haas, Boehm, Brown, Rigdon, Seacrest & Fischer, P.A., Daytona Beach, for appellant.

David R. Gemmer of Rumberger, Kirk, Caldwell, Cabaniss & Burke, A Professional Ass'n, Orlando, for appellee American Fire and Indem. Co.

Green, Simmons, Green, Hightower & Gray, P.A., Ocala, and Thomas D. Sawaya, Ocala, for appellee Charles Peter Adolph.

Ralph J. McMurphy of Green, Simmons, Green, Hightower & Gray, P.A., Ocala, for appellee Patricia S. Huddleston.

COWART, Judge.

This case involves a question of whether section 627.426(2), Florida Statutes, creates coverage under an expired liability insurance policy where the issuing insurance company did not comply with the provisions of that statute.

Appellant United States Fidelity and Guaranty Company (USF & G) issued to appellee Adolf Construction Company a "claims-made" contractor's comprehensive liability insurance policy. This policy provided coverage "if the negligent or omitted act is discovered or brought to the attention of the insurer within the policy term." The policy term here was 1972-1973, the period during which Adolf installed electrical wiring in a construction project. In 1984, Robert Huddleston was electrocuted due to Adolf's allegedly negligent installation of the wiring. Huddleston's estate and survivors brought an action against Adolf. Adolf notified USF & G and appellee American Fire and Indemnity Company of the claim. ¹ It is undisputed that the act causing the accident in this case was discovered or brought to USF & G's attention in 1984, over ten years after USF & G's policy had expired.

American filed an action seeking declaratory relief against Huddleston's estate and survivors, Adolf, and USF & G. Adolf counterclaimed against American and crossclaimed against USF & G. The trial court entered final summary judgments in favor of Adolf and American, and against USF & G, finding that USF & G's "claims-made" policy, though expired, provides coverage to Adolf because USF & G did not comply with the provisions of section 627.426(2). We reverse.

Section 627.426(2) provides that a liability insurer shall not be permitted to deny coverage based on a particular coverage defense unless the insurer performs certain acts specified in the statute. However, the term "coverage defense" does not include a complete lack of coverage such as in this case, where the policy term had expired and the liability coverage terminated ten years before any claim was made on the policy. An insurer does not assert a "coverage defense" where there was no coverage in the first place. The legislature did not intend, by section 627.426(2), to create coverage under a liability insurance policy that never provided that coverage, or to resurrect a policy that has expired by its own terms and no longer legally exists, to cover an accident or event occurring after its termination. Accordingly, section 627.426(2) does not apply in this case and the lower court erred in so holding. The summary judgments against USF & G are

REVERSED.

DAUKSCH, J., concurs.

SHARP, J., dissents with opinion.

SHARP, Judge, dissenting.

I respectfully dissent. Initially I agreed with the theory adopted by the majority that an insurer who has issued an expired policy is not asserting a "coverage defense" when it points out absence of coverage for the mishap, and therefore no duty exists to comply with section 627.426(2) of the Insurance Code. ¹ However, section 627.426(2) does not define what the legislature meant by "coverage defense," and in looking at the body of insurance law, "coverage" is used in such a broad, all-encompassing manner, that I fear exclusion in this case will render section 627.426(2) meaningless. In New York a similar statute ² has been rendered meaningless in case-by-case exclusions.

The language of the two insurance policies in this case is not ambiguous, and pursuant to interpretations given similar insurance policies in Florida, American's policy, and not USF & G's, covers this accident. Both are "claims-made" (also referred to as "discovery") policies, which provide coverage "if the negligent or omitted act is discovered or brought to the attention of the insurer within the policy term." (Emphasis added.) They are the opposite from "occurrence policies" where "coverage is effective if the negligent act or omission occurs within the policy period, regardless of the date of discovery or the date the claim is made or asserted." ³ (Emphasis added.)

Coverage for claims-made policies exists if an accident happens while the policy is in effect, without regard to when the negligent act which caused the accident took place. ⁴ Most contractors' comprehensive liability policies are of the claims-made type, effective for accidents which happen during the effective dates of the policy. ⁵ Accordingly, but for section 627.426(2), American's policy would cover this accident because it was in effect when the negligence was discovered; whereas USF & G's policy would not provide coverage because that policy was in effect when the negligent act occurred.

The difficult issue in this case is to determine whether section 627.426(2) has the effect of creating coverage for Adolf under USF & G's expired liability policy. Faced with a similar, although much more general statute in New York which requires insurance companies to timely disclaim coverage, ⁶ the courts in that state have held that the statute does impose liability where the insurance company seeks to avoid coverage because of a breach of a condition in the policy by the insured, or because of the application of an exclusion. ⁷

However where the coverage of the policy does not attach, either because no contract of insurance was made with the person and for the vehicles involved, or where the policy had been terminated by act of the insured or cancellation by the insurer, there is no duty to disclaim. ⁸ The rationale for the New York court's view of their insurer disclaimer statute is a species of waiver or estoppel. Since these doctrines are not a sufficient legal basis to create or extend coverage, the reasoning is that neither can the statute create or extend coverage. ⁹

To hold otherwise and apply the doctrine of waiver in such circumstances would improperly create coverage where none exists, contrary to well-established law in this state.

Aetna Casualty, at 912.

A similar rule of law regarding estoppel and waiver is existent in this state. ¹⁰

... the doctrine of waiver and estoppel based upon the conduct or action of the insurer (or his agent) is not applicable to matters of coverage as distinguished from grounds for forfeiture. In other words, while an insurer may be estopped by its conduct from seeking a forfeiture of a policy, the insurer's coverage or restrictions on the coverage cannot be extended by the doctrine of waiver and estoppel.

Peninsular Life Ins. Co. v. Wade, 425 So.2d 1181 (Fla. 2d DCA 1983). This general rule is much easier to state than to apply, however, and there is disagreement about what constitutes a condition of forfeiture as opposed to a limitation of coverage, ¹¹ and even whether or not estoppel can expand coverage. ¹² If the whole body of case law regarding the effect of waiver and estoppel on insurance contracts were read into section 627.426(2), as apparently the New York courts have done, the result would be a severe reduction in its impact and reach.

Similarly, if "coverage defense" as used in section 627.426 is not very narrowly defined and limited in this state, this statute may also be rendered meaningless and ineffective. Almost every suit can be phrased as a problem of "coverage" since coverage under an insurance policy generally means the total sum of risks or hazards encompassed by a policy. ¹³ It may mean the definition of risks covered, ¹⁴ the application of an exclusion or condition, ¹⁵ or the definition in an endorsement. ¹⁶ Coverage can also mean resolving whether a policy is an "occurrence" or a "claims made" type, so as to determine if the accident or damage occurred during the effective period of that policy or another policy. ¹⁷ Although in the present case that determination is relatively simple and unambiguous, in other cases it has required extensive judicial interpretation. ¹⁸

In Auto Owners Insurance Co. v. Salvia, 472 So.2d 486 (Fla. 5th DCA 1985), we held that an insurance company was precluded from asserting "any coverage defense" against an insured, because it failed to select and act upon one of the statutory alternatives set forth in section 627.426(2). The nature of the particular coverage defense sought to be asserted by Auto Owners in that case was not set forth in the opinion, but it did involve a liability policy for work performed during the insured's business operations. We did not read into section 627.426(2) any exceptions for defenses without which coverage would be expanded.

Section 627.426(2) uses broad language to impose a duty on an insurer to respond to its insured within set time limits:

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

As noted above, "coverage" is an all-encompassing word in insurance law. There is no indication in the statute that it only refers to defenses based on breach of conditions leading to forfeiture, or operation of an exclusion. The staff report to section 627.426(2) explained that "this section treats waiver of forfeiture and coverage defense the same and establishes time limits in lieu of the insured having to prove prejudice. The statute, in essence, provides that the failure to meet the established time limits is sufficient in itself...