In Intervest Construction of Jax, Inc., et al. v. General Fidelity Ins. Co., No. SC11-2320, the Florida Supreme Court was asked to answer this question: Do payments made by a third party in settlement satisfy a self-insured retention (SIR), thereby forcing the insurance company’s coverage to kick in before the insured has to pay anything? The answer was YES.
If you’ve got a savvy attorney on your side from the moment a claim arises, a smart settlement-payment plan can get an insured more bang for the buck. Here, a third party’s settlement payment made to the insured, which was then paid by the insured to the plaintiff, did satisfy an SIR, which then triggered coverage from the insurer for the remaining amounts to achieve settlement. In complex litigation, it is imperative to have coverage counsel involved from the start to ensure that payments made in settlement are structured in a way to maximize insurance coverage.
The relevant facts of this case are as follows:
- Intervest Construction of Jax, Inc. and ICI Homes, Inc. (ICI) contracted with a subcontractor, Custom Cutting, Inc., to install stairs in a home being built by ICI.
- The contract between ICI and Custom Cutting included an indemnification provision, requiring Custom Cutting to pay ICI for any damages resulting from Custom Cutting’s negligence.
- After completion of the home, the owner fell while using the stairs. The owner sued ICI. ICI sued Custom Cutting.
The case ended up settling for $1.6 million. As part of the settlement payment arrangement, Custom Cutting paid $1 million to ICI who, in turn, paid that amount to the owner.
ICI held an insurance policy with General Fidelity Insurance Company, which included an SIR endorsement requiring ICI to first pay $1 million on an insurance claim before General Fidelity would pick up coverage. Considering the SIR satisfied, ICI turned to General Fidelity to kick in the last $600,000 owed to achieve settlement.
General Fidelity refused, stating that because ICI did not use its own funds to pay the owner, the SIR was never satisfied. General Fidelity also argued that under the Transfer of Rights provision (which provided that if ICI had rights against another party for damages paid by General Fidelity on its behalf, those rights belonged to General Fidelity), Custom Cutting’s $1 million belonged to General Fidelity, not ICI. The Florida Supreme Court disagreed.
After reviewing the language in the SIR endorsement and applying the well-known rules of policy interpretation, the Court determined that the policy allowed the $1 million settlement payment from Custom Cutting to satisfy ICI’s SIR. In its conclusion, the Court reasoned that the provision required only that the SIR be paid “by you.” But it did not require payments from the ICI’s “own account,” or include language limiting SIR satisfaction by excluding “payment by others” or “other insurance.” The Court also noted that because Custom Cutting’s $1 million payment stemmed from the indemnity provision in the contract between ICI and Custom Cutting, ICI did, in fact, bargain for and pay for that protection and should be able to use it to satisfy the SIR.
As to the Transfer of Rights provision, the Court rejected General Fidelity’s attempt to usurp the only funds available to satisfy ICI’s SIR, holding that the common law “made whole doctrine” trumped General Fidelity’s argument that it was to be paid first out of Custom Cutting’s $1 million settlement. Because the amount paid by Custom Cutting was insufficient to make both ICI and General Fidelity whole and because the Transfer of Rights provision gave no guidance as to priority, nor did it state that it eliminated the “made whole doctrine,” ICI’s right to be “made whole” first remained intact.
Kudos to the attorneys in Intervest who were challenged with a high SIR, a steep liability claim against the defendant insured, and possible collection issues for the plaintiff. They successfully structured multiple settlement payments in a way to trigger insurance coverage. The plan paid off. Literally.
See the full opinion at http://www.floridasupremecourt.org/decisions/2014/sc11-2320.pdf.