Golden Door Jewelry Creations, Inc. v. Lloyds Underwriters Non-Marine Ass'n
Docket: Nos. 91-5223, 91-5913
Court: Court of Appeals for the Eleventh Circuit; December 5, 1993; Federal Appellate Court
The case involves a jewelers’ block insurance policy issued by Lloyds Underwriters Non-Marine Association and underwriter Peter Wright. The district court reformed the insurance policy and granted summary judgment in favor of intervenor-plaintiffs, including Leach, Garner Company, and Westway Metals Corporation, who are consignors. Lloyds appealed the decision, particularly contesting the reformation of the insurance contract. The appellate court found the summary judgment in favor of the consignors improper, vacating the judgment and remanding the case for further proceedings.
The original plaintiffs, Golden Door Jewelry Creations, Inc. and Suisse Gold Assayer, Refinery, Inc., sought damages due to losses from an armed robbery on February 10, 1983, totaling over $9 million. They alleged compliance with policy conditions despite Lloyds denying payment. Golden Door and Suisse Gold were separate entities owned by the same individuals. Leach, a Massachusetts corporation, claimed losses exceeding $1 million and damages related to over $1.5 million of gold used to secure Golden Door's debts but was not listed in the relevant insurance policies. Westway, which consigned gold to Suisse Gold, alleged losses nearing $5 million and was designated as a loss payee in the policies. Lawrence Systems, Inc. was also named as a loss payee. The appellate court's analysis included a review of the reformation law in Florida, ultimately concluding that the district court's decision to reform the contract was inappropriate.
In late winter 1981, Jesse Schwartz procured a jewelers’ block insurance policy from Lloyds through Great Northern Brokerage Corporation, covering entities identified as Sanford Redin doing business as Golden Door and/or Maxi and/or Suisse Gold Assayer. This initial policy, which was effective until March 16, 1982, was renewed under policy No. 552/243017600, providing "all risk" coverage for jewelry stock and entrusted items, with certain exclusions. The coverage was augmented by two excess policies and endorsements, including a Loss Payee Clause ensuring payment of losses to both the assured and Chase Manhattan Bank.
Subsequent to the original policy, two excess policies were established: the first increased coverage for Suisse Gold, Maxi, and Golden Door to $6 million by September 13, 1982, while the second provided additional coverage to $6 million for Golden Door and $3 million for Suisse Gold at various dates in 1982. Provisions in these excess policies stipulated adherence to the original policy's terms. Notably, endorsements related to the second excess policy designated Lawrence Systems, Inc. as a loss payee, and Westway Metals Corp. was named specifically for Suisse Gold coverage increases.
A burglary on February 10, 1983, resulted in a theft of approximately $9 million from the companies' Miami warehouse, leading to Lloyds denying the claim. In response, Golden Door and Suisse Gold initiated a lawsuit in May 1983. Sanford Credini, linked to the theft, was indicted for conspiracy and insurance fraud, later fleeing to Germany and subsequently pleading guilty in the U.S. District Court.
Lloyds filed multiple motions for summary judgment, with initial proceedings stayed for discovery for two years. After discovery concluded, Lloyds renewed its motions, resulting in the district court denying all but one, which partially granted and barred plaintiffs from recovering on the policy. Summary judgment motions filed by consignors were also granted by the court.
The district court identified multiple grounds to grant summary judgment in favor of the consignors. It first analyzed the jewelers’ block policy, concluding it covered both property and legal liability for the assured regarding property in their possession. The court determined that the consignors had a direct right of recovery under the policy, independent of the assured's rights, based on three theories: as third-party beneficiaries, due to the assureds' legal liability for breaching consignment agreements, or through reformation of the policy to recognize the consignors as lender loss payees or named co-insureds. The court reformed the insurance policies to affirm consignors' direct recovery rights, aligning with the policy's purposes and the parties' intents. In response to Lloyds’ objections about coverage exclusions, the court mandated the policy be modified to grant consignors direct recovery akin to lender loss payees, shielding them from defenses against the assureds. The final judgment favored the consignors. On appeal, the court emphasized that summary judgment is inappropriate when genuine material facts exist, necessitating de novo review of the lower court’s order due to Lloyds' challenges. Lloyds disputed the district court’s interpretation that the policy included liability coverage, but the appellate court found this argument unmeritorious, noting the policy explicitly covered legal liability, particularly for property managed by the assured.
The policy language explicitly includes coverage for legal liability, supported by additional provisions in the policy, such as Paragraph 11, which clarifies that coverage for legal liability of the Assured is not limited by other conditions. The district court ruled that consignors have a direct right of recovery under the jewelers’ block policy and reformed the policy based on this interpretation. However, this reformation contradicts the parties' intent and Florida law, which presumes that an insurance policy accurately reflects the agreement between the parties. In Florida, a party seeking reformation must provide clear and convincing evidence of a mistake, which is typically limited to fraud, inequitable conduct, accident, inadvertence, or mutual mistake. Here, only mutual mistake is considered, specifically regarding the legal effect of the contract. A review of Florida case law reveals that no mutual mistake exists in this situation, with Old Colony Ins. Co. v. Trapani being a closely related case where reformation was denied due to a lack of intent for the claimed coverage. Thus, the circumstances of the current case do not warrant reformation of the jewelers’ block policy.
In Swede v. Metropolitan Life Ins. Co., the court concluded that the insurance company issued the policy with the exact intended coverage, ruling out reformation due to a lack of mutual mistake. Similarly, in Southeastern Fidelity Ins. Co. v. Broughton, the court found that an insured's misunderstanding regarding coverage did not constitute a mutual mistake, thus reformation was denied. Canal Ins. Co. v. Hartford Ins. Co. and Babcock v. United Services Auto. Ass’n further reinforced that reformation is not warranted when the policy accurately reflects the parties' intentions. In contrast, reformation has been recognized in cases involving simple mistakes or mutual misunderstandings about specific endorsements or exclusions.
The current case does not meet the criteria for reformation, as there was no mutual agreement regarding the expanded coverage proposed by the district court. Evidence suggests that the addition of coverage for Lawrence was required by an existing agreement rather than a mistake. Furthermore, the insurer, Lloyds, does not issue policies with the coverage being sought. The district court's acknowledgment of the nature of consignment in the jewelry business implies that both parties understood the terms of the coverage offered, which included protections for consignors within the policy's exclusions. The explicit wording in the policy endorsement indicates that there was no intention to extend coverage beyond what was agreed upon, negating the possibility of a mutual mistake.
Reformation of the contract is deemed impermissible based on the factual circumstances of the case. Contracts must be binding unless there is clear and convincing evidence of a mutual mistake, which is not present here. The agreement did not include consignors as lender loss payees or named co-insureds; instead, they were covered under standard contract terms. The district court's assumption that Lloyds should have recognized the existence of consignors does not transform the policy into one granting extensive rights to consignors.
The Florida courts' precedent prohibits the reformation of the insurance contract, as evidence suggests that both parties intended to limit coverage to what was explicitly stated in the policy. The district court's reformation allowing consignors a direct right of recovery is reversed, and Lloyds' appeal concerning this determination is granted. However, the case remains open regarding Mr. Credini's culpability, which has yet to be established, and the district court must assess whether the facts meet the policy's exclusion criteria.
Additionally, there is a dispute regarding Lloyds' payments of $750,000 to fact witnesses, with consignors seeking to have Lloyds' pleadings struck. A special master ruled against sanctions, and the district court adopted this ruling without holding a hearing. Consignors argue this violated Fed. R. Civ. P. 53(e)(2), but they did not request a hearing prior, leading the court to reject their appeal on procedural grounds.
Consignors have requested the court to evaluate the merits of their claims, which should first be addressed by the district court before any appeal. The district court's Omnibus Order indicated that it did not analyze the consignors' points for appeal, stating that the underlying issues were moot due to its prior ruling favoring the consignors. Consequently, the court determined that these issues remain relevant and decided to remand them to the district court for further consideration.
The district court had previously reformed the insurance policy, but the facts do not support such reformation, leading to the conclusion that the judgments in favor of the consignors must be vacated. The case will return to the district court for proceedings consistent with this opinion.
Additionally, the district court confirmed its earlier findings and modified its order regarding the consignors' summary judgment motions. It issued a final judgment of approximately $15 million for the consignors under Rule 54(b). The court has jurisdiction over these appeals as per 28 U.S.C. § 1291.
In a related case, the defendants are challenging the propriety of the district court's attorney fee award. The consignors have acknowledged that if the court reverses the district court's judgment, they will not be entitled to attorney fees. Since the court has reversed the judgment, the fee award is vacated.
The action was removed to the Southern District of Florida due to diversity jurisdiction. The district court previously limited the assureds' right to recover based on summary judgment motions, asserting that being either a lender loss payee or a named co-insured would grant consignors an independent recovery right. While the court assumes the district court was correct about the liability of Golden Door and Suisse Gold for the lost gold, it does not automatically imply that there was a mutual mistake justifying reformation of the insurance policies. A legal mistake may support reformation in some instances, as referenced by prior case law.
Lloyds is deemed responsible for knowledge it could have acquired through reasonable diligence regarding the actual ownership of Golden Door’s and Suisse Gold’s stock. While Lloyds intended to cover Westway as a loss payee under the insurance policy, the interests of consignors were recognized as falling within the policy’s terms, yet insufficient to grant them direct recovery rights. The district court's cited cases supporting reformation involved mutual misunderstandings of contract terms that warranted correction. Unlike those cases, there is no evidence that Lloyds intended to offer separate coverage to the owners of the stolen gold. The court distinguishes past cases by emphasizing that reformation was not justified here due to the absence of a shared intent between the parties. Moreover, the court notes that decisions from Louisiana state appellate courts do not bind it, especially when conflicting with Florida law. Finally, the court refrains from addressing the relevance of Florida Statute 627.7262, as Lloyds has acknowledged that it does not apply to jewelers' block policies, thus preventing Lloyds from using this statute as a defense in potential direct claims by consignors.
