American Builders Insurance Company v. Southern-Owners Insurance Company

Citation: Not availableDocket: 21-13496

Court: Court of Appeals for the Eleventh Circuit; January 3, 2023; Federal Appellate Court

Original Court Document: View Document

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Ernest Guthrie fell from a roof while subcontracting for Beck Construction on April 1, 2019, resulting in paralysis and over $400,000 in medical expenses, with future costs estimated in the millions. Three insurance companies, including Southern-Owners Insurance Company (the primary insurer for Guthrie's company) and American Builders Insurance Company (the insurer for Beck Construction), were identified as potentially liable. After Guthrie's attorney asserted Beck Construction's liability and requested insurance information, American Builders investigated the claim, while Southern-Owners was largely inactive. American Builders ultimately settled the claim for $1 million and then sued Southern-Owners for bad faith under Florida's equitable subrogation doctrine after Southern-Owners refused to contribute. The district court denied Southern-Owners’ summary judgment and post-trial motions, leading to an appeal. The Eleventh Circuit reviewed the case and affirmed the lower court's decisions. American Builders had discovered an additional policy from Evanston Insurance Company, which also provided coverage to Beck Construction, and tendered the defense to Southern-Owners after identifying all relevant policies.

American Builders provided Southern-Owners with a certificate of insurance listing Beck Construction as an additional insured, along with the initial claim notice and a demand letter from Cohen dated September 5. On September 25, Southern-Owners’ counsel requested further documentation, including incident reports and medical records, and sought a 45-day extension on Cohen's demand. Cohen responded by supplying Guthrie’s medical records and American Builders’ insurance policy but did not address the extension request. Instead, American Builders requested an extension until November 4, which Cohen granted, citing new information regarding potential coverage from Southern-Owners and Evanston. Cohen indicated that Guthrie would only release American Builders with rights reserved against Evanston and Southern-Owners.

On October 10, American Builders retained counsel, who assessed Guthrie’s claim to be worth $20-30 million, exceeding any applicable coverage. On October 14, American Builders communicated its readiness to pay its $1 million policy limit but rejected Cohen's stipulation as it only offered a partial release. Throughout early October, Southern-Owners primarily requested extensions. However, on October 18, they sought to arrange an interview with Beck Construction's principal, Russell Beck. Despite ongoing efforts, by November 25, Southern-Owners had not secured documentation regarding the claim and requested until December 20 to respond to Cohen's September demand.

On the same day, Southern-Owners expressed willingness to defend Beck Construction under a reservation of rights after further investigation, citing an employer liability exclusion that might limit coverage. They passed this information to Beck Construction, which offered to meet on November 26 or 27; Southern-Owners declined due to insufficient notice and insisted on an in-person meeting. Meanwhile, Cohen pursued a $2 million payout from Evanston, seeking a complete release for both American Builders and Evanston, with a deadline for response set for December 18. American Builders received a copy of Cohen's demand letter two days later.

On December 10, Southern-Owners met with Beck, learning that subcontractor Guthrie did not request fall protection and admitted fault for stepping off the roof. This prompted Southern-Owners to believe it had a strong defense regarding liability. Soon after, Southern-Owners’ counsel began reaching out to two other workers at the site. That same day, Evanston informed American Builders' counsel, who was previously disengaged, that it would tender its full policy to Guthrie despite not being the primary insurer. Upon reviewing a November 18 demand letter with an impending deadline, American Builders concluded it should tender its policy limit to avoid bad-faith claims. On December 17, American Builders contacted Cohen to request a one-day extension and learned that Guthrie preferred to settle without involving Southern-Owners directly. American Builders' counsel believed Southern-Owners had a primary obligation to pay and reached out to them before proceeding. Southern-Owners refused to tender by the December 19 deadline, prompting American Builders to pay its policy limit that day and seek equitable subrogation against Southern-Owners. Guthrie then released claims against multiple parties, including Beck Construction and American Builders.

American Builders subsequently sued Southern-Owners in Florida state court for common law bad faith, which Southern-Owners removed to federal court based on diversity jurisdiction. Southern-Owners moved for summary judgment, claiming its policy did not cover Guthrie's injury, but the district court denied this motion. The case proceeded to a jury trial overseen by a magistrate judge, where Southern-Owners argued that American Builders had not proven Guthrie attempted to settle with them; however, the court denied this motion as well. The jury ultimately ruled in favor of American Builders, awarding $1,091,240.82. Southern-Owners later filed a renewed motion for judgment as a matter of law or, alternatively, a motion for a new trial.

Southern-Owners contended it could not settle Guthrie's claim and asserted that American Builders, acting on behalf of the insured, breached its contract by settling without Southern-Owners' consent. The district court denied Southern-Owners' motions, leading to this appeal. The appellate court reviews the denial of a motion for judgment as a matter of law de novo, considering evidence favorably to the non-moving party, and reviews new trial motions for abuse of discretion. The primary issue on appeal is whether American Builders established a bad faith claim against Southern-Owners. A reasonable jury found that Southern-Owners acted in bad faith, causing American Builders to incur costs. Furthermore, it was concluded that American Builders did not breach the contract, thereby maintaining Southern-Owners’ obligations of good faith.

Under Florida law, the critical aspect of a bad faith action is whether the insurer acted with the same diligence as the insured to prevent an excess judgment. Damages in bad faith claims must be directly linked to the insurer's bad faith conduct. The assessment of bad faith is based on the totality of circumstances, focusing on the insurer's actions rather than the claimant's. Insurers are required to inform the insured about settlement opportunities, expected litigation outcomes, and risks of excess judgments, and to consider reasonable settlement offers. However, simply advising the insured does not absolve insurers from liability, and they may have a duty to proactively offer settlements. Bad faith can also be inferred from unreasonable delays in settlement negotiations.

Liability is deemed clear in cases of serious injury, where a judgment may exceed policy limits, requiring the insurer to engage in settlement negotiations. Failure to act promptly can indicate bad faith. The district court provided thorough jury instructions on evaluating the insurer's care and diligence in managing claims, stressing that bad faith must contribute to damages, although it need not be the sole cause. Evidence suggested Southern-Owners acted in bad faith by delaying its investigation and settlement of Guthrie’s claim, which involved significant medical expenses and liability concerns. Southern-Owners received relevant information from American Builders and Cohen regarding the accident and injuries but failed to meet with Beck Construction promptly. Several weeks passed before Southern-Owners contacted Beck’s lawyer, and further delays occurred in obtaining information from other workers involved. By December 18, Southern-Owners had made no progress, indicating a lack of diligence in resolving the coverage dispute. This delay could lead a reasonable jury to find that Southern-Owners neglected its duty to initiate negotiations, resulting in damages for American Builders, especially as the demand for settlement increased while Guthrie's medical costs escalated.

American Builders was compelled to make a payment after Southern-Owners delayed in investigating and settling a claim, which led to a determination that damages could be attributed to Southern-Owners' bad faith. Southern-Owners attempted to deflect responsibility by criticizing the actions of Guthrie and Cohen, who did not make settlement offers that included Southern-Owners. However, under Florida law, the absence of a formal settlement offer does not negate a finding of bad faith, as it is only one factor in the overall assessment. The jury could reasonably conclude that Southern-Owners was still accountable despite the lack of offers from Guthrie and Cohen. 

Southern-Owners also contended that it had no duty to act in good faith because American Builders breached the contract by settling without consent. This defense was found inadequate for two reasons: first, American Builders’ failure to obtain consent may not have significantly prejudiced Southern-Owners; second, Southern-Owners may not have acted diligently or in good faith in seeking consent. Southern-Owners raised this defense for the first time in a Rule 50(b) motion, which is not permissible if not previously included in a Rule 50(a) motion before jury submission. American Builders did not challenge this procedural issue in the district court, thus forfeiting its right to raise it on appeal. 

The contractual language between Southern-Owners and Beck Construction required consent from the insurer before the insured could settle claims. Although an insured may settle if the insurer wrongfully refuses a defense, they cannot do so independently if the insurer has not declined to defend.

In the case of First Am. Title Ins. Co. v. Nat’l Union Fire Ins. Co., the Florida Supreme Court outlines three requirements for an insurer to successfully assert an affirmative defense based on a lack of consent: 1) lack of consent from the insured, 2) substantial prejudice to the insurer, and 3) the insurer's diligence and good faith in seeking consent. Exceptions exist for the lack of consent, such as when the insurer wrongfully refuses to defend the insured or when there is a disagreement over a conditional defense. Even if consent was required, failure to obtain it does not constitute an affirmative defense unless the insurer demonstrates substantial prejudice and good faith in encouraging cooperation.

In the case at hand, the jury was tasked with determining whether American Builders Insurance Company made a payment without Southern-Owners Insurance Company's consent and whether that payment was voluntary. American Builders claimed the payment was involuntary due to Southern-Owners' unreasonable withholding of consent, which left it with no choice but to pay to protect its legal interests. Conversely, Southern-Owners argued that American Builders decided to pay voluntarily before seeking consent.

Regardless of whether the payment was voluntary, Southern-Owners was required to prove substantial prejudice and good faith to support its affirmative defense. The jury was instructed that Southern-Owners needed to show that American Builders’ breach of the consent provision caused it substantial prejudice. However, Southern-Owners failed to provide evidence of any substantial prejudice, with its claim adjuster testifying ignorance regarding how they were harmed by American Builders' payment decision.

Southern-Owners' claim of prejudice was deemed unpersuasive. Initially, the claim adjuster indicated uncertainty about prejudice, admitting a lack of awareness of any facts supporting such a claim. Southern-Owners argued it was surprised by American Builders' payment decision on December 18, not knowing of Cohen’s November 18 demand. However, evidence suggested American Builders' payment was contingent upon Southern-Owners' decision, which Southern-Owners failed to make despite requesting an extension for its investigation until December 20. Furthermore, Southern-Owners exhibited significant delays in its investigation, failing to act diligently.

Southern-Owners also claimed that a judgment exceeding its policy limits constituted substantial prejudice, but this argument was forfeited by not being raised in the district court. Even if considered, a post-trial judgment does not impact the insurer's rights in defense of the case, nor did it affect Southern-Owners' defense as it occurred after their decision not to provide coverage. A reasonable jury concluded that Southern-Owners acted without diligence and good faith, while American Builders undertook necessary actions regarding Guthrie’s claim. The Florida Supreme Court's precedent indicates that an insurer cannot invoke an affirmative defense based on an insured's lack of cooperation without demonstrating good faith.

Southern-Owners' Rule 50(b) motion was denied, as the evidence did not overwhelmingly favor Southern-Owners, allowing for a reasonable jury to side with American Builders on bad faith and against Southern-Owners on breach of contract. Additionally, Southern-Owners' request for a new trial was denied, as its arguments mirrored those already rejected, failing to demonstrate that the verdict was against the evidence's clear weight or resulted in injustice. Sufficient evidence supported findings of Southern-Owners' delay in investigation, bad faith causing damages to American Builders, and no breach by American Builders due to Southern-Owners' failure to show substantial prejudice or good faith.

Limited evidence presented by Southern-Owners, including multiple requests for extensions and details from a Beck interview, fails to establish the clear weight of the evidence needed to overturn the jury’s verdict, as upheld in Chmielewski. The district court did not abuse its discretion by denying Southern-Owners’ Rule 59 motion. Additionally, Southern-Owners' argument regarding the denial of its summary judgment motion based on its policy's coverage of Guthrie’s injuries is not considered for two reasons. First, this argument was raised for the first time during oral argument and not included in prior briefings, which is against the practice of considering new arguments at that stage, citing Hernandez. Second, the court maintains that there is no legal-issue exception allowing appeals of summary judgment denials after a full trial on the merits, supported by precedent in Carrizosa and other cases. The Supreme Court's Ortiz left open the issue of whether purely legal questions are preserved for appeal post-summary judgment, with other circuits split on the matter. However, the Eleventh Circuit has consistently ruled against reviewing such denials after a full trial, affirming the judgment in this case. Other circuits have differing rules, with some allowing appeals of purely legal arguments while others do not permit appeals of summary judgment denials post-trial unless preserved in a Rule 50 motion. The court’s decision is affirmed.