11th Circuit Reverses Verdict in Subrogation Claim by Agency’s E&O Carrier

A federal appellate court threw out a Florida jury verdict that would have required a Liberty Mutual unit to pay $1.6 million in damages for failing to defend an independent insurance agency against a lawsuit that accused it of failing to advise a customer to buy enough insurance.

A panel of the 11th Circuit Court of Appeals reversed the US District Court jury’s finding that Safeco Insurance had breached the terms of an indemnity agreement with Comegys Insurance Agency in St. Petersburg. The jury had awarded damages to Endurance American Specialty Insurance Co., Comegys’ errors and omissions carrier, after Endurance paid a $1.5 million settlement to a wealthy policyholder whose automobile had caused the death of a motorcyclist.

The panel said Endurance “apparently distracted the jury with facts that are totally irrelevant to this appeal” because there was no breach of contract.

“The distraction method may have worked with the jury in this case, but it does not with us,” the opinion says.

In 2012 Robert Smith, whom the 11th Circuit opinion describes as “a man of substantial means,” procured an automobile insurance with Safeco through Comegys with a $250,000 per-person limit, $500,000 per incident limit and an umbrella policy with a $1 million limit. In December 2013, he asked a Comegys agent about raising the limit for the umbrella policy to $2 million or $3 million. The agent replied that Safeco would not raise the umbrella limit unless Smith also increased the per-person limit to $500,000 at an annual cost of $200.

The agent did not discuss any other insurers. Smith renewed his existing policy with Safeco with no change of terms.

In June 2015, Smith was driving his Honda CR-V when he collided with a motorcycle driven by Stone Forsyth Whitener, a 28-year-old automotive technician. Whitener died 18 days later.

Safeco offered to pay the $1.25 million policy limit to Whitener’s wife Courtney Worthington Whitener in exchange for a release of all additional liability, but she rejected the offer.

While reviewing the case, the attorney that Safeco appointed to defend Smith told him that his personal assets were at risk, but that he may have a claim against Comegys for negligence in procuring automobile insurance. After Courtney Whitener filed suit in state court, Smith’s attorney asked Comegy’s to defend and indemnify his client.

Endurance, Comegy’s errors and omissions carrier, refused to take over Smith’s defense.

Smith and Mrs. Whitener participated in non-binding arbitration that found Smith 95% liable for the accident and awarded a little over $7 million in damages. In a joint stipulation, Safeco agreed to pay the $1.25 million policy limit and assign Smith’s negligent procurement claim to Mrs. Whitener. The state court approved the stipulation as final judgment in the matter.

Mrs. Whitener then demanded that Endurance pay $2 million for the claim against Comegys, which in effect would have amounted to a total settlement of $3.25 million for her husband’s death. Endurance asked Safeco to indemnify it, but Safeco did not respond. Later, Endurance agreed to pay Whitener $1.5 million.

The insurer than filed a suit against Safeco on Comegy’s behalf in the US District Court for the Middle District of Florida. Judge Richard A. Lazzara denied a motion by Safeco to dismiss the lawsuit. A jury found that Safeco had breached an indemnification agreement with Comegys and awarded approximately $1.6 million in damages, plus a $25,000 deductible and $30,000 in attorney fees.

The 11th Circuit panel said nothing in the “limited agreement” between Comegy and Safeco required Safeco to reimburse Endurance for the cost of the voluntary settlement. The agreement called for indemnification from Safeco only if the insurer breached the agreement, or intentionally committed an act, error or omission in the placement of business, or negligently committed an act, error or omission in carrying out the terms of the agreement.

The panel said Safeco provided the insurance that was requested, provided an attorney to defend Smith when a claim was made and thenpaid the policy limits. The court said it is true that the attorney that Safeco provided had advised his client that he may have a negligence claim against Comegys, but nothing in Safeco’s “Limited Agreement” with Comegys makes it responsible for the result.

“The Limited Agreement simply delineates Comegys’ authority to bind Safeco when it sells Safeco’s insurance,” the panel said. “Nowhere in the Limited Agreement does it even mention any restraint on how Safeco provides attorneys to its insured or how it settles insurance claims.”

The court said a fatal flaw in Endurance’s argument is contained in the settlement agreement with Mrs. Whitener, which disclaims all liability.

In essence, Endurance is saying, ‘Smith’s attorney identified that Comegys may have messed up in procuring insurance for Smith,'” the opinion says. “‘We, Endurance, on behalf of Comegys, settled that claim with the estate without admitting fault. Now we want you, Safeco, to pay us for doing that.’

“We will not penalize Safeco for Comegys’ volunteer payment to the estate. And, even if Comegys had been negligent and that fact had been proven in court by the estate, we would still refuse to hold Safeco liable for Comegys’ own alleged negligence because Florida requires those kinds of arrangements to be clearly stated by contract.”