11th Circuit Certifies Insurance Indemnification Questions To Florida Supreme Court

In Intervest Construction of Jax, Inc. v. General Fidelity Insurance Company (10-12613), the Eleventh Circuit released a published opinion and certified two questions of Florida law to the Florida Supreme Court. The questions certified are below:

1. DOES THE GENERAL FIDELITY POLICY ALLOW THE INSURED TO APPLY INDEMNIFICATION PAYMENTS RECEIVED FROM A THIRD-PARTY TOWARDS SATISFACTION OF ITS $1 MILLION SELF-INSURED RETENTION?

2. ASSUMING THAT FUNDS RECEIVED THROUGH AN INDEMNIFICATION CLAUSE CAN BE USED TO OFFSET THE SELF-INSURED RETENTION, DOES THE TRANSFER OF RIGHTS PROVISION FOUND IN THE GENERAL FIDELITY POLICY GRANT SUPERIOR RIGHTS TO BE MADE WHOLE TO THE INSURED OR TO THE INSURER?

The dispute in the case "exists between the insureds, Intervest Construction of Jax, Inc. and ICI Homes, Inc. (collectively 'ICI'), and their insurer, General Fidelity Insurance Company, over whether General Fidelity breached its obligations under a commercial general liability insurance policy, number BAG0002112-00 (the 'General Fidelity Policy'), that ICI had with General Fidelity at the time of the accident. The coverage dispute arose out of a personal injury lawsuit filed against ICI by an injured homeowner." The court continued:

In 2000, ICI contracted with Custom Cutting, Inc. for Custom Cutting to provide trim work, including installation of attic stairs in a residence that ICI was in the process of building. The contract between Custom Cutting and ICI contained an indemnification provision requiring Custom Cutting to indemnify ICI for any damages resulting from Custom Cutting’s negligence. In April 2007, Katherine Ferrin, the owner of a residence constructed by ICI, fell while using the attic stairs installed by Custom Cutting. This fall resulted in serious injuries. Ferrin then filed suit against ICI for her injuries; she did not file suit against Custom Cutting. In turn, ICI sought indemnification from Custom Cutting under the terms of the subcontract. At the time of the accident, Custom Cutting maintained a commercial general liability insurance policy with North Pointe Insurance Company. ICI was not an additional insured under Custom Cutting’s policy with North Pointe. ICI, meanwhile, held the General Fidelity Policy at the time of the accident. Contained in the General Fidelity Policy was a Self-Insured Retention endorsement (the “SIR endorsement”) in the amount of $1 million.

ICI, Custom Cutting, North Pointe, General Fidelity, and Ferrin participated in a mediation of Ferrin’s suit. At the mediation, the parties agreed to a $1.6 million settlement of Ferrin’s claim. As part of the settlement, North Pointe agreed to pay ICI $1 million to settle ICI’s indemnification claim against Custom Cutting. ICI, in turn, would pay that $1 million to Ferrin. The instant dispute then arose as to whether ICI or General Fidelity was responsible for paying Ferrin the other $600,000.

[emphasis is mine]. "The parties disagree about which provisions of the General Fidelity Policy are relevant; however, the crux of the dispute focuses on the SIR endorsement and the transfer of rights clause. The SIR endorsement states that General Fidelity will provide coverage only after the insured has exhausted the $1 million SIR. The parties dispute the effect of the language in the SIR endorsement as applied to these facts. The transfer of rights clause, on the other hand, grants the insurer some subrogation rights, the extent of which are also disputed." 

To more narrowly frame this dispute, there can be no disagreement that had ICI borrowed the $1 million from a bank, deposited those funds, and then used those funds toward the settlement, that money would be credited toward the SIR. A more difficult question would be whether a separate insurance policy previously obtained by ICI to cover the retained amount could reduce the SIR. General Fidelity cites several cases to establish that money derived from additional insurance policies cannot be used to satisfy the SIR, and argues to this court that these decisions should be highly persuasive to this issue before us, just as they persuaded the district court. We are not completely convinced, however, that these cases are persuasive to the interpretation of the General Fidelity Policy before us today.

[emphasis is mine]. The second issue was described as follows: "Additionally, there is a related dispute between the parties as to whether the 'made whole doctrine' applies or whether the parties contracted around that doctrine given the language of the transfer of rights provision. Assuming that ICI could apply the funds it received to satisfy its SIR, the issue then becomes whether the transfer of rights provision in the General Fidelity Policy gave ICI or General Fidelity the priority to recover....The language of this provision on its face is clear—the insurer has subrogation rights. Given that both ICI and General Fidelity have some rights, the language is still completely silent as to who has priority to recover when the indemnity amount is insufficient to 'make whole' both parties."

Due to the uncertain state of the law, the Eleventh Circuit certified the two questions above to the Florida Supreme Court for resolution.