Water, Water Everywhere: Water Damage Exclusion Bars Coverage, Florida Judge Rules


MIAMI, March 28 — A commercial property insurance policy’s water exclusion barred recovery for water related damage and  repair costs arising from a backed up pipe, a Florida judge has ruled.

In Ken Cameron and Michelle Cameron v. Scottsdale Insurance Co., No. 16-21704, S.D. Fla., 2017 U.S. Dist. LEXIS 45474, U.S. District Judge Marcia Cooke  granted Scottsdale’s motion for summary judgment in a coverage suit filed by the Camerons.  Scottsdale had previously denied coverage on a claim the Camerons made under a commercial property policy insuring their apartment complex after a pipe collapsed in the internal plumbing system and caused water and property damage.

Ken and Michelle Cameron originally filed suit in the 11th Judicial Circuit Court for Miami-Dade County, Fla., against Scottsdale Insurance Co., seeking a declaration that coverage was owed for water damage which occurred on one of their apartment properties. Scottsdale removed the action to federal court, and after losing an initial motion to dismiss, prevailed on a motion for summary judgment.

According to the suit, a  plumber found an “acute pipe failure” when the pipe collapsed.  Scottsdale denied coverage pursuant to an exclusion  for water – related losses.   Scottsdale argued that the policy in question did not cover damage from water originating from a drain.  The exclusion applied to  “water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment.”

The Camerons opposed the summary judgment motion claiming that the exclusion applied only to water backups or overflows deriving outside their property’s premises.
Judge Cooke held that the policy contained no definition of “drain” but that the term ordinarily refers to a “conduit for draining liquid, as a ditch or a pipe.”  She further held:

“Though the parties dispute whether the collapsed pipe was a ‘sewer’ and refer to the pipe by different names—a ‘sewer line’ for Respondent, a ‘sanitary line’ for Petitioners—it was, at the very least, a ‘drain.’  Parties do not seriously dispute this point or that there was a back up and overflow from the pipe.  More importantly, the [water exclusion] does not differentiate between drains found inside or outside the Petitioners’ property line or their plumbing system.  By its very terms, then, the [water exclusion] bars payment for the water damage and other repairs stemming from the Petitioners’ collapsed and backed up pipe… Because I find the [water exclusion] bars recovery for Petitioners in this case, it is unnecessary to analyze the other Policy provisions parties raise.  The lack of coverage for underground pipe damage is inconsequential, since it does not cover any purported water damage Petitioners allege.  The water damage exception does not impinge on the [water exclusion], as discussed above.  And I need not analyze the deterioration exclusion since the [water exclusion] undergirds my decision.”

Ken Cameron and Michelle Cameron v. Scottsdale Insurance Co., No. 16-21704, S.D. Fla., 2017 U.S. Dist. LEXIS 45474


Florida: Insurer Liable for Attorneys’ Fees Without Finding of Bad Faith


FLORIDA, Sept. 29 – The Supreme Court of Florida has ruled that Omega Insurance can be held liable for the payment of an insured’s attorneys’ fees following the wrongful denial of a sinkhole claim, and that  bad faith is not a prerequisite to such an award.

In a 6-1 decision, the Florida high court reversed the Fifth District Court of Appeal’s ruling that homeowner Kathy Johnson was not entitled to recover attorneys’ fees in the absence of a finding of bad faith.  The majority concluded that the mere wrongful denial of a valid claim was enough to award fees under a Florida attorneys’ fees statute.

Omega obtained a report from a geology firm attributing Johnson’s home damage to causes other than a sinkhole, and used that report as a basis to deny the claim.  Johnson retained her own engineer which concluded that the damage was in fact caused by a sinkhole.

After Johnson filed suit, Omega agreed to undergo a neutral claim review process, after which it changed its decision and agree to pay Johnson’s claim.

Johnson thereafter sought and obtained  interest and attorneys fees under a Florida attorneys’ fees statute at the trial court level . The District Court of Appeals reversed, holding that the relevant statutory provision, Section 627.428, required a finding of bad faith by the insurer to justify a fee award.

The Florida Supreme Court found that the Fifth District’s ruling was contrary to prior Supreme Court precedent holding that fees under 627.428 were awardable upon the finding of merely the wrongful denial of the claim, and not a specific finding of insurer bad faith.

Florida Justice R. Fred Lewis wrote for the majority:

“We cannot, as the court below held and Omega requests here, discourage insureds from seeking to correct the incorrect denials of valid claims and allow insurers to deny benefits to which insureds are entitled without ramifications. . . Here, the facts are undisputed that Johnson submitted a claim, Omega denied that claim, Johnson filed an action seeking recovery, and Omega subsequently conceded that it had incorrectly denied the benefits based on an inaccurate report. . . These facts alone warrant an award of attorneys’ fees to Johnson under Section 627.428. . . Once an insurer has incorrectly denied benefits and the policyholder files an action in dispute of that denial, the insurer cannot then abandon its position without repercussion. . . To allow the insurer to backtrack after the legal action has been filed without consequence would ‘essentially eliminate the insurer’s burden of investigating a claim.”

Editor’s Note:  The majority did not address the danger it may have created in encouraging insurers to maintain denial positions for fear of being exposed to attorneys’ fees if they decided otherwise.  Nor did the majority address the potential problem created by the ruling of  discouraging insurers from keeping the claims process open to account for new information, allowing changes in claims decisions.   In the long run, the ruling may prove to be more anti-insured that it appears at first blush, because it disincentivizes amicable resolution of claims following initiation of suit.

Johson v. Omega Insurance,  (Florida, 2016) 

Tender of Limits Does Not Moot Jury Valuation of UM/UIM Claim, Florida Supreme Court Rules


TALAHASSEE, Feb. 25 – The Florida Supreme Court in a 5-2 decision  has ruled that a UM/UIM insured is entitled to a trial on underlying liability and damages before proceeding to litigate a bad faith claim, and that such a right is not mooted by the insurer’s tender of policy limits.

In Fridman v. Safeco Insurance Company of Illinois, the Supreme Court of Florida reversed a trial court ruling which vacated a $1,000.000 verdict in favor of the insured.  The trial court reasoned that Safeco’s pre-verdict tender of the policy’s  $50,000 UM/UIM limit mooted litigation of the UM/UIM claim.

After largely unproductive settlement negotiations, in February 2011, about 30 days before Fridman’s UM/UIM claim against Safeco was to be tried, Safeco tendered its $50,000 policy limit to Fridman.  The tender came more than four years after the underlying automobile accident, and more than a year after the plaintiff demanded the policy limits from Safeco.

Fridman twice refused accepting the tender, and Safeco moved to confess judgment in the amount of the policy  limits, which was denied by the trial court.  At the trial of the UM/UIM claim, the jury awarded Fridman $1,000,000, but an intermediate appeals court ruled that the judgment should be amended to omit any reference to the verdict, or to the trial court retaining jurisdiction to entertain a follow – on bad faith claim arising out of the excess verdict.

In reversing the Fifth District Court of Appeals, the Florida Supreme Court revewed a long line of decisions holding that the insured retained the right to litigate underlying liability a damages as a prerequisite to a bad faith proceeding against the insurer, because such items were required elements of proof in a bad faith proceeding in Florida.  Justice Barbara Pariente wrote:

Certainly, the insured is not obligated to obtain the determination of liability and the full extent of his or her damages through a trial and may utilize other means of doing so, such as an agreed settlement, arbitration, or stipulation before initiating a bad faith cause of action. See, e.g., Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., 945 So. 2d 1216, 1234-35 (Fla. 2006). But the availability of other alternatives does not change the insured’s entitlement to a determination of liability and the full extent of damages in the first instance. Therefore, for all these reasons, we conclude that an insured is entitled to a determination of liability and the full extent of his or her damages in the UM case prior to filing a first-party bad faith action.


The Court went on to hold that these underlying determinations of liability and damages in a UM/UIM proceeding were subsequently binding upon the insurer provided the insurer had a full and fair opportunity to offer defense on those items in the UM/UIM proceeding.

We conclude that an insured is entitled to a jury determination of liability and the full extent of his or her damages, which may be in excess of the policy limits, in the underlying UM case, prior to litigating a first-party bad faith cause of action. This determination is then binding in the subsequent bad faith action, provided the parties have had the opportunity for appellate review of any trial errors that were timely raised. An approach such as the one taken by the trial court in this case—that is, going forward with the trial, including the verdict amount in the final judgment, and reserving jurisdiction to consider a motion to amend to add the bad faith cause of action—appropriately addresses how the parties can review that jury determination of the extent of the damages for error prior to it being used in the subsequent bad faith litigation as an element of damages.


The Supreme Court quashed the ruling of the Fifth District Court of Appeals and remanded the case for further proceedings.

Fridman v. Safeco Insurance Company of Illinois (Fla., Feb. 25, 2016)

11th Circuit Says Jury To Decide Bad Faith Issues In Road Rage Settlement


FLORIDA, Jan. 12 – The U.S.  11th Circuit Court of Appeals has remanded a bad faith case to the U.S. District Court for the Middle District of Florida, instructing it that a jury must decide whether Geico acted in bad faith relative to the settlement negotiations arising out of a road rage incident.

Geico’s insured, Moore, was involved in a road rage incident in Florida, resulting in his truck being bumped across the center line, causing it to strike and later kill motorist Amy Krupp. Geico promptly tendered its $20,000.00 policy limit to the lawyer representing Krupp’s estate, but failed to comply with counsel’s request for an affidavit of no other insurance, and a precisely worded release agreement.

Because Geico did not comply with the provisos relating to the affidavit or the release, settlement was not reached,  and Krupp’s estate won a $4 million verdict against Moore.  Moore then filed a bad faith suit against Geico in federal court in Florida.  The district court, while conceding that Geico’s handling of the claim may have been “sloppy” and “bordering on negligent,” granted summary judgment for Geico, from which Moore appealed.

The 11th circuit reversed, finding that a jury question existed regarding the interplay between Geico and the Krupp estate’s lawyer.  The Court was careful to agree with the trial court that negligence on the part of the insurer was not sufficient to make out a bad faith claim.  It further, found, however, that there was conflicting evidence as to Geico’s conduct, and that negligence could be considered as part of the “totality of the circumstances” in the bad faith analysis.

The Court found that the trial court impermissibly made credibility determinations, most notably as to the deposition testimony of the lawyer for the Krupp estate, and that it ignored expert opinion proffered by the estate against Geico, both of which should have been considered by a jury.   It also found that the district court was too focused on the possibility that Krupp’s counsel was engaged in a bad faith setup.   The case was remanded for further proceedings.

Moore v. Geico (11th Cir., Jan. 12, 2016)

Editor’s Note:  There is a grave danger of converting the bad faith standard to a mere negligence standard when the Court takes negligence into account as part of the “totality of the circumstances.”  Here, the 11th Circuit apparently held evidence of the possibly negligent handling of a settlement sufficient to subject an insurer to the rigors of a bad faith trial.  There is an argument to be made also that if the trial court payed too much attention to the possibility of a bad faith setup by plaintiff’s counsel in granting summary judgment , the 11th Circuit payed far too little in reversing it.

For more information on how to protect your company from bad faith exposure arising out of allegations of simple negligence, reach me at chaddick@dmclaw.com or 717-731-4800.

Florida: Policyholder Can Assign Benefits Without Insurer Consent

FLORIDA, Feb. 5 – An intermediate state appeals court in Florida has ruled that the policyholder can assign the right to post loss benefits to third parties without insurer consent.  In Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 2016 Fla. App. LEXIS 1548 (2nd Dist. 2016), a unanimous three-judge panel held that the homeowner/insured could assign post loss benefits to Bioscience W., reversing a summary judgment entered for Gulfstream by the trial court.

In Bioscience the homeowner-insured, Gattus, engaged Bioscience, an emergency water mitigation company, to provide cleanup services after a water loss her home.  As part of Gattus’ arrangement with Bioscience she assigned all loss-related policy benefits to them as compensation.  Following the loss, and the assignment, Gattus made a claim under her property insurance policy with Gulfstream.

Gulfstream denied the claim as an uncovered loss, and Bioscience subsequently filed suit against Gulfstream for breach of the policy.  Gulfstream sought dismissal, and the  trial court granted summary judgment to Gulfstream on grounds that the policy had an anti-assignment provision, requiring Gulfstream’s consent to any policy assignment.

In reversing the trial court, the appeals court held:

“Gulfstream does not and cannot argue that the entire policy was unilaterally transferred from Ms. Gattus to Bioscience, which would have been void under the language of the policy’s anti-assignment clause. Instead, it is clear that Ms. Gattus merely assigned to Bioscience the “insurance rights, benefits, and proceeds pertaining to services provided by” the policy in consideration for Bioscience’s emergency mitigation services and authorization to directly bill and to be directly paid by Gulfstream. (Emphasis added).  Stated differently, it was a post-loss assignment of a benefit under the policy to Bioscience, namely a right to seek payment for the mitigation services it rendered under the policy, not an assignment of “this policy” issued by Gulfstream to Bioscience.”

The Court also found support for its ruling in the policy’s loss payable provisions, which contemplated that payment of policy benefits might be made to persons or entities other than the insured.  It also pointed out a long history of Florida case law which permitted post-loss assignment of policy benefits without the insured’s consent.

The case remanded to the trial court for further proceedings.

Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 2016 Fla. App. LEXIS 1548 (2nd Dist. 2016)

Insured’s Failure To Cooperate During Time Limit Demand Leads To Bad Faith Dismissal

Florida, Jan. 19.  A Federal District Judge in Florida has granted summary judgment in favor of Titan Insurance Co. in a bad faith case, finding that the insured’s lack of responsiveness during a time limits settlement demand precluded the case from proceeding further.

In Hinson v. Titan Ins. Co., 2015 U.S. Dist. LEXIS 121666 (N.D. Fla. 2015), Chief Judge M. Casey Rodgers dismissed a third party bad faith suit arising out of an excess verdict against Titan’s insured, Hinson.  During an underlying personal injury case against Hinson, the plaintiff’s lawyer issued a 20 day settlement demand for policy limits, requiring among other things an affidavit from Hinson as to any other applicable insurance.

Titan’s claims personnel made multiple attempts to alert Hinson, including the hand delivery of a draft affidavit to his address, in an effort to comply with the terms of the time limits demand.  Chief Judge Rodgers wrote:

Hinson failed to timely return the required affidavit to meet the [terms of the time limit] demand…The totality of the circumstances demonstrate that Titan diligently pursued a settlement; advised Hinson of the risks of an excess judgment, of settlement opportunities, and the probable outcome of the litigation; and tendered checks on more than one occasion.

Hinson at 15-16.

The Court found that the failure to meet the conditions of the 20 day time limit demand were therefore attributable to the insured, not Titan, and entered judgment for Titan.

The Court also found that Titan’s refusal to agree to try the bad faith claim before the personal injury action and pay the limits to the personal injury plaintiff  if the insurer prevailed in the bad faith case (known in Florida as a “Cunningham agreement”) was not bad faith as a matter of law.

Takeaway:  There is nothing new under the sun here, although the case is a perfect illustration of two key components of dealing with time limit personal injury settlement demands: 1.) claims staff must make Herculean efforts to act  on the insured’s behalf within the demand window, and before it is too late; and 2.) those efforts must be re-traceable in a well-d0cumented claims file.  For additional information on defensive handling of time limit settlement demands, reach me at chaddick@dmclaw.com or 717-731-4800.

Hinson v. Titan Ins. Co., 2015 U.S. Dist. LEXIS 121666 (N.D. Fla. 2015),

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