As part of a year of sweeping insurance reform in Florida, the state legislature passed HB 301, which has since been signed into law by Governor Ron DeSantis. Among other changes, HB 301 creates a new Section 624.1055 of the Florida Statutes. The new section effectively reverses long-standing Florida law by providing a statutory right to liability insurers to seek contribution for defense costs incurred on behalf of an insured from other liability insurers that also have a duty to defend the insured. The statute applies to both admitted and surplus lines carriers that have a duty to defend claims initiated on or after January 1, 2020. The statute does not apply to motor vehicle insurance or medical professional liability insurance.
The new statute effectively reverses the established prohibition in Florida for causes of action between insurers for contribution or subrogation for expenses incurred in the defense of a mutual insured. See Continental Cas. Co. v. United Pacific Ins. Co., 637 So.2d 270 (Fla. 5th DCA 1994); Argonaut Ins. Co. v. Maryland Cas. Co., 372 So.2d 960 (Fla. 3d DCA 1979). While the Argonaut decision was based on the premise that “the duty of each insurer to defend its insured is personal and cannot inure to the benefit of another insurer,” the practical effect of the decision was that liability insurers, in claims where multiple insurers’ policies were triggered, were hesitant to defend the common insured until other insurers agreed to assume the defense. Even then, insurers who paid more than their equitable share of defense costs on behalf of a common insured had no right to contribution from other carriers for the costs.
Section 624.1055 is expected to have its biggest impact on claims involving defective construction. However, other claims may be affected including premises liability claims where property owners utilize separately insured real estate managers. Before the statute, the issue of being unable to seek contribution for defense costs was highly visible in nearly all construction defect matters, where claims against an insured could span across several policy periods and defense costs incurred by an insurer for even a minor subcontractor or vendor on a project could be substantial. Similarly, in claims against property owners and their property managers, often the property manager will have two sources of liability insurance, i.e., as a real estate manager under the owner’s general liability policy as well as the manager’s own liability policy. In the absence of an endorsement providing that the property manager’s policy was excess, there would be more than one policy providing a duty to defend the mutual insured. The statute now entitles insurers faced with these kinds of claims who assume their insured’s defense to recover a portion of the defense costs from other insurers who refused to defend.
Section 624.1055 instructs courts to apply the terms of the relevant insurance policies in allocating defense costs, while also permitting courts to “use such equitable factors as the court determines are appropriate in making such allocation.” It remains to be seen whether the courts will uphold “Other Insurance” provisions within liability policies that generally provide for the defense to be funded under each policy on an equal shares basis, or will instead begin utilizing a time-on-the-risk apportionment. It is our expectation that Section 624.1055 will result in earlier agreements between insurers to co-defend their mutual insureds.
As a bonus to insurers, Section 624.1055 also provides that there is no contribution right for defense costs incurred before a liability insurer receives notice of the claim. This limitation reflects the general principle that an insurer should not be compelled to provide coverage for pre-tender defense costs, as these costs are incurred without the insurer’s consent. See EmbroidMe.com, Inc. v. Travelers Prop. Cas. Co. of America, 845 F.3d 1099 (11th Cir. 2017) (holding that under Florida law the Supplementary Payments provision of a general liability policy will not provide coverage for pre-tender defense costs).
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