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Insurance Law

Don’t Let a Viable Defendant Walk Free

I have many times in this space cautioned against giving up the ability to sue and collect from a viable defendant with assets to seek damages from an insurer. In Jennifer A. Stephens, as Personal Representative of the Estate of Charles Eugene Becker and as Assignee of Anchorage Homes, LLC, Plaintiff v. Mid-continent Casualty Company, United States Court of Appeals for the Eleventh Circuit, Nos. 13-10170 & 13-15741, (April 24, 2014) [enhanced version available to subscribers], a plaintiff with more than $4 million in damages gave it up for the chance to sue the defendant’s insurer leaving the plaintiff with nothing.

In this appeal, the Eleventh Circuit was asked to review the district court’s interpretation of an exclusion in an insurance policy issued by Mid-Continent Casualty Company to a construction contractor, Anchorage Homes LLC, and the district court’s conclusion that Mid-Continent Casualty Company was entitled to summary judgment based on that exclusion.


While Charles Eugene Becker was working on a construction job in Little Torch Key, Florida, helping to install a modular home on the property of Jeffrey and Connie Kirkland, while descending a ladder it detached from the house. Both Becker and the ladder fell to the ground. Critically injured, Becker died on the way to the hospital.

The representative of Becker’s estate, Jennifer Stephens, subsequently brought a wrongful death suit in Florida state court against, among others, Anchorage Homes LLC (“Anchorage”), another contractor working on the modular home construction project. The appeal stems from Stephens’ claims against Anchorage.


At the time of the accident, Anchorage held a commercial general liability insurance policy with Mid-Continent Casualty Company (“Mid-Continent”). Under this policy, Mid-Continent agreed to “pay those sums that [Anchorage] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The policy also provided that Mid-Continent had “the right and duty to defend the insured against any ‘suit’ seeking those damages.” In addition, the policy contained several exclusions from coverage, including an exclusion of damages relating to injuries to any of Anchorage’s employees.

Upon learning that Stephens had initiated a suit in state court and had named Anchorage as one of the defendants, Anchorage filed a claim with Mid-Continent, seeking legal defense and indemnification. On April 20, 2009, Mid-Continent notified Anchorage that its insurance policy excluded coverage for damages arising from Becker’s death, and that Mid-Continent therefore would not defend or indemnify Anchorage. Mid-Continent’s investigation revealed that Anchorage, as construction contractor for the Kirkland project, had employed Team Fritz as a subcontractor. According to Mid-Continent, Team Fritz’s employees therefore were the “statutory employees” of Anchorage under Florida law. Any liability for injury to Becker therefore was excluded from coverage under the policy’s employee exclusion clause.


After receiving this letter, Anchorage proceeded in the state court proceedings with its own counsel. Stephens and Anchorage signed a mediated settlement agreement and executed a so-called Coblentz agreement, which resolved Stephens’ claims against Anchorage. Under this agreement, Anchorage stipulated to the entry of a judgment in favor of Stephens in the amount of $4,350,000, and Anchorage assigned to Stephens its rights with respect to its claims against Mid-Continent. In turn, Stephens agreed not to collect the amount of the judgment from Anchorage.

Stephens brought this suit against Mid-Continent pursuant to a Coblentz agreement with Anchorage. See Coblentz v. Am. Sur. Co. of New York, 416 F.2d 1059 (5th Cir. 1969) [enhanced version available to subscribers].


Anchorage’s insurance policy with Mid-Continent included a standard employee exclusion clause, which stated that Mid-Continent would not cover “‘[b]odily injury’ to . . . [a]n ‘employee’ of the insured arising out of and in the course of . . . [e]mployment by the insured.” This exemption expressly referred to “employees,” and all parties agreed that Becker was not a literal employee of Anchorage. Under Florida law, a contractor who sublets part of its work to a subcontractor develops a statutory employment relationship with the employees of that subcontractor.

Under Florida law, statutory employees have been treated identically to actual employees in relation to standard employee exclusion clauses. The logic in the exclusion from coverage of both types of employees is simple and compelling: the only coverage intended, and for which the premium has been paid, is the liability of the insured to the public, as distinguished from liability to the insured’s employees whether or not they are protected by the workers’ compensation law.

The Eleventh Circuit concluded that the district court correctly concluded that Florida’s law requires that the employee exclusion clause in Anchorage’s insurance policy be construed as applying both to actual and statutory employees of Anchorage.


Florida courts apply a modified four corners rule that allows, in special circumstances, a court to consider extrinsic facts if those facts are undisputed, and, had they been pled in the complaint, they clearly would have placed the claims outside the scope of coverage. In the civil complaint filed in Florida state court, Stephens alleged that Anchorage was hired to supply and install a modular home on the Kirkland property, and that in the course of this project, Anchorage violated its general obligations to maintain the premises in a safe condition and to alert workers and employees of dangerous conditions. Stephens alleged that Anchorage’s gross negligence resulted in the death of Becker, who was employed at the time by Team Fritz, who was performing installation work. Unlike the duty to defend, which generally is triggered by the allegations in the underlying complaint, an insurance company’s duty to indemnify an insured party is narrower and is determined by the underlying facts adduced at trial or developed through discovery during the litigation.

Mid-Continent’s duty to indemnify Anchorage depends on whether Becker was Anchorage’s statutory employee, and therefore turns on the actual relationship between Anchorage and Team Fritz – that is to say, whether Team Fritz was Anchorage’s subcontractor.

The evidence clearly establishes that Anchorage served as the general contractor for the construction project, and that Anchorage had a contractor-subcontractor relationship with Team Fritz. The parties agree that on August 13, 2007, Anchorage entered into a written contract, entitled an Owner/Contractor Agreement, with the Kirklands. The Agreement granted Anchorage the right to engage subcontractors, who would be paid directly by Anchorage, to perform the contract work. The parties also agree that Team Fritz was hired to set the modular home, a task that is expressly included as part of the contract work in the Owner/Contractor Agreement. Team Fritz’s workers successfully set the modular home on the foundation, and Anchorage paid Team Fritz for this work.

The Agreement unambiguously sets forth Anchorage’s obligations as general contractor on the project, providing that Anchorage would “supervise and direct all the work” and would “in all instances remain responsible for the proper completion of the contract.”

The fact that Anchorage assumed the role of Fritz’s employer, regardless of who did the hiring – is entirely consistent with the evidence in the record. In sum, none of the evidence cited by Stephens raises a genuine question of material fact that bears on Anchorage’s relationship with Team Fritz. To the contrary, there is overwhelming evidence establishing that Anchorage was the general contractor on the Kirkland project and was in a vertical contractor-subcontractor relationship with Team Fritz.

Because Anchorage was the statutory employer of Charles Becker, Team Fritz’s employee, Anchorage was not entitled to indemnification under its general liability insurance policy for damages arising from Becker’s death on the job. Stephens therefore cannot establish that Mid-Continent had a duty to indemnify Anchorage in the underlying suit, as required under Coblentz in order to enforce the settlement agreement against Mid-Continent. There are no genuine issues of material fact, and Mid-Continent is entitled to judgment as a matter of law.


The only logical reason for entering into a Coblentz agreement with Anchorage was if Anchorage was judgment proof – had no assets that could be used to satisfy the agreed judgment other than the insurance policy. If it had collectible assets Stephens and her counsel should be kicking themselves for allowing a $4,350,000 judgment to be nothing more than a piece of paper with no more value than an IOU from Mr. Madoff.

    By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2014, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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