Florida Appeals Court Squeezes Insurers: Must Appoint Separate Counsel For Each Insured

Florida Appeals Court Squeezes Insurers: Must Appoint Separate Counsel For Each Insured

   By Randy J. Maniloff, White and Williams, LLP

Court Creates Sunshine State For Defense Counsel

It is a question that I get asked regularly from clients: We have a duty to defend and there are four insureds (or any number greater than one). Do we need to retain separate defense counsel for each one? My answer is usually along the lines of: well, that depends on several things, and what does defense counsel say about his or her ability to represent all of them? After all, he or she has a lot at stake in the answer. As for guidance from courts on the question, there isn't much. And, in any event, as it is a fact specific issue, there is no guarantee that any case law on the subject would be helpful.

This was the issue before the Florida Court of Appeal in University of Miami v. Great American Assurance Company, No. 3D09-2010 (Fla. Ct. App. Feb. 20, 2013). The court characterized it as one of first impression and held that each insured-defendant was entitled to separate counsel. The dissent disagreed. Oh did it ever. The dissenting opinion - containing more words than the majority's - starts out with this foreshadow of where it's headed: "The court today opens a new frontier in insurance litigation of benefit only to the legal profession."

The case arose as follows. Great American issued a commercial general liability policy to MagiCamp, which ran a summer swim camp for kids using the pool on the campus of  the University of Miami. A four-yearold camper was pulled, unresponsive, from the bottom of the pool and was hospitalized with extensive injuries. His parents sued both MagiCamp and the University claiming the injuries were due to lack of supervision of the campers at the pool. The parents alleged that both MagiCamp and the University were each directly negligent. The University was an additional insured on MagiCamp's policy.

Great American hired one law firm to represent both MagiCamp and the University (the only defendants in the case). MagiCamp filed an answer alleging that the damages were caused, in whole or in part, by the fault of persons or entities other than MagiCamp. On the same day that MagiCamp filed its answer, the University advised Great American that there was a conflict of interest in the single representation of both MagiCamp and the University. The University demanded separate counsel of its choice. The insurer refused. Its position was that there was no conflict to justify separate counsel because MagiCamp was contractually bound to indemnify and hold harmless the University. The University retained its own counsel and, after the case was settled, brought an action seeking indemnification for the costs of its defense. The trial court granted the insurer's motion for summary judgment. The Florida Court of Appeal reversed.

The court described the question before it as: "[W]hether in this factual scenario, where both the insured and the additional insured have been sued, and the allegations claim that each is directly negligent for the injuries sustained, a conflict between the insured and the additional named insured exists that would require the insurer to provide separate and independent counsel for each. We answer the question affirmatively."

The court held: "In this case, single defense counsel was provided by Great American to defend both MagiCamp and [the University] and to present adverse legal theories. There exists no factual dispute, as evidenced by the record, that, in defense of both co-defendants, Great

American's counsel would have had to argue conflicting legal positions, that each of its clients was not at fault, and the other was, even to the extent of claiming indemnification and contribution for the other's fault. In so doing, legal counsel would have had to necessarily imply blame to one co-defendant to the detriment of the other. On these facts, we believe this legal dilemma clearly created a conflict of interest between the legal defenses of the common insureds sufficient to qualify for indemnification for attorney's fees and costs for independent counsel."

Of course, when you phrase the question like that, the answer, that a conflict exists, warranting separate counsel, is hardly surprising. What makes the decision surprising to me is that it was reached despite there being no disputes over the availability of coverage or adequacy of limits.

The dissent set forth a host of reasons why it disagreed with the majority opinion. First, MagiCamp had no defense to the lawsuit and MagiCamp was contractually obligated to indemnify and hold the University harmless.

Second, while each party preserved the right to seek contribution or indemnity from the other, the University's counsel admitted at oral argument that neither the University nor Magicamp sought to prove liability of the other at any time during the course of the underlying litigation. As both knew, such a course almost certainly would have been fatal." In essence, the dissent viewed the situation between the parties as one of a "paper conflict."

Third, "[a] liability insurer's contractual right to control the defense and indemnity features of its contract is indispensable to the protection of its financial interest in the litigation and thus the product itself. This meaningful contractual right should not be penalized merely because there exists the potential for insurer-selected counsel to become impermissibly conflicted in its representation."

Lastly, the dissent was "persuaded the rules governing the Florida Bar and the attendant threat of malpractice liability provide sufficient assurance that counsel appointed by an insurer will not continue to represent an insured in the event a conflict of interest interferes with counsel's ability to make independent professional judgments on behalf of the client."

The dissent provided the following ominous warning as a result of the majority decision, to afford dual insureds separate counsel, anytime an insured articulates a conflict in a pleading, whether or not real: "The future of dual insured claims should not be hard to see."

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

Randy J. Maniloff is an attorney in the Philadelphia office of White and Williams, LLP.  He concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies. Randy is co-author of "General Liability Insurance Coverage - Key Issues In Every State" (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

Read more from this issue of Coverage Opinions.

For more information about LexisNexis products and solutions connect with us through our corporate site.