It has been a busy summer, and we have a lot of catching up to do on all of the important insurance decisions from Florida courts this summer. I know I have been derelict in posting regularly, so now that Labor Day is approaching and the kids are back in school, it is time to get caught up.
I want to start with a case from May that addressed insurance broker malpractice claims. The case is Medical Data Systems, Inc. v. Coastal Ins. Group, Inc., No. 4D13-178, 2014 WL 2101238 (Fla. 4th DCA May 21, 2014). I last discussed insurance broker malpractice claims after the Florida Supreme Court issued its groundbreaking decision in Tiara Condominium Association Inc. v. Marsh & McLennan Companies, 110 So.3d 399 (Fla. 2013). The Tiara decision was groundbreaking because it abolished in Florida the economic loss rule in all contexts except product liability cases. But it also was an important broker malpractice case. A lot of people worried that Tiara would lead to a flood of broker malpractice claims. That did not happen, but there certainly has been an uptick of activity on these claims.
Insurance coverage disputes often call into question the actions of insurance brokers. Disputed coverage issues such as the adequacy of coverages or limits, failure to procure named insured or additional insured coverage, late notice, or ambiguities regarding policy terms or endorsements are examples of such disputes.
Florida courts have long held that insurance brokers are required to use reasonable skill and diligence, and liability may result from a broker’s negligent failure to obtain coverage which is specifically requested or clearly warranted by a policyholder’s expressed needs. An insurance broker has a duty to obtain insurance within a reasonable time and must notify the policyholder if it is unable to timely procure insurance. An insurance broker that fails to procure adequate insurance is liable to the policyholder up to the amount of insurance that should have been procured.
As a general matter, a policyholder cannot pursue a negligence claim against its broker until the disputed coverage issues with the insurer are resolved. In other words, a policyholder cannot assert a claim for broker negligence at the same time that it is claiming policy coverage. If the policyholder is unsuccessful in obtaining coverage, then its broker malpractice claim becomes ripe. Because the policyholder’s broker malpractice claim does not accrue until the coverage dispute is resolved, the statute of limitations on this claim does not begin to run until the coverage action is completed. Under Florida Statute § 95.11(3)(a), the four-year statute of limitations for negligence applies to these claims.
So with that background, let’s get back to the Medical Data Systems decision. The policyholder in Medical Data Systems was a medical debt collection agency that hired defense counsel in June 2006 to defend it against a lawsuit alleging violations of the Fair Debt Collection Practices Act. Its liability insurer denied coverage because the policy did not cover liability arising out of debt collection activities. The underlying lawsuit was settled in June 2008.
The policyholder did not challenge its insurer’s denial, but instead sued its insurance broker for improper procurement of a policy that did not cover the central activity of the business. The policyholder sued its retail broker in 2009, but the decision focusses on the claims asserted against the wholesale broker in August 2010, since those claims were asserted more than four years after the underlying lawsuit was filed and the policyholder began incurring defense costs.
The wholesale broker moved to dismiss on statute of limitation grounds, arguing that the four-year statute of limitations began to run in June 2006 when the policyholder began incurring defense fees. The trial court agreed and dismissed the claims against the wholesale broker.
The appellate court reversed. The Fourth DCA held that the negligence claim against the broker did not accrue until June 2008 when the underlying lawsuit was settled. Although the policyholder had incurred damages in June 2006 when it began incurring defense costs, the court held that the cause of action against an insurance broker does not begin to accrue until the conclusion of the “‘related or underlying judicial proceedings or, if there are no related or underlying judicial proceedings, when the client’s right to sue in the related or underlying proceeding expires.”
The Fourth DCA determined that the underlying action against Medical Data Systems constituted the “underlying judicial proceedings,” and therefore the broker malpractice claim did not begin to accrue until June 2008. That seems inconsistent with the Florida Supreme Court’s decision in Blumberg v. USAA Cas. Ins. Co., 790 So.2d 1061 (Fla. 2001), in which the Court determined that the coverage action was the “underlying proceedings”. Presumably, if the policyholder in Medical Data Systems had filed coverage litigation against its insurance company, and the coverage action continued after the underlying action was settled, the statute of limitations on the broker claim would not begin to accrue until the coverage action was complete.
The Fourth DCA did not need to find that Medical Data Systems had until June 2017 to file suit against its insurance broker, although such a ruling would seem to be the natural extension of Blumberg in situations where a policyholder does not sue its insurer. Otherwise, it would be possible for a policyholder to have its broker claim time-barred while its coverage claim is not. Whether a policyholder could “revive” its broker malpractice claim in such a situation by unsuccessfully pursuing coverage litigation is an open question.
Policyholders need to be aware of these timing issues when they are faced with a disputed insurance claim and they suspect their broker may be at fault for the lack of coverage. A broker negligence claim can be a policyholder’s last chance to recover on a claim that should be covered by insurance, but policyholders should not wait too long to pursue that claim.