Reminder to Policyholders: Cooperate and Consent!

In HDI World Specialty SE v. PF Holdings LLC, the Eleventh Circuit not too long ago affirmed a district courtroom ruling that the insurers of two condo administration firms didn’t must cowl a $54 million arbitration award in opposition to the businesses for his or her alleged mismanagement of government-subsidized residences. The Eleventh Circuit held that administration firms’ failure to cooperate breached common legal responsibility insurance coverage insurance policies issued by the insurers.

After the administration firms offered discover to the insurers of a declare by their residents for substandard dwelling circumstances, the insurers ultimately agreed to defend the administration firms as further insureds, below a reservation of rights. The administration firms disagreed with the insurers’ protection place and, opposite to the insurers’ resolution to nominate totally different protection counsel, continued to retain the protection lawyer they’d chosen to defend them within the underlying motion.

Finally the arbitrator issued a $54 million award in opposition to the administration firms, which was comprised of compensatory and punitive damages, in addition to attorneys’ charges. Whereas the arbitration was pending, the insurers filed a declaratory judgment motion, searching for a declaration that it didn’t must indemnify the administration firms for the arbitration award or associated protection prices. Within the declaratory judgment motion, the insurers argued that they didn’t must cowl the arbitration award as a result of the administration firms hadn’t cooperated with the insurers and had subjected the insurers to doable legal responsibility for the arbitration award with out the insurers’ consent, thereby violating the coverage.

The administration firms argued that the insurers’ delay in responding to its request for a protection was a refusal to defend the administration firms; due to this fact, the insurers had breached the coverage, relieving the administration firms of their obligation to cooperate with the insurers.

The district courtroom agreed with the insurers and the Eleventh Circuit affirmed. The District Court docket held that whereas a delay in responding might be thought-about a refusal, the “slight delay” right here was not prejudicial to the administration firms. Additional, the courtroom held that the administration firms breached the insurance policies by “clearly” failing to cooperate with the insurers once they moved the counsel employed by the insurers “to the sidelines throughout the arbitration hearings.” The courtroom additionally held that the administration firms had breached the coverage by subjecting the insurers to doable legal responsibility, particularly by failing to hunt the insurers’ consent to enter right into a binding arbitration award.

The district courtroom additionally rejected the administration firms’ rivalry that the insurers had acted in dangerous religion by failing to just accept pre-arbitration settlement affords inside the limits of their insurance policies. The courtroom reasoned that though the insurers probably had adequate data to find out that the administration firms have been liable, they didn’t have any particular data concerning damages, and that due to this fact no affordable jury would discover the insurers had acted in dangerous religion.

Though there are causes a courtroom may have gone the opposite method on these points, this resolution serves as reminder {that a} policyholder ought to try and work with its insurers even after the policyholder believes the insurer has breached the coverage. If nothing else, such efforts can function proof in a protection motion to point out that the policyholder acted moderately, or conversely that the insurer didn’t. Moreover, policyholders and protection counsel ought to bear in mind to offer insurers adequate data in order that they’ll make knowledgeable selections concerning settlements. If not, policyholders might be on the hook for tens of millions of {dollars} that will in any other case be lined.

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