SUPREME COURT OF FLORIDA TALLAHASSEE, FLORIDA

SUPREME COURT OF FLORIDA TALLAHASSEE, FLORIDA NATIONWIDE MUTUAL FIRE INSURANCE : COMPANY, : : Petitioner, : CASE NO.: SC : v. : : HOWARD J. BEVILLE, JR., et al., : : Respondent. : : : ON DISCRETIONARY REVIEW FROM THE DISTRICT COURT OF APPEAL, FOURTH DISTRICT CASE NO. 4D01-858 PETITIONER S BRIEF ON JURISDICTION Tracy Raffles Gunn, Esquire Florida Bar No.: 984371 Hala A. Sandridge, Esquire Florida Bar No.: 454362 FOWLER WHITE BOGGS BANKER P.A. Post Office Box 1438 Tampa, FL 33601 813 228-7411 Attorneys for Petitioner

STATEMENT OF THE CASE AND FACTS For purposes of jurisdiction only, Petitioner Nationwide Mutual Fire Insurance Company adopts the facts set forth in the opinion of the Fourth District Court of Appeal. See Appendix. The opinion provides the following significant facts. A third party lawsuit was filed against the insured, Beville. Beville hired attorneys to defend him in the case. Beville discussed the case with his insurance agent in December 1997, but did not provide written notice of the suit to his liability carrier, Nationwide, until June 1998. Upon the June 1998 notice, Nationwide began paying Beville s defense attorneys and agreed to defend Beville under reservation of rights. Nationwide ultimately paid to settle the claim against Beville. Beville sued Nationwide, solely to recover the defense fees he had expended from December 1997 through June 1998. There is no claim relating to Nationwide s defense from June 1998 forward. Nationwide argued that the December 1997 conversation with the agent was not proper notice of the suit as required under the policy, and that Nationwide had no duty to pay defense fees incurred by Beville prior to the June 1998 notice. Significantly, the Fourth District agreed with Nationwide that it did not receive proper notice of the claim until June 1998. 1

825 So.2d at 1003-04. However, the court held that a defense under reservation of rights can only be valid if the insurer complies with the requirement of the Claims Administration Statute ( CAS ), Fla. Stat. 627.426(2), to obtain either a nonwaiver agreement or mutually agreeable counsel. The court determined that Nationwide did not comply with the CAS, and held that providing a defense under reservation of rights without CAS compliance was the equivalent of wholly refusing to defend. The court concluded that in June 1998 Nationwide breached its duty to defend, and awarded Beville the defense costs he incurred from December 1997 through June 1998. JURISDICTIONAL ISSUE WHETHER THE DECISION OF THE FOURTH DISTRICT COURT OF APPEAL EXPRESSLY AND DIRECTLY CONFLICTS WITH DECISIONS FROM THIS COURT AND OTHER DISTRICT COURTS OF APPEAL? SUMMARY OF THE ARGUMENT The decision of the Fourth District expressly and directly conflicts with decisions from this Court and other District Courts of Appeal on several points of law, each of which provides an independent basis for conflict jurisdiction: (1) whether the mutually agreeable counsel requirement of the Claims Administration Statute ( CAS ) is met when the insured selects the defense attorneys; (2) whether the CAS remains limited to coverage defenses or forfeiture conditions; (3) whether the penalty for failure to comply with the CAS is 2

limited to waiver of coverage defenses, or if it also includes private attorneys fees; (4) whether an insured s damages for a breach of the duty to defend include defense expenses incurred prior to the breach; (5) whether the rule in Taylor v. Safeco Ins. Co., 361 So.2d 743 (Fla. 1 st DCA 1978), that an insured may take control of the litigation when the carrier offers to defend under reservation of rights, applies when the insured accepts the offered defense instead of rejecting it as the insured did in Taylor; (6) whether an insurer breaches its duty to defend merely by defending under reservation of rights, even though the insured was defended timely upon receipt of proper notice, and by the attorneys he had selected. This Court should exercise its discretion to accept review in this case because it will give the Court an opportunity to address important issues relating to an insurer s duty of defense, especially in cases where coverage is questioned and a reservation of rights is issued. ARGUMENT THE DECISION BELOW EXPRESSLY AND DIRECTLY CONFLICTS WITH DECISIONS FROM THIS COURT AND THE OTHER DISTRICT COURTS OF APPEAL. This Court may exercise its discretionary jurisdiction when an appellate decision expressly and directly conflicts with a decision of another District Court of Appeal or this Court on the same question of law. Art.V, 3(b)(3), Fla.Const. Conflict 3

jurisdiction exists when the District Court of Appeal announces a rule of law in conflict with the rule previously announced by another court, applies a rule of law to produce a different result in a case involving substantially the same controlling facts as a prior case, or misapplies the law. See Arab Termite & Pest Control of Florida, Inc. v. Jenkins, 409 So. 2d 1039, 1041 (Fla. 1982); Mancini v. State, 312 So. 2d 732 (Fla. 1975); Wale v. Barnes, 278 So.2d 601 (Fla. 1973); Neilsen v. Sarasota, 117 So.2d 731, 734 (Fla. 1960). Nationwide does not dispute that where the Claims Administration Statute ( CAS ) applies, a failure to comply with that statute will preclude the carrier from asserting coverage defenses. However, the opinion below creates conflict in several steps in this analysis. Mutually Agreeable Counsel The opinion below holds that Nationwide violated the mutually agreeable counsel requirement of the CAS. However, Beville selected the defense attorneys, even before Nationwide had notice of the suit. The opinion refers to them as Beville s lawyers. 825 So.2d at 1001. The holding that defense counsel selected by the insured does not qualify as mutually agreeable counsel is in conflict with Continental Ins. Co. v. City of Miami Beach, 521 So.2d 232 4

(Fla. 3d DCA 1988), which holds that mutually agreeable counsel requires that the insured agree to the attorney. Scope of CAS and Application to Coverage Defenses The decision below conflicts with this Court s decision in AIU Insurance Co. v. Block Invest. Marina, Inc., 544 So. 2d 998 (Fla. 1989), which holds that the CAS applies only to coverage defenses, and that this term includes only forfeiture conditions. The CAS does not apply where the carrier seeks to limit, rather than completely disclaim, its liability - in such cases, there is no forfeiture. In Pacific Employers Ins. Co. of L.A., Cal. v. Ott, 545 So.2d 462, 463 (Fla. 3rd DCA 1989), the court held that the CAS applies only when the insurer totally denies coverage." The court concluded that where the insurer does not deny coverage but simply asserts that liability is limited, the statute does not apply. Id. at 464. See also Fans and Stoves of Jacksonville, Inc. v. Aetna Casualty and Surety Co., 549 So. 2d 1178, 1179 (Fla. 1 st DCA 1989) (violation of the CAS precludes the carrier from denying coverage ). Nationwide did not totally deny coverage - it paid defense costs from the time of notice forward, and settled the claim. There was no forfeiture. The Fourth District s application of the CAS conflicts with these authorities limiting the CAS to forfeiture conditions. Notice of Suit Requirements are Not the Same as a Late Notice Defense and are Not Coverage Defenses. 5

The decision below requires Nationwide to pay pre-notice defense costs, and precludes Nationwide from enforcing a notice of suit requirement, as a penalty for failing to comply with the CAS. This conflicts with cases holding that the sole penalty for a violation of the CAS is the waiver of the coverage defense (forfeiture condition), and that the insurer can enforce other requirements of the policy and the law even absent CAS compliance. See AIU Insurance Co. v. Block Invest. Marina, Inc., 544 So. 2d 998 (Fla. 1989); Almendral v. Security Nat. Ins. Co., 704 So.2d 728 (Fla. 3d DCA 1998); Progressive American Ins. Co. v. Papasodero, 587 So.2d 500 (Fla. 2d DCA 1991); U.S. Aviation Underwriters, Inc. v. Sunray Airline, Inc., 543 So.2d 1309 (Fla. 5th DCA 1989). Nationwide s failure to comply with the CAS did preclude it from asserting the late notice coverage defense, because that is a forfeiture provision. However, the alleged CAS violation should not have precluded Nationwide from enforcing the notice of suit condition, because that is a condition precedent triggering a duty to defend from that point forward. It is not a forfeiture provision. The notice of suit condition precedent is not the same as the late notice condition subsequent. Nationwide was entitled, under the above authorities, to enforce the notice condition precedent to its to duty to defend. The 6

Fourth District created conflict by using the CAS in a case not involving a forfeiture condition. The Penalty for Violation of the CAS Does Not Include Private Attorneys Fees. This case also conflicts with Fans and Stoves of Jacksonville, Inc. v. Aetna Casualty and Surety Co., 549 So. 2d 1178 (Fla. 1 st DCA 1989), on the issue of what penalty is assessed for failure to comply with the CAS. In Fans and Stoves, the insurer offered a defense under reservation of rights. The insured did not agree to the defense counsel selected by the carrier and retained its own private counsel to also defend the case. The insured sued the carrier for the amounts it paid its private counsel. The insurer had not complied with the CAS. The 1 st DCA nevertheless denied the insured s claim for its defense fees, holding that private attorney s fees were not the type of damages available for a violation of the CAS and that the insured was not authorized to hire his own attorneys at his carrier s expense. The decision herein conflicts with Fans and Stoves because the Court applied the CAS to award Beville s private attorney s fees claim. Damages for Breach of the Duty to Defend The decision below holds that Nationwide breached its duty to defend Beville by issuing the reservation of rights letter in June 1998. There was no breach in December 1997, because the 7

Fourth District agreed that Nationwide did not have proper notice of the suit at that time. Nevertheless, the sole claim and the sole award is for fees Beville incurred from December 1997 through June 1998. Awarding the insured fees incurred prior to the alleged breach conflicts withcases holding that a breach of the duty to defend requires the carrier to pay consequential damages from that breach. See MCO Environmental, Inc. v. Agricultural Excess & Surplus Ins. Co., 689 So.2d 1114, 1116 (Fla. 3d DCA 1997); North American Van Lines, Inc. v. Lexington Ins. Co., 678 So.2d 1325 (Fla. 4th DCA 1996); Caldwell v. Allstate Ins. Co., 453 So.2d 1187 (Fla. 1st DCA 1984). While such consequential damages may include defense costs incurred from the time the defense is tendered, pre-notice and pre-tender defense costs are not a consequence of the later breach. The decision below misapplied this rule of law in determining the timing of damages. Reservation of Rights: Acceptance v. Rejection of Defense The Fourth District applied Taylor v. Safeco Ins. Co., 361 So.2d 743 (Fla. 1 st DCA 1978), to find that an insured may take control of the litigation when the carrier offers to defend under reservation of rights. However, the insured in Taylor rejected the conditional defense while in this case Beville accepted the defense. Beville in fact made no claim for any conduct of Nationwide from June 1998 forward. In that regard, 8

this case misapplies Taylor and conflicts with Griffen Roofing Co. v. DHS Developers, Inc., 442 So.2d 396 (Fla. 5 th DCA 1983), which specifically holds that Taylor does not apply where the insured accepts a defense under reservation of rights instead of rejecting it, and that an insured who accepts a defense has no right to take control of the defense and bind the carrier to pay its expenses. Likewise, in Colony Ins. Co. v. G & E Tires & Service, Inc., 777 So.2d 1034, 1036 (Fla. 1 st DCA 2000), the court held that in accepting the reservation of rights defense, the insured necessarily agreed to the terms on which [the carrier] extended the offer. The decision below conflicts with Taylor, Griffen and Colony Ins. because Beville accepted the defense under reservation of rights and yet has been permitted to take control of the litigation and bind the insurer to pay his expenses. Defense Under Reservation of Rights is Not a Failure to Defend The decision below holds that Nationwide breached its duty to defend merely by defending under reservation of rights, even though the insured was defended timely upon receipt of proper notice, and by the attorneys he had selected. That holding conflicts with numerous decisions approving and even requiring a carrier to use a reservation of rights procedure where coverage is in question. See Colony Ins. Co. v. G & E Tires & 9

Service, Inc., 777 So.2d 1034, 1037-38 (Fla. 1 st DCA 2000); First Am. Title Ins. Co. v. Nat'l Union Fire Ins. Co., 695 So.2d 475, 477 (Fla. 3d DCA 1997) ("An insurer does not breach its duty to defend an insured when it provides a defense under a reservation of rights."); Liberty Mutual Ins. Co. v. Lone Star Indus., Inc., 661 So.2d 1218, 1220 (Fla. 3d DCA 1995) (insurer may investigate the claim under a reservation of rights and then withdraw its defense and deny coverage); Irvine v. Prudential Property and Cas. Ins. Co., 630 So.2d 579, 580 (Fla. 3d DCA 1993)("We believe that the better process is to require the insurer to defend the action under a reservation of rights."); Allstate Ins. Co. v. Conde, 595 So.2d 1005 (Fla. 5th DCA 1992) (en banc) (insurer questioning coverage should defend insured under reservation of rights and file declaratory judgment); Travelers Ins. Co. v. Emery, 579 So.2d 798, 800 (Fla. 1st DCA 1991)(insurer may institute a declaratory action to establish non-coverage while defending under a reservation of rights); Giffen Roofing Co., Inc. v. DHS Developers, Inc., 442 So.2d 396, 396-397 (Fla. 5th DCA 1983) ( [i]t is well settled that an insurer may provide a defense to its insured while reserving the right to later challenge coverage, if timely notice of such reservation is given ); Midland Insurance Company v. Watson, 188 So.2d 403 (Fla. 3d DCA 1966) (reservation of rights does not operate as estoppel to deny coverage). 10

Likewise, since a defense under reservation of rights is not a per se breach of the duty to defend, the case misapplies Taylor and therefore conflicts with those cases establishing that Taylor permits the insured to take control of the litigation only where has been a breach of the duty of defense. See Wright v. Hartford Underwriters Ins. Co., 2002 WL 1798569 (Fla. 1 st DCA 2002); MCO Environmental, Inc. v. Agricultural Excess & Surplus Ins. Co., 689 So.2d 1114, 1116 (Fla. 3d DCA 1997). Discretionary Considerations This Court should exercise its discretion to accept review in this case, because it will give the Court an opportunity to address important issues relating to an insurer s duty of defense, especially in cases where coverage is questioned and a reservation of rights is issued. This case will allow the Court to address an insurer s liability for defense costs incurred prior to a tender of defense, and whether the Taylor v. Safeco rule which allows an insured to take control of the litigation when offered a defense under reservation of rights applies when the insured accepts the defense instead of rejecting it. This Court should also reaffirm the limitation of the CAS to coverage defenses, and should explain the penalties imposed upon an insurer for a violation of the CAS. CONCLUSION 11

There is express and direct conflict. This Court should grant review. Respectfully submitted, CERTIFICATE OF SERVICE Tracy Raffles Gunn, Esquire Florida Bar No.: 984371 Hala A. Sandridge, Esquire Florida Bar No.: 454362 FOWLER WHITE BOGGS BANKER P.A. Post Office Box 1438 Tampa, FL 33601 813 228-7411 Attorneys for Petitioner I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished by U.S. Mail to: JANE KREUSLER WALSH, Esquire, 503 Flagler Center 501 S. Flagler Drive West Palm Beach, Florida 33401-5909 ANDREW M. PELINO, ESQUIRE Burman, Critton, Luttier & Coleman 515 N. Flagler Drive, Suite 400 West Palm Beach, FL 33408 on November 13, 2002. Attorney 12

CERTIFICATE OF COMPLIANCE I HEREBY CERTIFY that this brief complies with the font requirements of Florida Rule of Appellate Procedure 9.210(a)(2). Respectfully submitted, Tracy Raffles Gunn, Esquire Florida Bar No.: 984371 Hala A. Sandridge, Esquire Florida Bar No.: 454362 FOWLER WHITE BOGGS BANKER P.A. Post Office Box 1438 Tampa, FL 33601 813 228-7411 Attorneys for Petitioner 13

TABLE OF CONTENTS STATEMENT OF THE CASE AND FACTS... 1 JURISDICTIONAL ISSUE... 2 SUMMARY OF THE ARGUMENT... 2 ARGUMENT THE DECISION BELOW EXPRESSLY AND DIRECTLY CONFLICTS WITH DECISIONS FROM THIS COURT AND THE OTHER DISTRICT COURTS OF APPEAL... 3 CONCLUSION...10 CERTIFICATE OF SERVICE...11 CERTIFICATE OF COMPLIANCE...12 i

TABLE OF AUTHORITIES STATE CASES AIU Insurance Co. v. Block Invest. Marina, Inc., 544 So. 2d 998 (Fla. 1989)... 4, 5 Allstate Insurance Co. v. Conde, 595 So. 2d 1005 (Fla. 5th DCA 1992)... 9 Almendral v. Security National Insurance Co., 704 So. 2d 728 (Fla. 3d DCA 1998)... 5 Arab Termite & Pest Control of Florida, Inc. v. Jenkins, 409 So. 2d 1039 (Fla. 1982)... 3 Caldwell v. Allstate Insurance Co., 453 So. 2d 1187 (Fla. 1st DCA 1984)... 7 Colony Insurance Co. v. G & E Tires & Service, Inc., 777 So. 2d 1034 (Fla. 1st DCA 2000)... 8 Continental Insurance Co. v. City of Miami Beach, 521 So. 2d 232 (Fla. 3d DCA 1988)... 4 Fans and Stoves of Jacksonville, Inc. v. Aetna Casualty and Surety Co., 549 So. 2d 1178 (Fla. 1st DCA 1989)... 5, 6 First America Title Insurance Co. v. National Union Fire Insurance Co., 695 So. 2d 475 (Fla. 3d DCA 1997)... 8 Griffen Roofing Co. v. DHS Developers, Inc., 442 So. 2d 396 (Fla. 5th DCA 1983)... 8, 9 Irvine v. Prudential Property and Casualty Insurance Co., 630 So. 2d 579 (Fla. 3d DCA 1993)... 9 Liberty Mutual Insurance Co. v. Lone Star Industrial, Inc., 661 So. 2d 1218 (Fla. 3d DCA 1995)... 9 MCO Environmental, Inc. v. Agricultural Excess ii

& Surplus Insurance Co., 689 So. 2d 1114 (Fla. 3d DCA 1997)... 7, 9 Mancini v. State, 312 So. 2d 732 (Fla. 1975)... 3 Midland Insurance Company v. Watson, 188 So. 2d 403 (Fla. 3d DCA 1966)... 9 Nationwide Mutual Fire Insurance Company v. Beville, 825 So. 2d 1001...1, 4 Neilsen v. Sarasota, 117 So. 2d 731 (Fla. 1960)... 3 North American Van Lines, Inc. v. Lexington Insurance Co., 678 So. 2d 1325 (Fla. 4th DCA 1996)... 7 Pacific Employers Insurance Co. of L.A., Cal. v. Ott, 545 So. 2d 462 (Fla. 3rd DCA 1989)... 4, 5 Progressive American Insurance Co. v. Papasodero, 587 So. 2d 500 (Fla. 2d DCA 1991)... 5 Taylor v. Safeco Insurance Co., 361 So. 2d 743 (Fla. 1st DCA 1978)... 2, 3, 7, 8, 9, 10 Travelers Insurance Co. v. Emery, 579 So. 2d 798 (Fla. 1st DCA 1991)... 9 U.S. Aviation Underwriters, Inc. v. Sunray Airline, Inc., 543 So. 2d 1309 (Fla. 5th DCA 1989)... 5 Wale v. Barnes, 278 So. 2d 601 (Fla. 1973)... 3 Wright v. Hartford Underwriters Ins. Co., 2002 WL 1798569 (Fla. 1st DCA 2002)...9 STATE STATUTES iii

Claims Administration Statute ("CAS"), Fla. Stat. 627.426(2)... 1 Art.V., 3(b)(3), Fla.Cont....3 iv