11th Circuit Rejects ‘Complaint Taken as a Whole’ Analysis of Insurer’s Duty to Defend, Places Reinsurer on Hook for Defense Costs

In Public Risk Management of Florida v. One Beacon Insurance Co., the 11th Circuit Court of Appeals reversed a decision relieving primary insurer Public Risk Management of Florida (PRM) of its duty to defend the City of Wintergarden because the underlying “Complaint taken as a whole” failed to state that the City committed a covered wrongful act.  As a result, reinsurer OneBeacon Insurance Company was forced to pay PRM’s defense costs. PRM is an intergovernmental risk management association that insures various local governmental entities in Florida, including the City.  Dewitt Excavating, Inc., sued the City for failing to pay it for construction work completed behind schedule.  Dewitt’s complaint primarily asserted claims against the City for intentional breach of contract.  However, the complaint also alleged that the City provided Dewitt with preliminary drawings full of errors and omissions before the project began – i.e. “misleading information” which interfered with Dewitt’s ability to complete the project and caused Dewitt damage.  Believing that the action was covered by its insurance policy, PRM hired a law firm to defend the City.  Though the lawsuit later settled, the firm billed PRM $486,941.07 in legal fees for defending the action. Under the reinsurance contract between OneBeacon and PRM, OneBeacon was obligated to reimburse PRM for legal fees it incurred while defending the City in actions covered by the PRM policy, subject to a $200,000 self-insured retention.  When PRM sought $286,941.07 from OneBeacon as reimbursement for the Dewitt action fees, OneBeacon refused to pay because it believed that the Dewitt action had not triggered PRM’s duty to defend (the PRM policy excluded coverage for intentional breaches of contract).  PRM then sued OneBeacon for breach of the reinsurance agreement. The district court dismissed PRM’s claim, stating that when analyzing “the Dewitt Complaint taken as a whole,” the complaint was an intentional breach of contract claim, “did not fall under the policy’s coverage for ‘wrongful acts,’ and [ ] the policy’s exclusion for any “[l]oss arising out of an intentional breach of contract eliminated [PRM]’s duty to defend.” The 11th Circuit disagreed, however, holding that the district court’s decision to analyze the complaint as a whole “ha[d] no support under Florida law.”  It noted a Florida insurer’s duty to defend was triggered whenever “the underlying facts contained in the complaint can be fairly read to support a claim covered by the indemnification provision.”  Though some of the City’s actions were phrased as intentional breaches of contract that fell outside of the PRM policy’s coverage, the complaint also alleged certain wrongful acts that were clearly covered.  Because “some of the alleged losses could be independent of the alleged intentional breach, the duty to defend [ ] still exist[ed].”  Accordingly, the 11th Circuit reversed the district court decision, declared that PRM did have a duty to defend the City, and made OneBeacon liable for PRM’s defense costs in excess of the retention.

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