Insurer Wins Dec Judgment Action in 5th Circuit on Indemnity Provisions in Contract

In Ace American Ins. Co. v. M-I, L.L.C., Case No. 12-20080, (5th Cir. Oct. 19, 2012), the Fifth Circuit Court of Appeals affirmed the district court's grant of partial summary judgment on behalf of an insurer, finding that the Outer Continental Shelf Lands Act ("OCSLA"), 43 U.S.C. 1333(a), applied to the parties' contractual dispute. As a result, the court found that pursuant to the OCSLA choice of law provision, Louisiana law applied, under which the Louisiana Oilfield Indemnity Act ("LOIA"), La. Rev. Stat. 9:2780(B), invalidated the indemnity provisions.

The dispute concerned a Master Service Agreement ("MSA") between BP and a service company. Contained within the MSA was an indemnification provision, which contained an insurance agreement supporting the service company's indemnification obligations. An employee of the service company was injured, sued BP and the service company, BP tendered the employee's claims to the service company, which in turn settled all claims with the employee. The service company's insurer then filed an action for declaratory judgment, seeking a declaration that it did not owe coverage payments to the service company. The service company countersued the insurer for breach of contract.

At issue in the case was whether Louisiana law governed the indemnity provisions. The Fifth Circuit agreed with the district court that in order for the OCSLA indemnity provision in the MSA to apply, maritime law must not apply upon its own force. The court agreed that the employee's work on a oil field platform was not maritime in nature. Therefore, Louisiana law applied, invalidating the indemnity provisions in the MSA.

If you are interested in receiving a copy of the complete decision, please feel free to contact me at mov@chaloslaw.com.  

Speaking Engagement: Fort Lauderdale Boat Show 2012

I am speaking this Wednesday at the Fort Lauderdale Mariners Club seminar dubbed "the most important seminar for insurance agents, brokers, underwriters, surveyors, admiralty attorneys and marine industry professionals" in Fort Lauderdale, Florida on the the topic of The Rules of the Game from the Legal Perspective. This topic relates to the rules and regulations for passenger ships. The agenda for the conference can be found here => http://meetingsoft.cvent.com/events/2012-fort-lauderdale-mariners-club-seminar/custom-18-8b83bc0fc72b4d07b73e1b4cf17d0d00.aspx.

If you are interested in this topic and have never been to this seminar, it is a well-known conference held every year as a "kick-off" to the Fort Lauderdale Boat Show. If you have any questions regarding this seminar or are interested in receiving the outline for my presentation, please feel free to contact me at mov@chaloslaw.com.

Florida Mediation Rules Require Physical Presence of Full Decision Makers of Both an Insured Party and Its Insurance Representative

In order for a case to proceed to trial in Florida, mediation between the parties must be had. I am routinely asked whether a party is required to attend mediation in Florida or whether the mediation rule is permissive, meaning that a party can send a replacement or party representative to attend on the party's behalf. Of course, this is important in maritime cases where the parties can hail from all over the world and it seems to some outside of this jurisdiction to be onerous to have to physically attend mediation.

On January 1, 2012, Florida’s Rules of Civil Procedure regarding mediation required each party to file a notice 10 days before the mediation identifying who will physically attend on behalf of each party. Pursuant to amendments to Rule 1.720, an insured defendant must identify the party representative of the defendant and the insurance representative of the defendant who will physically attend the mediation. The amendments also require the defendant’s attorney to certify that the party representative has (1) full authority to settle without further consultation and (2) authority to bind the party to a potential settlement and that the insurance representative attending on behalf of the insured has full authority to settle up to the amount of the plaintiff’s last demand or policy limits “without further consultation.” See Opinion No. SC10-2329.

The rule always required the attendance of each party or a party representative having “full authority to settle,” however, the amendment adds a “final decision maker” requirement and makes the parties certify to the court who is going to be present. These amendments increase the court’s ability to enforce the appearance requirements of Rule 1.720.

Of course, this Rule applies in state court proceedings. What about federal court proceedings? The U.S. District Court for the Southern District of Florida Local Rule 16.2 provides as follows:

"(e) Party Attendance Required.  Unless otherwise excused by the presiding Judge in writing, all parties, corporate representative, and any other required claims professionals (insurance adjusters, etc.), shall be present at the mediation conference with full authority to negotiate a settlement.  If a party to a mediation is a public entity required to conduct its business pursuant to Florida Statutes Chapter 286, and is a defendant or counterclaim defendant in the underlying litigation, that party shall be deemed to appear at a mediation conference by the physical presence of a representative with full authority to negotiate on behalf of the entity and to recommend settlement to the appropriate decision-making body of the entity.  The mediator shall report non-attendance and may recommend that the Court enter sanctions for non-attendance.  Failure to comply with the attendance or settlement authority requirements may subject a party to sanctions by the Court."

Thus, under both the state court and federal court procedural requirements, all parties and their insurers should be present at mediation.

Final Decision Maker Requirement

With the addition of subsection (c) of the state rule, a “party representative having full authority to settle” is defined as “a final decision maker with respect to all issues presented by the case who has the legal capacity to execute a binding settlement agreement on behalf of the party.” The comments section points out that this is a two-part definition: (1) the party representative must be the final decision maker and (2) the party representative must have the legal capacity to execute a binding settlement agreement. These are objective standards that can be determined without reference to confidential mediation communications.

By adding the “final decision maker” requirement, the amendments create some difficulty for insurance companies. The practice of sending an independent adjuster to mediation and having that adjuster call the insurance company for further guidance, even under the prior rule, was a violation. However, enforcement of the rule was problematic due to the mediation confidentiality requirements of section 44.405, Florida Statutes. The amendments, however, require that a statement be made outside of the cloak of confidentiality and directly to the court on the record.   In fact, even sending an adjuster who has limited authority will not comply with the rule because it requires the “final decision maker” to be at the mediation. A strict interpretation of the amendments may make it necessary for claims managers or supervisors to physically attend the mediation to comply with the “final decision maker” requirement.

Certificate of Authority Requirement

The state rule amendments also require a new filing called a “Certificate of Authority” to be filed at least 10 days before the mediation. Subsection (e) states as follows:

“Unless otherwise stipulated by the parties, each party, ten days prior to appearing at a mediation conference shall file with the Court and serve all parties a written notice identifying the person or persons who will be attending the mediation conference as a party representative or as an insurance carrier representative and confirming that those parties have the authority required by sub-section (b).”

The Certificate of Authority was meant to make enforcement of the appearance rules easier. Without the amendments, the parties or the mediators had no way to point out another party’s failure to follow the appearance requirements without breaching the confidentiality of mediation rules. Since 2006, the Supreme Court Committee on Alternative Dispute Resolution Rules and Policy has been exploring ways to resolve the tension between the appearance rules and the confidentiality rules governing mediation. They settled on the “Certificate of Authority” method for several reasons: (1) the Certificate of Authority filed with the court before the mediation puts all involved on notice as to who will actually be at the mediation (2) it puts in the court file a record document unrelated to confidential “mediation communications” and (3) “the proposed confirmation in advance of the mediation session encourages parties and lawyers to begin thinking seriously about settlement early in the process.” See Petition of the Committee on Alternative Dispute Resolution Rules and Policy to Amend the Florida Rules of Civil Procedure.

The new subsection (f) does not change the type of sanctions available under the rule, but it does add that the failure to file the confirmation of authority or the failure of the persons actually identified in the confirmation to appear at the mediation conference creates a rebuttable presumption of a failure to appear.

Practical Considerations

This rule change will require significant pre-mediation preparation by insurers. An insurer must identify the appropriate representative at least 10 days before the mediation conference. That representative must have full policy limit authority or full authority up to the amount of the last demand, whichever is less. Committee notes to the rule amendment state: "First, the party representative must be the final decision maker with respect to all issues presented by the case in question. Second, the party representative must have the legal capacity to execute a binding agreement on behalf of the settling party."

Before scheduling the mediation, opposing attorneys need to discuss any practical problems with physical attendance of decision makers and how they can revise Rule 1.720’s requirements to accommodate each other. A sophisticated plaintiff’s attorney may understand that insurance companies have various levels of authority or a claims committee process that makes the “final decision maker” requirement problematic. In those cases, plaintiff’s attorney may agree to alter the “final decision maker” requirement. The Rule does not specifically address issues relating to multiple layers of insurance.

The insurance defense attorney needs to discuss with plaintiff’s attorney the possibility of excusing an insured client’s physical appearance at mediation when it is clear that the insured has no decisions to make at the mediation. When there are no issues relating to coverage, punitive damages, self-insured retention or possibility of judgments in excess of policy limits, having the client sitting at the mediation table is unnecessary, and the plaintiff’s attorney should be willing to excuse the requirement.

Undoubtedly, there will be an opposing counsel who insists that all of the technical requirements be met regardless of the inconvenience or lack of necessity. Parties should consider moving the court to revise the requirements of either the state or federal rule in those situations.  However, in the past, courts were apt to require strict compliance with the rules and that tendency may continue even with the stricter requirements.

Also, defense counsel should consider if there are issues related to plaintiff’s appearance at mediation. For example, in cases involving a minor, are both parents going to be at the mediation? Does a guardian ad litem need to be at the mediation?

The amendments to Rule 1.720 have simply made the process of scheduling mediation more complicated and should force the parties and their attorneys to pay more attention to the process of setting mediation.

If you wish to contact me, please feel free to do so at mov@chaloslaw.com. 

Insured Can Pursue Bad Faith After Favorable Appraisal Award

In Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Company, No. 4D11-1376, 2012 WL 3822215, *1 (Fla. 4th DCA Sept. 5, 2012), the Florida Fourth District Court of Appeal, applying Florida law, overturned the trial court’s summary judgment order and held that an appraisal award pursuant to an insurance contract can constitute a “favorable resolution” of an underlying breach of contract dispute for purposes of filing a bad faith cause of action.

In this breach of contract case, a policyholder who suffered property damage from Hurricane Katrina alleged that the insurer failed to pay all proceeds due from the related claim.  In response, the insurer invoked the policy’s appraisal provision. An appraisal award was entered in the policyholder’s favor and the insurer paid it within the required time frame.

When the insurer moved for summary judgment on the breach of contract claim, the trial court granted the motion, but also granted the policyholder’s motion to amend its complaint to raise a statutory bad faith claim.  This new claim alleged that the insurer “engaged in a pattern of delay and denial before and after litigation was filed.”  To counter, the insurer again filed for summary judgment, arguing that the policyholder could not bring a bad faith claim because it had not obtained a “favorable resolution” from the underlying breach of contract action. The trial court agreed and granted the insurer’s motion. The appellate court reversed.

Under Florida law, before a policyholder can bring a bad faith claim, the underlying claim must be “resolved favorably for the insured.”  The Trafalgar court noted that the requirement for a favorable resolution does not require a policyholder to obtain a court judgment in its favor – an arbitration award may also satisfy the condition. The Trafalgar court went on to hold that there was “no meaningful distinction” between an arbitration award and an appraisal award for the purposes of deciding whether an underlying action was “resolved favorably.” Thus, the court held that the policyholder’s appraisal award was a “favorable resolution,” and satisfied the necessary precondition for a bad faith claim. 

The Trafalgar decision is significant because it reaches a conclusion different from that reached by other Florida courts that have held that a policyholder cannot bring a bad faith claim if an appraisal award is paid by the insurer within the requisite time frame. See e.g., North Pointe Insurance Co. v. Tomas, 999 So.2d 728 (Fla. 3d DCA 2008). In these situations, insurance carriers still may consider arguing that invoking a policy’s appraisal provision – and paying any award within the time prescribed – represents compliance with the policy and precludes a finding that the insurer has breached the policy, which should in turn preclude a finding that an underlying claim has been resolved in the policyholder’s favor.

If you are interested in receiving either the Trafalgar decision or the Tomas decision, please do not hesitate to contact me at mov@chaloslaw.com.

Is a Houseboat a House or a Vessel?

The Daily Business Review lays out the story of Fane Lozman, the man who owned a houseboat, floating home or other item that floated off the Rivera Beach that the U.S. Supreme Court has now heard oral argument on. This case was debated during a recent meeting of the Florida Bar Admiralty and Maritime Law Committee on September 20th.

 

As background as laid out by the DBR, Lozman made a boatload of money off the tech bubble and decided to live the good life on a houseboat at a Riviera Beach marina. The city, though, had a $2.4 million redevelopment plan for the public marina with its easy access to the ocean. Lozman stood in the city's way and was determined to fight the city's use of eminent domain. Riviera Beach turned to federal maritime law to evict Lozman after he succeeded in state court, arguing he was being retaliated against for speaking out against the redevelopment plan.

Now the former Chicago financial trader is a cause celebre for fellow houseboat residents around the country, fighting his eviction all the way to the U.S. Supreme Court. The high court opened its fall session by hearing arguments in the case. The question for the nine justices was a simple one: whether a houseboat is a house or a boat. According to the DBR, their answer could have wide-ranging consequences for houseboat owners, floating casinos and government agencies. What the DBR forgets is the consequences for marinas and other necessaries providers to these houseboats.

 

According to the DBR, the intent of the houseboat owner should be what is looked at, rather than an objective test of what is a vessel. I query where this would take work platforms, work rafts and other equipment utilized by employers of maritime workers. If a worker is on these types of work platforms, can the employer simply state that these platforms were not intended to leave the work area, didn't have a motor, had no reasonable way of transporting itself and meant to stay in one location, as a way of avoiding Jones Act liability to crew of vessels? I wonder what the maritime plaintiffs' bar has to say about this? Barges are "motorless boats", do they now not become vessels if they are stationary and the owner says it was not intended to be a vessel?

The transcript of the oral argument before the U.S. Supreme Court is now available. It is quite interesting discourse for those following this case. If you are interested in receiving a copy of the transcript, please feel free to write to me at mov@chaloslaw.com to get your copy.

If you are interested in receiving a copy of the DBR article, you may also ask me for an electronic copy.

2013 Officers of the Fort Lauderdale Mariners Club

I am pleased to announce that I have been elected Program Chair of the Fort Lauderdale Mariners Club for the upcoming year. The Fort Lauderdale Mariners Club Officers for 2013 are the following:

Skipper - Matt Valcourt
First Mate - Charles Davant
Purser - Kristene Lundblad
Yeoman - Bryan Emond
Program Chair – Michelle Otero Valdes
Bos’n – Elaine Frawley
Historian – Terry Jones
Activities Chair – Arlene Weicher
Seminar Chair - Jonathan Dunleavy

I am excited with this new position and will be looking to my colleagues in the maritime community to be ready to speak about matters of interest to the Club.

If you have any interesting topics to present, please feel free to contact me at mov@chaloslaw.com.