The United States Court of Appeals for the Eleventh Circuit, applying Florida law, has held that a thirty-day statutory deadline to deny coverage did not apply to an insurer’s refusal to reimburse the insured for its pre-tender defense costs because this refusal did not constitute a “coverage defense” within the meaning of the statute. Embroidme.com, Inc. v. Travelers Property Cas. Co. of Am., 2017 WL 74694 (11th Cir. Jan. 9, 2017).
The insured, a promotional products franchise company, was sued for copyright infringement by a software company in April 2010. However, the insured failed to tender the claim to its liability insurer. Instead, the insured retained defense counsel and paid legal expenses from June 2010 until October 2011. The insured ultimately gave notice of the lawsuit to its insurer on October 10, 2011, and the insured and the insurer discussed the claim three days later. On November 21, 2011, the insurer agreed to defend subject to a reservation of rights but refused to pay any pre-tender defense costs. The insured filed a breach of contract suit seeking reimbursement for its pre-tender defense costs. On cross-motions for summary judgment, the insured contended that the insurer was estopped from denying payment of the pre-tender defense costs because its reservation of rights letter was issued after the thirty-day deadline for notification of coverage defenses imposed by Florida’s “Claims Administration Statute.” The insurer, in turn, argued that the statutory time frame did not apply because the policy provisions precluding the insured from incurring legal fees without prior approval constituted exclusions rather than coverage defenses. The district court agreed with the insurer and granted summary judgment in its favor.
On appeal, the court affirmed and held that the insurer was not required to comply with the statute when it refused to reimburse the insured for pre-tender defense costs because the policy expressly carved out pre-tender defense costs from the scope of coverage. The court highlighted the fact that the policy itself provided that “no insured will, except at the insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” Citing Florida Supreme Court authority, the court explained that the statute only applied to defenses that would preclude coverage for amounts that otherwise would fall within the policy’s scope of coverage. Because this policy did not provide coverage for pre-tender defense costs, the insurer was not estopped from refusing to reimburse the insured for such costs.
The court also noted that the text of the statue does not apply the statutory time frame with respect to the duty to defend, only to the duty to indemnify. Further, the policy considerations underlying the Florida statute were not implicated because the statute’s purpose is to inform the insured of coverage defenses so the insured can stake steps to protect itself. As such, the court characterized the statute as being “forward-looking” in order to protect an insureds’ future decisions and interests. Because the insured had already incurred defense costs before it ever notified the insurer or triggered the insurer’s obligation to send a reservation of rights, the insurer’s decision to refuse to pay pre-tender defense costs had no impact on the insured’s future decisions in the ongoing litigation.