Related Wrongful Acts Preclude Reinsurer’s Duty to Reimburse

The United States Court of Appeals for the Eleventh Circuit, applying Florida law, has held that a reinsurer does not need to reimburse its insured for defense and settlement costs paid in connection with an underlying lawsuit, finding that the earliest of a related series of wrongful acts predated the relevant coverage period such that the underlying policy did not afford coverage for the suit. Public Risk Mgmt. of Fla. v. Munich Reinsurance Am., Inc., 2022 WL 2338572 (11th Cir. June 29, 2022). The court also refused to apply a “follow-the-fortunes” doctrine that did not appear in the parties’ reinsurance agreement.

A self-insured risk management company that insures governmental entities in Florida (the Risk Pool) entered into a reinsurance agreement (the Agreement) with a reinsurer, which reinsured an occurrence-based E&O policy that ran from 2008 to 2009. Pursuant to the Agreement, the reinsurer agreed to reimburse the Risk Pool for covered amounts paid out under the 2008-09 E&O policy. 

In 2009, two Florida residents sued the City of St. Pete Beach (the City), which was a member of the Risk Pool, stemming from a real estate dispute. The Risk Pool ultimately agreed to defend the City and covered $200,000 of the City’s defense costs and a $750,000 settlement payment. The reinsurer denied coverage on the basis that the suit arose from a series of related wrongful acts, the earliest of which predated the E&O policy’s coverage period.

In the ensuing coverage action, the Risk Pool acknowledged that wrongful acts occurred prior to 2008, but nevertheless argued that the underlying complaint was replete with allegations of wrongful acts that occurred during the 2008-09 coverage period, thus triggering a duty to defend. The court disagreed, and it held that because the allegations of property interference after policy inception “were part of a series of related wrongful acts” that first occurred prior to policy inception, they were treated as one occurrence deemed “committed at the time of the first of such actions.” Accordingly, because the first wrongful act occurred as early as 2003, the court concluded that the Risk Pool did not have a duty to defend or indemnify the City under the 2008-09 E&O policy, and thus, the reinsurer had no duty to reimburse the company for the payments made.

The court also refused to read in a “follow-the-fortunes” term into the Agreement (which would bind the reinsurer by the Risk Pool’s good faith coverage decisions), reasoning that “the plain, unambiguous language of the relevant insurance provisions are squarely inconsistent with the core principle of the . . . doctrine.”