Supreme Court of Florida
____________
No. SC11-2320
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INTERVEST CONSTRUCTION OF JAX, INC., et al.,
Appellant,
vs.
GENERAL FIDELITY INSURANCE COMPANY,
Appellee.
[February 6, 2014]
QUINCE, J.
This case is before the Court for review of two questions of Florida law
certified by the United States Court of Appeals for the Eleventh Circuit that are
determinative of a cause pending in that court and for which there appears to be no
controlling precedent. We have jurisdiction. See art. V, § 3(b)(6), Fla. Const. For
the reasons that follow, we hold that the insured in this case can use the payments
to it from a third party to satisfy the self-insured retention provision.
FACTUAL AND PROCEDURAL HISTORY
This case involves the terms of a general liability insurance contract entered
into by General Fidelity Insurance Company (General Fidelity) with Intervest
Construction of Jax, Inc., and ICI Homes, Inc. (ICI). The dispute arose out of a
personal injury lawsuit filed against ICI by an injured homeowner.
In 2000, ICI contracted with Custom Cutting, Inc. (Custom Cutting) to
provide trim work, including installation of attic stairs in a residence that ICI was
in the process of building. The contract between Custom Cutting and ICI
contained an indemnification provision requiring Custom Cutting to indemnify ICI
for any damages resulting from Custom Cutting’s negligence. In April 2007,
Katherine Ferrin, the owner of a residence constructed by ICI, fell while using the
attic stairs installed by Custom Cutting. This fall resulted in serious injuries to
Ferrin. Ferrin filed suit against ICI for her injuries; she did not file suit against
Custom Cutting. In turn, ICI sought indemnification from Custom Cutting under
the terms of the subcontract.
At the time of the accident, Custom Cutting maintained a commercial
general liability insurance policy with North Pointe Insurance Company (North
Pointe). ICI was not an additional insured under Custom Cutting’s policy with
North Pointe. ICI held the General Fidelity policy at the time of the accident.
Contained in the General Fidelity policy was a Self–Insured Retention
endorsement (“SIR”) in the amount of $1 million. The SIR endorsement stated
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that General Fidelity would provide coverage only after the insured had exhausted
the $1 million SIR. The policy also included a transfer of rights clause granting
the insurer some subrogation rights, the extent to which the parties dispute.
ICI, Custom Cutting, North Pointe, General Fidelity, and Ferrin participated
in a mediation of Ferrin’s claim. At the mediation, the parties agreed to a $1.6
million settlement of Ferrin’s claim. As part of the settlement, North Pointe agreed
to pay ICI $1 million to settle ICI’s indemnification claim against Custom Cutting.
ICI, in turn, would pay that $1 million to Ferrin. The instant dispute then arose as
to whether ICI or General Fidelity was responsible for paying Ferrin the remaining
$600,000.
Because of the disagreement between General Fidelity and ICI over
coverage, North Pointe paid the $1 million into the trust account of ICI’s counsel
and each party reserved all rights and claims against the other. Approximately one
month later, both ICI and General Fidelity each paid $300,000 to Ferrin, in
addition to the $1 million from North Pointe, in order to settle Ferrin’s claim for
the full $1.6 million. However, the parties reserved the right to bring their claims
against each other in order to be reimbursed for their contribution to the settlement.
ICI filed suit in the Circuit Court of the Fourth Judicial Circuit, in and for
Duval County, Florida for breach of contract and a declaratory judgment seeking
return of the $300,000 ICI paid above the $1 million indemnification payment and
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for attorneys’ fees and costs incurred in the Ferrin lawsuit. General Fidelity then
removed the case to the United States District Court for the Middle District of
Florida based on diversity jurisdiction. General Fidelity filed a counterclaim
seeking return of the $300,000 it had paid to Ferrin. The parties filed cross-
motions for summary judgment.
In its complaint, ICI alleged that General Fidelity failed to perform its
obligation under the policy by refusing to pay $600,000 of the $1.6 million
settlement. ICI maintained that Custom Cutting/North Pointe’s contribution of $1
million to settle ICI’s indemnification claim, which was then passed on to Ferrin,
satisfied the SIR obligation in the policy and General Fidelity was required to pay
the remaining $600,000. General Fidelity argued that North Pointe’s $1 million
payment to settle the indemnity claim did not reduce the SIR because the payment
originated from Custom Cutting, not ICI. Thus, General Fidelity maintained that
the terms of the policy required ICI to pay the additional $600,000 to settle Ferrin’s
claim.
The district court denied ICI’s motion for summary judgment but granted
General Fidelity’s motion, holding that ICI could not use the $1 million
indemnification payment to satisfy the SIR. The district court cited four California
cases addressing similar SIR provisions in insurance policies. Based on the
reasoning in those California cases, the district court concluded that the language
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in the SIR provision at issue in this case is unambiguous because it provides that
the “Retained Limit” must be paid by the insured and that the “Retained Limit”
will only be reduced by payments made by the insured. Thus the district court
found that the indemnity payment that ICI received from Custom Cutting did not
exhaust the SIR obligation as required by the language of the policy. Additionally,
the district court found that even if ICI had paid the $1 million out of pocket,
General Fidelity had paid out the additional $600,000, and ICI was indemnified by
Custom Cutting at a later date, ICI would still not have exhausted the SIR as
required by the policy because the “transfer of rights” provision in section IV(8) of
the policy provides that if the insured has rights to recover all or part of any
payment that the insurer has made, those rights are transferred to the insurer.
Accordingly, the district court entered judgment in favor of General Fidelity for
$300,000.
ICI appealed the district court’s ruling to the Eleventh Circuit Court of
Appeals. The Eleventh Circuit identified two issues that governed the outcome of
the case, but concluded there was no controlling Florida law on either issue.
Unlike the district court, the Eleventh Circuit did not find the California cases
persuasive in interpreting the General Fidelity policy because the California
policies were materially different. Thus, the Eleventh Circuit certified two
questions to this Court for resolution:
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1. DOES THE GENERAL FIDELITY POLICY ALLOW THE
INSURED TO APPLY INDEMNIFICATION PAYMENTS
RECEIVED FROM A THIRD-PARTY TOWARDS
SATISFACTION OF ITS $1 MILLION SELF-INSURED
RETENTION?
2. ASSUMING THAT FUNDS RECEIVED THROUGH AN
INDEMNIFICATION CLAUSE CAN BE USED TO OFFSET THE
SELF-INSURED RETENTION, DOES THE TRANSFER OF
RIGHTS PROVISION FOUND IN THE GENERAL FIDELITY
POLICY GRANT SUPERIOR RIGHTS TO BE MADE WHOLE TO
THE INSURED OR TO THE INSURER?
Intervest Constr. of Jax, Inc. v. Gen. Fid. Ins. Co., 662 F.3d 1328, 1332-33 (11th
Cir. 2011). We address each question in turn below.
ANALYSIS
Under Florida law, the interpretation of insurance contracts, such as the
commercial general liability policy in this case, is governed by generally accepted
rules of construction. U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 877 (Fla.
2007). “Insurance contracts are construed according to their plain meaning.
Ambiguities are construed against the insurer and in favor of coverage.” Taurus
Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528, 532 (Fla. 2005).
However, courts only look to the rules of construction “when a genuine
inconsistency, uncertainty, or ambiguity in meaning remains after resort to the
ordinary rules of construction.” Id. (quoting State Farm Mut. Auto. Ins. Co. v.
Pridgen, 498 So. 2d 1245, 1248 (Fla. 1986)). Courts may not “rewrite contracts,
add meaning that is not present, or otherwise reach results contrary to the
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intentions of the parties.” Id. (quoting Pridgen, 498 So. 2d at 1248). Further, “in
construing insurance policies, courts should read each policy as a whole,
endeavoring to give every provision its full meaning and operative effect.”
J.S.U.B., 979 So. 2d at 877 (quoting Auto-Owners Ins. Co. v. Anderson, 756 So.
2d 29, 34 (Fla. 2000)). “Although exclusionary clauses cannot be relied upon to
create coverage, principles governing the construction of insurance contracts
dictate that when construing an insurance policy to determine coverage the
pertinent provisions should be read in pari materia.” Id. (quoting State Farm Fire
& Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1074-75 (Fla. 1998)).
The text of the SIR endorsement in the instant case provides, in pertinent
part:
THIS ENDORSEMENT CHANGES THE POLICY.
PLEASE READ IT CAREFULLY
SELF-INSURED RETENTION
Per Occurrence
Self-Insured Retention: $1,000,000 Per Occurrence
Including Loss Adjustment Expense
In consideration of the premium charged, it is agreed the insurance afforded by the
policy to which this endorsement is attached is subject to the following additional
terms, conditions and provisions. In the event of a conflict between any of the
terms, conditions or provisions of the policy and this endorsement, this
endorsement will control the application of insurance to which the policy applies.
Unless otherwise specified, all terms used in this endorsement have the meaning
set forth in the policy.
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1. The Self-Insured Retention, shown above, applies to each and every
“occurrence” or offense made against any insured, to which this
insurance applies, irrespective of the number of claims which may be
joined in to any one “suit” or claim.
2. Our total liability will not exceed the Limits of Insurance as
specified in the policy Declarations, Coverage Parts or endorsements.
The Limits of Insurance will apply only in excess of the Self-Insured
Retention, hereinafter referred to as the “Retained Limit.”
3. We have no duty to defend or indemnify unless and until the
amount of the “Retained Limit” is exhausted by payment of
settlements, judgments, or “Claims Expense” by you.
....
5. Should any claim arising under this policy result in a settlement or
judgment, including “Claims Expense” incurred by the insured or on
the insured's behalf, in excess of the “Retained Limit,” we will pay
those amounts in excess of the “Retained Limit” to which this
insurance applies subject to the Limits of Insurance as specified in the
Declarations.
6. The “Retained Limit” will only be reduced by payments made by
the insured.
....
11. With respect to any claim payable under this insurance and subject
in whole or in part to the “Retained Limit” as provided in this
endorsement, we will have the right, but not the obligation to assume
the control of said claim and to pay any part of or all of the amount of
any such loss including “Claims Expense” within the “Retained
Limit” on behalf of and for the account of the insured to affect
settlement of said claim. Amounts paid by us pursuant to this
paragraph will be reimbursed to us by the insured within ten (10) days
from the date of our written request to the insured. We will have the
right to make partial recoveries from the insured when partial
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settlements or “Claims Expense” are incurred by us within the
“Retained Limit” as provided by this endorsement.
....
14. The insolvency, bankruptcy, receivership of the insured, or any
refusal by or inability of the insured to satisfy its obligations pursuant
to this endorsement will not reduce the “Retained Limit” as set forth
in the endorsement, nor will it require us to pay any amounts within
the “Retained Limit.” The payment of the “Retained limits” by the
insured is a condition precedent for our obligation to pay any sums
either in defense or indemnity and we shall not pay any such sums
until and unless the insured has satisfied its “Retained limits.”
The underlined portions of the endorsement were cited by the district court as
unambiguously requiring the insured to pay the “Retained Limit” from his or her
own funds.
Both parties filed motions for summary judgment on the issue of whether
ICI’s self-insured retention obligation was exhausted by an indemnification made
by one of its subcontractors. The district court denied ICI’s motion and granted
General Fidelity’s motion, entering judgment in its favor for $300,000. Intervest
Constr. of Jax, Inc. v. Gen. Fid. Ins. Co., Case No. 3:09-cv-00894-HES-JRK (M.D.
Fla. Apr. 22, 2010). The district court recognized that no Florida law addressed
this narrow issue and cited three California decisions as persuasive authority. Id. at
6. The cited cases included Vons Cos. v. United States Fire Insurance Co., 92 Cal.
Rptr. 2d 597 (Ct. App. 2000), Travelers Indemnity Co. v. Arena Group 2000, L.P.,
2007 WL 935611 (S.D. Cal. Mar. 8, 2007), and Forecast Homes, Inc. v. Steadfast
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Insurance Co., 105 Cal. Rptr. 3d 200 (Ct. App. 2010). The district court briefly
summarized the reasoning in the cases and noted that “the instant case does not fall
directly in line with any of the policy language discussed” in these cases. Intervest
Constr., Case No. 3:09-cv-00894-HES-JRK , slip op. at 8. However, the district
court found that the SIR endorsement in the policy repeatedly stated that the
retained limit must be paid by the insured and that the limit would only be reduced
by payments made by the insured. The district court found these terms to be
unambiguous and required ICI to exhaust the SIR by payment of its own funds, not
by application of the indemnification funds. Id.
On appeal, the Eleventh Circuit stated that the crux of the dispute between
the parties focuses on two provisions of the General Fidelity policy, the SIR
endorsement and the transfer of rights clause. 1 Intervest Constr., 662 F.3d at 1329.
The Eleventh Circuit noted that the particular language at issue in the General
Fidelity policy is different from the language in the California cases.2 Id. at 1330.
1. The transfer of rights clause is set forth and addressed in the analysis of
the second certified question below.
2. The Eleventh Circuit also cited a fourth California case as being
materially different from the instant case. The Eleventh Circuit noted in a footnote
that the SIR endorsement at issue in Insurance Co. of the State of Pennsylvania v.
Acceptance Insurance Co., 2002 WL 32515066 (C.D. Cal. Apr. 29, 2002),
contained a provision expressly addressing the possibility that the insured had
other insurance covering the same claims.
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The Eleventh Circuit considered these distinctions to be “potentially significant”
and found the policies in the California cases to be “materially different for two
reasons: (1) the General Fidelity Policy, unlike those policies examined by other
courts, does not contain an explicit provision addressing the precise issue in
question, and (2) the language of the General Fidelity Policy is arguably less
restrictive than the language of the policies at issue in those cases.” Id. (footnotes
omitted). The Eleventh Circuit explained that “[r]equiring that a payment be made
from one’s ‘own account’ is not necessarily the same as requiring that the retained
limit be paid ‘by you’.” Id. In fact, the Eleventh Circuit reasoned that “a strong
argument could be made that ICI exhausted its SIR because it paid for the
protection afforded in the indemnification clause; to wit, ICI paid for that
indemnity protection in the purchase price of the Custom Cutting subcontract and
therefore hedged its retained risk, just as it could have paid for a loan or paid a
premium on an insurance policy.” Id. Thus the Eleventh Circuit expressed
skepticism of the district court’s analysis of this issue of Florida law. Id. at 1330-
31. The Eleventh Circuit also noted that the policy at issue here “appears on its
face to be more permissive” than those in the California cases because it did not
contain any other provision requiring payments directly from the insured’s own
account or expressly prohibiting the use of indemnification payments to satisfy the
SIR. Id. at 1331.
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Although each of the California cases cited by the district court and the
Eleventh Circuit addressed the satisfaction of a SIR obligation, none involved the
same policy language at issue here. What the cases have in common with each
other, and with the resolution of the instant case, is that the policy language
controlled—because it either clearly addressed or was ambiguous on the issue of
how or by whom the SIR could be paid.
Vons involved an issue similar to the one presented here. A person was
injured by a pallet jack being operated by a Vons employee in the common area of
a shopping center owned by Vons’ landlord, Longs Drug Stores (Longs). Vons, 92
Cal. Rptr. 2d at 599. The victim sued Vons for his injuries. Vons in turn cross-
complained against Longs, alleging that Longs had expressly agreed to indemnify
Vons for injuries that occurred in the common area and that Longs was partially to
blame for the accident. Id. As part of Vons’ lease agreement with Longs, Vons
was named an additional insured under Longs’ comprehensive general liability
(CGL) insurance policy. The insurance policy contained a SIR endorsement, but it
had been exhausted at the time the injured man filed his complaint. Thus the
insurance policy provided first dollar coverage for the victim’s injuries. Id.
Vons was also insured under its own CGL policy issued by U.S. Fire. The
Vons policy provided $1 million in coverage, but also included a $1 million SIR
endorsement. The SIR endorsement in the Vons policy also provided that it was
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“subject to the limits of liability, exclusions, conditions, and other terms of the
policy to which this agreement is attached . . .” and that “all other terms and
conditions of this Policy remain unchanged.” Id. Longs’ insurer issued a $1
million check to Vons as an additional insured under the Longs policy; Vons
contributed $539,905 of its own funds to pay all of the settlement to the injured
man. Vons and U.S. Fire disagreed on whether the $1 million SIR in the Vons
policy would be deemed exhausted if that sum were paid on behalf of Vons as an
additional insured under the Longs policy.
Vons sued U.S. Fire for declaratory relief on the issue. The trial court ruled
that U.S. Fire had to reimburse Vons the $539,905 contributed to the settlement.
The trial court determined that the Vons policy did not limit the source of the $1
million SIR in any way and did not require Vons to pay the SIR exclusively from
its own pocket. Id. at 600. U.S. Fire appealed to the California appellate court,
which concluded that the “subject to” language in the SIR endorsement made the
endorsement subordinate to the other policy terms and conditions, including the
“other insurance” provision that made the insurance excess in the event that other
insurance was available. Id. at 604-05. The court explained that the SIR standing
alone would ordinarily make the Vons policy excess, but this provision was
expressly made subject to policy terms which also provided that U.S. Fire’s
coverage was excess if any other valid insurance were available for the same
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coverage. The appellate court concluded that the most reasonable construction of
this provision permitted the payment of the SIR amount through other valid and
collectible insurance. Id. at 605. At the very least, the court stated, it rendered the
SIR ambiguous on this point. Id. As the appellate court explained:
Nowhere does the SIR expressly state that Vons itself, not other
insurers, must pay the SIR amount. Because the SIR was subject to
the other insurance provisions, which also made the Vons policy
excess if there were another policy covering the accident, Vons as a
reasonable insured could read the policy as permitting the use of other
insurance proceeds to cover the SIR amount.
Id.
Another case which involved the question of whether a policy required the
SIR to be paid from the insured’s own account is Arena Group. The underlying
action involved personal injuries sustained when a two-ton marquee sign at the San
Diego Sports Arena fell on two individuals. Arena Group, 2007 WL 935611, at
*1. The Arena Group was an additional insured under a policy that included a SIR
of $500,000. The court noted that “a policy may prohibit the use of other
insurance to satisfy a retention by including a policy provision requiring the
insured to personally pay the retained amount.” Id. at *5. The court focused on
the language of the policy, which stated, “Insured shall pay from its own account
all amounts within the Retained Amount” and “The Retained Amount is the
responsibility of the Insured and is to be paid from the Insured’s own account.” Id.
Thus, the court concluded, the policy “unambiguously requires the Insured to pay
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the Retained Amount from its ‘own account’ ” and payments made by Arena
Group’s other insurers to the injured parties did not satisfy the SIR. Id.
The language of the insurance policy in Forecast Homes was even more
explicit, expressly limiting who could satisfy the SIR. The SIR endorsement
required that the named insured “make actual payment” of the SIR amount and
provided that “[p]ayments by others, including but not limited to additional
insureds or insurers, do not serve to satisfy the self-insured retention.” Forecast
Homes, 105 Cal. Rptr. 3d at 208. The court found that “[t]his section of the policy
regarding who can make the payment to satisfy the SIR is clear and unambiguous.”
Id.
Acceptance Insurance involved a number of underlying actions for
construction defects and property damage in homes based on work performed by a
developer of residential real estate and the developer’s subcontractors. 2002 WL
32515066 at *1. The developer had a number of insurance contracts, including
two with Insurance Company of the State of Pennsylvania (ISOP) and a
comprehensive general liability policy with North American Capacity Insurance
Company (NACIC). Id. Pursuant to its contracts, ISOP expended substantial
funds in defending the underlying actions and making settlement payments. ISOP
sought indemnification from NACIC for a portion of the expenditures. Id. The
NACIC policy included a $250,000 per occurrence SIR endorsement. NACIC
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argued that the SIR had not been satisfied because the developer did not pay any
portion of its defense or settlement costs. Id. at *2. Those costs were paid by
ISOP and other insurance companies not parties to the action between ISOP and
NACIC. Thus, the issue to be resolved was whether the NACIC insurance contract
required the developer to fund the SIR itself.
The court determined that the SIR provision “clearly and unambiguously”
required the developer to be responsible for satisfying the SIR with its own funds,
regardless of any insurance coverage applicable to the underlying actions. Id. at
*7. The SIR contained a provision stating that regardless of other insurance, the
insured would continue to be responsible for the full SIR before the limits of
insurance under the NACIC policy would apply. Id. The court noted that this
provision in the SIR endorsement would be meaningless if not interpreted as
requiring the insured to satisfy the SIR with its own funds. Id. Otherwise, the
provision “would be reduced to simply reiterating the more general terms” of the
policy. Id. Additionally, the endorsement expressly stated that it changed the
policy and that it controlled in the event of a conflict with other policy provisions.
Id. at *6. The court explained that the SIR endorsement in the NACIC policy
“clearly place[d] the insured on notice that the additional provisions of the
Endorsement change[d] the general policy terms and conditions and [were]
separate requirements.” Id.
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We agree with the Eleventh Circuit that the policies at issue in the California
cases are materially different from the instant policy. See Intervest Constr., 662
F.3d at 1330. While the SIR endorsement in the instant case contains the same
notice of change to the policy that the SIR endorsement in Acceptance Insurance
contained, it does not contain a provision addressing other insurance within the
context of the SIR. The policy in Acceptance Insurance contained a provision
expressly stating that regardless of other insurance the insured would continue to
be responsible for the full SIR before the limits of the policy applied. Acceptance
Ins., 2002 WL 32515066 at *7. The SIR endorsement in the Forecast Homes
policy required the named insured to “make actual payment” of the SIR amount
and expressly provided that “[p]ayments by others, including but not limited to
additional insureds or insurers, do not serve to satisfy the self-insured retention.”
Forecast Homes, 105 Cal. Rptr. 3d at 208. There is no similar language or
provision in the instant case.
The Eleventh Circuit also noted that the language of the instant policy “is
arguably less restrictive than the language of the policies at issue in [the California]
cases.” Intervest Constr., 662 F.3d at 1330. For example, in Arena Group, the
“other insurance” provision required the insured to pay all amounts within the
retained amount “from its own account” and was also stated prominently on the
first page of the policy—“The Retained Amount is the responsibility of the Insured
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and is to be paid from the Insured’s own account.” Arena Group, 2007 WL
935611 at *5. The Arena Group policy clearly and unambiguously informed the
insured that the retained amount had to be paid from its own funds. The language
of the instant policy states that the retained limit must be paid by the insured, but
does not specify where those funds must originate. Requiring payment to be made
from the insured’s “own account” is not necessarily the same as requiring that it be
paid “by you.”
Moreover, as the Eleventh Circuit noted in its opinion, “a strong argument
could be made that ICI exhausted its SIR because it paid for the protection
afforded in the indemnification clause.” Intervest Constr., 662 F.3d at 1330. The
contract between Custom Cutting and ICI, which included the right to
indemnification, was entered into six years before the General Fidelity policy was
purchased by ICI. ICI paid for the indemnity protection in the purchase price of
the Custom Cutting subcontract and therefore hedged its retained risk in this
manner. ICI bargained for and paid for this right to indemnification and, without
an express policy provision to the contrary, should be able to use it to satisfy the
SIR. The instant case is more akin to the policy in Vons, in which the SIR did not
“expressly state that Vons itself, not other insurers, must pay the SIR amount.”
Vons, 92 Cal. Rptr. 2d at 605.
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In light of the language of the policy and the right to indemnification for
which ICI paid, we answer the first certified question in the affirmative and find
that the General Fidelity policy allows the insured to apply indemnification
payments received from a third party toward satisfaction of its $1 million self-
insured retention.
The second certified question asks whether the common law rule of the
“made whole doctrine” applies here or whether the transfer of rights clause in the
policy abrogated the doctrine. The district court did not address this issue.
However, the Eleventh Circuit considered the effect of the transfer of rights clause
if ICI was permitted to use the Custom Cutting indemnification to satisfy the SIR
obligation. See Intervest Constr., 662 F.3d at 1331. As the Eleventh Circuit
explained, that right alone “would be of little value if the General Fidelity Policy
gave General Fidelity the priority to be made whole before ICI could use any of the
indemnity payment towards the SIR.” Id. at 1331 n.6.
The text of the transfer of rights provision is found in SECTION IV—
COMMERCIAL GENERAL LIABILITY LIMITS, and provides in full:
8. Transfer Of Rights Of Recovery Against Others To Us
If the insured has rights to recover all or part of any payment we have
made under this Coverage Part, those rights are transferred to us. The
insured must do nothing after loss to impair them. At our request, the
insured will bring ‘suit’ or transfer those rights to us and help us
enforce them.
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As the Eleventh Circuit stated, the language of this provision is clear—it
gives the insurer General Fidelity subrogation rights. However, the provision gives
no guidance as to the priority to recover when the indemnity amount is insufficient
to “make whole” both parties. See Intervest Constr., 662 F.3d at 1331. In its
appeal to the Eleventh Circuit, ICI made two arguments regarding why the transfer
of rights provision did not affect its priority to the indemnification funds. First, the
plain language of the provision allows General Fidelity to recover only for
payments “we have made,” and, at the time ICI received the indemnification
payment from Custom Cutting, General Fidelity had not yet made any payment.
Second, even if the court disregards the tense of the language, the General Fidelity
policy did not abrogate the “made whole doctrine” and thus ICI has priority to
receive any indemnification before General Fidelity. Id. In turn, General Fidelity
argued that the court cannot place excessive emphasis on the tense of the language,
and further that the transfer of rights provision in the policy abrogated the common
law rule of the “made whole doctrine” by writing into the policy priority rights for
General Fidelity. Id.
“Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right.” W. Am. Ins. Co. v. Yellow Cab Co. of
Orlando, Inc., 495 So. 2d 204, 206 (Fla. 5th DCA 1986) (quoting Boley v. Daniel,
72 So. 644, 645 (Fla. 1916)). Florida recognizes two types of subrogation:
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conventional subrogation and equitable or legal subrogation. Conventional
subrogation arises or flows from a contract between the parties establishing an
agreement that the party paying the debt will have the rights and remedies of the
original creditor. See Dade Cnty. Sch. Bd. v. Radio Station WQBA, 731 So. 2d
638, 646 (Fla. 1999). Since subrogation is an offspring of equity, equitable
principles apply, even when the subrogation is based on contract, except as
modified by specific provisions in the contract. In the absence of express terms to
the contrary, the insured is entitled to be made whole before the insurer may
recover any portion of the recovery from a tortfeasor. See Fla. Farm Bureau Ins.
Co. v. Martin, 377 So. 2d 827, 830 (Fla. 1st DCA 1979).
The “made whole doctrine” provides, absent a controlling contractual
provision that states otherwise, that the insured has priority over the insurer to
recover its damages when there is a limited amount of indemnification available.
See Schonau v. GEICO Gen. Ins. Co., 903 So. 2d 285, 287 (Fla. 4th DCA 2005)
(“Decisions applying the ‘made whole’ doctrine essentially hold that where both
the insurer and the insured simultaneously attempt to recover all of their damages
from a tortfeasor who cannot (because of insolvency, limited insurance coverage,
or other reasons) pay the full value of damages, the insured has priority of recovery
over the insurer.”). Martin and the subsequent cases involving the “made whole
doctrine” all deal with the insured’s primary right to recover before the insurance
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carrier. See, e.g., Monte de Oca v. State Farm Fire & Cas. Co., 897 So. 2d 471
(Fla. 3d DCA 2004); Centex-Rodgers Constr. Co. v. Herrera, 761 So. 2d 1215 (Fla.
4th DCA 2000); Humana Health Plans v. Lawton, 675 So. 2d 1382 (Fla. 5th DCA
1996). We have acknowledged the application of the made whole doctrine in
Florida. See Ins. Co. of N. Am. v. Lexow, 602 So. 2d 528, 529-30 (Fla. 1992)
(“Using the common law subrogation principle, endorsed by Florida courts, the
district court reasoned that the insured was entitled to be made whole before the
subrogated insurer could participate in the recovery from a tortfeasor.”).
ICI cites a Washington case for the proposition that the specific language of
the transfer of rights provision found in the General Fidelity policy does not write
out the “made whole doctrine,” thereby preserving ICI’s right of priority. See
Bordeaux, Inc. v. Am. Safety Ins. Co., 186 P.3d 1188, 1192-93 (Wash. Ct. App.
2008) (holding that “[t]he trial court properly ruled that [the insureds] were entitled
to be made whole before any third-party recovery funds are paid to the insurers”).
General Fidelity argues that Bordeaux is not on point.
Bordeaux addressed the nature of SIR provisions in commercial general
liability policies that American Safety Insurance Company (American Safety)
issued to the condominium developer, Bordeaux, Inc. When the condominium
association filed a lawsuit against Bordeaux alleging extensive construction defects
and property damage relating to the condominiums, Bordeaux tendered its defense
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to its two insurers, American Safety and Steadfast Insurance. Id. at 1189. The
American Safety policy contained a SIR provision that obligated Bordeaux to pay
$100,000 before American Safety had an obligation to provide indemnity,
coverage, or defense under the policy. Id. The policy also contained a subrogation
provision which stated that “[i]f the insured has rights to recover all or part of any
payment we have made under this Coverage Part, those rights are transferred to
us.” The policy defined the word “we” as “American Safety.” Id. at 1190. The
Washington court determined that “the subrogation provision clearly only allows
American Safety to recover payments it actually made.” Id. at 1192 (emphasis
added). Additionally, despite the subrogation provision in the policy, the court
concluded that the “made whole doctrine” 3 applied in the case and affirmed the
trial court’s ruling that the insureds “were entitled to be made whole before any
third-party recovery funds are paid to the insurers.” Id. at 1192-93.
Bordeaux cited two Florida cases in support of its conclusion that the SIR
did not operate as primary insurance, thereby making American Safety’s policy
provide excess insurance. This conclusion was significant because had the self-
insurance provisions constituted insurance and American Safety’s policy been
3. The court did not use the term “made whole doctrine,” instead referring
to the “long-standing rule . . . favoring full compensation of insureds over
subrogation rights of insurers.” Bordeaux, 186 P.3d at 1192. This clearly is the
same as the “made whole doctrine” under Florida law.
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deemed “excess” insurance, then American Safety’s rights to subrogation would
have been superior to Bordeaux’s, and American Safety would have been entitled
to recover third-party settlement funds before its insured. 4 The Bordeaux court
cited the Fourth District Court of Appeal’s decision in Zinke-Smith, Inc. v. Florida
Insurance Guaranty Ass’n, 304 So. 2d 507, 509 (Fla. 4th DCA 1974), and this
Court’s decision in Young v. Progressive Southeastern Insurance Co., 753 So. 2d
80, 85-86 (Fla. 2000), for the proposition that self-insurance does not constitute
insurance. Both parties make much of the fact that Florida cases were cited in
Bordeaux. ICI cites this as evidence that Washington law is similar to Florida’s.
However, General Fidelity correctly notes that the Florida cases cited turned on a
different point of law. Zinke-Smith is based on statutory construction, not on
interpretation of policy language. The Fourth District held that an employer who
secures worker’s compensation as a self-insurer does not become an insurer under
the insurance code. In Young, this Court dealt with the meaning of “insurance” in
the Uninsured Motorists Statute, holding that a self-insured party is not insured.
Young did not involve interpretation of policy terms at all, only statutory
interpretation.
However, the language of the transfer of rights clause in the instant case is
exactly the same as that in Bordeaux. While Bordeaux is not controlling precedent
4. General Fidelity did not make that argument in this case.
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in this case, it is persuasive authority that the “made whole doctrine” is still
applicable despite the insurance subrogation provision. As Florida law explains,
because subrogation is an offspring of equity, equitable principles (such as the
“made whole doctrine”) apply even when the subrogation is based on contract,
unless the contract contains express terms to the contrary. See Fla. Farm Bureau,
377 So. 2d at 830. Here, the transfer of rights clause does not address the priority
of reimbursement nor does the clause provide that it abrogates the “made whole
doctrine.” In the absence of such express language, equitable principles prevail.
Thus, we answer the second certified question by stating that the transfer of rights
provision in the policy does not abrogate the made whole doctrine, thereby
preserving ICI’s right of priority.
CONCLUSION
Accordingly, we answer the Eleventh Circuit’s first certified question in the
affirmative and the second certified question by concluding that the transfer of
rights provision in the policy does not abrogate the made whole doctrine. Having
answered the certified questions, we return this case to the United States Court of
Appeals for the Eleventh Circuit.
It is so ordered.
PARIENTE, LEWIS, LABARGA, and PERRY, JJ., concur.
CANADY, J., dissents with an opinion in which POLSTON, C.J., concurs.
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NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
CANADY, J., dissenting.
Based on the unambiguous allocation of risk under the provisions of the
policy, I would conclude that indemnification payments received from a third party
may not be applied to satisfy the self-insured retention. I thus would answer the
first certified question in the negative. That negative answer to the first question
renders the second certified question moot.
Paragraph 3 of the self-insured retention endorsement plainly states that the
insurer has “no duty to defend or indemnify unless and until the amount of the
‘Retained Limit’ is exhausted by payment of settlements, judgments, or ‘Claims
Expense’ by you”—that is, by the insured. Paragraph 6 of the endorsement plainly
states that “the ‘Retained Limit’ will only be reduced by payments made by the
insured.” No other provisions of the policy render these provisions ambiguous.
A payment made by a third party pursuant to an indemnification agreement
is not a payment “made by the insured.” The insurance policy should not be
rewritten to allow satisfaction of the self-insured retention limit in a manner other
than the manner specifically provided for in the policy. I thus would reject the
legal fiction adopted by the majority that a payment made by a third party pursuant
to a contractual indemnity provision is a payment “made by the insured.”
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Imposing that legal fiction effectively reads the phrase “by you” out of paragraph
3. And it reads the entirety of paragraph 6 out of the endorsement. The majority’s
unjustified interpretation of the endorsement gives the endorsement a meaning that
is no different than if those provisions were absent from the policy.
I dissent.
POLSTON, C.J., concurs.
Certified Question of Law from the United States Court of Appeals for the
Eleventh Circuit - Case No. 10-12613-GG
W. Braxton Gilliam, IV and Robert M. Dees of Milam Howard Nicandri Dees &
Gilliam, P.A., Jacksonville, Florida,
for Appellants
Louis Schulman of Dutton Law Group, P.A., Tampa, Florida,
for Appellee
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Intervest Construction of Jax, Inc. v. General Fidelity Insurance Company
Combined Opinion