Joseph S. Kashi Insurance Law Blog on Lawyers.com

AN INSURED'S DISSATISFACTION WITH ITS LIABILITY INSURER FOR FAILING TO SETTLE THE CLAIM OF A THIRD PARTY AGAINST THE INSURED DID NOT ENTITLE THE INSURED TO ENTER INTO AN UNAUTHORIZED SETTLEMENT WITH THE CLAIMANT.

Continental Casualty Co. v. City of Jacksonville, ___ F. 3d ___, 2008 U.S. App. LEXIS 8919 (11^th Cir. 4/22/08)

            Transportation Insurance Company defended under a reservation of rights the City of Jacksonville in a toxic tort case.  After conducting its own negotiations, the City stipulated to the entry of a consent judgment for $75 million but capped its own liability at $25 million.  Transportation filed an action for declaratory judgment and obtained a summary judgment determining that the City vitiated coverage by breaching the cooperation clause of the policy.

            On appeal, the Eleventh Circuit explained that although an insurer may defend under a reservation of rights, an insured may reject such a defense, hire its own lawyer, and seize control of the defense.  In this case, however, the City accepted a defense under a reservation of rights.  Therefore, Transportation was entitled to control the defense, and the City had the duty to cooperate with Transportation.

            The court rejected the City’s argument that it was not required to cooperate with Transportation because Transportation violated its duty to act in good faith by failing to settle the toxic tort case.  The court cited Blanchard v. State Farm Mutual Automobile Insurance Co., 575 So. 2d 1289 (Fla. 1991), for the proposition that Transportation’s alleged bad faith failure to settle could not be considered before the City prevailed in the declaratory judgment action.  The court found that the City breached its duty to cooperate by settling the toxic tort case without Transportation’s consent and over it objection.  Although Transportation repeatedly asked the City to consult with Transportation before making any settlement offers and the City agreed to do so, the City engaged in numerous settlement discussions with the plaintiffs without Transportation’s knowledge or input.  The court characterized the City’s conduct as duplicitous and affirmed the summary judgment for Transportation.

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This newsletter was prepared by Joseph S. Kashi of Sperry, Shapiro & Kashi, P.A., 1776 North Pine Island Road, Suite 324, Plantation, FL 33322 (954) 423-6553; (954) 423-6833 Facsimile. The firm concentrates principally on insurance coverage disputes and bad faith litigation. The firm website may be found at: http://www.florida-insurance-lawyers.com/.