Florida’s Claims Administration Statute – Use It or Lose Your “Coverage Defense”

Any Insurer issuing liability policies in Florida should be aware of the requirement of Florida’s Claims Administration Statute, § 627.426, or risk waiving viable “coverage defenses.”  The definition of “coverage defense” under the statute has been the subject of considerable litigation in Florida for many years.  Under current Florida law, however, “coverage defense” refers to an insurer’s reliance upon a insured’s alleged breach of a policy condition in a third-party liability policy.  In most instances, “coverage defense” indicates: late notice of a claim; failure to cooperate; refusal to submit to an examination under oath; or a settlement without the consent of the insurer.

The first section of Florida’s Claims Administration Statute permits an insurer to take certain actions without waiving any of its rights under the policy.  The second section of the statute sets forth procedures that an insurer must follow before it can deny coverage based upon a “coverage defense.”

In general, to successfully assert a “coverage defense” in compliance with the Statute, an insurer must issue a reservation of rights letter to its insured within 30 days of when the insurer knew or should have known of that coverage defense.  As a recent 11^th Circuit decision demonstrates, Courts will look at whether the policy conditions ultimately relied upon were adequately communicated to the insured when considering whether an insurer satisfied this requirement.  Gemini II Ltd. v. Mesa Underwriters Specialty Ins. Co., 2014 WL 6465994, 2014 U.S. App. LEXIS 22105 (11^th Cir. Nov. 19, 2014).  Following this initial reservation of rights letter, and within 60 days after it issues the reservation of rights letter or receives a summons and complaint naming the insured as a defendant (whichever is later), the insurer has three choices: (1) deny the claim; (2) obtain a non-waiver agreement from the insured after fully disclosing (a) the facts and policy provisions upon which the coverage defense is based, and (b) the insurer’s obligations during and after litigation; or (3) retain independent counsel acceptable to the insured.  Importantly, Florida courts have found that non-compliance with the Claims Administration Statute generally cannot be used to create coverage where none previously existed.