Defending the Insured Under a Reservation of Rights

By David S. Harrigan, Esq.

Insurers providing coverage under a standard CG 00 01 insuring agreement obligate themselves to “pay those sums that the insured becomes obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which [the] insurance applies.” In doing so, insurers assert the “right and duty to defend the insured against any ‘suit’ seeking those damages.” Invariably, when claims are made for damages that may be covered under the insuring agreement, questions arise as to whether a duty to defend has arisen, and if so, whether the insured has a right to “mutually agreeable counsel.”

The Duty to Defend

A standard CG 00 01 insuring agreement generally defines a “suit” as follows:

   …a civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising    injury” to which this insurance applies are alleged. “Suit” includes:

      An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit       with our consent; or Any other alternative dispute resolution proceeding in which such damages are claimed and to       which the insured submits with our consent.1

Florida law requires courts to construe insurance contracts “in accordance with the plain language of the policies as bargained for by the parties.”2 Where the policy language is plain and unambiguous, no special rule of construction or interpretation applies; and the court should give the plain language in the contract the meaning it clearly expresses.3

The United States District Court for the Southern District of Florida, in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., recently discussed the duty to defend under a standard CG 00 01 insuring agreement. Specifically, the Court analyzed what constitutes a “suit” under a standard CG 00 01 policy, thereby giving rise to the insurer’s right and duty to defend.4

In deciding whether a Notice of Claim served pursuant to Chapter 558, Florida Statutes, constituted a “suit,” the Court relied upon the Black’s Law Dictionary definition of the phrase “civil proceeding” contained in the policy’s definition of the term. A civil proceeding is defined as “a judicial hearing, session or lawsuit in which the purpose is to decide or delineate private rights and remedies, as in a dispute between litigants in a matter relating to torts, contracts, property, or family law.”5 The Court also considered the Florida Supreme Court’s “reasoned analysis” in determining that the collective meaning of “civil action” and “proceeding” includes “[a] procedural means for seeking redress from a tribunal or agency.”6

Ultimately, the Court declined to expand the definition of the term “suit” to include a Notice of Claim served pursuant to Chapter 558, Florida Statutes.7 Since the term “suit” is clearly and unambiguously defined within the policy, the Southern District held that the “right and duty to defend” under a CG 00 01 insuring agreement arises when the insured is faced with a “suit”.8

The Right to “Mutually Agreeable Counsel”

Once a determination is made that the “right and duty to defend the insured against any “suit” exists under the policy, the question becomes whether the insured is entitled to counsel of its choice, or at least “mutually agreeable counsel.” Strictly speaking, within the confines of the standard CG 00 01 insuring agreement, the answer is “NO”. The standard CGL policy provides no entitlement for an insured to hire legal counsel of its choosing at the expense of the insurer.

However, the manner in which the insurer acts upon this duty to defend may alter the parties’ obligations and unwittingly create new rights and obligations in both the insurer and the insured. This is particularly true where the insurer provides notice that the defense will be provided under a “Reservation of Rights” - a notification to an insured that coverage for a claim may not apply.9 This notification allows an insurer to investigate, or even defend, a claim to determine if coverage applies, without waiving its right to later deny coverage based on information revealed during the investigation.10 The entitlement of an insurer to defend under a Reservation of Rights does not arise from the language of the policy itself. Rather, the insurer’s entitlement to defend must arise by operation of statute or a contractual relationship independent of the insuring agreement.

Florida Claims Administration Statute

Florida Statutes provide that an insurer must provide written notice of a Reservation of Rights to the insured or those rights are otherwise waived. Florida’s Claims Administration Statute, in particular, provides that “a liability insurer shall not be permitted to deny coverage based on any particular coverage defense” unless the insurer gives written notice of Reservation of Rights to the named insured within thirty days after the liability insurer knew or should have known of the coverage defense.11

A “coverage defense” is “a defense to coverage that otherwise exists,”12 examples of which include a failure to cooperate or a failure to provide timely notice of claims. However, coverage defenses do not include a disclaimer of liability based upon an express exclusion in the policy.13 It follows, then, that an insurer is not statutorily obligated under the Claims Administration Statute to issue a Reservation of Rights where coverage may simply be excluded by the terms of the insuring agreement.

If a coverage defense is available and the insurer provides a statutory Reservation of Rights, the Claims Administration Statute will trigger an obligation for the insurer to retain “independent counsel which is mutually agreeable to the parties.”14 Therefore, the insurer must ensure that there is mutual assent between the insurer and the insured. If the insurer unilaterally retains counsel, it is the literal antithesis of the concept of mutual selection and constitutes the insurer’s failure to comply with its statutory obligations.15 The consequence of such a failure to comply will result in an insurer’s inability to deny coverage, and the insured may then proceed independently toward settlement and bind the insurer to its bargain.16

An example of the insurer’s obligation to obtain mutual assent is found in American Empire Surplus Lines Ins. Co. v. Gold Coast Elevator, Inc., in which the insurer belatedly learned of a lawsuit served upon its insured.17 As a result, the trial court entered a default against the insured.18 Once the insurer received notice of the lawsuit, it promptly assigned counsel to provide a defense. Although the counsel assigned had not been mutually selected, the insured voiced no objection.19 Nonetheless, the Court declined to interpret the insured’s silence as acquiescence, which would have lead to deeming the selection of counsel as mutually agreeable.20 Instead, the Court determined that the insurer’s failure to affirmatively obtain assent from the insured constituted a violation of its statutory duty to assign mutually agreeable counsel, and thus, its conduct was tantamount to a refusal to defend under the policy.21 The Court held that the insured was free to settle the claims without the consent of the insurer and could thereafter seek reimbursement from the insurer.22

Reservation of Rights Issued as Disclaimer of Terms in the Insuring Agreement

Insurers often provide notice that a defense will be provided pursuant to a Reservation of Rights despite the absence of any correlation with an asserted “coverage defense” under the Claims Administration Statute. In such cases, the Reservation of Rights does not fall within the framework of Claims Administration Statute, and by its express terms should not implicate the insured’s statutory right to “mutually agreeable counsel.” Instead, the Reservation of Rights operates more so as a reminder to the insured that the duty to defend is honored, but subject to the terms, conditions and exclusions set forth in the policy. Nevertheless, insurers should be cautious because this approach could still bind the parties to the insuring agreement to new and previously uncontemplated rights and obligations.

For example, in Colony Ins. Co. v. G & E Tires & Service, Inc., the insured requested a defense on numerous occasions, but each time was denied a defense due to the applicability of policy exclusions.23 Although the insurer did not assert a coverage defense and had no statutory duty to issue a Reservation of Rights or assign mutually agreeable counsel, the insurer nevertheless tendered a Reservation of Rights, stating that:

   This letter is to serve as a reservation of Colony’s rights to deny coverage and/or defense under the Policy and/or    applicable law and further, with respect to defense costs incurred or to be incurred in the future, to be reimbursed     and/or obtain an allocation of attorney’s fees and expenses if it is determined that there is no coverage.24

The insured accepted the defense under this express Reservation of Rights. However, the lower court ultimately determined that the substance of the suit was unequivocally excluded from coverage under the policy.25 Thereafter, the First District found that the insured had accepted the tendered performance and could not thereafter materially alter the terms of its agreement to accept the defense on a Reservation of Rights. Under those circumstances, the Reservation of Rights created independent contractual obligations, and once the lower court adjudicated that coverage under the policy did not exist for the underlying claims, the insured was required to reimburse Colony for the attorney’s fees and expenses incurred in the defense.26

A Reservation of Rights in such circumstances is not provided pursuant to any statutory requirement or a requirement of the policy. Therefore, a separate contractual relationship with entirely new obligations might arise; and an insured’s right to mutually agreeable counsel could ultimately be grounded in these new contractual terms. Thus, the insurer must be careful to ensure that all terms contained in the Reservation of Rights are clearly stated, and that both the insured and the insurer have a clear understanding of all terms.

Even under circumstances where there is no statutory obligation to issue a Reservation of Rights, if there is any doubt regarding whether coverage exists for the damages claimed, the insurer may wish to provide this notice to the insured in an abundance of caution once the duty to defend is triggered. Although the doctrines of waiver and estoppel do not operate to create coverage where none originally existed, “when an insurance company assumes the defense of an action, with knowledge, actual or presumed, of facts which would have permitted it to deny coverage, it may be estopped from subsequently raising the defense of non-coverage.”27


Where a duty to defend is triggered, no right exists under a standard CG 00 01 insuring agreement for an insured to select counsel of its choice, or otherwise insist on the selection of “mutually agreeable counsel.” Rather, the Legislature created the insured’s right to select counsel under the strict and limited circumstances that arise under Florida’s Claims Administration Statute. However, Florida Courts continue to generate an ever-expanding minefield of ambiguity and uncertainty where insurers tender Reservations of Rights outside the context of an insurer’s statutory obligations. It is, therefore, vital that adjusters, attorneys and insurers understand and properly consider the possible implications of electing to provide a Reservation of Rights as a “reminder” to the insured as to the terms, conditions and exclusions under the policy, or of deciding to forego a Reservation of Rights notice to the insured.

1 Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. 13-80831-CIV, 2015 WL 3539755 (S.D. Fla. June 4, 2015).
2 Auto–Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000).
3 See Fla. Farm Bureau Ins. Co. v. Birge, 659 So. 2d 310, 312 (Fla. 2d DCA 1994) (Parker, A.C.J., dissenting) (citing Jefferson Ins. Co. of N.Y. v. Sea World of Fla. Inc., 586 So. 2d 95 (Fla. 5th DCA 1991)); U.S. Liab. Ins. Co. v. Bove, 347 So. 2d 678 (Fla. 3d DCA 1977).
4 Altman Contractors, Inc., No. 13-80831-CIV, 2015 WL 3539755.
5 See Black’s Law Dictionary 300 (10th ed. 2014).
6 Raymond James Financial Services, Inc. v. Phillips, 126 So. 3d 186, 190 (Fla. 2013).
7 Altman Contractors, Inc., 2015 WL 3539755.
8 Id.; see also North Pointe Cas. Ins. Co. v. M&S Tractor Services, Inc., 62 So. 3d 1281, 1282-83 (Fla. 2d DCA 2011) (noting that only if the relevant policy language is susceptible to more than one reasonable interpretation - one providing coverage and the other limiting coverage – is the insurance policy considered ambiguous).
9 See Glossary of Insurance Management Terms (9th ed.).
10 Id.
11 Fla. Stat. §627.426(2)(a) (2014) (emphasis added).
12 See AIU Ins. Co. v. Block Marina Inv., Inc., 544 So. 2d 998, 1000 (Fla. 1989).
13 See Travelers Indemn. Co. of Ill. V. Royal Oaks Enter., Inc., 344 F.Supp. 2d 1358, 1369-70 (M.D. Fla. 2004).
14 Fla. Stat. § 627.426(2)(b) (emphasis added).
15 See Int’l Risk Management Institute (2004); see also American Empire Surplus Lines Ins. Co. v. Gold Coast Elevator, Inc., 701 So. 2d 904, 906 (Fla. 4th DCA 1997).
16 American Empire Surplus Lines Ins. Co., 701 So. 2d at 906.
17 Id.
18 Id.
19 Id.
20 Id.
21 Id.
22 Id. (citing Steil v. Florida Physicians Ins. Reciprocal, 448 So. 2d 589 (Fla. 2d DCA 1989)).
23 777 So. 2d 1034 (Fla. 1st DCA 2000).
24 Id. at 1036. (emphasis added).
25 Id. (emphasis added).
26 Id.
27 Cigarette Racing Team, Inc. v. Parliament Ins. Co., 395 So. 2d 1238, 1239-40 (Fla. 4th DCA 1981).

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