Self-Insured Retention Obligations, Third-Party Indemnification Payments, and the Made Whole Doctrine

In Intervest Constr. of Jax, Inc. v. General Fid. Ins. Co., 2014 WL 463309 (Fla. 2014), the Florida Supreme Court decided a matter of first impression certified to it by the Eleventh Circuit Court of Appeals holding that an insured was permitted to apply third-party indemnification payments towards its self-insured retention ("SIR") obligation under a CGL policy. The Court further held that the subrogation "transfer of rights provision" within the CGL policy did not abrogate the common law "made whole doctrine." While important decisions in their own right, the decisions are case and fact specific, requiring insurers and insureds to look to the terms of their own policies to determine their rights and obligations.

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Self-Insured Retentions May be Extinguished Through Third-Party Payments

Self-Insured Retention Obligations & Indemnification Payments

In Intervest, a dispute arose between the insurer and insured as to the application of third-party indemnification payments received as a result of a contractual indemnification provision. The insured argued that the third-party indemnification payments applied to its SIR obligation while the insurer argued that such payment did not reduce the SIR as it did not originate from the insured.

The Florida Supreme Court ultimately held for the insured. Its analysis focused on the specific terms of the insurer's CGL policy regarding SIRs, effectively reversing the lower court's ruling that relied heavily on California cases. The lower court was pursued by language of the SIR provision that the retained limit must be paid "by the insured." The lower court concluded that a payment received from a third-party as a result of a contractual indemnification did not equate to a payment made "by the insured" as set forth in its SIR provision. For example, the lower court relied on one California case that’s policy required its insured to "pay from its own account" the retained amount of the SIR. In another California case, a CGL policy required its insured to "make actual payment" of the SIR and that "payments by others, including but not limited to additional insureds or insurers, do not serve to satisfy the self-insured retention."

The Eleventh Circuit and Florida Supreme Court were unpersuaded by the lower court’s reasoning and reliance on California law due to significant distinctions in policy language. The Eleventh Circuit explained that requiring that a payment be made from one's "own account" is not necessarily the same as requiring that the retained limited by paid "by you," as what was required in the Intervest CGL policy. Further, the Eleventh Circuit reasoned that the insured exhausted its SIR because it "paid" for the protection afforded in the contractual indemnification clause. The policy in Intervest also did not contain a provision addressing other insurance within the context of the SIR. Therefore, Eleventh Circuit and Florida Supreme Court found the California policies materially different concluding that third-party payments could apply to an insured’s SIR.

The Common Law "Made Whole Doctrine" Trumps The Transfer or Rights Provision When Priority Is Not Addressed

The Florida Supreme Court also analyzed whether the common law “made whole doctrine” was abrogated by the “transfer of right” provision in the CGL policy. Under Florida law, the “made whole doctrine”, absent a controlling contractual provision, provides that the insured has priority over the insurer to recover its damages when there is a limited amount of indemnification available. This application is required where both the insurer and the insured simultaneously attempt to recover all their damages for a tortfeastor who cannot, because of insolvency, limited insurance coverage, or otherwise, pay the full value of the damages. The transfer of right provision in the Intervest policy did not address the priority of reimbursement or state that it abrogates the “made whole doctrine”. Therefore, the Florida Supreme Court held that, in the absence of such language, equitable principalities favoring the insured prevail entitling the insured to recover.


The Intervest decision provides insurers and insureds the first guidance how Florida Courts will interpret both SIR provisions when third-parties make indemnification payments and when transfer or right provisions fail to address the priority of reimbursement. The Intervest decision, though, is case specific and entirely based on the specific terms of the CGL policy. If you have any questions how Florida Courts may view your policy language following the Intervest decision, please contact the Construction Law Division of the Florida law firm of Cole, Scott & Kissane, P.A.

The Intervest Court was analyzed a General Fidelity CGL policy with the following relevant provisions:

Self-Insured Retention Provision

  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 Declaration, Coverage Parts or endorsements. The Limits of Insurance will apply only in excess of the Self-Insured Retention, hereinafter 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 payments of settlements, judgment, or “Claims Expense” by you.

*     *     *

  1. Should any claim arising under this policy result in a settlement or judgment, including “Claims Expenses” 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.
  2. The “Retained Limit” will only be reduced by payments made by the insured.

*     *     *

  1. 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 Expenses” within the “Retained Limit” on behalf of an 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 settlements or “Claims Expenses” are incurred by us within the “Retained Limit” as provided by this endorsement.

*     *     *

  1. 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.

Transfer or Rights Provision

  1. 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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