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    Florida Appellate Court Holds that Insurer Must Provide Separate Counsel to Co-Defendant Insureds

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    On February 20, 2013, the Florida Third District Court of Appeal held that an insurer was required to provide separate counsel to two co-defendants/insureds due to a conflict of interest between them.

    The underlying action involved a child injured while at a swimming pool located on one of the co-defendant’s property, but operated by the other co-defendant.  The plaintiff’s claims asserted that both the owner and operator were directly negligent and that the owner was vicariously negligent for lack of supervision over the operator.  In a license agreement between the owner and operator for the swimming pool, the operator agreed to indemnify the owner for any claims stemming from the use of the swimming pool.  Both the owner and operator were named as insureds in the operator’s commercial general liability policy, which also stated that the rights and duties applicable to the operator “applied as if each named insured were the only named insured and applied separately to each insured against whom a claim was made.”

    On the same day the operator answered the complaint and asserted that the plaintiff’s claimed injuries were not caused by the operator, but by some other person or entity, the owner demanded that the insurer provide it with separate counsel based on a conflict of interest between the owner and operator.  The insurer declined the request, stating there was no conflict between the parties because the operator was contractually bound to indemnify the owner for any liability arising out of the use of the swimming pool.  Still, the owner obtained separate counsel and asserted a similar defense that the plaintiff’s injuries were caused by some other person or entity and not by the owner.  After the case eventually settled without going to trial, the owner sued the insurer for indemnification for the owner’s attorney’s fees and costs incurred to defend the underlying action through separate counsel.

    Although the trial court granted summary judgment in favor of the insurer, the Florida Third District Court of Appeal reversed, reasoning that a conflict of interest existed between the owner and the operator.  The pleadings demonstrated this conflict, that both the owner and operator were directly negligent and that both defendants claimed that any liability on its part was relieved due to the negligence of some other person or entity, including the other defendant.  The Court explained that “[t]here exists no factual dispute, as evidenced by the record, that, in defense of both co-defendants, [the insurer’s] counsel would have had to argue conflicting legal positions, that each of its clients was not at fault, and the other was, even to the extent of claiming indemnification and contribution for the other’s fault.”  As a result of this conflict, the owner was entitled to separate counsel under the policy.  Thus, the insurer had to indemnify the owner for its attorney’s fees and costs incurred to defend the underlying action.

    Justice Shepherd wrote a dissenting opinion, explaining that no actual conflict existed between the owner and the operator, only a “paper conflict.”  According to the dissent, defense counsel for both parties could, and did preserve the issue of appointment of fault and contribution through affirmative defenses, but that issue would not have actually gone before a jury.  Neither defendant filed claims against the other and neither sought to prove liability of the other at any time during the course of the underlying action.  As is usually the case in matters involving multiple defendants, the issues of contribution and indemnity are deferred until the liability case is resolved.  Because the owner failed to show “how the disparity in potential liability between it and [the operator] affected in any way the joint defense” that the insurer provided, the dissent would have upheld the trial court’s decision to grant summary judgment in favor of the insurer.

    A complete copy of the Court’s opinion is available here.

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