The Florida Supreme Court Takes the “Self” Out of “Self-Insured Retention” and Rules that the Insured’s Self-Insured Retention Can Be Satisfied by Payment by Someone Other Than the Insured

    In Intervest Construction of Jax v. General Fidelity Ins. Co., the Florida Supreme Court considered insurance policy language that called for a self-insured retention to be exhausted by “payments made by the insured.”  The court decided that those payments could be made by someone else instead.

    After pull-down attic stairs allegedly collapsed on a homeowner, she sued the contractor who built the home.  The contractor’s commercial general liability policy had a $1 million “Self-Insured Retention.”  The policy provided that the insurer has “no duty to defend or indemnify unless and until the [$1 million Self-Insured Retention] is exhausted by payment of settlements, judgments or ‘Claims Expense’ by you” and that the Self-Insured Retention “will only be reduced by payments made by the insured.”  The contractor settled with the homeowner for $1.6 million.  The stairs were installed by a subcontractor, who indemnified the contractor for any damages resulting from the subcontractor’s work.  Therefore the subcontractor’s insurer paid $1 million toward the $1.6 million settlement.

    The contractor’s insurer refused to contribute $600,000 on top of that $1 million.  Because the $1 million were paid by the subcontractor’s insurer, and not by the insured contractor, the insurer believed that the retention was not exhausted.  After the contractor and its insurer sued each other, the trial court awarded summary judgment in favor of the insurer, finding that it was not obligated to contribute to the settlement.  The trial court ruled that the insured had not exhausted the retention, as the policy required the insured itself to pay the first $1 million.

    The Florida Supreme Court, however, did not read the policy language as so definitive.  It ruled that “payments made by the insured” could be made on the insured’s behalf by another party.  Further, to quote the court, “a strong argument could be made” that the contractor exhausted its $1 million self-insured retention because it “paid for the indemnity protection in the purchase price of the [subcontract] and therefore hedged its retained risk in this manner.”  Thus, the court continued, the paid-for indemnification should satisfy the policy’s retention when there was no “express policy provision to the contrary.”  Two justices dissented from the court’s acceptance of someone else’s payment as if it were payment “by” the insured.  They criticized this ruling as a “legal fiction.”

    The Intervest decision is the law of Florida as to the exact policy language in question.  However, the court left open the possibility that other language could effectively require the insured to pay the retention itself without contribution by others.  Specifically, the court distinguished language other courts found to bar an insured from funding its retention with anyone else’s money:  e.g., a requirement that the insured shall pay the retention from the insured’s “own account;” or a disclaimer that “payments by others do not serve to satisfy the self-insured retention.”  Because, as the Florida Supreme Court ruled last year in Washington National Ins. Corp. v. Ruderman, 117 So. 3d 943 (Fla. 2013), an insurer cannot offer extrinsic evidence to clarify ambiguous policy language, it is critical for Florida insurance policies to include provisions expressly explaining whose payments can or cannot satisfy a self-insured retention.

    The decision in Intervest Construction of Jax v. General Fidelity Ins. Co. (Fla. 2014) may be found here.

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