SIR’s Can Be Satisfied By 3rd Parties: Florida Supreme Court landmark ruling.shoke2013
The Florida Supreme Court recently held that a self-insured retention could be satisfied by a third-party payment under an indemnity agreement rather than requiring the policyholder to satisfy the retention separately with its own funds. In the underlying case, a homeowner sued a home-builder when she fell and injured herself on allegedly defective attic stairs. The home-builder’s coverage included a $1,000,000 self-insured retention. The home-builder had an indemnification agreement with the subcontractor that had built the attic stairs. The case settled for $1,600,000, with the subcontractor’s insurer paying $1,000,000. In dispute was whether the remaining $600,000 should be paid by the home-builder, by virtue of the SIR, or by its insurer. The district court granted summary judgment in favor of the insurer, but the Eleventh Circuit found no controlling Florida law and certified the issue to the Florida Supreme Court. The Florida Supreme Court noted that the SIR endorsement in the policy stated “[w]e have no duty to defend or indemnify unless and until the amount of the ‘Retained Limit’ is exhausted by payment of settlements, judgment, or ‘Claims Expense’ by you” and “[t]he ‘Retained Limit’ will only be reduced by payments made by the insured.” Despite arguments from the insurer that this language unambiguously required the policyholder to pay the SIR with its own funds, the Court disagreed, stating that “[t]he language of the instant policy states that the retained limit must be paid by the insured, but does not specify where those funds must originate.…Requiring payment to be made from the insured’s ‘own account’ is not necessarily the same as requiring that it be paid ‘by you.’” The Court found that the home-builder satisfied its SIR obligation when it provided consideration to obtain indemnification from the subcontractor. The Court noted that absent an express provision in the SIR that required the policyholder pay with its own funds, the SIR could be satisfied by the third-party sub-contractors funds. The Court also found that the Florida “made whole” doctrine requires that a policyholder be made whole before its insurer when a covered loss occurs and that the transfer of rights provision did not abrogate the “made whole” doctrine. Thus, the home-builder had priority to receive indemnification before the insurer. Intervest Constr. of Jax, Inc. v. Gen. Fid. Ins. Co., No. SC11-2320 (Fla. Feb. 6, 2014).