Eleventh Circuit Opinion Seems To Place Important Limitations On Insured’s Ability Under Florida Law To Reject Insurer’s Conditional Defense And Enter Into Coblentz Agreement

By Daniel P. Mitchell, Board Certified Civil Trial Lawyer

On March 29, 2010, the United States Court of Appeals for the Eleventh Circuit issued an opinion that may have far-reaching implications on Florida law pertaining to an insurer’s responsibility to pay consent judgments entered into by insureds in situations where the insureds have rejected defenses tendered by insurers under reservations of rights.
As a preface, insurers would be well-advised in Coblentz agreement situations to consider removal of cases brought in Florida state courts by insureds’ assignees to U.S. District Courts, where diversity jurisdiction exists, because the law in the Eleventh Circuit, as it has become recently crystallized, is far more prolific and favorable to the insurer than cases decided by Florida State Courts.

In Mid-Continent Casualty Co. v. American Pride Builder, LLC, ___ F. 3d ___, 22 Fla. L. Weekly Fed. C639a (11th Cir. Mar. 29, 2010) the court held that a fact issue existed as to whether the insured breached the policy’s cooperation clause by accepting, then rejecting, the conditional defense tendered by the insurer and entering ino a consent judgment with the claimant. The court attached importance to (1) whether the insured informed the insurer in advance that it intended to reject the conditional defense unless the reservation of rights were witndrawn, and (2) whether the Coblentz agreement was consummated in secret prior to the rejection of the defense.

This is an important decision, and it bears close reading by claims professionals and coverage counsel. I have advised insurer clients to avoid reserving rights and/or initiating coverage declaratory judgment actions, and instead offering unqualified defenses, in order to avoid defense rejections and Coblentz agreements (see Coblentz v. American Surety Co. of N.Y., 416 F.2d 1059 (5th Cir. 1969), and subsequent Florida cases approving and extending same). Although this strategy runs the risk of falling victim to common-law waiver and estoppel, the application of those doctrines requires detrimental reliance on the unqualified defense by the insured. Care must be taken, of course, to comply with section 627.426, Florida Statutes, in appropriate situations.