Insurance — General liability — Insured’s breach of policy
condition by failing to notify insurer that suit had been filed against insured,
with result that default was entered against insured and plaintiff in underlying
suit moved for writ of garnishment against insurer — Although insured breached
its obligations under its contract of insurance, insurer had burden to show that
it was insured’s breach that resulted in the existence of the judgment debt, not
only when the default judgment was entered but also when plaintiff in underlying
suit sought to collect — Insured’s allowing entry of judgment against it
without notifying insurer of a defensible suit would materially prejudice
insurer, and preclude recovery against insurer, unless insurer unjustifiably
refused to file and pursue a viable motion to set the judgment against insured
aside — Insurer had an obligation to file a motion to set aside the judgment,
if the original lawsuit was defensible and grounds to set aside the judgment
existed — Evidentiary hearing is required to determine whether insurer was
under an obligation to file and pursue a motion to set aside the default
judgment

INDEMNITY INSURANCE CORP. OF DC., Appellant, v. LEILANI CAYLAO, an individual
and COAST ENTERTAINMENT, LLC, a Florida Company, Appellees. 1st District. Case
No. 1D12-5733. Opinion filed February 4, 2014. An appeal from the Circuit Court
for Duval County. Jean M. Johnson, Judge. Counsel: Tracy L. Wenzel and Hilary D.
Wilson of Heekin, Malin & Wenzel, P.A., Jacksonville, for Appellant. Donald
Metcalf of East Coast Law Group, Jacksonville, for Appellee Leilani Caylao.

(BENTON, J.) Indemnity Insurance Corporation of DC (Indemnity), the defendant
in garnishment proceedings below, appeals a final judgment of garnishment
awarding Leilani Caylao $714,116.44, the amount of the default judgment and
costs award she had obtained against Coast Entertainment, LLC (Coast). We
reverse and remand for further proceedings.

Ms. Caylao alleged a Coast employee injured her on August 14, 2010, in an
altercation at a club Coast owned. After her counsel wrote Coast about her
assault and battery claim, Coast’s insurance agent sent a copy of the claim
letter to Indemnity on October 13, 2010. Coast had general liability insurance
under an Indemnity policy which was in effect at the time of the incident.
Between October 13, 2010 and March 8, 2011, Indemnity investigated events
surrounding the incident,1 then notified
Ms. Caylao’s attorney it had concluded that Coast had no liability and that it
was denying the claim. According to Ms. Caylao’s counsel, Indemnity’s letter
closed with a request that Ms. Caylao confirm in writing that she was not filing
a lawsuit, but he did not do so because he had “always intended on filing a
lawsuit.”

On December 29, 2011, Ms. Caylao did file suit against Coast, without
notifying Indemnity or its counsel.2 Coast
did not answer or otherwise respond to the complaint she served, and the clerk
of the court entered a default against Coast on February 6, 2012. On March 2,
2012, Ms. Caylao moved for entry of a default final judgment against Coast,
submitting her affidavit itemizing damages in the amount of
$713,670.44.3 The trial court entered a
default final judgment in this amount on April 10, 2012.

Initiating the proceedings which gave rise to the present appeal, Ms. Caylao
then moved for a writ of garnishment against Indemnity for the amount of the
judgment plus costs, a total of $714,116.44. An alternative writ issued, a copy
of which Ms. Caylao (through counsel) forwarded to Indemnity, which received it
on May 8, 2012.4 Indemnity took the
position that Coast had breached policy conditions requiring Coast to notify
Indemnity in the event of a lawsuit and to forward suit papers “as soon as
practicable.” Indemnity asserted Coast thereby forfeited coverage, and elected
not to represent Coast in an effort to set the judgment aside.

Instead, Indemnity wrote Coast saying: “As a result of your actions and
inactions as outlined above, [Indemnity] is hereby expressly denying any
coverage for, or duties owed in connection with the alleged incident, including
but not limited to any duty to indemnify, defend or to incur any expenses as a
result of the incident.” Indemnity answered Ms. Caylao’s writ on May 29, 2012,
again disclaiming any obligation to Coast or Ms. Caylao, based on Coast’s breach
of policy conditions. Indemnity asserted Coast’s breach of these duties caused
judgment to be entered “in the amount of $714,116.44 in what was a defensible
lawsuit,” and that Indemnity was “irrevocably prejudiced” on account of Coast’s
breach.

The general liability conditions in the Indemnity policy insuring Coast
unambiguously required Coast to notify Indemnity of any lawsuit, providing in
relevant part:

The trial court found that Indemnity did not get timely notice of Ms.
Caylao’s lawsuit, as required by the policy, and that Coast never forwarded suit
papers to Indemnity.5

The trial court rejected, however, Indemnity’s argument that these breaches
relieved Indemnity of the obligation to pay Ms. Caylao’s judgment against Coast.
The trial court reasoned that, in order to be excused from contractual
obligations based on an insured’s failure to cooperate, an insurer must
demonstrate that it exercised due diligence and good faith in trying to bring
about the insured’s cooperation, once the insured notified it of the claim. The
trial court concluded that Indemnity was “unable to show that it exercised due
diligence and good faith in trying to bring about its insured’s cooperation”
because the “record shows” that Indemnity “never had a confirmation that a
lawsuit would not be filed and never contacted [Ms. Caylao], whether through her
counsel or otherwise, and did not do anything else to bring about the
cooperation of its insured.” On this basis, the trial court denied the motion to
dissolve the writ of garnishment.

But there was no evidentiary hearing and therefore no evidentiary support for
the trial court’s factual conclusions that Indemnity failed to exercise due
diligence and did nothing to bring about Coast’s cooperation. See
generally Cont’l Cas. Co. v. City of Jacksonville, 550 F.Supp. 2d
1312, 1340 (M.D. Fla. 2007) (noting that where insurer offered to defend the
City of Jacksonville subject to a reservation of rights, the insurer exercised
due diligence and good faith in trying to bring about the insured’s cooperation,
when it took steps to ensure the City knew it was bound by the conditions of the
insurance policy, by instructing the City to notify it if a suit was filed so
that it could “re-evaluate its position and determine whether it owe[d] a duty
of defense with respect to a claim”); First Am. Title Ins. Co. v. Nat’l Union
Fire Ins. Co. of Pittsburgh, Pa., 695 So. 2d 475, 477 (Fla. 3d DCA 1997)
(concluding that, when insurer denied the claims by asserting a policy
exclusion, but also instructed the insured to notify the insurer of any lawsuit
filed so that it could re-evaluate its position to determine whether it owed a
duty of defense based on the allegations of the complaint, the insured was not
free to enter into a settlement independently without notification to or consent
of the insurer, and the “insured’s failure to comply with the relevant policy
provisions relieved the insurer of its obligations under the policy”).

Although Indemnity’s letter did deny coverage, it did not do so until after
default judgment had already been entered against Coast. Cf.
Philadelphia Indem. Ins. Co. v. Kohne, 181 F. App’x 888, 892 (11th Cir.
2006) (“[U]nequivocal denials of coverage such as those [the insurer] made here
forfeit an insurer’s right to invoke cooperation conditions against its insured.
Had [the insurer] made some effort to ensure that [the driver] knew he was still
bound by the policy’s conditions, then a question of fact might remain about
whether [the insurer’s] efforts were sufficiently diligent.”).

In the present case, conditions precedent to coverage were met when Coast
notified Indemnity of the occurrence and of the claim, in forwarding Ms.
Caylao’s counsel’s letter. Coast’s subsequent failure to comply with the
provisions of the policy requiring it to notify Indemnity that suit had been
filed and to send copies of legal papers received in connection with the lawsuit
was, to be sure, a breach of Coast’s obligations under its contract of insurance
with Indemnity.6 “Cases involving an
insured’s notice of occurrence, notice of claim, or notice of suit are governed
by the fundamental principle of contract law that a material breach by one
contracting party excuses the performance by the other party and that an
immaterial breach does not.” 14 Steven Plitt Et Al, Couch on Insurance § 199.81
(3d ed. 2012). The question is whether Coast’s breach justified Indemnity’s
repudiation of its obligations under the policy or whether Indemnity’s
repudiation was itself a breach.

Indemnity had the burden to show that it was Coast’s breach that resulted in
the existence of the judgment debt, not only when the default judgment was
entered but also when Ms. Caylao sought to collect. See Ramos v. Nw.
Mut. Ins. Co., 336 So. 2d 71, 75 (Fla. 1976); BellSouth Telecomms., Inc.
v. Church & Tower of Fla., Inc., 930 So. 2d 668, 671 (Fla. 3d DCA 2006)
(“[A]n insured’s violation of a notice requirement [by failing to timely notify
the insurer of the lawsuit] does not relieve the insurer of its contractual
obligation to defend when no prejudice is shown.”); Nationwide Mut. Fire Ins.
Co. v. Beville, 825 So. 2d 999, 1003-04 (Fla. 4th DCA 2002) (stating that
while it “is true the policy notice provision requires that in the event of suit
the insured must provide the carrier with written notice ‘as soon as
practicable,’ ” the insured’s violation of the notice provision by failing to
send the suit papers to the carrier for six months did not allow the carrier to
avoid liability for the expenses of defense during that period in part because
it was “clear that the carrier can point to no prejudice from the insured’s
failure to send the suit papers earlier”).7

Coast’s allowing entry of judgment against it in the amount of $713,670.44,
without notifying Indemnity of a defensible suit, would materially prejudice
Indemnity, and preclude recovery against Indemnity, unless Indemnity
unjustifiably refused to file and pursue a viable motion to set the judgment
against Coast aside. But Indemnity (which had a contractual right to Coast’s
cooperation in filing such a motion) had an obligation to file a motion to set
aside the judgment, if the original lawsuit was defensible, and grounds to set
aside the judgment existed. In that event, Coast’s breach would not have excused
or discharged performance by Indemnity, to and including filing a motion on
behalf of Coast to set aside Ms. Caylao’s judgment against Coast.8 See, e.g., Allstate Floridian Ins.
Co. v. Farmer, 104 So. 3d 1242, 1250 (Fla. 5th DCA 2012) (concluding that
because the jury found the insurer was not prejudiced by the insured’s failure
to submit a sworn proof of loss form, “there was no material breach of the
contract”); Burgess v. Am. Fid. Fire Ins. Co., 310 N.W.2d 23, 25 (Mich.
Ct. App. 1981) (“To have been deprived of an opportunity to defend, in the case
at bar, may or may not have prejudiced the rights of the insurance carrier. . .
. [S]uch prejudice does not become material where the carrier, upon notice, does
not act or properly act to protect its interest and/or that of its insured.”);
13 Steven Plitt, supra § 193:70 (noting that “prejudice in the context of
liability insurance most often turns on the degree to which the insurer has been
hampered in preparing and/or conducting a defense of the insured, or the related
issue of negotiating and settling with the third-party claimant” and liability
insurers have failed to prove they were prejudiced by lack of timely notice
where the “insurer could set aside the default judgment and had significant
postjudgement [sic] control over proceedings”). If Ms. Caylao cannot show on
remand that grounds existed to set the judgment against Coast aside, she cannot
prevail.

But Indemnity’s duty to defend Coast extended to moving to set aside Ms.
Caylao’s judgment against Coast, if that was feasible. Compare Alabama
Farm Bureau Mut. Cas. Ins. Co. v. Harris, 197 So. 2d 567, 570 (Fla. 3d DCA
1967) (concluding that where the insurer was properly notified of the accident
and had the opportunity to make an investigation, the breach, if any, based on
the insurer’s not receiving notice of the suit until after entry of default “was
not material and did not foreclose any rights” of the insurer when the injured
party’s lawyer offered to have the default set aside if the insurer would defend
and the insurer refused the offer). Cf. Thomas v. W. World Ins.
Co., 343 So. 2d 1298, 1303 (Fla. 2d DCA 1977) (noting “it is black-letter
contract law that a party suffering a breach is obligated to take all reasonable
means to protect himself and mitigate his damages”).

Because the trial court took no evidence regarding whether Indemnity was
under an obligation to file and pursue a motion to set aside the default
judgment, we reverse for an evidentiary hearing on the question. See
Thyssen, Inc. v. Nobility MV, 421 F.3d 295, 303 (5th Cir. 2005) (noting
that “entry of a default judgment is a strong starting basis for a claim of
prejudice,” the “insurer’s loss of opportunity to litigate the action weighs in
favor of finding prejudice,” and “[i]f damages have been tried and found, this
also weighs in favor of prejudice,” and that while “[n]o case has required
procedural exhaustion by an insurer, such as appealing the default judgment or
seeking to have it set aside, before a showing of prejudice can be made,” this
“might weigh in favor of lack of prejudice”).

Reversed and remanded. (LEWIS, C.J. and WETHERELL, J., CONCUR.)

__________________

1In an affidavit, Scott Wessing, Vice
President of Claims for Indemnity, averred that during the investigation period,
Indemnity spoke with Ms. Caylao’s attorney, its insured, Coast employees, and
independent witnesses, and also obtained “police reports and the like.”

2The complaint also named as a defendant
the Coast employee who allegedly battered Ms. Caylao. When the employee filed an
answer denying the allegations, he was voluntarily dismissed from the action.

3Ms. Caylao’s affidavit indicated total
medical expenses incurred were $20,852.64 (with no supporting documentation).
She stated that her future medical treatment based on “ongoing restrictions,
pain and discomfort” would be $5,000 per year (with no supporting medical
evidence and no description of medical problems). She stated her life expectancy
was 45.72 years according to the Social Security Administration’s Actuarial Life
Table. She therefore calculated her “lifetime medical expenses” would total
$228,600 ($5,000 per year multiplied by 45.72 years, with no reduction to
present value). She stated she had suffered past noneconomic damages of $15,000
and that she reasonably expected future noneconomic damages of $450,000.

4The writ issued on April 17, 2012. As
Indemnity’s putative appointed agent, the Florida Secretary of State accepted
the writ on April 24, 2012.

5Mr. Wessing’s affidavit supports the
trial court’s finding that Indemnity had no notice of Ms. Caylao’s suit until
her counsel forwarded the writ of garnishment. This fact does not seem to be in
dispute. Indemnity cannot be said to have disavowed its obligation to defend
Coast, in the event Ms. Caylao filed suit, simply because it concluded, after a
five-month investigation, that Coast was not liable for the damages she claimed.
Neither Coast nor Ms. Caylao alleges that Indemnity took any action that would
give Coast reason to believe it had been released from its obligation to notify
Indemnity in the event of suit.

6See, e.g., Scottsdale
Ins. Co. v. Bieber & Assocs., Inc., 105 F. App’x 340, 343-44 (3d Cir.
2004) (“[T]he plain language of the policy[ ] contains no language to indicate
that compliance with subsection ‘a’ releases an insured from the duty to comply
with subsection ‘b’. Similarly, although the insured’s duties to the insurer are
the same whether a claim is brought or suit is filed, use of the disjunctive
alone cannot fairly be read as a release from any future duty to provide notice
of a lawsuit where notice of a claim has already been given. This reading of the
policy is bolstered by subsection ‘c’ . . . which specifically and unequivocally
imposes a duty on the insured to assist the insurer by “[i]mmediately send[ing]
. . . copies of any demands, notices, summonses or legal papers received in
connection with the claim or ‘suit’. . . . Continuing notice requirements such
as the one reflected in subsections ‘a’ and ‘b’ acknowledge the fact that,
however involved the insurer becomes in defending a claim, the insured remains
the party with primary access to the information necessary to do so at each of
the three relevant stages. Because the insured is the party in the best position
to know when legal action has been taken against it, notifying the insurer of
such action is similar in importance to but functionally different from
providing notice of an occurrence or claim. . . . Rather than focusing on [the
insurer’s] activities before the suit was filed, the court should have
determined whether [the insurer] had actual or constructive knowledge of the
lawsuit after it had been filed, and whether, therefore, [the insurer] was
actually prejudiced by any failure of [the insured] to provide notice in
accordance with the policy.”).

7In contrast, if an insured breaches the
policy requirement to provide notice of a claim altogether, prejudice to the
insurer is presumed; but the presumption may be rebutted by the insured (or a
party standing in the shoes of the insured) showing the insurer was not
prejudiced by failure to comply with the condition. See Bankers Ins.
Co. v. Macias, 475 So. 2d 1216, 1218 (Fla. 1985) (“The burden should be on
the insured to show lack of prejudice where the insurer has been deprived of the
opportunity to investigate the facts and to examine the insured.”). Here
Indemnity does not dispute that it received notice of Ms. Caylao’s claim and was
able to conduct a five-month investigation.

8See 23 Williston on Contracts §
63:3 (4th ed. 2013) (“Whether a breach is material and important is a question
of degree, which must be answered by weighing the consequences of the breach in
light of the actual custom of persons in the performance of contracts similar to
the one involved in the particular case.”).