42
Fla. L. Weekly D1833aTop of Form

Insurance
— Automobile liability — Coverage — Insurer which undertook defense of
insured in wrongful death action could not subsequently decline coverage based
on coverage defense of breach of duty to cooperate where insurer failed to
comply with Claims Administration Statute, section 627.426, Florida Statutes —
Where insurer did not refuse to defend insured within sixty days of its
reservation of rights, and could not obtain either a non-waiver agreement from
insured or insured’s agreement for the appointment of independent counsel to
represent insured because insured had absconded, insurer waived its coverage
defense by continuing to defend insured

GEICO GENERAL INSURANCE COMPANY,
Appellant, v. BARRY MUKAMAL, as court-appointed receiver for Carlos Lacayo; and
KATHLEEN KASTENHOLZ and MICHAEL KASTENHOLZ, as co-personal representatives of
the Estate of Emerson Michael Kastenholz, Appellees. 3rd District. Case No.
3D15-2750. L.T. Case No. 14-29169. August 23, 2017. An Appeal from the Circuit
Court for Miami-Dade County, Rosa I. Rodriguez, Judge. Counsel: Shutts &
Bowen, LLP, Stephen T. Maher, Frank A. Zacherl, and Alfredo L. Gonzalez, Jr.,
for appellant. Deutsch & Blumberg, P.A. and Edward R. Blumberg; James C.
Blecke; Tabas, Freedman, Soloff, P.A. and Joel L. Tabas and Joshua D. Silver;
Michael Seth Cohen; Easley Appellate Practice, PLLC, and Dorothy F. Easley, for
appellees.

(Before ROTHENBERG, C.J., and
FERNANDEZ, and LOGUE, JJ.)

(FERNANDEZ, J.) GEICO General
Insurance Company appeals from two final summary judgments entered in favor of
appellees Kathleen and Michael Kastenholz, and appellee Barry Mukamal who is
the court-appointed receiver for Carlos Lacayo, on the claim for declaratory
judgment. We affirm the judgments, concluding that insurance coverage existed
as a matter of law because there was no genuine issue of material fact that
GEICO failed to comply with the Claims Administration Statute, section 627.426,
Florida Statutes (2015).

The Kastenholzes sued Lacayo for the
wrongful death of their son that resulted from an automobile accident. GEICO
first notified Lacayo of its reservation of rights to deny coverage because
Lacayo was not listed as a driver under the insurance policy. Lacayo absconded
and his whereabouts are unknown. GEICO thereafter notified Lacayo of its
reservation of rights because Lacayo failed to cooperate with GEICO’s
investigation. GEICO issued numerous other reservation of rights letters. GEICO
represented Lacayo for a period of years and throughout post judgment
proceedings. The jury ultimately returned a verdict for $15,350,000 in favor of
the Kastenholzes. The trial court entered final judgments consistent with the
jury’s verdict. GEICO subsequently sought to decline coverage based on the
coverage defense of breach of cooperation.

GEICO’s coverage defense failed to
comply with the requirements of the Claims Administration Statute. The plain
and unambiguous language of section 627.426 states:

(2) A
liability insurer shall not be permitted to deny coverage based on a particular
coverage defense unless:

(a) Within
30 days after the liability insurer knew or should have known of the coverage
defense, written notice of reservation of rights to assert a coverage defense
is given to the named insured by registered or certified mail sent to the last
known address of the insured or by hand delivery; and

(b) Within
60 days of compliance with paragraph (a) or receipt of a summons and complaint
naming the insured as a defendant, whichever is later, but in no case later
than 30 days before trial, the insurer:

1. Gives
written notice to the named insured by registered or certified mail of its refusal
to defend the insured;

2. Obtains
from the insured a nonwaiver agreement following full disclosure of
the specific facts and policy provisions upon which the coverage defense is
asserted and the duties, obligations, and liabilities of the insurer during and
following the pendency of the subject litigation; or

3. Retains
independent counsel which is mutually agreeable to the parties. Reasonable
fees for the counsel may be agreed upon between the parties or, if no agreement
is reached, shall be set by the court.

(Emphasis added).

GEICO did not comply with the
written “refusal to defend” through registered or certified mail, pursuant to
section (2)(b)1. GEICO instead defended Lacayo. Neither did GEICO comply with
sections (2)(b)(2), (3). GEICO could not obtain from Lacayo a “nonwaiver
agreement” or “retain[ ] independent counsel which [was] mutually agreeable to
the parties” because Lacayo had absconded and GEICO did not know of Lacayo’s
whereabouts. The trial court’s entry of summary judgments against GEICO was
therefore proper.

Affirmed.

__________________

(ROTHENBERG, C.J., specially
concurring.) Although I agree that the result articulated in the majority
opinion is mandated by the clear and unambiguous language of section 627.426,
Florida Statutes (2015), I write to expose what appears to be an unintended
consequence of the literal interpretation of the statute that, in this case,
defeats the very purpose of the statute. I also write to invite the Legislature
to review and amend the statute to reflect the Legislative intent.

Carlos Lacayo was involved in a
traffic accident while driving intoxicated, resulting in the death of five
individuals. The vehicle Lacayo was driving was owned by Lacayo’s mother and
insured by Geico General Insurance Company (“Geico”). On March 9, 2011, four
days after the accident, Geico sent a reservation of rights letter to Lacayo
advising him that, while it was providing him with a defense, Geico was
reserving its right to deny coverage because he was not listed as a driver on
the policy. On March 10, 2011, an attorney from Cole Scott and Kissane, P.A.
(“Cole Scott”) wrote to Lacayo’s mother, advising her that Geico had appointed
the firm to represent her and her son. This letter included a statement of the
insured client’s rights.

Thereafter, Lacayo and his mother
met with a lawyer from Cole Scott, discussed the case with the lawyer, and
signed financial and insurance affidavits and an authorization for disclosure
of protected health information, identifying the Cole Scott lawyer as counsel
for Lacayo. Several weeks later, Lacayo signed another authorization for
disclosure of protected health information, which again identified the Cole
Scott lawyer as counsel for Lacayo.

The personal representatives, on
behalf of the estates, filed a wrongful death action (“the plaintiffs”).
Discovery ensued, and both Lacayo and his mother attended a litigation
settlement conference.

On June 7, 2011, facing arrest for
DUI manslaughter, Lacayo fled the jurisdiction, and his whereabouts remain
unknown. Based on Lacayo’s flight and failure to cooperate, Geico sent numerous
additional reservation of rights letters but continued to represent Lacayo and
provided him with a defense. Lacayo did not return any of Geico’s phone calls,
appear for deposition, or answer interrogatories, which resulted in Lacayo’s pleadings
being stricken for his failure to comply with discovery.

In September 2012, the plaintiffs
made a settlement offer of $100,000, the policy limit. Because Cole Scott had
not had any communications with Lacayo, had no knowledge of his whereabouts, and
had no authority to accept the settlement offer, the case proceeded to trial,
and the jury returned a verdict of $15,350,000 in favor of the plaintiffs. No
appeal of the judgment was filed on Lacayo’s behalf, however, Cole Scott did
represent Lacayo at various post-judgment proceedings.

Thereafter, the plaintiffs and the
court-appointed receiver for Lacayo (“the appellees”) filed a lawsuit against
Geico alleging Geico exercised bad faith in its handling of the claims and its
obligations under the insurance contract. Because no final determination of
coverage had been made, Geico filed a declaratory judgment against the
appellees in the United States District Court, and the appellees amended their
complaint in their bad-faith action to address the issue of coverage.

Ultimately, the coverage issue was
decided by the trial court after the federal district court dismissed Geico’s
federal coverage action on abstention grounds. The trial court granted summary
judgment in favor of the appellees on the coverage issue based on its finding
that Geico did not comply with the expressly listed methods of compliance with
section 627.426(2)(b), the Claims Administration Statute. Specifically, Geico
did not deny coverage, obtain a non-waiver agreement from Lacayo within sixty
days of its reservation of rights letter, or retain independent mutually
agreeable counsel to represent Lacayo. Thus, Geico was precluded as a matter of
law from denying coverage.

Pursuant to section 627.426, once
Geico sent its reservation of rights notice to assert a coverage defense, Geico
had three options: (1) refuse to defend Lacayo; (2) obtain a non-waiver
agreement from Lacayo; or (3) retain independent, mutually agreeable counsel to
represent Lacayo. Failure to perform any of these three options precludes a
later attempt to deny coverage.

Geico did not refuse to defend
Lacayo within sixty days of its reservation of rights. And because Lacayo
absconded, Geico could not obtain either a non-waiver agreement from Lacayo or
Lacayo’s agreement for the appointment of independent counsel to represent
Lacayo. Thus, Geico was placed in the proverbial catch 22 position. It could
either (1) abandon Lacayo entirely, leaving Lacayo with no representation or
defense, and potentially subject itself to bad-faith litigation if it was later
determined that Lacayo was covered by the policy, or (2) continue to defend
Lacayo in his absence and waive its coverage defense. Geico chose the second
option.

ANALYSIS

Although Geico’s initial reservation
of rights was based on Geico’s position that Lacayo was not covered by the
subject policy, after Lacayo fled on June 7, 2011, Geico sent several
additional reservation of rights letters to Lacayo’s last known address based
on Lacayo’s failure to cooperate, which under the policy was a defense to
coverage. However, under the Claims Administration Statute, because Geico was
unable to either obtain a non-waiver agreement or retain independent counsel
mutually agreeable to Lacayo and Geico because Lacayo’s whereabouts were unknown,
Geico had only one option available to it — to deny Lacayo coverage. Geico,
however, not wanting to leave Lacayo without representation, continued to
represent and defend Lacayo, and as a result, is now subject to a bad-faith
lawsuit filed against it by both the plaintiffs and the receiver appointed for
Lacayo, and Geico is precluded from asserting a coverage defense.

While section 627.426 is clear and
unambiguous, and therefore mandates the result identified by the trial court
and the affirmance being issued by this Court, such a result appears, to me, to
be contrary to the intent of the statute, which is to protect both the insured
and the insurer when the issue of coverage remains an open question. Requiring
the insurer to abandon a putative insured in order to protect the insurer’s
coverage defense only benefits the plaintiff, who will be able to litigate
his/hers/its claims without opposition. And if it is subsequently determined
that the putative insured’s absence or failure to cooperate was not willful,
and the putative insured was in fact covered by the policy, then the insurer
would be subject to a bad faith litigation claim for failing to defend the
insured. It is unlikely that the Legislature intended such a result when it
enacted section 627.426.

I, therefore, concur with the
majority opinion, and write solely to identify what appears to be an unintended
consequence of the subject legislation and to invite review by the Florida
Legislature. (FERNANDEZ, J., concurs.)

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