Important Exception to Duty to Defend Recognized

Under Florida law, the duty to defend determination is made by looking only at the terms within the insurance policy and the allegations within the complaint.  Generally, extrinsic evidence may not be considered.  However, in the case of Composite Structures, Inc. v. Continental Insurance Co., Case No. 12-15866 (11th Cir. Mar. 20, 2014) (unpublished), the United States Court of Appeals for the Eleventh Circuit (applying Florida state law) recognized an important exception to this general rule. When an insurer’s coverage denial is based on factual issues that ordinarily would not be alleged in the complaint, the insurer may consider extrinsic evidence outside of the complaint.

The underlying lawsuit was brought by two seamen who sustained carbon monoxide poisoning while aboard a boat.  The seamen sued the insured boat manufacturer for negligence and strict liability, and the insured tendered its defense to its insurer. The insurer disclaimed coverage for the underlying suit because the insured first discovered the occurrence more than 72 hours after its commencement.  As a result, the insured had not satisfied the conditions of the pollution buyback endorsement that created exceptions to the pollution exclusion in the two general liability policies at issue.

In the declaratory judgment action brought by the insured, the insurer successfully argued in the district court that the conditions in the pollution buyback endorsement were not satisfied because the insured did not first discover the occurrence within 72 hours after its commencement, and because the occurrence was not timely reported to the insurer.  On appeal from the district court’s summary judgment ruling, the insured argued that the district court erred in considering evidence outside of the underlying complaint in determining the insurer’s coverage obligations.

The Eleventh Circuit Court of Appeals affirmed the district court’s decision.  The appellate court recognized the general rule that the duty to defend is only determined by looking at the terms of the insurance policy and the allegations of the complaint. However, the court also noted that the Florida Supreme Court has recognized certain exceptions to this rule, including that insurers may look to facts outside of the underlying complaint when the basis for the insurer’s declination involves facts that normally would not be alleged in the complaint.  Here, the court observed that the underlying complaint involved negligence and strict liability claims, neither of which required the plaintiffs to allege the date of when the insured notified its insurer of the occurrence.  Thus, the Eleventh Circuit held that, “[u]nder Florida law, Continental was permitted to consider the uncontroverted date of written notice when determining its duty to defend because the date of written notice to the insurance company is not a fact that would normally be alleged in the complaint.”

This decision is currently unpublished but the insurer has filed a motion for publication with the appellate court. Any published opinion rendered will have a significant impact on lower courts in the Eleventh Circuit in deciding this issue.

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