a settlement agreement between a plaintiff and an insured constituted a covenant not to execute against the insured, and not a release, where the settlement agreement clearly expressed the parties’ intent to preserve claims against the insurer, despite the fact that the settlement agreement provided that the insured would consent to a judgment against it that never would be recorded, would not create liens and could not be executed
Plaintiff sued a law firm, its principal, and an employee for breach of contract, fraud, breach of fiduciary duty, negligent supervision, conversion, and intentional infliction of emotional distress arising out of the law firm’s representation of Plaintiff on several matters. The law firm carried a $1,000,000 liability insurance policy that included a declining balance provision, which operated to reduce the amount of money available to pay damages by the amounts expended in the defense of the claims against the law firm.
During litigation, the law firm’s insurer became insolvent and, as a result, the Florida Insurance Guaranty Association (“FIGA”) assumed the law firm’s defense as the receiver for the insolvent insurer. Prior to insolvency, the insurer had incurred approximately $200,000 in defense costs, reducing the available indemnity coverage under the law firm’s policy to $800,000. FIGA, however, asserted that its statutory liability limitation of $300,000 per claim applied to the law firm’s policy and, accordingly, only $300,000 was available for both defense and indemnity obligations.
Prior to trial, FIGA had expended all but $39,000 of its $300,000 limit in the defense of Plaintiff’s claim. After learning of the coverage situation, Plaintiff and the law firm entered into a settlement agreement that provided that the law firm would consent to a judgment against it in the amount of $261,000.00. That judgment, however, never would be recorded, would not create liens and could not be executed. In exchange for those concessions, Plaintiff would accept $39,000 from FIGA, attempt to collect the balance of the $300,000 from FIGA and release the law firm at the conclusion of litigation with FIGA. The settlement agreement also provided that: (a) it was not intended and should not be construed to prejudice the potential claim Plaintiff may pursue against FIGA; and (b) dismissal of the lawsuit would not impair the judgment or Plaintiff’s right to pursue a lawsuit against FIGA.
Following dismissal, Plaintiff filed a declaratory judgment action against FIGA, seeking a determination that FIGA was not entitled to deduct the $261,000 from the per-claim limit and a finding that FIGA was obligated to pay Plaintiff $261,000 in satisfaction of the judgment against the law firm. On cross-motions for summary judgment, the trial court entered judgment in favor of FIGA, finding that the settlement agreement constituted a release of the law firm, which thereby extinguished FIGA’s liability as the law firm’s insurer. The appellate court affirmed the trial court’s ruling and Plaintiff appealed to the Florida Supreme Court.
The Florida Supreme Court reversed the appellate court’s decision, finding that the settlement agreement was not a release of the law firm and clearly was not a release of FIGA. Highlighting the importance of the intent of the parties in determining whether a release has been effectuated, the Court noted that the settlement agreement clearly demonstrated the parties’ intent not to release FIGA from liability and, instead, contained an express reservation of the claim against FIGA. Finding that the failure to obtain a recordable judgment against the law firm was not fatal to Plaintiff’s claim against FIGA, because the sole question involved the coverage dispute, the court held that the settlement agreement did not constitute a legal impediment to the litigation with FIGA to resolve that coverage dispute.
In reaching its conclusion, the court explained or distinguished several earlier opinions of Florida courts, including:
Fidelity & Casualty Co. v. Cope, 462 So. 2d 459 (Fla. 1985)(holding that, if an excess judgment has been satisfied, absent an assignment of that cause of action prior to satisfaction, a third party cannot maintain an action for breach of duty between an insurer and its insured);
Atlantic Coast Line R.R. v. Boone, 85 So. 2d 834 (Fla. 1956)(an agreement between plaintiff and one joint tortfeasor, wherein plaintiff generally agreed to forever refrain from instituting, pressing, or in any way aiding any claim for damages arising from an accident, constituted a release, and not a covenant not to sue, because the agreement was comprehensive and contemplated plaintiff’s refraining from suing both joint tortfeasors);
Lageman v. Frank H. Furman, Inc., 697 So. 2d 891 (Fla. 4th DCA 1997)(an agreement between a plaintiff and the insured, pursuant to which the plaintiff accepted the insured’s policy limits, the insured consented to the entry of an excess judgment that plaintiff would not execute against the insured, and the insured agreed to transfer to plaintiff its rights against its insurer, constituted a covenant not to sue and did not extinguish the insured’s cause of action against the insurer for failure to procure adequate insurance);
Auto-Owners Ins. Co. v. St. Paul Fire & Marine Ins. Co., 547 So. 2d 148 (Fla. 2d DCA 1989)(holding that a settlement agreement between a plaintiff and an insured, whereby the plaintiff agreed that it would never record any judgment obtained against the insured and would enforce collection solely against the insurer did not constitute a release because the language of the settlement agreement clearly indicated plaintiff’s intention not to release the insurer from liability)
Shook v. Allstate Ins. Co., 498 So. 2d 498 (Fla. 4th DCA 1986)(an agreement between plaintiff and insured, pursuant to which claimant obtained an assignment from the insured and agreed to execute and deliver to the insured a satisfaction of judgment regardless of the outcome of bad faith litigation between plaintiff and the insurer, did not release the insurer because the circumstances surrounding the agreement and the language of the agreement demonstrated that, in entering into the agreement, the plaintiff and insured did not intend to release the insurer);
Kelly v. Williams, 411 So. 2d 902 (Fla. 5th DCA 1982)(holding that a stipulation defeated a third-party action against an insurer for bad faith where the stipulation limited the liability of the insurer and the insured to the policy limit, despite the fact that the stipulation clearly contemplated a future third-party bad faith action).
Rosen v. Florida Guaranty Ins. Ass’n,
26 Fla. L. Weekly S611 (Fla. Sept. 20, 2001).
Disclaimer
