A Florida federal court in Miami awarded D&O and property insurers summary judgment in a declaratory action, ruling in their favor on essentially every coverage issue, while also ruling that the damages for which their insured was found liable were uninsurable. Twin City Fire Ins. Co. v. CR Technologies, Inc., 25 F.L.W.Fed. D113a (SDFL Mar. 11, 2015). Even if some of the court’s rulings, strictly speaking, may be dicta, an unqualified win for insurers can seem rare. Potentially most important as precedent are the rulings that liability for civil theft, a statutory tort often alleged in Florida commercial litigation, is neither a “loss” as commonly defined nor, as a matter of Florida public policy, even insurable.
Insureds were a parent and subsidiary providing business communications services. The parent’s termination of a contract with an unaffiliated company (CRT) providing similar services led to a dispute. CRT was plaintiff in the underlying action. A jury returned a verdict against the defendant parent on contract and both common law and statutory tort claims, including civil theft, and against its subsidiary on torts including civil theft. Evidently, their property insurer provided a defense under a reservation of rights, but declined to indemnify. CRT then litigated coverage with the insureds’ D&O carrier and property insurer (by implication, the insureds were not parties to the coverage action) .
On D&O issues, the court first found: (a) the insureds’ liability for civil theft under s. 772.11, Fla. Stat., was not a “loss” as defined because, “as a matter of law,” loss excludes “restoration of ill-gotten gains”; (b) “civil theft is not insurable as a matter of [Florida] public policy”; and (c) the policy expressly excluded coverage for the treble damages portion of the verdict (i.e., twice the ‘actual’ damages). The few cases cited for points (a) and (b) — conceptually hard to distinguish — appear to provide only analogous authority. Point (c) is noteworthy as the policy provided that “ ‘Loss’ shall include punitive and exemplary damages where insurable” and prohibited the insurer from “contend[ing] for any reason, unless appropriate . . . as a matter of law or public policy, that such damages are uninsurable.” The court considered controlling the exclusion for “the multiple portion of any multiple damage award,” thus distinguishing statutory multiple from punitive or exemplary damages.
Although unnecessary given these rulings, the court also found three exclusions in the D&O policy barred coverage: (x) insureds’ liability for civil theft arose or related to their “deliberately fraudulent or criminal act or omission or [a] willful violation of law”; (y) likewise, their adjudicated liability arose from or related to their “gaining . . . personal profit, remuneration or advantage to which [they were] not legally entitled”; and (z) the crime cover in the policy excluded “Loss resulting from Theft or any other dishonest or criminal acts committed by the Insured,” which the court deemed encompassed civil theft.
Addressing the insureds’ property policy, the court found: (i) liability for civil theft was neither property damage nor an occurrence as defined, because the insureds’ property incurred no damage or loss of use and the intent element of civil theft was inconsistent with the definition of “occurrence” in terms of “accident”; (ii) even assuming otherwise, the exclusion for “expected or intended injury” applied given the insureds’ “criminal intent”; (iii) similarly, the policy excluded coverage for CRT’s property that was “in the care, custody or control of the insured.” Finally, several deficiencies CRT alleged in the carrier’s reservation of rights letters could not by wavier or estoppel “be used to create coverage beyond the [policy’s] terms.”
While not explicit in the decision, it appears that CRT won resoundingly at trial against the seriously misbehaving insureds, only to end up empty-handed. By inference, CRT would have no reason to litigate with the insurers if their insureds had paid the judgment CRT recovered against them. Having so convincingly proved the insureds’ intentional misconduct, CRT had prevented itself from recovering from the defendants’ insurers.