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Carithers v. Mid-Continent Casualty Co.

United States District Court, M.D. Florida, Jacksonville Division

July 16, 2019

HUGH A. CARITHERS and KATHERINE S. CARITHERS, As the assignee of Cronk Duch Miller & Associates, Inc., Cronk Duch Architecture, LLC, Cronk Duch Craftsman, Cronk Duch Partners, LLC, Cronk Duch Holdings, Inc., and Joseph S. Cronk, Plaintiffs,


          TIMOTHY J. CORRIGAN United States District Judge.

         In a previous insurance coverage case, the Eleventh Circuit held that insurer Mid-Continent Casualty Company's refusal to defend its insured was incorrect. In this subsequent insurance bad faith action, Defendant Mid-Continent seeks summary judgment, arguing that although its decision to deny a defense was incorrect, the greater weight of district court cases at the time supported its decision, and therefore, that decision cannot constitute bad faith as a matter of law. In addition to Mid-Continent's Motion for Summary Judgment, (Doc. 107), this case is also before the Court on Mid-Continent's Motion to Exclude Expert Testimony of Douglas McIntosh, (Doc. 106), and Plaintiffs Hugh and Katherine Carithers' Motion to Compel Discovery, (Doc. 96). The motions have been fully briefed, (Docs. 99; 104; 111; 115; 121; 122; 124; 125), and on May 2, 2019, the Court held a hearing on the motions, the record of which is incorporated herein. (Doc. 126). After the hearing, Mid-Continent filed the Carithers' mediation statement from the underlying action in support of its Motion for Summary Judgment. (Doc. 127). The Carithers, at the Court's direction, responded, (Doc. 131), and then filed a motion to strike the mediation statement. (Doc. 132).

         I. BACKGROUND

         In 2011, the Carithers filed an action in state court (“Underlying Action”)[1]against their homebuilder, Cronk Duch, [2] for construction defects in their home. (Doc. 107-1). In August 2011, Cronk Duch tendered the Carithers' amended complaint to its insurance company, Mid-Continent. (Doc. 107-2 at 193). After multiple levels of review, Mid-Continent determined that based on the allegations of the amended complaint, it was not required to defend Cronk Duch. (Doc. 107 at 3-4). Cronk Duch then provided Mid-Continent with the third amended complaint, which was reviewed and similarly denied. (Docs. 107 at 5-7; 107-2 at 194-201, 204-205).

         The third amended complaint alleged that “[a]ll of the foregoing defects were latent, and were discovered by the Carithers in 2010. They could not have been discovered by reasonable inspection in a prior year.” (Doc. 107-2 at 217). Mid-Continent had insured Cronk Duch beginning on March 9, 2005, with Cronk Duch's last policy expiring on October 6, 2008. (Doc. 50-1 at 3). Relying on the “manifestation” trigger-an insurance coverage legal theory wherein damage does not “occur” until it is evident-Mid-Continent determined that it had no duty to defend Cronk Duch because the damage to the Carithers' home did not “manifest” until after Mid-Continent's final policy had expired. (Doc. 107-2 at 91); see also Doc. 50-1 at 4 (“Based on the pleadings, all of the Plaintiff's loss and damages occurred after the expiration of the last Mid-Continent Casualty policy.”).

         Cronk Duch hired its own counsel and consented to a judgment in the Underlying Action of $91, 872 plus prejudgment interest of $5, 856.84 and costs of $524, for a total of $98, 252.84.[3] (Docs. 50-2; 50-3 at 5). Cronk Duch then assigned its claims against Mid-Continent to the Carithers, except for attorney's fees and costs of $12, 737.46-the amount Cronk Duch had accrued in defending the Carithers' suit against it. (Doc. 50-3). Hugh Carithers avers that before the consent judgment was entered, he and his wife would have settled for $25, 000 or less had Mid-Continent or Cronk Duch ever made such an offer. (Doc. 115-3 at 3).

         Under Cronk Duch's assignment of rights, the Carithers sued Mid-Continent for breaching its duty to defend and indemnify, and Mid-Continent removed the action to federal court (“Coverage Action”). Amended Complaint, Carithers v. Mid-Continent Cas. Co. (Coverage Action), No. 3:12-CV-890-J-34TEM (M.D. Fla. Aug. 7, 2012), ECF No. 17. In that case, the Carithers advocated for the injury-in-fact trigger-an alternative insurance coverage legal theory where damage “occurs” when there is actual damage irrespective of when it is discovered-while Mid-Continent argued that the manifestation trigger applied. Coverage Action, 2013 WL 11320043, at *2 (M.D. Fla. Dec. 6, 2013). Judge Magnusson granted the Carithers' motion for summary judgment on the duty to defend, holding that damage “‘occurs' at the moment that there is actual damage and the date of discovery is irrelevant.” Id. (quotation marks omitted) (quoting Axis Surplus Ins. Co. v. Contravest Constr. Co., 921 F.Supp.2d 1338, 1346 (M.D. Fla. 2012)). After a bench trial on the duty to indemnify, Judge Magnusson held that the damage occurred in 2005, “almost immediately after construction was complete, ” and therefore, Mid-Continent had a duty to indemnify Cronk Duch. Coverage Action, 2014 WL 11332308, at *2-4 (M.D. Fla. Mar. 11, 2014). The court entered judgment in favor of the Carithers, with damages of $98, 252.83 and attorney's fees incurred by Cronk Duch of $13, 342.46, both plus prejudgment interest. Judgment, Coverage Action, Doc. 130.

         Mid-Continent appealed the rulings on the duty to defend and indemnify. The Eleventh Circuit affirmed on the duty to defend, stating:

Given the uncertainty in the law at the time, Mid-Continent did not know whether there would be coverage for the damages sought in the underlying action because Florida courts had not decided which trigger applies. Mid-Continent was required to resolve this uncertainty in favor of the insured and offer a defense to Cronk Duch.

Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240, 1246 (11th Cir. 2015). Further, the Eleventh Circuit held that injury-in-fact was the appropriate trigger for this case. Id. at 1247. However, the court reversed Judge Magnusson's damages calculation and remanded for a new determination of damages. Id. at 1251.

         After the Eleventh Circuit rendered its opinion but before the mandate issued, the Carithers filed a Civil Remedy Notice (“CRN”) in accordance with Florida Statute § 624.155, alleging bad faith by Mid-Continent, and other violations of Florida law. (Doc. 50-8). Mid-Continent did not pay the amounts allegedly owed but responded to the CRN by claiming it had not acted in bad faith. Id.

         After the mandate issued, Judge Magnusson entered an amended judgment for property damage of $26, 684.77 plus interest, and attorneys' fees incurred by Cronk Duch in the Underlying Action of $13, 342.46 plus interest. Coverage Action, Doc. 163. On September 14, 2015, Mid-Continent paid the amended final judgment in full. Id., Doc. 175. The district court then granted the Carithers' motion for attorney's fees in the Coverage Action, awarding a total of $323, 047.35 in fees and costs, which Mid-Continent timely paid. Id., Docs. 173 & 175.

         On August 3, 2016, the Carithers filed this action, alleging multiple violations of Florida Statute § 624.155, including a claim for bad faith and that Mid-Continent's actions in denying coverage for the Underlying Action were part of a general business practice-making it liable for punitive damages. (Doc. 1). Mid-Continent moved to dismiss the complaint, (Doc. 14), which the Court granted without prejudice, (Doc. 44). In its ruling, the Court limited discovery to the Cronk Duch claim only, and requested briefing on damages. Id. On September 25, 2017, the Carithers filed an Amended Complaint, (Doc. 50), and Mid-Continent again moved to dismiss, (Doc. 62). The Court denied this motion but maintained its bifurcation of discovery. (Doc. 76).


         By virtue of the assignment from Cronk Duch to the Carithers, the Carither stand in the shoes of Cronk Duch, Mid-Continent's insured. Insurers in Florida are obligated to act in good faith toward their insureds in handling claims. Bos. Old Colony Ins. Co. v. Gutierrez, 386 So.2d 783, 785 (Fla. 1980). Statutory bad faith is “[n]ot attempting in good faith to settle claims when, under all the circumstances, [the insurance company] could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests.” § 624.155(1)(b)1, Fla. Stat. (2018). In determining whether an insurer acted fairly and honestly toward its insured, the fact finder considers:

(1) whether the insurer was able to obtain a reservation of the right to deny coverage if a defense were provided; (2) efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to the insureds; (3) the substance of the coverage dispute or the weight of legal authority on the coverage issue; (4) the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage; and (5) efforts made by the insurer to settle the liability claim in the face of the coverage dispute.

Laforet, 658 So.2d at 63 (citing Robinson v. State Farm Fire & Cas. Co., 583 So.2d 1063, 1068 (Fla. 5th DCA 1991)).

         Although Mid-Continent raises several potentially convincing arguments, a determination of bad faith is made by analyzing the totality of the circumstances, and the Florida Supreme Court has said time and again, “it is for the jury to decide whether the insurer failed to ‘act in good faith with due regard for the interests of the insured.'” Harvey v. GEICO Gen. Ins. Co., 259 So.3d 1, 7 (Fla. 2018) (quoting Bos. Old Colony, 386 So.2d at 785); see also, e.g., Berges v. Infinity Ins. Co., 896 So.2d 665, 680 (Fla. 2004); Campbell v. Gov't Emps. Ins. Co., 306 So.2d 525, 530 (Fla. 1974). ...

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