Unintended Consequences of Florida’s Claims Administration Statute

Talking about a potentially unfair case towards an insurer…here it is. Talking about a case where an insured smartly took advantage of an insurer’s lose-lose position…it is the same case.   The insured took advantage of an unintended consequence under the law and capitalized on it. This goes to show that there is important strategy that goes on in all disputes, particularly disputes involving insurance coverage.

Previously, I wrote about Florida’s Claim Administration Statute (Fla. Stat. s. 627.426).   The Claims Administration Statute 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.

An insurer’s compliance with these provisions is critical if it wants to deny coverage based on a coverage defense. But, what if an insurer cannot comply due to the actions of the insured?   The Claims Administration Statute contains unintended consequences as this case points out.

In Geico General Ins. Co. v. Mukamal, 42 Fla.L.Weekly D1833a (Fla. 3d DCA 2017), a defendant was sued in a wrongful death automobile accident. The automobile liability insurer, per the Claims Administration Statute, sent a reservation of rights letter to the defendant reserving its rights to deny coverage.   During the course of the case, and due to fear of prosecution, the defendant absconded and was nowhere to be found.   As a result, the plaintiff obtained a jury verdict of approximately $15 Million. The automobile liability insurer then moved to deny coverage based on the defendant’s failure to cooperate with the insurer (a coverage defense).

Here lies the problem for the insurer. Under the Claims Administration Statute, once the insurer issued its reservation of rights letter, which it did, it had three options:

  1. It could refuse to defend the insured (deny coverage);
  2. It could obtain a non-waiver agreement from the insured; OR
  3. It could retain independent, mutually agreeable counsel to represent the insured.

The insurer was precluded, however, from exercising options 2. and 3. because the defendant absconded. It could not obtain a non-waiver agreement or appoint mutually agreeable counsel since the defendant was nowhere to be found.   Thus, under the Claims Administrate Statute, the insurer had only one option available to it, which was to refuse to defend the defendant (deny coverage).   The insurer, however, did not refuse to defend the defendant, but continued providing it a defense. Because the insurer did not comply with the Claims Administration Statute (since it did not refuse to defend the insured), it could no longer rely on the coverage defense of the insured’s failure to cooperate.   The Court articulates this potentially unfair unintended consequence, that the insured capitalized on, as follows:

“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.”


Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.


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