Opinion
2:20-CV-09329-CAS (GJSx)
07-11-2022
TUTOR PERINI BUILDING CORP. v. FIRST MERCURY INS. CO.
Attorneys Present for Plaintiffs: Matthew Luce Attorneys Present for Defendants: Sharon Lewis Blaise Curet
Attorneys Present for Plaintiffs: Matthew Luce
Attorneys Present for Defendants: Sharon Lewis Blaise Curet
Present: The Honorable CHRISTINA A. SNYDER
CIVIL MINUTES - GENERAL
Proceedings: DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT (Dkt. 52, filed on JUNE 9, 2022)
I. INTRODUCTION
On October 9, 2020. plaintiff Tutor Perini Building Corp. (“Tutor Perini”) brought suit in this Court against defendant First Mercury Insurance Company (“First Mercury”) and Does 1 through 50. alleging claims for (1) breach of contract, and (2) tortious breach of the implied covenant of good faith and fair dealing (“bad faith”). Dkt. 1 (“Compl.”) at 19-33. Tutor Perini's claims arise from First Mercury's initial failure to defend Tutor Perini in an underlying action related to a dispute in a commercial construction project. Id.
On May 21, 2021, both parties filed motions for partial summary judgment. Dkts. 19, 25. On July 1, 2021, the Court denied First Mercury's motion for partial summary judgment, and granted Tutor Perini's motion for partial summary7 judgment on its breach of contract claim, finding that First Mercy breached its duty to defend Tutor Perini in the underlying action. Dkt. 37 (“Order re 7/1/22 MSJ”) at 14.
On June 9, 2022, First Mercury filed its second motion for partial summary judgment, dkt. 54 (“MSJ”), along with its statement of uncontroverted facts and conclusions of law, dkt. 55 (“Def. SUF”). On June 20, 2022, Tutor Perini filed its opposition to First Mercury's motion for partial summary judgment, dkt. 60 (“Opp.”), along with its statement of disputed facts, dkt. 60-3 (“Pltf. SDF”). On June 27, 2022, Tutor Perini filed its reply. Dkt. 62 (“Reply”). On the same day, First Mercury filed objections to Tutor Perini's evidence offered in its opposition. Dkt. 63 (“Evidentiary Objections”).
On July 12, 2022, the Court held a hearing. Having carefully considered the parties' arguments and submissions, the Court finds and concludes as follows.
II. BACKGROUND
The following facts are not meaningfully disputed and are set forth for purposes of background. Unless noted, the Court references only facts that are uncontroverted and as to which evidentiary objections have been overruled.
First Mercury asserts numerous evidentiary objections to Tutor Perini's evidence. Dkt. 63. First Mercury raises 29 objections, arguing that, among other things, the declarations Tutor Perini submitted are “not supported by evidence,” raise “improper conclusions,” are “irrelevant and immaterial,” and “lack foundation.” Id. “In motions for summary judgment with numerous objections, it is often unnecessary and impractical for a court to methodically scrutinize each objection and give a full analysis of each argument raised.” Capitol Records. LLC v. BlueBeat, Inc.. 765 F.Supp.2d 1198, 1200 (C.D. Cal. 2010). This is especially true where, as here, many of the objections are “boilerplate.” Id. Further, because the Court does not need to rely on the majority of the specific evidence to which First Mercury objects for purposes of its analysis infra, the Court need not consider these objections. However, to the extent that the Court relies on objected-to evidence, it has considered and OVERRULED these evidentiary objections. Evidence not considered by the Court is not addressed.
A. The Project
On June 9, 2014, project owner TWJ 1101, LLC (“TWJ”) entered into a contract with plaintiff, general contractor Tutor Perini Building Corporation, for the construction of the Panorama Tower Project located in Miami, Florida (the “Project”). SUF ¶ 4. The Project consisted of an underground garage and a tower of residential units. Order re 7/1/22 MSJs at 2. The contract required TWJ to implement an Owner Controlled Insurance Program (“OCIP”), which is a coordinated insurance program providing coverage to various parties involved in the construction. Id. at 2.
According to TWJ, construction on the Project was repeatedly delayed and beset with defects and mismanagement. Id. On September 10, 2017, while construction was ongoing, Hurricane Irma landed in Miami. SUF ¶ 10. In late September 2017, a few weeks after Hurricane Inna struck Florida, TWJ alleged that the Project had suffered significant damages to the completed work of Tutor Perini. SDF ¶ 1. On September 27, 2017, TWJ terminated Tutor Perini. SUF ¶ 11.
B. The Policy and Duty to Defend
As part of the OCIP, TWJ procured First Mercury insurance, policy no. FMPN10-0058, effective from January 31, 2014 to January 31, 2018 (“the Policy”). SUF ¶ 5.
The Policy provides commercial general liability coverage for TWJ, Tutor Perini, and many of the subcontractors on the Project from “property damage,” caused by an “occurrence,” subject to the policy limits, satisfaction of the self-insured retention, and all of the terms, conditions, provisions, definitions, exclusions, endorsements, and limitations in the Policy. SUF ¶ 6. The Policy also confers and imposes upon First Mercury “the right and duty to defend the insured against any ‘suit' seeking” “damages because of . . . ‘property damage' to which [the Policy] applies.” Lewis Deck, Exh. D at 57
The Policy defines “property damage” as “[p]hysical injury to tangible property, including all resulting loss of use of that property,” or “[l]oss of use of tangible property that is not physically injured.” Dkt. 21, Declaration of Sharon Lewis (“Lewis Deci.”) at 71. “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. at 70. The Policy also includes “products-completed operations hazard" (“PCOH”) coverage, which, as modified by endorsement, provides coverage for: “all... ‘property damage' occurring away from premises you own or rent and arising out of ‘your product' or ‘your work' except: (1) Products that are still in your physical possession: or (2) Work that has not yet met ‘substantial completion.'” Id. at 24
However, the Contractors Self Insured Retention endorsement states that “[t]he duty to defend provision . . . will apply only in the event that the ‘Self Insured Retention' ... is exhausted by actual payment by the Named Insured.” Lewis Deci, at 26. The “Self Insured Retention” is effectively a deductible that the insured agrees to pay before the Policy's coverage applies, and, in this case, is set at $50,000 per occurrence. Id. at 26, 29.
Limiting this grant of coverage are several standard exclusions, as well as some added by various endorsements. One such condition states:
No insured will except at that insured's own cost voluntarily make a payment, assume any obligation, or incur any expense other than for first aid, without our consent.SUF¶8.
The Policy also includes the following supplementary Payment provisions:
We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend:
a. All expenses we incur....
d. All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or “suit”.SUF ¶ 9.
C. The Underlying Action and Tender of the Defense
On November 28, 2017, Tutor Perini filed suit against TWJ in the Miami-Dade County Circuit Court seeking money that it was allegedly owed under the contract. SUF ¶ 11. The case was ordered to be arbitrated before the American Arbitration Association pursuant to the terms of the contract. Id.
Tutor Perini states that on or about October 4, 2017, prior to filing the lawsuit, it forwarded to First Mercury-through West Coast casualty, the third-party administrator-a September 25, 2017 demand letter from TWJ's attorney. The demand letter stated:
Ownership has received and reviewed your letter of September 14 2017 and disagree with your belief that the damage caused by Hurricane Irma should be covered by the owner's builder's risk insurance or by the Owner. Owner believes that since the damages occurred from Contractor's negligence, the Contractor or the Contractor through its comprehensive general liability policy or other insurance should cover the losses. .. . Since damages continue to be discovered, we hereby place Contractor on notice of such claim by the Owner for all damages including damages for Work in place which occurred from Hurricane Inna.SDF ¶ 2.
As such. Tutor Perini alleges that October 4, 2017, was the first time it tendered its defense to First Mercury. Id. Alternatively, First Mercury states that on or about February 5, 2020, Tutor Perini first tendered its defense, by providing First Mercury with TWJ's counterclaims. SUF ¶ 15.
On October 22, 2018, TWJ asserted a counterclaim against Tutor Perini for fraud, conspiracy, violation of Florida's Deceptive and Unfair Trade Practices Act, breach of contract, breach of implied warranty of fitness, and action on fraudulent lien. SUF ¶ 13.
Tutor Perini notified its insurance agent at USI Insurance Services of TWJ's counterclaim on January 30, 2020. SUF ¶ 14. The insurance agent notified West Coast Causality Services of TWJ's counterclaim on February 5, 2020; and notice and the counterclaim were subsequently provided to First Mercury on the same day. SUF ¶ 15.
On February 12, 2020, shortly after Tutor Perini had tendered its defense, party administrator West Coast Casualty advised Tutor Perini that due to a conflict caused by TWJ suing Tutor Perini, First Mercury would need to provide its coverage position directly. SDF ¶ 4.
On June 16, 2020, First Mercury issued a letter denying that it had a duty to defend Tutor Perini against the claims asserted in TWJ's counterclaims due to the “property damage Caused By Your Work Exclusion.” SUF ¶ 17; SDF ¶ 6.
On July 7, 2020, Tutor Perini responded to the denial letter, identifying 14 categories of construction defect claims, and stating that “some or all of the numerous allegations of resultant property damage and/or construction defects listed above manifested and/or occurred after the substantial completion of the Panorama Tower project.” SDF ¶ 8. The categories of alleged construction defects included:
• Damages to the doors, frames and thresholds, including misalignment of the frames;
• Leaks under the pool enclosure;
• Damage to the elevator frames;
• Damage to the machine room;
• Damaged flooring;
• Damage to the sprinkler heads;
• Damage to the plumbing drains;
• Damage to the Cooling Tower;
• Damage due to misplacement of the slick line;
• Damage to the East Canopy; Damage resulting from bolts from the safety netting;
• Damage to the main trunk of the fire alarm system;
• Damage to the frequency drives in the main garage; and
• Damage to the jump lift elevators.SDF ¶ 9.
On or about July 12, 2020, Tutor Perini provided First Mercury with deposition testimony of TWJ's representative regarding construction defects. SDF ¶ 10. On August 5, 2020, Tutor Perini provided First Mercury with TWJ's supplemental list of damages and defects. SDF ¶ 11. On or about August 14, 2020, Tutor Perini told First Mercury that it “now, unequivocally, [has] information to support the proposition that the plaintiff alleges the property has experienced physical damage.” SDF ¶ 13.
On or about August 26, 2020, First Mercury sent an email to Tutor Perini stating:
“First Mercury has agreed to review deposition and summary of damages you provided, in order to determine whether any of the damages referenced may constitute covered damages.”SDF ¶ 14.
On the same date. Tutor Perini provided First Mercury with additional documents it requested. SDF ¶ 15. On or about September 2, 2020, First Mercury told Tutor Perini: ““[w]e will provide a response as soon as we are able. Please note that, moving forward, this claim is being reassigned to Carolyn Luken for further handling.” SUF ¶ 17.
On or about September 23, 2020, Tutor Perini sent an email to Carolyn Luken at First Mercury stating:
My understanding is that this case was transferred to you for further handling on or about September 1, 2020. We hereby repeat our demand for an immediate defense. The Complaint, on its face triggers First Mercury[']s [sic] duty to defend. The depositions that followed reinforced that proposition. We have now been left to defend ourselves for months, in the midst of significant discovery activity. All reasonable deadlines for First Mercury to respond have expired. When may we expect your response.SDF ¶ 18.
D. The Current Action
On October 9, 2020, Tutor Perini filed this lawsuit against First Mercury, for breach of contract and for tortious breach of the implied covenant of good faith and fair dealing. SUF ¶ 18. Tutor Perini's claims are based, in part, on its allegation that First Mercury breached its duty to defend Tutor Perini against the claims asserted in TWJ's counterclaim. SUF ¶ 19.
On July 1, 2021, this Court found that First Mercury breached the Policy when it denied Tutor Perini's tender of defense of TWJ's counterclaim. SUF ¶ 20. Based on this Court's order, on August 2, 2021, First Mercury accepted Tutor Perini's tender of defense, while reserving its rights under the Policy. SUF ¶ 21.
On August 21, 2021, Tutor Perini's litigation counsel provided invoices reflecting legal and expert fees and costs incurred in the underlying arbitration from January 30, 2020 to early August of 2021, totaling about $1,266,000. SDF ¶ 20.
On September 21, 2021, Mark Perry, acting as an agent for First Mercury, sent an email advising that First Mercury would complete its review of the invoices in approximately a week. SDF ¶ 21.
On September 29, 2021, Jeffrey Paskert, an attorney for Mills Paskert Divers, representing Tutor Perini in the underlying arbitration, sent an email to Mark Perry providing additional information, and including his firm's invoices for August and September 2021. Paskert continues to send monthly invoices for defense costs since September 2021 directly to First Mercury. SDF ¶ 22.
On November 2, 2021, First Mercury's counsel sent a letter to Tutor Perini's counsel stating that First Mercury would make a partial payment of $250,000 toward the defense costs submitted to date. SDF ¶ 23.
On December 20, 2021, First Mercury reimbursed Tutor Perini $250,000 for some of the costs Tutor Perini incurred defending itself against TJW's counterclaims in excess of the $50,000 self-insured retention in the Policy, while reserving its rights under the Policy, including its right to reimbursement. SUF ¶ 22; SDF ¶ 24.
On January 26, 2022, First Mercury reimbursed Tutor Perini an additional $697,066.12 for costs claimed to have been incurred defending against TWJ's counterclaim through August 2021. SUF ¶ 23. In First Mercury's letter stating it was issuing the payment. First Mercury noted that it had paid $947,066.12 of the $1,320,915.79 submitted by Tutor Perini between January 30, 2020, and August 2021. Id. Tutor Perini states that this payment was made more than five months after the invoices had been provided, and ignored invoices submitted since August 2021. SDF.
As the lawsuit between Tutor Perini and TWJ is ongoing, Tutor Perini continues to incur and submit invoices for legal expenses. Since January 26, 2022, First Mercury has paid an additional $62,036.16 of the $520,000 Tutor Perini claims to have incurred in its defense against TWJ's counterclaims since Tutor Perini's counsel provided First Mercury with the August 23, 2021 summary for past incurred costs. SUF ¶ 24; SDF at 2; SDF ¶ 29.
On February 7, 2022, Tutor Perini's counsel sent a letter to First Mercury's counsel stating that Tutor Perini disagreed with First Mercury's contention that it had paid all defense costs incurred in the underlying arbitration. SDF ¶ 26. Specifically, Tutor Perini disagreed that the initial tender of defense was on February 5, 2020. Id. Second, Tutor Perini disagreed with First Mercury's characterization that Tutor Perini had incurred nondefense costs in the amount of $333,000, and maintained that defense costs continue to be incurred. Id.
On April 8, 2022, Tutor Perini's counsel provided First Mercury's counsel with a spreadsheet of defense costs incurred, totaling $2,259,147.34. SDF ¶ 27. On April 15, 2022, Tutor Perini's counsel supplemented the initial email with an invoice of an additional $119,739.37 for costs incurred through end of March 2022, totaling $2,527,532.91 in fees and costs incurred by Tutor Perini in the underlying action. SDF ¶ 28; Opp. at 9.
Tutor Perini seeks reimbursement of over $497,138.38 of unpaid legal expenses it incurred as damages for First Mercury's breach of the duty to defend. SUF ¶ 25. Tutor Perini claims that the earliest date for which it seeks defense costs is October 10, 2017, whereas First Mercury claims Tutor Perini seeks defense costs starting on September 5, 2017 (up until to September 5, 2020). SDF at 3. In opposition. First Mercury states that Tutor Perini is not entitled to reimbursement of the costs incurred prior to February 5, 2020, because this was before Tutor Perini notified First Mercury of TWJ's counterclaim. SUF at 6. Further, First Mercury states that Tutor Perini never informed it of any settlement demand by TWJ or any opportunity to resolve TWJ's counterclaim. SUF ¶ 26. Plaintiff disputes this claim. SDF at 3.
III. LEGAL STANDARD
Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party bears the initial burden of identifying relevant portions of the record that demonstrate the absence of a fact or facts necessary for one or more essential elements of each claim upon which the moving party seeks judgment. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the moving party meets its initial burden, the opposing party must then set out specific facts showing a genuine issue for trial in order to defeat the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); see also Fed.R.Civ.P. 56(c), (e). The nonmoving party must not simply rely on the pleadings and must do more than make “conclusory allegations [in] an affidavit.” Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990); see also Celotex. 477 U.S. at 324. Summary judgment must be granted for the moving party if the nonmoving party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex. 477 U.S. at 322; see also Abromson v. Am. Pac. Corp.. 114 F.3d 898, 902 (9th Cir. 1997).
In light of the evidence presented by the nonmoving party, along with any undisputed facts, the Court must decide whether the moving party is entitled to judgment as a matter of law. See T.W. Elec. Serv., Inc, v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 631 & n.3 (9th Cir. 1987). When deciding a motion for summary judgment, “the inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted); Valley Nat'l Bank of Ariz. v. A.E. Rouse & Co., 121 F.3d 1332, 1335 (9th Cir. 1997). Summary judgment for the moving party is proper when a rational trier of fact would not be able to find for the nonmoving party on the claims at issue. See Matsushita. 475 U.S. at 587.
IV. DISCUSSION
First Mercury argues that it is entitled to partial summary judgment on (1) Tutor Perini's claim to recover pre-tender defense costs, and (2) Tutor Perini's second count for tortious breach of the implied covenant of good faith and fair dealing. MSJ at 2.
First Mercury also argues that the Court should apply Florida law when ruling on these two issues. MSJ at 4. As an initial matter, the Court has already determined that Florida law applies to the breach of contract claim. See Order re 7/1/21 MSJs. First Mercury contends that Florida law also applies to Tutor Perini's claim for breach of the implied covenant of good faith and fair dealing. MSJ at 4. Tutor Perini notes that, for the purposes of the opposition. Tutor Perini accepts the premise that Florida law applies in analyzing the merits of the motion. Opp. at 11. As the Court noted in its previous order, the Policy covers only events that occur in Florida, so the application of Florida law is appropriate. See Frontier Oil Corp, v. RLI Ins. CO., 153 Cal. App 4th 1436, 1450 (2007) (California's choice-of-law rule governing contract interpretation “was intended to give effect to the parties' presumed intention that the law of the place a contract is to be performed should govern its interpretation”). This analysis does not change for the breach of the implied covenant claim.
Further, First Mercury argues that if the Court does not grant summary judgment in favor of First Mercury as to the tortious breach of the implied covenant claim, defendant is entitled to partial summary judgment as to Tutor Perini's request for attorneys' fees and punitive damages. Id.
A. Recovery of Pre-Tender Defense Costs
The parties dispute whether Tutor Perini can recover costs incurred before February 5, 2020. First Mercury argues that it is not obligated to reimburse Tutor Perini for costs before February 5, 2020-the date in which it alleges TWJ's counterclaim was tendered to it-because that is when First Mercury was first put on notice of TWJ's counterclaim. MS J at 9. Based on the language of the Policy, First Mercury contends that Tutor Perini is not entitled to the $497,138.38 in legal expenses that Tutor Perini seeks reimbursement of, incurred between September 5, 2017, and February 2020. MSJ at 9. First Mercury emphasizes the “Voluntary Payments” and “Supplementary Payments” clauses of the Policy, which state:
No insured will except at that insured's own cost voluntarily make a payment, assume any obligation, or incur any expense other than for first aid, without our consent, (emphasis added).
1. We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend:
a. All expenses we incur....
d. All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or “suit.” (emphasis added).“Suit” includes:
a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent;
or b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
The Policy states that “we” and “our” “refer to the company providing this insurance.” SUF ¶ 7. '
Based on the language of these provisions. First Mercury argues that the Policy precludes reimbursement of defense costs incurred by an insured prior to tendering its defense to its insurer, making clear that “the insured is not entitled to be reimbursed for any expense it elects to incur before notifying its insurer of a claim or ‘suit,' or seeking a defense.” MSJ at 10.
In opposition, Tutor Perini states that First Mercury is not entitled to summary judgment for defense costs limiting its liability to only costs incurred after February 5, 2020. Opp. at 1. Instead, Tutor Perini contends that the facts support a finding that First Mercury, in refusing to defend its insured in 2020, waived any failure of the insured to comply with these provisions. Opp. at 2. Because this Court has already awarded partial summary7 judgment in favor of Tutor Perini, finding that First Mercury breached the contract by failing to defend Tutor Perini after it had notice of its counterclaim. Tutor Perini argues that First Mercury is liable for all reasonable costs and fees the insured incurred in its defense prior to February 5, 2020. Opp. at 11; Order re 7/1/21 MSJ. See also MCO Envtl., Inc, v. Agric. Excess & Surplus Ins. Co. 689 So.2d 1114, 1116 (Fla Dist. Ct. App. 1997).
Moreover, because no delay by Tutor Perini in giving notice or obtaining consent prejudiced First Mercury, such that it would have refused to defend Tutor Perini regardless. Tutor Perini contends that First Mercury has “waived any right to rely on the notice provision or the voluntary payment” clause. Opp. at 11. See Bellsouth Telecomms v. Church & Tower (Fla. Dist. Ct. App. 2006) 930 So.2d 668, 671 (“[T]he failure of the carrier to offer a proper defense upon receipt of notice waives any defect in delaying notice.”). As such, Tutor Perini argues, the facts support a finding of waiver by First Mercury of the voluntary payment and notice provisions, and the scope of the liability costs remain a question of fact. Opp. At 12.
Further, Tutor Perini points to the fact that it notified First Mercury on October 4, 2017, that TWJ was claiming that Tutor Perini's negligence caused damages to the completed work. Opp. at 12. Tutor Perini argues that this letter put First Mercury on notice and triggered coverage of the policy. Opp. at 12; SDF ¶ 2.
In reply. First Mercury notes that the letter cannot constitute tender of the defense because not only did the letter not mention the counterclaim-which did not exist yet- but also, a letter is not a “suit” against which Tutor Perini would require a defense. Altman Contractors, Inc, v. Crum & Forster Specialty Ins. Co. (Fla. 2017) 232 So.3d 273, 277 (a suit requires a civil proceeding). Reply at 3. Further, First Mercury notes that Tutor Perini does not dispute that it first gave notice of the counterclaim on February 5, 2020, and therefore no reimbursement is permitted prior to the tendering of the defense under the “voluntary payments” provision of the policy. Reply at 4.
As an initial matter, the Court agrees with First Mercury that the letter Tutor Perini sent on October 4, 2017, prior to the filing of the counterclaim, cannot be the tender of the defense because, as First Mercury suggests, a letter does not consist of a suit that would adequately put First Mercury on notice. See Altman Constractors, Inc., 232 So.3d at 277.
Additionally, First Mercury argues that Tutor Perini has not demonstrated that First Mercury has waived its rights under the “voluntary payments” provision. Reply at 4. First Mercury cites to EmbroidMe.com.Inc v. Travelers Property Cas. Co. of America, 845 F.3d 1099, 1106-07 (11th Cir. 2017) to support its proposition. MSJ at 10. In EmbroidMe, the Court found that the insurer was “not obligated to pay any expenses that its insured incurred in litigating a covered claim unless the insured had first obtained [the insurers'] consent to generate those expenses.” Id. Because the insured did not obtain the insurers' permission or inform the insurer of the claim, the Court held that the insured was not “entitled to reimbursement of these past legal fees.” Id.
EmbroidMe is distinguishable. In EmbroidMe. the insureds did not argue that the insurer waived its right to rely on the notice provision. Here, Tutor Perini presents facts showing that First Mercury's failure to defend may have waived its right to rely on the notice provision of the Policy.
Tutor Perini's citation to Bellsouth Telecommunications is on point. 930 So.2d at 668. In Bellsouth, the insurer denied coverage to the insured on the basis that the insured “violated the notice provision of the insurance contract by not timely notifying” the insurer “of the lawsuit.” Id. at 671. The Florida appellate court concluded that “an insured's violation of a notice requirement does not relieve the insurer of its contractual obligation to defend when no prejudice [against the insurer] is shown.” Id.
Here, the Court finds that there remains, at a minimum, a question of fact as to whether First Mercury was prejudiced by Tutor Perini's delay in notifying it of the counterclaim. Because Tutor Perini has put forth evidence that First Mercury was not prejudiced by the delay-because First Mercury initially denied coverage-there is an issue of fact as to whether First Mercury has waived its rights under the notice provision of the contract. As such, the Court cannot say as a matter of law what the scope of First Mercury's liability is, in terms of defense costs. See Aguero v. First Am. Ins. Co., 927 So.2d 894 (Fla. 3d DCA 2005) (denying summary judgment because a genuine issue of material fact remained as to whether the insurer was prejudiced by the insureds' delay in notification); Bellsouth, 930 So.2d at 671 (“[T]he failure of the carrier to offer a proper defense upon receipt of notice waives any defect in delaying notice.”).
Accordingly, the Court finds that there remains an issue of fact as to whether Tutor Perini can recover costs prior to tendering TWP's counterclaim to First Mercury.
B. Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing
Next, First Mercury argues that it is not liable for Tutor Perini's claim of tortious breach of the implied covenant of good faith and fair dealing. To start. First Mercury argues that Florida law does not recognize a claim for tortious breach of the implied covenant. MSJ at I; 10. While First Mercury notes that Florida law recognizes a contract-based claim for breach of the implied covenant, it argues that if Tutor Perini is to proceed with the contract-based claim, it will nonetheless fail. MSJ at 10. See Resnick v. AvMed, Inc., 693 F.3d 1317, 1325-1326 (11th Cir. 2012), citing Hospital Corp, of America v. Florida Medical Center, Inc.. 710 So.2d 573, 575 (Fla. 4th D.C.A. 1998).
First Mercury highlights the difference between California law and Florida law in terms of the covenant of good faith and fair dealing, noting that the states differ with respect to whether a claim exists for tortious breach of the implied covenant. MSJ at 4. In California, the covenant of good faith and fair dealing is implied into every insurance contract, Vu v. Prudential Prop. & Cas. Co., 26 Cal.4th 1142, 1150-51 (2001), whereas in Florida there is no action in tort for breach of the implied covenant of good faith and fair dealing. MSJ at 5.
Under Florida Law, a claim for breach of the implied covenant ordinarily arises (1) when the contract is silent or ambiguous as to the permissibility of the conduct, or (2) the conduct is undertaken pursuant to a grant of discretion and the scope of that discretion has not been defined. Degutis v. Financial Freedom, LLC 978 F.Supp.2d 1243, 1263 (M.D. Fla. 2013). As such, the implied covenant of good faith and fair dealing is a gapfilling tool of contract law that applies when the dispute is not resolved by the terms of the contract. IT; MSJ at 5, 10. When the express terms of the contract determine the permissibility of the conduct, no gap-filler is needed and the implied covenant does not apply. See Arnica Mut. Ins. Co. v, Morowitz 613 F.Supp.2d 1358, 1362 (S.D. Fla. 2009). Thus, a claim for breach of the implied covenant must be based on conduct that is different from that supporting the insured's accompanying claim for breach of contract. Shibata v, Lim, 133 F.Supp.2d 1311, 1319 (M.D. Fla. 2000).
Accordingly, First Mercury contends that, because the implied covenant applies only when the propriety of the conduct is not covered by the contract terms, and here, the Policy governs the parties' rights and obligations, the Court should dismiss Tutor Perini's claim for a breach of the implied covenant under Florida law as redundant. Martorella v. Deutsche Bank National Trust Co., 931 F.Supp.2d 1218, 1225 (S.D. Fla. 2013). First Mercury notes that Tutor Perini's breach of the implied covenant claim is based on allegations that First Mercury denied Tutor Perini's tender of defense, and therefore this claim relies on the same facts as Tutor Perini's breach of contract claim. MSJ at 12. The only distinct conduct by First Mercury which Tutor Perini contends breached the implied covenant, is First Mercury's alleged failure to settle, which. First Mercury argues, is beyond the scope of the complaint. IT at 12.
In opposition, Tutor Perini contests First Mercury's argument that Florida law provides no claim for relief based on the facts alleged in its second claim. Opp. At 13.
Specifically, Tutor Perini notes that Florida courts have for decades recognized an insured's extracontractual claim in tort for “bad-faith” performance of the insurers' contractual duties, relating to the handling of claims against the insured by third parties. See State Farm Mut. Auto. Ins. Co. v. Laforet (Fla. 1995) 658 So.2d 55, 58 (“In Florida, third-party bad faith actions were recognized as early as 1938.”) (internal citations omitted). Accord Allstate Ins. Co. v. Douville (Fla Dist. Ct. App. 1987) 5010 So.2d 1200, 1201 (explaining that in third-party cases, bad-faith claims are recognized at common law “because of the fiduciary relationship that exists between the insured and the insurer.”). As such. Tutor Perini argues that the facts alleged sufficiently state a claim for “bad faith” rooted in tort. Opp. at 8.
Florida recognizes third-party bad faith claims in common law, whereas Florida does not recognize a common law first-party bad faith claim by insureds against insurers for policy benefits. See Macola v. Gov't Emps. Ins. Co. 953 So.2d 451, 457 (Fla. 2006). The bad faith claim pleaded in this case is a third-party claim because the facts involve the insurer's alleged mishandling of a third party's claims against the insured. See Macola, 953 So.2d at 457 (“A third-party bad faith cause of action arises when the insurer fails to act in good faith in handling a claim brought by a third party against an insured, whereas a first-party bad faith cause of action arises when an insurer fails to act in good faith in the processing of the insured's own first-party claim.”). There was no cause of action for first-party bad faith claims in Florida until the enactment of Fla. Stat. § 625.155; however, even after the enactment of the statute, the common law cause of action for third-party bad faith claims continues to be recognized in Florida. See Id. (analyzing Fla Stat. § 625.155 and explaining that third-party claims may now proceed either under the statute or common law).
In reply, First Mercury argues that Tutor Perini's attempt to pursue an entirely different claim of “bad faith” in its opposition is not permitted in this manner at this date, as the deadline for leave to amend was October 1, 2021. Reply at 4. Moreover, even if the Court permits First Mercury to pursue a bad faith claim. First Mercury contends that Tutor Perini cannot bring a bad faith claim until there is a settlement or judgment in the underlying action. Id. First Mercury explains that an insured's claim for bad faith under common law does not accrue until there has been a determination of liability and damages in the underlying matter. Id. (citing Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So.2d 1289, 1291 (Fla. 1991)). As such, First Mercury argues that Tutor Perini's assertion that coimnon law bad faith claims under Florida law can be based solely on a refusal to defend is incorrect, and because there has been no settlement or judgment in the underlying matter, Tutor Perini cannot maintain a common law bad faith claim against First Mercury at this time. Reply at 5.
At common law, bad faith claims arise when the insurer fails to perform obligations imposed by the insurance contract “fairly and honestly toward its insured and with due regard for their interests.” See Laforet, 658 So.2d at 62. To start, the Court notes that Florida courts permit claims based in tort for bad faith in the third-party insurance context. See, e.g.. Am. Fid. Fire Ins. Co. v. Johnson 177 So.2d 679, 683 (Fla. Dist. Ct. App. 1965) (holding that an insurer's failure to examine and investigate the facts underlying a claim against its insured and its refusal to defend, in part, gave rise to a claim for bad faith); Robinson v. State Farm Fire & Cas. Co. (Fla Dist. Ct. App. 1991) 583 So.2d 1063, 1068-69 (noting that there remained a question of fact as to whether an insurer could be held liable for bad faith by failing to properly investigate a coverage issue).
Further, the Court finds that First Mercury's contention that Tutor Perini does not title its second claim for relief as “bad faith” is not supported by the facts. See Compl. at 7 (“Second Count For Tortious Breach of the Implied Covenant of Good Faith and Fair Dealing (Bad Faith) Against” First Mercury). Accordingly, the issue before the Court is whether Tutor Perini has alleged facts that would give rise to tort liability for bad faith under Florida law, regardless of the title of the claim for relief in its complaint.
Florida courts generally apply a “totality-of-the circumstances standard” to third-party bad faith actions. Laforet, 658 So.2d at 62. The Supreme Court of Florida has listed at least five factors that should be taken into account when determining whether an insurer acted in bad faith: (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. Id. (citing to Robinson, 583 So.2d at 1068).
Here, the Court finds that Tutor Perini has raised questions of fact as to First Mercury's conduct related to these factors. Tutor Perini notes that the basis of its claim revolves around First Mercury's poor exercise of discretion during the handling of the claim against Tutor Perini, and points to facts that support its contention including: “failing to meaningfully investigate the “occurrence” after [Tutor Perini] sent it a demand letter from TWJ in 2017; repeatedly delaying responses to information from [Tutor Perini] about TWJ's claims; making false assurances to the effect that responses regarding coverage would be forthcoming; misrepresenting the terms of the policy; and failing to use reasonable efforts to settle the case in a prompt manner.” Opp. at 14-15.
Based on Tutor Perini's allegations, which raise questions of fact particularly as to whether First Mercury “promptly” defended the case with a reservation of rights to limit prejudice to the insured, the Court cannot say as a matter of law that First Mercury did not act in “bad faith.” See, e.g. Laforet, 658 So.2d at 63; Dellavecchia v. GEICO Gen. Ins. Co.. No. 8:09-CV-2175-T-27TGW, 2011 WL 53029, at *2 (M.D. Fla. Jan. 7, 2011) (finding that “there are disputed facts concerning whether [the insurer] used appropriate efforts or measures to resolve the coverage dispute promptly or in such a way as to limit any potential prejudice to [the insured]” and “whether [the insurer] was diligent and thorough in investigating the facts specifically pertinent to coverage”); Vest v. Travelers Ins. Co.. 753 So.2d 1270, 1275 (Fla. 2000) (“Good-faith or bad-faith decisions depend upon various attendant circumstances and usually are issues of fact to be determined by a fact-finder.”).
However, the Court notes that Florida caselaw is unclear as to whether the underlying litigation must conclude before a claim for bad faith accrues. First Mercury cites to Blanchard, 575 So.2d at 1291, for its argument that Tutor Perini's bad faith claim cannot be based solely on a failure to defend, and must be based on a settlement or judgment in excess of the policy. This citation is not dispositive here, because in Blanchard, the court analyzed statutory first-party claims for bad faith, not common law third-party bad faith claims. Nonetheless, all of the cases cited to by Tutor Perini about third-party bad faith claims appear to be brought after the termination of the underlying litigation once the insured had damages based on the insurer's failure to defend.
During the July 11, 2022 hearing, counsel for Tutor Perini conceded that he is not aware of any Florida case law in which a court found bad faith on the part of an insurer solely based on a failure to defend, without termination of the underlying litigation. Nonetheless, counsel for Tutor Perini argued that Florida case law implies that a party can bring a claim for bad faith prior to the conclusion of the underlying action solely based on a failure to defend. Tutor Perini cited to Allstate Indemnity Company v. Ruiz. 899 So.2d 1121, 1123 (Fla. 2005) for this proposition during oral argument. Ruiz is not dispositive here, because the bad faith claim in Ruiz accrued after “the resolution of the underlying disputed matter.” IT at 1130. In the context of discovery disputes, however, the Ruiz Court notes instances in which “the coverage and bad faith actions are initiated simultaneously,” suggesting the possibility that bad faith claims may be brought prior to a settlement or judgment in excess of the insurance policy. IT
While the Florida Supreme Court has stated that “in handling the defense of claims against its insured,” the insurer has a “good faith duty” to “advise the insured,” “to warn of the possibility of excess judgment,” and “to investigate the facts,” the Court is not aware of any Florida caselaw in which a bad faith claim was brought before the underlying litigation concluded. Harvey v. GEICO General Insurance Co., 259 So.3d 1 (Fla. 2018) (citing Boston Old Colony v. Gutierrez, 386 So.2d 783, 785 (Fla. 1980)).
Therefore, because Florida case law is unclear as to this point, the Court reserves judgment on First Mercury's motion for summary judgment as to Tutor Perini's bad faith claim until the conclusion of the underlying dispute.
C. Attorneys' Fees
Finally, First Mercury argues that it is not liable for Tutor Perini's attorneys' fees.First Mercury notes that Florida follows the common law rule that each party is responsible for its own attorneys' fees, unless a contract or statue specifically authorizes their recovery. Price v. Tyler. 890 So.2d 246, 250 (Fla. 2004). Here, First Mercury argues that there is no provision in the Policy that grants Tutor Perini a right to recover attorneys' fees. MSJ at 13. Further, while there is a Florida statute authorizing attorneys' fees, First Mercury argues this statute does not apply in this instance. Id.
First Mercury notes that the issue of entitlement to attorneys' fees is generally considered substantive and, therefore, is governed by state law. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78 (1938).
Florida Statute § 627.428, states, in relevant part:
Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured ... the trial court ... shall adjudge or decree against the insurer and in favor of the insured ... a reasonable sum as fees or compensation for the insured's ... attorney prosecuting the suit in which the recovery is had.Id. (emphasis added)
First Mercury argues that the statute authorizes only federal and state courts within the State of Florida to issue an award of attorneys' fees, and it has no force outside of Florida, either in state or federal court. MSJ at 13. Fidelity-Phenix Fire Ins. Co. of New York v. Cortez Cigar Co. 92 F.2d 882, 885 (5th Cir. 1937) (“This statute is . . . limited to ] courts of Florida. It will of course be applied by Federal courts in Florida, but it has no force outside of Florida in either State or Federal courts.”). Because this lawsuit is pending in California, First Mercury contends that this statue has no effect and Tutor Perini is not entitled to attorneys' fees. MSJ at 13.
In opposition. Tutor Perini argues that it is entitled to fees under Fla. Stat. § 627.428, and that courts outside of Florida can apply the statute in certain circumstances. Opp. at 16. Tutor Perini cites to decisions by courts sitting outside of Florida which have authorized the recovery of attorneys' fees under the Florida statute. See, e.g.. Carr v. Am. Universal Ins. Co. 341 F.2d 220, 224 (6th Cir. 1965); Hanover Ins. Co. v, Anova Food, LLC. No. CV 14-00281 HG-RLP (D. Haw. Jan. 24, 2018) 2018 WL 538745, at *2; Liberty Nat. Life Ins. Co. v. Beasley Bv & Through Beasley 466 So.2d 935, 937(Ala. 1985).
In its reply. First Mercury attempts to distinguish the cases Tutor Perini cites to, arguing that courts outside of Florida do not have any basis to award attorneys' fees under the statute. Reply at 6-7. First Mercury notes that Carr. 341 F.2d at 224, is distinguishable because the case was initially filed in Florida state court by the insured, was remove to federal court, and then transferred to federal court in Tennessee to be consolidated with other cases, and that Liberty7 Nat. Life. Ins. Co., 466 So.2d at 937, is distinguishable because “the case was tried under Florida law by consent of the parties.” Reply at 6. First Mercury argues that the cases Tutor Perini cites to, do not empower this Court to apply the Florida statute to award attorneys' fees because Tutor Perini chose to file this case in California. Id.
Tutor Perini's citation to Liberty Nat. Life Ins. Co., 466 So.2d at 937, is on point. In Liberty Nat. Life. Ins. Co., the Alabama Supreme Court found that because the parties consented to the fact that Florida law applied, the Florida statute for attorneys' fees applied. Noting that “the case was tried” under Florida law “by consent of the parties,” the court “reject[ed] [the] argument that the statutory use of the term ‘courts of this state'” in Fla. Stat. § 627.428 “precludefd] an Alabama court from awarding attorney's fees.” Id. at 937
Similarly here, in its previous order granting partial summary judgment, dkt.37, the Court held that “the Policy covers only events that could occur in Florida, so the application of Florida law is appropriate.” Frontier Oil Corp, v. RLI Ins. Co.. 153 Cal.App.4th 1436. 1450 (2007) (California's choice-of-law rule governing contract interpretation “was intended to give effect to the parties' presumed intention that the law of the place a contract is to be performed should govern its interpretation.”). Moreover, First Mercury's argument that Florida law should not apply when awarding attorneys' fees because the parties did not “consent” to trying the case under Florida law is inconsistent with its position throughout the entirety of the lawsuit that Florida law applies.
Accordingly, the Court denies First Mercury's motion for summary judgment as to its liability for Tutor Perini's attorneys' fees. Because the case law is clear that attorneys' fees are permitted under Florida Law, and Florida law governs here, the Court grants summary judgment in favor of Tutor Perini on this issue under Rule 56(f). Fed.R.Civ.P. 56(f); see also KST Data, Inc, v. DXC Technology Company, 980 F.3d 709, 713-14 (9th Cir. 2020)(“Under Federal Rule of Civil Procedure 56(f), a district court may sua sponte grant summary judgment if the nomnovant has notice and a reasonable time to respond.”) (internal citations omitted).
D. Punitive Damages
Finally, First Mercury argues that it is not liable to Tutor Perini for punitive damages because there is no basis under Florida law for an award of punitive damages here. MSJ at 13. Because breach of implied covenant of good faith and fair dealing is based in contract law in Florida, First Mercury argues that punitive damages are not available to a party that prevails on such a claim as a matter of law. MSJ at 13-14.
In opposition. Tutor Perini argues that First Mercury misstates the law to argue that punitive damages are not recoverable. Opp. at 15. Tutor Perini notes that Florida courts allow recovery of punitive damages on facts which support a finding of “some intentional wrong, insult, abuse or gross negligence” in cases where, as here “the acts constituting a breach of contract also amount to a cause of action in tort[.]” Griffith v. Shamrock Vill.. Inc., 94 So.2d 854, 858 (Fla. 1957). Tutor Perini notes that Courts have specifically awarded punitive damages in lawsuits arising from the insurer's mishandling of third-party claims against the insured. See, e.g.. Campbell v. Govt Emps. Ins. Co. 306 So.2d 525,531-32 (Fla. 1974).
The Court finds that First Mercury's motion for summary judgment as to punitive damages is premature. If the Court ultimately finds no bad faith claim, the Court will not award punitive damages. However, if Tutor Perini is permitted to recover on a claim for bad faith, punitive damages are recoverable at common law in Florida. See, e.g, Campbell. 306 So.2d at 527 (affirming award of punitive damages when insurer acted in bad faith by failing to settle the insureds' case within policy limits).
Because the Court is reserving judgment as to whether Tutor Perini's bad faith claim has accrued, and an award of punitive damages here is dependent on a claim in tort for bad faith, the Court reserves judgment on First Mercury's motion for summary judgment as to punitive damages.
V. CONCLUSION
In accordance with the foregoing, the Court DENIES First Mercury's motion for summary judgment WITHOUT PREJUDICE as to whether Tutor Perini can recover costs prior to the tendering of the counterclaim.
The Court GRANTS summary judgment in favor of Tutor Perini on the issue of attorneys' fees.
The Court RESERVES JUDGMENT on whether Tutor Perini's bad faith claim has accrued, and therefore on whether Tutor Perini is entitled to punitive damages.
IT IS SO ORDERED.