A dilemma often facing insurers is whether it must retain separate counsel when it has a duty to defend more than one insured under a single general liability policy. In University of Miami v. Great American Assurance Co., 2013 WL 616156 (Fla. Dist. Ct. App. 3d), an intermediate appeals court in Florida held that a conflict existed in the legal defenses of the University of Miami (“UM”) and MagiCamp, a camp operator, under Great American’s general liability policy issued to MagiCamp, where UM was named as an additional insured. Consequently, Great American was required to appoint separate, independent counsel for the two defendants/insureds. A strong dissent, however, raised concerns regarding the implications of the decision.
MagiCamp ran a summer swim camp for kids using the pool on the campus of UM. As a condition for use of the pool, UM was named as an additional insured on the policy issued by Great American. After a child was injured at the pool, the child’s parents sued both UM and MagiCamp. Great American retained the services of one law firm to represent both UM and MagiCamp. UM, however, advised Great American that a conflict of interest existed with one firm representing both defendants, and requested independent counsel. Great American denied the request and UM retained its own counsel to protect its interests.
After the underlying case was settled, UM filed a declaratory judgment action against Great American seeking recovery for the attorney’s fees it incurred for the independent counsel retained in the underlying litigation. The appellate court reversed summary judgment in favor of Great American.
The appellate court determined that “there exists a conflict in the co-defendants’ legal defenses, based on the allegation of the complaint, that each defendant is directly liable, and the allegations in the answer and affirmative defenses set forth by MagiCamp and UM.”
Further, the court found that the conflicting legal positions of MagiCamp and UM existed separate and apart from issues of coverage or excess policy limits. The court reasoned, MagiCamp and UM would have had to imply blame on the other entity to the detriment of the other entity in its defense of the underlying action. Accordingly, the court found that “this legal dilemma clearly created a conflict of interest between the legal defenses of the common insureds sufficient to qualify for indemnification for attorney’s fees and costs for independent counsel.”
The opinion also included a lengthy and strong dissent raising concerns of expanded coverage obligations, leading to additional litigation. “The court today opens a new frontier in insurance litigation of benefit only to the legal profession” and further warned that “[t]he future of dual insured claims should not be hard to see.” The dissent first argued that MagiCamp had no defense to the underlying lawsuit. Moreover, it was contractually bound to indemnify and hold harmless UM. Next, it argued that UM’s counsel admitted at oral argument that neither entity sought to prove liability of the other during the course of the underlying lawsuit such that there was no real conflict. Third, the dissent argued that “a liability insurer’s contractual right to control the defense and indemnity features of its contract is indispensable to the protection of its financial interest in the litigation and thus the product itself.” Finally, it was argued that the Florida Bar rules and the threat of malpractice would prevent an attorney from representing two entities where there was an inherent conflict of interest amongst them.
L. Elizabeth “Beth” Albright, Attorney
Atlanta Office, Insurance Coverage Practice Group