In what appears to be a matter of first impression in Florida, a federal Magistrate Judge in the Southern District of Florida denied the comparative bad faith and comparative negligence defenses in an excess insurer’s bad faith claim against a primary insurer.  In Royal Indemnity Co. v. Liberty Mutual Insurance Co., No. 07-80172 (S.D. Fla. Feb. 28, 2008), the Magistrate Judge granted Royal Indemnity Co.’s motion for partial summary judgment, dismissing Liberty Mutual Insurance Co.’s comparative bad faith and comparative negligence defenses.  Royal sued Liberty for acting in bad faith in Liberty’s handling of an underlying claim arising from an industrial accident in which a turbine failed at a Florida power plant.  Liberty insured an electrical contractor, the named insured, under a $1 million primary policy, over which Royal provided a $25 million excess policy.  The insured was hired to perform electrical installation on the power plant’s turbines.  Liberty also insured an engineering and construction service contractor for the turbine generators, as an additional insured.

The power plant sued both contractors.  The dispute between the insurers arose from the insured status of the engineering and construction contractor.  In defending and settling the suit, Liberty considered the engineering contractor an additional insured under the primary and excess policy.  However, Royal disputed that the engineering and construction service contractor was insured under its policy.  This dispute prevented Liberty from settling the matter for $4 million.  Ultimately the power plant obtained a $9 million dollar verdict against the named insured.

In the bad faith case between the insurers, the Court stated that no Florida court had permitted comparative bad faith and comparative negligence defenses like Liberty’s, courts in other jurisdictions had rejected them.  The Court noted that the insured had assigned its rights to Royal, such that Royal stood in the shoes of the insured.  The decision stated that the assignment eliminated any equitable defenses that might be available in a subrogation case.

Click here to read the decision.