37 Fla. L. Weekly D1678b

NOT FINAL VERSION OF OPINION
Subsequent Changes at 37 Fla. L. Weekly D2772a

Insurance — Florida Insurance Guaranty Association — Covered claims — Surplus lines policy — Where policy was issued by surplus lines carrier which subsequently merged with a Florida licensed company, but the surplus lines policy was not renewed after the merger, FIGA had no duty to defend or indemnify the insured in a personal injury action — Surplus lines policies are expressly outside the scope of FIGA provisions, and a claim made upon such a policy cannot be covered under FIGA — Surplus lines carrier’s merger with Florida licensed company and its corresponding change in status from an unauthorized insurer to a member insurer did not change the nature of the policy — The nature of the policy rather than the status of the insurer is determinative of FIGA’s duty to defend and indemnify

FLORIDA INSURANCE GUARANTY ASSOCIATION, INC., Appellant, vs. WILLIAM KARELAS AND CHRISTINE KARELAS, Appellees. 3rd District. Case No. 3D10-3015. L.T. Case No. 04-23999. Opinion filed July 18, 2012. An Appeal from the Circuit Court for Miami-Dade County, Pedro P. Echarte, Jr., Judge. Counsel: Conroy, Simberg, Ganon, Krevans, Abel, Lurvey, Morrow & Schefer, and Hinda Klein, for appellant. Marlene S. Reiss; and Kenneth B. Schurr, for appellees.

(Before ROTHENBERG and EMAS, JJ., and SCHWARTZ, Senior Judge.)

(EMAS, J.) The issue presented is whether the status of the insurer, or the nature of the policy, is determinative of FIGA’s duty to defend and indemnify in this case. Because we conclude that the nature of the policy is determinative, we reverse the trial court’s final summary judgment entered in favor of William and Christine Karelas, and remand for entry of final summary judgment in favor of FIGA.

BACKGROUND

On September 1, 2000, the Karelases obtained a property insurance policy for their apartment complex from Green Tree Insurance Company (“Green Tree”), a surplus lines carrier.¹ The face of the Green Tree policy issued to the Karelases contained the following language:

This insurance is issued pursuant to the Florida Surplus Lines Law. Persons insured by Surplus Lines Carriers do not have the protection of the Florida Insurance Guaranty Act, to the exten[t] of any right of recovery for the obligation of an insolvent unlicensed insurer.

In December of 2000, Green Tree merged with Aries Insurance Company (“Aries”), a Florida licensed corporation. On July 30, 2001, Carmen Castillo slipped and fell at the Karelases’ apartment complex and later filed a personal injury action against them. Aries defended the Karelases in that action, and when Aries was later declared insolvent, FIGA assumed the Karelases’ defense for almost a year. During the litigation, FIGA discovered that the policy issued to the Karelases was a surplus lines policy which had not been renewed by Aries after the Green Tree/Aries merger.² Because the FIGA statutory provisions expressly exclude surplus lines policies, FIGA determined that the instant claim was not a “covered claim,” and withdrew from the defense of the case, concluding it had no statutory duty to defend the Karelases.

Thereafter, the Karelases brought an action against FIGA for declaratory relief, breach of contract and estoppel, asserting FIGA had a duty to defend and indemnify them in the underlying personal injury action.³ FIGA answered and, by way of affirmative defense, asserted there was no coverage because the subject policy was a surplus lines policy, a type of policy which is specifically excluded from the provisions of the FIGA statute. Both parties moved for summary judgment. After a hearing, the trial court granted the Karelases’ motion for summary judgment, finding that, under section 631.54, Florida Statutes, Aries was an “insolvent insurer”; a “member insurer” at the time of the accident giving rise to the claim against the Karelases; therefore, the court concluded, FIGA owed the Karelases a duty to defend and indemnify.

ANALYSIS

The Florida Legislature created FIGA, a public, nonprofit corporation, “to provide a mechanism for payment of covered claims under certain classes of insurance policies issued by insurers which have become insolvent.” Fla. Ins. Guar. Ass’n v. Devon Neighborhood Ass’n, 67 So. 3d 187, 189 (Fla. 2011). Under section 631.51, Florida Statutes (2001), the Florida Insurance Guaranty Association (“FIGA”) Act serves to:

(1) Provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer;

(2) Assist in the detection and prevention of insurer insolvencies;

(3) Create a nonprofit corporation to administer and supervise the operation of such association; and

(4) Assess the cost of such protection among insurers.

Significantly, “FIGA is not responsible for claims against an insurer that do not fall within FIGA’s statutory obligations.” Devon Neighborhood Ass’n, 67 So. 3d at 190 (emphasis added) (quoting Fla. Ins. Guar. Ass’n v. Petty, 44 So. 3d 1191, 1194 (Fla. 2d DCA 2010)). In other words, it is the nature of the claim (and thus the nature of the underlying policy), rather than the status of the insurer, that is determinative of the applicability of FIGA’s provisions.

Section 631.52, Florida Statutes (2001) provides:

Scope. — This part shall apply to all kinds of direct insurance, except:

. . .

(13) Surplus lines;⁴

In addition, the FIGA statute defines the following relevant terms:

(3) “Covered claim” means an unpaid claim, including one of unearned premiums, which arises out of, and is within the coverage, and not in excess of, the applicable limits of an insurance policy to which this part applies, issued by an insurer, if such insurer becomes an insolvent insurer after October 1, 1970, and the claimant or insured is a resident of this state at the time of the insured event or the property from which the claim arises is permanently located in this state.

(6) “Insolvent insurer” means a member insurer authorized to transact insurance in this state, either at the time the policy was issued or when the insured event occurred, and against which an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction if such order has become final by the exhaustion of appellate review.

(7) “Member insurer” means any person who writes any kind of insurance to which this part applies under s. 631.52, including the exchange of reciprocal or interinsurance contracts, and is licensed to transact insurance in this state.

§ 631.54, Fla. Stat. (2001) (emphasis added).

There is no dispute that, in September of 2000, when Green Tree wrote the Karelases’ policy, Green Tree was an unauthorized insurer and the policy was a surplus lines policy (and therefore excluded from the provisions of FIGA). Surplus lines policies are expressly outside the scope of the FIGA provisions; therefore a claim made upon such a policy cannot be covered under FIGA because a “covered claim” is one “which arises out of . . . the applicable limits of an insurance policy to which this part applies.” § 631.54(3), Fla. Stat. (2001). Green Tree’s merger with Aries and its corresponding change in status — from an unauthorized insurer to a “member insurer” — did not, contrary to the conclusion of the dissent, change the nature of the policy. At the time of its issuance, the policy of insurance was specifically excluded from FIGA and the Karelases were placed on notice of this on the face of their policy.⁵ The Green Tree policy was never reissued, or renewed, by the merged Green Tree/Aries entity once it became a member insurer. Thus, the policy remained a surplus lines policy, and outside the scope of FIGA.

One final point supports the conclusion that the nature of the policy, rather than the status of the insurer, is controlling. In addition to paying for covered claims, FIGA is statutorily required to

levy assessments in the proportion that each insurer’s net direct written premiums in this state in the classes protected by the account bears to the total of said net direct written premiums received in this state by all such insurers for the preceding calendar year for the kinds of insurance included within such account.

§ 631.57(3)(a), Fla. Stat. (2001).

There is no record evidence that, following the merger, Aries paid any assessments to FIGA for the Green Tree policies issued before the merger. These statutory assessments are levied in order to fund and pay claims which come within the scope of the FIGA statutory scheme. Had Aries sought to convert the Green Tree policies to domestic policies after the merger, it could have simply reissued or renewed those policies and charged an additional premium to cover the cost of the FIGA assessments. Of course, “it would be illogical to exclude from coverage an insured that was a resident when its policy was issued and whose premiums helped finance the Guaranty Association, but award coverage to a new or recent resident whose premiums did not support the Guaranty Association.” 1 Couch on Ins. § 6:28. Nonetheless, the Karelases argued, and the trial court agreed, once the merged entity became a “member insurer,” all of its policies were converted from surplus lines policies into policies covered by FIGA, regardless of their excluded status at the time the policy was issued. This logic ignores statutory limitations on FIGA’s scope of coverage. As one of our sister courts has previously pointed out:

If FIGA had been intended to be a successor in all regards to an insolvent insurer’s obligations and liabilities to a policyholder, . . . [t]he legislature could simply have made FIGA a statutory successor to defunct insurance companies. No doubt because it was intended that the claims preserved for payment by Chapter 631 would be manageable and not bankrupt the statute’s funding and payment mechanism, it was necessary to limit them not only as to total amount, but also as to substance-covered claims under existing policies.

Williams v. Florida Ins. Guar. Ass’n., 549 So. 2d 253, 254 (Fla. 5th DCA 1989).

CONCLUSION

FIGA’s statutory obligation is to pay for “covered claims.” The plain language of the statute provides that a “covered claim” is “an unpaid claim . . . which arises out of . . . an insurance policy to which this part applies.” § 631.54(3), Fla. Stat. (2001) (emphasis added). Surplus lines policies are specifically excluded from the list of policies to which the FIGA statute applies. The nature of the policy itself does not change simply because the insurer becomes a “member insurer” after the issuance of the policy, particularly where there is no evidence that any FIGA assessments were levied or paid on that policy. A contrary conclusion, as is urged by the dissent, would defeat the stated legislative purpose of FIGA to “assess the cost of such protection among insurers.” § 631.51, Fla. Stat. (2001). The case cited by the parties, Mississippi Ins. Guaranty Ass’n v. Goldin Properties, Inc., 893 So. 2d 1062, 1064 (Miss. Ct. App. 2004), recognized this rationale: “It would be inequitable for [the insured] to recover from a fund when no assessment from the policy issued to him was ever collected by the [insurance guaranty association].” (Applying a similar state IGA statute.) If we require FIGA to defend this claim, the funds utilized for this purpose will come not from any assessments paid by Aries (as there is no evidence Aries paid such assessments for this policy), but from other member insurers who did properly pay their FIGA assessments.

Accordingly, we conclude that the Karelases’ claims were not “covered claims” under section 631.54, because the claims are not made “under an insurance policy to which this part applies,” and therefore, reverse and remand for the trial court to enter final summary judgment in favor of FIGA.

REVERSED AND REMANDED. (ROTHENBERG, J., concurs.)

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(SCHWARTZ, Senior Judge (dissenting).) The issue in this case is whether the Florida Insurance Guaranty Association is liable for the homeowner’s insurance claim in question. In the summary declaratory judgment now under review, the trial judge held that it was. I think he was right.

The operative facts, which are entirely undisputed, began on September 1, 2000, when the appellee purchased a homeowner’s liability policy covering his Florida home from Green Tree Insurance Company, which was then a foreign so-called “surplus lines” carrier, which, if nothing else happened, was admittedly not subject to the FIGA Act. See §§ 631.50-70, Fla. Stat. (2011). See Fla. Ins. Guar. Ass’n v. Johnson, 654 So. 2d 239, 239-40 (Fla. 4th DCA 1995) (“It is established law in Florida that after an insurer becomes insolvent, FIGA ‘stands in the shoes’ of the insolvent insurer, and, pursuant to section 631.57(3)(b) Florida Statutes (1991), will ‘be deemed the insurer to the extent of its obligations on the covered claims, and, to such extent, shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent’.”) (emphasis added).

On December 31, 2000, however, a decisive “something else” did happen. On that date, Green Tree was acquired and merged into Aries Insurance Co. which was a Florida domiciliary subject to FIGA, and which acceded to all of Green Tree’s outstanding contractual obligations. Subsequently on July 30, 2001, while the so-called “second” Aries Company was in viable existence, the appellee Castillo was injured on Karelas’ premises and filed a personal injury claim and suit against Karelas and Aries II, which it duly defended in accordance with the policy. On November 14, 2002 Aries II became defunct and went into receivership, thus triggering FIGA’s liability, if any, under the statute. FIGA then disclaimed its responsibility for the defense and coverage of the pending action, on the ground that the policy had been issued by a non-FIGA insurer. The claimant and insured contended that the decisive date was that of the accident which occurred while FIGA covered Aries II. FIGA appeals the holding that the later date was determinative.

The result below and its affirmance is dictated by the unambiguous language of section 631.54(6) which provides that an “insolvent insurer,” subject to the terms of the act:

means a member insurer⁶ authorized to transact insurance in this state, either at the time the policy was issued or when the insured event occurred, and against which an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction if such order has become final by the exhaustion of appellate review. [e.s.]

Since there is no question Aries II was a member insurer on July 30, 2001, the date that the claim arose, there is no legitimate argument contrary to the proposition that FIGA is responsible.

The correctness of this view is made clear by the case relied upon by FIGA, Mississippi Ins. Guaranty Ass’n v. Goldin Properties, Inc., 893 So. 2d 1062, 1064 (Miss. Ct. App. 2004). In Goldin Properties, as here, the policy was purchased pre-merger, but unlike here, the insured event also occurred pre-merger. Considering statutory provisions similar to our own and concluding the issue to be “one of statutory interpretation,” the Mississippi court observed that the insurer was not licensed to transact insurance in Mississippi either at the time the policy was issued or when the insured event occurred, and thus the insurer was not an “insolvent insurer” within the meaning of that state’s IGA statute.⁷ Id., at 1064.

Here, the opposite facts mandate the opposite result. Thus, also as a result of statutory interpretation, as the trial judge concluded:

[T]here are no genuine issues of material fact [the] Plaintiff’s insurer was a ‘member insurer’ at the time of the insured event (July 30, 2001) as defined by Florida Statute 631.54(6) and [the] Plaintiffs’ insurer was an ‘insolvent insurer’ as defined by Florida Statute 631.54(7).

I would affirm.⁸

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¹A “surplus lines” carrier is one not domesticated in Florida.

²After the Green Tree-Aries merger, the Florida Surplus Lines Service Office sought guidance from the Department of Insurance as to how the surplus lines policies issued by Green Tree prior to the merger should be treated. On October 31, 2001, the Department of Insurance advised that, unless Aries issued a new policy, the existing Green Tree policies would continue to be treated as surplus lines policies until they were renewed.

³Karelas also brought claims against their insurance agent and a claim for declaratory relief against Castillo, the individual who allegedly was injured on their property.

⁴The Florida Insurance Code defines a “surplus lines” policy as one provided by an insurer not authorized to transact insurance in Florida. § 626.915, Fla. Stat. (2001).

⁵The face of the policy included the following language:

This insurance is issued pursuant to the Florida Surplus Lines Law. Persons insured by Surplus Lines Carriers do not have the protection of the Florida Insurance Guaranty Act. . . .

⁶Section 631.54(7), Florida Statute (2011) provides:

“Member insurer” means any person who writes any kind of insurance to which this part applies under s. 631.52, including the exchange of reciprocal or interinsurance contracts, and is licensed to transact insurance in this state.

⁷“Covered claim” as defined by Mississippi Code Annotated section 83-23-109(f) is: “an unpaid claim, including one of unearned premiums, which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this article applies issued by an insurer, if such insurer becomes an insolvent insurer. . . .” An “insolvent insurer” as defined by Mississippi Code Annotated section 83-23-109(g) is: “an insurer licensed to transact insurance in this state either at the time the policy was issued or when the insured event occurred and against whom an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction. . . .”

Goldin Properties, 893 So. 2d at 1063.

⁸This analysis is certainly in keeping with the stated purpose of the Act. See Florida Ins. Guar. Ass’n v. B.T. of Sunrise Condo. Ass’n, 46 So. 3d 1039, 1041 (Fla. 4th DCA 2010) (“Section 631.55(1) mandated the creation of FIGA, and section 631.51(1) provides that its purpose is to ‘[p]rovide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer.’ ”).