6 Fla. L. Weekly Supp. 554a

Insurance — Action alleging breach of insurance contract; seeking determination regarding coverage for investigation expenses incurred by insureds and determination whether plaintiffs are additional insureds under policy; and seeking civil remedies as to unfair claim settlement practices, illegal dealings in premiums, false statements and entries, and unlawful cancellation — Motion to dismiss count seeking civil remedy as to false statements and entries is granted — Count for declaratory relief on coverage issue not premature, although no formal complaint had been filed against plaintiffs arising out of incident in question, where plaintiffs alleged in their complaint that they received a demand letter threatening litigation from counsel of allegedly injured person — Breach of contract claim can be heard at same time as declaratory relief claims — Civil remedy claims under section 624.155(1)(a) are not bad faith claims and are not dependent on a prior determination of coverage — Private right of action exists under section 627.4133 for unlawful cancellation — Insurer’s contention that count seeking coverage for investigation costs should be dismissed because insurer’s duty to investigate was discretionary and because plaintiffs voluntarily incurred the investigation expenses without insurer’s consent is rejected — Insurer’s discretion is subject to concepts of good faith and fair dealing which are implicit in all insurance contracts — Where complaint alleges that attorney representing the estate, widow, and five children of one of the individuals killed in incident at issue formally demanded that he and his experts be allowed to investigate scene and gather evidence, insurer was on notice that possible lawsuit was imminent, and factual issue exists as to whether insurer failed to exercise its discretion to investigate in good faith — With regard to policy provision prohibiting insureds from voluntarily making a payment, assuming an obligation, or incurring expenses without insurer’s consent, term “voluntarily” is ambiguous and should be interpreted liberally in plaintiffs’ favor — Factual issues exist as to whether plaintiffs voluntarily incurred investigation expenses in view of possibility that they may have been subject to sanctions, including default, if they did not preserve evidence — Motion to dismiss or abate counts other than count seeking remedy as to false statements and entries is denied

BISCAYNE KENNEL CLUB, INC., a Florida Corporation, KAY SPITZER, an individual, and KARL SPITZER, an individual, Plaintiffs, v. FRONTIER PACIFIC INSURANCE COMPANY and CUYAHOGA WRECKING CORPORATION, Defendants. 17th Judicial Circuit in and for Broward County, General Civil Division. Case No. 99-004102-09. June 24, 1999. Robert Lance Andrews, Judge.

ORDER ON FRONTIER PACIFIC INSURANCE COMPANY’S MOTION TO DISMISS COMPLAINT OR, IN THE ALTERNATIVE, MOTION TO ABATE

THIS CAUSE came before this Court upon Defendant FRONTIER PACIFIC INSURANCE COMPANY’S (“FRONTIER”) Motion to Dismiss Complaint or, in the Alternative, Motion to Abate. The Court, having considered same, heard argument of counsel, having examined the record, and all pertinent authority on the matter, and being otherwise duly advised in the premises, finds and decides as follows:

On March 9, 1999, Plaintiffs filed an eight-count complaint against Defendants FRONTIER PACIFIC INSURANCE COMPANY and CUYAHOGA WRECKING CORPORATION, alleging: (1) Count I, breach of an insurance contract; (2) Count II, declaratory relief seeking a determination of coverage as to investigation expenses incurred by Plaintiffs; (3) Count III, declaratory relief as to whether the Plaintiffs are additional insureds under the Cuyahoga Policy; (4) Count IV, civil remedy as to unfair claim settlement practices; (5) Count V, civil remedy as to illegal dealings in premiums; (6) Count VI, civil remedy as to false statements and entries; (7) Count VII, civil remedy as to unlawful cancellation; and (8) Count VIII, an alternative claim against CUYAHOGA WRECKING CORPORATION for breach of contract.

Subsequently, FRONTIER filed the instant Motion to Dismiss Complaint or, in the Alternative, Motion to Abate on April 22, 1999. On May 25, 1999, this Court conducted a hearing on the Motion.

As conceded by Plaintiffs at hearing, Count VI does not appear to raise a private cause of action because Count VI is not one of the provisions of F.S. §626.9541(1) that is actionable under the express provision of F.S. §624.155(1)(a)(1). Therefore, Count VI of the Complaint is dismissed for failure to state a cause of action.

As a matter of law, in determining whether to dismiss a complaint, “the trial court [is] required to treat the factual allegations of the complaint as true and to consider those allegations in the light most favorable to the plaintiffs.” Hollywood Lakes Section Civic Ass’n, Inc. v. City of Hollywood, 676 So. 2d 500, 501 (Fla. 4th DCA 1996). In the instant case, Plaintiffs must be able to prove any set of facts whatsoever in support of the claims. See Wausau Ins. Co. v. Haynes, 683 So. 2d 1123, 1124 (Fla. 4th DCA 1996).

FRONTIER argues that Plaintiffs’ declaratory relief claims are premature because no formal complaint had been filed against Plaintiffs in regard to the grandstand accident at the time of the filing of the instant Complaint. However, in the case of Travelers Ins. Co. v. Emery, 579 So. 2d 798, 802 (Fla. 1st DCA 1991), the First District Court of Appeal stated that an insurer’s declaratory judgment petition against its insured was not premature, even though no formal complaint had been filed against its insured. This was because the insured received a demand letter threatening litigation from counsel for the person the insured allegedly injured. See id. The court reasoned that “questions of fact and disagreements concerning coverage under insurance policies are proper subjects for a declaratory judgment if necessary to a construction of legal rights.” Id. at 801.

In the instant case, Plaintiffs allege in their Complaint that they received such a demand letter; therefore, their declaratory relief claims are not premature. Additionally, Plaintiffs declaratory relief actions do not address the defense of a suit.

The declaratory relief claims in the Complaint address issues of coverage and whether Plaintiffs are additional insureds under the Cuyahoga Policy. “[T]he courts have often held that `disagreements as to the coverage of insurance, although not purely factual disputes, are a proper subject for declaratory judgment.’ ” United States Auto. Ass’n v. Setchfield, 384 So. 2d 34, 34 (Fla. 2d DCA 1980) (quoting Perez v. State Auto Ins. Ass’n, 270 So. 2d 377 (Fla. 3d DCA 1972)). Therefore, this Court finds that Plaintiffs’ declaratory relief claims are not premature.

FRONTIER further argues that Plaintiffs’ claims for breach of contract and civil remedies are premature because the issue of coverage must be resolved in favor of the insured prior to bringing these actions. As to the breach of contract claim, FRONTIER cites to Steil v. Florida Physicians Ins. Reciprocal, 448 So. 2d 589, 592 (Fla. 2d DCA 1984). Steil states that a determination of coverage is a condition precedent to any recovery based on a breach of an insurance contract claim. Id. However, Steil only stands for the proposition that a determination of coverage is a condition precedent to recovery against the insurer, not to filing suit. Id.

In the case at bar, the coverage issue can be determined simultaneously with the breach of contract claim. However, a determination of coverage will be necessary before Plaintiffs would be able to recover under the breach of contract claim against FRONTIER. Therefore, this Court finds that the breach of contract claim can be heard at the same time as the declaratory relief claims.

As to the civil remedy claims, FRONTIER cites to Doan v. John Hancock Mut. Life Ins. Co., 727 So. 2d 400, 402 (Fla. 3d DCA 1999), to bolster the position that a resolution of coverage is necessary before a statutory bad faith claim can be heard. See also Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991).

However, these cases deal with civil remedy claims under F.S. §624.155(1)(b)(1), while the civil remedy claims in the instant Complaint are pled under F.S. § 624.155(1)(a)(1). The claims under F.S. §624.155(1)(b)(1) are specifically bad faith claims as stated in the statute, while F.S. §624.155(1)(a)(1) provides the right to sue for violation of the provisions of F.S. §626.9541(1)(i), (o), or (x).

The acts covered under F.S. §626.9541(1)(i), (o), and (x) do not relate to bad faith actions: F.S. §626.9541(1)(i) proscribes unfair insurance or claim settlement practices; F.S. §626.9541(1)(o) proscribes illegal dealings in premiums; and F.S. §626.9541(1)(x) proscribes refusal to insure on the basis of color, creed, sex, or other factors.

The case of Jerue Truck Broker, Inc. v. Insurance Co. of North America, 646 So. 2d 780, 781 (Fla. 2d DCA 1994) determined that a F.S. §626.9541(1)(i) claim could be tried simultaneously with a breach of an insurance contract claim. In Jerue Truck Broker, the breach of contract claim was based on a coverage dispute. Id. Therefore, the Second District Court of Appeal allowed the civil remedy claim heard along with a coverage dispute. As a result, this Court finds that §624.155(1)(a)(1) claims are not dependent on a prior determination of coverage; therefore, they are not premature.

FRONTIER contends that Count VII should be dismissed because unlawful cancellation under F.S. §627.4133 does not confer a private right of action. However, Tench v. American Reliance Ins. Co., 671 So. 2d 801 (Fla. 3d DCA 1996) allowed a claim under the statute for unlawful cancellation. See also Ruiz v. Fortune Ins. Co., 677 So. 2d 1336, 1338 (Fla. 3d DCA 1996) (summary judgment affirmed in favor of insurer in case for unlawful cancellation brought by insured).

In Tench, one of the counts of the Tenches’ amended complaint was a claim under F.S. §627.4133 for failure to give proper notice of cancellation. See Tench, 671 So. 2d at 801-2. The Third District Court of Appeal reversed the summary judgment granted in the insurer’s favor and allowed the claims to proceed, including the claim under F.S. §627.4133. See id. at 802. Therefore, Plaintiffs are entitled to a private right of action under F.S. §627.4133 for unlawful cancellation.

FRONTIER also contends that the Complaint should be dismissed because its duty to investigate was discretionary and because Plaintiffs voluntarily incurred the investigation expenses without FRONTIER’s consent.

As to the issue of discretion, the Cuyahoga Policy states that “we [FRONTIER] may, at our discretion, investigate any `occurrence’ and settle any claim or `suit’ that may result.” However, this discretion is subject to the concepts of good faith and fair dealing, which are implied in all insurance contracts. See North American Van Lines, Inc. v. Lexington Ins. Co., 678 So. 2d 1325, 1330-31 (Fla. 4th DCA 1996). The Fourth District Court of Appeal stated in North American Van Lines, “ `[t]he duty of good faith and fair dealing in an insurance policy is a two way street, running from the insured to his or her insurer as well as vice versa.’ ” Id. (quoting Diamond Heights Homeowners Ass’n v. National Am. Ins., 277 Cal. Rptr. 906, 914 (Ct. App. 1991)).

Moreover, the Complaint alleges that an attorney representing the estate, widow, and five children of one of the individuals killed in the May 16, 1997 accident formally demanded that he and his experts be allowed to investigate the scene and gather evidence. This clearly put FRONTIER on notice that a possible lawsuit was imminent. FRONTIER may not have exercised its discretion according to the concepts of good faith and fair dealing because FRONTIER did not investigate the occurrence even though a lawsuit was imminent.

Next, this Court finds the case of Griggs v. Bertram, 443 A.2d 163 (N.J. 1982) to be persuasive on the issue of an insurer’s duty to investigate. The Supreme Court of New Jersey stated in Griggs: “Upon receiving notice of a possible claim against its insured, an insurer has the duty to investigate the matter within a reasonable time. `(C)onsiderations of good faith and fair dealing require that the insurer make investigation(s) (of any claim) within a reasonable time.’ ” Id. at 170 (quoting Fireman’s Fund Ins. Co. v. Security Ins. Co. of Hartford, 367 A.2d 864 (N.J. 1976)). Therefore, sufficient facts are alleged to raise a question as to whether FRONTIER failed to exercise its discretion to investigate in good faith.

As to the issue of whether Plaintiffs voluntarily incurred the investigation expenses, the Cuyahoga Policy states: “No insured will, except at the insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” Plaintiffs allege that they did not “voluntarily” incur the investigation expenses and that the term “voluntarily” is ambiguous because the Cuyahoga policy insurance contract does not specifically define the term “voluntarily.”

The Fourth District Court of Appeal recently stated that “ambiguities are interpreted liberally in favor of the insured and strictly against the insurer who prepared the policy.” Westmoreland v. Lumbermens Mut. Cas. Co., 704 So. 2d 176, 179 (Fla. 4th DCA 1997). In this case, ambiguities, such as the meaning of “voluntarily,” are to be interpreted liberally in Plaintiffs’ favor and strictly against FRONTIER.

Additionally, while insuring or coverage clauses are construed broadly in order to give the greatest extent of coverage, exclusionary clauses, such as the one at issue, are always strictly construed. See id.

Plaintiffs argue that they did not voluntarily incur the investigation expenses because drastic sanctions, including default, could have occurred if Plaintiffs had altered or destroyed physical evidence related to the accident. See Sponco Manufacturing, Inc. v. Alcover, 656 So. 2d 629, 630 (Fla. 3d DCA 1995). In Sponco, the Third District Court of Appeal ordered a default after the defendant had destroyed evidence, and the plaintiff demonstrated an inability to proceed without the evidence. Id.

Cases from several other jurisdictions have also ordered sanctions against a party for failing to preserve evidence. In Brenner v. Kolk, 573 N.W.2d 65, 70 (Mich. Ct. App. 1997), the Court of Appeals of Michigan stated that “the trial court has the authority, derived from its inherent powers, to sanction a party for failing to preserve evidence that it knows or should know is relevant before litigation has commenced.”

Additionally, in Fire Ins. Exchange v. Zenith Radio Corp., 747 P.2d 911 (Nev. 1987), the Nevada Supreme Court stated a point very much in line with the facts of the instant case. To wit: “[e]ven when an action has not been commenced and there is only a potential for litigation, the litigant is under a duty to preserve evidence that it knows or reasonably should know is relevant to the action.” Id. at 914.

The federal courts have recognized that trial judges may sanction litigants for pre-suit spoliation. See Federal Courts’ Authority to Impose Sanctions for Prelitigation or Pre-Order Spoliation of Evidence, 156 F.R.D. 313, 314 (1994). “[F]ederal courts have imposed the following sanction for spoliation of evidence: monetary sanctions, including attorneys’ fees and costs; evidentiary sanctions, such as adverse inference instructions and preclusion orders; and dispositive sanctions, such as dismissals and defaults.” Id. at 314-15.

In the instant case, Plaintiffs did not voluntarily incur the investigation expenses because Plaintiffs may have been subject to sanctions, including default, if Plaintiffs did not preserve the evidence. Therefore, sufficient facts are alleged to raise a question as to whether Plaintiffs voluntarily incurred the investigation expenses.

FRONTIER claims that Plaintiffs did not owe a legal or contractual duty to preserve the evidence unless Plaintiffs had voluntarily assumed an obligation in contravention of the insurance contract by promising to preserve the evidence. See Continental Ins. Co. v. Herman, 576 So. 2d 313, 315 (Fla. 3d DCA 1990).

FRONTIER is correct that there is no duty to preserve evidence unless there is a legal or contractual duty to do so; however, this duty only applies to an independent action for negligent spoliation of evidence. See St. Mary’s Hosp., Inc. v. Brinson, 685 So. 2d 33, 35 (Fla. 4th DCA 1996) (expressly recognizing a cause of action for the spoliation of evidence in the Fourth DCA and including a legal or contractual duty to preserve evidence as one of the necessary elements).

None of the cases involving sanction for spoliation of evidence require that the litigant be under a legal or statutory duty to preserve evidence. See Sponco, 656 So. 2d 629; Rockwell Int’l Corp. v. Menzies, 561 So. 2d 677 (Fla. 3d DCA 1990); DePuy, Inc. v. Eckes, 427 So. 2d 306 (Fla. 3d DCA 1983); Federal Ins. Co. v. Allister Mfg. Co., 622 So. 2d 1348 (Fla. 4th DCA 1993). Therefore, sufficient facts are alleged to raise a question as to whether Plaintiffs voluntarily incurred the investigation expenses.

Accordingly, it is hereby

ORDERED AND ADJUDGED that FRONTIER’s Motion to Dismiss Complaint or, in the Alternative, Motion to Abate is DENIED as to Counts I, II, III, IV, V, and VII. However, it is ORDERED AND ADJUDGED that Count VI is DISMISSED for failure to state a cause of action.

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