Florida Self-Insured Retention Satisfaction and Made Whole Doctrine

Intervest Construction of Jax, Inc. v. General Fidelity Insurance Co., * So.2d * (Fla. 2014), the issue was whether the insured general contractor could satisfy the SIR in its CGL policy with funds it received from the insurer of a subcontractor in settlement of the general contractor’s contractual indemnity claim against that subcontractor. ICI was the general contractor for a residence sold to Ferrin. Several years after completion, Ferrin suffered injuries in a fall while using attic stairs installed by ICI’s subcontractor Custom Cutting. Ferrin sued ICI but not Custom Cutting. ICI was insured by General Fidelity with a $1M SIR. ICI sought contractual indemnity from Custom Cutting. The Ferrin suit was ultimately settled for $1.6M. Custom Cutting’s CGL insurer paid $1M to ICI to resolve ICI’s contractual indemnity claim. Using the $1M paid on behalf of Custom Cutting and $300K of its own funds, ICI paid $1.3M to Ferrin. General Fidelity paid the remaining $300K with an agreement with ICI that each was entitled to seek reimbursement of $300K from the other. ICI filed suit in Florida state court. General Fidelity removed to federal court. The Eleventh Circuit certified the relevant questions to the Supreme Court of Florida.

The Florida Supreme Court first held that the General Fidelity SIR allowed ICI to satisfy the SIR through indemnification payments received from a third party. While the SIR provision stated that it must be satisfied by the insured, it did not include any language proscribing the source of the funds used by the insured to satisfy the SIR. The court distinguished other decisions where the SIR endorsement expressly stated that payments by others, including other insurers, could not satisfy the SIR. The court also relied on the fact that ICI “hedged its retained risk” by paying for its entitlement to contractual indemnification from its subcontractor years prior to purchasing the General Fidelity policy.

The court next addressed General Fidelity’s argument that, pursuant to the ISO standard “Transfer of Rights of Recovery Against Others To Us” provision, the $1M received from Custom Cutting’s insurer could not be used to satisfy the SIR because ICI’s right to recover that amount from Custom Cutting had been transferred to General Fidelity pursuant to the policy. The court rejected this argument, holding that the common law “made whole” doctrine applied. Under the “made whole” doctrine, when insured and insurer both have rights of recovery against a third party, the insured has priority until it is “made whole.” Here it meant that ICI would be entitled to be made whole before General Fidelity was entitled to any portion of ICI’s recovery from Custom Cutting. While the “made whole” doctrine can be abrogated by contract, the court held that the General Fidelity policy did not do this because the “Transfer of Rights” provision “did not address the priority of reimbursement” or otherwise “provide that it abrogates the ‘made whole doctrine’.”

The court’s opinion illustrates the general rule that there are few if any general rules applicable to SIR provisions; each will generally be strictly construed in favor of the policyholder based on the particular language utilized. The decision is also significant in that it establishes that the standard ISO “Transfer of Rights” provision does not abrogate the Florida common law “made whole” doctrine.