In Travelers Indemnity Co. v. FIGG Bridge Engineers, Inc., No. 1:18-cv-22585 (S.D. Fla. June 24, 2019), a Florida federal judge found that coverage for an underlying personal injury lawsuit was precluded by the polices’ professional liability exclusions and, because the insurers had reserved the right to do so, allowed the insurers to recoup defense fees advanced to their insured engineering firm.

The parties’ dispute arose from the 2018 collapse of a pedestrian bridge near the campus of Florida International University, which killed and injured several people. Three years prior, FIU had retained FIGG Bridge Engineers Inc. to design and construct the bridge. After the bridge collapsed, FIGG was the subject of numerous personal injury lawsuits that were consolidated into a single case in state court.

At the time of the collapse, FIGG was insured by a commercial general liability policy issued by Phoenix and a concurrent umbrella policy issued by Travelers. Both policies contained professional liability exclusions precluding coverage for bodily injury and property damage “arising out of the rendering of or failure to render any ‘professional services.'” The policies defined “professional services” as “any service requiring specialized skill or training” and included a non-exhaustive list of such services.

Phoenix and Travelers agreed to defend FIGG in the personal injury lawsuits pursuant to a complete reservation of rights. At the same time, the insurers also pursued a declaratory judgment from the Southern District of Florida regarding their coverage obligations to FIGG. The Southern District of Florida granted the insurers’ motion for summary judgment finding that: (1) the insurers had no obligation to defend FIGG in the underlying suits based on the professional liability exclusions; and (2) FIGG was required to reimburse the insurers for defense costs incurred by the insurers in defending FIGG.

The court started its inquiry by deciding that it could not consider the professional services agreement between FIGG and the construction manager in the duty-to-defend analysis because this agreement was not a part of the underlying complaint. While noting that there are certain “natural exceptions” to Florida’s rule that the duty to defend is determined solely by the allegations against the insured, the court found that the professional services agreement was irrelevant to the duty to defend and constricted its analysis solely to the allegations of the underlying complaint against FIGG.

The court then addressed the substance of the duty-to-defend issue, analyzing the allegations of the underlying complaints to determine if they fell wholly within the professional liability exclusions in the policies, which precluded coverage for damages “arising out of the rendering of or failure to render any ‘professional services.'” The insurers contended that all of the allegations in the underlying complaints arose out of FIGG’s professional services as an engineer while FIGG contended that certain allegations fell outside the exclusions, thereby requiring the insurers to defend the entire suit. After an extensive review of both Florida precedent and the allegations against FIGG, the court concluded that each allegation in the underlying suit arose out of FIGG’s rendering or failure to render professional services. Therefore, the court concluded that the professional liability exclusion applied and that the insurers had no duty to defend.

In coming to this decision, the court rejected FIGG’s argument that the professional liability exclusion did not apply to FIGG’s actual construction of the bridge because the word “construction” was not part of the exclusion. Observing that the policies’ list of activities that were “professional services” was not exhaustive by its own terms, the court found that FIGG’s construction of the bridge was a “professional service” under the exclusion.

After ruling that Phoenix and Travelers had no duty to defend FIGG in the underlying case, the court then considered whether the insurers were entitled to recoup the defense fees they had incurred defending FIGG under a reservation of rights. The insurers argued that their letters entitled them to seek reimbursement because they included a “full reservation of rights,” including the right to recoupment.

The court first rejected FIGG’s argument that the request for reimbursement was premature, ruling that nothing prevented the insurers from seeking a coverage declaration and a ruling on reimbursement within the same motion for summary judgment. Moving to the merits of the issue, the court found that, while there was no precedent from the Florida Supreme Court, it was bound by decisions of the intermediary appellate courts allowing an insurer to create a right to recoup defense fees that did not otherwise exist. The court also determined that the insurers’ reservation-of-rights letters properly preserved the right to recoupment. In rejecting FIGG’s argument that the letters did not “fairly inform” FIGG of the insurers’ intention to seek reimbursement, the court relied on letters previously written by FIGG in which FIGG admitted that the “[i]nsurers attempt to reserve the right to seek reimbursement of any defense-related payments.”

The court also found no merit to FIGG’s contention that the reservation of the right to reimbursement was ineffective because the letter did not include a date certain by which the insured must reject the offer and did not state that the failure to object would constitute acceptance. In doing so, the court “respectfully disagreed” with a 2008 ruling from the Middle District of Florida, which anticipated that the Florida Supreme Court would hold that a reservation-of-rights letter requires express notice that a failure to object would constitute acceptance. See Nationwide Mut. Fire Ins. Co v. Royall, 588 F. Supp. 2d 1306, 1317-18 (M.D. Fla. 2008). Contrary to Royall, the FIGG court relied on “directly on point” case law from Florida’s intermediary appellate courts to find that FIGG’s acceptance of the defense after receiving the reservation-of-rights letters was all that was required under Florida law. Therefore, the court found that the insurers were entitled to reimbursement of defense fees incurred in defending FIGG in the underlying cases.

Ultimately, the FIGG decision is helpful to insurers seeking to rely on professional liability exclusions and strengthens Florida law providing for the recoupment of defense costs, while it serves as a cautionary tale for policyholders that an insurer’s reservation of its right to reimbursement means just that.