Explaining Right of Contribution Among Liability Insurers

Posted in Legal Alerts on October 15, 2021

In June of 2019, the Florida Legislature passed a new law (Florida Statute, Section 624.1055) creating a right of contribution among liability insurers for defense costs associated with defending an insured shared between multiple insurance policies. The new law effectively overturned the longstanding precedent set by Argonaut Insurance v. Maryland Casualty, 372 So. 2d 960 (Fla. 3d DCA 1979), Continental Casualty Company v. United Pacific Insurance Company, 637 So. 2d 270 (Fla. 5th DCA 1994), and their subsequent progeny. Without a right of contribution, some insurers were incentivized to push back accepting liability for their policyholders in the hopes another of the insured’s policies would kick in and foot the bill. This law stood for many years.

Commonly referred to as the Argonaut Rule, these cases held that an insurer who had a duty to defend their insured could not assert a claim for contribution against another insurer who also had a duty to defend their mutual insured if they failed to contribute to the defense. The rationale being that each insurer owes a complete and independent duty to defend their insured under their policy, and by issuing the policy, the insurance carrier did so without expecting that it would be entitled to recover payment from any other carrier for those defense costs. Argonaut explained:

“If an insurance company refuses to defend or provide contractual coverage to its insured, then it may expose its policy limits to a third party and face a breach of contract suit with other statutory remedies [b]y the insured.”

Florida Statute Section 624.1055 is intended to incentivize insurers to promptly defend their insured instead of drawing out litigation. The 2019 law provides a clear process by which an insurer can recover prorated defense costs from other at-risk insurers. The statute raises questions about how it will be implemented in practice and thus needs to be addressed by the courts before we know for sure.

In Florida, this right of contribution is particularly noteworthy for the state’s thriving construction industry and accompanying litigation stemming from lawsuits involving work-related injuries. In these types of lawsuits, multiple insurance policies are often triggered. The new law helps streamline the process for insurers and the insured in these cases. Section 624.1055 provides that:

“A liability insurer who owes a duty to defend an insured and who defends the insured against a claim, suit, or other action has a right of contribution for defense costs against any other liability insurer who owes a duty to defend the insured against the same claim, suit, or other action, provided that contribution may not be sought from any liability insurer for defense costs that are incurred before the liability insurer's receipt of notice of the claim, suit, or other action.”

This means that an insurer who appropriately defends their insured is not left bearing the full cost of litigation without being able to obtain compensation for defense costs from other insurers who are aware of their potential liability exposure but do not choose to step up to defend a policyholder.

The new law is far-reaching in scope, as it applies to many more policyholders when compared to the former Argonaut Rule. Section 624.1055 applies as follows:

“This section applies to liability insurance policies issued for delivery in this state, or liability insurance policies under which an insurer has a duty to defend an insured against claims asserted or suits or actions filed in this state. Such liability insurance policies include surplus lines insurance policies authorized under the Surplus Lines Law.”

Whether or not the insurance policy was delivered in the state, or simply has a connection to the state of Florida, the right to contribution still exists.  If the insured is located in Florida, Section 624.1055 applies. This means that foreign insurers who fail to defend their insureds in Florida may be subject to a contribution action. The new law creates a new legal right for insurers to file actions for contribution in a court of competent jurisdiction, and it can apply to any claim, suit, or other action initiated on or after January 1, 2020. The new law does not apply, however, to motor vehicle liability insurance policies or medical professional liability insurance policies.

Florida Statute Section 624.1055 creates a reasonable method by which insurance carriers can recover the costs of defending a mutually insured policyholder.