Florida Court Holds Notice After Default Not Necessarily Prejudicial

In its recent decision in Indemnity Ins. Co. v. Caylao, Case No. 1D12-5733 (Fla. 1st DCA. Feb. 4, 2014) the First District Court of Appeals for the state of Florida had occasion to consider whether an insurer who receives notice of a lawsuit against its insured after a default judgment is entered against the insured can disclaim coverage under a notice of suit condition in its policy.

Lelilani Caylao alleged that an employee of Coast Entertainment, LLC (“Coast”) injured her in an altercation at a club that Coast owned. Caylao’s counsel wrote a letter to Coast about her assault and battery claim and Coast’s insurance agent forwarded the letter to Indemnity Insurance Company (“Indemnity”), Coast’s commercial general liability insurer. Indemnity investigated the pre-suit claim and concluded that Coast had no liability and denied the claim. Caylao subsequently filed suit without notifying Indemnity or its counsel. Coast did not answer or otherwise respond to the complaint and ultimately a final default judgment was entered against Coast.

Caylao subsequently initiated a garnishment proceeding against Indemnity as Coast’s insurer. Indemnity asserted that Coast forfeited coverage because it had breached a policy condition requiring Coast to notify Indemnity of lawsuits and to forward suit papers “as soon as practicable.”  Thus, electing not to represent Coast in its effort to set the judgment aside, Indemnity wrote a letter to Coast denying coverage and disclaiming any obligation to pay Caylao. The trial court nevertheless held that Indemnity was not relieved of its obligation to pay Caylao, reasoning that Indemnity failed to demonstrate that it exercised due diligence and good faith in trying to bring about the insured’s cooperation once the insured notified it of the claim. The trial court entered a judgment in favor of Caylao and Indemnity appealed.

The Florida Court of Appeals remanded for a determination as to whether Indemnity was prejudiced by the late notice provided by Coast.  The court held that Indemnity’s duty to defend extended to moving to set aside Caylao’s judgment against Coast in the garnishment proceeding, if such a motion was feasible and grounds to set aside the default existed.   As the trial court took no evidence on the question, the Court reversed and remanded the matter to the trial court for an evidentiary hearing as to whether Indemnity demonstrated prejudice as a result of the breach of the notice condition.