Grey Oaks Country Club, Inc. v. Zurich American Insurance Company

REPLY to Response to Motion re MOTION to Strike Affirmative Defenses

M.D. Fla.March 12, 2019

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA FORT MYERS DIVISION GREY OAKS COUNTRY CLUB, INC., Plaintiff, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant. / CASE NO.: 2:18-cv-639-FtM-99CM GREY OAKS’ REPLY IN SUPPORT OF MOTION TO STRIKE AFFIRMATIVE DEFENSES Plaintiff, Grey Oaks Country Club, Inc. (“Grey Oaks”), through its undersigned counsel, respectfully submits this Reply in Support of Motion to Strike Affirmative Defenses, and in support thereof states as follows: Zurich’s Opposition needed to address two deficiencies with the affirmative defenses at issue: (1) the insurer’s failure to assert these defenses in its September 12, 2018 Coverage Position Letter despite having all of the necessary information, and (2) the failure to cite any supporting facts. It does neither. Zurich does not even attempt to argue that its affirmative defenses are justified by new information or to identify facts making them relevant. Based on the “mend the hold” doctrine and the governing pleading requirements, nothing more is required to determine that the subject defenses are both untimely and legally insufficient. They should be stricken from the pleadings.1 1 The assertion that Grey Oaks “did not meaningfully confer” before filing its Motion to Strike is inaccurate. Grey Oaks e-mailed Zurich’s counsel on February 13, 2019 at 6:16 PM and advised of its intention to file the Case 2:18-cv-00639-UA-UAM Document 37 Filed 03/12/19 Page 1 of 6 PageID 638 -2- I. This is the Quintessential Case for Application of the “Mend the Hold” Doctrine Grey Oaks’ Motion cited Trans Ocean Container Corp. v. Yorkshire Ins. Co., Ltd., 81 F. Supp. 2d 1340 (S.D. Fla. 1999), which held that an insurer waived coverage defenses when it had information supporting them at the time of denial but failed to raise them. Id. at 1347. Unable to distinguish this authority on the present facts, Zurich labels it an “anomaly” and argues a series of red herrings that do not change the appropriate outcome. Based on Wohl Built, Inc. v. Maxum Indem. Co., No. 17-CV-80867, 2018 WL 5020194 (S.D. Fla. Apr. 19, 2018), Zurich contends that “mend the hold” should not apply because Grey Oaks did not detrimentally rely on the insurer’s Coverage Position Letter. Florida law, however, does not require detrimental reliance to apply “mend the hold.” Indeed, the seminal Florida case invoking the doctrine did so without any such finding. See Trans Ocean, 81 F. Supp. 2d at 1347. The same is true for other authority in Florida that applied “mend the hold.” See Salcedo v. Ass’n Cubana, Inc., 368 So. 2d 1337, 1339-40 (Fla. 3d DCA 1979); Heimer v. Travelers Ins. Co., 400 So. 2d 771, 772-74 (Fla. 3d DCA 1981).2 In any event, even if detrimental reliance were required, Zurich ignores that Grey Oaks did rely by commencing this lawsuit to vindicate its contractual rights based on motion. Zurich’s lead counsel responded less than a minute later: “We oppose the motion. Thanks.” Yet, counsel now complains that they had an unreasonable deadline to decide whether to withdraw the defenses at issue, and they have continued to maintain their opposition since we conferred with them. 2 Zurich cites other Florida cases that declined to apply “mend the hold” due to a lack of detrimental reliance. As academic authority has explained, however, this improperly conflates “mend the hold” with other legal doctrines: “While it is accurate to relate the ‘Mend the Hold’ doctrine with other equitable doctrines, to equate the ‘Mend the Hold’ doctrine with those equitable doctrines would be inaccurate . . . The ‘Mend the Hold’ doctrine requires neither detrimental reliance, nor conflicting theories in subsequent litigation. [The doctrine] is succinctly summed up as limiting a party’s defenses to those based on the pre-litigation explanation for the non- performance given to the other party. Simply put, [it] limits the available defenses to the exact defense asserted at the time of breach.” Michael V. Laurato Sr, Mending the Hold in Florida: Getting a Better Grip on an Old Insurance Doctrine, 4 Fla. A&M U. L. Rev. 73, 76-77 (2009). Case 2:18-cv-00639-UA-UAM Document 37 Filed 03/12/19 Page 2 of 6 PageID 639 -3- Zurich’s purported reasons for refusing to pay. This is hardly a no-harm-no-foul situation where Zurich decided to supplement an earlier coverage letter while still investigating the claim. With full knowledge of the facts a year after the claim, the insurer stated its reasons for refusing additional payment and told Grey Oaks that it would have sue to get anything more. Grey Oaks did precisely that and has incurred the time, expense, and attorneys’ fees to commence this lawsuit and discredit the defenses raised in the Coverage Position Letter. If the insurer’s new defenses were allowed to remain, Grey Oaks would be saddled with the financial burden of discovery, briefing, and trial to disprove their applicability as well.3 Zurich also stresses that the Wohl court declined to apply “mend the hold” because the insurer included a reservation of rights in its coverage denial letter. Id. at *6. This should not defeat application of the doctrine. Insurers invariably include a boilerplate reservation of rights in every correspondence to policyholders. As in Zurich’s Coverage Position Letter, this is non-specific, catch-all language that does not provide notice of any additional policy provisions that may apply. Zurich suggests that the mere presence of this language forecloses “mend the hold.” Under this approach, however, an insurer could never be bound to prior coverage defenses so long as it included an all-encompassing reservation of rights in its letters. This would render the doctrine meaningless. Zurich further argues that it may raise new affirmative defenses because it could not anticipate what damages Grey Oaks might seek in a lawsuit. Zurich Opp’n at pp. 7–8. This is irrelevant under the case law. The doctrine’s applicability does not turn on whether the 3 As Judge Posner has recognized, this is not only indicative of reliance by Grey Oaks, but also bad faith on Zurich’s part. Harbor Ins. Co. v. Cont’l Bank Corp., 922 F.2d 357, 363 (7th Cir. 1990) (“A party who hokes up a phony defense to the performance of his contractual duties and then when that defense fails (at some expense to the other party) tries on another defense for size can properly be said to be acting in bad faith.”) (emphasis added). Case 2:18-cv-00639-UA-UAM Document 37 Filed 03/12/19 Page 3 of 6 PageID 640 -4- insurer knew exactly what damages would be sought by a policyholder in a yet-to-be filed lawsuit. The question – as Zurich’s own authority recognizes – is whether the insurer had sufficient information to raise the new defenses in its prior coverage position. Trans Ocean, 81 F. Supp. 2d at 1347 (“[T]he Court must determine whether Underwriters had sufficient information at the time of the initial denial of coverage to have waived the additional defenses presented.”); Zurich Opp’n at p. 4. This inquiry is easily dispensed with, as Zurich does not dispute that it possessed all relevant information about the claim when it issued its Coverage Position Letter. Zurich finally attempts to circumvent “mend the hold” by arguing that its defenses would be preserved under the doctrines of waiver and estoppel. Zurich Opp’n at pp. 9–10. Aside from the fact that these are not the legal doctrines at issue, the insurer’s own authority contradicts the assertion that “an insurer cannot waive exclusions” under Florida law. 4 Zurich’s repeated refrain about Grey Oaks not being able to “waive into coverage” is equally meaningless considering that the insurer has already acknowledged coverage and paid the club under every coverage section at issue. II. Zurich’s Untimely Affirmative Defenses are also Legally Insufficient All but one of Zurich’s affirmative defenses that were raised for the first time after this litigation began also suffer from a second fatal flaw: they contain no factual support. Tellingly, Zurich does not attempt to dispute this point or demonstrate the policy provisions’ relevance to the pleadings. Instead, it declares that because this is a breach of contract case, 4 See Trovillion Constr. & Dev., Inc. v. Mid-Continent Cas. Co., No. 6:12-CV-914-ORL-37, 2014 WL 201678, at *9 (M.D. Fla. Jan. 17, 2014) (“[W]aiver and estoppel are available to preclude coverage defenses under [sic] in the rare event that ‘circumstances indicate the insurer’s conduct induced the insured to rely on that conduct to his detriment.’”). Case 2:18-cv-00639-UA-UAM Document 37 Filed 03/12/19 Page 4 of 6 PageID 641 -5- “the facts are (in large part) the contractual provisions themselves.” Zurich Opp’n at p. 11. This is nonsensical. The facts are the circumstances underlying Grey Oaks’ insurance claim. And the law makes clear that the party asserting the defense must plead “some facts establishing a nexus between the elements of an affirmative defense and the allegations in the complaint.” Daley v. Scott, No. 2:15-cv-269-FtM-29DNF, 2016 WL 3517697, at *3 (M.D. Fla. Jun. 28, 2016); Mot. to Strike at pp. 9–10. Zurich indisputably fails to meet this requirement. The affirmative defenses highlighted in the Motion to Strike are prime examples of why facts are required. Zurich asserts newfound defenses for “cracking and settling,” “microorganisms,” and “off-premises service interruption” even though (1) they were never discussed in the Coverage Position Letter, and (2) these causes of loss are never referenced in the First Amended Complaint. Without more, Grey Oaks has no ability to determine what aspects of its claim may be subject to these provisions. Requiring Zurich to state some factual basis is not a “heightened pleading standard” that is “out-of-line with the Federal Rules of Civil Procedure.” It is the minimum bar that separates legitimate affirmative defenses from those that are solely intended to confuse the issues and multiply the proceedings. See id. at *2 (Boilerplate affirmative defenses are those that are “entirely devoid of specifics” and “contain nothing from which the reader could conclude that [the party asserting them] actually believes that they apply in this case.”). WHEREFORE, Plaintiff Grey Oaks Country Club, Inc. respectfully requests that the Court enter an order granting its Motion to Strike by striking Zurich’s Affirmative Defenses Case 2:18-cv-00639-UA-UAM Document 37 Filed 03/12/19 Page 5 of 6 PageID 642 -6- 2, 5–10, 12–15, and 17–19, together with any additional relief that the Court deems equitable, just, and proper. Dated: March 12, 2019 HUNTON ANDREWS KURTH LLP By: /s/ Walter J. Andrews Walter J. Andrews - Trial Counsel Fla. Bar No. 84863 Michael J. Mueller Fla. Bar No. 114938 Cary D. Steklof Fla. Bar No. 86257 HUNTON ANDREWS KURTH LLP 1111 Brickell Avenue, Suite 2500 Miami, Florida 33131 Tel: (305) 810-6407 Facsimile: (305) 810-2460 wandrews@HuntonAK.com mmueller@HuntonAK.com csteklof@HuntonAK.com Attorneys for Plaintiff, Grey Oaks Country Club, Inc. CERTIFICATE OF SERVICE I hereby certify that on this 12th day of March, 2019, a true and correct copy of the foregoing was served via ECF on all counsel of record. By: /s/ Walter J. Andrews Walter J. Andrews Case 2:18-cv-00639-UA-UAM Document 37 Filed 03/12/19 Page 6 of 6 PageID 643