MI Windows & Doors, LLC. et al v. Liberty Mutual Fire Insurance Company

Filing 233

ORDER overruling 133 , 134 , 153 , and 166 --Liberty's objections; granting in part the 172 --motion for partial summary judgment; denying the 173 --motion for summary judgment; denying as moot the 230 --motion to be excused from the March 2018 trial period; directing the parties to mediate with Peter J. Grilli no later than July 20, 2018; scheduling the jury trial for the August 2018 trial calendar. Signed by Judge Steven D. Merryday on 5/18/2018. (GSO)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

MI WINDOWS & DOORS, LLC, et al.,
Plaintiffs,
v.

CASE NO. 8:14-cv-3139-T-23MAP

LIBERTY MUTUAL FIRE
INSURANCE COMPANY,
Defendant.
____________________________________/

ORDER
MI Windows & Doors and MI Home Products (“MIWD”) are window and
sliding-glass-door manufacturers that purchased commercial liability insurance from
Liberty Mutual Fire Insurance Company. In 2002, several non-parties sued MIWD
in Alabama for defective windows and doors. Liberty defended MIWD in the
Alabama actions, which in 2006 settled for approximately $4.6 million
(approximately $3 million for damage to the windows and doors and $1.6 million in
“consequential damages”).
In 2007, after Liberty refused to indemnify MIWD despite a policy limit that
exceeded $4.6 million, MIWD sued Liberty in Florida for breach of contract “for
failing to fund and indemnify MIWD for the money expended to settle the five
Alabama” actions. (Doc. 56 at 11) A final judgment determined that the insurance

policy excluded a claim for damage to MIWD’s products but ordered indemnity for
approximately $1.6 million in “consequential damages.”
In 2014, in this action, MIWD sued Liberty to recover, among other things,
the approximately $3 million not covered by the insurance policy. MIWD sues
(Doc. 56) under Alabama law for “negligent failure to settle” and for “bad faith
failure to settle” and sues under Florida law for Liberty’s “statutory bad faith.”1
Liberty moves (Doc. 173) for summary judgment on all counts. MIWD moves
(Doc. 172) for a declaration that Liberty “breached its duty of good faith and fair
dealing by entirely failing to investigate the allegations of damages” in the Alabama
actions and moves for summary judgment on Liberty’s second (res judicata and
collateral estoppel), fifth (failure to mitigate), and sixth (comparative negligence)
affirmative defenses. (Doc. 172 at 2)

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Count III (“statutory bad faith”) asserts two claims. Under Section 624.155(1)(b)(1),
Florida Statutes, “any person may bring a civil action against an insurer when such person is
damaged . . . [b]y the commission of any of the following acts by the insurer: . . . Not attempting in
good faith to settle claims when, under all the circumstances, it could and should have done so, had
it acted fairly and honestly toward its insured and with due regard for her or his interests[] . . . .” But
a July 18, 2016 order dismisses the claim under Section 624.155(1)(b)(1).
The claim under Section 624.155(1)(a)(1) remains. (Doc. 102) MIWD alleges that “Liberty
Mutual violated [Section 624.155(1)(a)(1)] by making material misrepresentations to MIWD
regarding its right to coverage under the policy, with the purpose and intent of effecting settlement
on claims, loss, or damage on less favorable terms than those contemplated by the 2002-03 Liberty
Mutual policy; and by performing the following acts . . . .” (Doc. 56 at 20)

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DISCUSSION
Liberty’s motion for summary judgment.
Liberty argues that MIWD’s claims for failure to settle, pleaded under
Alabama law, suffer from the fundamental flaw that all covered damages were
within policy limits and reimbursed to MIWD in the Florida action, “leaving only
non-covered items.” (Doc. 173 at 2) Liberty adds that “[b]ecause the duty to settle
non-covered items was solely MI[WD]’s under Alabama law, and the alleged breach
of that duty is the predicate for all of MI[WD]’s claims and damages . . . its claims
cannot proceed.” (Doc. 173 at 2) Liberty contends (1) that the Alabama claims fail
because Liberty was under no duty to settle non-covered damages and (2) that any
damages both paid by MIWD in the Alabama settlements and covered by the
policies were within policy limits and fully reimbursed to MIWD in the Florida
action. MIWD responds (Doc. 179), among other things, that the Alabama claims
are sufficient and “must be presented to a jury.” (Doc. 179 at 8)
Negligent failure to settle requires the plaintiff to show that the insurer failed
to exercise reasonable care in deciding not to settle. Mutual Assur., Inc. v. Schulte, 970
So. 2d 292, 297 (Ala. 2007). To succeed on a claim for bad faith, the plaintiff must
show:
(a) an insurance contract between the parties and a breach thereof by the
defendant; (b) an intentional refusal to pay the insured’s claim; (c) the absence of
any reasonably legitimate or arguable reason for that refusal (the absence of a
debatable reason); (d) the insurer's actual knowledge of the absence of any
legitimate or arguable reason; [and] (e) if the intentional failure to determine the
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existence of a lawful basis is relied upon, the plaintiff must prove the insurer’s
intentional failure to determine whether there is a legitimate or arguable reason to
refuse to pay the claim.

National Security Fire & Casualty Co. v. Bowen, 417 So. 2d 179, 183 (Ala. 1982).
In determining liability under Alabama law for negligence and for bad faith
failure to settle, “the issue is simply . . . whether, considering all the circumstances,
the insurer failed to exercise ordinary care on the one hand or good faith on the
other.” Waters v. Am. Cas. Co. Of Reading, Pa., 73 So. 2d 254, 528 (Ala. 1953) This is
a question for the jury. Waters, 73 So. 2d at 529.
Liberty denies liability for negligent or bad faith failure to settle the Alabama
actions and insists Liberty was under no duty to settle non-covered damages. But
MIWD does not allege that Liberty should have settled and paid both covered and
non-covered claims merely to minimize MIWD’s exposure to non-covered damages.
Instead, MIWD sues for damages incurred because of Liberty’s purported failure to
investigate and settle the Alabama actions when Liberty purportedly could and
should have paid with a contribution from MIWD. (Doc. 179 at 9)
Summary judgment (on the Alabama claims) in favor of Liberty is precluded
by the existence of genuine disputes of material fact, which include whether Liberty
under the “totality of the circumstances” failed to meet Liberty’s obligations,2
2

If an insurer defends a suit under a reservation of rights letter, the insurer has an “enhanced
obligation of good faith toward its insured in conducting such a defense.” To meet this obligation
the insurer must: (1) thoroughly investigate the cause of the loss and the severity of the plaintiff's
injuries; (2) “retain competent defense counsel for the insured”; and (3) “fully [inform] the insured
not only of the reservation of rights defense itself, but of all developments relevant to his policy

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whether Liberty’s settlement decisions caused MIWD harm, and whether Liberty
adequately investigated and provided MIWD with an adequate defense.
Also, moving for summary judgment on the Florida claim, Liberty argues that
the Florida claim is “wholly barred” by litigation immunity because “[a]ll of the
alleged misconduct took place squarely within the confines of, or was related to, the
[state] court proceedings and is not actionable.” (Doc. 173 at 3) As explained in an
August 12, 2015 order (Doc. 40), which denies Liberty’s motion to dismiss Count III
on the ground of litigation immunity, litigation immunity fails to bar the Florida
claim.
MIWD’s motion for partial summary judgment.
MIWD moves for a declaration that Liberty breached the insurer’s duty of
good faith and fair dealing by failing to fully and timely investigate allegations of
damages in the Alabama actions. MIWD asserts that “there is no material dispute
concerning . . . the duty to fully and timely investigate claimed damages at
[MIWD’s] sole expense.” (Doc. 172 at 2) Also, MIWD argues (1) that res judicata
and collateral estoppel do not bar any portion of this bad faith action “because the
relief MIWD seeks arises out of a completely separate set of injuries and
circumstances than MIWD’s contractual claims” and (2) that failure to mitigate and
comparative negligence are not defenses to a bad faith claim. (Doc. 172 at 2)

coverage and the progress of his lawsuit.” L & S Roofing Supply Co., Inc. v. St. Paul Fire & Marine Ins.
Co., 521 So. 2d 1298 (Ala. 1987).

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Liberty’s purported failure to investigate the Alabama claims.
MIWD argues that because of Liberty’s alleged failure to investigate damage,
because of “shifting” coverage positions, and because of “belated ‘denial’” of
coverage, MIWD eventually settled the remaining Alabama actions for
“substantially more” than Liberty could have if Liberty had acted fairly, honestly,
and with due regard for MIWD’s interests. (Doc. 172 at 12) MIWD asserts that
Liberty “failed” to investigate any of the alleged damages in the Alabama actions
and states that the issue is whether Liberty, although “doing nothing” to investigate
the Alabama claims, satisfied the insurer’s duty of good faith and fair dealing.
(Doc. 172 at 16). Liberty disputes MIWD’s assertion that Liberty “did nothing” to
investigate the claims in the Alabama actions and responds that “the manner in
which Liberty handled the investigation of alleged . . . damages was consistent with
its good faith duty to avoid harming the insured’s interest.” (Doc. 180 at 2)
Under both Florida and Alabama law, an insurer owes a duty of good faith to
its insured. Berges v. Infinity Ins. Co., 896 So. 2d 665, 672 (Fla. 2004); Hartford Accident
and Indemnity Co. v. Cosby, 173 So. 2d 585, 592 (Ala. 1965). An insurer must “use
diligence and care in the investigation.” Dadeland Depot, Inc. v. St. Paul Fire & Marine
Ins. Co., 483 F.3d 1265, 1276 (11th Cir. 2007). “Some courts, in weighing the
responsibilities of the liability insurer, speak of bad faith; some speak of negligence;
others use the two terms interchangeably. . . . [An insurer must] exercise [a] degree
of skill, judgment, and consideration for the welfare of the insured which . . . a
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skilled professional defender of lawsuits having sole charge of the investigation,
settlement, and trial of the suit [is] expected to utilize[].” State Farm Mut. Auto. Ins.
Co. v. Hollis, 554 So. 2d 387, 391 n.2 (Ala. 1989).
The parties dispute when Liberty should have investigated and “quantified”
consequential damages. According to Liberty:
MI[WD]’s current theory is that during the early stages when the associations
were not even demanding consequential damages, Liberty should have . . .
quantified those pre-[Hurricane Ivan] activities, because they could have been
potentially sought against MI[WD] at some point in the future. . . . MI[WD]’s
theory, however, ignores the obvious ramifications of such activities. At that
time, the associations had not made any demands for such damages. If Liberty
were to obtain information about the nature and amount of consequential
damages that had been incurred, it could not do so without providing notice of
the activity to . . . the condominium unit owners.

(Doc. 180 at 6) MIWD states that “it is undisputed that the Alabama [actions]
alleged the existence of covered consequential damages resulting from MIWD’s
allegedly defective products as well as uncovered claims for the cost of replacing
products” and argues that Liberty should have investigated potential consequential
damages before the Alabama plaintiffs demanded consequential damages.
(Doc. 172 at 17)
Liberty responds that in late 2005 (after Hurricane Ivan’s passing) when the
Alabama plaintiffs for the first time quantified and presented demands for
consequential damages in three of the Alabama lawsuits, Liberty investigated these
“new” demands. (Doc. 180 at 7) “Liberty determined that Ivan damages were
attributable to a separate occurrence outside the policy period, and that pre-Ivan
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damages were minimal and within MI[WD]’s deductibles.” (Doc. 180 at 7). MIWD
argues that because Liberty failed to investigate both covered and uncovered
damages, Liberty deprived MIWD of the ability to contest or rebut the Alabama
plaintiffs’ damages and to consider settlement demands. (Doc. 172 at 18–19)
Liberty asserts that Liberty “adequately investigated” all five Alabama claims
(Doc. 180 at 4) and that the record shows that Liberty undertook a “significant
amount” of claim adjustment. (Doc. 180 at 5) Liberty asserts that Liberty’s
appointed counsel’s investigation was “thorough and reasonable” (Doc. 180 at 2)
and that Liberty never hindered or placed limitations on counsel’s defense strategy.
(Doc. 180 at 4) Liberty’s claim adjustment included reviewing counsel’s reports,
“setting reserves” and advising MIWD of settlement opportunities, attending
mediations, approving experts, reviewing defense budgets, and hiring additional
counsel when required. (Doc. 180 at 5)
Liberty argues that the defense afforded to MIWD was “appropriate”
(Doc. 180 at 8) and states that, at all times, counsel’s defense strategy was “geared to
protect MI equally from covered and non-covered claims . . . .” (Doc. 180 at 10)
The existence of numerous genuine disputes of material fact precludes granting
MIWD’s motion for a declaration that Liberty breached Liberty’s duty of good faith
and fair dealing by failing to fully and timely investigate allegations of damages in
the Alabama actions.

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Affirmative defenses.
Res judicata and collateral estoppel.
MIWD argues that its claims are not barred by either res judicata or collateral
estoppel because the relief MIWD “seeks arises out of a completely separate set of
injuries and circumstances than MIWD’s contractual claims.” (Doc. 172 at 2)
MIWD asserts that its claims for reimbursement of defense fees and costs that
MIWD paid in the underlying Alabama actions “flow” from Liberty’s purported
misrepresentations and failure to act in good faith and not from Liberty’s contractual
obligation to perform; thus res judicata fails to apply because MIWD asserts entirely
distinct extra-contractual bases for recovery of these damages. (Doc. 172 at 23)
Also, MIWD argues that Liberty’s collateral estoppel defense fails because “it is
evident from the filings and the [Florida state court’s] order on MIWD’s motion for
summary judgment that the issues of MIWD’s entitlement to reimbursement of its
defense fees and costs and Liberty’s failure to provide an adequate defense were
never litigated or adjudicated by the court.” (Doc. 172 at 23)
Liberty responds that although MIWD “labels its current claims ‘bad faith’
and ‘negligence,’ discovery has revealed that MI[WD] incorporates into those
overarching claims: (1) a contractual claim for breach of the duty to defend
(inadequate defense); and (2) an Alabama claim for breach of the enhanced duty of
good faith . . . . These claims are purely contractual claims that MI[WD] could
have, but failed to bring in the” Florida action. (Doc. 180 at 18) Liberty moves to
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“sever and dispose of the portions of MI[WD]’s claims that are premised on any
matters involving the adequacy or quality of the defense or defense counsel’s
performance and investigation, and damage elements that MI[WD] either could have
or did seek” in the Florida action. (Doc. 180 at 20)
“For the doctrine of res judicata to apply, several conditions must exist, which
include: identity of the thing sued for; identity of the cause of action; identity of the
parties and identity of the quality in the person for or against whom the claim is
made.” Dadeland Depot, Inc. v. St. Paul Fire and Marine Ins. Co., 945 So. 2d 1216, 1235
(Fla. 2006). As explained in Dadeland Depot, the first two factors are not met if a
policyholder sues its insurer for breach of contract and subsequently sues the same
insurer for bad faith. Also, a plaintiff cannot raise a Florida “statutory bad faith”
claim in a breach of contract claim because the action cannot begin before a
judgment holds that the insurer breached its contractual obligations. Dadeland Depot,
945 So. 2d at 1235. MIWD’s claims for reimbursement of fees and costs paid in
defending the Alabama actions flow from Liberty’s purported misrepresentations and
failures to act in good faith and not from a contractual obligation to perform; MIWD
asserts distinct “extra-contractual” bases for recovery of damages. (Doc. 179 at 18)
Collateral estoppel prevents the same parties from relitigating the same issues.
Department of Health and Rehabilitative Services v. B.J.M., 656 So. 2d 906, 910
(Fla. 1995). “The essential elements of the doctrine are that the parties and issues be

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identical and that the particular matter be fully litigated and determined in a contest
which results in a final decision of a court of competent jurisdiction . . . . [C]ollateral
estoppel precludes relitigation of issues actually litigated in a prior proceeding.”
B.J.M., 656 So. 2d at 910. MIWD’s entitlement to reimbursement of MIWD’s
defense fees and costs and Liberty’s purported failure to adequately defend were
never litigated or adjudicated in the Florida action.
Liberty’s argument that the claims for breach of the duty to defend and for
breach of the enhanced duty of good faith are purely contractual claims that MIWD
should have brought in the Florida action lacks merit. (Doc. 180 at 18–19) The
portions of the claims that deal with the adequacy and quality of the defense afforded
to Liberty are essential elements in determining whether Liberty acted in good faith
toward MIWD. “[A] claim arising from bad faith is grounded upon the legal duty to
act in good faith, and is thus separate and independent of the claim arising from [a]
contractual obligation to perform.” Dadeland Depot, 945 So. 2d at 1235. Liberty’s
second affirmative defense fails because the present claims were neither litigated nor
adjudicated in the Florida action.
Mitigation of damages.
First, MIWD argues that a failure to mitigate damages by effecting a favorable
settlement is not a defense to a bad faith claim. See Weisler v. Safeco Ins. Co. Of Illinois,
14-CV-81107, 2015 WL 11281290, at *3 (S.D. Fla. Apr. 9, 2015) (“The failure to
mitigate is a defense relating to a breach of contract action.”). Second, MIWD
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argues that if an insurer undertakes to defend an insured against a claim, the insured
loses control over settlement and the insured cannot settle without breaching the
contract. (Doc. 172 at 23–25) MIWD asserts that because Liberty had full control
over any settlement, MIWD had no duty or right to mitigate damages. Liberty
responds that “Alabama and Florida courts deem the insured’s conduct relevant to
whether the insurer acted in bad faith.” (Doc. 180 at 21) Also, Liberty asserts that
because MIWD admits that Liberty permitted MIWD to independently settle the
Alabama claims, MIWD had the duty and the ability to reduce its exposure to “noncovered” claims. (Doc. 180 at 21)
Alabama law recognizes failure to mitigate damages as an affirmative defense.
Prudential Ballard Realty Co. v. Weatherly, 792 So.2d 1045, 1048 (Ala. 2000). An
insured’s duty to mitigate damages does not terminate when the insurer breaches a
duty to timely settle a claim. State Farm v. Slade, 747 So. 2d 293, 321 (Ala. 1999);
Real Asset Management, Inc. v. Lloyd’s of London, 61 F.3d 1223, 1230 (5th Cir. 1995).
Citing a single case, Caldwell v. Allstate Ins. Co., 453 So. 2d 1187, 1191
(Fla. 1st DCA 1984), Liberty asserts that failure to mitigate is a valid defense to a
Florida bad faith claim. But Caldwell is distinguishable on the facts. In Caldwell the
insured had a contractual right to competent legal representation by the insurer.
Caldwell holds that even though the insurer failed to furnish counsel, the insured is
under a duty to avoid the consequences of the breach by employing counsel himself.

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Caldwell fails to establish a general rule that failure to mitigate is a defense to a
Florida bad faith action. Liberty fails to identify any precedent that establishes
failure to mitigate as a defense to a Florida bad faith claim.
Comparative and contributory negligence.
Affirmative defense six states that “MIWD’s claims are barred, or any
damages awardable must be reduced, based upon MIWD’s comparative negligence.”
(Doc. 108 at 13) MIWD argues that comparative negligence is no defense to a claim
of bad faith. (Doc. 172 at 25) Liberty responds that to the extent MIWD’s damages
were caused my MIWD’s own negligence, Liberty is entitled to present evidence to a
jury of the extent to which MIWD’s damages were caused by MIWD’s own
conduct. (Doc. 180 at 20) Under Florida law, “comparative bad faith” or
“comparative negligence” is no defense to a bad faith claim. Nationwide Property &
Cas. Ins. Co. v. King, 568 So. 2d 990 (Fla. 4th DCA 1990); Royal Indem. Co. v. Liberty
Mut. Fire Ins. Co., No. 07-80172-CIV, 2008 WL 557963, at *1
(S.D. Fla. Feb. 28, 2008).
Alabama law recognizes no “contributory bad faith” defense to a claim of bad
faith. White v. State Farm Fire & Cas. Co., 953 So. 2d 340, 351 (Ala. 2006) (holding
that “we pretermit consideration at this time of whether Alabama should recognize
‘contributory bad faith’ on the part of the insured as a defense to the tort of bad-faith
failure to pay an insurance claim, and if we should recognize that defense, what

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effect it would have upon the tort of bad faith.”). But Alabama law recognizes
contributory negligence as a complete defense to a claim of negligence. Kanellis v.
Pacific Indem. Co., 917 So. 2d 149, 155 (Ala. 2005) (“Like any negligence claim, a
claim in tort alleging a negligent failure of an insurance agent to fulfill a voluntary
undertaking to procure insurance, such as that asserted by the [plaintiff] in this case,
requires demonstration of the classic elements of a negligence theory[] . . . . Under
Alabama law, however, contributory negligence is a complete defense to a claim
based on negligence.”). The plaintiff fails to identify any Alabama precedent that
bars a defendant from pleading contributory negligence as a defense to a claim of
negligent failure to settle. Liberty can plead contributory negligence as a defense to
Count I. But Liberty cannot plead contributory bad faith as a defense to Count II
and cannot plead comparative bad faith as a defense to Count III.
Liberty’s objections to the magistrate judge’s rulings on discovery.
Liberty objects (Docs. 133, 134, 153, 166) to six of the magistrate judge’s
orders on discovery. (Docs. 128, 129, 130, 147, 161, 162) Under Rule 72(a), Federal
Rules of Civil Procedure, a party can object to a magistrate judge’s order within
fourteen days; the district judge must “modify or “set aside any part of the order that
is clearly erroneous or is contrary to law.”
A review of the orders (Docs. 128, 129, 130, 147, 161, 162) reveals that
Liberty’s objections are unfounded and that the orders are neither clearly erroneous
nor contrary to law. Liberty’s objections are OVERRULED.

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CONCLUSION
MIWD’s motion (Doc. 172) for partial summary judgment is GRANTED-INPART. MIWD’s motion for summary judgment on affirmative defense two is
GRANTED. MIWD’s motion for summary judgment on affirmative defense five is
GRANTED-IN-PART. As to Count III, Liberty cannot plead the affirmative
defense of mitigation. MIWD’s motion for summary judgment on affirmative
defense six is GRANTED-IN-PART. As to Count II, Liberty cannot plead the
affirmative defense of contributory bad faith, and as to Count III, Liberty cannot
plead the affirmative defense of comparative bad faith. MIWD’s motion for a
declaration that Liberty breached the duty of good faith and fair dealing by failing to
fully and timely investigate allegations of damages in the Alabama actions is
DENIED.
Liberty’s motion (Doc. 173) for summary judgment is DENIED. Liberty’s
motion (Doc. 230) “to be excused” from the March 2018 trial period is DENIED AS
MOOT. No later than JULY 20, 2018, the parties must mediate with Peter J. Grilli.
A jury trial will occur during the AUGUST 2018 trial term.
ORDERED in Tampa, Florida, on May 18, 2018.

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