David R. Farbstein, P.A. et al v. Westport Insurance Corporation

Filing 52

ORDER ON MOTIONS FOR SUMMARY JUDGMENT. ORDER denying 30 Motion for Partial Summary Judgment; granting 37 Motion for Summary Judgment. Signed by Judge Beth Bloom on 8/9/2017. (kpe)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 16-cv-62361-BLOOM/Valle
DAVID R. FARBSTEIN, P.A.,
and DAVID R. FARBSTEIN,
Plaintiffs/Counter-Defendants,
v.
WESPORT INSURANCE CORPORATION,
Defendant/Counter-Plaintiff,
________________________________________/
WESTPORT INSURANCE CORPORATION,
Third Party Plaintiff,
v.
CARAVAN, INC.,
Third Party Defendant.
_________________________________________/
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
THIS CAUSE is before the Court upon Plaintiffs David R. Farbstein, P.A. and David R.
Farbstein (“Plaintiffs”) Motion for Partial Summary Judgment Regarding Defendant’s Duty to
Defend, ECF No. [30] (“Plaintiff’s Motion”), and Defendant/Counter-Plaintiff/Third-Party
Plaintiff Westport Insurance Corporation’s (“Westport”) Motion for Summary Judgment, ECF
No. [37], (“Westport’s Motion”) (collectively, the “Motions”). The Court has carefully reviewed
the Motions, the record, all supporting and opposing filings, the exhibits attached thereto, and is

Case No. 16-cv-62361-BLOOM/Valle
otherwise fully advised. For the reasons that follow, Westport’s Motion is granted and Plaintiffs’
Motion is denied.
I.

BACKGROUND
A. The Underlying Lawsuit
On March 7, 2016, Third-Party Defendant, Caravan, Inc. (“Caravan”) filed a Verified

Complaint (the “underlying complaint”) against David R. Farbstein (“Farbstein”) in the Fifteenth
Judicial Circuit in and for Palm Beach County, Florida, Case No. 2016 CA 002459 (AF) (“the
underlying lawsuit”). See ECF No. [30-1]; ECF No. [30] at ¶ 4. In the underlying lawsuit,
Caravan alleges that on or about March 15, 2015, it began to negotiate a contract for the sale of
real property known as the Hatteras apartments. See ECF No. [30-1] at ¶ 7; ECF No. [30] at ¶ 4.
The existing mortgage on the Hatteras apartments contained a pre-payment penalty. See ECF
No. [30-1] at ¶ 9; ECF No. [30] at ¶ 5. The underlying complaint further alleges that, on March
30, 2015, Caravan retained Farbstein to represent it in the sales transaction and the negotiation of
the sales contract, including negotiating a deal by which Caravan would not pay the pre-payment
penalty on the mortgage. See ECF No. [30-1] at ¶ 10; ECF No. [30] at ¶ 5. Prior to retaining
Farbstein, Caravan allegedly emphasized that it would only sell the property if the purchaser
would either (1) assume the existing mortgage or (2) pay the pre-payment penalty. See ECF No.
[30-1] at ¶ 11.

Caravan states that Farbstein provided assurances that, as part of his

representation, he would indeed negotiate these terms into the sales contract. Id. at ¶ 12.
Approximately two to three weeks before the July 21, 2015 closing, it was discovered that the
sales contract did not require the purchaser to assume the mortgage or pay the penalty. Id. at ¶
16. After this discovery but before the closing, Caravan and Farbstein specifically discussed this
situation and Farbstein counseled Caravan to close on the deal because, otherwise, Caravan

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would be sued for specific performance and would lose. Id. at ¶ 17. Based on this advice,
Caravan alleges that it closed on the transaction and paid a penalty totaling $482,604.94. Id. at
¶¶ 15 and 17. Also during this conversation, Caravan alleges that Farbstein “made reference to
[his] errors and omissions policy.” Id. at ¶ 18. Based on these allegations, Caravan filed a
negligence claim against Farbstein, alleging he knew or should have known that the purchaser
could buy the Hatteras apartments with a new mortgage and was under no obligation to assume
the existing mortgage or otherwise pay the penalty. Id. at ¶ 20. Despite allegedly knowing that
the buyer had none of these obligations, Caravan alleges that Farbstein indicated otherwise. Id.
at ¶ 21.
B. The Insurance Application
Approximately one month after the closing on the Hatteras apartments, on August 26,
2015, Farbstein completed and signed the Westport Renewal Application, a lawyers professional
liability insurance renewal application for a claims-made and reported policy. See ECF No. [382]; ECF No. [30] at ¶ 12; ECF No. [38] at ¶ 5. Farbstein answered “no” to the following two
questions:
15. During the current policy year have any claims or suits been made against the
applicant, its predecessor firms or any individual proposed for this insurance and
not previously reported to the carrier?
16. Is the applicant, its predecessor firms or any individual proposed for this
insurance aware of any circumstance, act, error, omission or personal injury
which might be expected to be the basis of a legal malpractice claim or suit that
has not previously been reported to the carrier?
Id. The application, which Farbstein signed, states: “this application and any supplements
executed in support of this application shall become the basis of any coverage to be issued by
Westport Insurance Corporation.” See ECF No. [38-2]; ECF No. [38] at ¶ 6. Thereafter, on
October 5, 2015, Farbstein signed a Warranty Statement, which states in part:
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This is to acknowledge that I/we am/are not aware of any claim and/or any
circumstances, acts, errors or omissions that could result in a professional liability
claim.
This will also certify that to the best of my/our knowledge, the information given
on the Westport application is unchanged since it was completed on 08/26/15,
including supplemental information provided.
ECF No. [38-3]; ECF No. [38] at ¶ 7.
C. The Insurance Policy
On October 12, 2015, Westport issued a claims-made and reported Lawyers Professional
Liability Policy to David R. Farbstein, P.A., policy number WLA308002841311 and renewal of
policy number WLA308002841310, with a policy period commencing October 12, 2015 and
ending on October 12, 2016 (the “Policy”). See ECF No. [30] at ¶ 14; ECF No. [30-3]; ECF No.
[38] at ¶¶ 1 and 2; and ECF No. [38-1]. The Policy, in pertinent part, covers the following:
I.

INSURING AGREEMENTS
A. The Company shall pay on behalf of any INSURED all LOSS in
excess of the deductible which any INSURED becomes legally
obligated to pay as a result of CLAIMS first made against any
INSURED during the POLICY PERIOD and reported to the Company
in writing during the POLICY PERIOD or within sixty (60) days
thereafter, by reason of any alleged WRONGFUL ACT occurring on
or after the RETROACTIVE DATE, if any.

ECF No. [30] at ¶ 14; ECF No. [30-3] at 12.
The Policy also states the following with regard to its duty to defend:
B. DEFENSE, INVESTIGATION AND SETTLEMENT OF CLAIMS
As respects such insurance as is afforded by this POLICY:
A. The Company shall have the right and duty to select counsel and
arbitrators and to defend any CLAIM for LOSS against any INSURED
covered by Section I Insuring Agreement A, even if such CLAIM is
groundless, false or fraudulent, and shall have the right to make such
investigation, negotiation and settlement, subject to Section V,
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Case No. 16-cv-62361-BLOOM/Valle
CONDITIONS C2 below, of any CLAIM as it deems expedient. If no
coverage exists for the CLAIM, the Company shall have the right to
recover from the NAMED INSURED any LOSS paid and/or CLAIMS
EXPENSES paid to defend the CLAIM.
ECF No. [30] at ¶ 14; ECF No. [30-3] at 19.
The central issue in this action involves the application of the following exclusion (the
“prior-knowledge exclusion”) contained within the Policy:
IV. EXCLUSIONS
This POLICY shall not apply to any CLAIM based upon, arising out of,
attributable to, or directly or indirectly resulting from:
...
B. Any WRONGFUL ACT occurring prior to the effective date of the
POLICY PERIOD for this lawyers professional liability policy issued
by the Company to the NAMED INSURED if (a) the WRONGFUL
ACT had previously been reported to any other insurance company or
(b) if the INSURED at the effective date of the POLICY PERIOD for
this lawyers professional liability policy issued by the Company to the
NAMED INSURED knew or could have reasonably foreseen that such
WRONGFUL ACT might be expected to be the basis of a CLAIM.
ECF No. [30] at ¶ 15; ECF No. [30-3] at 17; ECF No. [38] at ¶ 4.
The Policy also defines the terms “CLAIM” and “WRONGFUL ACT,” in
relevant part, as follows:
III. DEFINITIONS
As respects such insurance as is afforded by this POLICY, the following
definitions shall apply:
...
C. ‘CLAIM’ MEANS:
1. A demand made upon any INSURED for LOSS including, but not
limited to, service of suit, or institution of arbitration proceedings
or administrative proceedings against any INSURED; or

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Case No. 16-cv-62361-BLOOM/Valle
2. A request for any INSURED to toll or waive a statute of
limitations.
...
X. ‘WRONGFUL ACT’ MEANS:
1. any act, error, omission, circumstance, PERSONAL INJURY or
breach of duty in the rendition of PROFESSIONAL SERVICES
for other . . .
ECF No. [30] at ¶ 16; ECF No. [30-3] at 13 and 16.
D. The Denial of Coverage
After receiving a copy of the underlying complaint, on March 20, 2016, Plaintiffs notified
Westport of the underlying lawsuit. See ECF No. [30] at ¶ 17; ECF No. [38] at 10. Westport
thereafter mailed Plaintiffs a letter invoking the prior-knowledge exclusion, quoted above, and
denying coverage. See ECF No. [30] at ¶ 17; ECF No. [30-4]; ECF No. [38] at ¶ 10. In doing
so, Westport denied Plaintiffs both a defense and indemnity for the claims. See ECF No. [30-4]
at 6.
E. The Declaratory Action
On August 25, 2016, Plaintiffs filed a Complaint against Westport in the Seventeenth
Judicial Circuit in and for Broward County, Florida, Case No. CACE 16-015714. See ECF No.
[1-2]. Westport thereafter removed the action to the Southern District of Florida. Id. Within the
Complaint, Plaintiffs seek a declaration that, under the Policy, Westport has the duty to defend
and indemnify them against the claims in the underlying lawsuit (Count I) and a finding that
Westport’s denial of coverage constitutes a breach of the insurance contract (Count II). Id.
Westport, in turn, filed a Counterclaim against Plaintiffs and a Third-Party Claim against
Caravan, seeking a declaration that, under the Policy, it does not owe Plaintiffs a duty to defend
or a duty to indemnify them for the claims pled in the underlying lawsuit. See ECF No. [15].

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Plaintiffs filed their Motion for Partial Summary Judgment, seeking a declaration that
Westport has a duty to defend them under the Policy. See ECF No. [30]. Westport, in turn, filed
its own Motion for Summary Judgment on all claims. See ECF No. [37]. Plaintiffs and Westport
filed timely Responses and Replies. See ECF Nos. [33], [34], [39], [48], [49], and [50]. ThirdParty Defendant, Caravan, did not respond or otherwise oppose Westport’s Motion even though
it encompasses the Third-Party Claims pled against Caravan. 1
II.

LEGAL STANDARD
The parties have filed and briefed cross-motions for summary judgment on the same legal

issue – whether Westport owes Plaintiffs a duty to defend and indemnify them for the claims
alleged in the underlying lawsuit. A district court applies the same legal standards when ruling
upon cross-motions for summary judgment as it does when only one party files a motion. See
Certain Underwriters at Lloyds, London Subscribing to Policy No. SA 10092-11581 v.
Waveblast Watersports, Inc., 80 F. Supp. 3d 1311, 1316 (S.D. Fla. 2015). “Cross-motions may,
however, be probative of the absence of a factual dispute where they reflect general agreement
by the parties as to the controlling legal theories and material facts.” Id. (quoting S. Pilot Ins.
Co. v. CECS, Inc., 52 F. Supp. 3d 1240, 1243 ((N.D. Ga. 2014)).
A court may grant a motion for summary judgment “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
1

The Court notes that Caravan’s Answer and Affirmative Defenses to the Third-Party Complaint states in part:
Moreover, Westport is seeking a declaratory judgment as to whether or not it has to defend and/or
indemnify Farbstein. That is clearly a dispute between Westport and Farbstein. Whether or not
Westport is obligated to provide a defense and/or indemnify Farbstein is based on a contractual
relationship between Westport and Farbstein. Caravan is not a party to such contract, is not a
necessary party in the dispute between Westport and Farbstein and should not be forced to be
involved in the dispute between Westport and Farbstein. . . . Therefore, Caravan should not be
forced to litigate its case in both State Court and Federal Court and should be dismissed from the
Federal Court Lawsuit.

ECF No. [29].

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Case No. 16-cv-62361-BLOOM/Valle
law.” Fed. R. Civ. P. 56(a). The parties may support their positions by citation to the record,
including, inter alia, depositions, documents, affidavits, or declarations. See Fed. R. Civ. P.
56(c).

An issue is genuine if “a reasonable trier of fact could return judgment for the

non-moving party.” Miccosukee Tribe of Indians of Fla. v. United States, 516 F. 3d 1235, 1243
(11th Cir. 2008) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986)). A fact
is material if it “might affect the outcome of the suit under the governing law.” Id. (quoting
Anderson, 477 U.S. at 247-48). The court views the facts in the light most favorable to the
non-moving party and draws all reasonable inferences in the party’s favor.

See Davis v.

Williams, 451 F.3d 759, 763 (11th Cir. 2006). “The mere existence of a scintilla of evidence in
support of the [non-moving party’s] position will be insufficient; there must be evidence on
which a jury could reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252. The
Court does not weigh conflicting evidence. See Skop v. City of Atlanta, Ga., 485 F.3d 1130,
1140 (11th Cir. 2007) (quoting Carlin Comm’n, Inc. v. S. Bell Tel. & Tel. Co., 802 F.2d 1352,
1356 (11th Cir. 1986)).
The moving party shoulders the initial burden to demonstrate the absence of a genuine
issue of material fact. See Shiver v. Chertoff, 549 F.3d 1342, 1343 (11th Cir. 2008). If a movant
satisfies this burden, “the nonmoving party ‘must do more than simply show that there is some
metaphysical doubt as to the material facts.’” Ray v. Equifax Info. Servs., L.L.C., 327 F. App’x
819, 825 (11th Cir. 2009) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 586 (1986)). Instead, “the non-moving party ‘must make a sufficient showing on each
essential element of the case for which he has the burden of proof.’” Id. (quoting Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986)). The non-moving party must produce evidence, going
beyond the pleadings, and by its own affidavits, or by depositions, answers to interrogatories,

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Case No. 16-cv-62361-BLOOM/Valle
and admissions on file, designating specific facts to suggest that a reasonable jury could find in
the non-moving party’s favor. Shiver, 549 F.3d at 1343. But even where an opposing party
neglects to submit any alleged material facts in controversy, a court cannot grant summary
judgment unless it is satisfied that all of the evidence on the record supports the uncontroverted
material facts that the movant has proposed. See Reese v. Herbert, 527 F.3d 1253, 1268-69,
1272 (11th Cir. 2008); United States v. One Piece of Real Prop. Located at 5800 S.W. 74th Ave.,
Miami, Fla., 363 F.3d 1099, 1103 n.6 (11th Cir. 2004).
III.

DISCUSSION
Moving for partial summary judgment, Plaintiffs ask the Court to find that Westport has a

duty to defend them from Caravan’s claims in the underlying lawsuit. See ECF No. [30].
However, Plaintiffs ask the Court to defer any decision on the duty to indemnify until the
proceedings in the underlying lawsuit are finalized. Id. at 2, n. 1. Westport, on the other hand,
seeks summary judgment on all issues, asking the Court to find that it neither has a duty to
defend nor a duty to indemnify Plaintiffs. See ECF No. [37]. Because the parties filed crossmotions for summary judgment on overlapping issues, the Court will address the Motions
together.
A. Interpretation of an Insurance Policy
“Under Florida law, an insurance policy is treated like a contract, and therefore ordinary
contract principles govern the interpretation and construction of such a policy.” Pac. Emp’rs Ins.
Co. v. Wausau Bus. Ins. Co., No. 3:05-cv-850-J-32TEM, 2007 WL 2900452, at *4 (M.D. Fla.
Oct. 2, 2007) (citing Graber v. Clarendon Nat’l Ins. Co., 819 So. 2d 840, 842 (Fla. 4th DCA
2002)). As with all contracts, the interpretation of an insurance contract – including determining
whether an insurance provision is ambiguous – is a question of law to be determined by the

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Case No. 16-cv-62361-BLOOM/Valle
court. Id.; Travelers Indem. Co. of Illinois v. Hutson, 847 So. 2d 1113 (Fla. 1st DCA 2003)
(stating that whether an ambiguity exists in a contract is a matter of law).
Further, “[u]nder Florida law, insurance contracts are construed according to their plain
meaning.” Garcia v. Fed. Ins. Co., 473 F.3d 1131, 1135 (11th Cir. 2006) (quoting Taurus
Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528, 532 (Fla. 2005)). The “terms of an
insurance policy should be taken and understood in their ordinary sense and the policy should
receive a reasonable, practical and sensible interpretation consistent with the intent of the partiesnot a strained, forced or unrealistic construction.” Siegle v. Progressive Consumers Ins. Co., 819
So. 2d 732, 736 (Fla. 2002) (quoting Gen. Accident Fire & Life Assurance Corp. v. Liberty Mut.
Ins. Co., 260 So. 2d 249 (Fla. 4th DCA 1972)); see also Gilmore v. St. Paul Fire & Marine Ins.,
708 So. 2d 679, 680 (Fla. 1st DCA 1998) (“The language of a policy should be read in common
with other policy provisions to accomplish the intent of the parties.”). However, if there is more
than one reasonable interpretation of an insurance policy, an ambiguity exists and it “should be
construed against the insurer.” Pac. Emp’rs Ins., 2007 WL 2900452 at *4 (citing Purelli v. State
Farm Fire & Cas. Co., 698 So. 2d 618, 620 (Fla. 2d DCA 1997)).
A coverage clause is generally interpreted as broadly as possible to ensure the greatest
amount of insurance coverage. Id. at *5 (citing Westmoreland v. Lumbermens Mut. Cas. Co.,
704 So. 2d 176, 179 (Fla. 5th DCA 1997)). To determine the parties’ contractual intent, a court
may only consider the language in the insurance policy, unless the policy is ambiguous.
Fireman’s Fund Ins. Co. v. Tropical Shipping & Constr. Co., Ltd., 854 F.2d 1264, 1267 (11th
Cir. 2001) (citing Towne Realty v. Safeco Ins. Co. of Am., 854 F.2d 1264, 1267 (11th Cir. 1988)).
“As a general rule, in the absence of some ambiguity, the intent of the parties to a written
contract must be ascertained from the words used in the contract, without resort to extrinsic

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Case No. 16-cv-62361-BLOOM/Valle
evidence.”

Id. (quoting Lee v. Montgomery, 624 So. 2d 850, 851 (Fla. 1st DCA 1993)).

“Although the insured bears the burden of proving that a claim is covered by the insurance
policy, the ‘burden of proving an exclusion to coverage is . . . on the insurer.’” Diamond State
Ins. Co. v. Boys’ Home Assoc., Inc., 172 F. Supp. 3d 1326, 1334 (M.D. Fla. 2016) (omissions in
original) (quoting LaFarge Corp. v. Travelers Indem. Co., 118 F.3d 1511, 1516 (11th Cir.
1997)).
B. Duty to Defend
The threshold issue in this case is whether Westport owes Plaintiffs a duty to defend them
from Caravan’s claims in the underlying lawsuit. Westport has denied coverage, including the
duty to defend and the duty to indemnify, on the basis of the Policy’s prior-knowledge exclusion.
More specifically, Westport argues that, at the inception of the Policy, Farbstein knew or could
have reasonably foreseen that his representation of Caravan in the sale of the Hatteras apartments
might be expected to be the basis of a claim. Not surprisingly, Plaintiffs take the opposite view
and contend that, at the inception of the Policy, Farbstein did not know and could not have
reasonably foreseen the claim. To resolve this issue, the Court must first undertake a review of
the applicable standard when analyzing an insurer’s duty to defend.
“Under Florida law, the general rule is that an insurance company’s duty to defend an
insured is determined solely from the allegations in the complaint against the insured, not by the
true facts of the cause of action against the insured, the insured’s version of the facts or the
insured’s defenses.” State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226, 1230 (11th Cir.
204) (citing Amerisure Ins. Co. v. Gold Coast Marine Distrib., Inc., 771 So. 2d 579, 580-81 (Fla.
4th DCA 2000)). This holds true regardless of whether the allegations are later revealed to be
false or even if they seem fraudulent on their face. Kopelowitz v. Home Ins. Co., 977 F. Supp.

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1179, 1185 (S.D. Fla. 1997) (citing Smith v. Gen. Accident Ins. Co. of Am., 641 So. 2d 123, 123
(Fla. 4th DCA 1994) and St. Paul Fire & Marine Ins. v. Icard, 196 So. 2d 219 (Fla. 2d DCA
1967)); see also Diamond State, 172 F. Supp. 3d at 1335 (“The actual facts of the situation are
not relevant, such that ‘the insurer must defend even if facts alleged are actually untrue or legal
theories unsound.’”) (quoting Lawyers Title Ins. Corp. v. JDC (America) Corp., 52 F.3d 1575,
1580 (11th Cir. 1995)).
Courts in Florida will typically analyze the duty to defend by comparing the coverage
afforded under the policy to the allegations in the underlying complaint.

See Feldman v.

Imperium Ins. Co., No. 8:14-cv-1637-T-30EAJ, 2015 WL 5854153, at *7 (M.D. Fla. Oct. 5,
2015). Upon a review of the underlying complaint, if the allegations state facts that bring the
claim within the policy’s coverage, the insurer is required to defend the insured regardless of the
claim’s merits. State Farm, 393 F.3d at 1230. All doubts relating to the duty to defend must be
resolved in the insured’s favor.

Id. When the underlying complaint “contains allegations

partially within and partially outside the scope of coverage, the insurance carrier is required to
defend the entire suit.” Tropical Park, Inc., 357 So. 2d at 256; see also McCreary v. Fla.
Residential Prop. & Cas. Joint Underwriting Assoc., 758 So. 2d 692, 695 (Fla. 4th DCA 2000)
(“[A]n insurer must defend a lawsuit against its insured if the underlying complaint, when fairly
read, alleges facts which create potential coverage under the policy.”).
Here, Plaintiffs ignore the allegations of the underlying complaint and instead submit
extrinsic evidence in the form of deposition transcripts and an affidavit to support their Motion
without addressing why such evidence should be considered in deciding Westport’s duty to
defend. Curiously, Plaintiffs repeatedly cite to Florida law stating that the duty to defend must
be based solely on the underlying complaint and criticize Westport for its submission of extrinsic

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evidence. See ECF No. [48] at 2. However, Plaintiffs’ Motion is devoid of any analysis of the
underlying allegations. See ECF Nos. [30] and [39]. Westport similarly supplies the Court with
deposition testimony, discovery responses, and Farbstein’s Answer in the underlying lawsuit to
support its position, asking the Court to find that exceptional circumstances warrant the
consideration of such evidence. 2 See ECF No. [34] at 8-9. The parties’ focus on extrinsic
evidence - matters beyond the Policy and the underlying complaint - is unnecessary and
inapposite to the analysis that is required by the Court. See Kopelowitz, 977 F. Supp. at 1188
(“[I]t is the allegations of the Third Amended Complaint that govern, not the interpretations of
the parties or even the underlying facts which may or may not support those allegations.”)
While it is true that Florida’s courts have considered extrinsic evidence when analyzing
the duty to defend, such consideration of matters beyond the underlying complaint have occurred
only under rare circumstances. See Feldman, 2015 WL 5854153 at *7 (analyzing the limited
occasions on which Florida’s appellate courts have considered evidence extrinsic to the
underlying complaint in a duty-to-defend analysis); Diamond State, 172 F. Supp. 3d at 1339
(same). The Eleventh Circuit has cautioned that consideration of such evidence should be
“reserved for ‘special circumstances’ in which extrinsic ‘facts are undisputed, and, had they been
pled in the complaint, they clearly would have placed the claims outside the scope of coverage.’”
Feldman, 2015 WL 5854153 at *8 (quoting Stephens v. Mid-Continent Cas. Co., 749 F.3d 1318,
1323-24 (11th Cir. 2014)).

Such evidence can be considered when analyzing the prior-

knowledge exclusion only if the underlying complaint does not contain the facts relevant to
whether the insured knew of the alleged wrongful act prior to the inception of the policy. See

2

In its Response, Westport anticipates an argument that Plaintiff may raise in its Reply relating to paragraph 18 of
the underlying complaint, stating that if such an argument is made, the Court should consider matters beyond the
underlying complaint. See ECF No. [34]. Plaintiffs, however, made no such argument about paragraph 18 in their
Reply or in their Response to Westport’s Motion. See ECF Nos. [39] and [48].

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Diamond State, 172 F. Supp. 3d at 1340 (“While the general rule is that the duty to defend is
based solely on the underlying complaint, an exception arises where that pleading would not be
expected to disclose the facts necessary to determine the duty to defend”) (quoting Composite
Structures Inc. v. Cont’l Ins. Co., 903 F. Supp. 2d 1284, 1285 (M.D. Fla. 2012)).
The Court’s review of the underlying complaint, however, reveals that the necessary facts
to determine the applicability of the prior-knowledge exclusion are present.

The pleading

contains allegations regarding the relationship between Caravan and Plaintiffs, how the events
involving the sales contract unfolded, and the precise moment when Plaintiffs were on notice of
a potential malpractice issue as explained below. The only fact not addressed in the underlying
complaint that is germane to the exclusion is the date of the closing on the Hatteras apartments –
a date to which both parties stipulated as July 21, 2015. See ECF No. [30] at ¶ 9; ECF No. [33]
at ¶ 9. Thus, the Court declines to consider any other evidence submitted extrinsic to the
underlying complaint as all other facts necessary to analyze the prior-knowledge exclusion are
already present within the pleading.
Turning the focus to whether Westport owes Plaintiffs a defense, the Court must now
apply the prior-knowledge exclusion to the allegations of the underlying complaint. 3

The

exclusion provides as follows:
IV. EXCLUSIONS
This POLICY shall not apply to any CLAIM based upon, arising out of,
attributable to, or directly or indirectly resulting from:
...
D. Any WRONGFUL ACT occurring prior to the effective date of the
POLICY PERIOD for this lawyers professional liability policy issued
by the Company to the NAMED INSURED if (a) the WRONGFUL
3

Plaintiffs rely upon numerous decisions that either do not apply Florida law or do not draw a distinction between
the duty to defend and the duty to indemnify in their analysis. To the extent these cases do not follow Florida’s rules
of insurance policy interpretation or do not focus on the specific standard required to determine an insurer’s duty to
defend, the Court does not find the analysis persuasive as applied to the specific issues raised by the Motions.

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ACT had previously been reported to any other insurance company or
(b) if the INSURED at the effective date of the POLICY PERIOD for
this lawyers professional liability policy issued by the Company to the
NAMED INSURED knew or could have reasonably foreseen that such
WRONGFUL ACT might be expected to be the basis of a CLAIM.
ECF No. [30] at ¶ 15; ECF No. [30-3] at 17; ECF No. [38] at ¶ 4.
As a preliminary matter, the Court finds that the language of the prior-knowledge
exclusion is not ambiguous. Plaintiff does not argue that the language is ambiguous and many
courts interpreting substantially similar policy language have deemed it unambiguous. See
Diamond State, 172 F. Supp 3d at 1337; Feldman, 2015 WL 5854153 at *6, Cuthill & Eddy LLC
v. Cont’l Cas. Co., 784 F. Supp. 2d 1331, 1337 (M.D. Fla. 2011).

To trigger the prior-

knowledge exclusion, the underlying complaint must show one of two circumstances: (1) “the
insured ‘knew’ that a wrongful act might be expected to be the basis of a claim;” or (2) “the
insured ‘could have reasonable foreseen’ that a wrongful act might be expected to be the basis of
a claim.’” Feldman, 2015 WL 5854153 at *6. The first circumstance applies a subjective test by
requiring that the insured have actual knowledge. Id. (citing Fid. Nat’l Title Ins. Co. v. Houston
Cas. Co., No. 6:11-cv-1438, 2012 WL 4523666, at *5 (M.D. Fla. Sept. 30, 2012)). The second
circumstance contains objective and subjective components by inquiring whether the insured
“could have reasonably foreseen that a wrongful act might be expected to be the basis of a
claim” (objective) and by requiring that this be based on facts known to the insured (subjective).
Id.; see also Diamond State, 172 F. Supp. 3d at 1337 (applying same test); Corregis Ins. Co. v.
McCollum, 961 F. Supp. 1572, 1579 (M.D. Fla. 1997) (emphasis in original) (“[T]he exclusion
states that coverage will not be afforded if at the effective date any insured under the policy
knew or could have reasonably foreseen any claim arising out of any act, error, omission or
personal injury that might be expected to be the basis of a claim or suit.”). “In no way does the
exclusion require that such a claim have merit or that the insured reasonably believed it to have
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Case No. 16-cv-62361-BLOOM/Valle
merit.” Id. Stated another way, the Court must determine whether, at the inception of the Policy,
Farbstein knew that he committed a “wrongful act” that might result in Caravan’s claim or that
he could have reasonably foreseen that he committed a “wrongful act” that might be expected to
be the basis of the claim.
Focusing on the pertinent allegations of the underlying complaint, they state as follows:
10. On or about March 30, 2015, the Plaintiff retained the Defendant, DAVID R.
FARBSTEIN, ESQ. to represent the Plaintiff in the sale of the Subject Property.
As part of his representation the Defendant, inter alia, was to:
a. negotiate the Sales Contract on behalf of the Plaintiff;
b. make certain the Plaintiff did not have to pay the foregoing mentioned
Pre-Payment Penalty; and
c. represent the Plaintiff throughout the sale of the Subject Property.
11. Prior to the Plaintiff retaining the Defendant as their attorney in the sale of the
Subject Property, the Plaintiff emphasized and stressed to the Defendant that they
would only sell the Subject Property if the Buyer of the Subject Property would
either:
a. one, assume the Existing Mortgage; or
b. two, pay the Pre-Payment Penalty.
12. The Defendant represented to the Plaintiff that the Defendant fully understood
the Plaintiff’s conditions of sale and the Defendant assured the Plaintiff that as
part of his representation of the Plaintiff the Defendant would be certain to
negotiate the Sales Contract such that the Buyer of the Subject Property would
have to either:
a. one, assume the Existing Mortgage; or
b. two, pay the Pre-Payment Penalty.
...
14. Notwithstanding the Defendant’s assurances that he would make certain that
the Sales Contract would contain the aforementioned conditions, the Defendant
failed to do so.
15. Because of the Defendant’s failure to do so, at closing of the Subject Property
the Plaintiff had to pay the Pre-payment Penalty which totaled $482,604.94.
16. Approximately two (2) to three (3) weeks prior to the closing on the Subject
Property, it was discovered that the Buyer did not have to assume the Existing
Mortgage or pay the Pre-Payment Penalty as the Defendant had represented to
Plaintiff.
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Case No. 16-cv-62361-BLOOM/Valle

17. After it was discovered that the Buyer did not have to assume the Existing
Mortgage, nor did the Buyer have to pay the Pre-Payment Penalty, the Plaintiff
discussed the situation with the Defendant. The Defendant responded by telling
the Plaintiff that if the Plaintiff did not close the Buyer would sue the Plaintiff for
specific performance and the Plaintiff would lose. Based upon the Defendant’s
advice to the Plaintiff, the Plaintiff closed the transaction and paid the PrePayment Penalty.
18. During the conversations between the Plaintiff and the Defendant regarding
the Pre-Payment Penalty, the Defendant made reference to the Defendant’s errors
and omissions policy.
...
ECF No. [30-1].
Based upon the Court’s review of the above allegations, it concludes that the underlying
complaint alleges facts invoking the prior-knowledge exclusion. Indeed, the pleading asserts that
(1) Farbstein was retained to ensure that Caravan would not be required to pay the pre-payment
penalty under the existing mortgage encumbering the Hatteras apartments; (2) Farbstein agreed
that he would negotiate a sales contract in which the purchaser would either be required to
assume the existing mortgage or pay the pre-payment penalty; (3) Farbstein failed to negotiate a
sales contract containing either of those terms; (4) upon the discovery of the error, Caravan and
Farbstein discussed the purchaser’s lack of an obligation to pay the pre-payment penalty or to
assume the mortgage, (5) during this conversation, Farbstein counseled Caravan to go forward
with the closing anyway, (6) also during this conversation with Caravan, Farbstein made
reference to his errors and omissions insurance policy, and (7) based upon Farbstein’s advice,
Caravan went forward with the closing and incurred the penalty in the amount of $482,604.94 –
a penalty that, according to the underlying complaint, Farbstein was retained to prevent Caravan
from incurring in the first place. All of the foregoing allegedly occurred on or before the
undisputed closing date of July 21, 2015. Thus, as of this date, the Court finds that, according to

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Case No. 16-cv-62361-BLOOM/Valle
the underlying complaint, Farbstein knew he failed to negotiate the required terms into the sales
contract, causing Caravan to allegedly incur significant damages. Based on these allegations of
Farbstein’s knowledge, Farbstein could have reasonably foreseen that the alleged error might be
expected to be the basis of a claim by Caravan. 4
To trigger the exclusion, Farbstein must have had such knowledge prior to the effective
date of the Policy. It is undisputed that Farbstein signed the insurance application on August 26,
2015, that he signed the Warranty Statement, in which he verified the accuracy of his
application, on October 5, 2015, and that Westport issued the Policy to Plaintiffs on October 12,
2015. According to the underlying complaint, Farbstein could have reasonably foreseen a claim
no later than the closing date of July 21, 2015 – one month before he filled out the insurance
application and more than two months before the effective date of the Policy. As such, the Court
finds that the prior-knowledge exclusion applies to this claim.
Recognizing, as Plaintiffs point out, that Westport may have a duty to defend if the
underlying complaint contains covered and uncovered claims, the Court has considered whether
the pleading contains any other claims that may be otherwise covered by the Policy. See
Tropical Park, Inc., 357 So. 2d at 256 (stating that when the underlying complaint “contains
allegations partially within and partially outside the scope of coverage, the insurance carrier is
required to defend the entire suit.”). Caravan’s only claim, however, arises from Farbstein’s

4

Unlike the Feldman and Diamond State decisions, upon which Plaintiffs rely, in which the underlying
complaint did not contain any allegations relating to the insured’s knowledge of the alleged wrongful act
prior to the inception of the policy, the underlying complaint filed by Caravan contains such allegations,
making these cases distinguishable. Feldman, 2015 WL 5854153 at *7 (finding that the underlying
complaint was devoid of any facts indicating that, prior to the policy’s effective date, the insureds knew
or could have foreseen that the alleged breach might be the basis of a claim or that the insureds were
aware, at any time, that they breached a duty); Diamond State, 172 F. Supp. 3d at 1338 (“The State
Complaint reveals nothing about whether anyone at Boys’ Home knew, at that time, of its purported
investigative failures, or that its initial decision to license Smith may have been improper based on
Smith’s background).

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Case No. 16-cv-62361-BLOOM/Valle
alleged failure to negotiate terms into the sales contract requiring that the purchaser either
assume the existing mortgage or pay the pre-payment penalty. Because Caravan did not plead
any other claims of negligence against Farbstein and the only claim pled falls within the scope of
the exclusion, Westport does not owe Plaintiffs a defense in the underlying lawsuit.
C. Duty to Indemnify
In its Motion, Westport also asks the court to enter summary judgment in its favor on the
duty to indemnify. In response, Plaintiffs argue that it would be premature to decide the duty to
indemnify when the underlying lawsuit is still ongoing. The Court must, therefore, determine
whether the duty to indemnify can be determined at this juncture.
“An insurer’s duty to indemnify is narrower than its duty to defend and must be
determined by analyzing the policy coverages in light of the actual facts in the underlying case.”
Sinni v. Scottsdale Ins. Co., 676 F. Supp. 2d 1319, 1323 (M.D. Fla. 2010) (citing State Farm Fire
& Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1077 n. 3 (Fla. 1998) and Hagen v. Aetna Cas.
& Sur. Co., 675 So. 2d 963, 965 (Fla. 5th DCA 1996)). “The duty to indemnify is dependent
upon the entry of a final judgment, settlement, or a final resolution of the underlying claims by
some other means.” Northland Cas. Co. v. HBE Corp., 160 F. Supp. 2d 1348, 1360 (M.D. Fla.
2001) (citing Travelers Ins. Co. v. Waltham Indus. Lab. Corp., 883 F.2d 1092, 1099 (1st Cir.
1989)). If the insured can show that it did not suffer a covered loss, then there is no duty to
indemnify. Id. “Because an insurer’s duty to indemnify is dependent on the outcome of a case,
any declaration as to the duty to indemnify is premature unless there has been a resolution of the
underlying claim.” Id. (citing Bankwest v. Fid. & Deposit Co. of Md., 63 F.3d 974, 981-82 (10th
Cir. 1995)).

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Case No. 16-cv-62361-BLOOM/Valle
There is, however, one exception to this general rule: “if the allegations in the complaint
could under no circumstances lead to a result which would trigger the duty to indemnify” then
the court can assess the duty prior to the conclusion of the underlying lawsuit. Id.; see also IDC
Construc., LLC v. Admiral Ins. Co., 339 F. Supp. 2d 1342, 1351 (S.D. Fla. 2004) (same). Put
another way, “‘a court’s determination that the insurer has no duty to defend requires a finding
that there is no duty to indemnify.’” Mt. Hawley Ins. Co. v. Miami River Pt. Terminal, LLC, 228
F. Supp. 3d 1313, 1326 (S.D. Fla. 2017) (emphasis in original) (quoting Trailer Bridge, Inc. v.
Ill. Nat’l Ins. Co., 657 F.3d 1135, 1146 (11th Cir. 2011) and collecting cases holding that without
a duty to defend, there cannot be a duty to indemnify). In light of the Court’s finding that
Westport does not owe Plaintiffs a duty to defend and Florida’s well-settled principle that there
cannot be a duty to indemnify without a duty to defend, the Court has little difficulty concluding
that Westport does not have a duty to indemnify Plaintiffs from any judgments, settlements, or
damages arising out of Caravan’s claim.
IV.

CONCLUSION
For the reasons stated herein, it is ORDERED AND ADJUDGED as follows:
1. Plaintiffs’ Motion for Partial Summary Judgment Regarding Defendant’s Duty to
Defend, ECF No. [30], is DENIED;
2. Westport’s Motion for Summary Judgment, ECF No. [37], is GRANTED;
3. Addressing Count I of Plaintiffs’ Complaint and Westport’s Counterclaim/ThirdParty Claim, both of which seek a declaratory judgment regarding Westport’s
duty to defend and indemnify, the Court declares that, under the Policy:
a. Westport has no duty to provide Plaintiffs a defense for the claims
asserted in Caravan, Inc. v. David R. Farbstein, Esq., Case No. 2016 CA

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Case No. 16-cv-62361-BLOOM/Valle
002459 (AF) pending in the Fifteenth Judicial Circuit in and for Palm
Beach County, Florida and
b. Westport has no duty to indemnify Plaintiffs for any damages,
settlements, or judgments arising from the claims asserted in Caravan,
Inc. v. David R. Farbstein, Esq., Case No. 2016 CA 002459 (AF)
pending in the Fifteenth Judicial Circuit in and for Palm Beach County,
Florida.
4. Addressing Count II of Plaintiff’s Complaint for breach of contract, the Court
finds that Westport properly denied Plaintiffs a defense and indemnity for the
claims asserted in Caravan, Inc. v. David R. Farbstein, Esq., Case No. 2016 CA
002459 (AF) pending in the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida and did not, therefore, breach the contract of insurance.
5. The Court will issue final judgment by separate order.
DONE AND ORDERED in Miami, Florida this 9th day of August, 2017.

_________________________________
BETH BLOOM
UNITED STATES DISTRICT JUDGE
Copies to:
Counsel of Record

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