Appeals Court Rejects Florida Hotel’s Coverage Interpretation in Suit Against Insurer

A recent opinion by the Eleventh Circuit Court of Appeals involving a case against the insurer of a Florida hotel could clarify an issue of sublimits and have a significant impact on how policies are written in the future, including policy endorsements.

In the case, StarStone National Insurance Co. v. Polynesian Inn, LLC, et al., the court affirmed summary judgment in favor of insurer StarStone and against insured, Polynesian Inn, LLC d/b/a Days Inn of Kissimmee (Polynesian), and Andrew James Bickford. The Atlanta-based federal court held there is no coverage under StarStone’s policy for the underlying incident involving a murder and attempted murder on the property of an insured hotel.

In the opinion, the Eleventh Circuit adopted StarStone’s proposed definition and interpretation of the term “sublimit” thereby providing clarity to insurers, insureds, and the public at large, on a term frequently found in insurance policies, but that Florida courts had never before defined.

Case Background

The underlying incident involved a murder and attempted murder of two men at a Florida Days Inn hotel, operated by Polynesian, resulting in wrongful death and negligent security claims. Specifically, in April 2017, “a woman wielding a knife attacked Bickford and Zackery Ganoe while they were guests at a hotel operated by Polynesian in Kissimmee, Florida.” Polynesian was insured under a primary policy with $1 million in limits applicable to each occurrence.

However, for assault and battery offenses, the limits were $25,000 per offense, per an endorsement – the “A&B Endorsement.” StarStone insured Polynesian under an excess policy and the policy did not provide coverage for any claims that were subject to a “sublimit of liability” in the primary policy.

StarStone argued the $25,000 limit applicable to assault and battery offenses under the A&B Endorsement was a “sublimit” in the primary policy and, therefore, its excess policy provided no coverage. Polynesian and Bickford argued the limit in the A&B Endorsement was not a sublimit, but rather, was a separate standalone limit. The Middle District of Florida granted summary judgment in favor of StarStone, which was appealed to the Eleventh Circuit.

Circuit Court Decision

The Eleventh Circuit held that the definition of “sublimit” advanced by StarStone and adopted by the district court, i.e. that a sublimit caps a carrier’s exposure, or existing coverage, at an amount less than the otherwise applicable policy limit, is consistent with the ordinary meaning of that term, as reflected in legal and non-legal dictionaries.

The Eleventh Circuit acknowledged that “Florida courts commonly adopt the plain meaning of words contained in legal and non-legal dictionaries,” (Hegel v. First Liberty Ins. Corp.) despite Polynesian and Bickford’s arguments to the contrary.The Eleventh Circuit rationalized that the $25,000 limit resulting from assault or battery would typically have been covered under the primary policy’s general $1 million per occurrence limit for “bodily injury.” The operation of the A&B Endorsement is to cap the primary carrier’s liability for that subcategory of loss to $25,000.

As aptly noted by the Eleventh Circuit, “[i]n other words, the effect of the A&B Endorsement was to cap existing coverage for a particular subcategory of loss, not to create a new category of coverage that did not exist before the A&B Endorsement.”

The appellants argued that if a limit is not subordinate to another limit, it is a standalone or separate limit, even if it is lower than some other limit in the policy. They argued that because A&B Endorsement is not expressly made subject to the $1 million-per-occurrence limit, it cannot be a sublimit of that limit.

The Eleventh Circuit dismissed Polynesian and Bickford’s arguments, labeling them as “convoluted.” The Eleventh Circuit stated it “fail[ed] to see why these facts would cause an ‘ordinary person’ to view the A&B Endorsement as something other than a sublimit.” In the court’s words, “Appellants’ own convoluted interpretation of the A&B Endorsement ‘transcend[s] the common understanding of the ordinary person.'” The court further noted appellants’ proposed interpretation is inconsistent with the policy as a whole.

The purpose and effect of the A&B Endorsement as a whole is to cap existing coverage for bodily injury for assault and battery offenses (which would otherwise be subject to the each occurrence limit of $1 million), to $25,000, not to provide additional coverage for that loss. The policy as a whole ensures that StarStone does not take on greater risk with respect to certain subcategories of loss unless there is some additional agreement to cover that loss.

Under appellants’ proposed interpretation, StarStone’s excess coverage responsibilities would be triggered at $25,000 for losses resulting from assault or battery, but at $1 million for nearly every other type of loss. That result is “plainly inconsistent” with the intent of the StarStone policy as a whole.

Case Implications

In StarStone v. Polynesian, the Eleventh Circuit has squarely held what constitutes a “sublimit” and provided a definition therefore that can be applied to differing circumstances and scenarios. The definition can be used by insureds, agents, and brokers as a guide to assess what limit is a sublimit and assure there is proper excess coverage for the same. Insureds, brokers and agents should also take a look at their policies in play, applying the definition set forth by the Polynesian opinion, and make sure they have appropriate coverage. If not, sublimits or specific coverages should be endorsed to assure coverage.

Finally, the opinion provides guidance in what the Eleventh Circuit deems to be a “reasonable interpretation” of a policy provision. While both StarStone and Polynesian provided proposed interpretations for the policy provisions at issue, the Eleventh Circuit unequivocally held that the proposed interpretation of Polynesian was such that no ordinary person would have interpreted the policy in such a fashion. In an effort to garner coverage, insureds aver various proposed interpretations of policy to create an ambiguity in a policy so that the ambiguity is construed against the insurer as the drafter, and in favor of the insured.

The opinion, however, sends a clear message and signal to policyholders, agents, and brokers that not all proposed interpretations of a policy provision will be sufficient to create an ambiguity in a policy; it is only when there are two or more reasonable interpretations of a policy.

There are various learning points from the StarStone v. Polynesian opinion that can and will be used in various future claims, cases, and coverage disputes. As discussed above, detail to the Eleventh Circuit’s opinion should be had to determine what coverage was obtained and intended, whether any limits need to be endorsed, and at what point an excess policy’s limits attach.

Editor’s Note: Loshak, Jurman, and Wyman represented StarStone in this case.

Topics Lawsuits Florida Carriers Agencies Excess Surplus