TOO LITTLE TOO LATE: 11TH CIRCUIT DECIDES NEW INSURANCE CONTRACTS FORMED AFTER A KNOWN LOSS ARE UNENFORCABLE
Too Little Too Late: 11th Circuit Decides New Insurance Contracts Formed After a Known Loss Are Unenforceable
By: Callan Johns
I.T.N. Consolidators, Inc. v. N. Marine Underwriters Ltd., No. 15-14439, 2017 U.S. App. LEXIS 11505 (11th Cir. June 28, 2017); 2017 WL 2804888 (11th Cir. June 28, 2017).BACKGROUNDThe nature of this dispute arose when I.T.N. Consolidators Inc. and I.T.N. Miami Inc. (“ITN”) discovered that it failed to secure a Certificate of Insurance (“COI”) for a shipment that was hijacked in 2007. ITN tried to use an online form to issue itself a COI and filed a claim for the loss with its insurance company, Northern Marine Underwriters (“Northern Marine”). After Northern Marine denied the claim in 2008, ITN filed suit for breach of contract and sought a declaratory judgment stating its policy with Northern Marine covered the known loss. Summary judgment was granted in favor of Northern Marine by the district court, finding that the policy did not cover the loss since ITN knew of the loss before issuing the COI.The Eleventh Circuit in a previous opinion affirmed the district court’s decision. However, the panel vacated the summary judgment and remanded to the district court. On remand, the district court held that Northern Marine’s argument, that the contract was unenforceable as against public policy, was outside the scope of the mandate and that a new contract covering the known loss was executed. Summary judgement was entered in favor of ITN. However, the Florida First District Court of Appeals had decided Interstate Fire & Cas. Co. v. Abernathy after remand, which held “that contracts to insure known losses are unenforceable as a matter of Florida public policy.” Interstate Fire & Cas. Co. v. Abernathy, 93 So. 3d 352 (Fla. 1st Dist. Ct. App. 2012). Northern Marine appealed the summary judgment stating that its argument regarding the Interstate decision should have been considered by the district court.ANALYSISThe Eleventh Circuit Court of Appeals reviewed this case de novo, determining whether the district court properly interpreted the mandate of this court. The mandate rule dictates that “district courts must carry out any specific mandate issued by the appellate court.” Litman v. Mass. Mut. Life Ins. Co., 825 F.2d 1506, 1511 (11th Cir. 1987). When an appellate court "remands for resolution of a narrow factual issue, the lower court may not circumvent the mandate by approaching the identical legal issue under an entirely new theory." Barber v. International Brotherhood of Boilermakers, Dist. Lodge # 57, 841 F.2d 1067, 1070 (11th Cir. 1988). However, the mandate rule does not apply when "an intervening change in the controlling law dictates a different result." Piambino v. Bailey, 757 F.2d 1112, 1120 (11th Cir. 1985).In Interstate, an entertainment company tried to secure a COI while attempting to insure an additional party to a policy, four days after an injury had occurred. The trial court held that a contract was formed insuring the known loss and that the contract was not forbidden. The Florida First District Court reversed on appeal, due to the pre-existing general public policy interest which protects the public from insolvent insurers based on precedent set by the Florida legislature, such as the formation of the Florida Insurance Guaranty Association. Interstate held that contracts formed to insure a known loss are unenforceable. The “new” contract in this current case as well as the contract in Interstate both required the insurer to pay for a known loss.The district court’s rejection of Northern Marine’s argument based on Interstate was in error as it should have considered whether Interstate mirrored Florida law in that it conformed with the exception to the mandate rule rendering the new contract unenforceable.The Eleventh Circuit determined that Interstate is not in conflict with Florida law because its holding is supported by Nourachi, 44 So. 3d at 608, which held that “the agreement to insure a known loss [is] unenforceable where the fact was not disclosed to the insurer.” Id. at 608. Interstate’s holding is based on Nourachi’s concurrent holding “that a contract to insure a known loss is never enforceable, even if the insurer had known.” Id. at 610.CONCLUSIONThe district court erred in ignoring Northern Marine’s argument based on intervening case law. The Eleventh Circuit is bound by the decisions of intermediate state courts; therefore, Interstate must be applied. The new contract to insure a known loss is unenforceable and void as a matter of Florida public policy. The Eleventh Circuit reversed and remanded to the district court with orders to enter a final summary judgment in favor of Northern Marine.
