When a small business owner in Florida is served with a third-party lawsuit, their first line of defense is usually their commercial general liability insurance. Beyond financial indemnification, a CGL policy is purchased to provide a legal defense when claims arise. Many policyholders are caught off guard when their carrier issues a reservation of rights or an outright denial of defense, leaving the business exposed to costly litigation on its own.
The Eight-Corners Rule in Florida insurance law
Under established Florida insurance law, an insurer’s duty to defend is broader than its duty to indemnify. Courts determine whether a carrier must defend a policyholder by applying the Eight-Corners Rule.
This doctrine requires comparing only two documents: the four corners of the plaintiff’s complaint and the four corners of the insurance policy. If the allegations in the complaint state facts that even potentially bring the injury within policy coverage, the insurer has an immediate obligation to provide a defense, even if the allegations turn out to be groundless, false, or fraudulent.
Common reasons insurers impermissibly refuse to defend
Insurers sometimes attempt to avoid defense obligations by misapplying exclusions or looking beyond the initial pleadings. Common disputes involve:
- Overbroad exclusion claims: asserting that business-risk, intentional act, or professional service exclusions apply before the underlying facts have been established
- Mixed claims: attempting to deny the entire lawsuit when some claims fall within coverage and others do not; under Florida law, if a complaint alleges multiple grounds for liability, some covered and some excluded, the insurer must defend the entire action
Each of these situations involves a judgment call that courts will scrutinize against the Eight-Corners standard, not the insurer’s interpretation of the facts.
Consequences for insurers acting in bad faith
An insurance company that wrongfully refuses to defend its insured does so at significant legal risk. Under state law, a wrongful refusal can constitute bad faith and may waive the insurer’s right to control the defense. If the policyholder retains independent counsel or settles the action reasonably, the carrier may be held liable for the full judgment or settlement amount, even if it exceeds policy limits, along with attorney’s fees.
Know your rights as a policyholder
A denial of defense is not always the final word. If your commercial insurer has refused to defend a claim against your business, a business insurance attorney in Florida can review your policy, evaluate the complaint under the Eight-Corners Rule, and advise you on how to respond.