STEVEN D. MERRYDAY, UNITED STATES DISTRICT JUDGE
Citrus-grove owner Richard Hermanns attempts to squeeze $2.965 million from Travelers Indemnity Company based on Hermannss consent judgment against Richard McKenzie, the former manager of Hermannss grove and a former insured under a Travelers Commercial General Liability (CGL) policy with a farm care-taker liability endorsement. The consent judgment results from an episode in which McKenzie-according to Hermannss allegations in earlier civil and criminal actions-allegedly misappropriated fuel, trees, and fertilizer from the grove and breached the parties contract. Hermannss effort to concentrate on the endorsement yields no fruit: The insurance policy excludes coverage, the consent judgment is unreasonable, and the insurer owed no duty to defend.
BACKGROUND
Convinced that citrus growing would yield a large profit, Richard Hermanns bought 265 acres of citrus groves in Polk County in 2010 and 2011. Before the first purchase, Hermanns (through his partnership, Hermanns Real Estate Ventures) requested an appraisal from Brent Burris, a knowledgeable appraiser of agricultural real estate. Burris questioned the suitability of the tract for growing and observed that the land was prone to cold and standing water and that the sandy soils were not conducive to growing citrus. (Doc. 107-3 at 19-30) Despite Burriss appraisal, Hermanns bought a 100-acre grove in 2010, and the next year Hermanns bought a 165-acre grove contiguous to the first grove. Soon after buying the first grove, Hermanns hired Richard McKenzies company, Richard McKenzie & Sons, to maximize the groves profit
and in effect provided McKenzie carte blanche in the operation of the grove. (Hermanns Depo. at 35-36) Rather than charge a management fee per acre, McKenzie billed Hermanns for supplies purchased and labor expended, but-with Hermanns understanding and tacit approval-McKenzie mark[ed] up the bills. (Hermanns Depo. at 35-36) For example, McKenzie might charge Hermanns ten dollars for a pound of fertilizer purchased for eight dollars.
McKenzie hired Matthew Carter, another grove caretaker, to re-plant a fraction of the grove, which the parties call the Sinkhole Road grove, and to spray pesticide on the trees. From January 2013 until July or August 2013, Carter worked on the grove, but late that summer McKenzie stopped paying Carter, who inquired directly with Hermanns about the money owed to Carter for working on Hermannss grove. (Carter Depo. at 25, 37, 64-66)
Carters inquiry prompted Hermanns to scrutinize McKenzies bills. After reviewing the bills and consulting with Carter (who identified several instances in which McKenzie charged Hermanns for Carter services never provided by Carter) Hermanns pressed the State Attorney for Polk County to charge McKenzie with theft. Finding probable cause to suspect that McKenzie deliberately billed Hermanns for $113,000 in trees never delivered to the Sinkhole Road grove, billed Hermanns for fuel that McKenzie used for his own purposes, and billed Hermanns for fertilizer and other products not applied to Hermannss crop, the State Attorney charged McKenzie with a scheme to defraud and with grand theft exceeding $100,000. These criminal charges remain pending in state court.
Before the criminal action, Hermanns asked Kyle Story, another grove care-taker, to assess the condition of the grove. Several sights struck Story. First, the groves appeared thinly planted. In 2010 and 2011, most growers planted about 150 trees per acre, but Story counted just 115 trees per acre. Second, many trees appeared injured by water saturation. Story later concluded that inadequate drainage and improper maintenance of the irrigation system left stagnant water in the grove for days or weeks. Third, most of the trees appeared infected by huanglongbing, more commonly known as greening, a disease that impedes a roots absorption of nutrients. The incurable disease reduces a trees yield, and the remaining fruit is misshapen, unsightly, and unsuitable for sale except to an orange-juice producer. (Story Depo. at 18-19) Eventually, greening kills the tree. Story and Carter initially thought that greening affected at least 80% of the grove, an infection rate similar to most groves in Florida. Hermanns concluded that greening affected most if not all of his trees. (Hermanns Depo. at 101) Late in 2013, Hermanns fired McKenzie and hired Story to manage the grove.
In February 2015, Hermanns sued McKenzie in the Circuit Court for Polk County. Hermanns alleged breach of an oral contract (count one) and breach of fiduciary duty (count three) and demanded an equitable accounting (count two) for the money paid to McKenzie under the contract. In the breach-of-contract claim, Hermanns alleged that his damages included the money paid to McKenzie and the profit lost because of McKenzies mismanagement. In the accounting claim, Hermanns alleged that McKenzie acted with the intent to permanently deprive Hermanns of its monies and profits[,] otherwise appropriating same as its own or for its own uses. Through discovery, Hermanns learned that from 2009 to 2013 Travelers Indemnity Company insured McKenzies company under a CGL with an endorsement for farm care-taker liability. Although the CGL obligated McKenzie to notify Travelers as soon as practicable of an occurrence or an offense that might result in a claim (Doc. 105-10 at 55), the record contains no evidence that McKenzie promptly notified Travelers about an occurrence or about Hermannss claims. McKenzie believes that he notified Travelers about the state-court civil action at some unspecified later time. (McKenzie Depo. at 75)
In February 2016, less than two weeks after the State Attorney charged McKenzie with grand theft and a scheme to defraud, Hermanns amended the civil complaint to add a negligence claim (count four). Hermanns cannot explain the purpose of the amendment and cannot recall any new facts or evidence that warranted the amendment. (Hermanns Depo. at 70) As in the breach-of-contract claim, Hermanns sought in the negligence claim profit lost because of McKenzies conduct. After the amended complaint, Hermanns provided McKenzie with an expert opinion letter (Doc. 107-21) signed by Story, the manager whom Hermanns hired to replace McKenzie. Without receiving compensation other than that paid for managing the grove (Story Depo. at 56), Story opined in the letter that Hermanns lost at least $464,625 in net income in 2016 from McKenzies purportedly negligent care and maintenance. Story wrote that these damages will continue for the next 20 years because of the thin planting and concluded that Hermanns incurred damages in excess of $2,965,750. Despite claiming that damages would continue for twenty years, Story never calculated the damages beyond 2021 because Story felt that reaching out beyond that period of time was irresponsible. (Story Depo. at 104) Erin Moore, Travelers corporate representative, testified that Travelers learned about the state-court action when Hermannss counsel demanded coverage for McKenzie based on the amended complaint. (Moore Depo. at 26)
McKenzies attorney in the state-court civil action, Ken Waterway, never retained a rebuttal expert to analyze and refute Storys damages calculation. Waterways investigation of the claimed damages consisted only of providing the Story letter to McKenzie and asking for McKenzies thoughts on the letter. Sometime in the fall of 2016, Hermanns and McKenzie agreed to settle the civil action. Under the settlement, McKenzie agreed to pay $200,000 to resolve the claims for breach of contract, for an equitable accounting, and for breach of fiduciary duty. On count four, the negligence claim, McKenzie agreed to a consent judgment against him for $2,965,750, but Hermanns agreed not to execute against McKenzie. Instead, McKenzie assigned to Hermanns all of McKenzies rights under the Travelers CGL, including the right to sue for breach of contract and, if Hermanns successfully establishes coverage in this action, for bad faith. Finally, Hermanns agreed to recommend to the State Attorney the resolution most favorable to McKenzie in the criminal action. (Doc. 107-19 at 6) Hermanns understood the provision as obligating Hermanns-assuming McKenzie pays the $200,000-to discourage the State Attorneys pursuing jail time, and McKenzie contemplated a pretrial diversion in which he would serve no jail time.
In this coverage action (the second in the Coblentz tryptych), Travelers sues (Doc. 9) for a declaration exonerating Travelers from liability to Hermanns under the CGL. As the assignee of McKenzies rights under the CGL, Hermanns counterclaims (Doc. 39) for breach of the insurance policy and for a declaration that Travelers owes a duty to indemnify McKenzie for the $2.965 million consent judgment. Moving for summary judgment, Travelers argues (Doc. 108) that the policy excludes expected or intended damage, that the settlement is unreasonable and resulted from collusion between Hermanns and McKenzie, that Travelers owed no duty to defend McKenzie against Hermannss claims in the state-court civil action, and that the parties improperly attribute to the negligence claim damages from the breach-of-contract and the breach-of-fiduciary-duty claims. Hermanns moves (Doc. 106) for partial summary judgment on Travelers duty to defend McKenzie in the state-court civil action.
DISCUSSION
To recover from Travelers under the Coblentz agreement, Hermanns must show that the CGL covers the settlement, that Travelers wrongfully refused to defend McKenzie in the state-court civil action, that the settlement is reasonable, and that McKenzie and Hermanns settled in good faith and without colluding. Mid-Continent Cas. Co. v. Royal Crane, LLC , 169 So.3d 174 (Fla. 4th DCA 2015). To the extent Travelers requests exoneration based on an exclusion, Travelers must show the applicability of the exclusion. LaFarge Corp. v. Travelers Indem. Co. , 118 F.3d 1511, 1516 (11th Cir. 1997).
I. Coverage
Among other items, the policy covers property damage caused by an occurrence, which means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. (Doc. 105-10 at 46 and 59) Under the policy, property damage means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it.
(Doc. 105-10 at 60) But the policy excludes coverage for property damage to:
j(6) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the property damage arises out of those operations.
(Doc. 105-10 at 49)
A. The policy excludes expected or intended damage.
In arguing for coverage under the CGL, Hermanns finds himself in an intractable bind. The CGL excludes property damage expected or intended from McKenzies standpoint, and Hermanns alleges (and the State Attorney, after weighing Hermannss testimony and the evidence marshaled by Hermanns, alleges in the criminal action) that McKenzie intentionally pilfered or otherwise purloined materials that belonged to Hermanns. (Doc. 107-12 at 5-9) For example, a memorandum from Hermanns to McKenzie in the state-court civil action claims a minimum of $451,804.77 in damage from misappropriated fuel, undelivered trees, and fictitious fertilizer applications. (Doc. 107-18)
Travelers correctly observes the impracticability of distinguishing between damage that resulted from the purported negligence and damage that resulted from McKenzies intentional misconduct. For example, Story attributes the groves thin planting to negligence, but Hermannss allegations in the other action and his communications with the State Attorney establish that the Sinkhole Road grove lacked the industry-standard 150 trees per acre partly because (to quote Hermanns) McKenzie intentionally diverted to his own use trees that belonged to Hermanns. Because the damage from McKenzies calculated theft and the damage from McKenzies so-called negligence appear indistinguishable, Hermanns cannot recover under the CGL. See Bradfield v. Mid-Continent Cas. Co. , 143 F.Supp.3d 1215, 1245-48 (M.D. Fla. 2015) (Hodges, J.) (holding that the failure to apportion between covered and uncovered damages precludes recovery under a CGL); Highland Holdings, Inc. v. Mid-Continent Cas. Co. , 2016 WL 3447523 (M.D. Fla. June 23, 2016) (same), affd , 687 Fed.Appx. 819 (11th Cir. May 2, 2017).
B. The CGL excludes damage to [t]hat particular part of real property on which you...are performing operations.
Provision j(5) excludes property damage to [t]hat particular part of real property on which you...are performing operations. Similar to the exclusions in Weedo , this business risk exclusion excludes coverage for property damage that aris[es] from ongoing work. Oak Ford Owners Assn v. Auto-Owners Ins. Co. , 510 F.Supp.2d 812, 819 (M.D. Fla. 2007) (Whittemore, J.). Throughout this action, Hermanns admitted that McKenzie managed the entire 265-acre grove and that the grove incurred damage during McKenzies tenure. The amended state-court complaint alleges that Hermanns suffered damage from McKenzies negligently performing [ ] services on the grove. (Doc. 107-12 at 9) Because Hermanns claims damage to the particular part of the real property on which McKenzie was performing operations, provision j(5) excludes coverage.
Citing Essex Ins. Co. v. Kart Const., Inc. , 2015 WL 4730540 (M.D. Fla. Aug. 10, 2015), Hermanns argues that interpreting that particular part to mean the 265-acre grove falls well short of the granular dissection required by the exclusion. In Essex , which involves facts decisively different from this action, a company hired a contractor to weld a 10-foot section of a 127-foot cellular tower. In preparation for the welding, the contractor removed debris from the entire tower, doused the entire tower with water, and posted nearby a monitor who watched the tower during the welding. Despite the contractors care, a fire destroyed the tower. The insurer denied coverage based partly on the j(5) exclusion and contended that the contractor, by posting a monitor whose vantage included the entire tower, was performing operations on the entire tower. Rejecting that argument, Essex states:
[M]onitoring is difficult to describe as an operation performed on anything and is even more difficult to describe as an operation performed on everything in view.
2015 WL 4730540 at *6. Essex holds that provision j(5) excludes damage to the 10-foot section because at the time of the accident [the contractors] (relevant) operations occurred only on a ten-foot portion of the tower. Unlike in the insurers (unsuccessful) argument in Essex , McKenzies operations consisted of more than watching or monitoring the grove. McKenzie cleared debris, planted trees, installed and repaired the irrigation system, sprayed pesticides, and applied (or sometimes misapplied) fertilizer to the entire grove. (Hermanns Depo. at 33, 36, 57; McKenzie Depo. at 32-36 and 52) These purportedly deficient operations allegedly damaged Hermanns. In this instance, that particular part of the real property on which McKenzie operated spans 265 acres, and the j(5) provision excludes all of the damage to the entire grove. See Bradfield v. Mid-Continent Cas. Co. , 143 F.Supp.3d 1215, 1243-45 (M.D. Fla. 2015) (Hodges, J.) (holding that the j(5) provision excluded coverage for all of the property damage).
II. Reasonableness of the consent judgment
A settlement is unreasonable if the settlement exceeds the amount for which a reasonably prudent defendant would settle after weighing the uncertainty of litigation and the plaintiffs prospective recovery at trial. Indep. Fire Ins. Co. v. Paulekas , 633 So.2d 1111 (Fla. 3d DCA 1994). In an attempt to show the reasonableness of the $2.965 million consent judgment, Hermanns submits affidavits from the counsel who crafted the settlement agreement (Docs. 125-4 and 125-5), but the record reveals a settlement that inadequately accounts for Storys confusing and erroneous damages calculation, inadequately accounts for the reduction in crop yield attributable to greening, and inadequately accounts for the fact that Hermannss damages resulted either from McKenzies alleged theft or McKenzies alleged breach of contract, not from negligence. Considered separately or collectively, these defects render the settlement unreasonable. Even viewing the record favorably to Hermanns, no reasonable jury could conclude that a reasonably prudent defendant facing personal liability would agree to a judgment in the ballpark of $2.965 million. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (explaining that Rule 56, Federal Rules of Civil Procedure, precludes summary judgment if a dispute of material fact is genuine, that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party).
A. Lost revenue impermissibly constitutes the majority of the $2.965 million consent judgment.
If a plaintiff identifies damages calculable with reasonable certainty and likely caused by the defendants misconduct, the plaintiff might recover lost net profit (that is, revenue minus expenses), not lost revenue or lost income or lost gross profit or any other figure. Del Monte Fresh Produce Co. v. Net Results, Inc. , 77 So.3d 667 (Fla. 3d DCA 2011) ; Born v. Goldstein , 450 So.2d 262, 264 (Fla. 5th DCA 1984). Story admittedly calculated damages based on lost revenue (Story Depo. at 95), an error that inflates Hermannss damages estimate by several orders of magnitude.
The numbers show the severity of the error on which Storys opinion and the $2.965 million consent judgment rest. According to Story, a 90-pound box of oranges commands about $9, and the Sinkhole Road grove is 265 acres. Story assumed that each acre will produce 225 boxes, an assumption at the top end of Storys estimate that a grove infected by greening will produce between 77 and 236 boxes per acre. During McKenzies tenure, the grove typically produced no more than 20 or 30 boxes per acre. In the 2016 season, Story estimated that McKenzies mismanagement cost Hermanns $464,625 in net income. (Doc. 107-21 at 2)
But citrus growing, like every other commercial agricultural pursuit, costs money, a fact of which McKenzie and Hermanns are acutely aware. On average, Florida citrus growers spend about $2,036 per acre for fertilizer, pesticides, irrigation, and other expenses every growing season. Storys internal numbers show growing costs of about $1,200 per acre for a young grove. (Story Depo. at 93-94) As the grove nears maturity (about five years after planting), the cost of care-taking increases by twenty to thirty percent (according to Story). (Story Depo. at 42)
Even if Story could grow a citrus crop for forty percent less than the typical citrus farmer in Florida, Hermannss net profit between 2014 and 2021 amounts to far less than $2.965 million. Story estimated the net loss of income for seven seasons (Doc. 134-4 at 2), and for each season Story admittedly failed to deduct growing costs. These are Storys estimates and the result after deducting costs:
Season Estimated loss of Costs at Net profit income (per $1,200 per Story) acre 2014-15 $167,835.74 $318,000 ($150,164.26) 2015-16 $359,676.50 $318,000 $41,676.50 2016-17 $514,530.38 $318,000 $196,530.38 2017-18 $738,775 $318,000 $420,775 2018-19 $752,050 $318,000 $434,050 2019-20 $594,360 $318,000 $276,360 2020-21 $508,525 $318,000 $190,525 Total $3,635,752.62 $2,226,000 $1,409,752.62
Even under a cost estimate inordinately charitable to Hermanns, the lost profit calculation is far too high-before accounting for the present-value defect in Storys damages calculation. Both sides agree that future damages must be discounted to present value to account for the interest that the money would earn if invested today and agree that Story failed to discount his damages calculation to the present value. The parties quarrel over the applicable discount rate; Travelers borrows the 12% rate used by Burris, the agricultural appraiser, while Hermanns cites a 10.5% rate. In either event, the present value of Hermanns lost profit is no more than (and likely significantly less than) a million dollars. After accounting for the present-value defect and the failure to subtract costs from revenue, Marty Williams, an accountant retained by Travelers, opines that the Hermannss damages amount to less than $700,000. (Doc. 120-2 at 9)
Hermanns cites the opinion of William Todd Russell, an accountant, to support the reasonableness of the $2.965 million consent judgment. Like Story, Russell admittedly declined to include the costs of growing a citrus crop in the lost profit calculation. (Russell Depo. at 27 and 71) Contending that lost profit equals lost revenue minus lost avoided costs, Russell testifies that fixed costs warrant exclusion from the lost-profit calculation.
Russells opinion misconstrues Florida law, which requires subtracting necessary costs-like the cost of fertilizing and irrigating a crop-from lost revenue. In RKR Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. , 995 So.2d 588 (Fla. 3d DCA 2008), a trial court awarded more than $80,000 in lost profit based on an expert opinion that failed to account for necessary costs. The appellants expert determined that the plaintiffs lost profit amounted to about $10,000 after subtracting costs. Reversing the $80,000 award, which provided [the plaintiff] with a windfall, RKR Motors holds in accord with long-standing Florida precedent that a plaintiff can recover net profit, which is the estimated revenue minus necessary and avoided costs. Accord Indian River Colony Club, Inc. v. Schopke Const. & Engg, Inc. , 592 So.2d 1185 (Fla. 5th DCA 1992).
Legal and accounting jargon aside, all of this states the obvious. Assume that McKenzie managed the grove in accord with the oral contract, that in 2019 the grove produced 220 boxes per acre, and that each box netted $9 (the figure provided by Story). Hermanns would earn $524,700 in revenue that season. But if McKenzie spent no money on fertilizer, pesticides, or irrigation, Hermanns would earn little or nothing (most or all of the crop undisputedly would wither or die from malnourishment, insects, or illness). Generously assuming growing costs of $1,200 per acre, Hermannss profit would equal $206,700, less than half of Hermannss claimed damages for that growing season. Under Hermannss erroneous measure of profit, Hermannss damages exceed by more than $300,000 the profit that Hermanns would have earned if McKenzie had capably managed the grove. The Florida decisions consistently disapprove this anomalous result. Neither Storys flawed opinion nor Russells flawed opinion alters the conclusion that the $2.965 million consent judgment unreasonably and impermissibly attempts to compensate an imaginary and exaggerated loss.
Recognizing the inaccuracy of the lost profit estimate, Hermanns repairs to arguing that the $2.965 million judgment is reasonable because Hermanns could have requested millions more in damages. Hermanns states that he paid McKenzie at least a million dollars to manage the grove, money for which Hermanns purportedly received inadequate services in return. But the $2.965 million consent judgment resolved only the negligence claim; Hermanns agreed to dismiss the breach-of-contract claim in exchange for McKenzies promise to pay Hermanns $200,000. The suggestion that Hermanns settled the breach-of-contract claim for too little says nothing favorable to Hermannss position. On the contrary, Hermannss attempt to defend the reasonableness of the negligence settlement by claiming contract damages far in excess of $200,000 suggests that the parties impermissibility attributed to the negligence claim damages that resulted from McKenzies alleged breach of contract. Waterways testimony supports that conclusion. Asked why the parties allocated all of the lost profit to the negligence claim, Waterway professed an inability to answer and stated instead that Hermanns could have demanded more money. (Waterway Depo. at 51)
In another effort to justify the reasonableness of the $2.965 million consent judgment, Hermanns contends that the historical life-expectancy of a citrus tree in Florida is twenty years and that, therefore, he could have requested another thirteen or fourteen years of lost profit. But under Florida law a plaintiff may recover only damages calculable with a reasonable degree of certainty. Sostchin v. Doll Enter., Inc. , 847 So.2d 1123 (Fla. 3d DCA 2003) (collecting decisions and explaining that damages cannot rely on speculation or conjecture). Throughout this litigation, not a single citrus expert felt comfortable projecting damages beyond the 2020-21 growing season. Hermannss expert, Story, felt that reaching out beyond [2021] was irresponsible. (Story Depo. at 104) Storys discomfort is unsurprising; Floridas citrus yield often suffers from disease, natural disaster, and other events that reduce the yield. In 2010, no citrus expert anticipated that greening would batter Floridas citrus industry within ten years. And a month before the 2017 hurricane season nobody predicted that Hurricane Irma would destroy a sizeable number of trees and would ruin millions of oranges in Florida. Dependent on a pyramid of tenuous assumptions adopted by no citrus expert in this litigation, Hermannss attempt to justify the reasonableness of the $2.965 million settlement by belatedly citing a citrus trees historical life-expectancy seems entirely fruitless and deeply rooted in impermissible speculation.
B. The settlement fails to distinguish between the damage from greening and the damage from McKenzies mismanagement.
Between 2011 and 2015, greening devastated Floridas citrus crop-a point known to McKenzie, to Story, to Hermanns, and to every citrus grower in Florida at the time of the state-court litigation. Alan Morris, an agricultural economist, states that virtually all Florida citrus growers are not making nearly the profits they expected as recently as 2010, and most are incurring losses. (Doc. 115-1 at 9) McKenzie testified that greening and weather, but mostly greening, recently destroyed three-quarters of his citrus crop. (McKenzie Depo. at 66-67) Despite knowing that greening infected the majority of Hermannss grove and despite recognizing that greening would diminish both the citrus yield and the marketability of the remaining fruit (Story Depo. at 16-18, 46), Story never mentioned greening in the opinion letter that claimed damages of $2.965 million. Asked why he omitted greening, Story said: No particular reason. (Story Depo. at 69)
In his deposition, Story acknowledged the effect of greening on citrus production. (Story Depo. at 105) Storys testimony prompted this exchange:
Q. I believe you testified earlier that the effects of citrus greening were accounted for in your figures, is that right, in your expected yields?
A. I do take it into account but its...yes, I do take it into account but not at a specific percentage.
Q. So did you separate out the impact of greening on fruit yields with the impact of McKenzies management on fruit yields?
A. No, I did not.
Q. Why not?
A. I didnt know-I shouldnt say I didnt know. I didnt feel that I could accurately depict that percentage...And this report is how can I sit here and justify a certain percentage from one thing to the other. And to what end could I even remotely back up that fact or that statement, I should say? I could not find a source that would give me that data to back myself up.
Q. So the damages that you have calculated here, they include both the impact of the citrus greening and the impact of McKenzies work?
A. In my opinion, yes.
(Story Depo. at 153-55) Similarly, Hermanns admits that greening is the biggest factor in the groves diminished yield. (Hermanns Depo. at 71)
To prevail on a negligence claim under Florida law, the plaintiff must show that the defendants conduct more likely than not caused the plaintiffs injury. Gooding v. Univ. Hosp. Bldg., Inc. , 445 So.2d 1015, 1018 (Fla. 1984). The sole expert opinion on which the parties based the $2.965 million consent judgment failed to distinguish the damages attributable to greening from the damages attributable to McKenzies misconduct, even though the parties to the litigation understood at the time that greening had (in Storys words) devastated the citrus industry. Even viewing the record favorably to Hermanns, no reasonable jury could conclude that a reasonably prudent defendant would settle the negligence claim for the plaintiffs asking price, which circumvents the brutal economic fact of greening.
C. The settlement fails to account for either the economic-loss rule or for Hermannss failure to state a negligence claim.
The $2.965 million consent judgment is unreasonable for another reason: The consent judgment fails under the economic-loss rule. (Doc. 107-27) Citing Tiara Condo. Assn, Inc. v. Marsh & McLennan Cos., Inc. , 110 So.3d 399 (Fla. 2013), which ostensibly limits the economic-loss rule to products-liability actions, Hermanns responds that Waterway, McKenzies counsel, reasonably concluded that the defense lacked merit.
The distinction between a breach of contract and a tort is the source of the duty breached by the defendant. If a contract imposes a duty and the defendant breaches that duty, the plaintiff must sue for breach of contract. If society imposes the duty, the plaintiff must sue in tort. In other words, if the allegedly breached duty is contractual, the economic-loss rule prevents suing in tort. See, e.g. , Detwiler v. Bank of Central Fla. , 736 So.2d 757 (Fla. 5th DCA 1999) (Antoon, J.); Woodson v. Martin , 663 So.2d 1327, 1331 (Fla. 2d DCA 1995) (Altenbernd, J., dissenting) (explaining that a tort must be based upon some broader societal interest and not merely on the obligations between the parties established in their contract); Hotels of Key Largo, Inc. v. RHI Hotels, Inc. , 694 So.2d 74 (Fla. 3d DCA 1997) (Gersten, J.). A corollary to the economic-loss rule is the rule that the plaintiff in a breach-of-contract action cannot recover damages available only in tort, for example, punitive damages.
Tiara claims to limit the application of the economic loss rule to cases involving products liability. 110 So.3d at 407. In a telling dissent, Justice Canady praised the economic-loss rule as a bulwark that prevents contract law from drowning in a sea of tort. 110 So.3d at 413. In response to Justice Canadys dissent, Justice Pariente wrote in a concurrence that the fear of contract-drowning-in-tort will not materialize because a tort claim requires a tort independent of any breach of contract claim. 110 So.3d at 408. Because the economic-loss rule requires a tort independent of the breach of contract, the concurrence has mystified the bar and the bench. (Nothing in the concurrence or the applicable precedent offers helpful guidance about distinguishing an independent tort from a dependent tort.)
The post- Tiara decisions continue to apply the economic-loss rule to bar a tort claim dependent on a contractual duty-but instead of saying economic-loss rule, some decisions now say that the plaintiff fails to identify a tort independent of the breach of contract. See, e.g. , Lamm v. State Street Bank and Trust , 749 F.3d 938, 947-50 (11th Cir. 2014) ; Kaye v. Ingenio, Filiale de Loto-Quebec, Inc. , 2014 WL 2215770 (S.D. Fla. May 29, 2014) (Rosenbaum, J.). Whatever the label, the principle that the breach of a contractual duty establishes only a breach-of-contract claim remained the governing law throughout the McKenzie-Hermanns dispute.
In this instance, Hermanns failed to state a negligence claim because Hermannss claim against McKenzie depended on a contractual duty. McKenzies duty to care properly for the grove derived not implicitly from a source external to the contract but rather explicitly from the contract with Hermanns. In other words, although society imposes a tort duty on a doctor or a lawyer to perform non-negligently the duties for which they have contracted with a patient or client, society has not imposed on a grove care-taker the duty, for example, to plant 150 trees per acre or to spray the grove with imidacloprid. Hermannss contract with McKenzie imposed a contractual duty to maximize profit and to care properly for the grove. Erroneously assuming the validity of the negligence claim, Waterway never moved to dismiss the claim (Waterway Depo. at 49), but the negligence claim was vulnerable to attack after Tiara . Likely to succeed, that attack would greatly diminish or eliminate Hermannss prospective recovery on the negligence claim. Even viewing the record favorably to Hermanns and even acknowledging the confusion over Tiara , no reasonable jury could conclude that a $2.965 million consent judgment over a negligence claim dependent on the breach of a contractual duty (that is, a negligence claim that fails to state a claim) is reasonable in this circumstance.
III. Duty to defend
A. Travelers owed no duty to defend McKenzie.
If the allegations of fact in the complaint might trigger coverage, the insurer owes a duty to defend the insured. Marr Invest., Inc. v. Greco , 621 So.2d 447 (Fla. 4th DCA 1993) ; State Farm Fire & Cas. Co. v. Tippett , 864 So.2d 31, 35-36 (Fla. 4th DCA 2003) (The allegations...must state a cause of action that seeks recovery for the type of damages covered by the insurance policy.). The duty to defend depends on the facts alleged in the complaint, not the labels or conclusions in the complaint. Cabezas ex rel. Ferrer v. Fla. Farm Bur. Cas. Ins. Co. , 830 So.2d 156 (Fla. 3d DCA 2002) ; Trailer Bridge, Inc. v. Ill. Nat. Ins. Co. , 657 F.3d 1135, 1145 (11th Cir. 2011) (The theories advanced and labels used in a complaint are subordinate to the facts alleged for the purpose of determining the duty to defend.).
The bulk of the amended complaint alleges that McKenzie breached the oral contract by improperly tending to the grove and that McKenzie systematically over-billed Hermanns for goods and services. Also, Hermanns alleged that McKenzie acted with the intent to permanently deprive Hermanns of the groves monies and profits. Elsewhere in the amended complaint, Hermanns alleges that McKenzie used Hermannss fuel for [McKenzies] own machines and/or purposes. And Hermanns alleges that McKenzie planted Hermannss trees at another grove.
Excluding prefatory allegations, the negligence claim comprises four paragraphs. Paragraph twenty alleges that Hermanns hired McKenzie to manage the grove, and paragraph twenty-one alleges that McKenzie owed a duty to ensure that the groves were properly planted, watered, fertilized, treated, and harvested. (Doc. 107-12 at 9) Although the paragraph fails to specify the source of the duty, a fair reading of the complaint reveals a duty based on the parties oral contract. Whatever the source of the duty, nothing (so far) triggers the duty to defend. Paragraph twenty-two alleges that McKenzie deviated from the duty it owed Plaintiff, negligently performing [ ] services and has caused damages to [Hermanns]. Finally, paragraph twenty-three alleges that McKenzies negligence caused damages including but not limited [to] having to [clear] between 70 and 100 acres of land to compensate for the past improper care and consequential damages and lost profits by virtue of having an immature and underplanted grove. Excepting labels and conclusions, no factual allegation in this paragraph potentially suggests damage coverage by the CGL.
A fair reading of the allegations of fact in the amended complaint reveals damage from an intentional scheme to misappropriate Hermannss money and property (the CGL excludes damage from an expected or intended injury). Although the amended complaint appears to include several allegations not dependent on McKenzies intentional theft, the amended complaint alleges only damage from McKenzies operations on the grove-damage allegations excluded by the j(5) provision. In sum, the allegations in the amended complaint triggered no duty to defend McKenzie in the state-court civil action.
IV. Both collusion and bad faith taint the settlement.
If a settlement results from collusion or bad faith, the assignee of the insureds rights cannot recover under the insurance policy. Sidman v. Travelers Cas. and Surety , 841 F.3d 1197 (11th Cir. 2016) (citing Steil v. Fla. Physicians Ins. Reciprocal , 448 So.2d 589 (Fla. 2d DCA 1984) ). Bad faith includes an insureds willingness to accept a judgment of any amount so long as it would not be on the hook to satisfy the judgment. Sidman , 841 F.3d at 1206.
Even viewed favorably to Hermanns, the record reveals a collusive and bad-faith settlement in which McKenzie accepted the plaintiffs asking price of $2.965 million, although several available defenses likely would have diminished or eliminated McKenzies liability for negligence. See Sections II(A), (B), and (C). Under the settlement, Hermanns agreed not to initiate post-judgment financial discovery into McKenzies assets and agreed not to attempt collection on the $2.965 million consent judgment. (Doc. 107-19 at 6) As the Florida decisions explain, this agreement renders the settlement suspect from the outset. Steil , 448 So.2d at 592.
More damning, the settlement includes a provision in which Hermanns agreed to recommend to the State Attorney the most favorable resolution in the criminal action. (Doc. 107-19 at 6) Waterway admits that securing a favorable resolution in the criminal action was more important to McKenzie than minimizing civil liability: McKenzie and his [company] have a finite amount of resources and... personal liberty is probably a much higher priority than anything financially at stake in a civil litigation. (Waterway Depo. at 18-19) Consequently, McKenzie devoted his finite resources to defending the criminal action at the expense of the state-court civil action.
Perhaps in a moment of unusual candor, McKenzies counsel wrote in a draft of the settlement agreement that RMS has made no independent investigation relating to the amount of alleged damage of the Groves, and relies solely on Hermanns investigation and representations when calculating the figure reached in the consent judgment. (Doc. 107-20 at 10) That provision disappeared from the final agreement after Hermannss attorney asked to remove it. (Waterway Depo. at 61-62) Asked to describe McKenzies investigation into the alleged damages, Waterway point[ed] to Mr. McKenzies deposition, in which McKenzie appreciated that the Story opinion was within the realm of possibility and could be persuasive with a Central Florida jury. (Waterway Depo. at 62) Although Waterway states that he anticipated that Hermanns could have retained an economist to turn [the numbers] into something bigger, Waterway knew at the time of the settlement that Story erroneously measured lost revenue instead of lost profit and knew that Story erroneously failed to discount his calculation to the present value. (Waterway Depo. at 63) McKenzies counsel never discussed the Story opinion (that is, the basis for Hermannss claimed damages) with an accountant or with a citrus expert other than McKenzie. At the time McKenzie consented to the $2.965 million judgment, McKenzie absolutely [could] not afford to pay the judgment. (Waterway Depo. at 79) For these reasons and for the reasons adequately explained in Travelers motion (Doc. 108), no reasonable jury could conclude that McKenzie and Hermanns settled in good faith or without colluding.
CONCLUSION
After Hermanns and McKenzie contracted for McKenzie to manage Hermannss citrus groves, McKenzie allegedly stole trees, fuel, fertilizer, and other products that belonged to Hermanns and allegedly breached the contract. Hermanns and McKenzie settled the breach-of-contract claim for $200,000 but settled a so-called negligence claim for $2.965 million. Under the settlement agreement, McKenzie assigned to Hermanns the rights under a Travelers CGL. Even viewed favorably to Hermanns, the record reveals no genuine dispute of material fact, and Travelers is entitled to summary judgment as a matter of law because (1) the CGL excludes damage from an expected or intended injury, (2) the j(5) provision excludes coverage, (3) the settlement is unreasonable for at least three reasons, (4) the factual allegations in the amended state-court complaint failed to trigger the duty to defend, and (5) both collusion and bad faith taint the settlement.
Travelers motion (Doc. 108) for summary judgment is GRANTED , and Hermannss motion (Doc. 106) for summary judgment is DENIED . Hermannss motion (Doc. 139) for oral argument is DENIED . The clerk is directed to enter judgment (1) for The Travelers Indemnity Company of Connecticut and against the defendants on counts two and three of Travelers complaint (Doc. 9) and (2) for The Travelers Indemnity Company of Connecticut and against the defendants on counts one and two of Hermannss counterclaim (Doc. 39). After entering judgment, the clerk must CLOSE the case.
ORDERED in Tampa, Florida, on June 28, 2018.
The parties dispute whether the cost of repairing, replacing, or removing a contractors deficient work constitutes property damage under Florida law. Arguing that none of the of replacement or repair cost constitutes property damage, Travelers relies primarily on a line of Florida decisions dating to LaMarche v. Shelby Mut. Ins. Co. , 390 So.2d 325 (Fla. 1980), which states in dicta that a CGL excludes coverage for the replacement and repair of the defective product. But LaMarche holds only that an exclusion cannot expand coverage and that the exclusion in that action contained no ambiguity. U.S. Fire Ins. Co. v. J.S.U.B., Inc. , 979 So.2d 871, 880-81 (Fla. 2007) (describing the holding of LaMarche ). Several decisions cite LaMarche s dicta as a holding and find as a matter of public policy that a CGL excludes the cost of repairing or replacing an insureds defective work. See, e.g. , Aetna Cas. and Sur. Co. of Am. v. Deluxe Sys., Inc., of Fla. , 711 So.2d 1293, 1296 (Fla. 4th DCA 1998) ; see also Pozzi Window Co. v. Auto-Owners Ins. , 446 F.3d 1178, 1185-86 (11th Cir. 2006) (collecting authority that applie[s] LaMarche broadly). But in most (or perhaps all) of the decisions, a Your Work exclusion in provision j(6) excludesproperty damage to any property that must be restored, repaired, or replaced because your work was performed incorrectly. In this action, Travelers and McKenzie agreed to remove the Your Work exclusion, an atypical bargain that appears to distinguish this policy from the typical CGL policy and appears to distinguish this action from the weight of authority.
Exclusion A provides: This insurance does not apply to...[b]odily injury or property damage expected or intended from the standpoint of the insured. (Doc. 105-10 at 47)
The trees planted at the grove and the citrus crop constitute real property, a point not disputed by Hermanns. See Blacks Law Dictionary , 8th ed. 2004 at 1293 (defining realty or real property as [l]and and anything growing on, attached to, or erected on it, that cannot be removed without injury to the land); see also Peer v. Willson , 210 So.2d 495 (Fla. 2d DCA 1968) (holding that a crop constitutes real property).
Although dicta in Liberty Mut. Fire Ins. Co. v. Mark Yacht Club on Brickell Bay, Inc. , 2009 WL 2633064 (S.D. Fla. Aug. 25, 2009), suggests the inapplicability of the j(5) exclusion to a management contract, the decision holds only that vague allegations in the underlying complaint potentially triggered the duty to defend. In any event, Hermanns identifies in the CGL no management-contract exception to the j(5) exclusion. As Travelers correctly argues (Doc. 133 at 4), the judiciary cannot revise the contract to remove the j(5) exclusion.
If growing costs equal $1,440 per acre (the low end of Storys range for a mature grove), Hermanns reaps a net profit of $964,552.62 between 2014 and 2021. If growing costs equal $1,560 per season (the high end of Storys range for a mature grove), Hermanns reaps a net profit of $741,952.62. If growing costs equal $2,036 per acre (the industry average in Florida), Hermanns loses $141,027.38. After deducting growing costs from Storys projected revenue, accountant Marty Williams concluded that Hermanns grove does not appear to be an economically viable option. (Doc. 120-2 at 8)
Also, Storys opinion letter claims that McKenzies conduct diminished the value of the grove by about $1,000,000. In a deposition, Story (who lacks appraisal experience) concedes that I did not feel that I was a, quote, expert on real-estate valuation. (Story Depo. at 92-93) In any event, provision j(5) excludes coverage for that particular part of real property on which McKenzie was performing operations.
(265 acres) multiplied by (220 boxes per acre) multiplied by $9.
$524,700 minus ($1,200 per acre multiplied by 265 acres).
Asked if he raise[d] any concern with Hermannss counsel about the request for lost profit in both the breach-of-contract claim and the negligence claim, Waterway confusingly said: No. I think the opposite was true. I think that I would have felt that that would be something that, you know, the economic loss defense was asserted and once the negligence count came into the case that was a vehicle for lost profits and I wasnt really concerned that lost profits were going to be a part of the theft damages and, in fact, they werent in the numbers, so it didnt really seem to me to be an area that needed to be addressed that way. (Waterway Depo. at 51)
See also Monsoon, Inc. v. Bizjet Intl Sales & Support, Inc. , 2017 WL 747555 at *8-*9 (S.D. Fla. Feb. 27, 2017) (Marra, J.); TRA Farms, Inc. v. Syngenta Seeds, Inc. , 2014 WL 3844823 at *1-*3 (N.D. Fla. Apr. 4, 2014) (Walker, J.); Burns v. Winnebago Indus., Inc. , 2013 WL 4437246 (M.D. Fla. Aug. 16, 2013) (Bucklew, J.); Certain Underwriters at Lloyds of London v. Ocean Walk Resort Condo. Assn, Inc. , 2017 WL 3034069 at *10 (M.D. Fla. July 18, 2017) (Dalton, J.); Burdick v. Bank of America, N.A. , 99 F.Supp.3d 1372, 1378-80 (S.D. Fla. 2015) (Cohn, J.); Callaway Marine Tech., Inc. v. Tetra Tech, Inc. , 2016 WL 7407769 (S.D. Fla. Dec. 22, 2016) (Gayles, J.); Eiber Radiology, Inc. v. Toshiba Am. Med. Sys., Inc. , 2015 WL 13203447 (S.D. Fla. Aug. 27, 2015) (King, J.); Osan v. Verizon Fla. LLC , 2016 WL 2745001 (M.D. Fla. May 11, 2016) (Honeywell, J.).
Even though McKenzies answer omitted the defense of failure to state a claim, the defense remained available under Rule 1.140(h)(2), Florida Rules of Civil Procedure.
Additionally, asked why Hermanns and McKenzie agreed to McKenzies payment of $200,000 to resolve counts one through three, neither the principals (Hermanns and McKenzie) nor the attorneys (Waterway, Soto, and Rodriguez) could cogently explain the apportionment. For example, Rodriguez (Hermannss counsel) [doesnt] think there was a particular reason the parties allocated all of the lost profits to the negligence claim. (Rodriguez Depo. at 41)