                                                  [DO NOT PUBLISH]


           IN THE UNITED STATES COURT OF APPEALS
                                                         FILED
                  FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
                    ________________________ ELEVENTH CIRCUIT
                                                     April 22, 2008
                         No. 07-14772              THOMAS K. KAHN
                     Non-Argument Calendar             CLERK
                   ________________________

              D. C. Docket No. 04-01170-CV-J-20-MCR

CONTINENTAL CASUALTY COMPANY,
TRANSPORTATION INSURANCE COMPANY,

                                                   Plaintiffs-Counter-
                                                Defendants-Appellees,

TRAVELERS INDEMNITY CO.,

                                                   Plaintiff-Counter-
                                        Defendant-Third-Party Plaintiff,


                             versus

CITY OF JACKSONVILLE,
DUVAL COUNTY SCHOOL BOARD,
JACKSONVILLE ELECTRIC AUTHORITY,

                                                  Defendants-Counter-
                                                 Claimants-Appellants,

CENTURY INDEMNITY COMPANY, et al.,

                                                           Defendants,
INSURANCE COMPANY OF NORTH AMERICA,

                                                                  Counter-Defendant-
                                                                           Appellee,

                                        versus

DOES 1-100,


                                                               Third-Party-Defendant.

                            ________________________

                    Appeal from the United States District Court
                        for the Middle District of Florida
                         _________________________

                                   (April 22, 2008)

Before BIRCH, DUBINA and WILSON, Circuit Judges.

PER CURIAM:

      The City of Jacksonville, Duval County School Board and Jacksonville

Electric Authority (collectively, “the City”) appeal the district court’s grant of

summary judgment in favor of Continental Casualty Company and Transportation

Insurance Company (jointly, “Transportation”) and the dismissal of their

counterclaims with prejudice. For the reasons stated below, we affirm the district

court’s judgment.

                                 I. BACKGROUND



                                           2
      In May 2003, thousands of Jacksonville, Florida residents filed a state court

action against the City alleging physical and emotional injuries caused by their

exposure to lead, PCBs, arsenic, and other contaminants from incinerators and

dump sites owned and operated by the City (“Williams litigation”).1 On March 2,

2004, ten months after the Williams litigation began, the City sent written notice to

Transportation, asking Transportation to provide a defense. Transportation agreed

to defend the City, paying their fair share of reasonable and necessary expenses

related to the defense, subject to a complete reservation of rights. The City chose

the law firm of Steel, Hector & Davis, and Transportation fully funded the City’s

defense, eventually paying approximately $3.9 million in attorneys’ fees and costs.

The City accepted the defense funded by Transportation through settlement

through the Williams litigation, but nonetheless contended that it had the right to

control the defense because Transportation tendered its defense subject to a

reservation of rights.

      The instant appeal is taken from an action by Transportation seeking a

declaratory judgment, pursuant to 28 U.S.C. §§ 2201 and 2202, as to the scope and

nature of their obligations under the relevant insurance contracts, if any, to the City

with respect to the Williams litigation. On Transportation’s first two motions for



      1
          Nora Williams v. City of Jacksonville, Case No. 16-2003-CA-03263.

                                               3
summary judgment, the district court found that (1) Transportation had satisfied its

duty to defend and had complied with the requirements of Florida’s Claim’s

Administration Statute; and (2) the City’s failure to cooperate with Transportation

was a material failure that substantially prejudiced Transportation. The district

court initially declined to grant full summary judgment in favor of Transportation,

however, because “the Court [could not] find as a matter of law that Transportation

attempted in good faith to foster cooperation and that a reasonable and prudent

person would not have either accepted the settlement proposed or negotiated a

different settlement. These issues must be decided by a fact-finder.” R.428 at 33.

      Yet, after reviewing a then-recent unpublished opinion from this Court,

Philadelphia Indem. Ins. Co. v. Kohne, 181 Fed. Appx. 888, 2006 WL 1390415

(11th Cir. 2006), and reexamining the Supreme Court of Florida’s decision in

Ramos v. Northwestern Mut. Ins. Co., 336 So. 2d 71 (Fla. 1976), the district court

re-framed the remaining issue in the declaratory action as “simply whether

Transportation exercised due diligence and good faith in trying to bring about the

City’s cooperation as it attempted to defend the Williams Action.” R.428 at 37.

On Transportation’s motion for final summary judgment, the court found that the

undisputed facts demonstrated “the City’s duplicity” with respect to its

communications with Transportation throughout the Williams litigation. The



                                          4
district court determined that Transportation had exercised due diligence and good

faith in securing the City’s cooperation, but that the City’s actions rendered

Transportation’s efforts futile. The district court concluded that Transportation

was therefore discharged from their duty to use due diligence and good faith in

securing the City’s cooperation, and it granted final summary judgment in favor of

Transportation, dismissing the City’s counterclaims with prejudice.2 The City

appeals.

                               II. STANDARD OF REVIEW

       We review the district court’s grant of summary judgment de novo.

Summary judgment is appropriate where the pleadings, discovery materials on file,

and any affidavits demonstrate that there is no genuine issue of material fact and

that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c);

Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S. Ct. 2548, 2552, 91 L. Ed.

2d 265 (1986); Mega Life And Health Ins. Co. v. Pieniozek, 516 F.3d 985, 989

(11th Cir. 2008) (per curiam).

                                      III. DISCUSSION

       The City argues that “[t]he overarching error of the [district court’s] ruling is



       2
          The City’s counter-claims sought (1) the re-establishment of certain “lost” insurance
policies; (2) declaratory judgment as to Transportation’s liabilities under the insurance contracts;
and (3) damages for Transportation’s alleged breach of its duty to defend.

                                                 5
the failure to recognize that Insurers’ [sic] prior breaches must be deemed to

constitute an anticipatory breach of contract excusing compliance with the

cooperation clause.” Appellant Brief at 19. Specifically, the City construes

Transportation’s defense under a reservation of rights as a “refusal to defend,”

allowing the City to retain full control of the defense and entitling it to settle

without Transportation’s consent. Moreover, the City argues that the district court

erroneously re-framed the remaining issue for trial as whether Transportation’s

communications with the City demonstrate its due diligence and good faith in

securing the City’s cooperation. The City contends that the issue is properly

framed as whether Transportation had “‘attempted in good faith to foster

cooperation and [whether] a reasonable and prudent person would not have either

accepted the settlement proposed or negotiated a different settlement.’” Id. at 30.

      In response, Transportation argues that the undisputed evidence

demonstrates that they provided a fully-funded defense by counsel of the City’s

choosing, and because the City accepted this defense notwithstanding a reservation

of rights, Transportation retained the right to control the defense. Transportation

also argues that despite their numerous attempts to obtain more information and

become more involved in the course of the Williams litigation, the City

consistently failed to notify Transportation of important settlement discussions



                                            6
and failed to fully and honestly communicate the contents of those discussions.

Transportation claims that although the City accepted their defense, it went behind

Transportation’s back to settle the Williams litigation over Transportation’s

repeated objection, capping the City’s liability to $25 million while stipulating to a

consent judgment of $75 million enforceable only against Transportation and other

insurers.

      We first note that this declaratory judgment action was brought on the basis

of diversity jurisdiction, 28 U.S.C. § 1332, and therefore, state law must apply to

any issue not governed by the Federal Constitution, treaties, or Act of Congress.

See 28 U.S.C. § 1652; Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817,

822, 82 L. Ed. 1188 (1938). The district court determined that Florida law

determines Transportation’s legal duties and obligations under their insurance

contracts and accordingly, applied Florida law throughout the dispositions below.

The parties have not objected, and we therefore examine the various claims

asserted on appeal under Florida law. See Cavic v. Grand Bahama Dev. Co., 701

F.2d 879, 882 (11th Cir. 1983) (“Because the parties did not raise any conflict of

laws issue in the district court and do not raise it on appeal, under applicable

conflict of laws principles the law of the forum ( [Florida] ) would govern the

substantive issues due to the absence of facts justifying the application of the law



                                           7
of some other jurisdiction.” (internal quotation marks omitted)).

A. Duty to Defend, Reservation of Rights, and Right to Control the Defense

      Under Florida law, “an insurer’s duty to defend is separate and distinct from

its duty to indemnify, and is more extensive.” First Am. Title Ins. Co. v. Nat’l

Union Fire Ins. Co., 695 So. 2d 475, 476 (Fla. Dist. Ct. App. 1997). Thus, “an

insurer is obligated to defend a claim even if it is uncertain whether coverage exists

under the policy.” Id. Because under Florida law an insurer may not lawfully

refuse to defend even when it suspects that coverage does not exist, “an insurer

may provide a defense under a reservations [sic] of rights.” Id. at 476–477.

      An insurer’s wrongful refusal to defend forfeits its corresponding right to

control the defense. See Bellsouth Telecomm., Inc. v. Church & Tower of Fla.,

Inc., 930 So. 2d 668, 671–72 (Fla. Dist. Ct. App. 2006). As is well-established

under Florida law, “an insurer’s unjustified refusal to defend a suit against the

insured relieves the insured of his contract obligation to leave the management of

such suit to the insurer and justifies him in assuming the defense of the action on

his own account.” Id. at 672. Under such circumstances, “if it is later determined

that the insured was entitled to coverage, the insured will be entitled to full

reimbursement of the insured’s litigation costs.” Id. at 671.

      A different scenario develops when an insurer provides a defense subject to



                                           8
a reservation of rights. First, “[a]n insurer does not breach its duty to defend an

insured when it provides a defense under a reservation of rights.” First American,

695 So. 2d at 477. An insurer is entitled to tender such a defense because “the law

distinguishes between the insurer’s duties to defend and to pay.” Taylor v. Safeco

Ins. Co., 361 So. 2d 743, 745 (Fla. Dist. Ct. App. 1978). Because a defense subject

to a reservation of rights does not constitute a wrongful refusal to defend, an

insurer retains its right to control the defense. Yet, an insured is “not obliged to

surrender control of his personal defense to an insurer which disclaimed

responsibility for any judgment within policy limits that might result from the

litigation.” Id. Therefore, “if the insurer offers to defend under a reservation of

rights, the insured has the right to reject the defense and hire its own attorneys and

control the defense.” Church & Tower, 930 So. 2d at 671. As explained in Taylor:

      Just as the insurer is not required to abandon its contest of a duty to pay as a
      condition of fulfilling an assumed or admitted duty to defend, the insured is
      not required to abandon control of his own defense as the price of preserving
      his claim, disputed by the insurer, that the insurer pay any judgment. The
      law respects, but does not require, such agreements.

Taylor, 361 So. 2d at 745. While an insurer must defend its insured, and may

tender its defense subject to a reservation of rights, Florida law does not require an

insured to accept such a defense.

      The undisputed facts demonstrate that when the City finally notified



                                           9
Transportation about the Williams litigation—ten months after the complaint was

filed—Transportation responded by offering to defend the City subject to a full

reservation of rights, allowed the City to select its counsel, and paid all attorneys’

fees and costs associated with defending the Williams litigation. Thus, the district

court correctly found that Transportation fulfilled its legal duty to defend. By

accepting and not rejecting Transportation’s fully-funded defense, the City agreed

to leave control of the defense in Transportation’s hands. Consequently, the City

was required to cooperate with Transportation throughout the Williams litigation.

B. Breach of Duty to Cooperate

      The relevant insurance contracts between Transportation and the City

provided the following cooperation clause:

      The insured shall cooperate with the company, and upon the company’s
      request, shall attend hearings and trials and shall assist in effecting
      settlements, securing and giving evidence, obtaining the attendance of
      witnesses and in the conduct of suits. The insured shall not, except at his
      own cost, voluntarily make any payment, assume any obligation or incur any
      expense other than for such immediate medical and surgical relief to others
      as shall be imperative at the time of the accident.

R.428 at 4 (quoting R.112, Exh. 32 at ¶ 12) (emphasis added). Given that the City

first notified Transportation of the Williams litigation ten months after the suit was

filed, Transportation tendered a defense subject to a reservation of rights because it

had reason to believe that the City may have breached the cooperation clause of the



                                           10
insurance contract.

       Florida law has long established that an insurer may deny insurance

coverage and any payment of damages to the victim of an insured’s tort “where the

insurer has exercised diligence and good faith in seeking to bring about the

cooperation of the insured, and where the insurer has in good faith complied with

the terms and conditions of the policy.” Ramos v. Nw. Mut. Ins. Co., 336 So. 2d

71, 75 & n.2 (Fla.1976) (citing American Fire and Cas. Co. v. Vliet, 4 So. 2d 862

(Fla. 1941); American Fire and Cas. Co. v. Collura, 163 So. 2d 784 (Fla. Dist. Ct.

App. 1964); Bordettsky v. Hertz Corp., 171 So. 2d 174 (Fla. Dist. Ct. App. 1965)).

“Not every failure to cooperate will release the insurance company. Only that

failure which constitutes a material breach and substantially prejudices the rights of

the insurer in defense of the cause will release the insurer of its obligation to pay.”

Id. While the question of “whether the failure to cooperate is so substantially

prejudicial as to release the insurance company of its obligation is ordinarily a

question of fact, . . . under some circumstances, particularly where the facts are

admitted, it may well be a question of law.” Id.

       As properly observed by the district court, the City does not so much argue

that it did not fail to cooperate, or even that its failure to cooperate is neither

material nor substantially prejudicial, but that its failure to cooperate does not



                                            11
dissolve Transportation’s duty to pay because Transportation’s “bad faith” in

settling the Williams litigation constituted a breach of its implied duty of good faith

in contract under Florida law. In essence, the City argues that Transportation’s

duty of good faith to foster cooperation embodies “a duty of good faith in

‘negotiating settlement,’” and because Transportation breached its good faith duty

to settle, the City was entitled to settle without Transportation’s consent. Appellant

Brief at 31–41.

      Florida law provides an insured with a cause of action against its insurer for

damages caused by the insurer’s “[n]ot attempting in good faith to settle claims

when, under all the circumstances, it could and should have done so, had it acted

fairly and honestly toward its insured and with due regard for his interests.” Fla.

Stat. § 624.155(1)(b)1. (1987). On a certified question from this Court, the

Supreme Court of Florida clarified the issue of “when a first-person statutory cause

of action for bad faith under section 624.155 arises.” Blanchard v. State Farm

Mut. Auto. Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991) (internal quotation marks

omitted). Specifically, we asked:

“Does an insured’s claim against an uninsured motorist carrier under section

624.155(1)(b)1., . . . for allegedly failing to settle the uninsured motorist claim in

good faith accrue before the conclusion of the underlying litigation for the



                                           12
contractual uninsured motorist insurance benefits?” Id. at 1290. Answering that

question in the negative, the Supreme Court of Florida explained

      If an uninsured motorist is not liable to the insured for damages arising from
      an accident, then the insurer has not acted in bad faith in refusing to settle
      the claim. Thus, an insured’s underlying first-party action for insurance
      benefits against the insurer necessarily must be resolved favorably to the
      insured before the cause of action for bad faith in settlement negotiations
      can accrue.

Id. at 1291 (emphasis added). As applied to this case, the underlying declaratory

judgment action as to Transportation’s contractual obligations to the City must be

resolved in the City’s favor before the City’s cause of action for bad faith in

settlement negotiations may accrue against Transportation. Thus, the district court

correctly focused on whether, on the basis of the undisputed facts before it, the

City’s alleged breach of the cooperation clause released Transportation from its

obligations under the insurance contract. The City’s continued attempts to avoid

the issue of its cooperation by framing the issue as whether Transportation

exercised bad faith in settlement negotiations fail here, as they did below.

      As explained by the Supreme Court of Florida, “to constitute the breach of a

policy, the lack of cooperation must be material and the insurance company must

show that it was substantially prejudiced in the particular case by failure to

cooperate.” Ramos, 336 So. 2d at 75. “[W]hile an insured is free to enter into a

reasonable settlement when its insurer has wrongfully refused to provide it with a


                                          13
defense to a suit, . . . we find that the insured is not similarly free to independently

engage in such settlements where, as here, the insurer had not declined a defense to

suit.” First American, 695 So. 2d at 477. Thus, “the insured’s failure to comply

with the relevant policy provisions [cooperation clause] relieved the insurer of its

obligations under the policy.” Id.

      Applying Ramos, the district court found on the first two motions for

summary judgment that the City breached its duty to cooperate. Having found that

Transportation retained control of the Williams litigation by satisfying its duty to

defend, the district court rightly determined that the City materially breached the

express language in the cooperation clause by settling the case without

Transportation’s consent and over Transportation’s express objections.

      The court was also correct in finding that “[t]here is no doubt that the

settlement reached – i.e., a $75 million consent judgment including the assignment

of all the City’s rights against the Insurers to the Williams Plaintiffs – is

substantially prejudicial to the Insurers.” R.179 at 20. This is especially so

considering the City’s numerous failures to inform Transportation of the schedule

for important settlement discussions or provide full information of the details of

those discussions. The many private negotiations between the City and the

Williams plaintiffs, prevented Transportation from being able to provide input at



                                           14
critical stages of the negotiation process.3

       As for the remaining issue under the Ramos test—whether the insurer

exercised good faith and due diligence in securing the insured’s cooperation—we

also agree with the district court that the undisputed facts demonstrated “the City’s

duplicity” throughout the settlement process and that the City’s deception rendered

Transportation’s efforts to secure the City’s cooperation futile. As a panel of this

Court has discussed, under First American, an insurer exercises due diligence and

good faith in securing cooperation when it makes efforts to communicate with the

insured and specifically instructs the insured to notify it of any developments in the

underlying matter. See Kohne II, 181 Fed. Appx. at 982. The court in First

American held that under the undisputed facts, the insured’s breach of the

cooperation clause released the insurer’s obligations under the policies as a matter

of law. 695 So. 2d at 477. Although First American did not explicitly provide a

standard by which to evaluate due diligence and good faith in securing

cooperation, the court was indeed influenced by the fact that “FATCOF [the

insured] did not notify National [the insurer] of this lawsuit or seek its permission

to enter into the consent judgment.” Id. at 476. The insured failed to communicate

with its insurer despite the insurer’s written request for more information. Id.


       3
         The full, detailed history of the City’s conduct throughout the Williams settlement is
chronicled in the district court’s opinion. See R.420 at 5–28.

                                                15
      The undisputed evidence here reveals that on numerous occasions,

Transportation sent written requests, by mail and email, for information on the

status of the Williams settlement. Transportation attended four of the five initial

mediation sessions, but rejected the first settlement offer from the Williams

plaintiffs because it did not have sufficient information to adequately evaluate it.

In one letter to the City after a mediation session, Transportation reminded the City

that “‘[d]uring the mediation, the City agreed that they would discuss any potential

offer with Transportation Insurance Company [ ] prior to making such an offer an

allow [Transportation] to voice any objection it has.’” R.420 at 7 (quoting

Declaration of Richard Pratt, Ex. 18) (alterations in original). Transportation

repeated its position on at least 8 or 9 occasions. Thereafter, the City engaged in

numerous settlement discussions with the Williams plaintiffs without

Transportation’s input or knowledge. See R. 420 at 8–9. Cindy Lacquidara, Chief

Deputy General Counsel at the Office of General Counsel for the City, admitted

that “‘the City knew that Transportation wanted to be involved in all of the

settlement negotiations.’” Id. at 7 (quoting Declaration of Richard Pratt, Ex. 11).

Despite the City’s knowledge, the City, through Ms. Lacquidara, continued

settlement discussions without including Transportation, “‘declin[ing] to accept

[Transportation’s] insistence upon approving any decision to settle so long as its



                                          16
reservation of rights is maintained.’” Id. at 13 (quoting Declaration of Richard

Pratt, Ex. 33) (second alteration in original).

      Under the undisputed facts about the Williams settlement, the district court

did not err in concluding that, as a matter of law, Transportation exercised due

diligence and good faith in securing the City’s cooperation and that the City’s

dishonesty rendered Transportation’s attempts to secure its cooperation futile.

                                 IV. CONCLUSION

      For the foregoing reasons, we AFFIRM the district court’s grant of summary

judgment to Transportation and dismissal of the City’s counterclaims with

prejudice. The City’s material breach of the cooperation clause was substantially

prejudicial to Transportation, which satisfied their duty to defend. Although

Transportation exercised due diligence and good faith in securing the City’s

cooperation, the City’s conduct rendered Transportation’s efforts futile. We affirm

the district court’s conclusion that the City’s resultant breach of the cooperation

clause releases Transportation of its obligations to the City under the relevant

insurance contracts, as a matter of law.

      AFFIRMED.




                                           17
