Through independent insurance agents, Ms. Hallums and Mr. Castillo separately applied for insurance with Infinity Insurance Company. Instead of applying for policies with 100/300/50 limits for all insureds, Ms. Hallums and Mr. Castillo applied for policies with lower limits for themselves but 100/300/50 limits covering only the lessors. The lessors accepted the product as fulfilling the leases' requirements.

The product that provided 100/300/50 limits for the lessors was Infinity's lessor liability endorsement, which stated:

This additional coverage will apply to damages your lessor becomes legally obligated to pay that arise from and are legally related to a loss covered under your policy. The coverage provided by this endorsement . . . is available only to indemnify your lessor pursuant to the terms listed herein.

Ms. Hallums and Mr. Castillo subsequently sued Infinity in the U.S. District Court for the Southern District of Florida, alleging that the endorsement was illusory because it only provided coverage for vicarious liability against lessors, and that liability was foreclosed by the federal statute known as the Graves Amendment, which barred claims of vicarious liability against vehicle lessors.

The district court granted summary judgment in favor of Infinity, and Ms. Hallums and Mr. Castillo appealed to the Eleventh Circuit.

The Eleventh Circuit's Decision

The Eleventh Circuit affirmed.

In its decision, the circuit court explained that the policy imposed a duty to defend on Infinity, and that the duty extended to all aspects of the policy, including the endorsement.

The circuit court added that because the endorsement was part of the Infinity insurance policy, and because the endorsement covered claims of vicarious liability against lessors, a complaint alleging vicarious liability against a lessor "would fairly and potentially fall within the policy coverage."

According to the Eleventh Circuit, it did "not matter for duty-to-defend purposes" that the endorsement might only protect against claims foreclosed by federal law because the Graves Amendment was "a defense to liability, not coverage."

"Of course," the circuit court observed, "an insurer must defend against plainly unmeritorious claims" as well as claims "for which coverage may not clearly exist under the policy."

Simply put, the circuit court stated that the duty to defend imposed by the endorsement was no "illusory promise" given that Infinity had to defend lessors sued for claims barred by the Graves Amendment because, inevitably, a lessor would be named as a defendant under a theory of vicarious liability, as a result of a lessee's alleged negligence, and in such a case would incur costs associated with hiring counsel to analyze the claims asserted and to determine whether the suit was grounded in vicarious liability and therefore was foreclosed by Graves or whether it fell within the savings clause and was permitted to proceed against the lessor.

Infinity had these duties regardless of whether lawsuits alleging acts within the endorsement's scope were likely – or even able – to succeed in court, the Eleventh Circuit concluded.

The case is Hallums v. Infinity Ins. Co., No. 18-12138 (11th Cir. Dec. 17, 2019). Attorneys involved include: For SHELITHEA HALLUMS, individually and as representative of a class of similarly-situated persons, SAMUEL CASTILLO, Plaintiffs – Appellants: Arturo Carlos Martinez, Eric A. Hernandez, Jermaine Lee, Hernandez Lee Martinez, LLP, MIAMI SHORES, FL; Todd L. Wallen, Shook Hardy & Bacon, LLP, MIAMI, FL. For INFINITY INSURANCE COMPANY, INFINITY AUTO INSURANCE COMPANY, Defendants – Appellees: Raoul G. Cantero, Christopher Swift-Perez, White & Case, LLP, MIAMI, FL; Ramon Alberto Abadin, Sedgwick, LLP, MIAMI, FL; Diana Nicole Evans, Bradley Arant Boult Cummings, LLP, TAMPA, FL; Michael R. Pennington, John Thomas Richie, Bradley Arant Boult Cummings, LLP, BIRMINGHAM, AL.For JPMORGAN CHASE BANK, NA, Defendant – Appellee: David DeSales Switzler, Stroock & Stroock & Lavan, LLP, MIAMI, FL.