LET’S TALK ABOUT A STATUTORY FIRST-PARTY BAD FAITH CLAIM AGAINST AN INSURER

Posted on January 27, 2024January 27, 2024 by David Adelstein

Let’s talk about a statutory first-party bad faith claim against an insurer under Florida law. A recent opinion, discussed below, does a nice job providing a synopsis of a first-party statutory bad faith claim against an insurer:

The Florida Legislature created the first-party bad faith cause of action by enacting section 624.155, Florida Statutes, which imposes a duty on insurers to settle their policyholders’ claims in good faith. The statutory obligation on the insurer is to timely evaluate and pay benefits owed under the insurance policy. The damages recoverable by the insured in a bad faith action are those amounts that are the reasonably foreseeable consequences of the insurer’s bad faith in resolving a claim, which include consequential damages.

“[A] statutory bad faith claim under section 624.155 is ripe for litigation when there has been (1) a determination of the insurer’s liability for coverage; (2) a determination of the extent of the insured’s damages; and (3) the required [civil remedy] notice is filed pursuant to section 624.155(3)(a).”

“An insured may obtain a determination of the insurer’s liability and the extent of their damages by litigation, arbitration, settlement, stipulation, or the payment of full policy limits.” Additionally, payment of an appraisal award by the insurer constitutes a determination of the insurer’s liability and the extent of the insured’s damages.

Cingari v. First Protective Ins. Co., 49 Fla.L.Weekly D89a (Fla. 4^th DCA 2023) (internal citations omitted).

The fact pattern in this case is somewhat nutty. This case dealt with a homeowner’s property insurance policy. The homeowners discovered cracks in their walls and submitted an insurance claim. The insurer issued two partial payments. However, the homeowner felt its insurer was not properly adjusting the claim and filed a Civil Remedy Notice as the perquisite for a statutory bad faith claim. The homeowner subsequently invoked the appraisal process in the policy. The insurer agreed and the claim proceeded through the appraisal process (after a lawsuit was initiated for the court to appoint the umpire to preside over the appraisal process). The umpire found damages more than the partial payments paid by the insurer resulting in the insurer paying the policy limits under the policy. The homeowner then filed a bad faith action against its insurer for failing to timely and properly adjust the loss. The insurer moved for summary judgment arguing that AFTER it paid the policy limits it discovered that the loss (that it paid for) was, in fact, excluded under the policy by an earth settlement exclusion. The trial court agreed with the insurer that because there was no coverage, there could be no bad faith claim against the insurer.

The appellate court concluded differently under the facts of the case: “we conclude the trial court erred in accepting the insurer’s argument that because no coverage existed, the homeowner was not entitled to litigate whether the insurer acted in bad faith.” Cingari, supra. Why did the appellate court conclude differently? Two main reasons:

(1) The insurer never raised that “no coverage exists” to the umpire during the appraisal process.

(2) “[T]he focus of a first-party bad faith claim is whether the insurer in good faith timely and property investigated and resolved claims filed by the insured.” Cingari, supra. In other words, the focus centers on the insurer’s investigation of the cause of the loss. Remember, the insurer argued it did not discover the basis of the exclusion until AFTER it paid the policy limits per the appraisal process.

[T]he insurer’s statements that it ‘proceeded under an erroneous policy interpretation’ in the umpire appointment suit [for the appraisal] and ‘gratuitously’ paid the policy limits and appraisal award certainly raise an inference that the insurer did not properly investigate the claim. The homeowner argued…that the failure to properly investigate caused the insurer to improperly extend settlement of the claim through the appraisal process. In doing so, the insurer arguably violated the requirements in section 624.155(1)(b)1. and 2., Florida Statutes (2020), to ‘attempt[] in good faith to settle claims’ and ‘promptly settle claims[.]

Cingari, supra.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

FIRST-PARTY STATUTORY BAD FAITH – 60 DAYS TO CURE MEANS 60 DAYS TO CURE

Posted on September 5, 2020September 5, 2020 by Edward Garber

In a first party bad-faith lawsuit, such as a bad faith claim against an insured’s property insurer, there are three requirements that must be met before the bad faith lawsuit is filed: “‘(1) determination of the insurer’s liability for coverage; (2) determination of the extent of the insured’s damages; and (3) the required notice must be filed under section 624.155(3)(a).’” Fortune v. First Protective Ins. Co., 45 Fla. L. Weekly D2092a (Fla. 2d DCA 2020) (citation omitted).

The third requirement is for the insured to file a Civil Remedy Notice (known as a “CRN”) as a condition precedent to filing a statutory bad faith lawsuit giving the insurer 60 days’ notice of the bad faith violation and to cure the violation, i.e., pay the claim if the violation is payment.

A very common bad faith payment violation is the assertion that the insurer did NOT attempt “in good faith to settle claims when, under the circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with due regard for his or her interests.” Fla. Stat. s. 624.155(1)(b)(1).

Can a statutory bad faith action still be triggered if the insurer invokes the appraisal process per the insurance policy BEFORE the insured files its CRN? The answer is yes!

In Fortune, an insured suffered a loss stemming from a hurricane. The insurer adjusted the loss, after applying the deductible and depreciation, at approximately $3,000 and paid that money to the insured. The insured disputed this was a final amount for the loss and the insurer demanded appraisal per the policy. The insured then filed a CRN to start the statutory bad faith process. The insurer did NOT cure the violation—pay the claim—within the required 60-day period. The parties went through appraisal and the umpire determined the loss to be approximately $120,000. The insurer paid what it owed per the umpire’s award. The insured then filed his bad faith lawsuit. The trial court granted summary judgment in favor of the insurer finding there was no bad faith because the insurer instituted the appraisal process before the insured filed a CRN and then paid the award.

The Second District Court of Appeals reversed the summary judgment.

An insured is not precluded from filing a CRN prior to a determination of the insurer’s liability for coverage (requirement 1 above) or a determination of the extent of the insured’s damages (requirement 2 above). Thus, the insured was within his rights to file a CRN after the insurer instituted the appraisal process. See Fortune, supra (“Even if a policy requires the mediation or appraisal process to occur prior to suit being filed, an appraisal is not a condition precedent to the insurer fulfilling its obligation to fairly evaluate the claim and to either deny coverage or to offer an appropriate amount based on that fair evaluation.”).

Moreover, “an alleged payment violation [by the insurer] would require payment within the sixty-day cure period.” Fortune, supra. This means that the insurer invoking the appraisal process and then paying the umpire’s award AFTER the 60-day cure period expired does not cure a bad faith payment violation.

If you are dealing with a property insurance coverage claim or dispute, it is imperative that you work with counsel to ensure your rights are preserved. In this case, the insured’s bad faith rights were preserved against the insurer by the insured filing a CRN even after the insurer instituted the appraisal process.

BAD FAITH IN THE FIRST-PARTY INSURANCE CONTEXT

Posted on December 10, 2016November 8, 2024 by Edward Garber

In a previous article I discussed bad faith when it comes to an insurance claim. Recently, in Barton v. Capitol Preferred Insurance Co., Inc., 41 Fla. L. Weekly D2736b (Fla. 5^th DCA 2016), the court discussed bad faith in the first-party insurance context (i.e., a property / homeowners insurance policy).

In this case, homeowners, as the insured, sued their homeowners insurance carrier for sinkhole coverage. The homeowner filed a Civil Remedy Notice of Insurer Violation (also known as a Civil Remedy Notice) against their insurer with the Florida Department of Insurance in accordance with Florida Statute s. 624.155. This Civil Remedy Notice is a prerequisite to initiating such a bad faith claim; the notice specifies the statutory violations committed by the insurer and gives the insurer 60 days to cure the violation.

The insurer denied the assertions in the Civil Remedy Notice. Thereafter, the homeowners served a proposal for settlement / offer of judgment trying to settle the claim for $65,000. The insurer paid $65,000 and the lawsuit was dismissed. But, the proposal for settlement did not require the homeowners to release the insurer. In other words, there was no release of any bad faith insurance claim. So, naturally, the homeowners refiled a lawsuit against their homeowners insurance carrier for bad faith.

“[A] bad-faith action is premature until there is a determination of liability [coverage] and extent of damages owed on the first-party insurance contract.” Barton, supra. citing Vest v. Travelers Ins. Co., 753 So.2d 1270, 1276 (Fla. 2000). An insured can obtain a determination of liability through an agreed settlement, arbitration, or stipulation—the determination of liability / coverage does not have to be made through trial. Id. quoting Fridman v. Safeco Ins. Co. of Ill., 185 So.3d 1214, 1224 (Fla. 2016).

Here, the court held that there was a determination of liability because the insurer paying the insured-homeowners $65,000 was a favorable resolution to the homeowners. It did not matter that the $65,000 was less than the insured’s original demand or less than the policy limits for sinkhole coverage. Why? Because the settlement operated as a determination of liability and extent of the homeowners’ damages, thereby satisfying the condition precedent to filing a bad faith claim.

This was a clever move by the homeowners not to give the insurer a release in consideration of the $65,000 (and not to condition the proposal for settlement on giving the insurer a release). From an insurer’s standpoint, after it receives a Civil Remedy Notice and, then, a proposal for settlement, it should try to obtain such a release. Perhaps the insurer tried hard to get that release but the homeowners were unwilling to give such a release. This may have forced the insurer to pay the $65,000 pursuant to the proposal for settlement to minimize its exposure in the underlying insurance coverage dispute. The fact that accepting a proposal for settlement can satisfy the determination of liability and extent of damages requirement (even if the proposal for settlement amount is less than any original demand) before initiating a bad faith claim may motivate insurers to negotiate and pay for a release that protects them from such bad faith claims.

GENERAL UNDERSTANDING OF THIRD-PARTY AND FIRST-PARTY BAD FAITH INSURANCE ACTIONS

Posted on February 22, 2015November 8, 2024 by Edward Garber

Insurance is a large part of the construction industry. Whether you are a contractor, subcontractor, design professional, supplier, or owner, you (should) have insurance to cover risks inherent in the industry and the particulars of a project.

There are instances in a dispute involving insurance coverage that either an insured or third-party claimant will become frustrated with an insurer. The frustration may stem from the insurer not considering or initiating settlement opportunities to resolve the dispute. When this occurs, the insured and/or third-party claimant consider preserving rights to what is known as a bad faith action largely based on the insurer “[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 her or his interests.” See Fla. Stat. s. 624.155(1)(b)(1).

There are two types of bad faith actions: (1) third-party bad faith actions and (2) first-party bad faith actions.

Third-Party Bad Faith Actions

A third-party bad faith action arises when a third-party asserts a claim against the insured and the insured is exposed to damage exceeding the coverage / policy limits of its insurance policy. Naturally, the insured would be responsible for any judgment that exceeds the policy limits of its insurance policy.

But, what if the insurer had the opportunity to settle the claim for the policy limits or under the policy limits but did not and exposed the insured to a monetary judgment exceeding the policy limits? It is this opportunity to settle a covered claim within coverage limits but refusing to do so that triggers the bad faith action. To this point, the Florida Supreme Court stated that “the essence of a third party bad faith cause of action is to remedy a situation in which an insured is exposed to an excess judgment because of the insurer’s failure to properly or promptly defend the claim.” Macola v. Government Employees Ins. Co., 953 So.2d 451, 458 (Fla. 2006) (internal citations omitted).

On the other hand, if the insurer effectuates a resolution with the third-party that includes a release of the insured, there is no third-party bad faith action considering the insured would not be exposed to a judgment in excess of the policy limits. See Fidelity and Cas. Co. of New York v. Cope, 462 So.2d 459 (Fla. 1985).

A third-party can bring a third-party bad faith action directly against the insured’s insurer only if it obtains a judgment against the insured in excess of the policy limits. State Farm Fire & Cas. Co. v. Zebrowski, 706 So.2d 275 (Fla. 1997).

A third-party bad faith action can be based on Florida Statute s. 624.155 or the common law. A difference is that a statutory bad faith action under s. 624.155 requires what is known as a civil remedy notice identifying the insurer’s violation to be submitted to the Florida Department of Financial Services as a condition precedent to initiating the bad faith action. See Fla.Stat. s. 624.155(3)(a). The insurer is given 60 days to cure the violation before the bad faith action can be initiated.

A common law third-party bad faith action does not require the civil remedy notice. See Macola 953 So.2d 451 (insurer tendering policy limits to insured in response to civil remedy notice and in accordance with Florida Statute s. 624.155 which did not eliminate underlying third-party action would not eliminate a common law third-party bad faith action.)

However, it is important to understand that a party (whether the insured or third party) initiating a third-party bad faith action will not be able to obtain a judgment for both the common law and statutory bad faith causes of action and will ultimately have to choose the cause of action it wants to pursue. Fla. Stat. s. 624.155(8). The statutory third-party bad faith action is probably more commonly pursued and parties should serve the civil remedy notice before initiating the bad faith action.

First-Party Bad Faith Actions

A first-party bad faith action is not based on a third-party action but based on the insured’s own claim against its insurer (such as with a first-party property insurance policy or for uninsured motorist coverage). This may occur when the insured submits a claim against its own insurance policy and the insurer denies the claim or otherwise refuses or delays in paying the full covered amount of the claim. Unlike the third-party bad faith action, a first-party bad faith action has nothing to do with an insurer exposing an insured to a judgment in a third-party claim in excess of the policy limits.

A first-party bad faith claim is a statutory action under s. 624.155 that requires the civil remedy notice as a condition precedent to initiating the bad faith action. However, unlike a third-party bad faith action, there is no common law first-party bad faith action. QBE Ins. Corp. v. Chalfonte Condominium Apartment Ass’n, Inc., 94 So.3d 541, 545 (Fla. 2012).

Before a bad faith action can be initiated in a first-party action, there needs to be a determination that there is coverage, i.e., that the insurer is liable to the insured under the insurance contract, and what the covered damages are. See Liberty Mut. Ins. Co. v. Farm, Inc., 754 So.2d 865 (Fla. 3d DCA 2000) (first-party bad faith action was premature prior to coverage dispute); see also State Farm Florida Ins. Co. v. Seville Place Condominium Ass’n, Inc., 74 So.3d 105 (Fla. 3d DCA 2011) (first-party bad faith action was premature until both coverage and extent of insured’s loss has been adjudicated).

(Notably, there is no statutory bad faith action against a surety issuing a payment or performance bond in Florida. Fla.Stat. s. 624.155(9).)

Bad faith actions are complicated actions and involve a host of issues (such as discovery-related issues, burdens of proof, and damages) that are not discussed in this article. The point of this article is for parties to understand the difference between third-party bad faith actions and first-party bad faith actions and to ensure their rights are protected if there is an insurance coverage dispute, whether it is a dispute involving an insured’s first-party insurance policy or a third-party claim that triggers an insured’s liability policy.