Florida Appeals Court Provides Guidance on When an Insured’s Bad Faith Lawsuit is Ripe

In Florida, insureds can bring civil lawsuits against insurance companies when the insured is damaged by the insurance company’s not attempting to settle claims in good faith when all of the circumstances indicate the insurer could and should have done so had it acted fairly and honestly towards its insured and with due regard to the insured’s interests. See § 624.155(1)(b) 1., FLA. STAT. (2011).

Under the statute, the insureds file a notice of violation pursuant to § 624.155(3)(a), FLA. STAT. (2011) (“As a condition precedent to bringing an action under this section, the [Department of Financial Services] and the authorized insurer must have been given 60 days’ written notice of the violation.”). The insurer must then pay the damages or correct the alleged violation. See § 624.155(3)(d), Fla. Stat. (2011) (“No action shall lie if, within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected.”).

The issues of when a bad faith lawsuit can be brought i.e., ripeness, under § 624.155 has been the subject of significant litigation in Florida. As an example, in Lime Bay Condominium, Inc. v. State Farm Florida Ins. Co., 94 So.3d 698 (Fla. 4th DCA 2012), the Florida Court of Appeals found that because the insurer’s liability for breach of contract had not been determined, the insured’s bad faith action was not ripe.

In Lime Bay, a dispute over the amount of a property damage claim arising from Hurricane Wilma was submitted to appraisal. The appraisal process resulted in an award closer to the amount of the insured’s damage claim. The appraisal award was paid by the insurance company. Thereafter the insured filed a lawsuit against the insurer for not attempting in good faith to settle. The insurance company filed a motion to dismiss the bad faith action arguing that there had not been a final determination of liability and maintaining that it intended to dispute liability in the breach of contract action. The trial court agreed with the insurer and dismissed the bad faith action as being prematurely filed. The Florida Court of Appeals affirmed. In affirming the dismissal, the Court of Appeals found that the insured “did not, and could not, allege that there had been a final determination of liability since the [insured’s] breach of contract case was still pending.” The trial court was directed by the Court of Appeals to “first resolve the issue of [the insurer’s] liability for breach of contract, as well as the significance, if any, of the appraisal award.”

In a follow-up decision, Trafalgar at Greenacres, Ltd. v. Zurich American Ins. Co., 100 So.3d 1155 (Fla. 4th DCA 2012), a dispute over the value of a property damage claim arising from Hurricane Wilma was also submitted to the appraisal process under the policy. The appraisal process resulted in an award closer to the amount of the insured’s damage claim. The insurer then promptly paid the appraisal award and moved for summary judgment on the breach of contract claim. The insured moved to amend the complaint to state a cause of action against the insurer for not attempting to settle in good faith. The trial court granted both the insurance company’s motion for summary judgment on breach of contract and the insured’s motion to amend to state a bad faith claim. The insurance company then moved for summary judgment on the bad faith claim.

Similar to Lime Bay, the insurance company argued that because the Court granted the insurer’s motion for summary judgment on the breach of contract claim, the insured failed to obtain a favorable resolution on the breach of contract claim. The trial court agreed. The Florida Court of Appeals reversed.

In reversing the decision, the Court of Appeals held the appraisal award which occurred after the insured had filed suit for breach of contract “constitute[d] a ‘favorable resolution’ of an action for insurance benefits, so that [the insured] … satisfied the necessary prerequisite to filing a bad faith claim.” The Court of Appeals concluded in Trafalgar that “the appraisal award was tantamount to a “favorable resolution” necessary to proceed with a bad faith action.” The Court in Trafalgar reasoned that “[a] judgment on a breach of contract action is not the only way of obtaining a favorable resolution” necessary to proceed with a bad faith action. (citing Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., 945 So.2d 1216 (Fla. 2006) (the condition precedent required to bring a bad faith action is satisfied by an arbitration award establishing the validity of the insured’s claim).

The Florida Fourth District Court of Appeals decision in Trafalgar, however, did not mention its apparent discrepancy with the same Court’s ruling in Lime Bay.

In a more recent case, Cammarata v. State Farm Florida Ins. Co., 2014 WL 4327948 (Fla. 4 DCA, Sept. 3, 2014), the Court held that the insurer’s liability for coverage and the extent of damages, and not the insurer’s liability for breach of contract, must be determined before a bad faith action became ripe.

The Court noted that the determination of the existence of liability and the extent of the insured’s damages are conditions precedent to a bad faith action, along with the notice requirement of § 624.155. Those first two conditions can be established when a settlement determines the existence of liability and the extent of the insured’s damages.

In Cammarata, similar to the facts before the Court in Lime Bay and Trafalgar, a Hurricane Wilma claim for property damages had been submitted to the appraisal process resulting in an award lower than the insured’s appraiser’s estimate but higher than the insurance company’s appraiser’s estimate. The insurer then agreed to pay the award. Based on those facts, the Court in Cammarata found that the parties’ settlement via the appraisal process, which determined the existence of liability and the extent of the insured’s damages, had established the first two conditions precedent for a bad faith action. The appraisal award “constitute[d] a ‘favorable resolution’ of an action for insurance benefits, so that [the insured] … satisfied the necessary prerequisite to filing a bad faith claim.” The Court then receded from its holding in Lime Bay to the extent that Lime Bay held that the insurer’s liability for breach of contract had to be determined before a bad faith action became ripe under Florida law even though the insurer’s liability for coverage and the extent of the insured’s damages already had been determined by an appraisal award favoring the insured.

The Florida Supreme Court in Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So.2d 1289 (Fla. 1991) had concluded that a resolution of some kind in favor of the insured was a prerequisite to bringing a first-party bad faith claim against an insurance company under § 624.155. The Blanchard Court did not expressly find, however, that the required resolution of the insured’s underlying claim must be accomplished through trial or arbitration. The Court of Appeals recent decision in Cammarata stands for the proposition that the payment of policy limits or benefits by the insurer is the functional equivalent of an allegation that there has been a determination of the insured’s damages and that the settlement satisfies the purpose for the allegation, i.e., to show that the insured had a valid claim. Participating in the appraisal process and then the insurer’s payment of the appraisal award establishes the first two conditions precedent for a bad faith action under § 624.155, i.e., the insurer’s liability for coverage and the extent of damages, permitting the insured to file a bad faith case.