Viewpoint: Alvarez Defense May Stem Use of Exaggerated Estimates

The recently minted Alvarez defense has become an important sword in Florida homeowner’s property insurance carriers’ arsenal against overstated, excessive, and false claims. Every Florida insurance defense attorney and adjuster should be aware of and using this very effective defense. The Alvarez defense establishes that an excessive and overly exaggerated estimate constitutes a false statement under an insurer’s policy preventing any and all recovery by the insured.

Florida suffers from a negative litigation climate that is in many ways driven by excessive estimates written by public adjusters, estimators, and the always nebulous “loss consultant” trying to skirt the line between public adjuster and estimator. The script is well-known at this point. The insured’s public adjuster, estimator, or loss consultant writes an incredibly excessive estimate that is a gross and intentional overstatement of the actual damages that the property sustained. Naturally, the insurer does not pay this estimate. The insured’s plaintiff attorney then sues the insurer, relies on the hope that the jury awards at least one cent more than the insurer paid pre-suit (so as to trigger statutory fee entitlement under Florida Statute § 627.428), and holds this potential fee entitlement as leverage over the insurer to extract an undeserved amount. This strategy is based on the jury’s tendency to play King Solomon and split the difference between estimates. Indeed, to trigger fee entitlement, all the plaintiff attorney needs to obtain is any amount more than the insurer paid pre-suit.

The hypothetical scenario described above plays out in claims offices and courtrooms across the state to the detriment of Florida insurers and insureds, who end up suffering the costs of higher premiums. This circumstance begs for a solution. Enter the Alvarez defense.

On April 17, 2019, the Florida Third District Court of Appeal issued its opinion in the case of Alvarez v. State Farm Fla. Ins. Co., 2019 WL 1646121, rev. denied 2019 WL6248551. In Alvarez, the plaintiffs submitted an estimate that the defendant asserted constituted a false statement. See Id. The verdict form submitted the following question to the jury: “1. Did the Defendant prove, by the greater weight of the evidence, that Plaintiffs intentionally and materially misrepresented the extent of the loss such that no other conclusion can be drawn than that a purposeful misrepresentation was intended? YES ______ NO ______” Id. at 3. The jury returned an answer of ‘Yes.’ See Id.

Curiously, the jury in Alvarez also provided a monetary award for the plaintiffs. See Id. The plaintiffs argued that it was a ‘compromise verdict’ and the plaintiff should still receive the jury’s award. The judge made the correct decision, and issued judgment not withstanding verdict in favor of State Farm (the insurer), ruling that “the jury’s verdict finding material misrepresentation voided the homeowners’ coverage for the claimed loss.” Id. at 3. The Third DCA affirmed. See Id.

The importance of this ruling cannot be understated. The Alvarez case conclusively stands for the proposition that an exaggerated, overstated, or inflated estimate can constitute a false statement or material misrepresentation and that said false statement or material misrepresentation can void the insured’s ability to recover any damages whatsoever. By eliminating the ability to recover any damages, the court has prevented plaintiffs’ counsels who submit exaggerated estimates from recovering a fee. This defense turns the table on the script described above, where the plaintiff’s counsel submits the estimate and uses recovery of any amount to threaten a fee and leverage an unwarranted settlement. Now, the insurer possesses a fighting chance to eliminate the false claim and the unwarranted fee by means of the Alvarez defense.

It is essential for carriers and insurance defense practitioners to remember to assert this affirmative defense in their pleadings. If it is not pleaded, it may not be available at trial. Such a crucial and important defense should be pleaded. When pleading same, one should look at the specific policy language forbidding false statements or material misrepresentations. If a particular policy requires materiality, plead materiality. Also, make sure to plead sufficient facts to withstand a motion to strike.

When deposing a plaintiff who has submitted a false or exaggerated estimate, it is important to confront said plaintiff with the estimate and see how the plaintiff justifies it. Practitioners should also challenge the estimator to support the estimate. Sometimes discovery will reveal the presence of overlapping damages already paid for in a prior claim, or old, never repaired damage that was not claimed, but that was clearly unrelated to the subject loss and claimed in the insured’s excessive estimate. Including such damages in an estimate constitutes a false statement on its own apart from the Alvarez defense, but, also, certainly supports and strengthens an Alvarez defense.

Sometimes on the eve of trial, the plaintiff will submit a new lower and more reasonable estimate. This is often part of an attempt to obtain unwarranted attorney’s fees. The situation often plays out as follows: The plaintiff’s counsel will submit an extremely exaggerated and excessive estimate and then proceed to litigate the case to the hilt, building up very large numbers of hours. Faced with this clearly false estimate, the insurer obviously chooses not to pay it. Then at the 11th hour, the plaintiff’s counsel produces a new, reasonable estimate that is a fraction of the false estimate’s total and sometimes barely in excess of what the insurer paid pre-suit. The obvious goal is to appear reasonable to the jury, obtain a small judgment in favor of the plaintiff, and obtain a grossly excessive fee based on the unnecessary litigation that the plaintiff’s counsel himself or herself drummed up. The cart (the fee) is before the horse (the actual claim), so to speak, as this litigation tactic serves only the plaintiff’s attorney.

The Alvarez defense is extremely helpful in this scenario. When the plaintiff attempts to withdraw the estimate, the defense counsel should refuse and insist that the prior estimate is relevant to the properly pleaded Alvarez defense and must be presented to the jury. If defense counsel has a thorough exhibit list listing the plaintiff’s excessive estimate, the judge would be hard-pressed and likely subject to reversal if the judge permitted the plaintiff to shift the entire playing field right before trial (usually after discovery has cut-off too) by denying the insurer to present evidence timely disclosed and clearly in support of a well-pleaded affirmative defense.

Florida insurers and insureds have too long suffered under the burden of vexatious litigation designed to extract excessive damage payments and unwarranted legal fees from both Florida insurance companies and the public itself (via higher premiums). While the deck sometimes feels stacked against insurers, the Alvarez Defense presents a crucial and important tool that permits insurers to obtain a defense verdict. A defense verdict eliminates the fee entitlement that drives so much of this litigation. This potentially decisive defense shifts the playing field upon which insurance litigation is being litigated in such a manner that plaintiffs and their counsel need to be aware of the significant risks they face by submitting excessive estimates prepared by unscrupulous public adjusters, estimators, or loss consultants.

Florida insurers need not file for or obtain summary judgment on every case to make use of the Alvarez defense either. Its mere presence is a useful bargaining tool at mediation tables and informal negotiations. Skilled attorneys and adjusters can leverage this defense to obtain effective results for homeowner’s insurance carriers throughout the state.