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Bad Faith in Florida: Brief overview of First Party Bad Faith

This blog post is designed to give a brief overview of Bad Faith actions by Insurance companies in the Homeowners Insurance context. In Florida, Bad Faith law exists by means of the existing case law and by Florida statutes. However, a first-party lawsuit for bad faith must be pursuant to the statute.[1]  This means that when a homeowner wishes to sue their own insurance company for bad faith there are specific steps in the statute that must be followed.

Florida Statute 624.155(1) establishes the first-party cause of action in Florida. The statute essentially states that any person can sue an insurance company when they have been damaged by that insurance company by their failure to attempt to settle a claim in good faith when, under all the circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with due regard for their interests. The insurer should settle, if possible, when a reasonably prudent person, faced with the prospect of paying the total recovery, would settle[2]. In other words, the insurance company owes a duty of good faith to their insureds. The duty of “good faith” in Florida provides that insurers owe “a duty to their insureds to refrain from acting solely on the basis of their own interest in settlement.”[3]The duty of good faith obligates an insurer to handle claims brought against its insureds with “the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.”[4] The courts in Florida consider “the totality of the circumstances” anytime they are faced with a bad faith analysis. In other words, a court may consider:

1) Efforts to resolve the coverage dispute promptly and/or limit prejudice to the insured as much as possible;

2) The seriousness of the matter disputed and/or weight of legal authority on the issue;

3) Diligence and thoroughness in their investigation by the insurance company;

4) If the insurer obtained a reservation of the right to deny coverage if a defense existed.

There is a condition imposed on the insured prior to filing a statutory cause of action for Bad Faith. The Florida Department of Insurance and the insurer must be given 60 days' written notice of any alleged violation. This notice is called a Civil Remedy Notice (CRN). If the insurance company fails to respond within the 60-day time period it creates a presumption of bad faith which must be rebutted by the insurance company, otherwise, the contents of the civil remedy notice will be taken as true.

One final event that must occur prior to filing a bad faith cause of action is a determination that coverage for the loss exists and the extent of the coverage. In other words, there must be a final determination that the insurance company breached its contract and a final determination as to how much was owed by the insurance company under the contract.[5] For the purposes of filing a subsequent bad faith lawsuit, a final determination may be obtained through a jury verdict, confession of judgment, settlement without a release of bad faith, or a final determination by means of alternative dispute resolution.[6]

Bad faith does not occur in every insurance claim, but it is very important for an insured to understand exactly what bad faith is so that they will know to look out for it. Bad faith actions should be properly documented so that the insurance company can be held accountable for their actions/inactions. Some of the most common actions/inactions by insurance companies that may be considered bad faith are:

  1. Failing to make a good faith offer to settle when the insurance company could and should have done so,
  2. Making claims payments to insureds without specifically stating in writing what coverage provision allowed for it.
  3. When multiple claims exist, failing to settle one claim in order to influence a settlement of another claim under a different portion of the policy.
  4. Refusing to provide the insurance policy upon request by the insured.
  5. Delaying settlement when the obligation to settle is reasonably clear.
  6. Material misrepresentations.
  7. Not acknowledging or acting promptly with regard to communications from the insured.
  8. Denying claims without conducting a reasonable investigation.
  9. Misrepresenting pertinent facts or policy provisions relating to coverages at issue.
  10. Failing to make a coverage determination or provide a written statement as to the investigation within 30 days after the proof of loss has been submitted.
  11. Not providing a reasonable explanation in writing for a denial or offer for a compromised settlement offer.
  12. Failure to promptly notify the insured of additional information necessary to process a claim or clearly explain the nature of requested information and the reason why the information is necessary.
  13. Failure to pay undisputed amounts within 90 days after being notified of the loss.

Once a bad faith claim becomes viable, a subsequent bad faith cause of action must be filed and litigated before damages for bad faith can be assessed. If the insured prevails on the subsequent bad faith claim then there are several additional damages available to the insured. Attorney’s fees, total damages, interest, consequential damages, and punitive damages can be assessed in statutory bad faith claims. Compensatory damages include those which are a “reasonably foreseeable” result of a violation and can include damages above and beyond the policy limits. Fla. Stat. 768.73 limits punitive damages to three times the amount of the compensatory or $500,000, whichever is greater.

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