VOLUME XXI, NUMBER 11
November, 2009

3rd DCA PUNTS ON THE QUESTION OF WHETHER COMMON LAW CLAIM FOR BREACH OF GOOD FAITH AND FAIR DEALING IS DISTIGUISHABLE FROM STATUTORY BAD FAITH

In Citizens Property Insurance Company v. Louis Bertot and Trina Bertot, 34 Fla. L. Weekly D1109 (Fla. 3d DCA 2009), the Third District Court of Appeals essentially held that the question of whether an insurer can prosecute the common law claim for breach of the covenant of good faith and fair dealing, and the question of whether such a claim is subject to the conditions precedent which are normally applied to a statutory bad claim, remain undecided and are pending before the Supreme Court of Florida.

In Bertot, after the trial court denied Citizens Property Insurance Company’s (“Citizens”) motion to dismiss the insured’s common law claim for breach of the covenant of good faith and fair dealing, Citizens petitioned the Third District for a writ of certiorari.

The first question presented to the Third District was whether an insured may prosecute a common law claim for “breach of the covenant of good faith and fair dealing” by an insurer based on the alleged failure of the insurer to investigate and assess the insured’s claim within a reasonable time. In Bertot, the homeowners alleged that such a claim formed an independent basis for recovery and, as such, was distinguishable from a statutory bad faith claim under section 624.155(1)(b), Florida Statutes (2008). In response, Citizens argued that the “breach of the covenant of good faith and fair dealing” claim was merely a disguised statutory bad faith claim and that no such common law claim is recognized in Florida.

The second question presented to the Third District was whether any such common law claim for “breach of the covenant of good faith and fair dealing,” if it is determined to be a viable and separate cause of action, is subject to the conditions precedent which are applied to a statutory bad faith claim. Under Florida law, a statutory bad faith claim is not ripe, and may not be prosecuted, until coverage and the extent of damages have been determined.

In examining the two questions presented, the Third District recited the dichotomy of views amongst the various Florida courts. The Third District found that in Arlen House East Condominiums Ass’n v. QBE Insurance (Europe) Ltd ., No. 07-23199, 2008 WL 4500690, at *2 (S.D. Fla. 2008), the Southern District of Florida concluded that “a cause of action for breach of the implied warranty of good faith and fair dealing is separate and distinct from bad faith claims.” However, the Third District pointed out that in another federal court case involving the same question of Florida law, the Southern District of Florida concluded that the “implied warranty of good faith and fair dealing” claim “is actually a claim for statutory bad faith, controlled by section 624.155 of the Florida Statutes, which cannot proceed until the underlying coverage dispute has been resolved.” Quadomain Condo. Ass’n v. QBE Ins. Corp., No. 07-60003, 2007 WL 1424596, at *6 (S.D. Fla. 2007).

After the petition and response in Bertot were filed, Citizens notified the Court that the United States Court of Appeals for the Eleventh Circuit certified the very questions which were in issue to the Supreme Court of Florida pursuant to Florida Rule of Appellate Procedure 9.150(a). The Supreme Court docketed the certified questions as QBE Insurance Corp. v. Chalfonte Condo. Apartment Ass’n, Case No. SC 09-441.

In light of the foregoing, the Third District stated that the essential requirements of the law are in vigorous flux, with divergent conclusions reached by diligent and experienced federal judges after extensive briefing and analysis of Florida law. The Court stated that, indeed, the U.S. Circuit Court of Appeals for this circuit engaged in the judicial equivalent of “your guess is as good as mine” in certifying the questions to the Supreme Court. Against that backdrop, the Third District denied Citizens’ petition but did so without prejudice to the right of Citizens to pursue its legal theories to the extent appropriate following the Florida Supreme Court’s determination of the certified questions. The Court also left the door open by stating that it would reconsider the issue in a new and updated petition by Citizens in the unlikely event the Supreme Court of Florida declined jurisdiction or did not answer the certified questions of Chalfonte, 2009 WL 580775 at *7.

We await and will report on the Supreme Court’s ruling when, and if, the Supreme Court decides the issue.

Nishall N. Jairam

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CARRIER CANNOT PREVENT ATTORNEYS’ FEE AWARD BY INVOKING APPRAISAL BEFORE SUIT FILED

An insured may be entitled to prevailing party attorney’s fees notwithstanding the fact that the insured filed suit after the insurer had invoked the right to appraisal under the policy. The Court in Lewis v. Universal Property & Casualty Insurance Co., 34 Fla. L. Weekly D1104 (4th DCA 2009), based its decision upon the purpose of this statutory section - to place an insured in the same position as it would have been had the carrier seasonably paid the claim or benefits without forcing the insured to engage counsel. The court found that the actions of the insured in retaining counsel and filing suit were not designed to generate fees and served a legitimate purpose in moving the case toward a resolution.

The Lewis’s Coral Springs, Florida residence was damaged by Hurricane Wilma in October of 2005. The property was insured by Universal Property & Casualty Insurance Company. The insurance contract provided that if there was a dispute regarding the amount of loss, either party could demand mediation or an appraisal. Beginning in June, 2006, Mr. and Mrs. Lewis wrote to Universal requesting that the insurer cover the costs of a new roof. After its investigation, Universal wrote back on November 16, 2006, advising that its engineer had concluded that the vast majority of the roof damage was the result of aging, wear and tear or construction deficiencies. Universal offered only to replace one square foot of concrete tile and 120 linear feet of roof tiles. The letter closed by advising the insureds of their policy right of mediation and appraisal and advising that Universal was closing its file.

The insured promptly invoked the mediation clause and mediation was held. An impasse was declared in January, 2007. On February 13, 2007, the insureds’ recently retained counsel sent Universal a letter and a draft complaint asserting a claim for breach of contract. On February 20, 2007, Universal responded by invoking its right to appraisal under the insurance contract and expressly reserving its right to deny the claim. On March 7, 2007, the Lewises filed suit against Universal alleging breach of contract and seeking declaratory relief on the issue of coverage. Over the Lewises’ objection, the appraisal went forward and the civil suit was stayed. In September of 2007, the appraisal was concluded and Universal paid the insureds in excess of $51,000.00.

After the appraisal, the Lewises filed a motion seeking the award of the prevailing parties attorney’s fees under Florida Statute §627.428. Universal objected and insisted that such fees were not properly awarded as it had never denied coverage, that it had merely disputed the amount of the loss, and that it had properly invoked the policy’s appraisal process prior to the insured’s filing suit. Universal also asserted that the fees were not appropriate as the appraisal award was never confirmed by the court and that there has never been any judicial relief in favor of the insureds. The trial court agreed with Universal and denied the motion for fees.

The Fourth District Court of Appeals reversed. It began its analysis by noting that Florida law clearly permits the award of §627.428 attorney’s fees in cases where recovery is based upon an appraisal award where the insurer invoked the right of appraisal after suit was filed. Goff v. State Farm Florida Insurance Company, 999 So. 2d 684 ( Fla. 2d DCA 2008); Jerkins v. USF&G Specialty Ins. Co., 982 So. 2d 15 ( Fla. 5th DCA 2008). In each of these decisions, the court determined that the insureds did not “race to the courthouse” or file suit simply for the purpose of an attorney’s fees award and that the filing of suit acted as a necessary catalysis to resolve the dispute.

Recognizing the obvious difference in the present case, the Lewis Court found far fewer cases where the insured filed suit after the insurer invokes the appraisal process. The court compared two such cases, Travelers Indemnity Insurance Company of Illinois v. Meadows MRI, LLP, 900 So. 2d 606 ( Fla. 4th DCA 2005) where fees were granted and Federated National Insurance Company v. Esposito, 937 So. 2d 199 ( Fla. 4th DCA 2006) where they were not. In finding the present case to be more like Meadows, the Lewis court cited facts cited in Meadows, which showed that the insured had tried to resolve the dispute without litigation, that there was a significant dispute as to valuation, and duration of 16 months during which the dispute persisted. The Meadows court determined that Travelers’ invocation of appraisal was likely affected by Meadows’ retention of counsel and the threat of a pending lawsuit. In comparison, the Esposito court noted progress toward a resolution between carrier and insured prior to the insured’s filing of a petition to compel arbitration and determined that the attorney’s involvement was not a catalyst toward resolution.

The Lewis Court recognized the need for counsel to protect the insured’s rights because Universal initially only afforded coverage for small section of the roof and told the insured that it was closing its file. The Court noted that even after the carrier denied the majority of the claim, the insured proceeded without counsel, invoking its mediation right under the policy in an attempt to resolve the dispute. It was only when that mediation failed that the insured hired counsel and threatened suit. Finally, the court notes that the carrier did not invoke appraisal until after this draft complaint was received from the insureds. All of the foregoing convinced the Lewis court that the insureds retention of counsel served a legitimate purpose toward resolving the dispute and thus justified attorneys’ fees.

In addressing the carrier’s final argument, that the trial court never entered a judgment or an order confirming the appraisal award, the Lewis court noted that the insurer paid the claim on the appraisal award, and Florida law squarely holds that payment after suit was filed operates as a confession of judgment entitling an insured to attorney’s fees. Ivey v. Allstate Insurance Company, 774 So. 2d 679, 684 ( Fla. 2000).

Stephen L. Barker

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FOURTH DISTRICT ALLOWS APPRAISAL SUBSEQUENT TO COMMENCEMENT OF LITIGATION

In the recent case, Florida Insurance Guaranty Association v. Castilla, No. 4D 09-103, 2009 WL 3109747 (Fla. 4th DCA 9/30/09), the Fourth District Court of Appeal held that an appraisal clause in an insurance policy may be invoked even after litigation. In this case, the insured filed a claim as a result of Hurricane Wilma in 2005. The insurer initially paid the claim, but the insureds re-submitted their claim for additional damages with a successor insurer. After re-inspecting the property, the successor insurer denied the claim.

The insured filed suit and the insurer moved to dismiss on the grounds that the insureds failed to comply with various policy provisions that were conditions precedent to recovery and raising the appraisal provision of the policy. The carrier ultimately decided that the damage to the insureds’ patio was covered and formally withdrew its denial of the claim. The insurer then filed an amended motion to dismiss or abate which again raised the insured’s failure to comply with policy conditions and the appraisal provision. The trial court denied the motion and ordered the insurer to answer the Complaint. In its answer, the insurer raised its right to an appraisal as an affirmative defense to the action. The insureds moved to strike contending that the insurer had waived its right by twice denying their claim without any reservation of rights and participating in the lawsuit. The insurer then filed a motion to compel appraisal. The trial court denied the insurer’s motion to compel appraisal and dismiss the lawsuit ruling that the insurer had waived its right to appraisal having twice denied the insurance claim.

The Court of Appeals reversed the trial court ruling that the insurer’s appraisal demand was timely and that the insureds should be ordered to submit their dispute to appraisal. Essentially, the court relied on the case of Gonzalez v. State Farm Fire & Casualty Co., 805 So. 2d 814 ( Fla. 3d DCA 2000) wherein the homeowner sued after the insurer denied the claim on the grounds that the policy did not cover the loss. The insurer demanded an appraisal and after judgment was entered in favor of the insurer based on the appraisal, the insured appealed claiming that the insurer had waived its right to appraisal by denying the claim and participating in litigation. In the Gonzalez case, the court rejected the insureds’ arguments finding that the insurer’s invocation of the appraisal clause was timely under the circumstances where it was raised in the insurer’s first pleading, filed within thirty (30) days of the filing of the insured’s Complaint. The court in Gonzalez concluded that it made no sense that the insurer was required to request a pre suit appraisal on a loss that it had already refused to pay. Gonzalez at 817. The court’s ruling also relied on the case of Mutual Insurance Company v. Martinez, 643 So. 2d 1101 (Fla. 3d DCA 1994) for authority.

The court held that the insurer did not act inconsistently with its right to an appraisal. Asserting the insured’s failure to satisfy conditions precedent as a defense was not held to be inconsistent with invoking its right to appraisal. Rather, the court found that the insurer did raise its request for appraisal at the earliest opportunity in the lawsuit and continued to claim it through its subsequent pleadings.

Nancy I. Stein-McCarthy