VOLUME XXII, NUMBER 1
January, 2010

CITIZENS PROPERTY INSURANCE CORPORATION NOT SUBJECT TO BAD FAITH CLAIMS

In a recent decision of the Fifth District Court of Appeal, Citizens Property Insurance Corporation v. Garfinkel, Case No. 05D09-1641, the Court held that Citizens Property Insurance Corporation is immune from lawsuits asserting First Party Bad Faith claims handling under Florida Statute § 624.155(1)(b)(1). In this case, the court quashed a discovery order of the trial court that directed the attorneys for Citizens to present their attorneys for depositions and compelling it to produce its claim files and other certain documents for inspection. What started as a discovery dispute, emerged into an issue of immunity as Citizens argued that its claim files, claims handling procedures and other work product information should not be disclosed because there is no cognizable cause of action for “bad faith” against it. Normally, in a first party action for “bad faith” or violations of Florida’s Unfair Claims Process Act, such privileged materials that are protected in the underlying dispute become discoverable in a bad faith action.

For some time now, Citizens has been making the argument that it is immune from bad faith liability as its enabling statute that created the state-backed insurer, does not carve out an exception for private causes of action for bad faith claims handling. This is the first appeals court case that specifically addresses this issue. In reaching its conclusion, the Court looked to court decisions involving other similar state agencies such as the Florida Medical Malpractice and Joint Underwriting Association (“FMUJA”) and the Florida Insurance Guaranty Association (FIGA).

Ultimately, the Court acknowledged that Citizens is an entity created by the State to fill insurance needs for Florida property owners. The Court recognized that like these other entities, Citizens fulfills the State’s public policy to make insurance available in high risk situations when private insurers are unwilling to provide such coverage. No doubt these factors were crucial to the Court’s decision that Citizens should not be liable for bad faith damages. Also crucial to the Court’s decision was the fact that the statute creating Citizens carves out specific exceptions to the general immunity provided to Citizens and claims pursuant to Florida’s Unfair Claims Handling Practice Act is not specifically a listed exception. Also, the Court held that First Party Bad Faith Claims are not considered willful torts and therefore this exception did not apply.

Nancy I. Stein-McCarthy

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THE LAND MAY SHIFT, BUT THE BURDEN OF PROOF DOES NOT  

In Warfel v. Universal Ins. Co. of America, 34 Fla. L. Weekly D2527 ( Fla. 2d DCA Dec. 9, 2009), the Second District was faced with the issue of whether the presumption contained within section 627.7073(1)(c), Florida Statutes (i.e., that the findings of an expert as to whether a property has experienced sinkhole loss is presumed to be correct) causes the burden of proof to shift to the opposing party to prove that the findings are not correct. The court held that it did not.

The plaintiff in Warfel noticed that the walls and floors in his home were damaged. Believing that the damage occurred as a result of sinkhole activity, the plaintiff filed a claim with his insurance carrier, Universal Insurance Company of America (“Universal”). Thereafter, in accordance with section 627.707, Florida Statutes, Universal retained an engineering firm (SDII Global) to determine if the property sustained “physical damage to the structure which may be the result of sinkhole activity.” SDII Global’s report indicated that the damage was not caused by sinkhole activity, but rather the cause of the loss was due to ‘shrinkage, thermal stress, and differential settlement,’ all of which were excluded under the policy of insurance. The plaintiff did not hire his own expert to inspect the property. Universal denied the claim based on SDII Global’s findings, and the plaintiff filed a lawsuit against Universal.

At trial, the plaintiff had several experts testify about the cause of damage to his home. Although these experts did not inspect the property themselves, they opined that based on their review of SDII Global’s report, a sinkhole had caused at least some of the damage to plaintiff’s home. Universal had three experts testify, all of whom worked for SDII Global, that sinkhole activity did not damage the home. With this evidence before it, the jury was instructed to determine whether sinkhole activity caused the damage to plaintiff’s home.

According to section 627.7073(1)(c), Florida Statutes, the findings of an engineer and professional geologist as to the verification of a sinkhole loss “shall be presumed correct.” Universal argued to the trial court that since section 627.7073(1)(c) acted to implement public policy related to the sinkhole crisis, it created a ‘Section 90.304 presumption’ (“all rebuttable presumptions which are not defined in s. 90.303 are presumptions affecting the burden of proof”). In effect, Universal was saying that since the SDII Global report was presumed to be correct under section 627.7073(1)(c), then the burden shifted to the plaintiff to prove that the findings in the SDII Global report were not correct, and that plaintiff was required to prove that his property suffered a sinkhole loss. The plaintiff, argued, however, that the section 627.7073(1)(c) presumption affected only his burden of producing evidence, and that it did not shift to him the burden of proof. However, the trial court agreed with Universal, and issued a jury instruction which stated that the jury was to presume that the SDII Global report was correct, and that the plaintiff had “the burden of proving by a preponderance of the evidence that the findings, opinions, and conclusions of the report are not correct.” The jury found in favor of Universal and judgment was entered accordingly. The plaintiff appealed on the basis that the trial court’s instruction to the jury was in error.

The Second District recognized that according to section 627.7073(1)(c), the findings contained within the SDII Global report bore the presumption of correctness. However, that court did not agree that this presumption shifted the burden of proof to the plaintiff. The court explained that the Florida statutes recognize two classes of rebuttable presumptions, namely (1) a presumption affecting the burden of producing evidence and requiring the trier of fact to assume the existence of the presumed fact, or (2) a presumption which imposes on a party the burden of proof concerning the nonexistence of a presumed fact. Section 90.302. According to section 90.303, it is assumed that the presumption is one affecting the burden of producing evidence—unless the statute says otherwise, or the presumption was established to implement public policy. The court recognized that although there were many instances in which the legislature created burden-shifting presumptions under section 90.304, the legislature neither declared that the section 627.7031(1)(c) presumption is a ‘public policy-related presumption,’ nor that it was a burden-shifting presumption. Thus, the Second District held that since there was no clear legislative intent that indicated that a property owner must bear the burden to disprove the findings of an insurer’s engineer, the section 627.7031(1)(c) presumption affects only the plaintiff’s burden of producing evidence. As such, the Second District agreed that the jury instruction shifting the burden of proof was in error and that the insured was entitled to a new trial.

Robert C. James

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FIFTH DISTRICT COURT OF APPEAL HOLDS PERMISSIVE STATUTE IS NOT CONTROLLING OVER POLICY LANGUAGE

 In State Farm Insurance Co. v. Nichols, et al., 34 Fla. L. Weekly D2275 (5th DCA Fla. November 6, 2009), the Florida Fifth District Court of Appeal held that State Farm was obligated to make payment for subsurface sinkhole repairs under its homeowners' policies within sixty days after the amount of the loss is settled by appraisal pursuant to the policy, despite State Farm’s contention that it may withhold the funds until the homeowners have contracted for the repairs, pursuant to a Florida Statute.

In each of the consolidated appeals, State Farm and the homeowners entered appraisal and the appraisal awards were separated into above-ground damages and damages caused by sinkholes. The above-ground damage awards were promptly tendered; however, State Farm did not tender the award for damages caused by sinkholes, stating that, based on Florida Statutes Section 627.707(5)(b), State Farm could withhold the amount for damages caused by sinkholes until the homeowners entered contracts for those repairs.

Florida Statute Section 627.707(5)(b) states, in part, that, "The insurer may limit its payment to the actual cash value of the sinkhole loss... until the policyholder enters into a contract for the performance of building stabilization or foundation repairs." The Court found that the language of the statute was permissive, not mandatory. Because the language of the Statute is not mandatory, the Court held that State Farm must abide by the language of the policy, which states that the loss will be payable "60 days after [State Farm] receive [the insureds'] proof of loss and... there is a filing of an appraisal award with [State Farm]."

Based on the permissive nature of the Statute, the Court held that the Statute did not conflict with the policy and that the policy language was binding on both parties. Therefore, State Farm must abide by the language of the policy and pay the appraisal award for the subsurface sinkhole repairs within the 60 day time period as specified by the policy.

Matthew I. Bernstein

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PROPOSALS FOR SETTLEMENT THAT DO NOT RESOLVE CLAIMS FOR DECLARATORY RELIEF HELD TO BE INVALID

The Fourth District Court of Appeal has recently held, in Palm Beach Polo Holdings, Inc. v. Equestrian Club Estates Property Owners Association, Inc., 34 Fla. L. Weekly D2394 (Fla. 4 th DCA, November 18, 2009), that a Proposal for Settlement that does not include a resolution of all claims, including those seeking declaratory relief, is invalid.

After a trial, in which final judgment was entered in favor of the defendant in a dispute over the use of a parcel of land, the defendant moved for attorney’s fees, based on three Proposals for Settlement it had served pursuant to F.S. § 768.69 and Florida Rule of Civil Procedure 1.442. Although the trial court found that the case, which asserted claims for both damages and declaratory relief, was one for “damages,” the Fourth District Court of Appeal reversed, finding that the Proposals for Settlement did not propose to resolve “all claims” because they were silent as to the disposition of the claims for injunctive and declaratory relief.

Finding that the purpose of a Proposal for Settlement is to encourage the early termination of litigation, a Proposal that does not satisfy that purpose by resolving all outstanding claims is invalid, and therefore not binding on the losing party.

Erik Bell