She also said that the fireplace and kitchen cabinets also had been displaced by separation, and that cracks additionally were on the exterior walls of the home and driveway.

Moreover, in the utility room, a sag was observed along the top of the cabinet that housed Ms. Johnson's washing machine and dryer. As a result, Ms. Johnson said, she had been unable to perform routine maintenance on these appliances because the sag prevented these appliances from being moved.

Omega selected and retained Rimkus Consulting Group to perform an initial sinkhole investigation. After performing three standard penetration test borings, Rimkus concluded that there was no sinkhole activity present on Ms. Johnson's property. Although Rimkus conceded that the property was damaged, it attributed the damage to causes that were not covered under the policy, such as volumetric changes of clay-based soil underlying the site, concrete shrinkage, and defective construction processes.

Based on its report, Omega totally denied Ms. Johnson's claim for insurance coverage.

Ms. Johnson retained the law firm of Corless Barfield Trial Group, which, in turn, retained Bay Area Sinkhole Investigation & Civil Engineering (“BASIC”) to perform an independent investigation, examination, and report to determine the cause of the damage to Ms. Johnson's home.

In its report, BASIC noted that the insurance company's report was a very minimal, incomplete investigation with regard to the loss because it failed to perform a particle size analysis. The BASIC engineer opined that the exclusion of this required analysis rendered “an acceptable evaluation of the laboratory testing results to be questionable.” After performing a more extensive investigation, however, BASIC concluded that the damage to Ms. Johnson's home was due, in fact, to sinkhole activity.

Ms. Johnson sued Omega for breach of contract. In her complaint, she requested the benefits to which she was entitled under her policy, along with the accompanying attorneys' fees under Section 627.428.

During the discovery process, Omega considered the BASIC report, which had found sinkhole damage on Ms. Johnson's property. Thereafter, Omega continued to refuse payment and proceeded to request a neutral evaluation process pursuant to Section 627.7074, Florida Statutes. The parties agreed to stay litigation pending the results of the neutral evaluation.

Omega continued to reject the BASIC opinions and failed to pay any policy benefits. Instead, Omega hired WRS Consulting Engineers to perform an additional evaluation. Following the WRS investigation, WRS agreed with BASIC that sinkhole activity was present on Ms. Johnson's property. Based on the extensive damage observed, the WRS engineer recommended grouting, underpinning, and remediation programs to stabilize the land and home, as well as repairs to the foundation. The total cost of repairs was estimated to be in excess of $200,000.

After this second adverse report, Omega advised Ms. Johnson that it would abide by the WRS evaluation report and provide payment for the damages pursuant to Section 627.707(5)(b). Ms. Johnson additionally was advised that payment for the damages to her property was conditioned on her executing a contract with a remediation company. In cooperation with that condition, Ms. Johnson entered into a contract with Foundation Services for building stabilization and foundation repairs.

The cost of these repairs totaled $213,465.

Following Omega's acceptance of the WRS evaluation report and tender of payment to Ms. Johnson, Omega filed an answer and affirmative defenses in which Omega admitted that:

(1) Sinkhole damage was covered under the policy;

(2) Ms. Johnson had applied for benefits to cover her sinkhole damage;

(3) Omega had denied that claim;

(4) Sinkhole damage was, in fact, the cause of the damage; and

(5) Ms. Johnson, therefore, was entitled to benefits to cover the damages.

Ms. Johnson subsequently filed a motion for confession of judgment and a motion for attorneys' fees, costs, and interest, contending that Omega's admissions amounted to a confession of judgment.

Omega then changed its position and countered that Ms. Johnson had failed to provide adequate notice of the dispute. Further, Omega asserted that Ms. Johnson was absolutely required to show that Omega had acted wrongfully or in bad faith to be eligible for any fees under Section 627.428.

Ms. Johnson, however, argued that the only facts necessary to recover fees under Section 627.428 were those facts that already had been admitted by Omega: that Ms. Johnson had properly reported sinkhole damage and had made a claim for benefits; that Omega had denied the claim; and that Omega ultimately had conceded that Ms. Johnson was entitled to benefits for sinkhole damage to her home.

In other words, Ms. Johnson's position was that a finding of bad faith conduct on Omega's part was not required as a prerequisite to entitle her to an award of statutory attorneys' fees.

The trial court granted Ms. Johnson's motion for confession of judgment and attorneys' fees and entered an order for Omega to pay attorneys' fees, taxable costs, and prejudgment interest to continue to accrue at the statutory interest rate until paid in full.

An appellate court reversed the trial court's award of attorneys' fees and costs, and the dispute reached the Florida Supreme Court.

Florida Law

Section 627.428, Florida Statutes, provides:

(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured's or beneficiary's attorney prosecuting the suit in which the recovery is had.

. . . .

(3) When so awarded, compensation or fees of the attorney shall be included in the judgment or decree rendered in the case.

The Florida Supreme Court's Decision

The Florida Supreme Court reversed the appellate court, ruling that an insured's recovery of attorneys' fees under Section 627.428 did not require that there be bad faith or malicious conduct on the part of the insurance company in the denial of a valid claim but, rather, that an “incorrect denial of benefits” was sufficient.

In its decision, the Florida Supreme Court explained that Section 627.428 allows insureds who prevailed against an insurance company to recover attorneys' fees. The court added that the “need for fee and cost reimbursement in the realm of insurance litigation” was “deeply rooted in public policy.” The court observed that the legislature had recognized that it was “essential” to “level the playing field” between the “economically-advantaged and sophisticated insurance companies and the individual citizen.” The court stated:

Without the funds necessary to compete with an insurance carrier, often a concerned policyholder's only means to take protective action is to hire that expertise in the form of legal counsel. Counsel then have the ability and knowledge to hire an independent engineer or other expert to prepare a report that either confirms or denies the policyholder's view of the cause of damages. For this reason, the Legislature recognized that an insured is not made whole when an insurer simply grants the previously denied benefits without fees…. The reality is that once the benefits have been denied and the plaintiff retains counsel to dispute that denial, additional costs that require relief have been incurred. Section 627.428 takes these additional costs into consideration and levels the scales of justice for policyholders by providing that the insurer pay the attorney's fees resulting from incorrectly denied benefits. Without this approach, we would leave the insured to foot the bill not only for attorney's fees, but also for experts to overcome the denial, which would render insurance payments insufficient to cover the loss.

The court ruled that, once an insurer had “incorrectly denied benefits” and the policyholder filed an action in dispute of that denial, the insurer could not “then abandon its position without repercussion. To allow the insurer to backtrack after the legal action has been filed without consequence” would “essentially eliminate the insurer's burden of investigating a claim.”

In summary, the court concluded, Section 627.428 provides that an incorrect denial of benefits, followed by a judgment or its equivalent of payment in favor of the insured, was “sufficient” for an insured to recover attorneys' fees. Adding that an insurer's concession that the insured was entitled to benefits after a legal action had been initiated was “the functional equivalent of a confession of judgment,” the court concluded that there was “no question” that Ms. Johnson was entitled to attorneys' fees.

The case is Johnson v. Omega Ins. Co., No. SC14-2124 (Fla. Sept. 29, 2016). Attorneys involved include: Timothy Wayne Weber and Joseph Patrick Kenny of Weber, Crabb & Wein, P.A., Saint Petersburg, Florida; and Morgan Barfield of Corless Barfield Trial Group, Tampa, Florida, for Petitioner; Anthony John Russo and Ezequiel Lugo of Butler Weihmuller Katz Craig LLP, Tampa, Florida, for Respondent.