It Just Became Easier for Insureds to Sue for Bad Faith.
April 9, 2018
The Court of Appeal of Florida, Fifth District decided this week that an insurer's payment of the claim after the 60-day cure period provided by Florida statutes constituted a determination of the insurer's liability for coverage and extent of damages under the Florida statute even if there is no underlying action, making it easier for insureds to bring bad faith claims against their insurers. The case is Demase v. State Farm Fla. Ins. Co., No. 5d 16-2390, 2018 Fla. App. LEXIS 4335 (Dist. Ct. App. Mar. 29, 2018).
In October of 2009 Thomas and Joanne Demase's home sustained suspected sinkhole damage. The Demase's reported the damage to their insurer State Farm Florida Insurance Company (State Farm). State Farm hired Geohazards Inc., a general contractor, to assess the damage done to the Damase home. Geohazards, Inc. confirmed the existence of sinkhole activity and recommended some repairs to the property. The Demases conducted the repairs recommended by Geohazards but unfortunately the repairs they performed resulted in further damage to their home. Geohazards re-inspected the home and recommended additional repairs.
In 2012 a neutral evaluator inspected the property, agreed that there was sinkhole activity, and recommended further repairs. In 2013 State Farm hired MCD of Central Florida, a “sinkhole expert”, to inspect the property. In MCD's opinion, there was no sinkhole activity that affected the Demase's property. The Demase's continued with their claim with State Farm. State Farm demanded additional documentation, inspections, and examinations under oath, with which the Demase's complied completely.
The Demases, following procedures outlined in Florida's insurance law, served State Farm with a civil remedy notice (CRN), alleging that State Farm had engaged in bad faith insurance practices by failing to promptly and properly investigate the claim, adjust the loss, and act in due diligence and good faith to resolve and pay the claim. The Demases demanded that State Farm immediately disperse “all insurance monies due and owing. . . that would reasonably place [them] back to their pre-loss condition.” The Florida Department of Financial Services, the entity responsible for the regulation of insurance companies, accepted the CRN on the day it was received, beginning a sixty-day period during which State Farm could “cure” its alleged wrongful conduct. Although State Farm failed to pay anything during the sixty-day period, they accepted that the Demases home could not be repaired and paid out the policy limits 231 days after the expiration of the cure period.
The Demases responded by suing State Farm for bad faith and for violating Florida law. State Farm then moved to dismiss the complaint relying on a previous decision where the court held that “an insured's underlying first-party action for insurance benefits against the insurer necessarily must be resolved favorably to the insured before the cause of action for bad faith in settlement negotiations can accrue”, essentially stating that before a bad faith action can be filed, the case has to be taken to court, and the court has to decide on the underlying case in favor of the insured. State Farm's argument was that the Demases had not received some kind of favorable decision so they could not file a claim for bad faith. The Demases argued that their bad faith claim had ripened, or matured, when 1. The insurer raised no defense that would defeat coverage and 2. The extent of the insureds losses had been determined, and that State Farm had satisfied both of these elements when they paid the insurance policy limits after the sixty-day curing term had expired, basically arguing that when State Farm paid their claim, State Farm effectively admitted that the Demases claim was valid.
Although the trial court dismissed the Demases complaint, the appellate court reversed that decision determining that an underlying action was not required as a prerequisite to file a statutory bad faith claim, and instead the insurer's payment of the claim after the sixty-day cure period counted as a determination of the insurer's liability for coverage. The appellate court identified three occurrences that can give rise to a ripe bad faith claim; 1. A determination of the insurer's liability for coverage, 2. A determination of the extent of the insured's damages; and 3. The filing of the required notice. The appellate court noted that “only a determination of liability and a determination of damages” were needed before a bad faith suit could be filed, and State Farm admitted both when they sent the payment after the expiration of the cure period.
Editor's Note: This is a warning to insurers, if you plan on paying out a claim and have received a statutory notice that provides sixty days to cure your alleged wrongful conduct, just keep in mind that paying after the sixty-day period is enough to permit the policyholder to sue for bad faith. Avoid even the appearance of bad faith by attempting to cure during the cure-period, or prevent the necessity of statutory action by giving the appropriate amount of weight to the opinion of an unbiased appraiser.