Bad Faith Insurance Basics
Insurance companies are expected to act in a certain way, when faced with claims. Generally, Florida law states that an insurer owes a duty of good faith when handling an insurance claim. Insurance policies often have a good faith clause that is included when the insurance policy is issued. The reasonable expectations of both parties (the insurer and the insured) must be taken into account when interpreting good faith.
Typically, the insurer has a duty to conduct a full investigation into the claim, be fair in determining the value of the claim, and negotiate and settle the claim in good faith . An insurer may be described as acting in bad faith if it does not pay a valid claim or fails to pay within the time frame designated in the insurance policy. In bad faith litigation, the claimants will often times demonstrate that the insurer failed to uphold its duty of good faith.
An insurer may also waive its right to assert certain defenses if it does not comply with Florida statutory requirements. Florida’s valuable papers statute requires that the insurer must affirm or deny coverage within 90 days after receiving written notice of the claim from the insured.
The Florida Bad Faith Insurance Statutes
Florida Statutes § 624.155(1)(b) defines bad faith by stating "an insurer breaches its duty of good faith by failing to attempt in good faith to settle claims when the obligation to settle a claim has become clear . . ." Although this statute seems pretty clear, the implications of the statute continue to be played out and debated between our Courts and Florida’s appellate courts. This statutory provision is intended to address claims handling delays, when except for the delay, an insurer could reasonably adjust the claim in a timely fashion. The statute does not require a finding of bad faith just because an insurance carrier takes time to complete a coverage investigation, assesses the damage, obtains the opinions of multiple experts, and engages in meaningful settlement negotiations. As the Court in St. Paul Mercury Ins. Co. v. Reardon, 768 So. 2d 1146, 1149 (Fla. 5th DCA 2000) stated "Our review demonstrates support for the trial court’s reliance upon the claims-handling manuals in determining the several breaches of statutory duties by the carrier which were committed by the insurer in this case. The circuit court properly relied upon the claims-handling instructions contained in the manuals relied upon by architects of bad faith. What does it take to run afoul of that statutory requirement of good faith? The Court in St. Paul stated "We conclude that it is clearly the intent of the statutory scheme that every person involved in the adjustment of claims owes a duty to act fairly and honestly and with equal consideration for the interests of both of the insured and the insurer." Id. In other words, the statute requires every person who is engaged in the claim handling process to act in good faith, and act in the interests of both the insured and the insurance company. The statute recognizes the important role the insured plays in response to an insurance company’s legitimate claim handling concerns. However, if the insured never receives any real response to their claims despite the adjustment process continuing, the insured could potentially sue their insurer under Florida Statutes § 624.155 for (i) not attempting in good faith to settle claims, where the obligation to settle was clear, or (ii) not attempting in good faith to promptly settle claims when the obligation became clear. Another Florida Statute, Florida Statutes §626.877 makes it clear that it is an illegal practice to charge more for services not actually rendered, the Court in State Farm v. Ballester, 972 So. 2d 1055 (Fla. 5th DCA 2008) held that an insurer’s violation of this statute could equate to a violation of duty of good faith under Florida Statutes § 624.155. An insurance company may also be held liable for breaching their duty of good faith to their insured if the wrongful conduct denies the benefits of policy or is tantamount to refusing their insured’s claim. First Floridian Auto. Ins. Co. v. Hearn, 849 So. 2d 1206 (Fla. 2nd DCA 2003); Florida Nat’l Title LLC v. Fidelity Nat’l Title Ins. Co., 394 F. Supp. 2d 1367, 1370-71 (S.D. Fla. 2005). In order to prevail on a bad faith cause of action, an insured must show: (1) the existence of a legal duty, (2) breach of that duty, and (3) damages proximately resulting from the breach of the legal duty. See First Floridian Aut. Ins. Co. v. Ramos, 33 Fla. L. Weekly D 93 (Fla. 5th DCA 2007); Pol v. Prime Ins. Syndicate, Inc., Case No: 8:08-CV-704-T-27EAJ, 2009 U.S. Dist. LEXIS 16034 *5 (M.D. Fla. March 3, 2009) (stating insured must establish (1) serious deficiency in claims handling, (2) probable cause for the deficiency, and (3) damages). Bad faith is measured using totality of the circumstances standard. State Farm Fire & Cas. Co. v. Breaux, 899 So. 2d 435, 439 (Fla. 2005).
Types of Bad Faith
Insurers may engage in a wide range of unfair or deceptive practices that could amount to bad faith. For example, an insurer might unjustly deny a claim by refusing to pay out, despite the insured having paid for coverage and having a right to receive such payments if certain conditions are met under the policy. Alternatively, an insurer could delay payment; for example, if an insured makes a claim as a result of covered damage to his or her home; the insurer might try to delay payment until the damage is irreparable or more costly to repair than it would be otherwise.
A third example is the practice of undervaluing the claim. For instance, an insurer might refuse to properly value a claim at such a cost, or fail to conduct a thorough investigation of the damages, so as to avoid paying out as much as it should, or to pay out nothing at all. As a further example, bad faith may also occur where an insurer refuses to settle a case within the policy limits, which could expose an insured to greater liability.
Legal Relief for Bad Faith in Florida
A common question insurance bad faith lawyers are asked is as follows: "Will I have to file suit after submitting my claim?" The answer to the above question is not necessarily. In Florida, policyholders can sometimes obtain settlements from their insurer without resorting to a lawsuit. However, if a lawsuit is necessary, policyholders should know that under Florida Statute § 624.155, bad faith claimants may be entitled to recover insurance benefits owed under their policy, damages, plus attorney’s fees and costs. Attorneys’ fees and costs are discussed in detail under the subsection titled, "Insurance Rule 4-1.5, Bad Faith Insurance Claims and Legal Fees."
In order to initiate a lawsuit under Florida Statute § 624.155 for insurance bad faith, a claimant must first submit a written settlement demand for the claim against the insurer to the Florida Department of Financial Services (DFS) in Tallahassee. There is no official form for such a claim. In the demand letter, it should be explicitly stated that the email and/or mailing is being made pursuant to § 624.155(2) and which claims the demand is being made.
The insurer will have 15 days from the date received by DFS to respond. Once an affirmative response has been made, the insurer will then have 60 days to settle the matter. At the end of 60 days, if the matter is not settled, the claimant is free to file a lawsuit against the insurer. Because of the tolling provisions of the statute, those fees may be even higher when the claim actually goes to trial. If an insurer intentionally or negligently adjusted the claim in bad faith, the insurer may be liable for the damages of the insured, as well as the insurance benefits due under the contract. Even if compensation is paid by the insurer, an additional payment of, sometimes, several times the amount of coverage available under the policy, may be awarded for emotional and physical damages and humiliation suffered during the period when the claim was unjustly withheld. Florida Statute § 624.155 allows recovery of attorney’s fees as an additional award when the insurer does not act in good faith. The overall result can be dozens of times the amount due under the policy and costs incurred in getting the claim paid.
Recent Case Precedents
In recent years, we have seen courts place more emphasis on the principles underlying Florida’s bad faith insurance law. Some of these principles can be found in the case of Cincinnati Insurance Co. v. Henderson, 99 So. 3d 457 (Fla. 5th DCA 2012). There, the court noted that third-party bad faith claims "are brought ‘by an insured when an insurer fails to settle a negligent tort claim against the insured within policy limits, resulting in a subsequent judgment against the insured in excess of the policy limits.’" 99 So. 3d at 459 (citing Akins v. Mun. Gas Auth. of Georgia, 347 S.E.2d 201, 202 (Ga. 1986)). The facts in Cincinnati Insurance Co. v. Henderson are similar to many other cases, where the court noted that the plaintiff "was killed in a motor vehicle accident caused by the negligence of [the defendant] while he was in the course and scope of his employment with [the employer]. Plaintiff’s representatives filed suit against both [the defendant] and [the employer] alleging negligence, seeking damages exceeding the $100,000 liability limit of [the employer’s insurance company]." 99 So. 3d at 459. The employer’s insurance company offered to settle the claim for $100,000 (the insurance policy limits), but the plaintiff made a $1,000,000 settlement demand. Id. The $100,000 tender was refused, and the plaintiff took a $150,000 entry of judgment with the stipulation that the defendant would not satisfy it. Id. The plaintiff then sued the defendant for the full amount ($1,150,000) and agreed to be bound by the judgment — if the insurance company did not act in good faith. Id. The insurance company refused to settle and the plaintiff took the case to arbitration , which held that the insurance company acted in bad faith. Id. The plaintiff then reduced the judgment to $100,000 (the insurance limits) and entered a final judgment for that amount, plus attorney fees. When the plaintiff sued the insurance company for bad faith, the court found for the plaintiff (the insured) on the basis that the insurance company violated its obligation to settle even before the entry of judgment for the negligence claim. Id. The court stated: In the instant case, the insurer violated Principles 10 and 12, both of which relate to settlement. Although the arbitrator did not rule specifically on either of these principles, he did find that the insurer had committed bad faith, and there was no evidence to the contrary. The insurer had the opportunity to settle a wrongful death case before judgment was entered, but it chose not to do so. The insurer only now claims that it was under no legal duty to settle after the judgment because it was void and unenforceable. However, the insurer’s decision not to settle before judgment . . . was arbitrary and in bad faith. The insurer’s duty to settle a reasonable settlement offer that is within policy limits arises only until a judgment is entered against its insured. At this point, Principles 10 and 12 are satisfied. 99 So. 3d at 460. Key holdings in Cincinnati Insurance Co. v. Henderson include: The pressure on insurance companies to settle sooner than later, with amounts within the insurance policy limits, is likely to continue to build.
Protecting Yourself as a Policyholder
Florida law offers guidance for the policyholder who is seeking to obtain a fair settlement for his or her legitimate claim. However, there are basically three proactive steps that can be taken by the policyholder to protect themselves: (1) Document, document, document; (2) Know Your Policy; and (3) Use Legal Counsel Wisely.
In today’s world it is hard to find anyone who doesn’t own at least one smart phone. These devices have become quite remarkably useful for both personal use as well as business purposes. With respect to your property insurance claim, your phone is your most powerful tool. Documentation if your first line of defense against an insurance company that is acting in bad faith. You would be surprised how many times I have heard from potential clients that they were never told that their claim was being handled by a completely different and separate entity from their insurer. Or perhaps you are dealing with an adjuster who says they are working to help you but later on it is revealed that they are in fact working directly against your interests. Through emails, text messages, photos, and notes, you have the ability to keep track of all of your interactions with your insurers and their agents. You can even take these notes to document your claim process daily. I remember one case where a client published a personal story online documenting how the relative of his neighbor helped him by pointing out the damage to his home after a strong storm. This same relative steered him away from his insurer and had him contact a public adjuster, who later discovered hidden damage which resulted in an additional award of well over $100,000. When it comes to bad faith law in Florida, one of the most common claims is that the insurance carrier failed to properly investigate the claim. With the ability to document every single point of contact with your insurer, there is no way for the insurance company to say that there was no communication between you and them. And, in turn, it will be impossible for them to later argue that you did not properly cooperate with them. Unless they can prove that they were not aware that you were unhappy with the progress of your claim (see point #2), they would not be able to successfully argue that you did not cooperate with the investigation of your claim.
Know Your Policy
I cannot stress enough how imperative it is to have a basic idea of what is required to be covered for your claim. For example, when I brought in an insurance dispute client last year from New Jersey who owned a black fivver 60/60 washer, the drier was not covered because it was not an authorized appliance under the policy. Understanding the limitations placed on you as an insured under your own policy, especially with respect to exclusions to coverage, will allow you to catch any issues with your claim before your insurer does. They may present it quickly at first, but if you have not done your research, you may never know just how badly you have been shortchanged. The annex to this policy includes important information relevant to your particular form of insurance coverage. For example, exclusions of coverage. Common exclusions to property coverage are: the wear and tear, an unintentional false act of the insured (clear mistakes), acts of violation of the law, war, nuclear accident, erosion, cracks in drywalls, etc. Again, I recommend that you read the last page of your policy first to understand the exclusions. Then go back and re-read your policy, to better understand any qualifiers to coverage.
Use Counsel Wisely
Make sure that you obtain legal counsel from a lawyer who is experienced in handling property insurance claims so that your claim is handled properly, on the front end. Obviously, one cannot foresee the future, but statistically, the sooner you are able to get your case into the hands of an attorney the better off you will be. The business of insurance is one of forecasts and premium adjustments based on the anticipated costs of a given claim. When a claim is delayed or mismanaged, the sophistication of the insurer’s staff becomes paramount in filing the appropriate documents to provide your claim with the best chance of being successful after a litigation agenda is implemented.
When Legal Aid Fights Bad Faith
Understanding the bad faith process and advancing a bad faith claim can be complicated and often frustrating. Hiring a lawyer with experience and expertise in handling the complex issues that bad faith insurance claims involve will protect your rights and put you in a stronger position to succeed. Many clients think they can go at it alone, and although this is possible, it is not advisable . It is essential to have experienced legal help when dealing with an insurer as big and complicated as TWIA, who is armed with adjusters, internal attorneys, claim managers, and outside counsel to defend against bad faith claims. Working with skilled legal assistance improves the chance of a positive result, reduces the chance of delays, and can lead to a successful outcome in a shorter amount of time.