United States: Florida Supreme Court Rules Incorrect Denial Of Insurance Benefits Can Trigger Award Of Attorneys' Fees To Insured

On September 29, 2016, the Florida Supreme Court held, in Johnson v. Omega Insurance Company (No. SC14-2124), that a homeowner is entitled to an award of attorneys' fees after an improper denial of insurance benefits. The homeowner made a claim for the benefits after a sinkhole allegedly damaged her home. The Court found that the appellate court first improperly applied a presumption of correctness meant for the initial claims process in sinkhole cases to the litigation process. The Court then found that, under section 627.428, Fla. Stat., bad faith or malicious conduct is not a prerequisite for an attorneys' fee award. The Court emphasized that, once an insurer denies benefits and a policyholder files an action in dispute of that denial, the insurer cannot abandon its position without repercussion.

The Claim

The plaintiff, a policyholder, was covered under a homeowners' insurance policy that included sinkhole coverage. In January 2010, the policyholder filed a claim to recover damages resulting from sinkhole activity. The insurer retained a consulting company to perform an initial sinkhole investigation. Although the consulting company conceded that the home had been damaged, it attributed the damage to causes that were not covered under the policy. Based on this, the insurer denied the policyholder's claim for insurance coverage.

During the initial claim process in sinkhole cases, the findings and recommendations of the insurer's experts receive a statutory "presumption of correctness" under section 627.7073(1)(c), Fla. Stat. that shifts the burden to refute the report to the insured. Either party can request a neutral evaluation pursuant to section 627.7074, Fla. Stat. and the insurer bears the cost for it.

The Legal Proceedings

In this case, since there were potential damages in the hundreds of thousands of dollars, the policyholder retained an attorney who, in turn, retained a different consulting company to perform a second evaluation of the damages. That company noted that the insurance company's report was incomplete and concluded that the damage to the home was due to sinkhole activity. The policyholder spent $15,000 to retain the consultant.

The policyholder then sued the insurer for breach of contract, requesting benefits to which she was entitled and attorneys' fees, pursuant to section 627.428, Fla. Stat. During the discovery process, the insurer requested a neutral evaluation. The neutral evaluator also concluded that sinkhole activity was present on the property and caused the damage. As a result, the insurer accepted the neutral evaluation and tendered payment to the policyholder for the damage to her home. The insurer also filed an Answer and Affirmative Defenses, admitting that sinkhole activity caused the damage, that it had denied coverage and that Ms. Johnson was entitled to benefits to cover the damages.

The policyholder then filed a motion for confession of judgment (when a party admits to liability and a quantification of damages) and a motion for attorneys' fees. In opposing the attorneys' fees motion, the insurer argued that the policyholder's entitlement to attorneys' fees under section 627.428 turned on her establishing that the insurer had acted in bad faith. The trial court rejected the insurer's argument, finding that there had been a confession of judgment and that the policyholder did not have to prove bad faith.

The appellate court reversed the trial court's decision, holding that precedent required a "wrongful" denial of benefits, and that "wrongful" meant that the insurer had denied the claim in bad faith. The appellate court further concluded that the confession of judgment doctrine only applies when the insurer wrongfully forces an insured to pursue litigation, and that the policyholder had not rebutted the presumption of correctness afforded to the original report.

The Florida Supreme Court Decision

The policyholder sought discretionary review of the appellate court decision from the Florida Supreme Court, which agreed to hear the case. The Florida high court reversed the appellate court's decision and sided with the policyholder.

In its decision, the Florida Supreme Court first dealt with the "presumption of correctness" for sinkhole cases. The Court explained that the presumption of correctness for sinkhole losses established in section 627.7073 was designed to protect the public during the claims process, not the insurance companies during litigation. The Court cited one of its own decisions, Universal Insurance Co. of North America v. Warfel, 82 So. 3d 47 (Fla. 2012), wherein it had specifically held that the statutory presumption of correctness described in the sinkhole statute does not extend to the litigation context. The Court found that the insurer and the appellate court had blurred the lines between the reliance on reports of insurance company experts made during the claims process and the attorneys' fees to which policyholders are entitled under section 627.428 when a policyholder prevails. Thus, once the policyholder filed suit, there was no presumption of correctness as to the initial report by the insurer's expert.

Bad Faith Not Required

The Court next looked at the issue of whether section 627.428 requires a showing of bad faith before attorneys' fees can be awarded. The Court found that the appellate court's decision was in conflict with its prior ruling in Ivey v. Allstate Insurance Co., 774 So. 3d 679 (Fla. 2000). The Court explained that the Legislature created a statutory provision in section 627.428 that simply allows insureds who prevail against an insurance company to recover attorneys' fees, regardless of whether the insurer acted in bad faith. Further, it is well settled that the payment of a previously denied claim following the initiation of an action but prior to final judgment is the functional equivalent of a confession of judgment. The Ivey court specifically held that "the bad faith or degree of 'wrongfulness' of the insurance company is not relevant to the recovery of attorneys' fees under section 627.428." [Emphasis supplied.]

Applying these principles, the Court found that the policyholder submitted a claim, which the insurer denied. Thereafter, the policyholder filed an action seeking recovery. In its answer, the insurer conceded that it had incorrectly denied benefits based on an inaccurate report. Even though there was no evidence that the insurer's disclaimer was wrongful or in bad faith, the Court ruled that those facts warrant the awarding of attorneys' fees under section 627.428.

Public Policy Considerations

The Florida Supreme Court emphasized the need to "level the playing field" between the more sophisticated insurance company and the individual citizen. Without the funds to compete with an insurer, often the insured's only means to take protective action is to retain legal counsel. That attorney then has the ability and knowledge to hire an expert to refute the insurer's report. When the insurer denies benefits and the insured retains counsel, additional costs that require relief have been incurred. The Court reasoned that, were it not for the policyholder's action in obtaining her own evaluator, she would have lost hundreds of thousands of dollars in benefits.

The Court summed up its decision by stating:

Once an insurer has incorrectly denied benefits and the policyholder files an action in dispute of that denial, the insurer cannot then abandon its position without repercussion. To allow an insurer to backtrack after the legal action has been filed without consequence would essentially eliminate the insurer's burden of investigating a claim.

Practice Pointers

Although this case does not break new ground as to the current law, the ruling does not appear to be limited to sinkhole cases. In fact, the Ivey case, used to explain that bad faith is not necessary for an attorneys' fee award, was not a sinkhole case. As a practical consequence of this decision, insurers may be less inclined to deny claims, knowing that if their disclaimer is later determined to be erroneous, they will be responsible for paying their policyholder's attorneys' fees − even if they did not act wrongfully or in bad faith.

The insurer here attempted to use the sinkhole statute to sidestep the attorneys' fee provisions of section 627.428. However, the Florida Supreme Court made it clear that the analysis does not turn on whether the conduct of the insurer was wrongful or in bad faith, but rather on the consequences of being wrong in making a business decision. Although no extra-contractual exposure will be at risk, the insurer will be responsible for the policyholder's attorneys' fees if it is determined that the insurer erroneously denied coverage. To challenge an incorrect denial, the policyholder must hire an attorney and retain an expert. The Court found that it would be unfair for that policyholder to then be responsible for the cost of challenging a decision that was determined to be incorrect. Therefore, the insurer is basically betting the potential attorneys' fees that it is right when making a coverage decision.

In high-stakes situations where attorneys' fees are likely to be great, it remains to be seen whether insurers will become "gun shy" in their approach to coverage decisions. The reasoning of the Florida Supreme Court could extend to other jurisdictions that may find the focus on the business risk of the insurer to be compelling. If an insurer's coverage decision is incorrect, then the consequences must fall somewhere. The Florida Supreme Court has decided that they will fall to the insurer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions