Florida Supreme Court Hands Down Important Decision for First-Party Property Insurers
Insurance Law Blog
Alfred Warrington V
Just in time for hurricane season, the Florida Supreme Court has issued an opinion clarifying the state’s law on a number of important insurance issues, including whether Florida recognizes an implied warranty of good faith and fair dealing in the first-party context, and whether an insurer’s failure to comply with the language and type-size requirements established under Florida statute section 627.701(4)(a) for hurricane deductibles negates the deductible provisions. QBE Insurance Corp. v. Chalfonte Condominium Apartment Association, No. SC09-441 (May 31, 2012). The Court’s decision on the issue of the implied warranty of good faith and fair dealing could have the most impact for insurers. Under current Florida case law, both the existence of liability and the extent of damages are elements of a cause of action for bad faith that must be determined before a statutory cause of action for bad faith will lie. In addition, an insured usually is not entitled to discover an insurer's claim file or documents relating to the insurer's business policies or claims practices until coverage has been determined. To circumvent these rules and press a bad faith case along with the breach of contract case, policyholder attorneys sometimes argue that an insurer breaches its insurance contract by violating its implied warranty of good faith and fair dealing, thereby conflating the claims. Chalfonte’s finding that a claim for first-party bad faith may be brought only under the statute, and pursuant to its established rules, should hopefully block this strategy in the future.
Chalfonte involved a dispute in federal court over claims stemming from Hurricane Wilma. Chalfonte, the insured, became dissatisfied with QBE’s investigation and processing of its claims. A jury found for Chalfonte, awarding it $7.9 million for QBE's alleged failure to provide coverage. The jury also awarded Chalfonte an additional $271,888 for breach of the implied warranty of good faith and fair dealing, for a total award of $8.1 million. On appeal, the Eleventh Circuit Court of Appeals certified the following five questions to the Florida Supreme Court:
- Does Florida law recognize a claim for breach of the implied warranty of good faith and fair dealing by an insured against its insurer based on the insurer’s failure to investigate and assess the insured’s claim within a reasonable period of time?
- If Florida law recognizes a claim for breach of the implied warranty of good faith and fair dealing based on an insurer’s failure to investigate and assess its insured’s claim within a reasonable period of time, is the good faith and fair dealing claim subject to the same bifurcation requirement applicable to a bad faith claim under Florida Statute § 624.155?
- May an insured bring a claim against an insurer for failure to comply with the language and type-size requirements established by Florida Statute § 627.701(4)(a)?
- Does an insurer’s failure to comply with the language and type-size requirements established by Florida Statute § 627.701(4)(a) render a noncompliant hurricane deductible provision in an insurance policy void and unenforceable?
- Does language in an insurance policy mandating payment of benefits upon "entry of a final judgment" require an insurer to pay its insured upon entry of judgment at the trial level?
In a unanimous decision, the Court answered “no” to the first, third, fourth, and fifth questions. The decision on the first issue rendered the second question moot. The Court concluded that under Florida law: (1) the first-party claims were actually statutory bad-faith claims that could only be brought under section 624.155; (2) there is nothing in the text of section 627.701(4)(a) from which one could deduce that the Legislature intended an insured to have a private right of action against an insurer for failure to follow the notice requirements; (3) an insurer's failure to comply with the language and type-size requirements established in that section did not render a noncompliant hurricane deductible provision void and unenforceable; and (4) a contractual provision in an insurance policy mandating payment of benefits upon "entry of a final judgment" did not waive the insurer's procedural right to post a bond and stay the execution of a money judgment pending resolution of appeal.