This is one of a series of articles under the by line “Butler Pappas on Bad Faith” originally published in Mealey's Litigation Report:  Insurance Bad Faith, Vol. 18, #12 (October 19, 2004). © Copyright Butler Pappas 2004.

Given the more than two million additional first-party property insurance claims in the State of Florida this year, we thought it timely to share with you the status of Florida law on first-party “bad-faith.”

I.    Florida's “Civil Remedy Statute” § 624.155

Florida does not recognize any common law “bad-faith” cause of action against a first-party insurer. Prior to the creation of Florida's “Civil Remedy Statute,” if an insurer acted in “bad-faith” in settling the claim submitted by its insured, the only remedy available to the insured, in the absence of an independent tort committed by the insurer, such as fraud, is to file a breach of contract claim against its insurer and recover only those damages contemplated by the parties to the policy. Butchikas v. Travelers Indemnity Co., 343 So. 2d 816 (Fla. 1976); Baxter v. Royal Indemnity Co., 285 So. 2d 652 (Fla. 1st DCA 1973), cert. discharged, 317 So. 2d 725 (Fla. 1975).

In 1982, the Florida Legislature enacted Fla. Stat. § 624.155, referred to as the “Civil Remedy Statute,” which the Florida courts have interpreted to authorize first-party “bad-faith” legal actions. Opperman v. Nationwide Mut. Fire Ins. Co., 515 So. 2d 263, 266 (Fla. 5th DCA 1987) was the first such Florida appellate decision holding:

The plain meaning of § 624.155(1)(b) extends a cause of action to the first party insured against its insurer for bad-faith refusal to settle. The language of § 624.155 is clear and unambiguous and conveys a clear and definite meaning. It provides a civil cause of action to “any person” who is injured as a result of an insurer's bad-faith dealing.

The Florida Supreme Court denied review of Opperman in 1988 (523 So. 2d 578), but subsequently approved of its statutory interpretation in McLeod v. Continental Ins. Co., 591 So. 2d 621 (Fla. 1992).

The operative statutory language of Fla. Stat. § 624.155 is contained in sub-section (1)(b)1 that states:

(1)     Any person may bring a civil action against an insurer when such person is damaged. . .

. . .

(b)     By the commission of any of the following acts by the insurer:

1. Not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly towards its insured and with due regard for her or his interests. . .

This statutory “bad-faith” standard has been incorporated into the Florida Standard Jury Instructions as M1 3.1 that reads as follows:

The issue for your determination is whether (defendant) acted in bad-faith in failing to settle the claim [of] [against] (insured). An insurance company acts in bad-faith in failing to settle a claim when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward [its policyholder] [its insured] [an excess carrier] and with due regard for [his] [her] [its] [their] interest.

The Supreme Court of Florida in the case of State Farm Mut. Ins. Co. v. LaForet, 658 So. 2d 55 (Fla. 1995), rejected the “fairly debatable” standard for the one contained in the above quoted jury instruction:

Under the “fairly debatable” standard, a claim for “bad-faith” can succeed only if the plaintiff can show the absence of a reasonable basis for denying the claim. . . .   To date, no Florida court has specifically adopted the “fairly debatable” standard in a “bad-faith” actions. Moreover, the approach by Florida courts in bad-faith actions has been described as “unsettled.”. . .  Florida differs, however, from most jurisdictions given that first-party bad-faith actions are actionable only under § 624.155 and not the common law. . . .  Section 624.155 provides an insurer has acted in bad-faith if it has “[n]ot attempt[ed] in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for [the insured's] interests. . . .  Because the specific standard is set forth in § 624.155, we find it unnecessary and inappropriate to apply the 'fairly debatable' standard to bad-faith actions in Florida.”

Id. at 62.

On the issue of damages, the Florida Supreme Court has held “there can be recovery for the damages incurred for violation of § 624.155(1)(b)1 which occurred before the determination of liability or the extent of damages on the underlying insurance contract.” Vest v. Travelers Ins. Co., 753 So. 2d 1270 (Fla. 2000). The Florida Supreme Court stated in Vest:

. . . We expressly state that Blanchard is properly read to mean that the “determination of the existence of liability on the part of the uninsured tortfeasor and the extent of the [insured's] damages” are elements of a cause of action for bad-faith. Once those elements exist, there is no impediment as a matter of law to a recovery of damages for violation of § 624.155(1)(b)1 dating from the date of a proven violation. . . .  In sum, we expressly hold that a claim for bad-faith pursuant to § 624.155(1)(b)1 is founded upon the obligation of the insurer to pay when all conditions under the policy would require an insurer exercising good faith and fair dealing towards its insured to pay. This obligation on the part of insurer requires the insurer to timely evaluate and pay benefits owed on the insurance policy. We hasten to point out that the denial of payment does not mean an insurer is guilty of bad-faith as a matter of law. The insurer has a right to deny claims that it in good faith believes are not owed on a policy. Even when it is later determined by a court or arbitration that the insurer's denial is mistaken, there is no cause for action if the denial was in good faith. Good-faith or bad-faith decisions depend upon various attendant circumstances and usually are issues of fact to be determined by a fact-finder.

Id. at 1275. See also Douglas G. Houser, Ronald J. Clark, and Linda M. Bolduan, Good Faith as a Matter of Law – An Update on the Insurance Company's “Right to be Wrong,” Tort Trial & Insurance Practice Law Journal, p. 1045, Vol. 39, No. 4 (Summer 2004).

II.   Condition Precedent

There is a required condition precedent to bringing a first-party “bad-faith” action against an insurer. Florida Statute § 624.155(3)(a) states:

(3)       (a)     As a condition precedent to bringing an action under this section, the department and the authorized insurer must have been given 60 days written notice of the violation. If the department returns a notice for lack of specificity, the 60-day time period shall not begin until a proper notice is filed.

(b)     The notice shall be on a form provided by the department and shall state with specificity the following information, and such other information as the department may require:

1. The statutory provision, including the specific language of the statute, which the authorized insurer allegedly violated.

2. The facts and circumstances giving rise to the violation.

3. The name of any individual involved in the violation.

4. Reference to specific policy language that is relevant to the violation, if any. If the person bringing the civil action is a third party claimant, she or he shall not be required to reference the specific policy language if the authorized insurer has not provided a copy of the policy to the third party claimant pursuant to written request.

5. A statement that the notice is given in order to perfect the right to pursue the civil remedy authorized by this section.

(c)     Within 20 days of receipt of the notice, the department may return any notice that does not provide the specific information required by this section, and the department shall indicate the specific deficiencies contained in the notice. A determination by the department to return a notice for lack of specificity shall be exempt from the requirements of chapter 120.

(d)     No action shall lie if, within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected.

(e)     The authorized insurer that is a recipient of a notice filed pursuant to this section shall report to the department on the disposition of the alleged violation.

(f)     The applicable statute of limitations for an action under this section shall be tolled for a period of 65 days by the mailing of the notice required by this subsection or the mailing of a subsequent notice required by this subsection.

This provision of this statute is referring to what is called the “Civil Remedy Notice of Insurer Violation” (“Civil Remedy Notice”). A typical Civil Remedy Notice as submitted by an attorney on behalf of an insured is attached as Appendix A.

The Supreme Court of Florida interpreted the significance of the Civil Remedy Notice in the case of Talat Enterprises, Inc. v. Aetna Cas. & Surety Co., 753 So. 2d 1278 (Fla. 2000). Talat was a first-party action by an insured against its insurer for damages caused by the insurer's alleged “bad-faith” in settling a fire-damage claim made under a property insurance policy. The insurer argued that the statutory provision stating that “[n]o action shall lie if, within 60 days after filing Notice, the damages are paid or the circumstances given rise to the violation are corrected,” is a cure period during which an insurer may avoid “bad-faith” litigation by paying the contractual damages owed within the 60-day window. The insurer contended that because it paid the arbitration award before Talat even filed its Civil Remedy Notice, it paid the damages or corrected the circumstances giving rise to the violation, thereby precluding the instant action. The insured, on the other hand, argued that this provision was a confession period during which an insurer must pay all the extra-contractual damages caused by the alleged “bad-faith” to avoid an action under the statute. The insured contended that the insurer's interpretation of the statute turns what was intended to be a consumer protection law into an amnesty program for “bad-faith” insurers.

The Florida Supreme Court stated in Talat that when one reads the Civil Remedy statute in context and with the understanding that it is in derogation of the common law, it is plain that the Florida Legislature intended the Notice to the Department to serve as a basis for the Department to assist in the settling of claims and to monitor the insurance industry. The Supreme Court also found that the 60-day period was a time in which the insured could act to “cure” a violation. The Florida Supreme Court expressly stated:

It naturally follows that for there to be a “cure,” what had to be “cured” is the non-payment of the contractual amount due the insured. In the context of a first-party insurance claim, the contractual amount due the insured is the amount owed pursuant to the express terms and conditions of the policy after all the conditions precedent of the insurance policy in respect to payment are fulfilled. Section 624.155(1)(b). . .  is correctly read to authorize a civil remedy for extra-contractual damages if a first-party insurer does not pay the contractual amount due the insured after all the policy conditions have been fulfilled within 60 days after a valid notice has been filed. . . [the statute] cannot reasonably be construed to require payment of extra-contractual damages to avoid bad-faith litigation until the conditions for payment under the policy have been fulfilled and the insurer has failed to cure within the 60-day statutory period for cure after notice is filed in accord with the statute. . .

Finally, it must be recognized that what [the statute] creates is a statutory “civil remedy.” For Talat there is no remedy within the statute. Pursuant to the statute, there is no remedy until the Notice is sent by the insured and the insurer has the opportunity to “cure” the violation. If the insurer pays the damages during the cure period, then there is no remedy. For this to comport with logic and common sense, this has to mean that extra-contractual damages that can be recovered solely by reason of this Civil Remedy statute cannot be recovered when the remedy itself does not ripen if the insurer pays what is owed on the insurance policy during the cure period. The statutory cause of action for extra-contractual damages simply never comes into existence until expiration of the 60-day window without the payment of the damages owed under the contract. We find that in creating this statutory remedy for “bad-faith” actions, the Legislature provided this 60-day window as a last opportunity for insurers to comply with their claim-handling obligations when a good-faith decision by the insurer would dictate that contractual benefits are owed.

Id. at 1283-84. See also Lane v. Westfield Ins. Co., 862 So. 2d 774 (Fla. 5th DCA 2004) (insured's “bad-faith” complaints alleging that insurer had filed groundless lawsuits against him were cured within or before the expiration of the 60-day period, the complaint regarding the lightning claim was cured by a jury verdict in favor of the insured, and the complaint regarding the windstorm claim was cured by dismissal of the insurer's claim).

An insurer's failure to timely respond to a Civil Remedy Notice at all creates a rebuttal presumption that the contents of the Civil Remedy Notice are true and, thus, presumably the insurer has committed “bad-faith.” Imhof v. Nationwide Mut. Ins. Co., 643 So. 2d 617 (Fla. 1994). The Florida Supreme Court stated, “when an insurer does not respond within 60 days, the insurer flouts the very purposes of § 624.155. . . an insurer's failure to respond within the 60 day period will create a presumption of bad faith sufficient to shift the burden to the insurer to show why it did not respond. An insurer may have a good reason for not wanting to settle for the amount demanded, but we find it difficult to articulate a possible reason not to respond within 60 days.”

In addition to serving and filing a Civil Remedy Notice that has not been timely cured by the insurer, the existence of contractual liability and the determination of the extent of contractual damages are elements of the “bad-faith” action and, therefore, must pre-exist the bringing of such a “bad-faith” action. See, Vest v. Travelers Ins. Co., 753 So. 2d 1270 (Fla. 2000) (we expressly state that Blanchard is properly read to mean that the “determination of the existence of liability on the part of the uninsured tortfeasor and the extent of the [insured's] damages” are elements of a cause of action for “bad-faith,” and once those elements exist, there is no impediment as a matter of law to recovery of damages for violation of § 624.155(1)(b)1); Blanchard v. State Farm Mut. Auto. Ins. Co., 575 So. 2d 1289 (Fla. 1991) (the determination of the existence of liability on the part of the uninsured tort-feasor and the extent of the of the [insured's] damages are elements of a cause of action for a bad-faith claim and until these elements exist, no bad-faith cause of action exists).

In the Florida Third District Court of Appeal case of Liberty Mutual Ins. Co. v. The Farm, Inc., 754 So. 2d 865, 866 (Fla. 3d DCA 2000), the Florida Appellate court stated:

There has been some confusion in the law when a claim for insurer bad-faith can be asserted. Although the trial court did not have the benefit of it, the Florida Supreme Court has recently clarified that “bringing a cause of action in Court for a violation of § 624.155(1)(b)1 [statutory bad faith] is premature until there is a determination on liability and extent of damages owed on the first-party insurance contract. . . .  Since damages have yet to be determined in the first-party action, the insured's claim for statutory bad-faith was not right and must be dismissed without prejudice as being premature.”

Unfortunately, there still remains some confusion in the law. See, Plante v. USF&G Specialty Ins. Co., 17 Fla. L. Weekly Fed. D. 686 (U.S. Dist. Ct. S.D. June 2, 2004) (when an insurer makes payment upon an insured's claim and refuses to pay any more, a “final determination” of liability and extent of damages has occurred for purposes of the bad-faith statute).

It is important to note that the Civil Remedy statute also cross references Fla. Stat. § 626.9541(1)(i), entitled “Unfair Claims Settlement Practices,” which states:

(1)     Unfair methods of competition and unfair or deceptive acts – The following are defined as unfair methods of competition and unfair or deceptive acts or practices:

. . .

(i)     Unfair claim settlement practices.–

1. Attempting to settlement claims on the basis of an application, when serving as a binder or intended to become a part of the policy, or any other material document which was altered without notice to, or knowledge or consent of, the insured;

2. A material misrepresentation made to an insured or any other person having an interest in the proceeds payable under such contract or policy, for the purpose and with the intent of effecting settlement of such claims, loss, or damage under such contract or policy on less favorable terms than those provided in, and contemplated by, such contract or policy; or

3. Committing or performing with such frequency as to indicate a general business practice any of the following:

   a.    Failing to adopt and implement standards for the proper investigation of claims;

   b.    Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;

   c.    Failing to acknowledge and act promptly upon communications with respect to claims;

   d.    Denying claims without conducting reasonable investigations based upon available information;

   e.    Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed;

   f.    Failing to promptly provide a reasonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or applicable law, for denial of a claim or for the offer of a compromise settlement;

   g.    Failing to promptly notify the insured of any additional information necessary for the processing of a claim; or

   h.    Failing to clearly explain the nature of the requested information and the reasons why such information is necessary.

   *   *   *

Often a Civil Remedy Notice served and filed will identify a violation of this Florida statute as part of the grounds in support of the “bad-faith” claim against the insurer. This would be in addition to any contention that the insurer had violated Fla. Stat. § 624.155(1)(b)1.

The Florida Civil Remedy Notice also provides for the possibility of obtaining punitive damages. It states in pertinent part:

. . .

(5)      No punitive damages shall be awarded under this section unless the acts giving rise to the violation occur with such frequency as to indicate a general business practice and these acts are:

(a)      Willful, wanton, and malicious;

(b)      In reckless disregard for the rights of any insured; or

(c)      In reckless disregard for the rights of a beneficiary under a life insurance contract.

*   *   *

Besides the U.S. Constitutional constraints on punitive damages as defined in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), you should be cognizant of Fla. Stat. § 768.73 that limits punitive damages to three times the amount of the compensatory or $500,000, whichever is greater.

III.     Suggestions

Be careful. The key to any first-party “bad-faith” claim in Florida is the Civil Remedy Notice. When and how an insurer responds is the cornerstone of every first-party “bad-faith” case. It is not unusual for such a Civil Remedy Notice not to be sent to the adjuster actually handling the claim, but rather be sent directly to the insurer's corporate home office. This is done in the hope that it gets “lost” in the bureaucratic mailroom and, therefore, before anyone realizes its significance, the statutorily prescribed 60 day cure period expires, and a rebuttable presumption that the insurer has committed “bad-faith” is established.

For any insurer handling claims in the State of Florida, especially those relying upon independent adjusters and third-party administrators during a confusing catastrophe (or, in some circumstances, four overlapping confusing catastrophes), it would be wise to establish a protocol to identify the existence of such Civil Remedy Notices and to prepare timely and appropriate responses. Much can be done in response to such Civil Remedy Notices, including taking an expedited Examination Under Oath of the insured. If an insurer is going to pay a claim, such payment, if possible, should occur before the 60 day “cure” period has expired. To do so after the “cure” period has expired, will invite a “bad-faith” lawsuit and much regret.

Attorneys