Reminder: FPCA Homeowners Division Meeting Scheduled for Monday, September 24 at 2 p.m.
Sep 21, 2012
The FPCA Homeowners Division will be meeting via teleconference on Monday, September 24, at 2:00 p.m., to discuss whether to file an Amicus Curiae Brief in Trafalgar at Greenacres, Ltd v. Zurich, where the Fourth District Court of Appeal held that an appraisal award may constitute a “favorable resolution,” allowing the insured to file a claim for bad faith. Please discuss this issue with your counsel in preparation for the meeting. The call-in number is 800.369.1285; conference code: 9038691#.
An agenda for the meeting, as well as minutes from the September 14, 2012 meeting, are attached.
Should you have any questions, please contact Katie Webb (firstname.lastname@example.org).
The Fourth DCA Holds an Appraisal Award can Satisfy the “Favorable Resolution” Prerequisite for Filing a Bad Faith Action
Before an insured may bring an action against an insurer for bad faith in Florida, the insured must obtain a favorable resolution of the underlying breach of contract claim. Historically, this meant that the insured needed to obtain a judgment or decree holding the insurer liable for breach of the insurance contact. Under the “confession of judgment” doctrine, courts have held that a bad faith action may proceed when an insurer pays a disputed claim after an action for breach of contract is filed, even when no judgment or decree has been entered.
Until this decision, Florida courts had not extended the confession of judgment doctrine to situations where an insurer invokes the appraisal clause of its policy, and pays for a loss according to the appraisal award. However, in Trafalgar at Greenacres, Ltd. v. Zurich American Ins Co, the Fourth DCA held that an appraisal award may constitute a “favorable resolution,” allowing the insured to file a claim for bad faith. In that case, a shopping center owned by Trafalgar was damaged by Hurricane Wilma and Trafalgar made a claim to its insurer, Zurich. After Zurich made several payments, totaling $580,856.40, Trafalgar provided a proof of loss claiming $1,826,938.54. Zurich notified Trafalgar that it was continuing to investigate the claim, and Trafalgar filed suit claiming that Zurich breached the insurance contract by failing to pay all insurance proceeds due and owing.
Zurich then invoked the policy’s appraisal clause, and an award of $1,504,663.10 was entered. Zurich paid the award within the thirty day period provided by the policy and moved for summary judgment of Trafalgar’s breach of contract claim. Trafalgar moved to confirm the appraisal award, enter judgment in its favor, and amend the complaint to state a bad faith claim.
The trial court granted Zurich’s motion for summary judgment, based on Zurich’s compliance with the appraisal clause of the insurance contract, and denied Trafalgar’s motion to amend the complaint to state a claim for bad faith. The trial court ruled that because Zurich succeeded on the breach of contract claim, Trafalgar did not receive a “favorable resolution” of its breach of contract claim. On appeal, the Fourth DCA held that, despite the fact that Zurich succeeded on summary judgment, Trafalgar obtained a “favorable resolution” of the breach of contract claim because the appraisal award was greater than what Zurich had previously agreed to pay. Having obtained a favorable resolution, the court held that Trafalgar had satisfied the prerequisites to filing a bad faith action.
This holding creates significant exposure for insurers in the State of Florida. Bad faith actions are intended for situations in which the insurer has “breached” an insurance contract in bad faith. On the other hand, appraisal is a process created by the insurance contract in order to resolve disputes regarding the value of a loss. The process is contractual in nature, and participation in the appraisal process and payment of any appraisal award constitutes compliance with the insurance contract, rather than a breach. However, under this decision, anytime an insurer and its insured disagree on the amount of a loss and the insurer invokes the appraisal process, there is a danger that the insured will be permitted to file a bad faith action if the award is greater than the amount the insurer has offered to pay. Aside from creating potential bad faith liability, this case could have a chilling effect on the appraisal process and could lead to litigation of disputes that would have previously been resolved through appraisal.
Counsel for Zurich is expected to move for rehearing, and this decision is not final until the time for rehearing expires or the court grants or denies rehearing.