Analysis and Interpretation by Michael A. Cassel
On September 3, 2014, the Fourth District Court of Appeals of the State of Florida (“4th DCA”) released their decision in Cammarata v. State Farm Florida Insurance Company, Case No. 4D13-185, 39 Fla. L. Weekly D1880a. The Cammarata court deals with issues regarding the ripening of a bad faith action against an insurer. In discussing same, the Cammarata court held that only an insurer's liability for coverage and the extent of damages must be determined before a bad faith action becomes ripe. This differs from prior opinions wherein it was held that the determination of an insurer's liability for breach of contract was a condition precedent to bad faith.
The Cammarata’s claim stems from damages sustained to their property as a result of Hurricane Wilma in October, 2005. The insureds finally filed their insurance claim in September, 2007, almost two (2) years after the date of loss. In October, 2007, the insurer inspected the subject property and determined that the amount of damages fell below the policy deductible. Six (6) months later, the insureds invoked appraisal and the parties proceeded accordingly.
On August 5, 2008, the insurer then filed a petition requesting the circuit court to appoint a neutral umpire. The insureds followed suit and filed a similar petition on August 15, 2008. This is significant for two (2) reasons: first, the insurer was the first party to file the action to appoint a neutral umpire and, second, no breach of contract action was ever filed by the insureds. Ultimately, the umpire was appointed by the court and an appraisal award was entered somewhere between the two parties’ estimates. Subsequently, the circuit court entered an agreed order dismissing the parties’ petitions with prejudice.
It was not until after the dismissal was entered that the insureds filed their bad faith lawsuit pursuant to section 624.155(1)(b)1, Florida Statutes, for the insurer’s alleged failure to, settle the insured’s claim in good faith. The bad faith action alleged that, before the umpire was appointed, the insureds filed a Civil Remedy Notice (“CRN”) pursuant to the requirements of section 624.155, Florida Statutes, and the insurer failed to correct the circumstances alleged in said CRN. It was undisputed that a mature CRN was another condition precedent to the filing of a bad faith lawsuit.
The insurer, in turn, filed a motion for summary judgment arguing, in pertinent part, that that because the insurer's liability for breach of contract had not been determined, the insureds' bad faith action was not ripe. In order to substantiate their argument, the insurer relied on the controlling 4th DCA opinion in Lime Bay Condominium, Inc. v. State Farm Florida Insurance Co., 94 So. 3d 698 (Fla. 4th DCA 2012).
In Lime Bay, a breach of contract action was abated in order to allow the parties engage in appraisal of the insured’s Hurricane Wilma claim. The appraisal process resulted in an award closer to the amount of the insured's claimed damages than the insurer’s estimate for damages. After the insurer paid the appraisal award, the insured filed an action for not attempting to settle the insured’s claim in good faith. The insurer filed a motion to dismiss the bad faith action which was granted by the circuit court. Ultimately, the 4th DCA upheld the dismissal stating that the insured “did not, and could not, allege that there had been a final determination of liability since the [insured's] breach of contract case was still pending.” Id. The matter was then remanded back to the circuit court to resolve the issue of the insurer’s liability for breach of contract.
In contrast, the insureds in Cammarata argued that the only issues that must be resolved for an action of bad faith to ripen are the insurer's liability for coverage and the extent of damages. The insureds relied on a more recent 4th DCA opinion drafted in Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 100 So. 3d 1155 (Fla. 4th DCA 2012).
In Trafalgar, the insured filed a breach of contract over a disputed claim for damages sustained due to Hurricane Wilma. The insurer then invoked appraisal pursuant to the subject policy. As in Lime Bay, the appraisal process resulted in an award closer to the amount of the insured's estimate for damages. After the insurer paid the appraisal award, they moved for summary judgment on the insured’s breach of contract claim. Concurrently, the insured moved to amend its complaint to state a cause of action alleging bad faith. The circuit court ultimately granted both motions and the insurer responded by filing an additional motion for summary judgment on the bad faith action on the grounds that, because the court granted the insurer's motion for summary judgment on the breach of contract action, the insured failed to obtain a favorable resolution on the breach of contract claim and, thus, the bad faith action was not ripe as the insured failed to satisfy the prerequisites for same. The circuit court agreed with the insurer and granted summary judgment on the bad faith action.
4th District Court of Appeals Opinion
When brought up on appeal, the 4th DCA reversed the circuit court’s decision citing to precedent established by the Supreme Court of Florida in Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., 945 So. 2d 1216 (Fla. 2006). The Dadeland Depot opinion stated that an arbitration award establishing the validity of an insured's claim satisfies the condition precedent of a favorable resolution that is required to bring a bad faith action. It must be noted that the Trafalgar opinion did address the discrepancy with Lime Bay.
Similar to Trafalgar, the circuit court in Cammarata initially granted the insurer’s motion for summary judgment, relying upon Lime Bay to do so; however, in the Cammarata opinion, the 4th DCA disagreed with the lower court and cited to precedent previously set by the Supreme Court of Florida.
In Blanchard v. State Farm Mutual Automobile Insurance Co., the court stated, in pertinent part, as follows:
[A]n insured's underlying first-party action for insurance benefits against the insurer necessarily must be resolved favorably to the insured before the cause of action for bad faith in settlement negotiations can accrue. It follows that an insured's claim . . . for failing to settle the claim in good faith does not accrue before the conclusion of the underlying litigation for the contractual . . . benefits. Absent a determination of the existence of liability . . . and the extent of the [insured's] damages, a cause of action cannot exist for a bad faith failure to settle.
Blanchard v. State Farm Mutual Automobile Insurance Co., 575 So. 2d 1289, 1291 (Fla. 1991). Taking this passage at face value, it would appear as if the Blanchard court is stating that an insured must file a breach of contract action and obtained a favorable resolution of the breach of contract action before a bad faith action ripens; however, the Cammarata court points out that nothing in the Blanchard opinion explicitly states that the a breach of contract is necessary and, instead, the only determinations necessary are the existence of liability and the extent of the insured’s damages.
In Vest v. Travelers Insurance Co., the Supreme Court of Florida clarified the Blanchard opinion stating, in pertinent part, as follows:
[W]e expressly state that Blanchard is properly read to mean that the “determination of the existence of liability . . . 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 section 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 section 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…
Vest v. Travelers Insurance Co., 753 So. 2d 1270, 1275-6 (Fla. 2000). This language seemingly cements the standard echoed by Cammarata.
It must be noted, however, that Vest further states the following:
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 was mistaken, there is no cause of 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. Vest at 1275.
Accordingly, the Supreme Court of Florida has essentially maintained that bad faith actions are typically issues of fact and, as such, are not regularly resolved through motions for summary judgment. Additionally, this passage from Vest maintains that bad faith is to be taken on a case by case basis and, if a claim is properly adjusted, denials of claims may still be issued without fear of potential bad faith liability down the road.
The Vest court further cites to Imhof v. Nationwide Mut. Ins. Co., 643 So. 2d 617 (Fla. 1994). The court in Imhof stated that, despite the general requirement that to state a cause of action for first party bad faith there must be an allegation that there has been a determination of the insured's damages, there was no requirement “that the damages be determined by litigation, that there be an allegation of a specific amount of damages, or that the damages be in excess of the policy limits.” Id. At 1274, quoting Brookins v. Goodson, 640 So. 2d 110, 113 (Fla. 4th DCA 1994).
Impact of the Opinion
In reading the above cited cases together, the Cammarata court held that that settlement via the appraisal process effectively determines the existence of liability and the extent of the insured's damages. As such, an appraisal award constitutes a favorable resolution and serves to establish two (2) of the conditions precedent to the filing of a bad faith action. The Cammarata court further set forth that the court was receding from the Lime Bay opinion to the extent that the insurer’s liability for breach of contract is a prerequisite to the filing of a bad faith action.
In must be noted that, in the concurring opinion contained within Cammarata, Judge Gerber expressed concernswith regards to the potential slippery slope created by the majority opinion. The concurring judge states that the majority opinion may allow an insured to sue for bad faith any time an insurer disputes a claim an ends up paying “just a penny more than the insurer’s initial offer to settle, without a determination that the insurer breached the contract.” The concurring opinion further indicates that the potential negative side effect may be avoided by either (i) requiring that liability for breach of contract is a condition precedent to an action for bad faith or (ii) mandating that the insured obtain a favorable judgment in an amount that is at least a specific percentage higher than the insurer’s initial offer of settlement/payment. Of course, to put these safeguards in place would require significant legislation and, therefore, it is not likely that we will see any changes in the immediate future.
It must be pointed out that in both the Lime Bay and Trafalgar opinions, the appraisal award entered was closer to the insured’s estimate than it was to the insurer’s estimate. While this does not form a bright line rule regarding a percentage requirement, this dicta may serve to aid insurers’ arguments in potential bad faith actions by potentially placing the burden on the insured’s to obtain favorable resolution in an amount higher than the mean of the parties’ settlement amounts.
Furthermore, it is interesting to note that the new case law presented in Cammarata comes from a case where the potential for a judgment in the insured’s favor for bad faith claims handling seems minimal at best. The majority opinion expressly states that they refused to take a position on the merits of the insured’s bad faith claim. The concurring opinion, however, goes so far as to outline the reasons that the insurer should not be liable for bad faith. Judge Gerber states that, as the insurer “merely exercised its rights under the contract's agreed-upon dispute resolution process of appraisal…” bad faith does not seem to be likely. While this case law may significantly aid insured’s in the filing of actions asserting bad faith, so too should it stress the importance of proper adjustment of any and all claims that are presented.