Insurance companies sometimes assert a defense to insurance bad faith allegations based on the premise that paying an appraisal award precludes such a lawsuit. The appraisal remedy typically is a contractual option that is included in the insurance policy that either the insured or the insurance company can invoke. As a practical matter, insurance companies that assert this defense are arguing in effect that this form of alternate dispute resolution (ADR) “cures” prior improper conduct in adjusting claims.
Insurance companies that assert this defense contend they cannot be found to have acted in bad faith because they followed the terms of the policy by paying an appraisal award. One appellate case, Trafalgar At Greenacres v. Zurich, is one decision that has addressed the appropriate impact of an appraisal award in relation on a bad faith action.
In Trafalgar, the insured received an appraisal award against the insured that was double what the insurer offered prior to the appraisal process and half of the insured’s demand. When the insured tried to pursue a bad faith claim, the insurance company argued that the trial court’s summary judgment on a breach of contract claim precluded the ability to pursue a bad faith lawsuit. According to the insurer, the bad faith claim could not be pursued because the insurer had not obtained a “favorable resolution or determination of liability in the underlying breach of contract action.”
However, the appellate court in Trafalgar found that a judgment for breach of contract was not the only way that the prerequisite of a “favorable resolution” on the issues of liability and the amount of the claim could be obtained prior to pursuing a bad faith claim. The Trafalgar court noted that the Florida Supreme Court had previously recognized an appraisal award as establishing the validity of an insured’s claim and satisfying the prerequisites to pursuing a claim of insurance bad faith.
The implication of the Trafalgar decision is not only that an appraisal award can constitute a final determination on liability and the value of loss but also that such an award does not a preclude a bad faith claim. Although insurance company’s like to claim that paying an appraisal award constitutes compliance with the insurance policy, Trafalgar suggests that at least in the 4th District, this defense is not valid.
There are sound policy reasons for this approach. If insurance companies could effectively seek “safe harbor” by invoking the appraisal process at any point in the claims process, this would permit insurers to routinely engage in the most egregious forms of bad faith conduct with the knowledge that they could evade liability later by invoking the appraisal process. In other words, the approach advocated by insurance companies would encourage insurers to act in bad faith toward policyholders and effectively deprive an insured of any genuine bad faith remedy. The appraisal process is designed to provide a form of ADR not a way for insurance companies to negate the consequences of bad faith conduct.
If your insurance company refuses to deal with you fairly or pay your claim in a timely manner, you should seek prompt legal advice. My law firm represents policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM.