Insurance policyholders denied recovery for valid claims have a right to sue an insurer for breach of contract because an insurance policy is a contractual agreement between the insurance company and the policyholder.  However, this legal remedy can be ineffective as a deterrent to bad faith practices.  If the only risk facing an insurance carrier that denies a valid insurance claim is an obligation to pay contract damages, the insurer might as well roll the dice because the only consequence will be an order to pay the amount owed under the policy at a later date.  The ability of policyholders to hold insurance companies accountable for additional compensation, such as attorney’s fees and punitive damages through bad faith legal claims, provides a financial incentive for insurance companies to pay policyholders in a timely manner. 

In this two-part blog post, we analyze a recent federal court decision that provides valuable lessons for policyholders involved in claims disputes.  Part I examines the court’s analysis of what constitutes compliance with the pre-lawsuit requirement of serving notice on the insurer of an imminent bad faith action.  In Part II of this blog, we explore the court’s conclusion regarding the use of a wide disparity between a single meager settlement offer from an insurer and a substantial appraisal award issued beyond the statutory period for the insurer to “cure” alleged acts of bad faith.

Facts of the Case

A recent decision by the United States District Court in Fox Haven of Foxfire Condominium Assoc. v. Nationwide Mutual Fire Ins. Co. provides guidance for policyholders pursuing a bad faith insurance claim.  The insured condominium association filed a claim when its condominium association was damaged by a hurricane.  The engineer hired by the insurance company produced a report indicating that the cost of repairs amounted to approximately $87,000 to repair the main condominium structure and another $31,000 to repair other structures like car ports.  The insurer also determined that only twenty percent of the damage to the main building was caused by the hurricane.  The insurer than made adjustments for depreciation and deductibles before tendering a check to Fox Haven for $23,579.

Fox Haven rejected the proposed settlement and invoked the insured’s right to the appraisal process.  While the appraisal process was pending, the insured filed a Civil Remedy Notice (CRN) of Insurer Violation with Florida’s Department of Financial Services (DFS), which indicated the insurer was acting in bad faith in handling the claim.  The appraisal panel determined the value of the claim was $381,461.  The appraisal award was paid by the insurance carrier shortly thereafter.

The insured subsequently filed an insurance bad faith lawsuit seeking contract damages and punitive damages.  The insurance carrier moved for summary judgment on the following grounds: (1) the CRN submitted was legally insufficient; (2) the bad faith claim could not be based on conduct outside the CRN’s 60-day cure period; and (3) the evidence did not support a claim for punitive damages.

Court Rejects Challenges to the CRN Filed by the Insured

The appellate court began its analysis by acknowledging that the filing of a proper CRN with DFS was a prerequisite to pursuing a bad faith lawsuit against the insurer.  The CRN must provide the following information: (1) the statutory provision violated by the insurer; (2) the facts underlying the violation; (3) identity of individuals involved; (4) relevant policy language; and (5) an indication the insured is pursuing a civil remedy under Fla. Stat. §624. The court noted the objective of the CRN is to advice the insurer of the circumstances of a bad faith claim, so the insurer has a last opportunity to resolve the claim and avoid bad faith litigation.

The insurer contended that the CRN filed by the insured was deficient for the following reasons: (1) inadequate factual support; (2) no specification of relevant policy language; and (3) reference to “loss of use” coverage not previously asserted.  Based on these problems with the CRN, the insurer argued a condition for filing an insurance bad faith lawsuit had not been satisfied, so the claim could not be pursued.

The court disagreed with all of these objections and initially noted that the CRN was not rejected by the DFS as lacking specificity on the face of the document.  The form contained instructions directing a policyholder to provide information: “To enable the insurer to investigate and resolve your claim, describe the facts and circumstances giving rise to the insurer’s violation as you understand them at the time.”  The insured indicated that the damage was caused by a hurricane and that the loss was reported in a timely manner.  The form also included the policy and claim numbers along with an indication of a dispute over valuation of the claim.  The insured further indicated the insurer failed to properly investigate the claim, failed to exercise due diligence in adjusting the claim, and otherwise lowballed or stonewalled the claim.

The insured also provided supporting documentation from an insurance adjuster that indicated the need to replace the roof was readily apparent.  Replacement of the roof constituted the primary basis for the discrepancy between the insurer’s settlement offer and the ultimate appraisal award.

The court evaluated the information provided by the insured and concluded that the allegations were sufficient to support a claim of bad faith.  Although the CRN referenced the entire policy rather than specific language, the court pointed out that insurance bad faith is based on statutory duties imposed on insurance companies rather than contractual provisions, so no specific policy language needed to be referenced.  The court conceded that the insured was not completely accurate in referencing “loss of use damage” in its CRN.  However, the court concluded this mistake was not enough to negate the substantial compliance by the insured.  The insurer could ascertain the factual basis for the claim and was provided with an opportunity to cure the alleged bad faith.

Our Miami Insurance Claims Law Firm invites you to continue reading Part II of this blog, which provides valuable takeaways from this court decision.  

You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].

J.P. Gonzalez-Sirgo
J.P. Gonzalez-Sirgo, P.A.
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