For many years, some insurers have argued that Florida policyholders cannot bring statutory “bad faith” actions if the parties participate in the appraisal process. In essence, these insurers argued that there must be a finding of a breach of contract in an underlying action for an extra contractual action to proceed.
Numerous federal judges in Florida have rejected this argument, however until this week there were no Florida state court appellate opinions directly on point.
On September 5, the Fourth District Court of Appeals released its decision in Trafalgar at Greenacres, LTD v. Zurich American Insurance Company.1 The sole issue on appeal was whether an appraisal award constituted a “favorable resolution” of an underlying dispute for purposes of filing a bad faith cause of action pursuant to Florida Statue §624.155.
The facts are relatively simple. Trafalgar’s property was damaged by Hurricane Wilma and a claim for the damage was submitted to Zurich. When Zurich only paid a portion of what Trafalgar demanded, the policyholder filed suit for breach of contract.
Shortly thereafter, Zurich tendered additional monies and invoked the appraisal process afforded to it by the policy. The appraisal award was entered for approximately $1.5 million and Zurich paid these amounts in accordance with the terms and conditions of the policy. The trial court then granted summary judgment in favor of Zurich finding that it had not breached the insurance contract but allowed Trafalgar to amend its complaint to assert a statutory bad faith action.
Later the Court dismissed Trafalgar’s bad faith claim finding that it had not received a determination that Zurich had breached the contract and therefore that Trafalgar had not satisfied its requirements for bringing such an action.
The Appellate Court reversed this finding, however, specifically rejecting the argument that a finding that an insurer breached the insurance contract precludes a policyholder from bringing a bad faith action. Instead, the Court found that the appraisal award constituted a “favorable resolution” of an action for insurance benefits and that the conditions precedent to bringing a statutory bad faith action had been satisfied.
This opinion will likely be cited throughout the state in the upcoming months and appeals in other districts will certainly follow. Depending on decisions in other district courts, this issue may have a final determination by the Florida Supreme Court in the not so distant future.
1 Trafalgar at Greenacres, LTD v. Zurich American Ins. Co., No. 4D11-1376 (Fla. 4th DCA September 5, 2012).