Property damage claims, both large and small, are often subject to increasing scrutiny by insurance carriers. With increasing frequency, we are seeing insurers hire construction consultants and engineers to provide opinions on claims that, in the past, seasoned adjusters would have simply scoped and paid. This trend is in part due to the lack of experience and training of current generation of adjusters, however, it appears that many carriers believe that having a report from a third party consultant will shield them from any extra-contractual liability.
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.
For the second straight term, a bill has been filed in the Florida Legislature designed to make changes to the well-settled legal principles that have successfully governed our state for many years and have held insurance carriers accountable when they act improperly.
On September 12, 2011, in Customary Discovery Practices May Vary Greatly Between Federal And State Courts, I discussed how the Federal Middle District Court of Florida resolved a discovery dispute between Nationwide and Pepperwood of Naples Condominium Association. Recently, the Court decided another discovery dispute between the parties. This one involved Nationwide’s claim of attorney-client privilege and work product protection to some document requests. Such claims of privilege are common in litigation. The resolution of these disputes can play a very important role in the information that the policyholder can obtain to support its claims, especially in a bad faith case.
The issue of whether Florida’s legislative-created insurer, Citizens Property Insurance Corporation, is, or should be, subject to damages for bad faith claims handling practices has been heavily debated by industry professionals during the last several years. Debbie Moroy, of ClaimSmentor, recently posted a comment to request an update on the Citizens Property Insurance Corporation v. San Perdido Association, Inc. case. In my Property Insurance coverage Law Blog post from October 18, 2010, titled Bad Faith Lawsuit Allowed to Proceed to Trial Against Citizens Property Insurance Corporation, I discussed an interesting turn of events on this issue. At that time, the First District Court of Appeal rejected Citizens’ request to stop a bad faith action against it from proceeding in the trial court.
As I have discussed in the past, some insurers attempt to avoid bad faith actions by arguing that the current law requires a judicial determination that the insurer breached the contract as a prerequisite to liability. Simply by participating in the appraisal process, these carriers believe that they somehow have immunity for any previous actions that delayed a claim.
A hotly contested issue in all bad faith cases is the proper scope of discovery that a policyholder may obtain. As I discussed in Florida Southern District Court Upholds Condominium Association’s Right To Bad Faith Discovery:
For condominium associations in particular, many times attorneys become involved in an insurance claim from the very beginning. In many instances, the independent or insurance adjuster is moved to the side early in the process and replaced by the insurer’s attorney, who ends up directing the adjustment and making the final determination of coverage.
For many years, insurers have claimed that all of the work that these attorneys performed in the adjustment of the claim was privileged because of the work product and attorney-client privilege. When insurers acted in bad faith by denying valid claims, the insurer could refuse to produce relevant documents which reflected this improper behavior during the bad faith litigation.
Fortunately, Florida courts caught on to this tactic and have stopped the insurer’s attempts to improperly hide its bad faith conduct by invoking attorney-client and work product privilege on materials in the claim file.
The Florida Supreme Court’s ruling in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005) set the precedent in preventing insurer’s from concealing bad faith activities with claims of privilege. Specifically, Ruiz overruled previous case law and found that work product documents created in the breach of contract action were part of the claim file and must be turned over in subsequent bad faith litigation.
Every disagreement between a policyholder and its insurer is not necessarily due to bad faith on the insurer’s part. Many claims are settled promptly, fully, and fairly. That said, there are also instances where an insurer and its adjusters and representatives do not adjust and settle a claim with the policyholder’s best interests at heart. This is when bad faith allegations come into play.
Yesterday, Chip Merlin wrote on the Property Insurance Coverage Law blog about a recent Order I received. The ruling dealt with the conditions precedent to filing a bad faith case in the State of Florida. As I have discussed before, first party bad faith in Florida has traditionally centered around Florida Statute §624.155 and not a common law right.
As I discussed in a previous post, What Is Bad Faith And What Can Be Done About It, most states, including Florida, recognize that every contract contains an inherent obligation that each party will perform with the utmost good faith and fair dealing. While insurance policies may not seem like typical contracts, they are. Therefore, when an insurer performs its contractual duties, i.e., adjusting a loss and making a coverage determination, it has a common law contractual obligation to perform in good faith.