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.
The State of California has some of the best consumer protection laws anywhere. As California courts have consistently recognized, the common law obligation of good faith and fair dealing is inherent in every insurance contract. An insurer can breach this obligation by breaching the contract or failing to act with the utmost regard for the policyholder. Conversely, to fulfill its implied obligation of good faith and fair dealing, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. See Jordan v. Allstate Ins. Co., 148 Cal.App. 4th 1062 (Cal. 2nd Dist. 2007).
Like California, Florida courts recognize a common law obligation of good faith and fair dealing in every contract. While many insurers argue that there is no such common law obligation of good faith and fair dealing in insurance contracts, this position is inherently flawed. While insurers are correct that Florida Statute § 624.155 is a potential remedy for bad faith conduct of an insurer, the assertion that a statutory suit is the sole recourse is incorrect. As numerous Florida courts have recognized, an action for breach of the common law obligation of good faith and fair dealing is a separate and distinct action from a lawsuit for statutory bad faith.
As the court pointed out in Tropical Paradise Resorts, LLC v. Clarendon Am. Ins. Co., No. 08-60254, 2008 U.S. Dist. LEXIS 66496 (S.D. Fla. Aug. 20, 2008), “a claim for breach of the implied covenant of good faith and fair dealing arises from contractual duties, while an action for statutory bad faith (pursuant to Florida Statutes § 624.155) arises from extra-contractual duties.” In essence, an insurer breaches the common law obligation of good faith and fair dealing when it makes a choice to proceed in a way that is counter to the best interests of the insured. Typically, this involves failing to promptly adjust and pay monies owed. Such actions violate the inherent obligation of good faith and fair dealing and breach the insurance contract by thwarting the intentions of the parties.
The main difference in jurisdictions that recognize common law bad faith and jurisdictions that recognize only statutory obligations is the time at which the action may proceed. As I discussed previously, most states that recognize only a statutory obligation of good faith and fair dealing only allow a bad faith action to proceed after liability has been determined through a breach of contract action or appraisal. In many states that recognize common law obligations of good faith and fair dealing, an insured may bring an action for bad faith at the same time as a breach of contract.
While there are many benefits to pursuing a breach of contract and bad faith action simultaneously, the most obvious benefit to the policyholder is that the time necessary to reach a final judgment is generally much shorter. Insurance companies are notorious for dragging out litigation in hopes of forcing the insured to take a lower amount than they are entitled to. While this tactic is used in breach of contract and bad faith actions alike, forcing a policyholder to institute two different lawsuits can cause the process to go on much longer than necessary. This is delay in litigation is beneficial to the insurer and forces policyholders to wait longer to make themselves whole again. As many jurisdictions have concluded, this delay should be limited as much as possible in order to protect the policyholder from incurring more damages as a result of an insurer’s wrongful conduct.
While many courts in Florida have recognized a common law obligation of good faith and fair dealing, some have not. The Florida Supreme Court has heard oral arguments on the subject in the case of Chalfonte Condominium Apartment Association v. QBE Insurance Corporation, but has yet to issue a final opinion. Hopefully the Court will uphold the common law action in Florida and add further protections to policyholders in this state.