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.
While there are very few cases at the appellate level that address this argument, the Florida Supreme Court has consistently held that arbitration awards are a sufficient determination of liability to proceed with an action for bad faith. Insurers tend to dismiss these decisions as irrelevant because they do not deal solely with first-party insurance claims, however, many courts have rejected these attempts.
As I discussed in Florida Supreme Court Clarifies Attorney-Client Privilege in Bad Faith Cases, the Court recently addressed numerous bad faith issues in Genovese v. Provident Life & Accident Insurance Company. While most analysts have focused on the discovery issues addressed in the case, the decision also addresses the preconditions for a bad faith action.
In illustrating why the work product privilege does not apply in bad faith actions, the Court noted the difficulty of proving bad faith allegations without discovery of the claim file and other materials that evidence how the insurer investigated the claim. The Court likely laid to rest any question as to whether a judicial determination of breach of contract is required for a bad faith action to proceed. The Court said:
Issues regarding the discovery of work product and attorney-client privileged materials in the context of bad faith claims have arisen because of the requirements a party must satisfy to pursue a bad faith action against an insurance company. In order for a party to bring a bad faith claim against an insurer, there must be an “underlying claim for coverage or benefits or an action for damages which the insured alleges was handled in bad faith by the insurer.” Ruiz, 899 So.2d at 1124. Consequently, the underlying claim materials are the evidence needed to determine whether an insurer acted in bad faith, which raises the issue of what materials are discoverable in bad faith actions. Because the underlying claim materials are “necessary to advance [a first-party bad faith] action … [and] evaluate the allegations of bad faith,” see Ruiz, 899 So.2d at 1128-29, the materials fall within the confines of the exception to the work-product doctrine, and thus are discoverable.
Genovese v. Provident Life & Accident Ins. Co., SC06-2508, 2011 WL 903988 (Fla. Mar. 17, 2011) (Emphasis added).
An insured may proceed with a bad faith action if they have filed a claim for coverage under the policy and there are allegations of bad faith in the handling of that claim. The determination of liability does not mean the insured must have filed suit, it simply means that the insurance policy must provide coverage for the damages sustained. This makes sense, after all, given the statutes recognize claim delay as a separate act of bad faith than claim denial.
While the case did not involve a first-party property insurance claim, the law should apply in first-party cases because the bad faith action was based on Florida Statute § 624.155. The same principles should apply in a property claim.
Because associations sometimes choose to resolve large claims in the appraisal process, it is important to understand the effects that such a choice may have. Choosing to proceed with appraisal can affect the recoverable interest, attorney fees, and costs incurred. Therefore, a bad faith action can be important to put an association back into its pre-loss condition. Boards should speak with knowledgeable professionals before making such a decision in order to make sure they make informed choices based on all available information and do what is best for their community’s particular needs.