In Florida, Appraisal May Not Be an Insurance Company’s ”Saving Grace”

In Florida, the appraisal provision in a property policy was once considered a blessing in disguise for insurance carriers. If used correctly, the provision was an insurance company’s remedy to avoid litigation, bad faith exposure and costly attorney’s fees, whether or not there was a Civil Remedy Notice on record. Not only could an insurance company use appraisal as a way to efficiently and effectively settle valuation disputes related to an insured’s loss under the policy, but it was a way to undercut any claim for entitlement to attorney’s fees and costs under Fl. Stat. § 627.428.

There have always been legal and strategic nuances behind an insurance company’s decision to invoke or resist the right to appraisal, but insurance companies now, more than ever, must carefully consider Civil Remedy Notices when making the decision regarding whether to invoke appraisal. See Patti Fortune and Jeremy Domin v. First Protective Insurance Company d/b/a Frontline Insurance, 302 So.3d 485 (Fla. 2^nd DCA Sept. 4, 2020). Based on the Fortune case, an insurer’s invocation of its right to appraisal and subsequent payment of an appraisal award after the cure period of a Civil Remedy Notice has expired, does not cure, as a matter of law, a bad faith allegation for the insurer’s failure to attempt to settle claims in good faith.

In Fortune, the insureds promptly reported their Hurricane Irma claim to their insurance company, First Protective Insurance Company, only to receive an estimate that they felt grossly misrepresented the amount of the damages that they had sustained as a result of the loss. The insureds sent their own estimate to First Protective of what they believed to be a more accurate representation of the full scope of necessary repairs. A number of months later, First Protective invoked appraisal in response to the insureds’ estimate. On January 8, 2018, the insureds filed a Civil Remedy Notice that set forth bad faith violations under section 624.155(1)(b)(1) and section 626.9541(1)(i), Florida Statutes (2017). Ultimately, on June 1, 2018, an appraisal award was entered in favor of the insureds and paid by First Protective on July 17, 2018. This payment was made in compliance with the policy payment provision, however, it was made 60 days after the Civil Remedy Notice cure period. On October 25, 2018, the insureds filed a bad faith lawsuit.

The prerequisites to file a statutory bad faith action are: “(1) determination of the insurer’s liability for coverage; (2) determination of the extent of the insured’s damages; and (3) the required notice must be filed undersection 624.155(3)(a).” An appraisal award satisfies the first two requirements. However, the issue of whether the insurer acted in good faith or bad faith is usually a question for the finder of fact. With the abundant case law in support of insurance companies and their right to appraisal, it is no surprise that the trial court ruled in favor of First Protective when it determined that: (1) the “Duties After Loss” provision of the policy makes mediation or appraisal a condition precedent prior to payment and prior to suit being filed; and (2) First Protective cured the Civil Remedy Notice because it invoked appraisal before the Civil Remedy Notice was filed and paid the appraisal award in accordance with the policy. However, the Second District Court of Appeal held that the insurer’s invocation of appraisal and payment after the cure period did not cure the insurer’s alleged bad faith.

Furthermore, section 624.155 of the Florida Statutes, amended in 2019 to add a new section 624.155(3)(f), does not address failure to attempt to timely settle a claim in good faith. Although it affects the time within which an insured may filed a Civil Remedy Notice, providing that a party may not file a Civil Remedy Notice within 60 days after appraisal is invoked by either party in a residential property insurance claim, it does not treat an appraisal or payment of an appraisal award as a cure of any violations alleged in the CRN. In the past, insurance companies have been able to successfully navigate the dangerous waters a CRN can create with the help of section 624.155 and would often prevail on appraisal-related summary judgment issues.

The recent Fortune decision is a win for insureds/policyholders and could be a game changer when it comes to allowing bad faith lawsuits to proceed against insurers who elect to have claims resolved through appraisal. As put bluntly by the Second District Court of Appeal, “an insurer should not be allowed to act in bad faith without consequence in settling claims as long as the insurer later pays the appraisal award.”

The unintended consequence of this recent appellate decision may mean more litigation as insurance companies may now be reluctant to even entertain appraisal due to the looming, potential bad faith exposure created by Civil Remedy Notices filed during the appraisal process, which will only result in excessive attorney’s fees and unnecessary litigation costs. There is no doubt that the Fortune case will have an impact on the future of appraisal in Florida for both insureds and insurers. Only time will tell whether the Second District Court of Appeal has opened a floodgate to more litigation between policyholders and their insurance companies.

*Shaggy is an associate in our Fort Lauderdale, Florida office. She can be reached at (954) 847-4931 or ssnowroozpour@MDWCG.com.

_{Defense Digest, Vol. 27, No. 1, January 2021 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2021 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}