Once again, Florida’s 4th District Court of Appeals (“DCA”) has enabled litigants to file bad faith lawsuits even after an insurer covers a claim and timely pays the full amount of an appraisal award. This time, in Zaleski v. State Farm, the Court neutered a 2019 change to Florida’s bad faith statute that was supposed to make it more difficult to file such lawsuits. Instead, the Zaleski decision makes it even easier.
In Zaleski, a water pipe burst causing significant damage inside the home. State Farm adjusted the claim and tendered an initial payment of $43,708.01. Shortly thereafter, the insureds’ attorney filed a Civil Remedy Notice (“CRN”) alleging that State Farm violated Florida’s Bad Faith Statute. The CRN did not specify an amount of money that State Farm could pay to cure the allegations. Rather, two weeks later, the insureds’ public adjuster submitted an estimate estimating the total loss at $168,575.11. In response, State Farm acknowledged the estimate and invoked appraisal to resolve the dispute. The appraisal umpire awarded $163,479.10 in total damages, and State Farm paid the remaining balance owed within a week. Then, despite having been paid in full for all damages owed under the policy, the insureds filed a bad faith lawsuit against State Farm.
Once in court, the judge granted summary judgment in favor of State Farm based primarily on Florida Statute 624.155(3)(f) which states that a CRN may not be filed within 60 days after appraisal is invoked by any party. The 4th DCA, however, pointed out that the Zaleski’s filed their CRN before appraisal was invoked by State Farm. Notably, though, State Farm had no idea there was any dispute until it received the CRN.
Following this decision, insurers are likely to remove the appraisal clause from their policies as there is little to no incentive to resolve claims through appraisal if it does not avoid a lawsuit. Why would any insurance carrier want to defend bad faith litigation after it paid a claim in full following appraisal? After all, Zaleski provided the playbook for attorneys to follow: file a CRN, demand appraisal, and sue for bad faith if the award is $1 more than what the carrier paid originally.
For those who are not aware, 624.155(1) allows any person to bring a civil action against an insurer for seemingly any reason. One of the stated reasons is “not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests.” As you might imagine, this incredibly broad language allows for frequent allegations of bad faith against insurers. These allegations come in the form of CRN’s, thousands of which are filed with the Department of Financial Services each year.
Under these circumstances, it is especially important for the judiciary to prevent abuses. In particular, when the legislature acts to quell the onslaught of CRN’s and lawsuits being filed against insurance carriers, the hope is that the courts would recognize the intent of a law and rule accordingly. Instead of restricting CRN’s from being filed, though, Florida Courts continue to encourage bad faith lawsuits to be filed. Even in circumstances like the Zalenski case presented.
This problem originated with Cammarata v. State Farm Florida Insurance Company, when the 4th DCA held that an insured’s success at appraisal was sufficient to allow for a bad faith lawsuit to be filed. That decision was issued despite appraisal, like other alternative dispute resolutions, being intended to resolve disputes without judicial intervention.
Prior to Cammarata, though, Florida Courts supported appraisal’s stated purpose. In Hill v. State Farm Florida Insurance Co., the 2nd DCA found that the appraisal process … is not legal work arising from an insurer’s denial of coverage or breach of contract; it is simply work done within the terms of the contract to resolve the claim. In Nationwide Prop. & Cas. Ins. v. Bobinski, the 5th DCA stated that it is “the better policy of this state to encourage insurance companies to resolve conflicts and claims quickly and efficiently without judicial intervention. Arbitration and appraisal are alternative methods of dispute resolution that provide quick and less expensive resolution of conflicts.” And, in State Farm Fla. Ins. Co. v. Silber, the 4th DCA held that insureds had no cause of action to recover attorney’s fees because the purpose of the appraisal process is to resolve disputes without litigation.
Notably, Judge Gerber’s concurring opinion in Cammarata specifically warned that allowing such appraisals to serve as the basis for a bad faith lawsuit may have serious consequences, as it could allow an insured to sue his or her insurer for bad faith “any time the insurer dares to dispute a claim, but then pays the insured just a penny more than the insurer’s initial offer to settle.” Judge Gerber continued by suggesting that this “slippery slope may be avoided if an insured was required either to: (1) establish an insurer’s liability for breach of contract as a condition precedent to suing an insurer for bad faith; or (2) obtain a settlement amount which is at least a certain percentage above the insurer’s initial offer to settle.” Sure enough, CRN’s and bad faith lawsuits have increased significantly following that decision.
Then, in 2019, the legislature passed Senate Bill 714, which was ultimately signed into law by Governor DeSantis. That Bill included 624.155(3)(f) the intent of which was to “[prohibit] the filing of the [Civil Remedy] notice within a certain timeframe under certain circumstances.” In addition, the final Bill Analysis states that this section “amends s. 624.155, F.S., to prohibit the filing of a civil remedy notice for a bad faith action under s. 624.155, F.S., within 60 days after the appraisal process outlined in the insurance contract is invoked by any party in a residential property insurance claim.”
Clearly, the use of the term “prohibit” strongly suggests that the law intended to limit an insurer’s bad faith exposure where it honored its contractual obligations. Yet, the 4th DCA’s decision in Zaleski suggests that the Legislature was not clear enough. So, despite the concerns raised by Judge Gerber in Cammarata, which came to fruition over the last 7 years, bad faith lawsuits will continue to be filed in record numbers. Insurers who remove appraisal from policies will be forced to litigate their scope and price disputes on covered claims. And, of course, insurance premiums will likely continue to climb.