Florida’s New Bad Faith Law: Attorney Fee Shifting for Insureds Repealed in Most Cases, Duty of Good Faith Imposed on Claimants and Insureds, and Safe Harbors Provided to Insurers
Florida’s new “tort reform” legislation (HB837) includes several important provisions for insurers related to bad faith liability and prevailing party attorney fees in some coverage disputes. We highlight below the key provisions for liability insurers in the new law applicable to insurance policies issued, and actions filed, after Governor DeSantis signed the bill on March 24, 2023.
Attorney fee-shifting is limited to declaratory judgment actions after an insurer’s “total coverage denial”: Florida addressed fee-shifting in the property insurance context through legislation enacted last December. HB837 similarly dismantles fee-shifting in the liability insurance context by repealing Sections 627.428 and 626.9373, which authorized the recovery of attorney fees against insurers. The new law allows for attorney fee awards in the limited context of declaratory relief actions where the insurer made a “total coverage denial.” In such actions, the court “shall award reasonable attorney fees” upon entering a declaratory judgment in favor of the insured. The right to fees under this provision may not be transferred or assigned. The phrase “total coverage denial” is not defined. However, the legislation specifies that “a defense offered by an insurer pursuant to a reservation of rights does not constitute a coverage denial of a claim.” Also, the phrase “total coverage denial” suggests that fees are not recoverable in actions involving “mixed claims,” where the liability insurer pays the covered portion of a claim and seeks declaratory guidance from a court as to the extent of uncovered damages.
Duty of good faith imposed on claimants and insureds: HB837 also includes that the “insured, claimant, and representative of the insured or claimant have a duty to act in good faith in furnishing information regarding the claim, in making demands of the insurer, in setting deadlines, and in attempting to settle the claim,” which a jury can consider to “reasonably reduce the amount of damages awarded against the insurer.” While Florida law traditionally evaluated the question of an insurer’s bad faith under a “totality of the circumstances” standard, the inquiry focused on actions of the insurer rather than those of the insured or the claimant. Berges v. Infinity Ins. Co., 896 So.2d 665, 677 (Fla. 2004) (“the focus in a bad faith case is not on the actions of the claimant but rather on those of the insurer”). Also, the insured’s actions would not absolve an insurer of liability for bad faith. Harvey v. GEICO Gen. Ins. Co., 259 So.3d 1 (Fla. 2018). The new law could be seen as leveling the playing field in bad faith jury trials, shifting the focus from only the insurer’s conduct, and allowing the jury to consider the conduct of the claimant, the insured, and the insurer.
New defense to bad faith claims where the insurer tenders policy limits or the amount demanded within 90 days: In another new law protecting liability insurers, a bad faith claim “shall not lie” if, within 90 days after receiving actual notice of a claim accompanied by sufficient evidence to support the amount of the claim, the insurer tenders the lesser of the policy limits or the amount demanded by the claimant. However, if the insurer does not tender the lesser of the policy limits or the amount claimed, the existence of this 90-day period “is inadmissible in any action seeking to establish bad faith on the part of the insurer.” Although the new procedure affords protections to insurers, disputes could remain. For example, depending on the information provided, an insurer may question whether “sufficient evidence to support the amount of the claim” was provided in order to start the 90-day clock. Also, because the existence of the 90-day period is inadmissible in bad faith actions if the insurer does not tender the lesser of the policy limit or the amount demanded, insurers may still be presented with a claimant’s 30-day time limited settlement demand, but are unable to introduce evidence at trial that this statute allowed the insurer another 60 days to make a claim decision.
Interpleader and arbitration options to resolve competing claims to policy limits: HB837 outlines the procedures available to insurers for resolving competing claims to policy limits, while shielding insurers from bad faith liability. Under the new law, an insurer is not liable for bad faith if, within 90 days of receiving notice of the competing claims, the insurer either (a) files an interpleader action to determine the claimants’ prorated share of the policy limits, or (b) pursuant to binding arbitration agreed to between the insurer and the claimants, the insurer makes the entire amount of the policy limits available for payment and a “qualified arbitrator” determines the claimants’ prorated share of the policy limits. Notably, where option (b) is pursued, the insured is apparently not involved in the arbitration, as the statute references that the “binding arbitration” is agreed to between the insurer and the claimants. However, the insured is still protected under option (b) because the statute requires the claimants to “execute and deliver a general release to the insured party” where the claims are resolved by the arbitration. Insurers should be mindful of the 90-day time limitation to comply with either option (a) or (b). Where the insurer complies with (a) or (b) within 90 days, an “insurer is not liable beyond the available policy limits.”
The new legislation in Florida seeks to afford liability insurance companies some safe harbors from bad faith exposure and limit prevailing party attorney fees to certain coverage actions. Although it may be intended to disincentivize bad faith disputes, it seems likely disputes will remain as to the scope of the new fee-shifting provisions or litigating whether the conduct of the claimants or insureds meets the codified obligation of good faith. In any event, the new Florida law gives liability insurers important tools for preventing and fighting bad faith claims.