Florida Insurers Have A Strong Financial Incentive To Delay, Rather Than Deny, Claims
(Note: This Guest Blog is by Ruck DeMinico, Knowledge Manager with Merlin Law Group).
The recent case of North Pointe Insurance Company v. Tomas, No. 3D08-2245, 2009 Fla. App. LEXIS 12505 (Fla. 3d DCA August 26, 2009), illustrates why many insurers who wrongfully fail to pay a claim choose to unnecessarily delay payment rather than out right deny them.
In Tomas, the insureds made a claim with North Pointe, their homeowners' insurance carrier, for a complete replacement of a marble kitchen floor. North Pointe first concluded the loss was excluded under the policy and denied coverage. The Tomases filed a petition compel appraisal pursuant to the terms of their policy, and North Pointe withdrew its previous denial of the claim, admitted coverage and stipulated to attorney's fees up to that date. The claim went to appraisal, and North Pointe paid. A month later, an appraisal award was entered in the amount of $115,899.52, including pre-judgment interest from the date of the loss. The lower court confirmed the appraisal award and entered final judgment.
On appeal, North Pointe argued that the trial court erred in confirming the arbitration award before the contractual sixty-day period to make payment expired and that prejudgment interest should have been awarded from the date of payment, which it had already made. Citing long-standing authority in the Third District, Independent Fire Insurance Co. v. Lugassy, 593 So. 2d 570 (Fla. 3d DCA 1992), the Court disagreed.
Generally, interest on a loss payable under an insurance policy is recoverable from the date the policy provides that payment is due. Lugassy carved out an exception to that rule: when the insurer denies coverage but later admits coverage or coverage is later awarded through litigation, the insurer is liable for prejudgment interest from the date of the loss. “Once the insurer denies coverage, it is deemed to have waived the policy provision for deferred payment and, should it pay, becomes responsible for prejudgment interest from the date of loss.” Tomas, at * 2.
Because North Point first denied coverage for the claim, it was deemed to have waived the policy provision allowing deferred payment and was responsible for prejudgment interest from the date of the loss, even though it later agreed to pay the claim within the time period provided in the policy.
Had North Pointe not denied the claim at first but instead engaged in tactics to delay or reduce that payment owed for the loss, the issue of prejudgment interest would not have been so clear. Without the denial, the policy would have determined when payment was due—60 days after the appraisal award or the date of final judgment, and the Tomases may not have been entitled to the nearly two and a half years of prejudgment interest they ultimately received. See Liberty Mut. Ins. Co. v. Alvarez, 785 So. 2d 700 (Fla. 3d DCA 2001) (making distinction that, where there is no denial of coverage, prejudgment interest is payable from date of appraisal as opposed to date of the loss); Aries Insurance Co. v. Hercas Corp., 781 So. 2d 429 (Fla. 3d DCA 2001).
Good ole' Lugassy. Sometimes case law is akin to reading a John Grisham novel.
Great post, Ruck, and I get what you're saying, but I'm a little confused. You write:
"The recent case of North Pointe Insurance Company v. Tomas...illustrates why many insurers who wrongfully fail to pay a claim choose to unnecessarily delay payment rather than out right denying them."
...In Tomas, the insureds made a claim with North Pointe...for a complete replacement of...kitchen floor. North Pointe FIRST CONCLUDED the loss was excluded under the policy and DENIED COVERAGE."
In this scenario, it seems beneficial for the insured for North Pointe to have "...FIRST CONCLUDED the loss was EXCLUDED under the policy and DENIED COVERAGE" because, as I understand Lugassy, when an ins. co. DENIES COVERAGE but later admits coverage or must extend coverage as a result of favorable litigation, then the carrier is obligated for P.J. interest from the D/L.
So, it seems to me (a layperson) that the ins. co. obviously engaged in delay tactics by (a) EXCLUDING the loss, (b) DENYING the claim, (c) forcing their ins'd into litigation and appraisal proceedings to obtain benefits rightfully due them, etc., but they failed miserably in seeking a financial incentive to delay, rather than deny, claims (in this case anyway).
OOPS, after just re-reading your article, you cleared up my confusion by penning:
"...Without the denial, the policy would have determined when payment was due—60 days after the appraisal award or the date of final judgment, and the Tomases may not have been entitled to the nearly two and a half years of prejudgment interest they ultimately received...."
Ok, I'm not confused any more. So PJ interest on a $115,899.52 Appraisal Award after nearly 2 1/2 years isn't so bad, huh? It doesn't sound bad on paper, but imagine it in one's life!
WHAT IS "BAD" IS THE TRAUMA, DRAMA, EXPENSE, TIME AND TRUST ISSUES THESE PLAINTIFFS WILL ALWAYS HAVE W/INS. COMPANIES NOW AND A HOST OF OTHER ATROCITIES THEY ENDURED. Of course, there's always the possibility of a bad faith action, but (some) people get tired of the never-ending fighting w/their ins. company.
SHIRLEY HEFLIN
This is a big problem for many consumers, especially because the delays often come at a time when the homeowner is in difficult circumstances. Insurers often advertise their fast claims handling, but we can we in this case that delay is often in their interest. Insurers need to be held accountable for this type of action.
Another unfortunate aspect is that the claimant may settle quickly to get cash to deal with problems, then find out they settled for too little. Insurers sometimes rush in hoping this will happen. Consumers that know their rights and have access to the legal system are better positioned to deal with rapacious insurers who employ these devious tactics.
Dear Mr. Newton: You are so right on so many levels.
Another sad part is that, yes, an insured/claimant may:
"..settle quickly to get cash to deal with problems, then find out they settled for too little."
More times than not though, its not because the ins'd WANTS to settle w/their carrier - they're virtually forced to because they DON'T HAVE A "RESERVES ACCOUNT" containing oodles of $ in it to initiate repairs on, for example, their fire damaged home w/soot everywhere, smoke damage, debris ridden property, water everywhere from having the fire extinguished (and the longer one waits, the greater the potential for mold growth), etc. IT MAY BE THAT THEY DO KNOW THEIR RIGHTS, BUT THEY JUST CAN'T STAND BY AND WATCH ONE OF THE BIGGEST INVESTMENTS OF THEIR LIVES BE DAMAGED BEYOND REPAIR.
Oh, and let's not forget the insured's "duty" to mitigate their damages by putting up tarps to keep future rain out of the dwelling. Seriously, here I am a single mom w/a teenage son and I just don't see myself crawling up on the roof and "tarping" my home. I couldn't/wouldn't do that even if I didn't have a son and I most certainly wouldn't put my son in harm's way. But you can bet the ins. co. would use it as a defense against me down the road (gee, I have State Farm so the odds are already not in my favor). :0
Have a great day!
SHIRLEY HEFLIN