Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

The case stems from a Hurricane Charley claim with Florida Preferred Property Insurance Company. The trial court ordered FIGA to pay the insured's attorney’s fees pursuant to Florida Statute §627.428. Relying in part upon a Third District Court of Appeals case, Florida Insurance Guaranty Association v. Soto, 979 So.2d 964 (Fla. 3d DCA 2008), the trial court held that the insured's right to attorney’s fees and costs was a covered claim. FIGA appealed to the Second District Court of Appeal.

FIGA argued on appeal that §627.428 was not applicable since the association did not deny by affirmative action any portion of the insured's covered claim. The Second District Court of Appeal noted that for a claim to be a covered claim, it must: (1) arise out of the insurance policy; and (2) be within the coverage of the insurance policy. The Court noted that the parties did not point to any language in the policy that provided coverage for attorney’s fees. The Second District Court reversed the attorney’s fee award.

The Second District Court opinion conflicted with the Third District Court of Appeals ruling in Soto, which recognized that §627.428 is an implicit part of all insurance policies and held that an attorney’s fee judgment is a covered claim under the FIGA Act. The Florida Supreme Court reviewed both decisions.

The Florida Supreme Court noted that the FIGA Act, Florida Statute §631.57(1)(a), provides that FIGA shall “be obligated to the extent of the covered claims existing prior to an insurer’s adjudication of insolvency.” The Act, at §631.54(3), defines a covered claim as:

[A]n unpaid claim, including one of unearned premiums, which arises out of, and is within the coverage, and not in excess of, the applicable limits of an insurance policy to which this part applies, issued by an insurer, if such insurer becomes an insolvent insurer and the claimant or insured is a resident of this state at the time of the insured event or the property from which the claim arises is permanently located in this state.

The Florida Supreme Court noted that to be a covered claim, it must: (1) arise out of the insurance policy; and (2) be within the coverage of the insurance policy. The parties agreed that the fee claim arose from the policy of insurance. However, the Court noted that to recover fees from FIGA, the claim for fees must be within the insurance policy’s coverage provisions.

While the attorney's fee statute is an implicit part of an insurance policy in Florida, the Florida Supreme Court held that this does not mean that the insured’s claim against FIGA for fees is part of the policy’s coverage. In reaching its conclusion, the Court held:

There is a clear difference between an obligation to pay fees that is imposed by operation of law upon a party due to its behavior under the insurance contract and an obligation imposed upon a party by an express provision for which the party contracted. Section 627.428(1) imposes the obligation to pay a fee award upon an insurer that has wrongfully contested an insured’s valid claim. It does not alter the coverage provisions of the insurance contract itself.

Since Petty's insurance policy did not expressly provide coverage for a section 627.428 fee award, the Court held it is not a covered claim that FIGA must pay. The Court approved the Second District Court’s ruling, and specifically disapproved the third District Court of Appeals’ ruling in Florida Insurance Guaranty Association v. Soto.

This case holding may not apply to a scenario where FIGA actually denies an insured’s claim. FIGA’s denial of coverage of an insured’s claim opens the door to its responsibility for fees under a separate and distinct provision of the FIGA Act.

Generally, FIGA assumes the liabilities of insolvent insurance companies and pursuant to Florida Statute Chapter 631, possesses the rights, duties, defenses and obligations of the insolvent insurer. Florida Statute §631.70 excludes FIGA from the provisions of Florida’s attorney’s fee statute, §627.428, unless FIGA denies by affirmative action, other than delay, a covered claim or a portion thereof.

In Ehrlich, the Court appeared rely on the fact that the trial court compelled FIGA to answer the complaint. At the time of the May 9th post, it was unclear whether the Fourth District Court would have upheld the attorney’s fee award and found that FIGA denied the policyholder’s claim by affirmative action if FIGA had filed affirmative defenses challenging coverage for the claim on its own.

The recent Rahabi case presented a different factual scenario to the Fourth District Court of Appeal. That is, if FIGA raises affirmative defenses on its own, and not pursuant to a court order to answer a complaint, would FIGA be responsible for attorney’s fees for denying the policyholder’s claim by affirmative action?

In Rahabi, the policyholder filed a two count complaint against FIGA for declaratory relief and breach of contract. FIGA did not seek a stay of litigation to complete its investigation into the claim for damages. FIGA filed a motion to dismiss, claiming that the policyholder’s count for declaratory relief failed to state a cause of action and because they “fail[ed] to comply with all post-loss obligations.” FIGA moved to compel the insureds to answer its discovery requests. Without obtaining a ruling on that motion, FIGA filed its answer to the count for breach of contract. In the answer, FIGA asserted eight affirmative defenses, seven of which alleged that the insureds' damages “were not caused by a covered loss.”

The Fourth District Court of Appeals determined:

We interpret that action, in the context of FIGA’s overall course of conduct, as ‘deni[al] by affirmative action’.

FIGA argued it was compelled to allege those affirmative defenses because the “failure to ... assert affirmative defenses [ ] would result in a waiver.” The Court disagreed and held:

[I]f FIGA believed, as it did in Ehrlich, that it had insufficient time to investigate the claim, then it should have sought a motion for extension of time to respond to the complaint for that reason. If the circuit court denied that motion, then FIGA, as it did in Ehrlich, should have crafted its answer to avoid any allegation constituting a denial of the claim by affirmative action. Because FIGA did not do so here, but instead alleged in seven affirmative defenses that the insureds' damages “[were] not caused by a covered loss,” we must conclude that the insureds are entitled to recover their attorney's fees pursuant to sections 627.428(1) and 631.70.

Law is a fluid concept, different results occur with only minor factual variations. In the comparison of these two cases, it appears that if FIGA voluntarily asserts affirmative defenses that can be construed as denying all or a portion of the claim, then it will be responsible for policyholders’ attorney’s fees

Patel points out that since 2006, eight property insurance companies in Florida have gone insolvent and insureds with more than 55,000 claims have been forced to deal with the Florida Insurance Guaranty Association (FIGA) for their insurance claims.

We have posted about FIGA in several other posts including, When Insurance Companies Go Under - The Fallacy of FIGA and FIGA is the New Slow Paying and Litigation Threatening "Insurer" in the Florida Property Insurance Claims Game.

The Florida Insurance Guaranty Association was created by legislation in 1970 as a non-profit organization that has a duty to settle claims in accordance with the FIGA Act, the policy, and Florida insurance laws, in a timely manner.

The husband/wife team at Public Adjusters Incorporated, led by President Daniel L. Guilfoyle, III and Vice President Rosemary Guilfoyle, has extensive knowledge of the insurance industry’s ever changing landscape. Dan Guilfoyle was contacted by Julie Patel about his experience as a public adjuster handling claims that had been turned over to FIGA.

Dan mentioned to a policyholder who lost $25,000.00 after his claim was turned over to FIGA. Dan told me the story. Dan’s company was hired as the public adjuster for two separate clients. Both insureds had purchased insurance policies from Northern Capital, and both suffered covered water damage losses. Before Northern Capitol was declared insolvent, both policyholders participated in the policy’s appraisal process to determine the amount of the loss Northern Capital would pay.

Northern Capitol named its appraiser and happened to use the same appraiser on both claims. Likewise, the same umpire was appointed on the two water claims. Both policyholders received signed appraisal awards of damages owed by Northern Capital. But Northern Capital didn’t pay, and FIGA was ordered to step in because Northern Capital was insolvent.

Dan recounted what happened next but said it was unexplainable… FIGA paid one award in full (minus the FIGA deductible), but FIGA determined that the $69,000.00 award for the other insured was not going to be honored. FIGA required that loss be adjusted from scratch by a FIGA adjuster. This policyholder was first delayed by FIGA’s rejection of payment on the signed appraisal award and then further delayed as FIGA began its own evaluation of the damages. FIGA then determined the damages for the loss only totaled some $24,000.00. Dan said that explaining FIGA’s response and actions to his 80-year-old client was beyond difficult. To make matters worse, the policyholder had listed his home for sale and a pending sale fell through because of the water damage claim that had not been resolved. Dan and the team at Public Adjusters Inc. were able to increase the claim amount further, but FIGA ultimately paid $25,000.00 less than the original appraisal award signed on the claim.

Julie Patel interviewed the former vice-president of Northern Capital. He did not understand why FIGA started over on many of the claims. “It wasn't particularly cost-effective for them to start over, especially [because the contractors estimating damage for Northern Capital] in many cases charged significantly less than the FIGA" estimators said Alex Blain-Cruz.

Florida policyholders who are dealing with insurance claims with an insurance company on the brink of insolvency or in court-ordered receivership may have all the more reason to hire a professional public insurance adjuster. The delay of the claim process, potential new claim deadlines, and claims adjustment red-tape require the dedication, determination, and experience that many public adjusters can provide.

Here is a link to the Florida Department of Financial Services that shows the Florida insurance companies that are officially in financial trouble.

In a recent case, FIGA appealed a trial court’s final judgment awarding attorney’s fees of $29,300 to the insureds in their action related to Hurricane Charley. FIGA argued that it does not have to pay the attorney’s fee award since it was not a covered claim pursuant to the FIGA Act.

The insureds’ home was damaged by Hurricane Charley in August 2004. Florida Preferred Property Insurance Company insured the home at the time of loss. Florida Preferred partially paid their damages, and the insureds demanded appraisal to set the amount of loss. Florida Preferred refused to submit to appraisal, and the insureds sued to compel it. An appraisal was eventually conducted and the insureds filed a motion to confirm the award, motion for entry of final judgment, and motion for attorney’s fees. Florida Preferred paid the appraisal award, but shortly after became insolvent and an automatic stay entered in the lawsuit. Once FIGA officially stepped in for Florida Preferred, the insureds substituted FIGA in the lawsuit and sought an order to compel FIGA to pay their attorney’s fees and costs for the litigation, pursuant to Florida Statute §627.428.

The trial court ruled that Florida Preferred’s payment of the appraisal award was a confession of judgment that invoked the attorney’s fees provisions of §627.428. Relying in part upon a Third District Court of Appeals case, FIGA v. Soto, 979 So. 2d 964 (Fla. 3d DCA 2008), the trial court held that the insureds’ right to attorney’s fees and costs was a covered claim. FIGA appealed.

FIGA argued on appeal that §627.428,which provides for attorney’s fees, was not applicable since the association did not deny by affirmative action any portion of the insureds’ covered claim. The Second District Court of Appeal noted that to be a covered claim, it must: (1) arise out of the insurance policy; and (2) be within the coverage of the insurance policy. The Court noted that the parties did not point to any language in the policy that provided coverage for attorney’s fees. The Court held that the FIGA Act does not impose coverage for attorney’s fees claimed under Florida’s attorney’s fee statute (§627.428) when the fees are not within the insurance policy’s coverage provisions.

It should be noted that this recent opinion appears to be in conflict with the Third District Court of Appeals’ ruling in Soto, which determined that insurance policies are subject, as a matter of law, to the obligation to reimburse an insured for attorney’s fees and costs if the insured prevails in a lawsuit for payment of a claim under the policy. The Third District Court of Appeals in Soto recognized that §627.428 is an implicit part of all insurance policies and ruled that an attorney’s fee judgment is a covered claim under the FIGA Act.

The claims filing deadline for Coral Insurance Company is July 25, 2011.

Here is the announcement issued by Florida Insurance Guaranty Association (FIGA) regarding Coral Insurance:

Coral Insurance Company
Effective July 26, 2010, Coral Insurance Company (“CIC”) was ordered into receivership for the purposes of liquidation by the Second Judicial Circuit Court in Leon County, Florida.

With the entry of the liquidation order, the Florida Insurance Guaranty Association (“FIGA”) has been activated to help pay outstanding claims for property and casualty policies. The processing and payment of covered claims will be made by FIGA (subject to the lesser of policy limits or FIGA’s maximum cap). The maximum amount FIGA will cover is generally $300,000 per claim or $100,000 per unit for condominium and homeowner association claims. An additional $200,000 is available for structure and contents on homeowners’ claims. For more information see the FAQ section of this website or the Florida Receiver. No claim will be paid in excess of this cap. All claims are subject to a $100 deductible over and above any deductible identified in the CIC policy. A policyholder may file a claim in the CIC receivership for the $100 deductible and for amounts over the cap.

Claimants who need to check on the status of an existing claim should call the Florida Insurance Guaranty Association at 1-866-928-4310 (toll-free). Consumers who need to report a new claim are directed to contact their agent or contact FIGA at the referenced phone number.

You will need to have the following information available when reporting a new claim:

■Insured’s name
■Insured contact information
■Policy number
■Date of loss
■Brief description of the loss
■Police report (if applicable)

This information can be faxed to (850) 523-1888 or emailed to nclaim@agfgroup.org

"What should I do after I file my claim?"

All policyholders should be informed that per Section 631.68, Florida Statutes, the deadline for settling a claim or filing suit against FIGA is July 25, 2012.

You can read a copy of the Consent Order by clicking here.

In Florida Guaranty Association, Inc. v. The Olympus Association, Inc., 34 So. 3d 791 (Fla. 4th DCA 2010), FIGA successfully argued to have a challenge to coverage following an appraisal award. Insurance coverage attorneys should read the case in its entirety because it is important. For everybody else, the holding is significant:

…we conclude that the trial court erred by entering final judgment in favor of Olympus and awarding it the amount set forth in the appraisal (less the deductibles), without first deciding the issue of coverage liability. When FIGA filed its affirmative defenses in response to Olympus's complaint, the trial court should have first decided FIGA's liability. As explained in Kennedy and supported by Fisher, FIGA could contest part of the liability without challenging coverage as a whole. The appraisal award itself indicated the amount could change as the award was made without consideration of the policy's provisions of coverage.

Accordingly, we reverse and remand for the trial court to determine FIGA's liability with regard to the contested claims, and then enter the appropriate amount based on the appraisal.

Appraisal used to be a quick and inexpensive method of resolving claims. FIGA now uses it as a first step before litigation begins in earnest to prevent, or slow, payment. Unlike other insurers that have to act in good faith, FIGA has no penalty for contesting claims. It can do so with impunity. And, based upon the number of inquiries from others, it is taking advantage of the law and doing so.

The Florida Legislature and the Office of Insurance Regulation need to address the issue of who is investigating the claims process at FIGA and how its claims operations are run. These are the same complaints that were being made about Citizens Property Insurance in the past which lead to claims reform at Citizens. It is bad enough that policyholders have their insurer go broke and have to wait for payment. They do not expect a claims catastrophe which they can do little about.

I have a client who is a judge. He, his wife and two little girls literally lost everything in Hurricane Ivan in September, 2004. Their windstorm insurance carrier, Vanguard Fire & Casualty Insurance Company, denied coverage entirely, contending that not a single shingle was blown from the roof, not a window broken by wind in this Category 5 storm, dubbed “Ivan the Terrible.” The coverage denial was apparently based on “word of mouth” that a 15-foot wave had allegedly swept the home away prior to any wind damage occurring. The insurance company failed to hire an engineer or meteorologist to confirm this rumor. While my clients were lucky enough to have their flood insurer tender policy limits, like many, they were woefully underinsured and needed help from their wind carrier.

When FIGA took over the claim in 2007, it was the perfect opportunity to make things right. Instead, FIGA has compounded the misery. Initially, FIGA continued the denial of coverage. Then, last year, FIGA revealed for the first time a January 2007 engineering report acknowledging the home had in fact sustained wind damage before the storm surge came. After that, FIGA changed its tune, admitted coverage, and tendered a small sum based on its expert’s opinion. In keeping with the quality of “service” on this claim, FIGA’s expert has never been to the site and based his opinions on photos of nearby homes. On the other hand, the insureds received an opinion from an engineer who walked the site, inspected an adjacent building, and concluded that the home was severely damaged before the storm surge hit.

Nevertheless, I figured—this is our opportunity to work toward a fair resolution of this claim. The insurance policy provides for an alternative dispute resolution process to quickly and economically dispense with disagreements over the amount of loss—appraisal. I thought, surely an entity funded by assessments on the insurance consumers of this State will want to wrap this up as soon as possible. How wrong I was. Indeed, FIGA’s lawyer has advised me that we can expect this case to be going on for a very long time. FIGA contested appraisal and lost. Then sought to stay appraisal while it appealed—and lost. Now FIGA is seeking a second bite at the apple asking the appellate court to instruct the trial judge to stay the appraisal. Even if the appraisal is allowed to proceed, FIGA tells me the award will not be paid and I can expect more litigation.

What is going on here? I spoke with a lawyer in the Panhandle last week about possibly serving on our appraisal panel. He had a conflict because he has two claims pending with FIGA and can’t even get them to call him back. In another case of mine, FIGA has agreed to go to appraisal, but only if the insured signs a release of all claims upon payment of the appraisal award!

With more and more small companies taking over Citizens policies, there is a real danger these insureds could end up with FIGA in the event of another busy hurricane season. Anyone have ideas on how to fix this? After all, you and I are footing the bill . . .

- Kristi Demers-Crowell

(Kristi Demers-Crowell is an attorney in the Tampa office of Merlin Law Group and is licensed to practice in Florida and Texas)