Whether a policyholder’s lawsuit against an insurer was necessary to resolve a first party claims dispute can be an important question for Florida courts in determining an insured right to attorney’s fees pursuant to Florida Statute 627.428. Florida Statute 627.428 is intended to encourage insurers to pay policyholders the claim proceeds they are entitled to without the need for litigation. If a policyholder has to file a lawsuit to recover claim proceeds, then the insurer may be responsible for the policyholder’s attorney’s fees in the litigation. Florida case law has traditionally held that when an insurer pays additional policy proceeds after a lawsuit is filed, the insurer “has, in effect, declined to defend its position in the pending suit. Thus the payment of the claim is, indeed, the functional equivalent of a confession of judgment or a verdict in favor of the insured.” Wollard v. Lloyd’s and Companies of Lloyd’s, 439 So.2d 217 (Fla. 1983).
In some recent cases, insurers have challenged this traditional rule, attempting to modify the standard to whether they wrongfully forced the policyholder to resort to litigation to resolve the conflict. In other words, the insurers argue, unless the insurers wrongfully forced the policyholder to resort to litigation, there was no conflict between the parties; there was no unreasonable withholding of a claim payment, and so the legal services and the lawsuit were unnecessary.
In determining an entitlement to attorney’s fees issue, the Fourth District Court of Appeal analyzed whether the lawsuit serves as a “necessary catalyst” to resolve the dispute between the parties in forcing the insurer to satisfy its policy obligations. Lewis v. Universal Prop. & Cas. Ins. Co., 13 So.3d 1079 (Fla. 4th DCA 2009). Recent arguments surrounding this issue have surfaced in the Florida Second District case, Beverly v. State Farm Florida Ins. Co., — So. 3d —, 2010 WL 4226548 (Fla. 2d DCA October 27, 2010). The Beverlys’ claim stemmed from Hurricane Charley, in which they suffered damage to their residence, barn, trailers, shed, and personal property. They reported it timely, and State Farm’s initial adjuster told them that the barn, fence, shed and trailers were not covered under the policy. However, it does not appear that State Farm denied coverage for those areas in writing. State Farm advanced a nominal amount for emergency expenses and claimed to have begun adjusting the loss with the Beverlys. The Beverlys timely submitted the claim documents and a Proof of Loss to State Farm, and, after receiving no further payment, they filed a lawsuit approximately six weeks after the date of loss. Nearly nine months after the lawsuit was filed, State Farm invoked appraisal, which ultimately resulted in an award of damages that State Farm paid.
After the claim was resolved in the Beverlys’ litigation, the Court was left to address the issue of attorney’s fees. State Farm asserted that it never denied coverage for the claim and that the insureds failed to comply with policy conditions for payment. The Beverlys argued that State Farm did deny coverage for the barn, shed, fence and trailers, and that they timely submitted the claim documentation to State Farm. The appellate court reversed the trial court’s judgment that was entered in favor of State Farm, and sent the case back to the trial court to determine whether State Farm “wrongfully caus[ed] its insured to resort to litigation in order to resolve a conflict with its insurer when it was within the company’s power to resolve it.” (emphasis added)
Part of the analysis that appears to be important to Florida courts in determining entitlement to attorney’s fees is whether the lawsuit gave the insurer that extra push to pay the claim. Insurers appear to be arguing that despite their post-suit payments, the rules of the game involving confessions of judgment do not apply. Is there really a need to distinguish between causing an insured to file suit to obtain a claim payment and wrongfully causing the insured to file suit to obtain payment? If this will become the new standard, courts will need to evaluate the particular facts of each case to determine the reasonableness of the argument posed by the insurer and whether the litigation did push the insurer in the right direction to pay the claim.