A recent and significant Order by Judge Stanley Mills discussed claims resolved through appraisal and complaints of improper claims conduct made through formal Civil Remedy Notices. The matter involved a sinkhole claim that took nearly three years before full payment was made. The State Farm policyholders spent thousands of dollars on experts and appraisal costs because State Farm did not pay the full amount of the claim.
State Farm first took the position that since it paid the amount owed as determined in the appraisal, it was immune from responsibility for any of its alleged bad faith conduct. It argued that the policyholder could only file a bad faith lawsuit if a judgment was rendered. The Court dismissed this argument, finding the appraisal award was a legally sufficient condition precedent:
State Farm argues that Plaintiffs have not satisfied the conditions precedent to an action under Section 624.155. State Farm claims that Plaintiffs must have first obtained a judgment that State Farm breached the policy. A judgment, however, is not necessary in such an action. See, Vest v. Travelers Ins. Co., 735 So. 2d 1270 (Fla. 2000). The appraisal award determination is legally sufficient as a condition precedent to filing a bad faith suit. A careful reading of the case law reveals that there is no requirement of a judgment or judicial determination of a breach of contract for a statutory bad faith action. The court rejects State Farm’s argument on this point. (emphasis added)
State Farm’s next argument was that the formal complaint to the Department of Financial Services was not sufficient because it was not specific. The Court noted that the Department of Financial Services accepted the Civil Remedy Notice as sufficient, and that State Farm did not administratively challenge that finding:
State Farm next argues that the Civil Remedy Notice was invalid. Pursuant to 624.155(3)(a), a condition precedent to bringing an action under this section is that the Department of Financial Services and the authorized insurer must have been given 60 days written notice of the violation. The department may return the notice for a lack of specificity, tolling the 60-day time period until a proper notice is filed. This would seem to indicate that the department is the sole judge of the sufficiency of the Civil Remedy Notice….
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The department may return a notice for a lack of specificity, but never did in this case. State Farm responded to it, only noting that it was lacking a cure amount, and now claims that it was insufficient and thus invalid. Therefore, State Farm has waived its right to challenge the sufficiency of the Civil Remedy Notice (except possibly the cure amount issue).
The only provision that State Farm challenged was the lack of a cure amount. It is undisputed, however, that State Farm did not challenge the sufficiency of the Notice with the Department of Financial Services. Moreover, Section 624.155(3)(B) does not require an insured to indicate the amount owed. Even if this court was statutorily authorized to consider the sufficiency of the Civil Remedy Notice, it is not deficient. (emphasis added)
Many insurers argue that if they pay the appraisal award in full following the appraisal proceeding, or any amount where an amount is not requested in the Civil Remedy Notice, they are immune from allegations of bad faith conduct. This has never made any sense to me because an insurer could lie, cheat, steal and then escape accountability for such conduct by simply paying the appraisal award long after causing needless delay and damage to the policyholder. The Court found State Farm’s argument on this point wrong:
…State Farm further argues that since Plaintiffs did not provide an exact amount which they would accept as a cure, the cure amount was in State Farm’s discretion. This would suggest that any insurer in their situation could make any payment during the cure period to dispose of the bad faith allegations. Plaintiffs were not required to give a specific cure amount in the notice. There is no requirement that a notice be filed only after the amount of loss or even the proper method of remediation has been determined. Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1275 (Fla. 2000). For State Farm to have cured, it must have paid Plaintiffs, in good faith and fair dealing, what they were owed….Whether or not State Farm actually paid Plaintiffs in good faith is a question of material fact, which cannot properly be considered by summary judgment.
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…Vest requires an insurer to pay the contractual amounts owed. "An insurer, however, must evaluate a claim based upon proof of loss required by the policy and its expertise in advance of a determination by a court or arbitration." …An insurer cannot merely rely on an appraisal to determine what is owed to avoid bad faith litigation. State Farm had the obligation of good faith and fair dealing, and whether or not State Farm attempted in good faith to settle the claim is a question of fact that is not appropriate for summary judgment. "Good-faith or bad-faith decisions depend upon various attendant circumstances and usually are issues of fact to be determined by a fact-finder.
As a side note, this appraisal process took more than a year. Courts and commentators should not be so quick to indicate that appraisal is a fast and inexpensive means to resolve controversies. Insurers should not expect courts and juries to forgive wrongful conduct just because an appraisal award was paid. This is especially true when the appraisals become expensive or alternatives are not attempted to minimize the expense and delay.
Further, insurers always have an obligation of good faith. They should promptly conduct a good faith adjustment of the claim and pay undisputed amounts owed. The costs and delays of appraisals can often be avoided if the insurer conducts good faith adjustment, and parties cooperate and earnestly try to resolve differences.
This duty of cooperation extends to both policyholders and insurers. I am mindful of circumstances where some policyholders can make it nearly impossible to quickly and fairly resolve matters. Two wrongs never make a right.