Just last week, Florida’s Fourth District Court of Appeals held that the Florida Insurance Guaranty Association (“FIGA”) wrongly denied a policyholder’s claim and was obligated to pay attorney’s fees and costs. In Rahabi v. FIGA, the appellate court distinguished the holding from its earlier case, FIGA v. Ehrlich, which was just decided in May of this year. I wrote about Ehrlich in my May 9, 2011 post titled Recent Ruling Concerning Attorney’s Fees And The Florida Insurance Guaranty Association. In Ehrlich, the Court held that FIGA was not responsible for attorney’s fees since it did not deny the policyholder’s claim by affirmative action. In Ehrlich, the trial court had ordered FIGA to answer the complaint in the lawsuit, and pursuant to that order, FIGA raised affirmative defenses.
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