The debate over what evidence should be admitted in a breach of contract case has raged on for many years. Policyholders typically argue that evidence of an improper investigation should be admitted as impeachment evidence, while insurance companies insist that the way a claim was handled has no bearing on the ultimate issue: was the insurance contract breached. Depending on the circumstances of the case, evidence of an improper investigation could, in and of itself, be the only evidence necessary to prove a breach of contract.

Like most states, Florida has a number of statutory requirements obligating insurance companies to act in a certain way. Florida Statute § 626.9541(i) requires, for instance, that an insurance company adopt and implement standards for the proper investigation of claims. It also prohibits an insurance company from denying a claim without conducting a reasonable investigation based on all available information.

While liability for violating these statutes has often been thought of in the context of Florida’s “bad faith” statute, there can also be liability under the contract as well. It is true that Florida has consistently refused to recognize a common law obligation of good faith and fair dealing in the first party context. The state has, however, recognized an action for breach of contract and the availability of consequential damages resulting from that breach.1

Florida has also consistently recognized that statutory requirements are incorporated into any insurance policy issued in this state. As the Florida Supreme Court has noted:

[W]here a contract of insurance is entered into on matters surrounded by statutory limitations and requirements, the parties are presumed to have entered in such agreement with references to the statute, and the statutory provisions become a part of the contract.2

By incorporating the statutory requirements into the terms of the policy, Florida has created a contractual right of action based on a breach of the insurance statutes.

The interplay, and overlap, of an action for breach of contract and statutory “Bad Faith” has been discussed by a number of courts, including the Fourth District Court of Appeals who stated:

Here, we find that, like the prompt pay provisions in Westside, the statutory requirements for group insurance policies could be incorporated into Lutz’s insurance contract and form the basis of a properly-pled breach of contract action even though the statutory scheme does not appear to support a private right of action merely to enforce compliance with some or all of them. Of course, a breach of contract claim based on the insurer’s failure to comply with “incorporated” provisions of the Florida Insurance Code must be supported by allegations showing actual and direct damages to the insured, not merely hypothetical, speculative or potential ones. Further, we do not believe that section 624.155, which authorizes any person to bring a damages action against an insurer for certain enumerated statutory provisions, forecloses Lutz’s right to bring a properly-pled common law breach of contract action based on statutory provisions other than those named therein. The statute itself specifically states that “[t]he civil remedy specified in this section does not preempt any other remedy or cause of action provided for pursuant to any other statute or pursuant to the common law….” § 624.155(8), Fla. Stat. (2005). The trial court apparently agreed with this conclusion as well, stating in the final order that “[t]his Court does not dispute Plaintiff’s argument that Section 624.155 does not preempt common law causes of action for breach of contract and declaratory relief under Chapter 86, Florida Statutes.”3

It is important for insurance professionals on both sides of the fence to know and understand the applicable statutory regulations. If a policyholder suffers damage as a result of the breach of these obligations, these damages may be recoverable regardless of whether a “bad faith” claim is ever filed.

1 Life Investors Ins. Co. v. Johnson, 422 So.2d 32 (Fla.Dist.Ct.App.1982).
2 Grant v. State Farm Fire and Cas. Co., 638 So. 2d 936 (Fla. 1994).
3 Lutz v. Protective Life Ins. Co., 951 So. 2d 884, 887 (Fla. 4th DCA 2007).