Many policyholders face a thorny dilemma in disputing their insurance claim because of the fees and costs associated with litigation and the appraisal process. Even when a policyholder prevails and proves an insurer underpaid or a wrongfully denied a claim, the net recovery is reduced by litigation fees that were necessitated to obtain the benefits.

Fortunately for Florida policyholders, Florida Statute § 627.428 allows a policyholder to recover attorneys’ fees to remedy this otherwise unjust outcome.

(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.

A simple example illustrates the significance of this statute: Patty Policyholder has a water loss that her carrier concludes caused $8,000 in damages. Patty Policyholder retains a general contractor to fix the damages, but her general contractor bills $16,000. As often is the case, Patty Policyholder is forced to retain an attorney to achieve full indemnification. The recovery after litigation is an additional $8,000, and Florida Statute § 627.428 allows Patty Policyholder to recover attorneys’ fees in addition to the $16,000 in total benefits so she receives the full and intended benefits of the insurance she purchased.

It is important to highlight a limitation of § 627.428. Pursuant to Florida Statute § 631.70, the Florida Insurance Guaranty Insurance Association (FIGA) is not responsible for an insured’s attorneys’ fees or costs “except when the association denies by affirmative action, other than delay, a covered claim or a portion thereof.” FIGA is the organization that takes over insolvent private carriers. If Patty Policyholder’s carrier became insolvent during litigation and FIGA took over for the carrier, Patty Policyholder’s attorneys’ fees would not be covered unless FIGA denied the claim by affirmative action.

Next week, I will write about a recent case involving FIGA’s attempt to avoid its obligation to pay attorneys’ fees when it wrongly denied a policyholder’s valid claim.