Court says Florida public insurer immune in first-party bad faith suit

The Florida Supreme Court settled a complex issue regarding the state insurer of last resort’s immunity from suit.

In May 2015, the Florida Supreme Court held that policyholders cannot sue the state’s public insurer for bad faith handling of their claims because the legislature made the insurer, as part of state government, immune from this kind of lawsuit.

In 2002, the Florida Legislature created the Citizens Property Insurance Corporation, a governmental entity that operates as the insurer of last resort for Florida residents and businesses who are unable to secure property insurance in the state’s private insurance marketplace, usually because of high risk of hurricane or wind damage in their neighborhoods.

The corporation receives funding from premiums and can levy monetary assessments on most state policyholders when a catastrophic storm depletes its reserves.

Florida statute allows a policyholder to sue its insurance company for bad faith failure to settle a claim when it should have “had it acted fairly and honestly toward its insured and with due regard for her or his interests” and in a few other instances of bad faith behavior.

In general, bad faith claims against insurers evolved because of the disproportionate power of large insurance companies vis-à-vis their policyholders who are at their mercy for fair payment of claims. The bad faith remedy is meant to deter an insurer from things like delay, failure to investigate, inadequate communication, failure to pay a valid claim and similar behavior.

However, in Citizens Property Ins. Cor. v. Perdido Sun Condominium Ass’n, Inc., the issue was whether a policyholder can sue the state-run insurer for bad faith considering its status as part of state government with some immunity from suit.

After successfully suing the corporation for breach of its insurance contract, Perdido Sun brought a claim for first-party bad faith (the first-party relationship is that between the insured and its insurer under which the insured makes a direct claim for loss under its policy). Perdido Sun asserted that the corporation acted in bad faith for:

  • Refusal to pay the full amount owed under its policy
  • Refusal to participate in a required appraisal process, thereby avoiding litigation
  • Delay in appraisal-award payment by improperly trying to condition it on Perdido Sun releasing all claims
  • Engagement in a pattern and practice of avoidance and delay of claim settlements

The corporation asserted that it was immune from bad faith suits because of broad immunity granted by the legislature, with a few exceptions. Perdido Sun responded that its bad faith claim fell under the exception of “any willful tort.” (Broadly, a willful tort is the intentional breach of a legal duty owed to another that causes injury or harm.)

The Supreme Court concluded that Perdido Sun’s bad faith claim was not a willful tort because:

  • The legislature could have easily listed bad faith claims as an exception to corporation immunity along with the several others it explicitly listed had it meant to exempt them from immunity.
  • Torts are based in common law (that made by court holdings) and first-party bad faith insurance claims are based in statute.
  • While a bad faith claim can become a willful tort with additional “specific allegations of willful misconduct,” those allegations were missing in this case.

Any Floridian insured by the state-run corporation will need sound legal advice about potential legal remedies like breach of insurance contract, or whether, in a bad faith situation, the corporation engaged in the required additional willful misconduct.

From offices in Tampa, Brandon and New Port Richey, insurance attorney K.C. Williams of Williams Law Association, P.A., fights for the rights of individual and business policyholders.

Keywords: Florida Supreme Court, insurer of last resort, immunity, first-party bad faith, policyholder, claim, lawsuit Citizens Property Insurance Corporation, property insurance, hurricane, wind, failure to settle, refusal to pay, settlement, willful tort, exception