A Florida appellate court recently made clear that the issue of insurance coverage can remain in dispute, even where an insurer has already paid out some benefits to an insured in connection with a claim. Avatar Prop. & Cas. Ins. Co. v. Flores, No. 2D20-2458, 2021 WL 1431118, at *3 (Fla. 2d DCA Apr. 16, 2021).
In Flores, the insureds submitted a claim to their insurer, seeking coverage for property damage resulting from Hurricane Irma. Id. at *1. The insurer determined that there was coverage under their insurance policy and issued a payment to the insureds. Id.
The insureds subsequently filed an action for breach of contract, alleging that the insurer owed them more money. Id. The insurer filed an answer raising several affirmative defenses to coverage, including that the insureds breached their post-loss obligations under the policy. Id. at *3.
During discovery, the insureds sought production of privileged documents from the insurer’s claims file. Id. at *1. The insurer objected. Id. A magistrate judge issued a recommendation finding the claims-file materials discoverable. Id. The magistrate stated: “This is a dispute over scope and pricing of damages where coverage is not at issue.” Id. The trial court approved the magistrate’s recommendation, in relevant part, and ordered production of several documents from the insurer’s claims file following an in-camera inspection. Id.
The insurer sought review by petition for writ of certiorari, and Florida’s Second District Court of Appeal granted the insurer’s petition and quashed the trial court’s discovery order. Id. at *1, *3.
The appellate court explained initially that “Second District case law is replete with opinions holding that ‘[a] trial court departs from the essential requirements of the law in compelling disclosure of the contents of an insurer’s claim file when the issue of coverage is in dispute and has not been resolved.’” Id. at *2 (quoting Owners Ins. Co. v. Armour, 303 So. 3d 263, 267 (Fla. 2d DCA 2020)).
The appellate court further held that the magistrate’s finding that coverage was not at issue was contrary to Florida law. Id. at *3. The appellate court stated that “here, the issue of coverage remains in dispute despite Avatar’s payment of some benefits to the Insureds. The payment was made before the lawsuit was filed, and Avatar’s answer raises several affirmative defenses to coverage, including alleging that the Insureds breached their postloss obligations under the policy.” Id.
“Consequently,” the court concluded, “because the trial court departed from the essential requirements of the law by ordering production of these privileged claims file materials on the mistaken basis that ‘coverage is not at issue,’ we grant the petition and quash the order.” Id.
The key takeaway? Making an early claim payment does not foreclose a subsequent dispute over coverage, nor does it render the insurer’s claims-file discoverable.