This article is originally a publication of Southern Loss Association, Newsletter February 2018. Legal opinions may vary when based on subtle factual differences. All rights reserved.
Like many states, Florida law allows a person under a first-party insurance contract to sue an insurer if the person has been damaged by certain actions often referred to as “bad-faith” claim handling practices. The purpose of this article is to explain how Florida addresses bad-faith claim handling practices. This article will also provide examples of how claims professionals can ensure they are always handling claims in good faith.
Prior to 1982, Florida did not recognize a cause of action for bad-faith claim handling practices in the first-party insurance context. To address that, Florida enacted Florida Statute § 624.155. The statute is the exclusive remedy for people who believe they have been damaged by bad-faith claim handling practices in the first-party insurance context in Florida.
However, in order for a person to be able to file a lawsuit under the statute, the person must first give notice to the insurer and to Florida’s Department of Financial Services. The notice must contain certain information regarding the alleged bad-faith behavior and what the insurer can do to cure the circumstances. The insurer then has 60 days to respond to the notice. If the insurer cures the circumstances that gave rise to the notice within the 60-day period, the person cannot pursue a bad-faith lawsuit.
Florida Statute § 624.155 lists a variety of conduct that can be the basis of a bad-faith lawsuit. One example of prohibited conduct is an insurer not attempting in good faith to settle a claim when, under all the circumstances, the insurer could and should have done so had it acted fairly and honestly toward its insured and with due regard for the insured’s interests. Another example of prohibited conduct is an insurer making a claim payment to an insured not accompanied by a statement setting forth the coverage under which the payment is being made. Yet another example of prohibited conduct is an insurer failing to promptly settle claims when the obligation to settle a claim has become reasonably clear under one portion of the insurance policy coverage in order to influence a settlement under other portions of the insurance policy coverage.
Here are other forms of prohibited conduct that can be the basis of a bad-faith lawsuit: making a material misrepresentation for purpose of settling a claim on less favorable terms than provided by the insurance policy; failing to adopt and implement standards for proper investigation of claims; misrepresenting facts or insurance policy provisions; failing to acknowledge and act promptly on communications; denying claims without a reasonable investigation; failing to affirm or deny full or partial coverage of claims; failing to provide an explanation for the denial of a claim or offer of compromise settlement; failing to promptly notify an insured of additional information needed to process the claim. This is not an exhaustive list of the prohibited conduct addressed by the statute. However, it gives a good representation of what the contours of the prohibited conduct are.
In addition to the prohibited conduct listed in the statute, Florida case law decisions have identified conduct that suggests bad faith. Here are four examples of conduct that suggest bad faith: (1) when an insurer acts solely on the basis of its own interests; (2) when an insurer acts unreasonably; (3) when an insurer’s actions are tantamount to fraud; and (4) when an insurer’s conduct evidences a conscious disregard or indifference for the rights of the insured.
Florida law does not list what constitutes good-faith claim handling practices. Instead, it lists prohibited conduct. As such, the best way to engage in good-faith claim handling is by engaging in conduct that is the opposite of the prohibited conduct. In Florida, whether or not bad faith exists is measured by a totality of the circumstances. Therefore, engaging in good faith claim handling practices throughout a claim – from the start of a claim to its end – is key.
The claim file tells the story of the claim. A good claim file should include a narrative of the claim handler’s activity on the file. It should document the claim handler’s interaction with the insured, experts, and others. It should be updated regularly and show the progress of the claim. It should not have unexplained large gaps of time between entries. The claim file should include correspondence regarding the claim, reports, estimates, and payments to the insured. If a person files a bad faith lawsuit, the claim file might be obtained by that person’s attorney during the litigation process. As such, the claim file should not be used as a place for a claim handler to complain about the insured or express frustration with a claim.
Another hallmark of good claim handling is frequent communication between the claim handler and the insured. A claim handler should strive to provide the insured a status of the claim at regular intervals. A claim handler should promptly respond to communications and requests from the insured and those working on the insured’s behalf, including public adjusters and experts. If additional information is needed from the insured, a claim handler should timely request that information and succinctly explain why the additional information is needed. If a situation arises that poses an impediment to resolving a claim, a claim handler should promptly inform the insured of the situation and explain what needs to be done to keep the claim moving toward a resolution.
No two claims are the same. That means a claim handler must always be looking for opportunities to engage in good-faith claim handling practices when differing circumstances arise. For example, what if a claim is assigned to a contractor? What if one party wants to resolve a claim using the insurance policy’s appraisal provision but the other party does not? What if an insured becomes unresponsive to requests for additional information? What if the insured believes the insurer’s claim payments are too low? These and other particular issues will be addressed in a future article on this same topic. Stay tuned – and please contact the authors of this article in the interim if you have any questions on good-faith claim handling in Florida.