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Insurance Coverage and Bad Faith

Florida’s Most Comprehensive Tort Reform in Decades and What it Means for Insurers and Bad Faith Law

Florida’s Most Comprehensive Tort Reform in Decades and What it Means for Insurers and Bad Faith Law

This morning Governor Ron DeSantis signed the reforms compiled in Senate Bill 236 and House Bill 837 (“HB 837”). Some of the key aims of HB 837 with respect to insurance include decreasing frivolous lawsuits, altering provisions regarding Florida’s “bad faith” law, and eliminating one-way attorney’s fee awards. HB 837 notes that its changes will take effect upon becoming a law.

Below we highlight the significant changes that will impact insurers moving forward:

Repeal of One-way Attorney’s Fees Statutes

  • In December 2022, the Florida legislature eliminated the right to recover attorney’s fees “in a suit arising under a residential or commercial property insurance policy.”
  • HB 837 goes a step further and entirely repeals the one-way attorney’s fees statutes, sections 627.428 (applying to authorized insurers) and 626.9373 (applying to surplus lines insurers).
  • One-way attorney fees, which entitle insured parties to reasonable attorney’s fees in any lawsuit in which any amount of recovery is awarded, are effectively eliminated in breach of contract cases.

Computation of Attorney’s Fees

  • HB 837 will amend Florida Statute section 57.104 and create a rebuttable presumption that the lodestar fee—the number of attorney hours reasonably expended on the matter multiplied by a reasonable hourly rate—is sufficient and reasonable for the computation of attorney’s fees in any action in which fees are determined or awarded by the court.
  • This presumption may only be overcome in “rare and exceptional circumstances” with evidence that competent counsel could not otherwise be retained.
  • HB 837 sets forth that attorney fee multipliers will now be the exception, not the rule, in cases where attorney’s fees may be recovered.
  • Given the repeal of sections 627.428 and 626.9373, this section appears to be most relevant in cases where there is an entitlement to attorney’s fees under a proposal for settlement/offer of judgment. Indeed, a new section created by HB 837—624.1552—provides that the provisions of the offer of judgment statute apply to any civil action involving an insurance contract.

Declaratory Relief – New Florida Statute 86.121

  • HB 837 will also create Florida Statute section 86.121, which will permit an award of attorney’s fees to a named insured, omnibus insured, or beneficiary under a policy in a declaratory relief action after an insurer has made a total coverage denial of the claim.
  • Importantly, this new section does not apply to an action arising under a residential or commercial property insurance policy. Moreover, the right to fees under this section may not be transferred or assigned to anyone other than the named insured, omnibus insured, or beneficiary of the policy.
  • A reservation of rights by an insurance company will not be considered a “coverage denial” under this section.

Actions for Bad Faith Involving Liability Claims

HB 837 addresses the bad-faith setup that frequently occurred in liability claims that featured time-limit demands and low-limit policies. Under a new subsection added to Florida Statute section 624.155, there can be no common law or statutory bad faith against a liability insurer that tenders the lesser of (1) the policy limits or (2) the amount demanded within 90 days after receiving actual notice of a claim accompanied by sufficient evidence to support the amount of the claim. Plus, an insurer’s failure to tender that amount is inadmissible in any subsequent bad faith action.

  • HB 837 codifies that mere negligence alone is insufficient to constitute bad faith. Further, insureds, claimants, and their representatives now have a duty to act in good faith in providing information regarding a claim, making demands, settings deadlines, and in attempting settle the claim. The failure to do so could result in a reduction in the amount of damages awarded against an insurer in a bad faith case.
  • HB 837 establishes a procedure for insurers to follow where two or more third-party claimants have competing claims arising out of a single occurrence, which in total may exceed the available policy limits of one or more of the insured parties who may be liable to these third-party claimants. An insurer is not liable beyond the available policy limits for failure to pay all or any portion of a policy limit to the third-party claimants if, within 90 days after receiving notice of the competing claims, the insurer complies with one of the following:
    • The insurer files an interpleader action under the Florida Rules of Civil Procedure.
      • If the claims of competing third-party claimants are found to be in excess of an insurer’s policy limits, the third-party claimants will be entitled to a prorated share of the policy limits determined by a trier of fact.
    • Pursuant to binding arbitration that has been agreed to by the insurer and third-party claimants, the insurer makes the entire amount of the policy limits available for payment to the competing claimant before a qualified arbitrator agreed to by the insurer and claimants, at the expense of the insurer.
      • The third-party claimants are entitled to a prorated share of the policy limits as determined by the arbitrator.
      • The arbitrator will be able to consider things like comparative fault of the third-party claimants as well as the total likely outcome at trial based upon the total damages submitted to the arbitrator.
      • Any third-party claimant whose claim is resolved via arbitration will be required to execute a release to the insured party whose claim is resolved by the proceeding.