Kathy Johnson v. Omega Insurance Company , 200 So. 3d 1207 ( 2016 )

Supreme Court of Florida
____________
No. SC14-2124
____________
KATHY JOHNSON,
Petitioner,
vs.
OMEGA INSURANCE COMPANY,
Respondent.
[September 29, 2016]
LEWIS, J.
This case is before the Court to review the decision of the Fifth District
Court of Appeal in Omega Insurance Co. v. Johnson, 39 Fla. L. Weekly D1911
(Fla. 5th DCA Sept. 5, 2014), which arose from a claim for insurance benefits by
Kathy Johnson, the insured, submitted to Omega, her homeowner’s insurance
provider. The decision is in conflict with both Universal Insurance Co. of North
America v. Warfel, 82 So. 3d 47 (Fla. 2012), and Ivey v. Allstate Insurance Co.,
774 So. 2d 679, 683-84 (Fla. 2000). In conflict with our decision in Warfel, the
court below improperly applied a presumption of correctness that is limited to an
initial process for an investigative report during the litigation proceedings. In
conflict with Ivey, the district court incorrectly interpreted section 627.428, Florida
Statutes, which provides for an award of attorney’s fees when an insured recovers
benefits from an insurer. Therefore, the two issues we address today are (1)
consideration of whether the statutory presumption of correctness afforded to an
insurer’s internal report during the investigation process in the sinkhole statutes
extends to later trial proceedings, and (2) whether an insured’s recovery of
attorney’s fees under section 627.428, Florida Statutes, requires that there be bad
faith on the part of an insurance company in the denial of a valid claim, or simply
an incorrect denial of benefits. We have jurisdiction. Art. V, § 3(b)(3), Fla. Const.
We conclude that the decision below is in conflict with both Warfel and Ivey.
FACTUAL & PROCEDURAL BACKGROUND
Section 627.428, Florida Statutes, outlines the provision under which an
insured may recover attorney’s fees incurred as a result of recovering on a valid
claim for insurance benefits. See § 627.428, Fla. Stat. (2015). Today we address
the interpretation of section 627.428, and we begin with a review of the actual text
of the statute:
(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
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or beneficiary’s attorney prosecuting the suit in which the recovery is
had.
....
(3) When so awarded, compensation or fees of the attorney
shall be included in the judgment or decree rendered in the case.
§ 627.428, Fla. Stat. (2015).1 We have consistently explained that the purpose of
this statute is to provide an adequate means to afford a level process and make an
already financially burdened insured whole again, and to also discourage insurance
companies from withholding benefits on valid claims. See Ivey, 774 So. 2d at 683-
84; Bell v. U.S.B. Acquisition Co., Inc., 734 So. 2d 403, 410-11 n.10 (Fla. 1999).
This statutory provision is of significant importance to the citizens of Florida.
Florida law also includes several statutory provisions which specifically
address claims for sinkhole damage, commonly referred to as the “sinkhole
statutes.” In part, the sinkhole statutes require insurers to provide policyholders
the option of paying an additional premium for sinkhole coverage. §
627.706(1)(b), Fla. Stat. (2015). In this context, a sinkhole is described as “a
landform created by subsidence of soil, sediment, or rock as underlying strata are
dissolved by groundwater.” § 627.706(2)(h), Fla. Stat. Sinkhole “activity” is
defined as a “settlement or systematic weakening of the earth supporting the
1. There has been no change in section 627.428, Florida Statutes, since the
year litigation was initiated.
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covered building” resulting from “contemporaneous movement or raveling of soils,
sediments, or rock materials into subterranean voids.” § 627.706(2)(i), Fla. Stat.
An insurer may require an inspection of the property prior to issuing a policy
which provides sinkhole coverage benefits. § 627.706(1)(b), Fla. Stat. Upon
submission of a claim for sinkhole damage, a professional engineer or geologist
selected exclusively by the insurer may examine the property to determine whether
a sinkhole loss covered under the insurance policy exists and make
recommendations regarding building stabilization and foundation repair. §
627.7072, Fla. Stat. Thereafter, the engineer or geologist exclusively selected by
the insurer tenders a report and certification to the insurer and the insured that
outlines the analyses, any test methods, damages, and recommendations for repair.
§ 627.7073(1), Fla. Stat. During this initial claims process, these findings and
recommendations by the insurer’s experts receive a statutory presumption of
correctness. § 627.7073(1)(c), Fla. Stat (2015).
If the insured disputes whether the insurance company’s report is correct, the
sinkhole statutes also provide for a neutral evaluation procedure. § 627.7074, Fla.
Stat. (2015). Neutral evaluation is mandatory if requested by either party, section
627.7074(4), Fla. Stat. (2015), but the insurer bears the cost for the neutral
evaluation. § 627.7074(6), Fla. Stat. Court proceedings are stayed pending the
completion of any neutral evaluation. § 627.7074(10), Fla. Stat. Once the neutral
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evaluation is completed, the neutral evaluator prepares an independent report to
address whether there was damage to the insured property caused by sinkhole
activity, and an estimated cost for repairs. § 627.7074(12), Fla. Stat. Significantly,
the results of the neutral, independent evaluation are not binding in any subsequent
legal proceedings. § 627.7074(4), Fla. Stat.
At the time of the events material to this case, Johnson was covered under a
homeowner’s insurance policy issued by Omega, which included sinkhole
coverage. On January 13, 2010, Johnson filed a claim with Omega to recover
damages resulting from conditions which Johnson believed to be sinkhole activity.
Specifically, Omega was alerted that there were cracks in the walls, as well as
separations between the walls and ceilings of the kitchen, dinette, bathrooms,
family room, bedrooms, foyer, windows, and garage of Johnson’s home. Cracks
were additionally found in the closets and floorboards. The extent of the cracking
was such that several of the doors inside the home were difficult to open. As a
result, Johnson was forced to hire a drywall company to repair the cracks in the
drywall and a carpenter to reset the doors. The fireplace and kitchen cabinets were
also displaced by separation, and cracks were additionally observed on the exterior
walls of the home and driveway. Moreover, in the utility room, a sag was
observed along the top of the cabinet that housed Johnson’s washing machine and
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dryer. As a result, Johnson had been unable to perform routine maintenance on
these appliances because the sag prevented these appliances from being moved.
Omega selected and retained Rimkus Consulting Group to perform an initial
sinkhole investigation. After performing three Standard Penetration Test borings,
Rimkus concluded that there was no sinkhole activity present on Johnson’s
property. Although Rimkus conceded that the property was damaged, it attributed
the damage to causes that were not covered under the policy, such as volumetric
changes of clay-based soil underlying the site, concrete shrinkage, and defective
construction processes. As the insurance company’s initial report, these
conclusions received the initial statutory presumption of correctness pursuant to
section 627.7073(1)(c). Based on its report, Omega totally denied Johnson’s claim
for insurance coverage.
Upon receiving the denial of benefits from Omega to cover potentially
hundreds of thousands of dollars in damages to her home, Johnson retained the law
firm of Corless Barfield Trial Group. Corless Barfield in turn retained a local
expert, Bay Area Sinkhole Investigation & Civil Engineering (BASIC), to perform
an independent investigation, examination, and report to determine the cause of the
damage to Johnson’s home. In its report, BASIC noted that the insurance
company’s report was a very minimal, incomplete investigation with regard to the
loss because it failed to perform a particle size analysis. The BASIC engineer
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opined that the exclusion of this required analysis rendered “an acceptable
evaluation of the laboratory testing results to be questionable.” After performing a
more extensive investigation, however, BASIC concluded that the damage to
Johnson’s home was, in fact, due to sinkhole activity.
Johnson also incurred the additional expert fee expense of $15,000 to retain
BASIC. With the expenses looming larger and larger, Johnson attempted to save
her rapidly dilapidating home and filed a legal action against Omega for breach of
contract. In her complaint, Johnson requested the benefits to which she was
entitled under her policy, along with the accompanying attorney’s fees under
section 627.428. During the discovery process, Omega considered the BASIC
report, which had found sinkhole damage on Johnson’s property. Thereafter,
Omega continued to refuse payment and proceeded to request a neutral evaluation
process pursuant to section 627.7074. The parties agreed to stay litigation pending
the results of the neutral evaluation.
Omega continued to reject the BASIC opinions and failed to pay any policy
benefits. Instead, Omega hired WRS Consulting Engineers (WRS) to perform an
additional evaluation. Following the WRS investigation, WRS agreed with BASIC
that sinkhole activity was present on Johnson’s property. Based on the extensive
damage observed, the WRS engineer recommended grouting, underpinning, and
remediation programs to stabilize the land and home, as well as repairs to the
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foundation. The total cost of repairs was estimated to be in excess of $200,000.
After this second adverse report, Omega finally advised Johnson that it would
abide by the WRS evaluation report and provide payment for the damages pursuant
to section 627.707(5)(b). Johnson was additionally advised that payment for the
damages to her property was conditioned upon her executing a contract with a
remediation company. In cooperation with that condition, Johnson entered into a
contract with Foundation Services for building stabilization and foundation repairs.
The cost of these repairs totaled $213,465.
Following Omega’s acceptance of the WRS evaluation report and tender of
payment to Johnson, Omega filed an Answer and Affirmative Defenses, in which
Omega finally admitted that: (1) sinkhole damage was covered under the policy;
(2) Johnson had applied for benefits to cover her sinkhole damage; (3) Omega had
denied that claim; (4) sinkhole damage was, in fact, the cause of the damage; and
(5) Johnson was therefore entitled to benefits to cover the damages. Johnson
subsequently filed a motion for confession of judgment and a motion for attorney’s
fees, costs, and interest, contending that Omega’s admissions amounted to a
confession of judgment. Omega then changed its position and countered that
Johnson had failed to provide adequate notice of the dispute, suggesting that
Johnson was manipulating the dispute. Further, Omega asserted that Johnson was
absolutely required to show that Omega had acted wrongfully or in bad faith to be
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eligible for any fees under section 627.428. Johnson, however, argued that the
only facts necessary to recover fees under section 627.428 were those facts which
were already admitted by Omega: that Johnson had properly reported sinkhole
damage and made a claim for benefits, Omega denied the claim, and Omega
ultimately conceded that Johnson was entitled to benefits for sinkhole damage to
her home. In other words, Johnson’s position was that a finding of bad faith
conduct on Omega’s part was not required as a prerequisite to entitle her to an
award of statutory attorney’s fees.
Before determining the motion for attorney’s fees, the trial court scheduled a
full hearing. After hearing the parties’ arguments, the trial court rejected Omega’s
contention that Johnson was abusing Florida law under section 627.428, and
determined that the admissions of record constituted a confession of judgment:
THE COURT: I can’t find that there was a race to the courthouse
here or that there was no real dispute. Of course, there was a real
dispute. The policyholder made a claim, the claim was denied. They
think that their property was damaged. The insurance company hired
somebody of their own choosing, and, based on that, they said, any
damage you may have is excluded, and we don’t owe you a nickel.
And it wasn’t until after suit was brought that it turned out that, yes,
we do owe you some money, and they agreed to pay it. That amounts
to a confession of judgment, and you didn’t have to race to the
courthouse. There’s no indication that you were doing that.
(Emphasis supplied.) Therefore, the trial court granted Johnson’s motion for
confession of judgment and attorney’s fees, and thereafter entered an order for
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Omega to pay attorney’s fees, taxable costs, and prejudgment interest to continue
to accrue at the statutory interest rate until paid in full.
Omega subsequently sought review in the Fifth District Court of Appeal.
From the beginning of its opinion, the district court below framed the issue before
it with the presumption that section 627.428 requires some type of bad faith
conduct on the part of the insurance company before fees can be awarded. See
Johnson, 39 Fla. L. Weekly D1911. More specifically, in addressing that
precedent has required a “wrongful” denial of benefits to recover attorney’s fees
under section 627.428, the district court incorrectly understood “wrongful” in this
context to mean that the insurer must have denied the valid claim in bad faith. Id.
The court rejected Johnson’s contention that bad faith conduct is not relevant to
whether an insured is entitled to attorney’s fees under application of section
627.428 and the confession of judgment doctrine:
Johnson claims that it does not matter whether Omega wrongfully
withheld the policy benefits and forced her to file suit. The simple
facts asserted by Johnson are that Omega denied her claim, she filed
suit, and Omega paid the policy benefits thereafter. Johnson argues
that is all she must show to entitle her to fees under the statute. The
trial court was persuaded by Johnson’s argument and rendered the
order awarding fees that we now review. Analyses of section 627.428
and the confession of judgment doctrine reveal that Omega is correct,
not Johnson.
Id. Relying primarily on State Farm Florida Insurance Co. v. Colella, 95 So. 3d
891 (Fla. 2d DCA 2012), the district court reasoned that the confession of
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judgment doctrine is only applicable when the insurance provider wrongfully
forces an insured to pursue litigation to obtain proceeds. Johnson, 39 Fla. L.
Weekly D1911. The court further stated that Johnson had not rebutted the
statutory presumption of correctness afforded to the original report performed by
Omega’s expert, which failed to find sinkhole activity. Id. Because the district
court determined that Omega did not act wrongfully or in bad faith, the court
ultimately held that section 627.428 and the confession of judgment doctrine did
not apply, and thus reversed the trial court’s order granting the attorney’s fees and
cost award. Id.
This review follows.
ANALYSIS
Statutory Presumption of Correctness
This question presents a pure question of law and is, therefore, subject to de
novo review. See Jackson-Shaw Co. v. Jacksonville Aviation Auth., 8 So. 3d
1076, 1084-85 (Fla. 2008). The conflict between the case below and Warfel is
generated by a misapplication of the statutory presumption of correctness afforded
to insurer reports in the initial claims process under the sinkhole statutes, and the
separate and independent statutory provision that provides for the award of
attorney’s fees to insureds who recover benefits when an insurance company has
denied benefits due to insureds. Today, we resolve this conflict by separating the
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provisions that have been misapplied by the Fifth District and Respondent, Omega.
Specifically, because we explicitly held in Warfel that the statutory presumption of
correctness described in the sinkhole statutes does not extend to the litigation
context, Johnson did not have the burden of separately rebutting that initial
presumption to recover attorney’s fees under the terms of section 627.428, Florida
Statutes, even though all subsequent expert reports refuted the initial insurance
company report.
In Warfel, we considered the proper application of an insurance statute in the
sinkhole claim context. See 82 So. 3d at 57. The plaintiff in Warfel filed an action
for breach of contract after the insurer had denied the claim based on the report of
the engineer selected and hired exclusively by the insurance company. Id. at 50.
Relevant here, section 627.7073(1)(c) had been amended to provide that the
findings and recommendations made by an engineer selected and hired by an
insurer during the initial claim investigation process are statutorily presumed
correct. Id. at 49-50. Based on this provision, and after the claim for benefits had
proceeded into a legal action, the trial court instructed the jury that Warfel had the
burden to overcome the statutory presumption of correctness afforded to the
insurer’s expert report, which was also the reasoning of the court below. Id. at 50-
51. The Second District Court of Appeal reversed and remanded for new trial,
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reasoning that the Legislature did not intend to create a burden-shifting
presumption in section 627.7073(1)(c). Id. at 51. This Court affirmed. Id. at 65.
On appeal, the issue before this Court was whether the presumption of
correctness afforded to the insurer-engineer report during the initial claim process
in section 627.7073(1)(c) extended to trial proceedings. See id. at 51. There, we
examined both the plain language and legislative history of section 627.7073(1)(c).
With respect to the plain wording of the statute itself, this Court recognized that
when the Legislature intends to incorporate a burden-shifting provision into a
statute, overwhelming precedent indicates that it does so explicitly. See id. at 58.
However, no such explicit language exists in section 627.7073(1)(c). See id. We
thus concluded that to apply such a presumption absent direction in the statute
would render section 627.7073(1)(c) unconstitutional. Id. After a review of the
legislative history of the statute, the Court likewise concluded that “the legislation
is specifically designed to protect the public during the claims process,” not the
insurance company during litigation. Id. at 62 (emphasis supplied). “If at all,” we
explained, “the statutory plan is designed to require that insurance companies have
expert reports in the [initial] claims process before denying a request for benefits.”
Id. at 63 (emphasis supplied). Ultimately, we held that the presumption of
correctness in section 627.7073(1)(c) is specific and limited to the initial claim
adjustment process, and should not be applied to the trial process. Id. at 57-58
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(“[B]ecause the sinkhole statutes do not apply to the litigation context, the trial
court’s . . . treatment of this statute as evidentiary in nature in this case was
incorrect.”).
Notwithstanding our explicit holding in Warfel, the Fifth District in the case
below applied the presumption in 627.7073(1)(c) to the litigation between Johnson
and Omega. Johnson, 39 Fla. L. Weekly D1911 (footnote omitted). Strangely
enough, the Fifth District specifically acknowledged our holding in Warfel.
Notably, however, the court below selected the following phrase from Warfel to
support its application of the presumption: “[T]he presumption of correctness
attached to the [professional engineer’s or geologist’s] report appears to be aimed
at shielding the . . . insurance companies from claims of improper denials of
claims.” Id. (quoting Warfel, 82 So. 3d at 57). Yet, the court below failed to
acknowledge the topic sentence of the same paragraph, where we plainly stated,
“Nothing in section 627.7073, the statute in question here, justifies application of
that statute to the litigation context.” Warfel, 82 So. 3d at 57 (emphasis supplied).
Given that we explicitly declined to extend the statutory presumption of
correctness in the sinkhole statutes to the trial process, it is clear that the court
below acted in conflict with our decision in Warfel when it extended the
presumption of correctness to the initial insurance company report, which was
incorrect, during litigation and placed a burden on Johnson to further rebut it. The
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court below and Omega mistakenly blur the lines between the reliance on reports
of insurance company experts made during the initial claims process pursuant to
the sinkhole statutes and the attorney’s fees to which insureds are entitled under
section 627.428 when the insured prevails. Consistent with Warfel, we reiterate
that the initial claims process in the sinkhole statutes does not supersede or justify
an incorrect denial of benefits under section 627.428. We thus hold that the
presumption of correctness granted to the insurer’s investigative report in section
627.7073(1)(c) of the sinkhole statutes is only applicable to the sinkhole initial
claims process, and does not continue to apply during the trial stage. Nor does it
preclude an award of attorney’s fees under section 627.428 when an insured
ultimately prevails by recovering benefits.
Johnson’s Entitlement to Fees
We next address the conflict between the case below and Ivey. Specifically,
the reasoning in the case below indicates that there is confusion in the Fifth District
as to whether a recovery of attorney’s fees under section 627.428, Florida Statutes,
requires bad faith or malicious conduct on the part of the insurance carrier as a
prerequisite for such an award. Because the precedent in this area of law clearly
rejects a bad faith or maliciousness requirement and the court below relied on
distinguishable jurisprudence, we decline to construct an additional hurdle of bad
faith for insureds to overcome. Therefore, consistent with the opinions of this
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Court and others, we make abundantly clear today that in the context of section
627.428, a denial of benefits simply means an incorrect denial.
Generally, the custom in American law is that each party is responsible for
his or her own attorney’s fees, regardless of the outcome of the action. See State
Farm Fire & Cas. Co. v. Palma, 629 So. 2d 830, 832 (Fla. 1993). An exception,
however, arises when an agreement of the parties or a statute states otherwise. Id.
The Legislature created such a statutory provision in section 627.428, Florida
Statutes, which allows insureds who prevail against an insurance company to
recover attorney’s fees. § 627.428, Fla. Stat. Furthermore, it is well settled that
the payment of a previously denied claim following the initiation of an action for
recovery, but prior to the issuance of a final judgment, constitutes the functional
equivalent of a confession of judgment. See, e.g., Pepper’s Steel & Alloys, Inc. v.
U.S., 850 So. 2d 462, 465 (Fla. 2003) (“[Section 627.428] clearly provides that
attorneys’ fees shall be awarded against the insurer when judgment is rendered in
favor of an insured. In Florida, the payment of a settlement claim is the functional
equivalent of a confession of judgment or a verdict in favor of the insured.”)
(citation omitted); Ivey, 774 So. 2d at 684-85 (“[W]here an insurer pays policy
proceeds after suit has been filed but before judgment has been rendered, the
payment of the claim constitutes the functional equivalent of a confession of
judgment or verdict in favor of the insured, thereby entitling the insured to
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attorney’s fees.”); Wollard v. Lloyd’s & Cos. of Lloyd’s, 439 So. 2d 217, 218 (Fla.
1983) (“When the insurance company has agreed to settle a disputed case, it has, in
effect, declined to defend its position in the pending suit. Thus, the payment of the
claim is, indeed, the functional equivalent of a confession of judgment or a verdict
in favor of the insured.”); Barreto v. United Servs. Auto. Ass’n, 82 So. 3d 159, 162
(Fla. 4th DCA 2012) (“Here, because the insurer paid the full amounts claimed
only after suit was filed, it essentially confessed judgment.”) (emphasis supplied);
De Leon v. Great Am. Assur. Co., 78 So. 3d 585, 591-92 (Fla. 3d DCA 2011)
(“[A]ny success in an action on an insurance policy, let alone the full payment of
the asserted claim, requires an award of fees.”); Goff v. State Farm Fla. Ins. Co.,
999 So. 2d 684, 688 (Fla. 2d DCA 2008) (policyholder was entitled to attorney’s
fees because the insurer only agreed to grant benefits after the action was filed).
Moreover, we have held that the bad faith or degree of “wrongfulness” of
the insurance company is not relevant to a recovery of attorney’s fees under section
627.428. See Ivey, 774 So. 2d at 684 (rejecting a bad faith requirement for section
627.428 attorney’s fees); Ins. Co. of N. Am. v. Lexow, 602 So. 2d 528, 531 (Fla.
1992) (“[The insurance company’s] good faith in bringing this suit is irrelevant. If
the dispute is within the scope of section 627.428 and the insurer loses, the insurer
is always obligated for attorney’s fees.”).
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The need for fee and cost reimbursement in the realm of insurance litigation
is deeply rooted in public policy. Namely, the Legislature recognized that it was
essential to “level the playing field” between the economically-advantaged and
sophisticated insurance companies and the individual citizen. Ivey, 774 So. 2d at
684. Most assuredly, the average policyholder has neither the finances nor the
expertise to single-handedly take on an insurance carrier. Without the funds
necessary to compete with an insurance carrier, often a concerned policyholder’s
only means to take protective action is to hire that expertise in the form of legal
counsel. Counsel then have the ability and knowledge to hire an independent
engineer or other expert to prepare a report that either confirms or denies the
policyholder’s view of the cause of damages. For this reason, the Legislature
recognized that an insured is not made whole when an insurer simply grants the
previously denied benefits without fees. See id. The reality is that once the
benefits have been denied and the plaintiff retains counsel to dispute that denial,
additional costs that require relief have been incurred. Section 627.428 takes these
additional costs into consideration and levels the scales of justice for policyholders
by providing that the insurer pay the attorney’s fees resulting from incorrectly
denied benefits. Without this approach, we would leave the insured to foot the bill
not only for attorney’s fees, but also for experts to overcome the denial, which
would render insurance payments insufficient to cover the loss.
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We directly addressed the issue of whether a wrongful denial of benefits in
the context of section 627.428 encompasses a requirement of bad faith conduct in
Ivey. The insured in Ivey applied for personal injury protection benefits after
having been hit by a car that was insured by Allstate Insurance Company. 774 So.
2d at 681. Allstate failed to conduct a proper investigation and only covered one
of the two injuries suffered by the insured. Id. The insured thereafter filed an
action seeking proper payment for the additional injury, and Allstate subsequently
agreed to pay the proceeds. Id. Because Allstate conceded that it had initially
denied the benefits in error, the insured then requested attorney’s fees pursuant to
sections 627.736 and 627.428. Id. The county court denied the fees because,
pursuant to section 627.736, the insurance company paid the balance within thirty
days of learning it had denied coverage in error. Id. The circuit court, sitting in its
appellate capacity, reversed and granted the fees. Id. However, the Third District
granted certiorari and reversed the circuit court’s grant of fees to the insured
because Allstate’s failure to pay the entire claim was due to an error in the doctor’s
bill. Id.
Observing that the Third District was wrong, however, this Court accepted
jurisdiction and addressed the burden of insureds under the provisions in section
627.428 and the confession of judgment doctrine. There, we flatly rejected the
notion that some type of bad faith or menacing conduct was required for an insurer
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to have acted “wrongfully” under section 627.428. Id. at 684. Rather, we clearly
set forth that the existence of a dispute between the insurer and the policyholder
coupled with a favorable judgment or payment without judgment for the insured is
what justifies an award of attorney’s fees. Id. In other words, a “wrongful” denial
in this context means an incorrect denial, not one made in bad faith. As we said in
Ivey, “It is the incorrect denial of benefits, not the presence of some sinister
concept of ‘wrongfulness,’ that generates the basic entitlement to the fees if such
denial is incorrect.” Id. (emphasis supplied).
Notwithstanding our rejection of the bad faith requirement in Ivey, the court
below and Omega continue to assert that Omega must have acted in bad faith or
maliciously to allow Johnson to recover fees under section 627.428. This position,
however, ignores clear binding legal precedent to the contrary. The language in
Ivey makes clear that the insurer’s intentions do not factor into a policyholder’s
recovery of fees; it is the fact that the denial of benefits was ultimately incorrect
that triggers the statute. Here, the facts are undisputed that Johnson submitted a
claim, Omega denied that claim, Johnson filed an action seeking recovery, and
Omega subsequently conceded that it had incorrectly denied the benefits based on
an inaccurate report. These facts alone warrant an award of attorney’s fees to
Johnson under section 627.428.
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In avoiding our holding in Ivey, the court below primarily relies on an
incorrect interpretation of Colella, 95 So. 3d 891, to support its conclusion that the
confession of judgment doctrine should not be applied in this situation.
Specifically, the court below and Omega place tremendous weight on the Colella
court’s statement, “we are inclined to believe that ‘compliance with the sinkhole
statute’ goes a long way toward fulfilling State Farm’s obligations under its
contract.” See Johnson, 39 Fla. L. Weekly D1911 (quoting Colella, 95 So. 3d at
895). In simpler terms, Omega clings to that language and asks us to hold that
Omega is sheltered from liability for attorney’s fees simply because it performed
the minimum investigation required by law before erroneously denying Johnson’s
claim—despite the fact that subsequent reports confirmed that Omega was wrong
in denying the proceeds. However, this holding would not be justified under this
Court’s prior rulings, or Colella for that matter. The insurance company controls
the selection and hiring of its experts.
While the initial facts of Colella may appear similar to those in the current
case, a full picture of the events that occurred in Colella separate the case from
Johnson’s situation here. As in this case, Colella also involved an insured who
made a claim for sinkhole damages. 95 So. 3d at 892. The insured was notified by
letter that her claim was denied because the investigation performed by the
insurer’s engineer indicated that sinkhole damage was not present. Id. The insured
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did not reply to the letter, and subsequently filed an action. Id. at 893. The
similarities, however, end there. Unlike the instant case, Colella was wrought with
indications of foul play by the insured. To begin with, Colella filed a civil remedy
notice with multiple allegations, but could not explain or describe the practices and
procedures that the insurer failed to perform. Id. at 893. Over Collela’s
objections, State Farm successfully sought a stay of proceedings pending the
outcome of a neutral evaluation. Id. Colella’s counsel refused to cooperate with
the neutral evaluator, which rendered the neutral evaluator unable to access the
inside of Colella’s home. Id. at 893-94. Based on the neutral evaluator’s limited
ability to investigate, he ultimately recommended that a third party be retained to
perform additional testing. Id. at 894. Rather than hire the additional engineer,
State Farm decided to simply pay the insurance proceeds to Colella and sent her a
letter conceding her entitlement to benefits. Id. At that point, the district court
noted that State Farm likely paid the claim to cut its losses and avoid the additional
cost and expense of litigating a case with an uncooperative insured. See id.
The questionable conduct by the insured did not end there. Following State
Farm’s payment of the claim, Colella moved for partial summary judgment,
contending that the payment of the proceeds and the letter conceding her
entitlement to those benefits constituted a confession of judgment. Id. She further
alleged a claim under section 626.9541(1), Florida Statutes (2006), or Florida’s
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Unfair Insurance Trade Practice Act, in which wrongfulness or bad faith is an
issue. Id. In addition, Colella alleged that State Farm acted in “bad faith” as
defined in section 624.11, Florida Statutes (2006). Id. Under these counts, Colella
made several unfounded accusations against State Farm, including that it issued
unusable checks, conspired with the first engineer to certify a false report, and
improperly sought a neutral evaluation. Id. Moreover, in spite of her allegation
that State Farm refused to pay her damages, the record revealed that State Farm
had in fact offered to pay Colella’s attorneys fees and costs prior to the filing of the
amended complaint. Id. at 896. Ultimately, the district court concluded that
Colella’s complaint offered many legal conclusions with little to no factual detail
to support them, and thus held there was no breach of contract under these facts.
Id.
Although the Colella court expressed that it considered the insurer’s
compliance with the sinkhole statutes, the full context of the opinion reveals that
the court’s primary concern was with the questionable actions of the insured, not
the insurer. Specifically, the district court’s repeated usage of the phrases “under
the undisputed facts of this case” and “in this context” to qualify its reasoning
indicated that the court was disturbed by the particular facts related to the insured
in that case. Indeed, implicit throughout Colella is a concern with allowing an
insured who litigates in bad faith to profit from a technicality. However, there is
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nothing in Colella to imply that an outcome in favor of the insurance company
should apply beyond those facts. We make no such assumption today.
Contrary to the understanding of the court below and Omega, Colella does
not support a requirement of bad faith or malicious conduct under section 627.428.
The manipulation and foul play by the insured evinced in Colella is simply not
present in the case below.
Unlike Colella, Johnson did nothing to indicate that she was acting
improperly or in bad faith. In fact, were it not for Johnson’s action in obtaining an
independent evaluator, she would have been denied hundreds of thousands of
dollars in benefits due to an apparently inadequate and incorrect investigation
performed by and on behalf of Omega. If anything, Johnson was the one who
made steps to correct a wrongful situation. All inspectors here, including an
independent expert, had the full cooperation of Johnson and not only performed a
full investigation, but admittedly performed a more thorough investigation than
that originally performed by the insurance company’s expert. Johnson did not
present her dispute with frivolous claims; she proceeded with cold, hard facts. We
therefore cannot endorse the Fifth District’s reasoning that the outcome in Colella
is justified in the case at hand.
The court below similarly relies upon several cases in attempt to support its
assertion that the “wrongful” denial of a claim required by section 627.428 must be
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accompanied by the insurer’s bad faith; yet, a review of the facts of these cases
also indicate that it was the policyholder’s misleading conduct—not the
insurer’s—that was relevant to an award of attorney’s fees. See State Farm Fla.
Ins. Co. v. Lorenzo, 969 So. 2d 393, 398 (Fla. 5th DCA 2007); Liberty Nat. Life
Ins. Co. v. Bailey ex rel. Bailey, 944 So. 2d 1028, 1029-30 (Fla. 2d DCA 2006);
Gov’t Emps. Ins. Co. v. Battaglia, 503 So. 2d 358, 360-61 (Fla. 5th DCA 1987).
As we have discussed, the overwhelming case law on the subject dictates
that both Omega and the court below were incorrect on the question of attorney’s
fees. Once an insurer has incorrectly denied benefits and the policyholder files an
action in dispute of that denial, the insurer cannot then abandon its position without
repercussion. To allow the insurer to backtrack after the legal action has been filed
without consequence would “essentially eliminate the insurer’s burden of
investigating a claim.” Ivey, 774 So. 2d at 684. We therefore disagree with the
hypothetical reasoning in Clifton v. United Casualty Insurance Co. of America, 31
So. 3d 826 (Fla. 2d DCA 2010), and disapprove of the suggestion that section
627.428 requires a finding of bad faith on the part of the insurance company. 2
2. Since the issuance of the decision below, the Fifth District has similarly
denied attorney’s fees to a claimant who was originally denied coverage by his
insurer, but received benefits after filing suit. Explorer Ins. Co. v. Cajusma, et. al.,
No. 5D14-2608, 2015 WL 6757612 (Fla. 5th DCA Nov. 6, 2015). Like the
decision below, the denial in Cajusma contradicts well-established insurance
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In sum, the law is clear. Section 627.428 provides that an incorrect denial of
benefits, followed by a judgment or its equivalent of payment in favor of the
insured, is sufficient for an insured to recover attorney’s fees. Extensive case law
further provides that an insurer’s concession that the insured was entitled to
benefits after a legal action has been initiated is the functional equivalent of a
confession of judgment. Here, it is undisputed that Omega did not admit its error
in denying benefits until after Johnson filed the action. Thus, there is no question
that Johnson is entitled to attorney’s fees in this situation.
We cannot, as the court below held and Omega requests here, discourage
insureds from seeking to correct the incorrect denials of valid claims and allow
insurers to deny benefits to which insureds are entitled without ramifications.
Johnson proceeded with the only action that a non-expert claimant in conflict with
a major insurance company could take: she retained counsel and thus obtained
access to an independent expert. After performing a more thorough investigation
than that of the insurance carrier, the independent expert did find sinkhole damage
and confirmed that Johnson was right. These findings led to the hiring of a neutral
evaluator, who also performed a more thorough investigation than Omega’s initial
evaluator, and ultimately confirmed that Johnson’s claim for sinkhole damage was
jurisprudence, and we thus disapprove of it to the extent that it conflicts with this
opinion.
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incorrectly denied. We will not punish Johnson for actively seeking a solution to
the immense financial burden placed on her and the very real property damage to
her home. Thus, consistent with our decision in Ivey, we hold that a recovery for
attorney’s fees under section 627.428 requires an incorrect denial of benefits by the
insurance company, not a bad faith denial.
CONCLUSION
In light of the express and direct conflict between the decision below and our
decisions in Warfel and Ivey, we quash the decision below and remand to the trial
court for further proceedings consistent with this opinion.
It is so ordered.
LABARGA, C.J., and PARIENTE, QUINCE, and PERRY, JJ., concur.
POLSTON, J., concurs in result.
CANADY, J., dissents with an opinion.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
CANADY, J., dissenting.
Because I conclude that the decision of the Fifth District in Omega
Insurance Co. v. Johnson, 39 Fla. L. Weekly D1911 (Fla. 5th DCA Sept. 5, 2014),
does not expressly and directly conflict with the decisions of this Court in
Universal Insurance Co. of North America v. Warfel, 82 So. 3d 47 (Fla. 2012), or
Ivey v. Allstate Insurance Co., 774 So. 2d 679 (Fla. 2000), I would dismiss this
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case for lack of jurisdiction under article V, section 3(b)(3) of the Florida
Constitution.
Johnson and Warfel both deal with the same statutory presumption, but they
address the application of that presumption in different contexts. In Johnson, the
Fifth District addressed “whether Omega wrongfully withheld policy benefits to its
insured, Kathy Johnson, after she filed a claim for sinkhole damage under the
policy Omega issued to her, thereby forcing her to file suit to collect her policy
benefits.” Johnson, 39 Fla. L. Weekly D1911. The Fifth District considered
Omega’s actions under the detailed statutory process for investigating and
obtaining a neutral evaluation of sinkhole claims. The court held that the statutory
presumption of correctness in section 627.7073(1)(c), Florida Statutes (2009),
applied in circumstances that occurred before any trial proceedings were
conducted, and held that “application of the confession of judgment doctrine as a
basis to award fees under section 627.428 was error.” Id. The court also
recognized that “[t]his presumption is not an evidentiary presumption, but a pre-
trial ‘vanishing’ presumption requiring the production of some countervailing
evidence.” Id. (citation omitted).
Warfel—in contrast to Johnson—considered the insurer’s assertion of the
statutory presumption at trial. We held in Warfel that “because the sinkhole
statutes do not apply to the litigation context, the trial court’s application of section
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90.304 to section 627.7073(1)(c) and the treatment of this statute as evidentiary in
nature in this case was incorrect.” Warfel, 82 So. 3d at 57-58. We further stated
that “[t]he presumption applies to the initial claim process and investigation that
insurance companies are required to follow in accepting or denying claims.” Id. at
58.
Warfel thus concluded that the statutory presumption does not apply at trial,
but Johnson did not apply the presumption in the context of trial proceedings.
Rather, in determining whether Omega’s conduct forced Johnson to file suit,
Johnson applied the presumption to “the initial claim process and investigation,”
which Warfel expressly recognized is the proper context for application of the
presumption. Warfel does not suggest that the statutory neutral evaluation process
is excluded from the pre-litigation context in which the presumption is applicable.
Nothing in Warfel addresses the application of the confession of judgment doctrine
as a basis to award fees under section 627.428. And both cases are in agreement
that the presumption is not an evidentiary presumption. Warfel thus provides no
basis for the Court to exercise conflict jurisdiction over Johnson.
Nor does Johnson expressly and directly conflict with Ivey. The two cases
deal with dissimilar statutory schemes. As explained previously, Johnson
addressed whether Omega wrongfully withheld sinkhole policy benefits due to
Johnson and thereby forced her to file suit to collect her policy benefits, and the
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Fifth District held that application of the confession of judgment doctrine as a basis
to award fees under section 627.428 was error in the context of the statutory
process established for the investigation and neutral evaluation of sinkhole claims.
Johnson, 39 Fla. L. Weekly D1911.
In contrast, this Court in Ivey addressed the insurer’s burden of investigating
and paying a claim under the requirements of Florida’s no-fault insurance
scheme—specifically, the requirement to pay benefits within thirty days after
receipt of notice of the claim—in conjunction with section 627.428. Ivey, 774 So.
2d at 684. We held that
under PIP law, the focus is outcome-oriented. If a dispute arises
between an insurer and an insured, and judgment is entered in favor of
the insured, he or she is entitled to attorney’s fees. It is the incorrect
denial of benefits, not the presence of some sinister concept of
“wrongfulness,” that generates the basic entitlement to the fees if such
denial is incorrect.
Id. Ivey concluded that the “wrongfulness” of an insurer’s denial of a PIP claim is
irrelevant when determining whether an insured is entitled to attorney’s fees under
section 627.428. Id. In contrast, Johnson concluded that in the context of the
specific statutory process established for the investigation and neutral evaluation of
sinkhole claims that the wrongfulness or unreasonableness of an insurer’s denial of
a sinkhole claim is relevant when determining whether an insured is entitled to
attorney’s fees under section 627.428. Although Ivey held that the insurer’s
“payment after suit was filed operates as a confession of judgment,” nothing in
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Ivey suggests that its holding should be extended beyond the context of the PIP
statute. Id. at 684. There is no express and direct conflict with Johnson.
This Court lacks jurisdiction under the Florida Constitution to review
Johnson. Accordingly, I dissent.
Application for Review of the Decision of the District Court of Appeal - Direct
Conflict of Decisions
Fifth District - Case No. 5D13-1701
(Marion County)
Timothy Wayne Weber and Joseph Patrick Kenny of Weber, Crabb & Wein, P.A.,
Saint Petersburg, Florida; and Morgan Barfield of Corless Barfield Trial Group,
Tampa, Florida,
for Petitioner
Anthony John Russo and Ezequiel Lugo of Butler Weihmuller Katz Craig LLP,
Tampa, Florida,
for Respondent
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