Demase v. State Farm Florida Ins. Co.

IN THE DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FIFTH DISTRICT
NOT FINAL UNTIL TIME EXPIRES TO
FILE MOTION FOR REHEARING AND
DISPOSITION THEREOF IF FILED
THOMAS DEMASE AND JOANNE DEMASE,
Appellants,
v. Case No. 5D16-2390
STATE FARM FLORIDA INSURANCE COMPANY,
Appellee.
________________________________/
Opinion filed March 29, 2018
Appeal from the Circuit Court
for Hernando County,
Richard Tombrink, Jr., Judge.
Nancy A. Lauten and George A. Vaka, of
Vaka Law Group, Tampa, and Kelly L.
Kubiak, of Merlin Law Group, Tampa, for
Appellants.
Lee Craig and Matthew J. Lavisky, of Butler
Weihmuller Katz Craig LLP, Tampa, for
Appellee.
ORFINGER, J.
Thomas and Joanne Demase appeal a final order dismissing their bad faith lawsuit
against their insurer, State Farm Florida Insurance Company, with prejudice. They argue
that the trial court erred in ruling that they could not maintain a bad faith action without
alleging that there had been a favorable resolution of an underlying civil action for
insurance benefits against State Farm, whether in the form of a judgment, arbitration,
appraisal, or action on the contract. We agree and reverse the order of dismissal.
The Demases’ home was insured under an insurance policy issued by State Farm.
In October 2009, their home sustained suspected sinkhole damage, which they reported
to State Farm. State Farm hired Geohazards, Inc., which confirmed the existence of
sinkhole activity at the property and recommended certain repairs. The Demases
performed the recommended repairs, resulting in further damage to their home.
Geohazards then re-inspected the home and made additional recommendations. In
August 2012, a neutral evaluator agreed there was sinkhole activity at the property and
recommended further repairs. The Demases agreed to proceed with the neutral
evaluator’s recommended repairs under protest. However, in April 2013, State Farm
hired MCD of Central Florida to inspect the property. MCD opined that there was no
sinkhole activity affecting the Demases’ property. When the Demases persisted with their
claim for insurance benefits, State Farm demanded additional documentation,
inspections, and examinations under oath. The Demases complied with all of these
demands.
On August 27, 2014, the Demases served a civil remedy notice (“CRN”) pursuant
to section 624.155, Florida Statutes (2014), alleging that State Farm engaged in bad faith
insurance practices by failing to promptly and properly investigate the claim, adjust the
loss, and act with due diligence and good faith to resolve and pay the claim. The
Demases demanded the immediate tender of “all insurance monies due and owing . . .
that would reasonably place [them] back to their pre-loss condition.” The Department of
Financial Services accepted the CRN on August 27, 2014, which began a sixty-day period
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in which State Farm could cure its alleged wrongful conduct. See § 624.155(3)(a), Fla.
Stat. (2014). While State Farm paid nothing during the sixty-day cure period, on April 10,
2015, it conceded that the Demases’ home could not be repaired and tendered the policy
limits.
The Demases then brought a first-party bad faith lawsuit against State Farm,
asserting various purported violations of sections 624.155(1)(b)1. and 626.9541(1)(i),
Florida Statutes (2014). State Farm moved to dismiss the complaint, relying on Blanchard
v. State Farm Mutual Automobile Insurance Co., 575 So. 2d 1289, 1291 (Fla. 1991), which
held that “an insured’s underlying first-party action for insurance benefits against the
insurer necessarily must be resolved favorably to the insured before the cause of action
for bad faith in settlement negotiations can accrue.” State Farm argued that before a bad
faith claim could be asserted, the Demases were required to obtain an appraisal award,
an arbitration award, or a judgment in an underlying breach of contract case, which they
did not do. The Demases responded that a first-party bad faith action ripens when two
conditions have been satisfied: (1) the insurer raises no defense that would defeat
coverage; and (2) the actual extent of the insured’s loss has been determined. They
submitted that State Farm’s payment of the insurance policy limits after the expiration of
the sixty-day cure period found in section 624.155 satisfied those requirements, and was
the “functional equivalent of a determination of liability-in other words . . . the payment
established that [they] had a valid claim.”
The trial court dismissed the Demases’ complaint, reasoning that it “did not allege
there had been a favorable resolution of an underlying civil action for insurance benefits
against the insurer-whether in the form of a judgment, arbitration, appraisal, or ‘action on
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the contract.’ The Complaint also fails to allege that the Defendant’s liability for coverage
and the extent of damages has been determined.”
This Court reviews orders granting motions to dismiss de novo. E.g., Wallace v.
Dean, 3 So. 3d 1035, 1045 (Fla. 2009). In assessing the adequacy of the pleading of a
claim, we take the factual allegations in the complaint as true and draw all reasonable
inferences in favor of the pleader. Jordan v. Nienhuis, 203 So. 3d 974, 976 (Fla. 5th DCA
2016); Ray Coudriet Builders, Inc. v. R.K. Edwards, Inc., 157 So. 3d 484, 485 (Fla. 5th
DCA 2015).
As we shall explain, we hold that an underlying action on the insurance contract is
not required for there to be a determination of the insurer’s liability and the extent of the
damages as a prerequisite to filing a statutory bad faith action. Instead, an insurer’s
payment of an insurance claim after the sixty-day cure period provided by section
624.155(3) constitutes a determination of an insurer’s liability for coverage and extent of
damages under section 624.155(1)(b) even when there is no underlying action.
A cause of action for first-party bad faith did not exist at common law. QBE Ins.
Corp. v. Chalfonte Condo. Apartment Ass’n, 94 So. 3d 541, 546 (Fla. 2012). In 1982, the
Florida Legislature created a first-party bad faith cause of action by enacting section
624.155, Florida Statutes, thereby imposing a duty on insurers to settle their
policyholders’ claims in good faith. Ch. 82–243, § 9, Laws of Fla. The statute was
“designed and intended to provide a civil remedy for any person damaged by an insurer’s
conduct.” QBE Ins. Corp., 94 So. 3d at 546. Specifically, section 624.155(1)(a) provides
that “[a]ny person may bring a civil action against an insurer when such person is
damaged” by a violation by the insurer of certain statutory provisions, including section
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626.9541(1)(i), which prohibits unfair methods of competition and unfair and deceptive
trade practices regarding claim settlement practices. Section 624.155(1)(b)1. gives an
insured a civil remedy against an insurer for “[n]ot attempting in good faith to settle claims
when, under all the circumstances, it could and should have done so, had it acted fairly
and honestly toward its insured and with due regard for her or his interests.” The
damages recoverable by the insured in a bad faith action are those amounts that are the
reasonably foreseeable consequences of the insurer’s bad faith, which include, but are
not limited to, interest, court costs, reasonable attorney’s fees, and, in appropriate cases,
punitive damages. § 624.155(4), (5), (8), Fla. Stat. (2014).
As a condition to bringing such a bad faith action, Florida’s Department of Financial
Services and the insurer must be given sixty days’ written notice of the claim. See §
624.155(3)(a), Fla. Stat. (2014). “The sixty-day window is designed to be a cure period
that will encourage payment of the underlying claim, and avoid unnecessary bad faith
litigation.” Talat Enters., Inc. v. Aetna Cas. & Sur. Co., 753 So. 2d 1278, 1282 (Fla. 2000)
(citation omitted). This cure period allows the insurer “a final opportunity ‘to comply with
their claim-handling obligations when a good-faith decision by the insurer would indicate
that contractual benefits are owed.’” Fridman v. Safeco Ins. Co. of Ill., 185 So. 3d 1214,
1220 (Fla. 2016) (quoting Talat Enters., 753 So. 2d at 1284). “[I]f an insurer fails to
respond to a civil remedy notice within the sixty-day window, there is ‘a presumption of
bad faith sufficient to shift the burden to the insurer to show why it did not respond.’” Id.
(quoting Imhof v. Nationwide Mut. Ins. Co., 643 So. 2d 617, 619 (Fla. 1994), receded from
in part on other grounds, State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 63
(Fla. 1995)). Hence, a statutory bad faith claim under section 624.155 is ripe for litigation
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when there has been (1) a determination of the insurer’s liability for coverage; (2) a
determination of the extent of the insured’s damages; and (3) the required notice is filed
pursuant to section 624.155(3)(a). Landers v. State Farm Fla. Ins. Co., 234 So. 3d 856,
859 (Fla. 5th DCA 2018); Cammarata v. State Farm Fla. Ins. Co., 152 So. 3d 606, 612
(Fla. 4th DCA 2014).
In Blanchard, the United States Court of Appeals for the Eleventh Circuit asked the
Florida Supreme Court the following question: “Does an insured’s claim . . . under section
624.155(1)(b)(1)., Florida Statutes, for allegedly failing to settle the . . . claim in good faith
accrue before the conclusion of the underlying litigation for the contractual . . . benefits?”
575 So. 2d at 1290. The supreme court answered that the insured must obtain the
favorable resolution of the underlying first-party action for insurance benefits before the
insured can sue for bad faith. Id. at 1291. Although Blanchard refers to a favorable
resolution of an “underlying first-party action,” “no language in Blanchard expressly states
that an insured must have filed any breach of contract action before a bad faith claim
accrues.” Cammarata, 152 So. 3d at 610.
In Vest, the supreme court clarified Blanchard and ascribed the “underlying first-
party action” language to the procedural context in which the Blanchard case arose,
stating:
Blanchard arose in the context of a certified question arising out of
an issue as to whether the failure to pursue a bad-faith action for
violation of section 624.155(1)(b)1[.] in an action for breach of the
underlying insurance contract for nonpayment of benefits was the
improper splitting of a cause of action. We held that it was not. Our
decision in that case had to do with the timing of the bringing of
causes of actions and not as to what claims could be pursued when
a claim for bad faith ripened.
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753 So. 2d at 1275; see also Cammarata, 152 So. 3d at 610 (attributing “underlying first-
party action” statement to Blanchard’s “procedural context”). The Vest court then held
that the Blanchard prerequisites are properly read as conditions that the plaintiff must
establish before asserting a bad faith claim. 753 So. 2d at 1275. “Once those elements
exist, there is no impediment as a matter of law to a recovery of damages for violation of
section 624.155(1)(b)1[.] dating from the date of a proven violation.” Id. The court
concluded that “[w]e continue to hold in accord with Blanchard that bringing a cause of
action in court for violation of section 624.155(1)(b)1[.] is premature until there is a
determination of liability and extent of damages owed on the first-party insurance
contract.”1 Id. at 1276.
In Vest, the supreme court cited with approval the fourth district’s decision in
Brookins v. Goodson, 640 So. 2d 110 (Fla. 4th DCA 1994), disapproved of in part on
other grounds by Laforet, 658 So. 2d at 62, which held that payment of the policy limits
by an insurer was the “functional equivalent” of an allegation that there has been a final
determination of the insurer’s liability and damages. The supreme court described the
issue in Brookins as “whether a settlement constituted the ‘determination of damages’
1 A determination of liability and extent of damages does not require that the
insured bring and succeed in some form on a breach-of-contract claim against the insurer
before the insured can state a claim against the insurer for first-party bad faith. In Time
Insurance Co. v. Burger, 712 So. 2d 389 (Fla. 1998), the insured submitted a claim for
payment of health care benefits. After the health insurance company refused to pay the
bills, the insured sent the CRN. The health insurance company did not cure within sixty
days of the notice. The insured filed a bad-faith cause of action based on the health
insurance company’s failure to pay the claims that he initially submitted. The supreme
court recognized the claim for bad faith, although it does not appear that the insured filed
an underlying action on the insurance contract.
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required by Blanchard . . . .” Vest, 753 So. 2d at 1273. It then quoted the following
language from Brookins with approval:
The supreme court has recently held that to state a cause of action
for first party bad faith there must be an allegation that there has
been a determination of the insured’s damages. Imhof v. Nationwide
Mut. Ins. Co., 643 So. 2d 617 (Fla. 1994). The court did not, however,
require that the damages be determined by litigation, that there be
an allegation of a specific amount of damages or that the damages
be in excess of the policy limits. The court was not faced with the
circumstance presented here where the policy limits are
subsequently tendered by the insurer. The insured in Imhof received
an award of damages through arbitration of an amount less than the
policy limits. The amount or extent of damages was held not to be
determinative of whether an insured could bring a first party bad faith
claim; the purpose of the allegation concerning a determination of
damages was to show that “Imhof had a valid claim.” Id. at 618.
We hold that the payment of the policy limits by the insurer here is
the functional equivalent of an allegation that there has been a
determination of the insured’s damages. It satisfies the purpose for
the allegation—to show that the insured had a valid claim.
....
Neither in Blanchard nor more recently in Imhof does the supreme
court suggest that the required resolution of the insured’s underlying
claim must be by trial or arbitration . . . . However, as noted in
Blanchard, a resolution of some kind in favor of the insured is a
prerequisite. There was a favorable resolution here.
Vest, 753 So. 2d at 1273–74 (quoting Brookins, 640 So. 2d at 112–13) (emphasis added).
Based on Vest’s clarification of Blanchard and its reliance on Brookins, the fourth
district court in Cammarata held that
an insurer’s liability for coverage and the extent of damages, and not
an insurer’s liability for breach of contract, must be determined
before a bad faith action becomes ripe. To paraphrase Vest, the
determination of the existence of liability and the extent of the
insured’s damages are the conditions precedent to a bad faith action,
along with the notice requirement of section 624.155(3)(a), Florida
Statutes (2011). Those first two conditions may be established when
a settlement determines the existence of liability and the extent of
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the insured’s damages. As stated in Brookins, and as approved in
Vest, that settlement does not require the damages to be determined
by litigation.
152 So. 3d at 612.
Hence, litigation is not the only means for an insured to obtain the determination
of liability and the full extent of his or her damages.2 See, e.g., Trafalgar at Greenacres,
Ltd. v. Zurich Am. Ins. Co., 100 So. 3d 1155, 1158 (Fla. 4th DCA 2012) (“A judgment on
a breach of contract action is not the only way of obtaining a favorable resolution.”); see
also Cammarata, 152 So. 3d at 613 (en banc) (“[W]e stand by our numerous prior
opinions holding that, where the insurer’s liability for coverage and the extent of damages
have not been determined in any form, an insurer’s liability for the underlying claim and
the extent of damages must be determined before a bad faith action becomes ripe.”)
(second emphasis added); Hunt v. State Farm Fla. Ins. Co., 112 So. 3d 547, 549 (Fla. 2d
DCA 2013) (reiterating that judgment on breach of contract action is not only way of
obtaining favorable resolution).
An insured may obtain a determination of the insurer’s liability and the extent of
their damages by litigation, arbitration, settlement, stipulation, or the payment of full policy
limits. Accord Fridman, 185 So. 3d at 1224 (“Certainly, the insured is not obligated to
2 In determining the insurer’s liability, courts analyze whether the underlying policy
was triggered by the loss. In other words, the insurer must have at least some exposure,
and this exposure needs to be plausible in light of the plaintiff’s complaint. See Blanchard,
575 So. 2d at 1291 (“If an uninsured motorist is not liable to the insured for damages
arising from an accident, then the insurer has not acted in bad faith.”); Trafalgar at
Greenacres, Ltd., 100 So. 3d at 1157 (holding there is no determination of liability when
“the insurer raises no defense which would defeat coverage”); see also Heritage Corp. of
S. Fla. v. Nat’l Union Fire Ins. Co. of Pittsburg, PA., 255 F. App’x 478, 481 (11th Cir. 2007)
(“[T]he purpose of the allegation concerning a determination of damages [is] to show that
‘[the plaintiff] had a valid claim.’” (quoting Vest, 753 So. 2d at 1273)).
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obtain the determination of liability and the full extent of his or her damages through a trial
and may utilize other means of doing so, such as an agreed settlement, arbitration, or
stipulation before initiating a bad faith cause of action.”); Vest, 753 So. 2d at 1274
(implicitly adopting Brookins court’s reasoning that payment of policy limits by insurer is
evidence of validity of bad faith claim); see Plante v. USF&G Specialty Ins. Co., No. 03-
23157CIVGOLD, 2004 WL 741382, at *4 (S.D. Fla. Mar. 2, 2004) (stating that fact that
supreme court in Vest reaffirmed fourth district’s decision in Brookins suggested that
payment of insurance claim satisfies prerequisite for bad faith suit); see also Sammy
Sterling Holdings, LLC v. U.S. Aircraft Ins. Grp., No. 16-CIV-21230, 2016 WL 8679130,
at *3 (S.D. Fla. June 23, 2016) (finding plaintiffs sufficiently alleged determination of
liability as insurer actually admitted liability for loss by issuing payments, albeit partial, in
response to plaintiffs’ claims and alleged determination of damages as well because
partial payment, constituting final amount owed under policy, sufficiently satisfied extent
of damages); Sabatula v. State Farm Mut. Auto. Ins. Co., No. 5:11–CV–368-OC-37TBS,
2011 WL 4345302, at *5 (M.D. Fla. Sept. 16, 2011) (holding that by paying full policy
amount, insurer conceded that insured plaintiff had valid claim on first-party insurance
contract and that insured’s damages have minimum value set at amount of policy limits);
Hamilton v. Allstate Indem. Co., No. 805CV992T17MAP, 2005 WL 2465021, at *2 (M.D.
Fla. Oct. 6, 2005) (stating that insurer’s payment of policy limit to insured “serves as the
‘functional equivalent’ of a determination of the insured’s damages” (quoting Allstate Ins.
Co. v. Clohessy, 32 F. Supp. 2d 1328, 1332 (M.D. Fla. 1998))).
We read Blanchard, as clarified by Vest, to require only a determination of liability
and a determination of damages before suing for bad faith. See Fox v. Starr Indem. &
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Liab. Co., No. 8:16-CV-3254-T-23MAP, 2017 WL 1541294, at *5 (M.D. Fla. Apr. 28, 2017)
(“Under Trafalgar, Hunt, and Cammarata, a plaintiff insured need not allege success on
a breach-of-contract claim to sue the defendant insurer for bad faith.”); Brookins, 640 So.
2d at 113 (“The bad faith statute imposes no requirement of a prior judgment as a
condition precedent to a bad faith claim.”). As happened here, the payment of the full
policy limits after the sixty-day cure period provided in section 624.155(3) satisfied the
requirement that there has been a final determination of the insurer’s liability and
damages. Vest, 753 So. 2d at 1273–74; Brookins, 640 So. 2d at 112–13; see Marraccini
v. Clarendon Nat’l Ins. Co., No. 02-20896-CIV, 2003 WL 22668842, at *2 (S.D. Fla. Oct.
1, 2003) (noting that insurer cannot escape liability under bad faith statute by belatedly
paying policy limits after sixty–day cure period has expired, and to hold otherwise would
render portion of statute requiring damages to be paid within 60 days meaningless). In
obtaining a determination of liability and a determination of damages, the “key” is not the
underlying breach of contract action, but rather, the payment by the insurer.3 See Barton
v. Capitol Preferred Ins. Co., 208 So. 3d 239, 243 (Fla. 5th DCA 2016) (holding that
insurer’s $65,000 settlement payment paid after sixty-day cure period constituted
3 State Farm’s reliance on State Farm Mutual Automobile Insurance Co. v. Brewer,
940 So. 2d 1284 (Fla. 5th DCA 2006), in arguing that this Court has recognized that in
order to satisfy the condition precedent in Blanchard, the insured would need to bring an
action on the contract, is misplaced. Brewer was involved in an automobile accident with
an uninsured driver. Brewer, 940 So. 2d at 1285. She later filed a civil remedy notice,
alleging that the insurer failed to disclose the applicability of coverage and pay benefits
but did not state any amount of benefits or contractual damages allegedly due. Id. Within
the statutory sixty-day cure period, the insurer paid what was due and cured the alleged
violations. Id. That is markedly different from what occurred here.
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favorable resolution for insureds even though amount was less than policy limits and
amount that insureds initially demanded).
For these reasons, we conclude the Demases’ amended complaint adequately
states a cause of action. The order of dismissal is reversed and the matter remanded for
further proceedings.
REVERSED and REMANDED.
WALLIS, J. and PERKINS, T., Associate Judge, concur.
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