Florida Supreme Court Eradicates Common Law "Bad-Faith" Cause of Action
The Supreme Court of Florida recently issued a decision that may signal the end of common law "bad-faith" claims in the state. Specifically, in QBE Insurance Corp. v. Chalfonte Condominium Apartment Association, Inc.,the court held that policyholders cannot pursue first-party common law claims against insurers based upon an alleged breach of an implied warranty of good faith and fair dealing.
The court held that all claims of this nature are actually "statutory bad-faith" claims and must be brought under Section 624.155 of the Florida Statutes. This distinction is important because a policyholder must first prevail on a breach of contract claim against an insurer before it can proceed with a Section 624.155 "statutory bad-faith" claim. The bifurcation mandated by Section 624.155 adds an additional level of procedural complexity for policyholders attempting to assert claims against insurers.
The Chalfonte case arose out of property damage incurred by Chalfonte Condominium Apartment Association, Inc. in October 2005 as a result of Hurricane Wilma. Chalfonte initially filed a claim with its property insurer, QBE Insurance Corporation, and subsequently submitted an estimate of damages on December 18, 2005. Chalfonte also submitted a sworn proof of loss on July 12, 2006.
Dissatisfied with QBE's handling of its claim, Chalfonte filed suit in the United States District Court for the Southern District of Florida. Chalfonte's complaint against QBE raised a variety of claims including breach of the implied warranty of good faith and fair dealing. Ultimately, a jury found for Chalfonte on all of its claims and awarded Chalfonte $7,868,211 for QBE's failure to provide coverage. The jury also awarded Chalfonte an additional $271,888.68 for a breach of the implied warranty of good faith and fair dealing. The district court entered a final judgment in favor of Chalfonte in the amount of $8,140,099.68.
QBE appealed the decision and the United States Court of Appeals for the Eleventh Circuit referred five certified questions to the Supreme Court of Florida. One of the questions presented by the Eleventh Circuit addressed whether Florida law recognizes a claim for a breach of the implied warranty of good faith and fair dealing.
The Supreme Court of Florida held that "first party claims are actually statutory bad-faith claims that must be brought under [S]ection 624.155 of the Florida Statutes." In reaching this decision, the court relied upon case law and legislative history indicating that the 1982 passage of Section 624.155 "created a statutory first-party bad-faith cause of action and codified prior decisions authorizing a third party to bring a bad-faith action under the common law."
The court noted that prior to the enactment of Section 624.155, case law did not permit first-parties to sue their insurance companies for a "bad-faith refusal to pay claims." Furthermore, the court explicitly rejected Chalfonte's attempts to demonstrate a judicial recognition of a separate common law claim for breach of the implied warranty of good faith and fair dealing. Analyzing federal case law, the court asserted that most "federal courts that have dismissed breach of the implied warranty of good faith claims have concluded that no such cause of action exists in Florida."
Finally, the court observed that "Florida contract law does not recognize an implied covenant of good faith and fair dealing in every contract." The duty of good faith must "relate to the performance of an express term of the contract and is not an abstract and independent term of a contract which may be asserted as a source of breach when all other terms have been performed pursuant to the contract."
For further information about the potential implications of this decision, or any other insurance coverage related matter, please do not hesitate to contact Eileen King-Bower or any member of the Troutman Sanders LLP Insurance Practice Group.
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