QBE Ins. Corp. v. Chalfonte Condo. Apt. Ass’n, Inc.
(Fla. May 31, 2012)
The Florida Supreme Court ruled last week that there is no common law first-party bad faith cause of action against an insurer and, therefore, that a policyholder may only pursue a bad-faith action in accordance with Florida statutes.
The action arose from property damage caused by Hurricane Wilma in 2005. The policyholder, Chalfonte, sustained significant damage and filed a claim with its property insured, QBE. Dissatisfied with QBE’s handling of the claim, Chalfonte filed suit against the insurer in federal court. The matter proceeded to trial, where the jury ruled in Chalfonte’s favor and awarded $7.9 million in coverage and $271,888 for breach of the implied warranty of good faith and fair dealing, for a total award of $8.1 million.
On appeal, the Eleventh Circuit deemed it necessary to certify five questions to the Florida Supreme Court, including whether Florida law recognizes a claim for breach of the implied warranty of good faith and fair dealing by an insured against its insurer based on the insurer’s failure to investigate and assess the insured’s claim within a reasonable period of time. The Florida Supreme Court held that there is no cause of action against an insurer for its bad-faith refusal to pay a claim separate and apart from the cause of action proscribed by statute. Thus, according to the court, the only remedy available is the statutory bad faith action created by § 624.155 of the Florida Statutes, the so-called “Bad Faith Statute.”
The ruling is bad news for policyholders, who had recently adopted the strategy of pursuing a bad faith claim contemporaneously with their breach-of-contract claim by arguing that the insurer had breached the contract by violating its implied warranty of good faith and fair dealing. Now, a policyholder must first win a breach of contract claim against their insurer before pursuing a bad faith claim.
For a copy of the decision, click here.