Clifton v. United Casualty Ins. Co.
(Florida Court of Appeal, Second District, February 12, 2010)
The policyholder appealed final judgment entered in favor of the insurer in a breach of contract action arising out of damage suffered during Hurricane Charley. The primary issue involved whether an insurer’s post-suit payment of additional policy proceeds constitutes a “confession of judgment” and whether the filing of the suit acted as a “necessary catalyst” to resolve the dispute.
Specifically, in August 2004, the policyholder’s residence was damaged by Hurricane Charley. The policyholder promptly filed a claim with the insurer for the damage, who thereafter adjusted the claim and paid for damages caused by the storm. The policyholder advised the insurer that the payment was insufficient to pay for the necessary repairs to the home and thereafter, repeatedly disputed the amount of the loss with the insurer, subsequently filing suit three years later alleging breach of contract.
After filing its answer, the insurer filed a motion seeking to invoke the appraisal clause of its policy. The motion was granted and the appraisal process resulted in an award in favor of the policyholder. Thereafter, the insurer filed a separate motion for summary judgment regarding attorney fees claiming that it had not wrongfully withheld any insurance benefits and that the policyholder could not prove any damages because it had now paid the policyholder all amounts due under the policy. Despite the record showing that the insurer paid significant sums in settlement of the claims after suit was filed, the trial court granted summary judgment to the insurer.
The court of appeals held that there were genuine issues of fact which precluded judgment in favor of the insured in light of Florida precedent holding that when an insurer pays additional policy proceeds after suit is filed, “it has, in effect, declined to defend its position in the pending suit” and thus the payment of the claim is, indeed, the functional equivalent of a confession of judgment or a verdict in favor of the insured. However, the court further noted that the confession of judgment rule is not absolute. Rather it noted that the existence of a bona fide dispute and not the mere possibility of a dispute is a crucial condition precedent to such a holding. Thus, the question of whether an insurer’s post-suit payment constitutes a confession of judgment is determined based on whether “the filing of the suit acted as a ‘necessary catalyst’ to resolve the dispute and force the insurer to satisfy its obligations under the insurance contract.”
After conducting a detailed analysis of Florida case law, the court concluded that where an insurer is aware of a dispute with its insured, it cannot simply ignore that dispute, wait until the insured files suit to demand appraisal, pay any subsequent award, and then maintain that the payment does not constitute a confession of judgment as a matter of law. On the other hand, if an insurer is not on notice that the claim or payment is disputed, the insured generally will be unable to show that he or she was “forced” to file suit.
Based on the foregoing precedent and rules, the court of appeals held that summary judgment in favor of the insurer was improper, as there were disputed facts as to whether the insurer was aware of the disputed claim until suit was filed. The court also rejected the insurer’s argument that its payment should not operate as a confession of judgment because it never expressly denied the insured claim, noting that when an insurer fails to respond in any fashion to the insured’s demands for further action, that failure has the legal effect of denying coverage. Thus, the lower court decision was reversed and the matter remanded to determine whether the insured was “forced” to file suit.
A copy of the decision is attached here. Case is provided courtesy of Lexis.
Paul Steck and Dan Gerber