When an insurer, acting in bad faith, denies a claim, policyholders who have to sue can often receive not just their policy benefits but also their attorneys' fees. But what if an insurer denies a claim in good faith, relying upon a report that turns out to be incorrect? As a recent Florida Supreme Court case shows, a policyholder may be entitled to attorneys' fees for denial of a claim in those cases as well.
Insurer Denies Homeowner's Claim of Sinkhole Damage, Then Admits It Erred
The decision involved a homeowner who filed a claim under her homeowner's insurance policy for sinkhole damage. Her insurer conducted an investigation, concluded that there were no sinkholes on her property, and denied the claim. She sued, alleging breach of contract. Her insurer, responding to the lawsuit, ordered a second evaluation of the property, which, contradicting the first, said that there was indeed sinkhole activity. The insurer agreed to pay the claim but did not reimburse the homeowner for the cost of retaining an attorney to get the insurer to change its decision.
Trial Court Says Insurer Must Pay Legal Fees; Appellate Court Disagrees Because Insurer Had Not Been Acting in Bad Faith
The legal issue at trial became not whether there was a sinkhole but whether the plaintiff was entitled to attorneys' fees. The trial court awarded her the fees. It said that agreeing to pay the claim was, effectively, a "confession of judgment," an admission that the insurer accepted liability, and that Fla. Stat. 627.428 required the insurer to pay the plaintiff's attorney's fee.
The insurer appealed to an appellate court, which concluded that, though the insurer was initially mistaken about the presence of sinkholes, it did not act in bad faith in refusing to pay the claim and that, therefore, Fla. Stat. 627.428 did not apply.
Florida Supreme Court Finally Rules That Bad Faith Is Not Required
But the Florida Supreme Court said that the appellate court had misinterpreted the statute and case law. It held that a bad faith denial of benefits was not a prerequisite for recovering attorneys' fees. It was sufficient that the insurer incorrectly rejected a valid claim. Overturning the opinion of the Fifth District Court of Appeal, the Supreme Court ruled that the insurer would have to pay attorneys' fees.
The decision helps put homeowners and their insurers on a more equal footing. The Supreme Court itself noted this in its decision. Insurers who improperly deny a claim, even in good faith, cannot escape paying for the consequences of their error. If you believe your insurer has improperly denied your claim, an experienced insurance litigator can help you receive the coverage to which you are entitled --plus attorney's fees.