Plante v USF&G

A federal judge in the Southern District of Florida concluded that the Supreme Court of Florida would find that an award of insurance proceeds of less than policy limits is enough to allow the insured to proceed on a bad faith claim. Plante v. USF&G Specialty Ins. Co., 2004 U.S. Dist. LEXIS 4875 (S.D. Fla. 2004). This order is not binding on Florida’s state courts, Fla. v. Dwyer, 332 So. 2d 333, 335 (Fla. 1976) (“Even though lower federal court rulings may be in some instances persuasive, such rulings are not binding on state courts.”), or on federal courts, NAACP v. Fla., 122 F. Supp. 2d 1335, 1340 n.5 (M.D. Fla. 2000) (“A district court is not bound by another district court’s decision, nor by the opinion of another judge of the same district.”) However, if other courts adopt the views expressed in this order, it would cause a major shift in how claims are handled and litigated.

The insured, Melissa Plante, made a claim for loss resulting from a water leak and vandalism. After some difficulty, the insurer sent New Wave to handle the claim and repair the damage. Plante received checks from the insurer, but their total amount was below policy limits. New Wave gutted her bathroom and destroyed her alarm system. When Plante complained, the insurer sent another contractor, who told Plante it would be several months before repairs could begin. A few months later, the insurer cancelled Plante’s policy and disclaimed all liability for her loss. Plante sued the insurer for bad faith under section 624.155, Florida Statutes, and fraud.

The insurer moved to dismiss the bad faith claim, citing Blanchard v. State Farm Mut. Auto. Ins., 575 So. 2d 1289 (Fla. 1991). In that case, the Supreme Court of Florida held that an insured’s underlying first-party action for insurance benefits must be resolved favorably to the insured before a bad faith action accrues. In essence, the insurer argued that because Plante had not established contract breach, she could not bring a bad faith claim.

Judge Gold rejected this argument out of hand. The judge read the Supreme Court of Florida’s opinion in Imhof v. Nationwide Mut. Ins. Co., 643 So. 2d 617 (Fla. 1994) quite broadly, finding that Imhof held that an insured’s breach of contract claim has been resolved sufficiently to bring a bad faith claim so long as the insurer concedes liability on the claim. In Imhof, the court actually held that while Blanchard requires an allegation that there has been a determination of damages, it does not require the allegation of a specific amount of damages. Judge Gold also noted a Florida appellate court’s holding that the payment of policy limits by an insurer was the “functional equivalent” of an allegation that the insured’s damages had been determined. Plante, 2004 U.S. Dist. LEXIS 4875 (citing Brookins v. Goodson, 640 So. 2d 110, 112-113 (Fla. 4th DCA 1994)). Judge Gold noted further that the Supreme Court of Florida cited the Brookins opinion extensively on a related issue in Vest v. Travelers Ins. Co., 753 So. 2d 1270, 1273-1274 (Fla. 2000), and reasoned that this indicated the Supreme Court approved the reasoning of Brookins.

Judge Gold noted that the Supreme Court of Florida had never ruled on whether an award of less than policy limits suffices as a prerequisite to a bad faith claim (the court has actually not ruled on whether payment of policy limits suffices either, but as the Plante order points out, the court does cite Brookins favorably). In this situation, federal judges are supposed to discern how the Supreme Court of Florida would decide the matter. Judge Gold decided that the court would find that payment of less than policy limits was enough to show a determination of damages, and thus payment of less than policy limits was enough to let a bad faith claim proceed.

In support of his decision, Judge Gold cited Imhof, where the claimant’s arbitration award of less than policy limits was deemed sufficient. This ignores that an arbitration award for damages presupposes an arbitrator’s finding that the insurer was liable on the policy. The cases Judge Gold cited make clear that a determination of damages, whether by trial (Blanchard), arbitration (Imhof), or settlement (Brookins), will suffice, but that such a determination is still required. The judge also cited an unpublished order of another federal district judge that apparently holds that payment of less than the policy limits is enough for a bad faith claim—because the order is unpublished, this is impossible to verify. Finally, the judge cited section 627.426(2), Florida Statutes, for the proposition that once an insurer has made payment on a claim, the insurer waives coverage defenses. This is nonsense; that section applies by its terms to liability insurers only, and at any rate does not do what Judge Gold said it does.

Again, the Plante order is not binding on any other court. Because it is not well-reasoned, there is no reason to expect that a Florida state court or a federal appellate court will find it persuasive. However, it is the only (published) evaluation of the matter by a court, so at least for the time being, claimants’ lawyers have a powerful weapon in their arsenal. We should expect them to use it.

The practical effect of this ruling is that insurers should be cautious about paying anything on a claim if they have reason to suspect that they will deny the claim down the road. If payments of less than policy limits are sufficient to let a bad faith claim go forward, even token disbursements could suffice. Bad faith claims, even ones without merit, dramatically increase the scope of discovery and open the door to a host of extra-contractual damages. For those reasons alone, the price of settling bad faith claims, as opposed to standard contract claims, increases exponentially. Under this order, bad faith claims are that much easier to assert.