Bad Faith
Attack on Citizens’ Bad Faith Immunity Receives a Chilly Reception at Florida Supreme Court
Ronald E. Tigner | Cozen O'Connor
October 27, 2014
In 2002, the Florida Legislature created Citizens Property Insurance Company Corporation (Citizens) to make affordable insurance available to Florida citizens who were not otherwise able to obtain property insurance. In adopting such a program, the Florida legislature exempted statutorily created Citizens from “bad faith” liability unless such actions were committed as a “willful tort.”
In 2004, Hurricane Ivan damaged the Perdido Sun Condominiums (Perdido), which then sued Citizens for damage to the condominiums. Prior to the litigation, Citizens had made what it believed was a reasonable payment to Perdido. However, being dissatisfied with Citizens’ payment, Perdido demanded appraisal under the terms of the policy. Citizens rejected Perdido’s demand and thereafter Perdido sued for breach of the insurance contract. Perdido prevailed in its lawsuit, recovering an additional $5.6 million and then sued Citizens a second time, this time claiming that Citizens had not acted in good faith in attempting to settle its claims. In response, Citizens moved to dismiss the bad faith lawsuit, arguing that the claim was barred by Citizens’ enabling statute, which it argued grants Citizens immunity from bad faith claims. Perdido responded by arguing that its bad faith claim was a willful tort, which is exempted from Citizens’ grant of immunity.
The trial court granted Citizens’ motion to dismiss but on appeal Florida’s First District Court of Appeal reversed. Perdido Sun Condo. Ass’n v. Citizens Prop. Ins. Co., 129 So. 3d 1210 (Fla. 1st DCA 2014). In doing so, the First District acknowledged that Perdido’s claim was not alleged as a tort claim, but nevertheless held that Perdido’s claim of bad faith was not encompassed under the statute’s grant of immunity to Citizens. The First District based its reversal not on the definition of whether bad faith is a willful tort, but instead upon statutory language that requires Citizens to handle its policyholders’ claims “carefully, timely, diligently, and in good faith.” The First District, therefore, found that “a breach of this duty falls under the broad definition of tort.” Recognizing that its decision conflicted with a Fifth District Court of Appeal decision in another case (Citizens Property Insurance Corp. v. Garfinkel, 25 So.3d 62 (Fla. 5th DCA 2009), it certified the question to the Florida Supreme Court, which accepted jurisdiction on March 26, 2014 and heard arguments on this issue on Tuesday, October 7, 2014.
Citizens focused its argument to the Florida Supreme Court on three points:
- Citizens is immune as a statutory creation of the legislature and therefore any waiver of immunity assertion must be narrowly construed and a bad faith claim cannot be shoehorned into a “willful tort” definition. This is especially so, because the statute did not define “willful tort.”
- The First District failed to analyze or explain how bad faith claims are willful torts, especially in light of the fact that the enabling statute did not define “willful tort.” Citizens further argued that the words “willful tort” should be given their plain and ordinary meaning, given that such claims are creatures of statutory law and were never considered a tort at common law. Citizens also argued that willful torts expressly require proof of intentional conduct that goes well beyond departure from a good faith standard.
- The imposition of liability for bad faith claims would expose Citizens, a statutory creature designed to provide affordable insurance, to increased costs, thus defeating the legislative intent of creating affordable insurance.
Perdido focused its arguments for imposing liability upon Citizens also upon three points:
- That Citizens’ immunity extended only to its immunity for tax liability and not tort liability. In support of its argument, Perdido cited the statutory preamble which states in part: “Because it is essential for this government entity to have the maximum financial resources to pay claims following a catastrophic hurricane, it is the intent of the Legislature that the corporation continue to be an integral part of the state and that the income of the corporation be exempt from federal income taxation and that interest on the debt obligations issued by the corporation be exempt from federal income taxation,” arguing that the legislature never intended to grant Citizen full sovereign immunity and that Citizens’ immunity was only a limited form of statutory immunity and not sovereign immunity.
- Bad faith is a willful tort because it is the breach of a duty, irrespective of whether the duty is imposed by common law or statute. Perdido argued that Florida’s bad faith standard prohibits an insurer from “not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured with due regard for her or his interests.”
- An insurer’s bad faith conduct is not protected under Citizens’ grant of immunity because there are strong public policy considerations that weigh against Citizens’ immunity to bad faith liability. Perdido argued that allowing Citizens immunity for bad faith is not inconsistent with the policy reasons for creating Citizens and that disallowing Citizen’s insureds to sue for bad faith would permit Citizens to drag claims out for indeterminate periods of time without any penalties.
Several of the justices questioned Perdido’s counsel about the enabling language, which states that Citizens’ good faith duty is “balanced against the corporation’s duty to the state to manage its assets responsibly to minimize its assessment potential” and that such language seems different than the normal good faith duties imposed upon traditional insurers. Some of the justices also asked questions suggesting that statutory causes of action are often viewed as distinct from common law torts. At least one other justice indicated that any ambiguity about what was meant by the “willful” carve out language would have to be construed against Perdido. Citizens’ position was argued by former Florida Supreme Court Justice Raoul Cantero, now back in private practice.
It is our opinion that the fallacy of Perdido’s argument is that it suggests that all bad faith claims are willful torts. This suggestion ignores that most bad faith claims are merely the result of simple negligence or mistake. This argument further suggests that Perdido had no direct evidence of intentional conduct on the part of Citizens. Also undercutting Perdido’s bad faith claim was the fact that it had recovered $666,403.04 in the underlying appraisal. Moreover, based upon the limited facts contained in the underlying opinion, it appears that the basis of Perdido’s bad faith claim is that Citizens underpaid its claim and that it had opposed Perdido’s demand for appraisal. While those facts could potentially form the basis of a bad faith against a traditional insurer, they fall far short of a willful tort. In summary, this case may be a classic example of the old adage, “bad facts make bad law,” at least for Citizens’ insureds.
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SOURCE: www.cozen.com