Settlement of a Homeowner’s Sinkhole Claim Serves as Sufficient Resolution to Allow Insureds to Bring Bad- Faith Action Against Insurer
In Barton v. Capitol Preferred Insurance Co., 41 Fla. L. Weekly D2736, Case No. 5D15-1587 (Fla. 5th DCA 2016), the Fifth District reversed the trial court’s summary judgment denying the Bartons’ bad faith action against Capitol, and held that a settlement can provide the determination of liability that is required to bring a bad-faith action against an insurer.
The underlying action in Barton was Capitol’s denial of coverage under a homeowners’ insurance policy for sinkhole-related damage. The Bartons discovered damage to the walls and floor of their home two weeks after terminating their coverage with Capitol and obtaining insurance from Universal Property and Casualty Insurance Company. Both insurance companies denied coverage for the loss, and the Bartons filed a breach of contract action against the two insurers. After testing confirmed that the damage was the result of sinkhole activity, the Bartons settled their claim with Universal. The Bartons then filed a “Civil Remedy Notice of Insurer Violation” with the Florida Department of Insurance, alleging that Capitol failed to perform a “complete, thorough, and statutorily compliant sinkhole/subsidence investigation” and that Capitol wrongly denied a valid claim. Several months later, Capitol offered to settle the Bartons’ claim for $65,000. However, the settlement did not require a release or waiver of the Bartons’ right to bring a bad faith action against Capitol. The Bartons accepted Capitol’s settlement and dismissed their breach of contract action claim.
After the settlement of the underlying breach of contract action, the Bartons filed a first-party bad faith action against Capitol alleging that Capitol failed to properly investigate their claim and to act in good faith to settle the claim. In response, Capitol filed a motion for summary judgment, arguing that the Bartons failed to establish a bad faith action because they had not proved that the underlying breach of contract claim had been resolved in their favor or that there had been a determination of the “actual extent” of the loss. The trial court agreed with Capitol, stating that “a proposal for settlement does not equate to a determination of liability and the extent of damages.”
As the Fifth DCA explained, a bad-faith action for an insurer’s failure to settle a claim accrues when the insured’s underlying action is resolved favorably to the insured. A bad-faith action further requires that there be a determination of the extent of liability and damages. Relying on the Florida Supreme Court’s recent holding in Fridman v. Safeco Ins. Co. of Ill., 185 So. 3d 1214, 1224 (Fla. 2016), that “the insured is not obligated to obtain the determination of liability and the full extent of his or her damages through a trial,” the Fifth DCA found that the $65,000 settlement was a favorable resolution of the Bartons’ claim. Furthermore, the court found that the settlement was a determination of the liability and extent of damages. The court also disposed of Capitol’s argument that there had been no determination of liability or extent of damages because the settlement was less than the policy limits and the amount initially demanded by the Bartons, stating that the alleged failure to comply with Section 624.155 was sufficient. Notably, the panel commented on the lack of a release, which it suggested would have insulated Capitol.