A Lesson Learned: When Proving Material Misrepresentation Just Ain’t Good Enough
In Citizens Property Insurance Corp. V. Ernesto and Rebecca Bascuas, a Florida 3rd DCA opinion issued October 14, 2015, the Court somehow allowed a policyholder to recover attorney fees and retain insurance benefits despite a clear finding of fact by the jury that the policyholder made false misrepresentations. In that case, Citizens defended a homeowner’s property damage breach of contract claim. Citizens had previously paid some of the damages being claimed. Subsequently, Citizens filed an affirmative defense alleging a material misrepresentation by the policyholder. Citizens also filed a counterclaim alleging unjust enrichment of the insured for the sums previously paid by Citizens.
The jury somehow came to the contradictory verdicts that, although the insured had made material misrepresentations, these misrepresentations had not led to the insured being unjustly enriched. Accordingly, the trial court entered, and the Third District affirmed, a judgment entitling the insured to attorney’s fees and costs under 627.428(1), the fee statute governing insurance disputes.
This statute specifies:
Upon the rendition of a judgment or decree by any of the courts of this state against a insurer and in favor of any named or omnibus insured…under a policy or contact executed by the insurer, the trial court, or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured…a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.
The insurer appealed the trial court’s judgment, arguing the award of fees was contrary to public policy as it rewarded the insureds for making false statements. The appellate court ruled that, despite the insurer successfully defending the breach of contract claim with its material misrepresentation defense, because the insureds successfully defended the counterclaim, the insureds had a judgment in their favor and thus were entitled to attorneys fees.
The Third DCA made two key points in its opinion. The first was that a non-monetary judgment is still a judgment to which §627.428 and thus an award of fees, applies. Accordingly, even though the jury essentially said neither party owed the other any money, the insureds had a judgment entered in their favor as the jury ruled on the counterclaim that the insureds were not unjustly enriched. A lesson from a ruling like this is that an insurer must be extremely wary and cautious before filing a counterclaim because such a claim can increase its potential exposure to attorneys fees that would otherwise not exist.
The second lesson could not be clearer than the Court’s own words: “We believe that modification of [section 627.428] to address false statements by an insured is best left to the legislature.” The Court thereby declined to judicially craft a fraud exception to §627.428 and essentially told the insurer to take the issue up with the legislature to modify the statute.
It appears the legislature needs to be educated that it is both good public policy and necessary for maintaining healthy insurance markets that Florida Statute 627.428 be modified so that dishonest policyholders and their lawyers do not receive an unfair windfall where there is a finding of fact that the policyholder has engaged in fraud or misrepresentation. Without such an exception, it is the honest premium-paying policyholder who buys insurance for their time of need who is adversely affected by the fraud exception-less statute that rewards “bad guys” with a windfall at the ultimate expense to the rest of us.