Over the years, Florida has been included among the jurisdictions described as “judicial hellholes” due, in part, to an aggressive trial bar, expansive liability and plaintiff-friendly courts. A recent decision issued by Florida’s Third District Court of Appeal, Citizens Prop. Ins. Corp. v. Bascuas, Nos. 3D14-2434, 3D14-1549 (Fla. 3d DCA Oct. 14, 2015), serves as a cautionary tale to insurers’ counsel to strategically consider the potential pitfalls of alleging a counterclaim, even where it arises out of the same set of facts and circumstances, and illustrates why the Florida court system is subjected to such criticisms.

In Citizens, the court awarded attorneys’ fees to the insureds under Florida Statute Section 627.428(1), which provides in relevant part that: “[u]pon the rendition of a judgment or decree by any of the courts of this state against an insurer … [the court shall award] a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which recovery is had.” The Citizens court ordered such an award in the face of a jury determination that the insureds had made false statements to the insurer about the claim.

The litigation arose from water damage the policyholders claimed occurred at their home after a break in the plumbing system in May 2012. They advised Citizens about the claim, and Citizens paid $28,000 on the loss. Thereafter, the policyholders claimed total damages of more than $330,000 and sued Citizens for breach of contract, alleging that Citizens had refused to pay their covered losses. Citizens filed an answer asserting several affirmative defenses, including fraud. Citizens also filed a counterclaim, asserting that the policyholders had colluded with the plumber to fake the claim, alleging fraud, fraudulent misrepresentation and fraudulent inducement and that the insureds had been unjustly enriched by the $28,000 paid.

Prior to the trial of the case, Citizens dismissed its fraud claims, and the case was tried on the policyholders’ breach of contract claim and Citizens’ unjust enrichment counterclaim. As a defense to the insureds’ claim for breach of contract, Citizens asked the jury to decide whether the policyholders made false statements at the time of their claim. The jury said “yes.” Nonetheless, both the policyholders and Citizens lost on their claims. Neither party appealed, although each moved to tax fees and costs. The trial court granted the insureds’ motion for fees and costs and denied Citizens’ motion, holding that because Citizens lost its counterclaim in the coverage suit, it must pay the insureds’ attorneys’ fees under the statute even in the face of fraud.

Citizens appealed the order denying its costs and the order granting the policyholders’ fees and costs, arguing that for an insurer to pay attorneys’ fees where the insurer establishes misrepresentation counters public policy and discourages insurers from challenging false claims in the same action. While expressing “understanding” for Citizens’ argument, the court refused to “circumvent” the legislature, stating: “[w]hile Citizens’ argument may be persuasive to support a change in this area of the law (to allow for a fraud exception), we reaffirm that such a change must be effectuated legislatively, not judicially.” In so holding, the court relied on Mercury Ins. Co. of Fla. v. Cooper, 919 So.2d 491 (Fla. 3d DCA 2005), where that court opined that any modification of the statute to address false statements is best left to the legislature. On this basis, the court affirmed the order requiring Citizens to pay the policyholders’ fees and costs, although it reversed the judgment in part by requiring the policyholders to pay Citizens’ costs, because Citizens won on the breach of contract suit. The court did not award Citizens’ its attorneys’ fees, however, as Citizens had not appealed that portion of the judgment.

In relying on the “mandatory, non-discretionary requirements” of the statute, the court overlooked the fact that the policyholders before it did not obtain a favorable determination in “prosecuting the suit in which recovery is had,” as set forth in Section 627.428(1). Moreover, in relying on the 2005 decision in Mercury, which it viewed as addressing the same remedy sought by Citizens, the court disregarded the fact that the insurer in that case had reached a settlement with the insured and voluntarily dismissed the claim without qualifying or limiting the dismissal. Ignoring these legally significant differences, the court punted --- awarding the policyholders their fees despite the insurer’s success on its affirmative defense of fraud because the insurer had dared to seek relief from the fraud in a counterclaim.