The Eleventh Circuit, in J.P.F.D. Investment Corp. v. United Specialty Insurance Co., recently affirmed a district court’s denial of statutory attorneys’ fees to a policyholder that, to resolve a disagreement over the amount of loss, filed suit against its insurer instead of participating in appraisal.
In Florida, policyholder attorneys are often quick to file lawsuits against insurers in order to trigger statutory fee shifting. Florida Statutes § 627.428 provides:
(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court . . . shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.
In J.P.F.D., the policyholder’s building suffered water damage. After receiving notice, the insurer promptly sent an independent adjuster to inspect the property. On the same day, the insurer sent a water extraction company to the premises. The insurer paid the water extraction company in full, less deductible.
The policyholder, through its public adjuster, submitted to the insurer a sworn proof of loss in the amount of $302,772.46, along with its public adjuster’s estimate of damages. The insurer rejected the proof of loss because it disagreed with the scope of damages, based on the independent adjuster’s inspection. Shortly thereafter, the insurer advised the policyholder it would pay the undisputed actual cash value of $91,080.97, but that it had retained a building consultant to further address the differences in estimates.
A few weeks later, the insurer reached out to the public adjuster to discuss the differing estimates. When the adjuster did not respond, the insurer selected an appraiser so that the contractual appraisal process could be started. Several days later, the insurer formally demanded appraisal pursuant to the policy’s appraisal provision. Three days prior to the insurer’s formal appraisal demand, however, the policyholder filed suit alleging the insurer breached the insurance contract by failing to pay the policyholder’s losses; the insurer was served several days after it demanded appraisal. Once in litigation, the insurer filed a motion to compel appraisal, which was granted and the case was stayed. The appraisers agreed to a loss amount of $249,228.96 (replacement cost value). The insurer paid the additional amounts owing. The policyholder then sought to recover its attorney’s fees.
The insurance policy at issue in J.P.F.D. contained the following “Loss Payment” provision:
g. We will pay for covered loss or damage within 30 days after we receive a sworn proof of loss, if you have complied with all the terms of this Coverage Part, and:
(1) We have reached agreement with you on the amount of loss; or
(2) An appraisal award has been made.
The policy also contained an appraisal provision:
If we and you disagree on amount of loss, either may make written demand for an appraisal of the loss. Appraisal is mandatory if invoked by either party. In this event, each party will select a qualified, impartial appraiser. The two appraisers will select a qualified, impartial umpire. If the appraisers cannot agree on the umpire, either you or we may request, after reasonable written notice to the other, that the selection be made by court having jurisdiction. We and you will cooperate with the appraisers and umpire to provide information and access to the property to appraise the loss. If the appraisers agree, they shall issue a detailed appraisal decision which will be binding on you and us. If the appraisers fail to agree, they will submit their differences to the umpire. The umpire shall consider the submissions, independently appraise the loss, and issue a detailed appraisal decision that will be binding on you and us. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.
With respect to awards of attorney’s fees, the Eleventh Circuit noted that “[t]he Florida Supreme Court ‘has long held that the payment of a previously denied claim following the initiation of an action for recovery, but prior to the issuance of a final judgment, constitutes the functional equivalent of a confession of judgment’ that also entitles an insured to attorney’s fees under [§ 627.428.(1)].” It is the “incorrect” denial of benefits that triggers the statute. Therefore, “where an insurance company has not incorrectly denied benefits under the policy, an award of attorney’s fees under § 627.428 is unwarranted.”
The Eleventh Circuit held the policyholder was not entitled to attorney’s fees under § 627.428(1) because: (1) the insurer never denied coverage and that the dispute was about the amount of covered loss; and (2) under the terms of the policy, the parties must undergo the contractual appraisal provision before the insurer’s obligation to pay the covered loss amount ripens.
First, the court noted that the “loss payment” provision, quoted above, does not require the insurer to pay for a covered loss upon the policyholder’s submission of a sworn proof of loss. Instead, the obligation to pay is conditioned upon the parties either agreeing to the amount of loss or obtaining an appraisal award. Therefore, “rejection of [the policyholder]’s initial proof of loss did not constitute a denial of benefits, much less an incorrect one.” Further, the insurer promptly paid the undisputed portion of the loss amount and made attempts to discuss the difference in scope, and then to begin the appraisal process.
Second, the court rejected the policyholder’s argument that it was not required to participate in appraisal and could instead sue for failure to pay. The Eleventh Circuit reasoned that this argument ignores the plain text of the policy’s “loss payment” provision, and that under Florida law, an insurance policy must “be construed according to the entirety of its terms and conditions as set forth in the policy.” “Construing the loss payment provision and the appraisal provision together, if the parties cannot agree on the covered loss amount, they must undergo the contractual appraisal process before [the insurer]’s obligation to pay the covered loss amount ripens.” Accordingly, “any claim for breach of contract for failure to pay would not accrue until after there was an appraisal award that [the insurer] refused to pay.”
In conclusion, the court explained that filing suit yielded no additional benefit for the policyholder—all that was needed was for the policyholder to participate in the appraisal process as outlined in the policy. Thus, the Eleventh Circuit took a stand against policyholders forcing unnecessary lawsuits in an effort to obtain statutory fee shifting.