The risk of bad faith litigation continues to increase for insurance companies following a Florida court’s determination that an insurer’s confirmed liability for coverage and the scope of damages – but not breach of contract – is the only thing besides notice needed to proceed in suit.

The Fourth District Court of Appeal resolved a discrepancy between two conflicting 2012 decisions that addressed whether a breach of contract determination was required prior to filing for bad faith. The court held that, besides a statutory notice requirement, only the determination of the existence of liability, including the extent of the policyholder’s damages, is a condition precedent to a bad faith cause of action. As noted in the court’s concurring opinion, the ruling opens the door for bad faith litigation any time liability above the insurer’s initial determination on coverage is either agreed to or determined.

In Cammarata v. State Farm Florida Ins. Co., homeowners made a claim for Hurricane Wilma damage. At appraisal, it was determined that payment was owed. The carrier subsequently paid the award, which was lower than the homeowners’ estimate but higher than its own, less the deductible. The homeowners then filed suit for bad faith.

The lower court granted summary judgment to the insurer, finding the bad faith action could not proceed without a breach of contract determination. On appeal, the carrier relied upon a previous Fourth District Court of Appeal opinion in which the court affirmed dismissal of a bad faith action as prematurely filed without a breach of contract determination. The homeowners asserted that a later opinion from the court – finding that an appraisal award in favor of the policyholder, but dismissal of a breach of contract action against the carrier, did not preclude a bad faith cause of action – should be the basis for the court to find in their favor.

The Cammarata Court held that when settlement determines the existence of coverage liability and damages, bad faith may proceed. An appraisal award higher than an offer of settlement or estimate of damage by the carrier satisfies the condition precedent as well. The court also mentioned, however, that when there has been no determination regarding the insurer’s liability in any form, a suit for bad faith is not permitted.

Notably, a concurring opinion found that the majority opinion created a “slippery slope” and opened the door for bad faith litigation any time a carrier disputed a claim but then paid the insured just a penny more than the initial offer to settle. He called for the legislature to examine the issue of whether the statute should be amended regarding conditions precedent to bad faith litigation.

Florida courts previously held that bad faith litigation was permissible simply by virtue of an appraisal award in favor of the insured. TheCammarata decision goes even further, holding that even settlement by an insurer after an initial denial will allow bad faith litigation to proceed. These decisions in Florida make for confusing instruction to insurance companies that have good faith grounds to deny claims, discouraging later settlement by the carrier.