A Florida appellate court held that an appraisal award issued in favor of a policyholder in connection with first-party property damage constitutes a “favorable resolution” sufficient to form the basis of a bad faith claim against an insurer. Trafalgar at Greenacres, Ltd. v. Zurich Am. Ins. Co., 2012 WL 3822215 (Fla. Dist. Ct. App. Sept. 5, 2012).
Florida law requires a policyholder to obtain a “favorable resolution” of an action for insurance benefits before it can assert a first-party bad faith claim against its insurer. In many cases, the “favorable resolution” requirement is satisfied by a ruling in favor of the policyholder on a breach of contract claim against its insurer. In Trafalgar, the court held that the “favorable resolution” precondition is also met where a policyholder obtains an appraisal award, even absent a breach of the insurance contract.
Here, Zurich agreed to pay insurance benefits to Trafalgar under a property policy in connection with hurricane-related property damage. However, the parties disputed the dollar amount of damage and Zurich paid only part of the amount requested in Trafalgar’s statement of loss. Trafalgar filed suit, alleging that Zurich breached the policy by failing to pay all proceeds due. While that action was pending, the parties appointed a panel of appraisers who ultimately entered an award in favor of Trafalgar. Following the award, Zurich moved for summary judgment on the breach of contract claim, arguing that there was no breach because it had paid the appraisal award. The trial court agreed, entering judgment in favor of Zurich, but also allowed Trafalgar to amend its complaint to add a statutory bad faith claim. Later, the trial court dismissed the bad faith claim, finding that because Trafalgar had failed to obtain a favorable resolution of the breach of contract claim, the bad faith claim could not proceed. The appellate court reversed the bad faith ruling. The appellate court reasoned that the appraisal award was tantamount to a favorable resolution regardless of the dismissal of the breach of contract claim. In so ruling, the court analogized the appraisal award to an arbitration award, which has also been held to satisfy the “favorable resolution” requirement of a bad faith claim. See Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., 945 So. 2d 1216 (Fla. 2006).