A Florida court of appeals recently held that an insured’s bad faith action was ripe after its insurer paid an appraisal award because the insurer’s liability for coverage and the extent of damages had been determined, despite the fact that the insurer’s liability for breach of contract had not yet been determined.  Cammarata v. State Farm Fla. Ins. Co., 2014 WL 4327948 (Fla. 4th DCA Sept. 3, 2014).

The insureds filed a claim with their insurer for damages sustained to their home.  After its inspection, the insurer notified the insureds that its estimate for damages was below the policy deductible, and no payment was made.  The insureds invoked the policy’s appraisal provision, and the umpire ultimately determined that the insureds’ damages were higher than the insurer’s appraiser’s estimate and higher than the deductible.  The insurer paid the appraisal award, and the insureds initiated a bad faith action under section 624.155, Florida Statutes, alleging that the insurer failed to attempt in good faith to settle their claim.  The insurer moved for summary judgment, relying on Florida precedent, that because the insurer’s liability for breach of contract had not been determined, the bad faith action was not ripe.  The insureds, relying on different Florida precedent, argued that only an insurer’s liability for coverage and the extent of damages, and not liability for breach of contract, must be determined before a bad faith action becomes ripe.  The trial court granted the insurer’s motion for summary judgment, and the insureds appealed.

The appellate court reversed, finding that based on Florida Supreme Court precedent, only an insurer’s liability for coverage and the extent of damages, and not its liability for breach of contract, must be determined before a bad faith action becomes ripe.  The appellate court reasoned that if those two conditions are met, and an insured gives proper notice to its insurer under section 624.155, Florida Statutes, an insured can bring a bad faith action even if a settlement or an appraisal award is the method by which the existence of an insurer’s liability and the extent of an insured’s damages are determined.

The concurring opinion discusses the potential effect of the majority opinion and expresses concern that the opinion would allow an insured to sue an insurer for bad faith any time the insurer disputes an insured’s claim, but then pays the insured even a penny more than the insurer’s initial offer to settle, without the determination that the insurer breached the contract.  The concurring opinion suggests an alternative, by which an insured would be required to either establish an insurer’s liability for breach of contract as a condition precedent to bringing a bad faith action, or obtain a settlement amount which is at least a certain percentage above the insurer’s initial offer to settle.  However, the concurring opinion notes that this would have to be a requirement set forth by the Florida legislature through an amendment to section 624.155, Florida Statutes.