After almost two years, the Florida Supreme Court has answered in the affirmative the 11th Circuit’s certified question of whether Fla. Stat. § 624.155 applies to sureties. The plaintiffs in that case are “insureds” and thus can maintain an action against performance bond sureties for bad faith under the statutes applicable to insurance companies. The decision has great significance to parties who are obligees on performance bonds that pre-date the 2005 amendment to the statutes, and raises new questions about actions for bad faith against sureties issuing bonds after the 2005 amendment.

In Dadeland Depot, the 11th Circuit certified five questions to the Florida Supreme Court including the question of whether an “an obligee of a surety contract is considered an insured such that the obligee has the right to sue the surety for bad-faith refusal to settle claims under Section 624.155(1)(b)(1).” On December 21, 2006, the Florida Supreme Court answered four of the 11th Circuit’s five certified questions in the affirmative.

Based on the legislature’s interpretation of “insured” and “insurance” in other contexts, case law from other jurisdictions (despite a split in authority), and the legislative amendment to Section 624.155, the Court held that “an obligee is an ‘insured’ for purposes of presenting a cause of action under section 624.155 of the Florida Statutes.” The Court also found that no proof of a “general business practice” is required when pursuing this right of action. The remaining three questions dealt with the arbitration context in which the Dadeland case arose. The Court held that a prior arbitration decision entitling plaintiffs to payment by the sureties sufficiently established the “prior adjudication” requirement; that the arbitration award did not bar the later bad faith claim; and that the arbitrator’s denial of the sureties’ affirmative defenses was conclusive on their merits, but did not prevent the sureties from proving underlying facts to dispute the bad faith claim.

The Court’s decision now permits the Dadeland plaintiffs, and others similarly situated, to seek bad faith remedies, pursuant to Section 624.155. These damages may include the costs of litigation, attorneys’ fees, punitive damages, and, potentially, other damages in excess of the bond amount. The Court’s decision did not answer the question of which remedies are available to plaintiffs who may have common law claims of bad faith against sureties who are expressly excluded from the definition of insurers under the statutes as amended in 2005. The 2005 amendment provides that a “surety issuing a payment or performance bond on the construction or maintenance of a building or roadway project is not an insurer for purposes of subsection (1).” As to types of sureties that were not excluded by the 2005 amendment, the remedies available to insureds under the statutes still apply.