What Happens When State Formed Insurer Acts in Bad Faith? First Party Bad Faith Creature of Statute in Florida

Citizens Property Insurance Corp. (Citizens) was created by the state of Florida to deal with wind damage claims from the annual damage caused by hurricanes passing through the state that standard, for-profit, insurers were unwilling to risk. To limit the liability of the state funded insurer the Florida Legislature granted Citizens immunity from most suits with certain exceptions.

In Citizens Property Ins. Corp. v. Perdido Sun Condominium Ass’n, Inc., — So.3d —-, 2015 WL 2236719 (Fla., 5/14/15) the issue raised was whether the Florida Legislature intended Citizens to be liable for statutory first-party bad faith claims as an exception to its statutory immunity from suit. The First District Court of Appeal in Perdido Sun Condominium Ass’n v. Citizens Property Insurance Corp., 129 So.3d 1210 (Fla. 1st DCA 2014), determined that the “willful tort” statutory exception to Citizens’ immunity applied to statutory first-party bad faith claims and certified conflict with the Fifth District Court of Appeal’s decision in Citizens Property Insurance Corp. v. Garfinkel, 25 So.3d 62 (Fla. 5th DCA 2009), disapproved on other grounds by Citizens Property Insurance Corp. v. San Perdido Ass’n, 104 So.3d 344 (Fla.2012), which held to the contrary that Citizens is statutorily immune. The issue before the Florida Supreme Court was stated as: “Whether the Immunity of Citizens Property Insurance Corporation, as Provided in Section 627.351(6)(S), Florida Statutes, Shields the Corporation from Suit under the Cause of Action Created by Section 624.155(1)(B), Florida Statutes[,] for Not Attempting in Good Faith to Settle Claims?”

BACKGROUND

After prevailing in a breach of contract action against its insurance company, Citizens, Perdido Sun Condominium Association sued Citizens a second time. In the second lawsuit, Perdido Sun alleged a statutory first-party bad faith claim, pursuant to section 624.155(1), Florida Statutes (2009).

Specifically, Perdido Sun claimed that Citizens

(1) refused to pay the full amount owed to Perdido Sun under the insurance policy;

(2) refused to take part in the required appraisal process and instead used that process in an attempt to forestall litigation;

(3) delayed payment of the appraisal award and improperly attempted to condition payment of the award upon the execution of a universal release; and

(4) engaged in a pattern and practice of seeking to avoid or delay full settlement of claims.

Citizens moved to dismiss the complaint, citing its immunity from suit under section 627.351(6)(s)1., Florida Statutes (2009), which provides: “There shall be no liability on the part of, and no cause of action of any nature shall arise against, any assessable insurer or its agents or employees, the corporation or its agents or employees, members of the board of governors or their respective designees at a board meeting, corporation committee members, or the office or its representatives, for any action taken by them in the performance of their duties or responsibilities under this subsection. Such immunity does not apply to:

1. Any of the foregoing persons or entities for any willful tort;
2. The corporation or its producing agents for breach of any contract or agreement pertaining to insurance coverage;
3. The corporation with respect to issuance or payment of debt;
4. Any assessable insurer with respect to any action to enforce an assessable insurer’s obligations to the corporation under this subsection;
5. The corporation in any pending or future action for breach of contract or for benefits under a policy issued by the corporation; in any such action, the corporation shall be liable to the policyholders and beneficiaries for attorney’s fees under s. 627.428.” (Emphasis added.)

ANALYSIS

Examining the relevant statutory provisions at issue the Supreme Court found no support that the Legislature intended for Citizens to be liable for a breach of the duty to act in good faith by allowing its policyholders to bring a statutory first-party bad faith cause of action. Although the Legislature codified Citizens’ duty to handle claims in good faith, the Legislature never listed statutory first-party bad faith claims as one of the exceptions to Citizens’ immunity. To the contrary, the Legislature chose to immunize Citizens for “any action taken by [it] in the performance of [its] duties or responsibilities” which necessarily includes a breach of the duty of good faith.

As this Court has recognized, where the Legislature made one exception clearly, if it had intended to establish other exceptions it would have done so clearly and unequivocally. The Legislature has not included statutory first-party bad faith claims among the limited exceptions to Citizens’ immunity when it could have easily chosen to do so. Besides the failure to include a specific exception for statutory causes of action the statutory cause of action for first-party bad faith is a tort or specifically a “willful tort” — a principle that becomes clear after considering the history of first-party bad faith causes of action.

Unlike common law causes of action for third-party bad faith, first-party bad faith actions are purely a creature of statute that did not previously exist at common law. The Legislature addressed this issue in 1982 by the adoption of section 624.155, Florida Statutes. Citizens also argues that subjecting it to statutory first-party bad faith claims would reduce the funds available to pay insureds’ claims for property damage so that further amounts that might be awarded would be borne by the taxpayers.

In this case, Perdido Sun’s complaint does not allege that Citizens committed a “willful tort.” As Florida Courts have previously recognized, where a plaintiff claims a defendant engaged in egregious and outrageous actions, bad faith can be elevated to a willful tort, an issue that could turn on the facts of the case. Perdido Sun’s complaint is based solely on the statutorily created first-party bad faith cause of action under section 624.155.

No additional allegations of willful misconduct outside of the statutory bad faith claim are alleged. Because specific allegations of willful misconduct are not contained in the complaint, the trial court properly dismissed the complaint.

ZALMA OPINION

Because the first-party bad faith tort in Florida exists only as a result of statute and is not a common law (i.e., created by court decision) tort, the tort cannot fall within the exception to the immunity. If Perdido Sun wishes to get tort damages from Citizens its only avenue available is the common law tort of fraud which has a much more difficult proof requirement and proof of willfulness. If they thought they could prove fraud I would expect that Perdido Sun would have alleged the tort of fraud in the first place rather than try to change the law.