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Insured Can Pursue Bad Faith After Favorable Appraisal Award

In Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Company, No. 4D11-1376, 2012 WL 3822215, *1 (Fla. 4th DCA Sept. 5, 2012), the Florida Fourth District Court of Appeal, applying Florida law, overturned the trial court’s summary judgment order and held that an appraisal award pursuant to an insurance contract can constitute a “favorable resolution” of an underlying breach of contract dispute for purposes of filing a bad faith cause of action.

In this breach of contract case, a policyholder who suffered property damage from Hurricane Katrina alleged that the insurer failed to pay all proceeds due from the related claim.  In response, the insurer invoked the policy’s appraisal provision. An appraisal award was entered in the policyholder’s favor and the insurer paid it within the required time frame.

When the insurer moved for summary judgment on the breach of contract claim, the trial court granted the motion, but also granted the policyholder’s motion to amend its complaint to raise a statutory bad faith claim.  This new claim alleged that the insurer “engaged in a pattern of delay and denial before and after litigation was filed.”  To counter, the insurer again filed for summary judgment, arguing that the policyholder could not bring a bad faith claim because it had not obtained a “favorable resolution” from the underlying breach of contract action. The trial court agreed and granted the insurer’s motion. The appellate court reversed.

Under Florida law, before a policyholder can bring a bad faith claim, the underlying claim must be “resolved favorably for the insured.”  The Trafalgar court noted that the requirement for a favorable resolution does not require a policyholder to obtain a court judgment in its favor – an arbitration award may also satisfy the condition. The Trafalgar court went on to hold that there was “no meaningful distinction” between an arbitration award and an appraisal award for the purposes of deciding whether an underlying action was “resolved favorably.” Thus, the court held that the policyholder’s appraisal award was a “favorable resolution,” and satisfied the necessary precondition for a bad faith claim. 

The Trafalgar decision is significant because it reaches a conclusion different from that reached by other Florida courts that have held that a policyholder cannot bring a bad faith claim if an appraisal award is paid by the insurer within the requisite time frame. See e.g., North Pointe Insurance Co. v. Tomas, 999 So.2d 728 (Fla. 3d DCA 2008). In these situations, insurance carriers still may consider arguing that invoking a policy’s appraisal provision – and paying any award within the time prescribed – represents compliance with the policy and precludes a finding that the insurer has breached the policy, which should in turn preclude a finding that an underlying claim has been resolved in the policyholder’s favor.

If you are interested in receiving either the Trafalgar decision or the Tomas decision, please do not hesitate to contact me at mov@chaloslaw.com.

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