Legislative Update on Florida's Bad Faith Statute

Florida’s “bad faith” law allows an insured person or someone who has been injured by an insured person to recover damages from an insurer for failing to settle a claim in good faith when the insurer could and should have done so. Florida courts have recognized a common law duty of good faith by an insurer to the insured in negotiating settlements with third-party claimants for many years. In 1982, the Florida Legislature first recognized a claim for bad faith against an insurer for third-party claims and first-party claims where an insured is seeking payment from their own insurance company. The “bad faith” statute was codified in Section 624.155, Florida Statutes (F.S.), and has been amended numerous times.

In 2022, the Florida Legislature enacted significant reforms to the bad faith statute (HB 837) and other tort laws to address skyrocketing premiums in the Florida insurance market. Section 624.155 was amended to address several issues as part of those reforms. The following briefly summarizes the key changes to the bad faith statute. Unless otherwise noted, the changes apply to insurance policies issued or renewed after March 24, 2023, and causes of action filed after that date. Despite the express language in the statute regarding the effective date, it is anticipated that there will be litigation on this issue.

New Requirements, Limitations, and Duty of Insureds

Now, in every bad faith action in Florida (first party & third party, common law and statutory), the insured, claimant, and their representative have a duty to act in good faith in providing information, making demands, setting deadlines, and attempting to settle the claim. The trier of fact may consider whether the insured, claimant, and their representative acted in good faith and may reasonably reduce the damages awarded. Mere negligence is codified as insufficient to support a claim for bad faith against an insurer under any circumstance and includes first and third-party bad faith. The new law effectively puts third-party and first-party claimants in the same position as the statutory requirements, whereas before, the statute did not apply to third-party claims.

Appraisal Award Before Judgment Can No Longer Trigger a Bad Faith Claim

Previously, payment of an appraisal award was sufficient to support a bad-faith lawsuit. Going forward, for policies incepting after January 1, 2023, a bad faith action cannot be brought against an insurer unless a court has determined that the insurer breached the contract. This effectively eliminates what was commonly known as Cammarata bad faith under Florida law. See Cammarata v. State Farm Fla. Ins. Co., 152 So. 3d 606 (Fla. 4th DCA 2015) (holding that only an insurer’s liability for coverage and extent of damages must be determined before bad faith action becomes ripe).

Changes to 90-Day Period, Admissibility, and Statute of Limitations

The new law requires 90 days’ notice for all bad faith claims. No bad faith claim exists if an insurer tenders the lesser of the policy limits or the amount demanded by the plaintiff within 90 days after receiving actual notice of the claim and sufficient evidence supporting the claim. It is not bad faith in and of itself if the insurer does not tender the policy limits within 90 days, and the existence of the 90-day period or failure to tender within 90 days is inadmissible in any bad faith lawsuit. Should the insurer not tender within that time, the statute of limitations is extended for an additional 90 days.

When Insurer Is Not Liable for Failure to Pay Policy Limits for Multiple Claims Exceeding Limits

Suppose multiple claims arising out of a single occurrence exceed the policy limits. In that case, the insurer is not liable beyond the policy limits for failure to pay any or all of the policy limits within 90 days as long as:

1. The insurer files an interpleader and deposits into the court registry the policy limits to determine the rights of each claimant and their prorated share of the policy limits (but the insurer must still defend the insured in the underlying case even after the interpleader is filed and typically will have to pay clerk costs in excess of the policy limits with no release required); or
2. The insurer makes the full policy limits available at a binding arbitration paid for by the insurer in which all claimants agree to participate and are entitled to a pro-rata share of the policy limits as determined by the arbitrator, who must also consider comparative fault and the likely outcome of a trial. If the arbitrator resolves a claim, the claimants must execute a general release to the insured party.

With these changes, Florida has created a new and unique mechanism for addressing multiple claims arising out of a single occurrence. This effectively eliminates what was commonly known as Powell bad faith under Florida law. See Powell v. Prudential Property & Cas. Ins. Co., 584 So. 2d 12 (Fla. 3d DCA 1991) (imposing affirmative duty upon insurer to initiate settlement negotiations where insured’s liability is clear and the injuries are so severe that judgment in excess of policy limits is likely).

In conclusion, HB 837 brought significant changes to the bad faith insurance framework in Florida in hopes of curbing what many see as long-standing abuses of bad faith law that have negatively impacted the insurance marketplace within the state. The changes will likely affect policyholders’ ability to bring a bad faith claim against an insurer and reduce the damages they may recover in litigation. Although there will almost certainly be litigation challenging these changes and creative lawyering seeking ways to minimize the impact of the new requirements, it appears these changes are finally beginning to level the playing field between insurers and policyholders in Florida.