Despite Lack Of Bad Faith, Property Insurer That Initially Stiffed Homeowner On Sinkhole Damage Claim Before Paying Up Gets Stuck With Latter's Tab For Legal Fees After He Brought Suit To Enforce Insurance Policy
- This decision involved a homeowner who filed a claim under her homeowner's insurance policy for sinkhole damage. The homeowner's insurer, Omega Insurance Company, conducted an investigation and concluded there were no sinkholes on the insured property. Accordingly, Omega denied the claim. The homeowner then filed suit against Omega alleging breach of contract.
In response to the suit, Omega ordered a second evaluation of the property, which revealed sinkhole activity was present on the property, in contradiction to Omega's original investigation. Thereafter, Omega agreed to pay the claim and filed an Answer to the lawsuit admitting that sinkhole damage was covered under the policy and that the insured was entitled to benefits. Thereafter, the Insured filed a motion for confession of judgment and a motion for attorney's fees, costs and interest, contending that Omega's admissions amounted to a confession of judgment.
In response to the Insured's motions, Omega argued the Insured was required to show that it acted wrongfully or in bad faith to be eligible for attorney's fees under the Florida statute. The Insured disagreed, arguing that a finding of bad faith was not required as a prerequisite to an award of attorney's fees under the statute.
At the trial of the matter, the court considered whether the insured homeowner was entitled to attorneys' fees. In holding in favor of the insured homeowner, the trial court reasoned that Omega's agreeing to pay the claim was an admission of liability, effectively a "confession of judgment," and that Fla. Stat. 627.428 required Omega to pay the insured homeowner's attorneys' fee.
The intermediate appellate court reversed, concluding that although Omega was initially mistaken about the presence of sinkholes, it did not act in bad faith in refusing to pay the claim. Thus, the appellate court held the statute did not apply and Omega was not obligated to pay the insured homeowner's attorney's fees.
The Florida Supreme Court agreed with the trial court and overruled the appellate court decision. The Supreme Court noted it was well settled that payment of a previously denied claim following the initiation of an action for recovery, but prior to the issuance of a final judgment, constituted the functional equivalent of a confession of judgment.
Further, considering that the Florida statute clearly provided that attorneys' fees shall be awarded against an insurer when judgment is rendered in favor of an insured, the Supreme Court held the insured homeowner was entitled to recovery of her attorneys' fees.
The Supreme Court held that a bad faith denial of benefits was not a prerequisite for recovering attorneys' fees but rather, the insurer need only incorrectly reject a valid claim under the policy. In closing, the Florida Supreme Court noted: "We cannot, as the court below held and Omega requests here, discourage insureds from seeking to correct the incorrect denials of valid claims by allowing insurers to deny benefits to which insureds are entitled without ramifications."
For the court ruling, see Johnson v. Omega Insurance Company, No. SC14-2124 (Fla. September 29, 2016).