Across the country we have seen attempts by insureds to bring a private right of action based on a breach of the implied warranty of good faith and fair dealing with regard to insurance policies. Most recently, this issue came before the Florida Supreme Court, which determined that no such private right of action exists in Florida.

A substantial jury verdict for Hurricane Wilma damage was rendered on behalf of a condo association in Chalfonte Condo. Apt. Ass’n, Inc. v. QBE Ins. Corp., 2007 U.S. Dist. LEXIS 97507 (S.D. Fla. Dec. 18, 2007). The verdict included damages for breach of implied warranty of good faith and fair dealing for delays in claims handling. On appeal, the Eleventh Circuit certified five questions to the Florida Supreme Court:

  1. Does Florida recognize a claim for breach of implied warranty of good faith and fair dealing in a first party claim, separate from a claim for statutory bad faith;
  2. If such a claim for breach of implied warranty is recognized as a matter of common law and apart from a claim for statutory bad faith; can such a claim proceed with the coverage action;
  3. May an insured bring a claim for a violation of type size requirements in insurance policy language which require that the hurricane deductible be printed in 18 pt. font and specifically use the term “hurricane” rather than “windstorm”;
  4. Does failure to comply with language and type size requirements established by statute, render a non-compliant hurricane deductible provision void and unenforceable;
  5. Can judgment entered at the trial level, require insurer to pay a verdict, prior to appeal under a contract provision requiring payment “upon entry of judgment,” if the insurer has met all procedural requirements for appeal and posting a bond?

Chalfonte Condo. Apt. Ass’n v. QBE Ins. Corp., 561 F.3d 1267 (11th Cir. 2009). The Florida Supreme Court issued an opinion, QBE Ins. Corp. v. Chalfonte Condo. Apt. Ass’n, 2012 Fla. LEXIS 1063 (Fla. May 31, 2012)1, which responded in the negative to all of the certified questions:

“…the Court answers the first certified question in the negative and concludes that such first-party claims are actually statutory bad-faith claims, which must be brought under section 624.155 of the Florida Statutes. Since we have answered the first certified question in the negative, the second certified question is rendered moot.”

The Florida Supreme Court had previously ruled that in first-party coverage litigation, statutory bad faith claims must be bifurcated from breach of contract claims. Some lower courts had not allowed bifurcation of good faith and fair dealing claims, and thus had required discovery on bad faith issues to occur simultaneously with the breach of contract litigation. This decision appears to clarify that bifurcation is required.

The Florida Supreme Court also held that the violation of language and type size requirements for hurricane deductibles (a requirement that language be capitalized in bold 18 pt. font) does not create a separate cause of action: “…there is nothing in the text of section 627.701(4)(a) from which one could deduce that the Legislature intended an insured to have a private right of action against an insurer for failure to follow the notice requirements.”

. . .

“failure to strictly comply with the notice requirements specified in section 627.401(4)(a)” does not render the “hurricane deductible void and unenforceable.”

Finally, the court held “that a contractual provision mandating payment of benefits upon “entry of final judgment” does not waive the insurer’s procedural right to post a bond pursuant to rule 9.310(b) to stay execution of a money judgment pending resolution of the appeal.”

At least in Florida, this decision makes it clear that an insured cannot bring a private action in based on the implied warranty of good faith and fair dealing in addition to (or instead of) asserting claims under the Florida bad faith statute or as a means of attempting to obtain bad faith-related discovery in the coverage litigation. Courts in other states may look to this decision when considering whether to allow such private rights of action. We continue to monitor this issue nationwide.

Lexis published an article on this case, which can be viewed here.2 

1 Reproduced by Robinson & Cole LLP with the permission of LexisNexis. Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.  All rights reserved.  No copyright is claimed as to any portion of the original work prepared by a government officer or employee as part of that person’s official duties.

2 Reproduced with the permission of the A.M. Best Co.