A few weeks ago, we reported on the Florida appellate court’s decision in Trafalgar At Greenacres, LTD v. Zurich American Ins. Co., No. 4D11-1376 (Fla. 4th DCA, Sept. 5, 2012), in which the court permitted a policyholder to sue its property insurer for bad faith even though the trial court had ruled that the insurer satisfied its obligations under the policy by promptly paying an appraisal award. At the end of our blog entry on Trafalgar At Greenacres, we cautioned that “if [the court’s decision] does become final, it will be binding precedent only in the Fourth District Court of Appeal, and not throughout Florida.” When we authored that post, we were unaware that fewer than three weeks before the Fourth DCA issued its opinion in Trafalgar At Greenacres, a different panel of appellate judges of the same court reached a contrary conclusion on the same issue. In Lime Bay Condominium, Inc. v. State Farm Florida Ins. Co., 2012 Fla. App. LEXIS 13563 (Fla. 4th DCA, Aug. 15, 2012), the Fourth DCA affirmed the trial court’s dismissal of a bad faith claim that was filed after an appraisal award had been issued in favor of the insured, but before the insured obtained a judgment against State Farm on its breach of contract claim.

In October 2005, buildings at the Lime Bay Condominium were damaged by Hurricane Wilma. The condominium submitted a claim to State Farm, which valued the loss at $281,731 and paid the condominium only $6,940 after applying the windstorm deductible. Naturally, the condominium disputed State Farm’s valuation of the damage, claiming it would cost $1.4 million to complete the necessary roof and other repairs. Lime Bay Condo., 2012 Fla. App. LEXIS at *1. In February 2007, the condominium filed a Civil Remedy Notice of Insurer Violation in which it alleged that State Farm had underpaid its claim and committed numerous other violations of the Florida bad faith statute, Fla. Stat. § 624.155. In March 2007, the condominium sued State Farm for breach of contract in the Circuit Court of Broward County. In the meantime, the condominium and State Farm agreed to submit their dispute to appraisal and abate the lawsuit. Two years later, the appraisers entered an award of just over $1 million. Having secured this award, the condominium filed a separate lawsuit asserting a statutory bad faith claim. Id.

After paying the appraisal award, State Farm moved to dismiss the bad faith action, “arguing that there had not been a final determination of liability and maintaining that it intended to dispute liability in the breach of contract case.” Id. The Circuit Court agreed and granted State Farm’s motion to dismiss. The Fourth DCA began its analysis with the following quote:

When a plaintiff does not and cannot allege that there has been a final determination of both the insurer’s liability and the amount of damages owed by the insurer, the plaintiff’s bad faith claim is premature and should be either dismissed without prejudice or abated.

Id. (Citation omitted). Based on this principle, the Court found that the condominium did not and could not allege that there had been a final determination of State Farm’s liability for breach of the insurance contract because the contract action was still pending. Id. at *2. The Court ruled that before a bad faith claim could proceed, the trial court in the contract action had to resolve the issue of whether State Farm breached the policy “as well as the significance, if any, of the appraisal award.” Id.

The Fourth DCA’s conflicting opinions in Lime Bay and Trafalgar At Greenacres are difficult to reconcile. Both cases involved, (1) a dispute over the value of property damage; (2) an agreement to submit the dispute to appraisal; (3) an appraisal award that was substantially higher than the payment previously made by the insurer; and (4) a bad faith cause of action based on the insurer’s alleged underpayment of the insurance claim. In Lime Bay, Justices Stevenson, Hazouri and Gerber of the Fourth DCA concluded that the appraisal award was neither a “final determination” of the insurer’s liability nor a “favorable resolution” of the underlying claim, and ruled that only a judgment in favor of the condominium in the breach of contract action would resolve the insurer’s liability. For reasons that escape us, the panel that decided Trafalgar At Greenacres–Justices Bloom, Polen and Gross—made no attempt to distinguish Lime Bay and, in fact, did not even mention it. Nevertheless, they reached a polar opposite conclusion: that an appraisal award constitutes a favorable resolution of the insurer’s liability under the policy, irrespective of how the breach of contract lawsuit turns out.

In the wake of Lime Bay and Trafalgar At Greenacres, it seems unclear even in the Fourth DCA whether an insured may pursue a statutory bad faith claim without first obtaining a judgment or arbitration award against the insurer for breach of the insurance contract. We will be on the lookout for future decisions on this issue from other Florida appellate courts. If a conflict develops among the District Courts of Appeal, perhaps the Florida Supreme Court will one day step in to provide the answer.