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(Article from Insurance Law Alert, October 2016)

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The Florida Supreme Court ruled that an insured is entitled to attorneys’ fees under state statutory law when an insurer incorrectly denies benefits and a subsequent judgment or its equivalent is issued in the insured’s favor and that bad faith is not required.  Johnson v. Omega Ins. Co., 2016 WL 5477795 (Fla. Sept. 29, 2016).

A homeowner sought coverage from Omega for sinkhole-related damage.  Omega initially denied the claim based on an expert’s report, but subsequently agreed to provide coverage after receiving a report issued by a second expert.  The homeowner thereafter sought attorneys’ fees under Fla. Stat. § 627.428, which allows an insured to recover fees incurred as a result of prevailing on a claim for insurance benefits.  Omega argued that a showing of wrongful conduct or bad faith was a prerequisite to an award of fees under the statute.  A Florida trial court disagreed and ruled in the homeowners’ favor.  An appellate court reversed, ruling that the statute required some type of bad faith conduct on the part of the insurance company.  The Florida Supreme Court reversed.

Addressing a preliminary matter, the Florida Supreme Court held that an insurer’s payment of a settlement or a previously-denied claim constitutes the functional equivalent of a confession of judgment for purposes of the attorneys’ fees statute.  The court further held that bad faith or “wrongfulness” is not relevant to recovery under the statute.  Rather, the existence of a dispute between the insurer and policyholder, coupled with payment to or a favorable judgment for the policyholder, suffices to satisfy the statute because a wrongful denial “means an incorrect denial, not one made in bad faith.”  The court rejected Omega’s argument that an award of attorneys’ fees was unwarranted because it complied with the investigation procedures set forth in Florida’s sinkhole statute before denying coverage.