(Article from Insurance Law Alert, June 2026)
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Holding
A Florida appellate court held that a judgment in an insured’s favor in an underlying property insurance breach of contract action does not preclude an insured from pursuing a subsequent first-party bad faith action seeking extra-contractual damages allegedly resulting from insurer’s claims handling. Healthy Food Experts, LLC v. AmGUARD Ins. Co., No. 4D2025-0181, 2026 Fla. App. LEXIS 4456 (Fla. Dist. Ct. App. June 10, 2026).
Background
AmGUARD issued a commercial insurance policy to a restaurant that included coverage for business personal property (up to $30,000), business income (up to $1,000,000), and food spoilage (up to $10,000). According to the insured, after the restaurant’s ceiling collapsed and the fire department deemed the premises unsafe, the insurer hired an engineer who concluded that the collapse resulted from a “sudden and accidental occurrence,” and its field adjuster estimated recoverable losses of $60,000. The insured further alleged that the insurer denied coverage for business personal property and business income losses, paying only for food spoilage, and did not disclose the engineer’s or the field adjuster’s conclusions to the insured.
The insured sued the insurer for breach of contract. Following a 2022 trial, the jury found that defective construction and hidden decay had caused the collapse and awarded the insured $31,330 in damages. While the insurer’s appeal of that judgment was pending, the insured filed a civil remedy notice (“CRN”) alleging that the insurer had wrongfully denied the claim and concealed information supporting coverage. The insurer did not pay the amount demanded in the CRN during the statutory sixty-day cure period. After the judgment was affirmed on appeal, the insurer paid the judgment in full.
In 2023, the insured commenced a first-party bad faith action seeking extra-contractual damages. The insurer moved to dismiss, arguing that, under Fridman v. Safeco Insurance Co. of Illinois, 185 So. 3d 1214 (Fla. 2016), the breach of contract judgment fixed the insured’s damages, and that the insured could not maintain a bad faith claim because the judgment did not exceed policy limits. The trial court agreed and dismissed the complaint.
Decision
The appellate court reversed, concluding that the trial court misapplied Fridman. The court explained that Fridman arose in the uninsured/underinsured motorist (“UM/UIM”) context, where Florida law permits an insured to recover the full extent of his or her damages, including damages exceeding policy limits, in a subsequent bad faith action. In that setting, a determination of the insured’s damages in the underlying action is binding in the later bad faith proceeding to avoid relitigating of the same issue. According to the court, those principles do not apply in the same manner to first-party property insurance claims. Unlike UM/UIM claims, first party property bad faith actions do not provide a mechanism for recovering actual property damages in excess of policy limits. Rather, the insured may seek extra-contractual damages, resulting from the insurer’s alleged bad faith conduct, including damages that are the “natural, proximate, probable, or direct consequence of the insurer’s bad faith.”
The Court emphasized that such extra-contractual damages are distinct from contractual policy benefits at issue in breach of contract action and could not have been litigated in that proceeding. The court further noted that evidence related to claims handling and allegations of bad faith generally are not admissible in a coverage trial, reinforcing the conclusion that those issues were neither litigated nor resolved by the underlying judgment.
Comments
The decision narrows insurers’ ability to rely on Fridman to argue that an underlying coverage judgment fixes the damages recoverable in a subsequent first-party bad faith action. The court distinguished the UM/UIM context addressed in Fridman and held that an insured may pursue extra-contractual damages that could not have been recovered in the underlying coverage action. At the same time, the opinion does not address the scope of recoverable extra-contractual damages or the causation required to recover them. Rather, insurers are likely to argue that any claimed extra-contractual damages must be separate from the policy benefits awarded in the coverage action and must have been caused by the insurer’s alleged bad faith claims handling.
Comments
The decision narrows insurers’ ability to rely on Fridman to argue that an underlying coverage judgment fixes the damages recoverable in a subsequent first-party bad faith action. The court distinguished the UM/UIM context addressed in Fridman and held that an insured may pursue extra-contractual damages that could not have been recovered in the underlying coverage action. At the same time, the opinion does not address the scope of recoverable extra-contractual damages or the causation required to recover them. Rather, insurers are likely to argue that any claimed extra-contractual damages must be separate from the policy benefits awarded in the coverage action and must have been caused by the insurer’s alleged bad faith claims handling.