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Appraisal Award Sufficient to Bring a Bad Faith Action

Blogs, Insurance Coverage

Florida’s Fourth District Court of Appeals recently held an appraisal award constitutes a “favorable resolution” for purposes of filing a bad-faith lawsuit against an insurer. Trafalgar at Greenacres v. Zurich American Ins. Co., No. 4D11-1376, (Fla. Dist. Ct. App. Sept. 5, 2012).

In 2005, policyholder Trafalgar at Greenacres (“Trafalgar”), sustained property damage to its shopping center and submitted a claim to its insurer, Zurich American Insurance (“Zurich”). Zurich made an initial payment of $468,381.30 and then followed with a second payment of $112,475.10. After receiving the two payments, Trafalgar provided a sworn statement claiming a loss of $1,826,938.54 in total damages and filed suit, alleging Zurich breached its contract by failing to pay all proceeds due. Zurich completed its investigation, made a payment, bringing the total payments to $641,730.32, and invoked the appraisal provision of the insurance contract. 

An appraisal award was entered in favor of Trafalgar for $1,504,663.10, Zurich paid the appraisal award and moved for summary judgment on the breach of contract claim. The trial court granted summary judgment in favor of Zurich but allowed Trafalgar to amend its complaint to state a cause of action for statutory bad faith. Zurich subsequently moved for summary judgment on the bad faith claim, stating the statutory bad faith action was barred because, having lost on summary judgment, Trafalgar had failed to obtain a “favorable resolution” of the underlying breach of contract claim. The trial court agreed. 

On appeal, the Florida Court of Appeal reversed the lower court, finding under Florida law, to sustain a cause of action for statutory bad faith, all one needs to show is “a resolution of some kind in favor of the insured.” In this case, the court stated, through compliance with the appraisal process Zurich had waived any defense to coverage and the appraisal award had resulted in a final determination of the loss amount. In conclusion, the court held, under Florida law an arbitration award establishing the validity of an insured’s claim satisfies the condition precedent required to bring a bad faith action.