An in-depth look at changes impacting insurers arising from Florida's new tort reform act

On March 24, 2023, Florida passed a sweeping tort reform bill into law, making major changes to civil litigation in the state. In anticipation of the Governor signing the bill into law, the number of new cases initiated throughout the state in March 2023 was 280,122. Of that amount, 71,000 came from Miami-Dade County (Miami) and 53,000 from Hillsborough County (Tampa). These numbers are staggering.  

This article focuses on the substantial impact some of the changes will have on the handling and administration of insurance claims, including important reforms to attorneys’ fees and Florida’s bad faith law. There are a number of significant changes set forth in the Act, which are discussed below.

Attorneys’ Fees in Coverage Litigation

As part of the new law, the Legislature repealed Sections 627.428 (applicable to admitted carriers) and 626.9373 (applicable to surplus lines), which had provided one-way rights to recovery of attorneys’ fees by a prevailing insured in coverage litigation against a carrier. In 2022, the state eliminated the right to recover fees in suits arising under residential or commercial property insurance policies, and this follows that trend to substantially curtail the right to fees for all lines of business.

The new statute does not eliminate the right to fees entirely, however.  While it repeals the prior statutes, the bill creates a new provision, Section 86.121, which will permit a prevailing insured to recover fees against the insurer only in limited circumstances after filing an action for declaratory relief in state or federal court. To qualify, the declaratory action can only be brought if there has been a “total coverage denial” on the claim.  

While the meaning of “total denial of coverage” is likely to be the subject of future litigation, a defense pursuant to a reservation of rights does not constitute a “coverage denial” under the statute. The fees recoverable under this new section are limited to those incurred in the action to determine the existence of insurance coverage. Finally, the prior changes from 2022 are maintained, as the new Section 86.121 does not apply to any action arising under a residential or commercial property insurance policy.

Interestingly, the new statute allows either party to select the summary procedure set forth under Section 51.011 of the Florida Statutes for declaratory actions following a total coverage denial. That procedure requires a defendant to answer within 5 days of receiving service and allows non-jury trials to occur immediately thereafter. It also precludes the parties from conducting discovery other than depositions without court permission. In light of this statutory provision, insurers should be cognizant of such expedited deadlines and prepared to swiftly retain counsel to prevent a default. On the other hand, this procedure could serve as a useful tool for carriers to quickly resolve various disputed claims for coverage.

The bill also clarifies that Florida’s Offer of Judgment statute, Section 768.79, applies to “any civil action involving an insurance contract.” While Section 768.79 was previously available to parties in breach of contract actions and declaratory judgment actions that essentially sought entitlement to money damages, it was not available in every insurance dispute.  While the scope of this change is not yet clear, it may open the possibility for insurers to utilize Section 768.79 in more lawsuits.  Proposals for settlement are also likely be utilized more frequently by policyholders in light of the elimination of one-way fees in many cases.

Finally, the bill reverses the Florida Supreme Court’s decision in Joyce v. Federated Nat’l Ins. Co., 228 So. 2d 1122 (Fla. 2017), which had held that contingency fee multipliers did not require “rare and exceptional circumstances,” opening the door to multiplied fee awards in all coverage (and other) actions.  The new statute creates a presumption that a non-multiplied fee is sufficient, which can only be overcome in a rare and exceptional circumstances, and only if the insured demonstrates they could not have otherwise obtained competent counsel.

90-Day Safe Harbor from Third-Party Bad Faith

The bill also enacts several significant changes to Florida’s bad-faith statute, Section 624.155. Notably, the new law provides that an action for common law or statutory third-party bad faith may not lie if the insurer tenders the lesser of the policy limits or the amount demanded by the claimant within 90 days after “receiving actual notice of a claim which is accompanied by sufficient evidence to support the amount of the claim.”  If the insurer chooses not to tender that amount within the 90-day period, then the applicable statute of limitations on the bad faith claim is extended by 90 days, and the 90-day period is not admissible in evidence in any subsequent bad faith action. 

This new provision will allow insurers a reasonable time to investigate the claim and any coverage issues, and an opportunity to protect their insureds from excess exposure and themselves from any potential bad faith action.  In providing a 90-day safe harbor, the statute effectively rolls back a recent trend in Florida following the decision in Harvey v. GEICO Gen. Ins. Co., 259 So. 3d 1 (Fla. 2018), to allow nearly all bad faith cases to proceed to a jury determination, regardless of how quickly the insurer tendered its limits.   

Many of these decisions involved Florida’s Powell doctrine, under which an insurer has an affirmative duty to initiate settlement negotiations where liability is clear and injuries so serious that a judgment in excess of the policy limits is likely, even in the absence of a demand. See Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12 (Fla. 3d DCA 1991).  The new law does not completely abrogate this doctrine, but the  application of Powell will certainly change with the new statute.  This change will also allow insurance companies additional time to review and evaluate non-Powell claims without any artificial time crunch imposed by early time-limited policy limit demands. It may reduce the incentive for plaintiffs’ attorneys to issue demands with unreasonable time restrictions and insufficient information to allow a fair evaluation of the claim.  

We can anticipate that there will be considerable litigation as to what constitutes “receiving actual notice of a claim” and “sufficient evidence to support the amount of the claim” to trigger the start of the safe harbor.

Codifying Bad Faith Standard and Comparative Bad Faith

Under the new law, there are also substantive changes to the standard for evaluating good faith actions of first- and third-party insurers.

The new law first codifies Florida case law by explicitly stating that mere negligence alone on behalf of the insurer is insufficient to constitute bad faith. While Florida caselaw in third-party common law bad faith matters had long held this was the case, e.g., Berges v. Infinity Ins. Co., 896 So. 2d 665 (Fla. 2005), it did not appear in the standard jury instructions.  The statute extends this concept to all bad faith claims, including first-party matters.

Second, the statute makes a welcome change to Florida law by providing that the insured, claimant, and their representatives also have a duty to act in good faith in furnishing information regarding the claim, making demands of the insurer, setting deadlines, and attempting to settle the claim. While there is no cause of action for breach of this duty, the jury in a bad faith case may consider the comparative bad faith of the insured, claimant, and/or their representatives to reduce the amount of damages awarded against the insurer.

Previously, courts had held that the “focus” of a bad faith claim was not dependent upon the actions of the insured, claimant, and their representatives. These actions were not relevant to the determination of bad faith against the insurer under the “totality of the circumstances” standard employed by Florida courts in bad faith claims. But, on rare occasions, the “totality of the circumstances” standard permitted the court to “factor” into the equation the conduct of the claimant and his/her representative as part of the “totality of the circumstances” despite the absence of a statutorily defined defense of comparative bad faith. E.g., Pelaez v. Gov’t Emps. Ins. Co., 13 F.4th 1243, 1254 (11th Cir. 2021). The statutory change now requires the insured, claimant and their representative to act in “good faith” and abrogates those prior holdings which precluded consideration of their conduct. The statute also formally broadens the “focus” of the “factors” which the jury may consider to understand the true “totality of the circumstances” surrounding the claim.

Insurers are undoubtedly familiar with tactics employed by some claimants’ counsel in attempts to open the policy to receive more coverage than the insured bargained for. These include arbitrary and unreasonable time periods for a response, seizing upon technical issues or delays to assert that the insurer rejected the offer, failing to provide sufficient evidence to evaluate the claim, and placing insurmountable obstacles before the insurer to settle the case.  The new ability of the insurer to have the jury consider the claimant’s, insured’s, or public adjuster’s actions as a reason settlement was not achieved should help level the playing field and reduce attempts to manufacture a bad faith claim where no bad faith exists.

Good Faith Options to Address Multiple Claims Arising Out of Single Occurrence

Finally, the Act provides insurers with new methods of avoiding bad faith in the context of multiple third-party claims against one or more insureds arising out of a single incident, where the value of the claims may exceed the policy limits.

Prior to the statutory change, this scenario was governed by the decisions in Farinas v. Fla. Farm Bureau Gen. Ins. Co., 850 So. 2d 555 (Fla. 4th DCA 2003) and Contreras v. U.S. Sec. Ins. Co., 927 So. 2d 16 (Fla. 4th DCA 2006).  Those cases generally prescribed that the insurer should fully investigate all claims, offer to globally settle all claims against all insureds for the policy limits and assist the claimants in allocation. If it was not feasible to resolve the entire exposure, the insurer was required to seek to settle as much exposure as possible within the policy limits, all while keeping the insureds informed of the progress of settlement negotiations.  The insurer’s goal under this approach was to “minimize the magnitude of possible excess judgments against the insured by reasoned claim settlement.”  Unlike some other states, Florida did not permit a liability insurer to interplead its policy limits in these situations.

The new statute changes Florida law to give insurers the ability to interplead or offer binding arbitration.  Now, if within 90 days of receiving notice of the competing claims the insurer files an interpleader action in state court or obtains the claimants’ agreement to conduct binding arbitration to allocate the policy limits, the insurer will avoid extracontractual liability. 

Under the interpleader option, if the court found interpleader appropriate, the insurer would deposit the limits in the court registry and be dismissed from the case, allowing the claimants to litigate the relative value of the claims.  The statute provides that interpleader does not alter the duty to defend, which could lead to interpleader actions being stayed while lawsuits against the insured continue.  We expect issues may arise when applicable policy limits are disputed (e.g., insured and insurer disagree on application of a sublimit), the claim values are disputed (e.g., an excess or umbrella carrier does not believe the claims will exceed the primary limits), or the policy limits are being eroded by defense costs.

The binding arbitration option requires the claimants’ agreement because, unlike interpleader, proceeding with arbitration requires that the claimants provide a general release in favor of the insureds.  In exchange, however, the insurer agrees to pay the cost of the arbitrator and the full policy limits to resolve the claims, whereas interpleader could result in a refund to the insurer if the claims are determined not to be in excess of the limits.  Arbitration is, therefore, likely to be a more attractive option when there are eroding policy limits, insureds without assets to satisfy an excess judgment, and/or significant questions regarding the insured’s liability.

These new tools should may provide insurers with more efficient options to protect against extracontractual liability when there are competing claims for limited insurance proceeds and discourage unnecessary litigation and bad faith claims.

Applicability of Statutory Changes

The new fee statute for certain declaratory judgment actions applies to all “insurance issued under the Florida Insurance Code,” which likely encompasses both admitted and surplus lines insurers.  The changes to proposals for settlement and fee multipliers apply to all Florida lawsuits. 

The remaining changes discussed above are implemented under Florida’s bad faith statute, Section 624.155.   Under Florida choice-of-law rules, the statutory safe harbor, comparative bad faith defense, and interpleader or arbitration options should be available to all insurers responding to a Florida claim or defending a Florida lawsuit, regardless of whether the policy was issued inside or outside of the state.

The new law provides that the changes generally apply to causes of action filed after March 24, 2023, but to the extent the law “affects a right under an insurance contract,” it will only apply in relation to policies issued or renewed after March 24, 2023.  In the specific context of bad faith, we anticipate some litigation as to whether the Act’s amendments and new options for insurers apply to cases involving policies issued before the statutory change, where claims are asserted or bad faith suits are filed after the statute took effect.