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Florida Enacts Comprehensive Tort Reform, Revamping Framework of Extra-Contractual Bad Faith

Fort Lauderdale, Fla. (April 25, 2023) – On March 24, 2023, Florida Governor Ron DeSantis signed a sweeping tort reform bill, CS/CS/HB 837 (HB 837), into law. Among its numerous implications, HB 837 amends Florida Statute §624.155 (the Civil Remedy Statute), heightening the insured’s burden for recovery of extracontractual, i.e. “bad faith,” damages under Florida law.

Preceding Legislation

HB 837 is the second piece of legislation that was passed in the last three months addressing an insured’s right to recover bad faith damages. Prior to HB 837’s enactment, on December 16, 2022, Governor DeSantis signed into law S.B. 2-A, which created Florida Statute Section 624.1551 (“Civil Remedy Actions Against Property Insurers”). This statute prohibits recovery of bad faith damages absent an adverse adjudication that the insurer breached the policy and a final judgment against the insurer. Section 624.1551 also clarifies that acceptance of an offer of judgment or an appraisal award does not constitute an adverse adjudication and does not, on its own, give rise to a cause of action for extracontractual damages.

Critical Provisions and Implications of HB 837

Foremost, HB 837 eradicates the “bad-faith setup” that frequently arises in the context of liability claims where a time limit demand is made against a policy or policies with low or insufficient limits. Under the Civil Remedy Statute’s newly-created subsection (4), there can be no common law or statutory bad faith action against a liability insurer that tenders the lesser of either (i) the policy limits or (ii) the amount demanded within 90 days after receiving actual notice of a claim accompanied by sufficient evidence to support the amount of the claim. Subsection (4) further provides that an insurer’s failure to tender that amount is not evidence of bad faith and is inadmissible as evidence in any subsequent bad faith action. See Fla. Stat. §624.155(4)(a), (b).

Additionally, HB 837 establishes a procedure for insurers to follow where two or more parties have competing claims against an insured arising out of a single occurrence, which, in total, may exceed the available policy limits. Specifically, the Civil Remedy Statute’s subsection (6), as amended by HB 837, insulates insurers from liability beyond the available policy limits if, within 90 days after receiving notice of the competing claims, the insurer does either of the following:

(1) files an interpleader action under the Florida Rules of Civil Procedure; or

(2) makes the entire amount of the policy limits available for payment to the competing claimants pursuant to a binding arbitration by a qualified arbitrator (both of which have been agreed to by the insurer and third-party claimants) at the expense of the insurer.

See Fla. Stat. §624.155(6)(a), (b). 

If the insurer files an interpleader action and the claims of competing third-party claimants are found to be in excess of an insurer’s policy limits, they will be entitled to a prorated share of the policy limits determined by the trier of fact. If the insurer makes the entire amount available, the third-party claimants are then entitled to a prorated share of the policy limits as determined by the arbitrator, who must consider things like comparative fault, if any, of the third-party claimants, as well as the total likely outcome at trial based upon the total damages submitted to the arbitrator for consideration.

HB 837 also elevates the baseline of bad faith conduct by the insurer and imposes affirmative obligations on insureds and claimants seeking to recover bad faith damages. The Civil Remedy Statute’s subsection (5), as amended, clarifies that “[m]ere negligence alone is insufficient to constitute bad faith.” See Fla. Stat. §624.155(5)(a). Subsection (5) also obligates insureds, claimants, and their representatives to act in good faith in (a) providing information regarding the claim, (b) making demands of the insurer, (c) setting deadlines, and (d) attempting to settle the claim. Failure to do so could result in a reduction of the amount of damages awarded against an insurer in a bad faith action. See Fla. Stat. §624.155(5) (b).

What to Expect

The revisions to the Civil Remedy Statute, as codified by HB 837, impose a number of significant impediments on the insured and third-party claimants’ recovery of bad faith damages against insurers. The law revamps the bad faith framework in Florida in several ways by (1) clarifying that the insurer’s negligence alone does not demonstrate bad faith, (2) requiring claimants and insureds to act in good faith when furnishing information and attempting to settle the insurance claim, and (3) equipping insurers with a straightforward method of responding to competing claims that exceed available policy limits.

For more information on this law, contact the authors of this alert. Visit our Insurance Coverage and Bad Faith Litigation Practice pages to learn more about our capabilities in these areas.

Authors:

Bradley S. Fischer, Partner

Samantha S. Rhayem, Partner

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