As discussed in a recent client alert, on March 24, 2023, Florida Governor Ron DeSantis signed House Bill (HB) 837 into law, making it more difficult and costly for insurance policyholders of all sizes to sue insurers for bad faith by eliminating fee-shifting for most policyholders and requiring something “more than” negligence for bad faith claims.

HB 837’s Impact on Insurance Coverage Claims:

HB 837 is another in a series of reform legislation recently passed in Florida that significantly impacts policyholders’ ability to hold their insurers accountable for the wrongful failure to pay benefits due under the insurance contract. Recent efforts include last year’s repeal of the one-way fee-shifting statute for claims brought under residential and commercial property insurance policies. Previously, the fee-shifting statute allowed policyholders to recover attorneys’ fees from their insurers when the policyholder prevailed in a coverage action. HB 837 repeals Section 627.428 of the Florida Statutes entirely, extending the repeal of the one-way fee-shifting statute to all types of insurance coverage disputes—not just those under residential and commercial property insurance policies.

Now, a policyholder can recover attorneys’ fees only if it files a declaratory judgment action against the insurer when the insurer issues a “total coverage denial.” Note, however, that this does not apply to “any action arising under a residential or commercial property insurance policy.” The statute leaves open questions about what constitutes a “total coverage denial,” but the bill explicitly states that a liability insurer’s defense under a reservation of rights is insufficient to constitute a “total coverage denial” to trigger the potential for a fee award. As a result, policyholders are now forced to litigate coverage actions at their own expense, even where the insurer unreasonably denies coverage and thus necessitates the filing of the coverage action against it.

HB 837’s Impact on Insurance Bad Faith Claims:

The bill also alters Florida’s bad faith statute and common law bad faith actions. The statute provides that in both statutory and common law bad faith actions, “mere negligence alone is insufficient to constitute bad faith” and imposes a “good faith” standard on policyholders. Juries now may consider the policyholder’s conduct “in furnishing information regarding the claim, in making demands of the insurer, in settling deadlines, and in attempting to settle the claim” in order to “reasonably reduce the amount of damages awarded against the insurer.”

Further changes to Florida’s common law and statutory bad faith causes of action include:

• Policyholders cannot bring a common law or statutory bad faith claim against insurers where the insurer tenders the lesser of (1) the policy limits or (2) the amount demanded by the policyholder within 90 days after receiving both actual notice of a claim and sufficient evidence to support the demanded amount of the claim. The insurer’s failure to tender the lesser of the policy limits or the amount demanded is inadmissible in any bad faith action against the insurer. Notably, however, the insurer’s failure to tender within 90 days does add an additional 90 days to any applicable statute of limitations.

• In cases involving multiple competing claims against insureds, an insurer can also avoid bad faith exposure by (a) filing an interpleader action to determine the claimants’ prorated share of the policy limits or (b) entering into a binding arbitration “agreed to by the insurer and the third-party claimants” where a “qualified arbitrator” determines the claimants’ prorated share of the policy limits. This change raises ethical and due process concerns because the insurer chooses and pays for the arbitrator.

Florida policyholders should consult with and retain experienced coverage counsel to review policies and advise on strategy for the litigation of coverage and bad faith claims in light of these statutory changes. Hunton’s insurance coverage team has 28 full-time insurance coverage lawyers with nine licensed in Florida.