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Liability for Breach of Insurance Contract Not Necessary For Bad Faith Actions to Move Forward, Cammarata v. State Farm Florida Insurance Company, 152 So.3d 606 (2014).

Insurance companies in Florida have a duty under state law to try to settle insurance claims in good faith, which encourages such companies to act honestly towards its insured parties. When they fail to do so, insured homeowners are permitted to bring separate civil actions for bad faith against the insurance company once the questions of liability and damages have been determined. This principle is illustrated in the case below.

In Cammarata v. State Farm Florida Insurance Company, the plaintiffs were Florida homeowners whose home sustained damage stemming from a hurricane. Nearly two years after the event, the homeowners filed a claim with their homeowners’ insurance company, State Farm Florida. A month after filing their homeowners insurance claim, the plaintiffs met with a representative of the insurance company who inspected the damage to the home to provide an estimate. The estimate amounted to be less than the deductible under the insurance policy and, therefore, the insurance company informed the homeowners that it will not be paying out on their claim. Approximately six months later, the plaintiffs asked the insurance company to participate in an appraisal process as provided for by their policy, and the company willingly participated. Both parties hired appraisers. The appraiser for the plaintiffs provided a damage estimate which was higher than the deductible amount and the damage estimate provided by the insurance company was lower than the deductible. The insurance company then requested a state court to appoint a neutral party to settle the parties’ dispute, which the court did. The neutral party appointed by the court found the damage to the home to have a higher value than the deductible and, therefore, the insurance company paid out the claim to the homeowners.

Subsequently, the plaintiffs filed suit against the insurance company claiming that it acted in bad faith. The Florida state court dismissed the action, holding that under Florida law, an insurance company has to be liable for breaching an insurance contract before a court can hold it responsible for a bad faith claim. The plaintiffs appealed.

The Fourth District Court of Appeals heard the appeal. In its decision, the Court held that an insurance company’s liability to provide coverage and the extent of the damages must be determined by a court before an insured party can bring a bad faith action. However, a court does not need to determine an insurance company’s liability for breaching a contract before an insured party can make a claim for bad faith. In this case, the parties entered into a settlement through the appraisal process in which a neutral party decided that the insurance company was liable and the amount of the damages for which they were liable. These are the only two conditions necessary to allow the plaintiffs to bring an action for bad faith. Therefore, the appeals court decided that the trial court wrongly decided that liability for breach of contract must be decided before the plaintiff can bring a suit for bad faith.

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